Author: Jeffrey Lipshaw


Scenes from a Lawyer’s Life

The Arts Section in today’s New York Times highlights the renewed interest in the work of Diego Rivera, exemplified by a series of exhibitions ongoing in New York. The theme is Rivera’s stepping out from behind the overwhelming interest in his third wife, Frida Kahlo. Our family takes a special interest in all things Rivera and Kahlo as a result of a particular historical interlude: their four year stay in Detroit, beginning in 1929, when, at the behest of Edsel B. Ford, Rivera painted his monumental murals on the walls of the Detroit Institute of Arts.

We have hanging in our living room three prints signed by Rivera, part of a collection of ten he gave to my wife’s grandfather, Nathan Milstein, a lawyer in Detroit, who did work for and befriended Rivera and Kahlo. (Family legend has it that Kahlo made a pass at him, but this is unconfirmed.) Nathan was born in 1907, graduated from Detroit Central High School in 1924, and attended the Detroit College of Law (then the Detroit City Law School and now the Michigan State University College of Law) and Wayne University Law School, receiving his LL.B. at age 21 in 1929. Nathan passed away in 2003, having continued to practice until his late eighties, and his seventy-four year tenure as a member of the bar is supposedly one of the longest in Michigan history.

Alene and I spent many hours going through his voluminous files. One truly appreciates the historian’s and the biographer’s art of distilling the story from the data when looking at records like these. The documents are tantalizing. For example, Nathan was a bachelor until 1946, when he married Alene’s grandmother, who was a widow with two children. Before that, he was supporting his mother and sisters. When the war broke out, he tried for years to find a way to serve without being drafted as a private (which in 1941 paid $21 a month, not enough to support the family.) Ultimately he found a job as a civilian flight instructor, but the file of letters and rejections to almost every branch of the military and government agency is about two inches thick. I have framed in my office my personal favorite: the letter signed by John Edgar Hoover advising Nathan he had failed the F.B.I entrance exam, which I had first interpreted as having been on account of Nathan’s being Jewish while taking it.

The Rivera piece inspired me to go back through some of the files this morning (a quiet Christmas task). I realize now it’s entirely likely Hoover objected to Nathan not only because of his ethnicity, but also because he consorted, in the course of his immigration practice, with all sorts of “undesirables,” and espoused public positions to which the F.B.I. director of long memory must have objected.

As to his practice, I’m just now organizing a series of correspondence relating to his representation in late 1932 of one Halvard Lange Bojer, the son of noted Norwegian author, Johan Bojer. The younger Bojer, an engineer who had emigrated to the U.S. in 1928, was working for General Electric in Fort Wayne, Indiana, when he was arrested by the Immigration Service, and transported to the Wayne County Jail in Detroit, on the grounds that he was a member of the Communist Party. Bojer himself described it to a reporter as follows: “They tell me that I’m a Communist. . .It so happens that I’m a member of the Communist Party Opposition, whose headquarters is in New York. Members of that Party, though glad to take Moscow’s advice, refuse to take Moscow’s dictation. There are other differences, such as our belief that the worker’s solution is in the organization of a Labor Party, comprised of Trade Unions, similar to that of England. Also, we disbelieve in Moscow’s theory that existing labor organizations, such as the A.F. of L., should be wrecked for the formation of Communist units.” (The Communist Party (Opposition), or the Communist Party (Majority Group) as it was originally called, was a splinter group from the main Communist Party USA, organized by Jay Lovestone. Lovestone shows up here; he visited Detroit, and met with Nathan and Bojer.)

The American Civil Liberties Union was interested in intervening on Bojer’s behalf. On December 12, 1932, Roger Baldwin, the ACLU Director, wrote to Nathan, urging Bojer to fight deportation as a test case. Baldwin stated: “The issue is far more than personal to him. This is the first case, so far as we are aware, when a member of his particular Communist group has been held for deportation on the ground of membership. It is worth fighting through because it offers a test of the application of the law to other than members of the Communist Party.” Nathan met with Bojer in the Wayne County jail, where Bojer, “a very affable and highly cultured young man,” advised that he had no desire to appeal the deportation, and was willing to return to Norway. He was released pursuant to a bond posted by his friends in Fort Wayne, and joined an “East bound deportation party” on December 29, 1932.

As to Nathan’s political views, here’s an excerpt from his tribute to Judge Arthur C. Denison on the occasion of his retirement from the 6th Circuit Court of Appeals in January, 1932:

Humanizing the enforcement of existing laws relating to admission and deportation of aliens has become a serious problem confronting social leaders throughout the country. In the present delirium of unemployment when a vague terror seizes the nation, this fear is translated into alien hatred. Public discontent must be directed away from the cause of the unrest and to accomplish this, a counter irritant is administered. The ever oppressed alien is again victimized. The term alien becomes synonymous with undesirable. Deportation “drives” and “spectacular raids” then become common occurrences. Wholesale deportation follows as a panacea for what ails the nation. This national hysteria influences the action of public officials and finds expression in more rigid and relentless enforcement of deportation laws. Even the courts are sometimes swept into the whirling cyclone, marring the annals of juridical science with unprecedented decisions. To espouse the cause of the under-privileged requires great courage. Those who bear the courage of their convictions and refuse to be swayed, belong to the school of Holmes and Brandeis. So few do they number that a loss in the ranks is keenly felt by liberty loving citizens.

Just an ordinary kid from an ordinary school in an ordinary city. Whose parents had been aliens.

(Cross-posted at Legal Profession Blog.)

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More Davidoff-Ribstein-Lipshaw on the Cerberus-URI Case

Steve Davidoff over at M&A Law Profs Blog has more on this opinion, about which I posted several days ago, and with Larry Ribstein’s first and second posts, we may have now beaten the three-headed dog of hell to death. But not quite.

I want to address Larry’s suggestion that Chancellor Chandler has issued a warning to lawyers using “notwithstanding” and “subject to” clauses in complex agreements not to do so because they create ambiguities that effectively require the court to go beyond the document to things like the “forthright negotiator” doctrine. That argument depends on the following thought process actually occurring in the mind of a lawyer about to propose a change to an agreement: “Chancellor Chandler in Delaware has suggested that it is inartful drafting to have a syntactical and grammatical correct overriding of a provision where the content of the two provisions is contradictory. Rather than handle the deal-making problem in this way, which is NOT ambiguous, but merely Rube Goldberg-esque (linguistically speaking), I should confront the other side head-on with the issue, recognizing that we may have a purer document. In doing so, I have decided that the risk of this issue being screwed up by a court in the event of litigation weighs more than the risk of doing something to cause the deal not to close (e.g., triggering further discussion of the provision, losing a face-saving way of resolving a disagreement, causing another round of revisions in a time-sensitive environment, etc.)”

It’s an interesting situation where theory, I think, has to give way to practice. My casual empiricism says lawyers make that calculation doing deals all the time, in one form or another, but that the conclusion is almost always to let either difficult construction or even ambiguity stand for fear of wrecking the deal. (That’s the gist of John Coates’ expert report.) If I were to resort to behavioral psychology and economics, I’d suggest that risk aversion accounts for the ex ante choice – between taking the present deal and the risk of either losing the deal or having an adverse outcome in litigation, we select the certainty of doing the deal – and hindsight bias accounts for the ex post analysis.

In my day, I negotiated some of the most arcane and difficult risk splitting provisions possibly in the history of contract drafting – for example, multiple overlapping indemnification buckets for different kinds of risks like environment, patent, product liability, and so on – all on the thesis that getting cash for the business now outweighed the risk that we somehow had either royally screwed up the contract, or that some unknown liability would come crashing down on us in the future. Most deal lawyers never want to look at an agreement once the deal is closed, because as I’ve said, you pays your money and you takes your chances, and just hope to hell that it all works out.

Or as one of the finest deal lawyers I ever knew, my former boss and later colleague at AlliedSignal, Martin Cohen, used to say, when you are selling a business, the best insurance against lawsuits is that the buyer succeeds wildly with it.


The Cerberus Case and Lessons in Law, Society, and Language

Over in the M&A world (that’s mergers and acquisitions for all you non-corporate types), there’s a recent decision from the Delaware Chancery Court, written by Chancellor William Chandler, that is getting a fair bit of play in the blogosphere, including from my friends Larry Ribstein and Steve Davidoff.

One of the reasons I love complex acquisition agreements as the subject of contract theory is that, like life, they are incredibly complex. No mere agreement to buy 100 bushels of wheat in thirty days at X dollars per bushel here! No, the agreements attempt to map a highly contingent future, one in which the environment or the businesses can change, financing may not be available, bet the company lawsuits can be filed, shareholder actions begun, and so on. I’ve argued before that language is often a blunt instrument used to capture the fine lines of an understanding.

I’ve not fully studied the opinion, but it is a fine piece of analysis, even where in very subtle ways I disagree with it. And with all due respect to Larry Ribstein and Steve Davidoff, I think Chancellor Chandler has a better feel for the limitations of law and language. Yes, this could be “sloppy drafting,” but as I alluded in an earlier post, lawyers, for all their pretensions of being at the center of a deal are often flies swarming around the galloping steed that is the deal itself, and the focus on the contract as the source of the problem is merely a fly’s-eye view.

In simple terms, what is the issue? Section 9.10 of the agreement says that the merger target (i.e. the company whose shareholders are going to walk away with cash – let’s call it the seller for ease of reference) has the right to enforce the agreement by injunctive relief for specific performance for a whole bunch of things, including forcing the deal to close. But Section 9.10 says it is “subject to” Section 8.2, which says “notwithstanding” any other provsion in the agreement, the seller’s sole remedy if the buyer walks away is a $100 million termination fee. The buyer walks away, and the issue is simply whether it must close under 9.10 or can walk away for a price of $100 million under 8.2. Got it?

Chancellor Chandler’s opinion says (i) the language is ambiguous on the walk-away right, but (ii) the circumstances of the negotiation make it clear that the seller understood its rights were limited to the $100 million walk-away fee. The crux of the ambiguity (and the source of the “sloppy drafting” criticism) is the fact that one provision (the “left hand”) appears to be taking away what another provision (the “right hand”) is giving. Why would that happen? And, indeed, there was testimony to the effect that it would have been clearer if one of the provisions had been deleted rather than having this “subject to/notwithstanding” trumpery.

I have read the two provisions, and I don’t think they are ambiguous. From the standpoint of the logical construction, the contract is doubly clear that the walk-away right dominates over the injunctive right. This, it seems to me, is as close as we come in the law to a semantical paradox, like the Liar’s Paradox (“this sentence is false”). The problem is that the grammar and syntax are absolute clear, but we rebel against the contradictory content. In short, why is it there? Try this: “Underlying the semantical paradoxes is our naive intuition that ‘paradoxical sentences because they are not ungrammatical, vague, or sortally suspect and encompass no false presuppositions, must yield statements when used.'” (Oren Perez, “Law in the Air: A Prologue to the World of Legal Paradoxes,” in Perez & Teubner, Paradoxes and Inconsistencies in the Law, quoting L. Goldstein, “A Unified Solution to Some Paradoxes,” in Proceedings of the Aristotelian Society.)

Perhaps it is because I have actually been in the shoes of an M&A lawyer trying to craft a linguistic solution, or have been the client of M&A lawyers trying to craft linguistic solutions for me, that I chuckle at the charges of “sloppy drafting” as though lawyers have the absolute power (a reductive, rational, scientific, but unrealistic assumption) to control all outcomes through language. One of my rules of thumb in negotiating language was to change as little as possible to achieve the desired outcome. That’s an art not a science, and Cerberus’ lawyer’s judgment ultimately bore out in this case. Who knows what would have happened if he tried to make the change by deleting rather than trumping?

Moreover, we don’t know what the lawyers were saying to their clients. We do know from the testimony that the seller’s lawyers understood that the walk-away right essentially created a $100 million option. How do we know that the following conversation did not occur in the seller’s executive suite or boardroom – “look, we aren’t going to do much better than this – we will be able to make an argument there’s an ambiguity on the walk-away right, but Cerberus is probably going to win it in the end. On the other hand, the worst thing that happens if we lose is that we get $100 million, and that should be a sufficient litigation war chest if we want to pursue an injunction.”

My point is that the contract, as important as it is, is only a piece of the entire social system that is a complex business acquisition. There can be sloppy drafting, but that’s an easy default.

For those interested, I’ve addressed this previously in two respects: (a) the illusion that there was an original mutual intention of the parties when a contract is later capable of colorable conflicting interpretations (The Bewitchment of Intelligence: Language and Ex Post Illusions of Intention, 78 Temple L. Rev. 99 (2005), and (b) the lawyers’ illusion that a contract is the deal (i.e. the game), when in fact it is just a model of the deal.

UPDATE: Larry Ribstein has an insightful follow-up to my comment here, and Steve Davidoff offers a detailed analysis here.


It’s Not the Size of the Gift, But the Rationalization that Counts

When I was at Tulane last year, I got a call from the Times-Picayune to comment on what has now become this story about the Fifth Circuit’s recommendation that Federal Judge Thomas Porteous be impeached. The issue on which I was asked to comment was the propriety of an alleged $1,000 hunting trip to which the judge was treated by a defendant company in a pending maritime injury case, and which was not disclosed to the plaintiff.

Looking back at my comments, I now recall what seemed so odd about the whole thing.

“Federal judges by and large have the reputations of being absolute paragons of integrity,” said Jeffrey Lipshaw, a visiting professor at Tulane University Law School. “The perception is that they bend over backwards to avoid even the appearance of impropriety.”

Lipshaw said Porteous, who makes $165,200 a year, might have considered the value of the excursions so trifling that they would not be seen as swaying his conduct in court. If the judge thought there was something improper about the trips, Lipshaw said, why would he disclose them on his financial reports, which are submitted to the Judicial Conference and remain public record for five years?

* * *

“It is entirely possible that the gifts in fact did not influence him,” Lipshaw said. “But even if in your own mind you know they did not make any difference, and you are just as likely to rule for or against on the merits, the very reason it smells funny is the reason you should not do it.”

Yes, why take the tiny benefit and then disclose it? Assuming the allegations are borne out, this is not as simple as saying a person is crooked. I see the option backdating issue the same way. You have managed either by frame of reference (model or game?) or by internal advocacy (call it rationalization) to put aside that moral tickle (“hmm, should I take that hunting trip when I have a case pending with the company; gosh, it’s only a $1,000 and I will disclose it on my yearly report?” or “hmm, what’s wrong with creating a document that says the options were granted when they weren’t; I’m just correcting what is a stupid accounting anomaly?”)

David Brooks had an insightful New York Times op-ed on Barack Obama a few days back, and I think piece captures the essence of the theme. Your sense of right and wrong has to predate and transcend the context or the frame. Brooks observed: “Many of the best presidents in U.S. history had their character forged before they entered politics and carried to it a degree of self-possession and tranquillity that was impervious to the Sturm und Drang of White House life.”

You can make an argument for anything, but there’s still that smell test.

(Cross-posted at Legal Profession Blog.)


ECCO Shoes, Transaction Costs, Reputational Norms, the Limits of the Legal System, and Internet Disintermediation

On October 15, 2007, at the recommendation of my wife, I bought a pair of ECCO shoes at what, for me, was an ungodly amount to pay for a pair of shoes. The reason for the investment is that we live in a city now, and I do a lot more walking. (For comparative purposes, I buy all of my shirts from Lands’ End, and my pants are whatever Dockers – pants for the bigger butted man, as my daughter Arielle and Dave Barry say – are on the table at Costco. So buying shoes at a chi-chi store on Newbury Street was an unnatural act.)

About six weeks later, I happened to notice that the heel had worn through. I wear these shoes a fair amount, but it didn’t seem to me that a pair of shoes at this ungodly price should wear through in six weeks. You can’t just take shoes back to the ECCO store, however. You have to order a prepaid bag from customer service, and send the shoes away to an outsourced “warranty service,” which makes a unilateral judgment whether ECCO will do something about the problem. I duly packed them up and send them away.

The warranty service received them yesterday, and the following is now posted online under my repair ticket: “WEAR IS NOT A DEFECT NORMAL WEAR NO DEFECT.”

From time to time, I teach contracts! I think there’s at least a fact issue whether a sole wearing through in six weeks of relatively normal wear on a pair of $190 shoes constitutes a breach of the implied warranty of merchantability under Section 2-314 of the U.C.C. I channeled Ronald Coase a few minutes ago, and he told me that in the absence of transaction costs, clear default rules, and freedom of contract, the initial allocation of legal rights as between ECCO and me would be irrelevant to an efficient outcome. And when I channeled Frank Easterbrook, he referred me to Hill v. Gateway 2000, and told me I was bound by a warranty disclaimer that was available on the ECCO website if I had read the sales slip and clicked my way through to find it before I wore the shoes.

I am not finding either of those results particularly satisfying at this minute. But wait! I also channeled Lisa Bernstein who has studied diamond brokers in New York City, and they don’t rely on formal law. Do a deal, say “mazel v’broche” (luck and blessing), and reputational norms will do the rest. Hmm. I wonder what that means, if anything, in a world of internet information disintermediation. I’m kind of a “you pays your money and you takes your chances” on this kind of stuff anyway. Personally, that’s the last pair of ECCO shoes for me. But you can make your own decision.


Reprise of Son of “Hume v. Kant” Redux Again

Pardon my redundancy, but some debates just aren’t going to go away. Dennis Overbye, the very fine science writer for the New York Times, has an article/essay today that once again poses the essential Kantian-Humean issue – is there a priori knowledge by which we order sensory data (Kant) or is what we presume to know of the universe’s regularities merely a conclusion we reach by induction from all the past regularities (Hume)? Here’s a taste:

Paul Davies, a cosmologist at Arizona State University and author of popular science books. . .asserted in [a New York Times op-ed piece] that science, not unlike religion, rested on faith, not in God but in the idea of an orderly universe. Without that presumption a scientist could not function. His argument provoked an avalanche of blog commentary, articles on and letter to the Times, pointing out that the order we perceive in nature has been explored and tested for more than 2,000 years by observation and examination. That order is precisely the hypothesis that the scientific enterprise is engaged in testing.

I think the latter view (i.e. the Humean view) simply ignores too many unresolvable questions and paradoxes, like whence come scientific hypotheses, and the relationship of the scientific hypothesis to categories, analogies, and metaphors, but I also recognize that you don’t have to engage in meta-thinking about hypotheses to come up with hypotheses. Apropos of this is another quote in the article, this one attributed to Richard Feynman: “Philosophy of science is about as useful to scientists as ornithology is to birds.”

I have been thinking about that quote this morning and trying to decide if philosophy of law or jurisprudence is about as useful to lawyers as ornithology is to birds. Is it a good analogy for either scientists or lawyers? We start with the relationship of the two concepts in the source which are linked by “usefulness”: ornithology is the science concerned with the classification and the properties and vital phenomena of birds; is it ornithology not useful to birds because they are incapable of thinking about ornithology, or because ornithology wouldn’t help them flourish as birds even if they could think about it? I think the former is the primary characteristic of birds, and I am hoping it’s the latter Feynman (if in fact he’s the author) wanted to imply about the primary characteristic of scientists as the target of the analogy.

To flip it around, suppose I said ornithology is about as useful to birds as physiology and anatomy are to human beings. That can’t be right, because physiology and anatomy are important to human beings. And I do think there are ethics of science and ethics of law that are part of meta-reflection about those disciplines, even for pure doers, that go beyond being birdbrained.

I guess my main problem with pure empiricism and pure pragmatism is that they give a great big shrug to the paradoxes and inconsistencies, probably because they are, for many people, too disturbing to consider. And to judge by a number of my family members, who roll their eyes and head for their iPods when I bring up these subjects, they are probably happier for it!


A Quick Primer on the Hearsay Rule for the WSJ Law Blog

The Wall Street Journal Law Blog has a post on the Mitchell Report, and I thought I would do a public service by explaining the hearsay rule in response to this observation: “Well now, the names of 89 baseballers are forever besmirched, courtesy of an extra-judicial investigation which relied on hearsay evidence (e.g., unsworn testimony of clubhouse staffers).” This echoes the objection raised by Rusty Hardin, Roger Clemens’ lawyer, to the effect that the Mitchell Report “threw a skunk in the jury box.”

Federal Rule of Evidence 801(c) defines “hearsay” as follows: “‘Hearsay’ is a statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted.” Let’s put aside for the time being the “trial or hearing” phrase, because the fair question, looking particularly at the allegations regarding Clemens, is whether anything offered up by Brian McNamee (a strength and conditioning coach) was hearsay in the context of giving evidence to Mitchell.

– McNamee’s statement that he personally injected Clemens is not hearsay. The declarant is McNamee. He is describing an act, not a statement.

– McNamee stated that Clemens asked McNamee to inject him. Now Clemens is the declarant. But the statement is not be offered for the truth of an assertion. It is being offered for the fact of the request itself, which would seem to be relevant to the question whether Clemens knowingly used a steroid.

– At some point, according to the report, Clemens told McNamee that the steroids “had a pretty good effect on him.” Again Clemens is the declarant. The statement is not being offered for the truth of the assertion that the steroids did or did not have a good effect. The statement is being offered for the fact of the statement, which is relevant to whether Clemens used the steroids. [UPDATE: Views offered by several commenters below, including Howard Wasserman and Michael Risch, persuade me that this could be hearsay. After reflecting on this for a day or so, I’d agree that Clemens’ alleged statement is asking the listener to add the implicit presupposition that he used the steroids. If you take the implicit requested presupposition as an implicit assertion, it is offered for the truth. But how does it differ from the following? The issue is whether a person was high on recreational drugs. The witness testifies that the declarant stumbled out of a room, and said “oh, wow, that was good shit.” Put aside whether an exception (like excited utterance or present sense impression) applies. That just doesn’t feel to me like a statement offered for the truth of the matter asserted.]

– Jose Canseco told Mitchell that he had conversations with Clemens about the benefits of Deca-Durabolin and Winstrol, including how to cycle and stack the steroids. In itself, this has marginal probative value, if any, as to the actual use of steroids. It is corroborative of McNamee’s testimony, however. But it is not hearsay.

The funny thing about this is that the WSJ Law Blog introduces the complaint by suggesting that a few non-lawyers said they agreed with Hardin’s objection. My experience is that lay people rely on repeated statements of a non-present declarant all the time, often consider it quite reliable, and are confused (as are many lawyers) about why it’s excluded only when it relates to the truth of the matter being asserted. Assuming that McNamee were to testify at a trial in which Clemens’ use of steroids were at issue, Hardin could cross-examine McNamee on the accuracy of McNamee’s own perception of the events or statements, but he wouldn’t be able to keep them out as hearsay.


The Irrelevant, the Revolutionary, and the Well-Cited

Concurring Opinions co-proprietor Frank Pasquale has an interesting reflection on a recent critique of the explosion of law review articles and the possibly autopoietic self-referentiality of citations (it seems to me it is a fair interpretation of the largely irrefutable evidence Paul Caron has gathered on the “long-tail” of legal scholarship.) I think Frank is onto something, particularly in this Age of Rankings: we are once again seeming to look for the silver bullet indicator of something that is probably irreducibly complex. What is important or an advancement is not going to be determined conclusively by the number of times the article gets cited (the popular equivalent of which leads to something like the conclusion that Ann Coulter is the most important mind at work today, and Britney Spears the most significant cultural icon) nor is it necessarily going to determined by the high priests of whatever “law and…” sub-discipline is at issue, but both have some bearing.

That complexity is reflected in the observation that there’s a fine line between the irrelevant and the revolutionary. I’m reading Walter Isaacson’s biography of Einstein (with a grain of salt now because Isaacson so badly messed up Kant’s view of analytic and synthetic knowledge and the relationship of either to the a priori), but he observes that Einstein probably benefited from the fact that he did his work in the patent office, where he wouldn’t have been co-opted by the received views of the time. Although, again, there’s a chicken and egg issue – Einstein’s basic iconoclasm and impudence no doubt contributed to the fact that he couldn’t get a job as a professor!


Correlation and Causation in Lawyer Depression

The Wall Street Journal and its Law Blog focus again today on what seem to be irrefutable statistics on the higher incidence of depression among lawyers than among the general population. I don’t mean at all to make light of this; too many family and friends deal with this issue, and I realize how complex a combination of biochemistry and environment depression is. I wonder sometimes if environmental stimuli to depression outpaced the evolution of the human body’s ability to generate seratonin. (Hmm. Were people clinically depressed, in our modern sense, five hundred years ago?)

But do lawyers become depressed, or do people with a biochemical predisposition to depression become lawyers?

[Cross-posted at Legal Profession Blog]