Category: Consumer Protection Law


Swindling/Selling, Bribing/Contributing, Extorting/Taxing

At the recent Security and Human Behavior conference, I got into a conversation that highlighted perhaps my favorite legal book ever, Arthur Leff’s “Swindling and Selling.”  Although it is out of print, one measure of its wonderfulness is that used copies sell now for $125.  Then, in my class this week on The Ethics of Washington Lawyering (yes, it’s a fun title), I realized that a key insight from Leff’s book applies to two other areas – what is allowed in campaign finance and what counts as extortion in political office.

Swindling/selling.  The insight I always remember from Leff is to look at the definition of swindling: “Alice sells something to Bob that Bob thinks has value.”  Here is the definition of selling: “Alice sells something to Bob that Bob thinks has value.”  See?  The exchange is identical – Bob hands Alice money.  The difference is sociological (what society values) and economic (can Bob resell the item).  But the structure of the transaction is the same.

Bribing/contributing.  So here is a bribe: “Alice gives Senator Bob $10,000 and Bob later does things that benefit Alice, such as a tax break.”  Here is a campaign contribution: “Alice gives Senator Bob $10,000 and Bob later does things that benefit Alice, such as a tax break.”  Again, the structure of the transaction is identical.  There are two likely differences: (1) to prove the bribe, the prosecutor has to show that Bob did the later action because of the $10,000; and (2) Alice is probably careful enough to give the money to Bob’s campaign, and not to him personally.

 Extorting/taxing.  Here is the classic political extortion: “Alice hires Bob, and Bob has to hand back ten percent of his salary to Alice each year.”  Here is how it works when a federal or state government hires someone: “Alice hires Bob, and Bob has to hand back ten percent of his salary to Alice each year.”  The structure of the transaction is the same – Bob keeps 90% of the salary and gives 10% to Alice.  The difference here?  Like the previous example, the existence of bureaucracy turns the bad thing (bribing or extorting) into the acceptable thing (contributing/taxing).  In the modern government, Alice hires Bob, and Bob sends the payment to the IRS.  The 10% does not go to Alice’s personal use, but the payment on Bob’s side may feel much the same.

For each of these, drawing the legal distinction will be really hard because the structure of the transaction is identical for the lawful thing (selling, contributing, taxing) and for the criminal thing (swindling, bribing, extorting).  Skeptics can see every transaction as the latter, and there is no objective way to prove that the transaction is actually legitimate.

I am wondering, did people know this already?  Are there citations to previous works that explain all of this?  Or, perhaps, is this a simple framework for describing things that sheds some light and merits further discussion?


Epic Fantasy and Plot Plumping

Let the Dragon Ride Again (and Again, and Again, and Again)

Jim Rigney, the real name of Robert Jordan (best-selling author of the high-fantasy Wheel of Time Series), died several years ago. Shortly after he did, one of his friends wrote:

“Subject: Re: Who Should Not Finish WoT for Robert Jordan
From: MikesMadhouse Listmanager <>
Date: Wed, 19 Sep 2007 06:36:49 -0400
To: (Recipients of ‘MikesMadhouse’ suppressed)

From: David Drake

Dear People,

What I said was that when Jim Rigney’s work became a significant part of not only the Tor but the Von Holzbrink bottom line, the plots for individual volumes were decided by very highly placed people in council with the author.

Business was expanded to a complete volume where it might originally have been one of several strands in a volume, and the action in minor theaters (so to speak) was followed when the author might have been willing to elide it.

I further said and will repeat: there were quite a lot of people who sneered at ‘Robert Jordan’ but whose own books wouldn’t have been published without the Wheel of Time to subsidize them. Since the onset of Jim’s (Jim Rigney’s) illness, he hadn’t been able to write–and a lot of those people are not being published any more.

Dave Drake”


Fantasy blogs have been debating whether Drake was telling the truth.  Obviously, if he were, it’d go a long ways to explaining why the quality of the series (which was a precursor to the Game of Thrones, and its rival in quality at least when it started) declined so precipitously.  It’s also quite irritating, and the kind of thing that makes me want to illegally download pirated e-books, or something.

But, it’s worth pointing out that despite the nastiness of this kind of publishing practice, I can’t imagine there is a thing about plot plumping which is legally actionable. That’s so even though 1) these books were extremely expensive; 2) Tor and Rigney allegedly made several million dollars per book in the series in hardcover sales alone; 3) consumers (like me!) would have been misled to think that the book was a substantial attempt to move the series forward, when actually it was just an exercise is cow-milking; 4) the purpose of this cow-milking was to profit Rigney and subsidize other authors in the firm’s booklist.  Or to put it another way, fraud isn’t the same as sharp business practice.



The Memory Hole

On RocketLawyer’s Legally Easy podcast, I talk with Charley Moore and Eva Arevuo about the EU’s proposed “right to be forgotten” and privacy as censorship. I was inspired by Jeff Rosen and Jane Yakowitz‘s critiques of the approach, which actually appears to be a “right to lie effectively.” If you can disappear unflattering – and truthful – information, it lets you deceive others – in other words, you benefit and they are harmed. The EU’s approach is a blunderbuss where a scalpel is needed.

Cross-posted at Info/Law.


The E.U. Data Protection Directive and Robot Chicken

The European Commission released a draft of its revised Data Protection Directive this morning, and Jane Yakowitz has a trenchant critique up at In addition to the sharp legal analysis, her article has both a Star Wars and Robot Chicken reference, which makes it basically the perfect information law piece…


Recommended Reading: The People’s Agents and the Battle to Protect the American Public

My colleague Rena Steinzor and Sidney Shapiro recently published The People’s Agents and the Battle to Protect the American Public: Special Interests, Government, and Threats to Health, Safety, and the Environment (University of Chicago Press).  The book analyzes the performance of five agencies they call the “protector agencies:”  the Consumer Product Safety Commission, Environmental Protection Agency, Food and Drug Administration, National Highway Traffic Safety Administration, and Occupational Safety and Health Administration.  Its findings are grim.  Using case studies, the book shows how the protector agencies are malfunctioning and explores the sources of the trouble.  It attributes the disappointing performance of the agencies to external pressures, including the President’s requirement that agencies engage in cost-benefit analysis before issuing a major rule and other forms of Presidential interference as well as the weakening of the civil service and inadequate funding and staffing of agencies.  The book offers thoughtful solutions that are carefully tailored to the problems that the authors identify.

Richard Pierce reviewed the book in the George Washington Law Review, and he writes that this “excellent book is compulsory reading for anyone who is interested in the performance of regulatory agencies.”  For Pierce, the “book is so well researched and well written that I learned a lot even from the chapters with which I disagree.”  He explains that, for instance, while he continues to believe in agency cost-benefit analysis for major rules, the authors “do such a good job of criticizing the cost-benefit analysis requirement and of documenting its bad effects that I am forced at least to acknowledge the need for major changes in the ways in which agencies and the White House implement” it.  The authors also “provide an accurate and persuasive account of the many adverse effects of the hard look doctrine,” that is, the judicial requirement that an agency must take a hard look at a problem and its potential solutions before issuing a rule, and prescribe a new approach that would be less intrusive and more determinate.  Pierce ends the review with this:

Justice Scalia once said that ‘Administrative law is not for sissies –so you should lean back, clutch the sides of your chairs, and steel yourselves for a pretty dull lecture’  I highly recommend that anyone who is interested in the future of administrative law and government regulation read Steinzor and Shapiro’s important book.  But to paraphrase Justice Scalia, you should not read the Steinzor and Shapiro book in conjunction with this review unless you are prepared to “lean back, clutch the sides of your chairs, and steel yourselves for” a serious encounter with depression.  Oh, and you should make sure there are no sharp objects in the vicinity if you take seriously both the points Steinzor and Shapiro make in their book and the points I make in this review.”


SCOTUS AT&T Opinion Par for Rhetorical Course

Par for the Supreme Court course, its opinion in AT&T Mobility is rich with empty rhetoric about arbitration being a creature of contract while being more explicit than ever that what matters in these cases is the Court’s powerful national policy strongly favoring a particular form of arbitration over other ways to resolve disputes.

In finding preempted California contract law holding unconscionable clauses in consumer adhesion contracts mandating bilateral arbitration, the Court’s 5-4 opinion by Justice Scalia breaks only that little bit of new ground. 

The opinion’s principal notable points are (1) to stress more intensively than ever that a primary purpose of federal arbitration law is to promote bilateral arbitration, to streamline dispute resolution, and celebrate the informality of bilateral arbitration against class arbitration and (2) to elaborate the differences between bilateral and class arbitration that the Court assumed everyone knew in last term’s Stolt-Neilsen opinion.  And the Court continues to say that all of this is a matter of contract!

The Court stresses that its jurisprudence treats the federal arbitration statute as expressing both a liberal federal policy favoring arbitration and that arbitration is a matter of contract. Without showing awareness of the inherent conflict in this paired purpose, and parading its rhetorical feathers, the Court said the upshot is to put arbitration agreements on an equal footing with other contracts, including as to defenses.

The Court could not accept the validity of the California unconscionability defense, however, because it did not advance the national policy. Justice Scalia gave a new definition of that national policy, again combining two ideas that are in conflict while pretending they are in harmony: “to ensure enforcement of arbitration agreements according to their terms, so as to facilitate streamlined proceedings” (emphasis added).

The opinion fights tirelessly but unsuccessfully to prove that it has not made up this new version of the national policy. It struggles strenuously but unsuccessfully to persuade us that there is no conflict between its devotion to arbitration and basic principles of Anglo-American contract law. Read More


Supreme Court Arbitration Rhetoric v. Reality and AT&T

Lawyers keep telling clients that arbitration is a matter of contract, not coercion. That follows Supreme Court rhetoric that’s belied by Supreme Court practice.  The Court’s pending case in AT&T Mobility v. Concepcion gives the Court a final chance to resolve the gap between its talk and action concerning arbitration. 

 I doubt, however, the Court will seize the opportunity.  Instead, the Court likely will continue to tell us that its arbitration jurisprudence is merely applied contract law, while its applications will continue to coerce people into arbitration because the Court has established a national policy favoring arbitration. 

That is the lamentable assessment provided in my new article on the subjectRhetoric versus Reality in Arbitration Jurisprudence: How the Supreme Court Flaunts and Flunks Contracts (and Why Contracts Teachers Need Not Teach the Cases).

As with practicing lawyers, legal scholars have generally ignored this rhetoric-reality gap too, many routinely repeating that arbitration is all about contract (a notable  exception is David Horton).  As a teacher of Contracts for 20 years, I began to hear this rhetoric last summer, beginning with my receipt of a reprint of an Illinois Law Review article by noted arbitration scholar Thomas Stipanowich

In a comprehensive review of the state of arbitration law and practice, the piece criticized editors of Contracts casebooks for paying too little attention to arbitration and especially to how the attention given was often extremely negative. With modest exceptions, including in Ian Ayres’ casebook, Contract law books and courses have not generally treated arbitration much and the treatment often is in the context of illustrating doctrines like unconscionability or lopsided terms not comporting with reasonable expectations of a community. 

I began following pending Supreme Court cases on the subject and scrutinizing those handed down in preceding terms. I found the talk about contracts and contract law intriguing because it made it sound as if arbitration was at the center of contract law and that contract law was at the center of arbitration law. That made it seem irresponsible for me, Contracts casebook editors, and other teachers, to leave arbitration at the margins of the Contracts course or outside it altogether.

Alas, the truth is that contract and contract law have so little to do with what happens in arbitration jurisprudence, particularly compared to Court rhetoric, that it would confuse or mislead students taking Contracts to provide it as an illustration. To that extent, arbitration warrants the glancing treatment in the Contracts course it gets, followed by an optional upper-level course.  

Among the many costs of the Court’s rhetoric-reality gap are those manifest in the AT&T case, on which the Court is now struggling to write an opinion.

Read More

IP vs. Auto Safety

Two items of note on this topic recently. First, the NYT reports on NHTSA’s lazy approach to IP overreach by automakers:

For years, the National Highway Traffic Safety Administration has declined to post on its Web site reports from automakers about problems with their cars and about specialized warranty extensions that could save consumers large sums on repairs. . . . The technical service bulletins . . . provide information on unusual problems with vehicles . . . . Special service campaigns are a form of technical service bulletin that often tell dealers of warranty extensions for particular repairs. “Many manufacturers have asserted that technical service bulletin information is copyrighted and will not waive those copyrights,” [said] an agency spokeswoman . . . . “N.H.T.S.A. has a legal obligation to abide by copyright law.”

NHTSA could easily excerpt the gist of bulletins as fair use. Or it could communicate facts in them without using any of the actual language or diagrams they contain. Anyone who has taken a week of copyright knows about the idea/expression or fact/expression dichotomy. But copyfraud obfuscates this obvious workaround.

Second, ongoing legal battles over Toyota’s sudden acceleration incidents may lead to “security measures typically reserved for classified government secrets:”

The fight centers on access to Toyota’s source code, the software that controls sophisticated engine management and other electronics in its vehicles. Plaintiffs’ attorneys believe the code might contain evidence that could bolster their cases. The Japanese auto maker has been fighting to restrict access to the software, saying it needs to protect what it calls the “crown jewel” of its global enterprise.

Toyota said the attorneys should only be allowed to view parts of the code in a highly secure room, the likes of which is used by members of Congress or in trials against terrorists and spies for viewing classified information.

As I note in the piece, this kind of “qualified transparency” will become more and more common in tech disputes. Debates about “channeling” innovation protection (to patent or trade secret law) will increasingly need to take into account how patent law’s disclosure function could help more people understand potentially dangerous products.


Sprint ETFs Invalidated on Appeal

Earlier this month a California appellate court affirmed a lower court ruling invalidating early termination fees in cell phone service contracts.  The affirmance stressed different reasoning than the lower court (which I discussed here). To the appellate court, Sprint’s ETFs were invalid because it set them without regard for their relation to the company’s actual damages; the trial court rested its ruling in part on how the fees were vastly lower than Sprint’s actual damages.  

In a dozen lawsuits nationwide, champions of cell phone customers argued that ETFs penalize them by trapping them with a single provider. Most of the lawsuits settled before final resolution and few judicial opinions addressed the merits. The Sprint case is an exception.  Both sides agreed that Sprint’s damages would be difficult to determine with reasonable certainty, meeting prong one of the traditional test for the validity of liquidated damages clauses. 

Proponents of liquidated damages clauses, especially in consumer contracts, must show that they made a reasonable endeavor to set them with some relation to actual damages, however difficult they are to fix. Inquiry focuses on both what the party intended and the effects. In Sprint’s case, it couldn’t point to any intention to relate the ETFs to its losses. Rather, the entire ETF program was created and implemented by the company’s marketing department as a way to keep customers. Though Sprint may not have intended to set fees exceeding losses, as it contended, that argument gained it nothing because it showed no intention whatsoever concerning the relationship between the ETFs and its losses.

Read More


Perhaps a Sign of Things to Come

A Federal Reserve staffer suggested this week that the Fed will defer a key consumer decision to the newly-created Consumer Financial Protection Bureau (CFPB). That decision concerns homeowners’ rights of rescission. The rescission right gives a homeowner a certain period of time (in some cases up to three years) to challenge a mortgage on the grounds of misrepresentation or inadequate disclosure and requires the mortgagor to release its lien on the subject property. As you might guess, the rescission remedy has been invoked extensively in the recent economic downturn.

The mortgage industry has been encouraging the Federal Reserve to address the rescission issue with a sense of urgency, perhaps fearing what might happen to the rule after July 21, 2011—the date that authority on such issues is transferred to the CFPB. The Federal Reserve looked poised to make a move, having proposed a rule in September 2010 that would significantly restrict the circumstances under which a homeowner could seek to rescind a mortgage. The comment period for the proposed rule closed on December 23rd, and, despite opposition by consumer groups, many thought the Federal Reserve would continue to pursue the proposal. 

A decision by the Federal Reserve to defer this particular issue to the CFPB would be consistent with the CFPB’s objective to consolidate the oversight and implementation of consumer protection regulations in a single agency. It may not, however, produce a result consistent with the intent of the Federal Reserve’s proposed rule and the desires of many in the mortgage industry. One of the CFPB’s charges is to oversee the mortgage and credit card industries, including the language and substance of consumer disclosures. Given the CFPB’s preemption provisions (which favor enforcing state consumer protection laws), the CFPB’s proposed partnership with state attorneys general and the robo-signing and related concerns swirling around the mortgage industry, I doubt that weakening consumers’ rescission rights is high on the priority list.

I look forward to seeing how this and other pressing consumer issues play out, particularly after July 21st. The CFPB is starting to take shape (see here and here), and it appears that it will hit the ground running. (For interesting Q&A with Elizabeth Warren on the CFPB, see here and here.) In any event, the agency certainly has its work cut out for it.