Uber, Behavioral Economics, Choice Architecture and Trial Work
There is a lot of discussion on whether lawyers should be required to have at least a certain degree of competency with technology as a core skill set, on a par with, for instance, the rules of evidence. Personally, I am not convinced of the need for any formal requirement: technology is so embedded in any efficient provision of legal services to a client and in any interaction with essentially any business client of any size, that simple economics are going to eventually drive to the margins any lawyer who cannot, on a day in, day out basis, engage with technology on an at least marginally competent level. In other words, there is no need to regulate the profession to ensure such competence, as the marketplace for legal services will do it for state bars and any other regulator: slowly but surely, lawyers who are not technologically proficient will be sidelined by the invisible hand of the market, regardless of what any professional licensure group does or does not do with regard to ensuring professional competence in the area of technology.
Now by this, I certainly do not mean that every lawyer needs to be a coder. But the ability to understand their clients when they talk about coding, or to understand both the tech and reasoning behind electronic discovery, is a core competency in this day and age. Those who can’t demonstrate it, won’t be practicing for much longer.
Its an interesting issue not because of any urgency in mandating technological proficiencies for lawyers – as noted, I think the marketplace will regulate that all on its own – but because it points to the importance of a broader knowledge base for representing clients, and the extent to which a competency in the core social sciences is more necessary, but much less sexy than talking about, competency with technology. I was reminded of this by this discussion of behavioral economics and choice architecture in this extensive New York Times article on Uber’s use of choice architecture to manipulate (too harsh a word? maybe manage is fairer, or at least less pejorative) the driving habits of its drivers. The article notes that:
Sometimes all that is necessary is the mere setting of a so-called default. Because humans tend to be governed by inertia, automatically enrolling them in retirement savings plans and then allowing them to opt out results in far higher participation than letting them opt in. Making Post-Play the default can have the same effect.
“If done right, these things can be socially beneficial,” Mr. Laibson said. “But you can think of all sorts of choice architecture that are quite contrary to human well-being.”
Even Mr. Hall, the Uber research director who downplayed the importance of behavioral economics to the company, did make at least one concession. “The optimal default we set is that we want you to do as much work as there is to do,” he said of the company’s app. “You’re not required to by any means. But that’s the default.”
As an ERISA lawyer, I am quite familiar with the concepts of choice architecture, and the uses to which it can be put, given its central role, at this point, in approaches to retirement plan design. In fact, it is interesting to note that it is this use of the concept that the author of the article on Uber holds up as an example of a benign use of the concept. But I am also familiar with it and comfortable with its use in other contexts, including trial presentation.
A few years back, when behavioral economics and choice architecture were first moving out of the theoretical and into practical application in retirement plan work, I was trying a long case in front of a jury and, right before the end of the trial, the judge asked the parties to agree upon special questions for the court to submit to the jury. For those of you who aren’t litigators, special questions are typically a series of questions that a jury has to answer in deciding a case. In certain complex cases with lots of moving parts, they can end up being a series of questions that the jury is asked to answer in order, with the answer to one question then leading to a couple of possible answers on the next question, and so on. In those types of cases, the special questions essentially become a decision tree, with the answers along the way eventually leading the jury to a final conclusion in favor of one party or the other. For a defendant, this kind of detailed special questions can often be very helpful, because typically a jury can end the case in the defendant’s favor at any of several decision points in the series of questions; for a plaintiff, they are often disadvantageous, because in most cases a jury will have to find in the plaintiff’s favor on each question in succession to find a defendant liable.
As is typical in these types of things, the judge made this request on the last day of witness testimony, with the jury hearing the parties’ closings and then being given the case – including the special questions – the next day. This means that the lawyers on both sides have to work out and agree upon the special questions during the night, while simultaneously trying to finalize their proposed jury instructions and draft their closings to the jury. For many lawyers, as you might imagine, the special questions get short shrift over the course of the night, in favor of time spent on the jury instructions and the closing (trial lawyers are all hams, of course, so naturally writing the closing almost always takes pride of place in prioritizing these items). At that trial, however, I could see that choice architecture could be woven into the special questions, creating a series of questions that, unobtrusively, could influence the jury’s progress through the decision tree that the special questions presented to them. Moreover, it appeared that certain ways of structuring their decisions – primarily in terms of the order in which they passed on certain points – would make it more likely that, at some point along the run of questions, the jury would end up with an answer that would end the case in my client’s favor, rather than continuing along to the remaining questions. The lawyers on the other side of the case, clearly lacking even a passing familiarity with the concepts of behavioral economics and choice architecture, agreed to the structure that we proposed, and, eventually, the jury did in fact find in my client’s favor as it worked its way through the list of questions, somewhere about halfway through the eight or nine questions.
Now, I am not saying this decided the case. In fact, I am quite certain it was my stellar closing that won the case (every trial lawyer thinks every jury case they have ever won turned on their closing, and that every jury trial they have ever lost turned on legal errors by the judge), but the structure of the jury questions certainly didn’t hurt.
So, at the end of the day, is there a point here? Well, Steve Martin wrote in a memoir that the first time he appeared on the Tonight Show, Johnny Carson, during a commercial break, told him that the thing about comedy is that you end up using everything you have ever come across in your life. I think courtroom work, and trial work in particular, is like that, and not understanding current thinking on choice architecture leaves a hole in the knowledge base that a good lawyer should bring to that work. At the end of the day, knowing the key social science concepts of human behavior is a lot more important than simple technological proficiency, but it is the latter, not the former, that the legal industry seems to be focused on currently.
A Busy ERISA Week in the Ninth Circuit: Moyle v. Liberty Mutual and Rich v. Shrader
Last week, I spoke on a panel with, among others, Trucker Huss’ Joe Faucher, who discussed some aspects of Ninth Circuit ERISA jurisprudence with a mostly East Coast-centric audience. A week later, that circuit has turned out two of the more interesting and potentially significant appellate decisions in ERISA that any court has produced in awhile.
In the first one, Moyle v. Liberty Mutual Retirement Benefits Plan, the Ninth Circuit tackled an old chestnut in ERISA litigation, namely the argument that a plaintiff could not bring an action alleging both the wrongful denial of benefits and seeking equitable relief under ERISA as well. Many courts – and pretty much every defendant ever sued by a plaintiff making both claims – have taken the position over the years that Supreme Court precedent precludes bringing both claims, and that, if a plaintiff pled both claims, the equitable relief claim could and should be dismissed at the outset of the case. As a long-time commercial litigator who has litigated a range of cases from IP disputes to reinsurance cases to everything in-between, this always struck me as an odd proposition, because it ran contrary to the standard rule in the federal court system allowing a plaintiff to plead in the alternative, meaning that a plaintiff could allege multiple claims even if they were sufficiently inconsistent that, at the end of the day, the plaintiff could recover on only one of the claims. In Moyle, the Ninth Circuit, following the lead of an excellent analysis of the issue by the Eighth Circuit, found that, in light of the Supreme Court’s decision in Amara, a plaintiff could pursue denied benefits and equitable relief under ERISA in the same case. You can find what I hope is a cogent explanation of why, after Amara, it is clear that both such claims can be brought in the same action in this reply brief, which I recently filed in the First Circuit (the discussion begins at page 22 of the brief). The Ninth Circuit’s decision now reinforces the Eighth Circuit’s conclusion to this effect.
By the way, even aside from its significance to ERISA litigation, I took note of Moyle for a personal reason. In this profession of specialists – and I am one as well – people are often interested to find out that I have, over the years, maintained an active (sometimes more active, sometimes less active) intellectual property litigation practice, alongside my much larger ERISA practice. I have tried patent infringement cases, done more consumer product copyright infringement cases than I can count, and done a fair amount of software infringement litigation and counseling. It all goes back originally, though, to Golden Eagle Insurance Company, the once defunct California insurer whose employees are at the heart of the Moyle case. Through a client at Golden Eagle, I represented Golden Eagle’s California insureds in IP litigation from the Southern District of New York to Rhode Island and in Massachusetts (I don’t recall any of those cases going further north, and I know they didn’t go further south) starting in the 1990s, and my IP practice grew from there. Its funny to see these different sides of my practice come together in Moyle, with a major ERISA decision stemming from a client that was instrumental in building my IP practice.
The other case decided by the Ninth Circuit is less novel, but still important. In Rich v. Shrader, the Ninth Circuit held that a stock option program for officers was not subject to ERISA, because its intended purpose wasn’t to provide retirement income. Whether ERISA reaches particular stock grant or other compensation plans is often a hotly contested issue in disputes between companies and their former officers, and Rich is a fine example both of that circumstance, and of how to analyze whether ERISA is applicable. You can find an excellent summary of it in this Bloomberg BNA write up of the case.
Top Ten List Of Things From 2015 That Are Somehow Related To ERISA And My Practice
Like many, I took some time off over the holidays. Unlike many, who used the time to do fun things like go skiing, I used the time to sit down with three fingers of my favorite small batch craft brewery bourbon and write a top ten list for my blog. Here, without further ado, is my top ten list of things from 2015 that are somehow related to ERISA and my practice:
1. Favorite 2015 movie about ERISA and employee benefits: Concussion. Although not really about employee benefits and ERISA, its genesis is: see my series of blog posts on the NFL’s effort to avoid granting disability benefits to the great Steelers center, Mike Webster (here, here and here). The real story behind the NFL’s attempt to avoid responsibility for CTE and head injuries harkens back to the courage of Webster’s family and the talent of their lawyers, who took on the NFL and its constant stonewalling on the issue, and won.
2. Most enjoyable city I had never been to on a business trip before: I had an absolutely fascinating two day trip to Richmond for a deposition; what a great city. From the international cycling championship it was hosting while I was there, to the history of alligators in the lobby of the Jefferson Hotel, to the hip downtown neighborhoods with cobblestone streets, to the great meal I had at Lemaire, more was packed into a 30 hour stay than I could have imagined. As a civil war and colonial history buff, being able to squeeze in a walk around the Thomas Jefferson designed capitol (with great commentary from a park ranger I chatted with) and seeing the Jeb Stuart and Robert E. Lee monuments (on the advice of a helpful hotel concierge), the whole trip was a blast. Provoking the other side’s expert into answering a question at his deposition with the one word reply “Duh” just made the whole trip even more fun.
3. Best business meal (excluding meals with clients, so I don’t leave anyone out): Dinner at BLT Prime in New York, with two of my fellow speakers on a panel on fiduciary governance, Al Otto of Shepherd Kaplan and Peter Kelly, the Deputy General Counsel and Chief Employee Benefits Counsel of the Blue Cross Blue Shield Association. Great food and high level conversation that would only appeal, I have to admit, to an ERISA geek.
4. Most satisfying judicial decision (personal case load division): After approximately five years of litigation, including a week long jury trial, convincing the Pennsylvania Superior Court (for those of you not familiar with that state’s court system, the Superior Court is its intermediate appellate court) to not just reverse a $1.4 million verdict against my client, but to also enter judgment in favor of my client. Its one thing to win an appeal, but, as all trial and appellate lawyers know, its hard enough to flip a jury verdict on appeal, but to actually get a jury verdict reversed outright (in favor of entry of a JNOV) is a rare event indeed.
5. Most unsatisfying judicial decision (non-personal case load division): Tibble v. Edison, by the Supreme Court this past summer. As I discussed here, it rendered the whole appellate history of the case much ado about nothing from a jurisprudential perspective.
6. Most interesting ERISA decision that flew under the radar: Osberg v. Foot Locker, Inc., 2015 WL 5786523 (S.D.N.Y. Oct. 5, 2015), which attracted comparatively little discussion, given the depth of the Court’s analysis and that it was issued by one of the country’s most respected courts. What I liked most about it was that it emphasized the fact that plan communications are, contrary to what many believe, a central part of fiduciary responsibility. To quote the Court, “[t]he most important way in which the fiduciary complies with its duty of care is to provide accurate and complete written explanations of the benefits available to plan participants and beneficiaries.”
7. Best presentation I attended: A tie between two panels of magistrate judges, each discussing issues involving ERISA, discovery, spoliation and the amendments to the federal rules; the first was at ACI’s Chicago installment of its ERISA litigation conference in April 2015, and the second at ACI’s New York ERISA litigation conference in October 2015. At the former, I had asked the panel a question which led to a conversation afterwards with a magistrate judge from out west on the subject of spoliation and exactly the effect he believed the changes to federal rules would have on that issue. At the latter, a diverse group of judges held court (pun intended) on topics ranging from when discovery in benefit claims should be allowed to whether – and if so to what extent - the changes to the federal rules, despite all the effort put into them, would actually alter day to day discovery practice and litigation.
8. Best selfie (written version): Chris Carosa of Fiduciary News’ interview with me, which you can find here. Lot of fun, as Chris always has his finger on the pulse of the industry and thus both asks the important questions and elicits informative responses (and not just spin or marketing drivel).
10. Best Article I wish I had Written but That I am Not Funny Enough to Have Written: “Declarations: The Coverage Opinions Interview With The Grinch Who Stole Insurance - A Career Spent Denying Santa’s Claims.”
And with that, Happy New Year everyone.
My Exclusive Interview with Fiduciary News on ERISA Litigation
The good people at Fiduciary News gave me a soapbox, and I was happy to climb up on it. They interviewed me as part of their series of monthly interviews on ERISA and related topics, and I discussed ERISA litigation and a wide range of related issues. You can find the “Exclusive Interview: ERISA Attorney Stephen Rosenberg Says Litigation’s Legacy is Improved Plan Design” here. You will see I went on for a bit, as I am wont to do when anyone wants to talk about ERISA!
What Should Clients and Their Lawyers Learn from Deflategate?
Honestly, I couldn’t really care one whit about the little locker room stare down between Roger Goodell and Tom Brady. Its just sports. A spinning teacher of mine once looked out at the class the day after a playoff or Super Bowl loss by the Patriots (I forget which) and said, in the middle of a sprint: “Guess what, Brady’s still a multimillionaire married to a super model.” Sort of sums up my feelings about the whole thing right there.
I do get, though, why so many people care, but what is more interesting to me are the remarkable lessons for lawyers buried in the judicial ruling and the decisions that led up to it, and I don’t mean for a second the question of whether or not Brady really cheated or whether the league could prove he had cheated. Litigators with experience with arbitration and the Federal Arbitration Act always knew, even if – like me – they didn’t bother to follow the case as it weaved along on its merry, monotonous way, that the judicial decision would be about process and the rules of arbitration, not in any way about whether Brady cheated or not. And really, its better that way, isn’t it? Who, really, cares whether a professional athlete pushes the boundaries a little bit in a way that doesn’t physically hurt anyone? We are not talking, after all, about East German sports authorities doping up athletes, or even baseball players voluntarily – but illegally – taking PEDs. We are talking simply about manipulating a ball. Face it: sports was more fun when batters corked bats and pitchers scuffed the ball, and no one called in the lawyers over it. Back then, legal proceedings were saved for things that warranted it and were actually important, like the reserve clause and whether baseball players were legally entitled to free agency or were instead bound, like indentured servants, to the first team that signed them. But I understand that times change and with them, peoples’ priorities and sense of perspective.
But when I said there were real and important lessons for lawyers buried in the decision and its prelude, I meant it. They flow from the errors by the NFL and its lawyers that are the basis for the Court’s ruling. Judge Berman found that a number of clear errors in the process required overturning the suspension, primarily that Brady was not on notice of the potential severe penalties for the conduct in question, that the NFL relied on inapplicable standards, and that the NFL withheld relevant evidence by refusing to allow NFL General Counsel Jeff Pash to testify as to his role in the creation of the evidence – the Wells Report – used to hang the accused.
As I said, these are procedural failings on which the judge overturned the sanction, and don’t even address the question at all of whether Brady did anything wrong. But in these procedural failings are a number of lessons about arbitration and, in a broader sense, the proper role of a lawyer in advising a client.
First, as errors go, those identified by Judge Berman in his ruling would have been obvious in advance to any lawyer experienced in arbitration. As a general rule, you can’t go to court after an arbitration concludes and ask the court to change the outcome by rearguing the merits. Instead, you have to convince the court that the arbitration proceeding itself was so flawed that reversal is needed, either because the procedures used were flawed, the arbitrator was biased, the ruling was so far afield that it reflects a failure by the arbitrator to follow applicable law, or the party that lost at arbitration was deprived of a fair opportunity to present that party’s case. The errors identified by Judge Berman in his ruling, and on which his ruling turned, fall soundly into these categories; if anything, the errors were such a perfect fit for the narrow grounds available for overturning an arbitration ruling that Brady’s legal team essentially went into the court proceedings with a loaded deck.
And Brady’s legal team, led by Jeffrey Kessler at Winston & Strawn, had to have always known this. They had to have known that they were holding a straight flush, or bringing a gun to a knife fight (pick your own cliché). And they wisely advised their client accordingly, by all appearances. Brady and his team clearly understood they held winning cards, and that, unless the NFL buckled in settlement, they should let the judicial process run its course. And that is lesson number one for lawyers and people who hire them: the lawyers need to know the case, the relevant law and the facts well enough to make those kind of calls, and have the experience and expertise to wisely counsel their clients in that regard. If not, what exactly is a client paying for?
The other lessons come from the flip side, which is the NFL’s sound defeat. How could the NFL’s lawyers not have seen the same thing, and understood that the arbitration proceedings had been so flawed that they would have trouble convincing a court to affirm the arbitration rulings? Did they not know? I find that hard to believe. I understand that hindsight is 20/20, and I completely understand the fog of war that can make it hard for lawyers, in the middle of litigating a case, to see clearly every crook and turn of a case in advance. But here, the NFL’s experienced lawyers had to have identified these problems and known that they posed a risk for their client. And although I have no idea what the actual dynamic was that led to the NFL still riding off to Little Big Horn under those circumstances, I have certainly been at this business long enough to identify the possible causes and the lessons they teach. Since the NFL's lawyers had to have recognized the risks, the question becomes whether they firmly and clearly advised Goodell and the NFL about them. If they did, then the loss is on the client, who is certainly free to decide to move forward with litigation despite knowing about those risks. But the more worrisome question, given the dynamic between lawyers and very prominent clients, is whether the NFL was told firmly and clearly of the risk they were running, or whether their lawyers were instead unwilling to speak that truth to power. Lawyers don’t want to lose clients, especially prominent ones like the NFL. A lawyer gains all sorts of benefits from a client like that, ranging from the financial gain of the billings of that client, to the marketing kick of having a client like that on their roster, to the ego boost of representing such a client. But – and I emphasize that I have no idea what actually happened here – that dynamic can make outside counsel afraid to tell such a client that the client or its case, like the emperor in the famous story, has no clothes.
And in this risk – which as I say, I don’t know whether or not it played a role here – is the lesson for lawyers and, again, the people who hire them. Clients aren’t served, and lawyers aren’t doing their job, in that circumstance. Clients do not benefit from lawyers who are so beholden to them that they won’t tell them the truth, and lawyers are not living up to their obligations if they are afraid to tell the client the truth. Certain relationships require brutal honesty to work well, and the lawyer/client relationship – in both directions – is one of them.
And this then brings into focus a particular facet of Judge Berman’s ruling that really troubles me, both in terms of arbitration tactics and the decision making of those involved here, which is the Court’s focus on the fact that the NFL’s general counsel edited the Wells report (which is, at heart, essentially the prosecutorial findings on which the sanction against the accused rested) but was not required to testify in the arbitration. I am not going to pass judgment here on whether or not the general counsel, Pash, should have been required to testify or whether, instead, the arbitrator could have properly denied a request for his testimony. As I said, hindsight is 20/20 and, from this vantage point, after Judge Berman has spoken, it is easy to say that the arbitrator erred by denying a request for Pash’s testimony. In the course of a particular arbitration, however, there are valid arguments both ways as to whether testimony of a particular witness should be allowed, and I am not certain it is fair to say that, in real time during the arbitration, the answer to that question was always clear.
What I am concerned about, though, is the very fact that the NFL’s general counsel involved himself in this way in the development of the evidence and findings against Brady, i.e., of the Wells report itself. Why in the world would you allow such a senior executive, the legal centerpiece of a major corporation, to insert himself into the process in that way? Pash and his legal department had to have understood that they were putting him in harm’s way, and making him a potential witness in the arbitration. Worse yet, they had to have – or if not should have – seen that this would create the dynamic where either he would have to testify or the arbitrator would be put in the position of precluding his testimony, thereby creating grounds for having the arbitration ruling overturned by a court (as in fact happened). Everyone involved here is too experienced not to have seen this risk from a mile away – as trial lawyers like to say, this was no one’s first rodeo (this is a cliché lawyers at trials usually resort to so as to reassure the trial judge that the lawyers can be trusted to work something out among themselves without the judge’s involvement). So how was this allowed to occur? Was Pash’s team of lawyers afraid to speak truth to power and tell him to keep his distance, whether those were the lawyers in his own department or instead the NFL’s outside lawyers? Or did Goodell, essentially the CEO of a huge corporation, want him involved in that way and his general counsel didn’t want to tell him no?
There is a cliché relevant to both representing corporations as outside counsel and to being an in-house lawyer, which concerns the fear – sometimes legitimate – of business folk that the lawyers just say no about everything they want to do, rather than telling them how to do what they want to do. As I mentioned, this is sometimes a legitimate concern that non-lawyers have about their lawyers, whether outside counsel or resident in the corporation itself. But it is also true that there are times when lawyers – again whether in-house or outside counsel – have to say no, and have to advise their clients that what they want to do is a bad idea. I have no idea how Pash, an extraordinarily senior officer of a multi-billion dollar corporation, ended up in the middle of this mess as, of all things, a fact witness, but it should never have happened. Somewhere along the line, someone abdicated their responsibility of just plain saying no, it’s a bad idea.
Baseball, Hot Dogs and Class Action Lawyers
One of my favorite kid friendly, safe for work jokes:
Q: Moose walks into a bar. What’s he say?
If you like that one, how about this one:
Q:Woman buys an expensive seat at the ballpark. What’s she say?
A: Get me a class action lawyer!
And if you like that one, you will like my pal Randy Maniloff’s (even if he did blow me off for dinner the last time I was in Philadelphia) Op-Ed piece in the Wall Street Journal this past weekend on the Oakland A’s ticket holder and her lawyer who have filed a class action suit against Major League Baseball alleging that protective netting should be installed the length of the baseline seating in ball parks. Now, I am not one to make fun of lawsuits by referencing the old saw about the woman who was burnt by McDonald’s coffee and received a large jury verdict afterwards, which tort reform people always try to use to support their claims that we need to crack down on plaintiffs and their lawyers; as I have discussed before, if you look behind the self-serving rhetoric about that case, you find that it doesn’t actually demonstrate a misuse of the court system. But Randy makes very good points about the frivolity of this particular class action suit, ranging from the fact that the plaintiff has elected expensive seats over cheaper seats where there is no possible risk of injury from foul balls, rendering her complaints self-serving (to say the least), to the fact that the case probably cannot survive the types of filtering events (such as motions to dismiss, class certification standards, etc.) that serve to weed out non-meritorious class actions.
But what is most interesting about Randy’s Op-Ed is that he notes the real, fundamental problem with the proposed class action, which is that the law has long applied a sort of caveat emptor approach to the risks faced by baseball fans of being hit by foul balls and broken bats: as Randy discusses, the law pretty much says such fans are not entitled to sue over such harms, on the thesis that they assume the risk by going to the ballpark. This has its own interesting subtext, having to do with the extent to which baseball is woven into the national fabric and the extent to which the development of the common law reflects that fact. But that is a story for another day, and one best explored by a more skeptical writer than me.
The more telling and immediate issue is a point that underlies Randy’s piece, which is that the law maintains such principles disfavoring claims of injuries by fans. One has to ask, though, whether today such a legal approach should continue, as team owners take every step open to them to increase profits, including – such as at Fenway Park – adding seats that are ever closer to the field (and which thus increase the risk of injury, by placing paying customers ever closer to the action, even though – unlike the twenty something world-class athletes they are now only a few feet away from on the field - they certainly lack the reactions to avoid batted balls and the like). At what point does the quest for profits by increasing the risks to customers require revisiting any rules that make it difficult for an injured baseball fan to sue if seriously hurt by a batted ball? If – taking this example from cases I have tried – a company makes a product that is more dangerous than necessary so that it can make more money from its sale, the law doesn’t bar an injured customer from asking for recompense. Should baseball team owners who have increased their customers’ risks in the pursuit of ever higher revenue be immune from answering for it in court in the same way? I don’t profess to have studied the question enough to know the answer, but I have certainly studied it enough to ask the question.
Déjà Vu All Over Again: Patenting Retirement Plan Features
You know, you live long enough and you see everything come back around again. Ties get skinny, then they get wide. Standardized testing is seen as the key to everything, then as evil incarnate, then as the key to everything again. Baseball is learning to again look at the quality of the player on the field, after ignoring it in the belief that numbers on a computer screen can tell you everything. And so on, and so on, and so on.
I could not help but think of this when I read this story this morning in the Wall Street Journal on whether certain 401(k) features infringe on patents held by others, an article in which my colleague, Marcia Wagner, played a featured role. Why couldn’t I help but think of this? Because in 2007, the folks at BNA were, as they often are, well ahead of the curve (in this instance by almost a decade), writing about the question of whether tax strategies should be patented. Why do I remember that so clearly? Because they interviewed me for the article and I was quoted in depth on the subject. I wrote about it here, and later returned to the subject a few months later when I wrote a post on whether patenting ERISA strategies had reached its end game.
Yogi Berra once famously said that its like déjà vu all over again. Its amazing how often that rings true if you practice law long enough.
Me, Tibble, Pensions & Investments and Don Draper
With the Supreme Court hearing argument this month in Tibble, I thought I would pass along a link to this article in Pensions & Investments (registration may be required) on the case. Leaving aside (for the moment) the fact that I am quoted in the article, it is worth reading as a primer on the issues before the Court that are raised by the case. As the article makes plain, the case is not simply about the six year statute of limitations under ERISA, or about – as someone else quoted in the article notes – retail versus institutional share classes. Instead, it is a vehicle that could allow the Court to discuss many aspects of fiduciary duty in this context, and how they fit together with the statute of limitations. As such, the Court, if it uses the case in that way, could easily overturn a lot of apple carts, in much the same way that its discussion a few years ago in Amara, arguably in dicta and on an issue that was not expressly before the Court, upset a lot of assumptions about the scope of equitable relief under ERISA.
For my contribution to the article, I noted that:
“We need to clarify how the six-year statute runs,” said Stephen D. Rosenberg, of counsel at the Wagner Law Group, Boston. “The linchpin issue is whether a sponsor has a continuing duty. Do you have a continuing duty after six years?”
If the Supreme Court supports arguments by Edison 401(k) plan participants that fiduciaries can be held responsible beyond the six-year time limit, the ruling could encourage more fiduciary breach lawsuits, he said.
From a practical perspective, the answer to that question will impact plans in a number of ways, running from whether we will see a trickling off of class actions filed over excessive fees, to the costs of running such plans, to the level of diligence that plan sponsors and administrators will need to apply. All of these may vary depending on how the Court answers the question of when does the six year period start and end, and, perhaps more importantly, what events can start the six year period running again.
In some ways, to steal a line from an in-house benefits lawyer I know at a company with plans in place holding very large assets, it is almost like asking if you can sue Don Draper today for sexual harassment thirty years ago at Sterling Cooper. ERISA is no different than any other area of the law: there has to be a starting point and an ending point for the time period during which conduct can give rise to a suit. The multi-million dollar question posed by Tibble for the numerous plans out there is how do you determine those points in the context of investment decisions made by plans, where those investments may be held for many, many years.
A Nuanced Look at the Attorney-Client Privilege?
This caught my eye, partly because I sat on a panel recently discussing the fiduciary exception to the attorney-client privilege in the context of ERISA litigation. This, in this case, is a Bloomberg BNA ethics webinar on “Attorney-Client Privilege and Work Product Doctrine Issues,” which includes, of particular note to me, “[t]he surprising narrowness and fragility of the attorney-client privilege[,] the nuances of privilege protection in a corporate setting [and the] great risks involved in relying on common interest/joint defense agreements.” Each of these topics is absolutely worthy of review, and each, for various reasons, rings a significant bell for me.
Initially, the need to discuss the narrowness and fragility of the privilege immediately made me think of the old saying that “what’s old is new again.” For my whole career, I am pretty sure, I have periodically been reading articles and reports, sometimes alarmist, about threats to the sanctity of the privilege. But the privilege has never been absolute and was never intended to be, and its exact contours have always been shifting, no different than the beach line on the elbow of Cape Cod. We see this clearly in the ERISA context with the development of the fiduciary exception to the privilege, which leaves open to disclosure many plan communications with counsel to an ERISA plan that occur in a non-litigation setting.
The real issue is not the scope of the privilege or the fact that the scope changes, but that practitioners need to understand the parameters of the privilege as well as the changes to it, and account for them. In speaking engagements, I often reference a particular high dollar value top hat dispute litigated in the district court in Massachusetts in which a prominent law firm’s somewhat caustic comments communicated to the corporate client eventually ended up in evidence at trial, simply because outside counsel did not understand certain loopholes in the privilege. While not outcome determinative in the case, the email in question certainly didn’t help the client’s defense when it went into evidence, something made clear by the fact that the judge quoted it in her opinion. This is why the second part of the webinar’s list of topics caught my attention, with its reference to the “nuances of privilege protection in the corporate setting;” the privilege is in fact nuanced and not absolute, and in-house and outside counsel to corporations need to understand those nuances to avoid exactly the type of embarrassing and harmful exposure of communications that occurred in the case I mentioned above, which I routinely use as my abject lesson for teaching this point.
Finally, the reference to the great risks inherent in common interest and joint defense agreements caught my eye for much the same reason, which is simply this. As with the privilege itself, lawyers and their clients often place too much blind faith in such agreements, believing they safely and fully insulate work done jointly by all those on one side of the “v” in a case. This is not, however, an accurate way to understand it or to approach the issue, as there are a number of variables that can come into play with regard to whether such protection applies and, if so, to what extent, in a particular case. Lawyers and clients need to understand that, and to know what they are, in making use of such agreements and approaches to the privilege, and not simply assume that communications among those parties are all privileged.
Changing Firms, and a Brief Note on the Right of Service Providers to Make a Profit
So, some of you may have noticed a change on the masthead at the top of this blog, which notes that I am now at the Wagner Law Group , in its Boston office. It has been a pleasure litigating ERISA and business disputes for the past nearly quarter century at the McCormack Firm, but every now and then an old dog needs to do a new trick. More seriously, for the past several years, I have been increasingly called on by clients to assist with DOL investigations and to handle plan deficiencies and other problems, all outside of the litigation context. The Wagner Law Group, with its deep bench and broad expertise in all areas of ERISA governed benefit plans, gives me the opportunity to provide those services more extensively to my clients, while continuing my litigation practice, which is heavily oriented towards breach of fiduciary duty and other ERISA disputes. So not only was the timing right, but so is the fit.
If you want more information on my changing firms, you can find the press release on my joining the Wagner Law Firm here. When I read it myself for the first time, I immediately thought of a line a U.S. Senator I once heard speak liked to use immediately after being glowingly introduced, which was: “thanks for the kind introduction, which my father would have appreciated and my mother would have believed.”
With that out of the way, I wanted to turn to one brief, substantive discussion. Eric Berkman has a fine article out in Massachusetts Lawyers Weekly, in which he quotes me on the First Circuit’s decision in Merriman v. Unum Life, which rejected claims that a retained asset account structure for paying life insurance benefits under an ERISA governed plan violated ERISA. In one of my quotes, I explained that:
"The plaintiffs' bar is looking for ways defendants are making money or making these services profitable and calling them prohibited transactions or breaches of fiduciary duty," Rosenberg said. "But this case, which falls in line with cases in other contexts, is saying that as long as the plan beneficiary is getting everything he or she is supposed to be getting under the plan, it's OK that the insurance company or other service provider is also making a profit."
While there are a lot of technical issues to Merriman, I think this is the important takeaway if one is looking at the forest rather than the trees. Across the benefit industry, service providers have to turn a profit; if they don’t, we will quickly not have a benefit industry. The holdings in cases like Merriman, which found the payment structure appropriate even though it could create some additional profit for the insurer, drive home the point that, so long as there is no prohibited transaction or misuse of plan assets or other illegal behavior, its okay for service providers and insurers to turn a profit.
Copyright Infringement and Architects (Software and Otherwise)
Riddle me this, Riddler: what does the design of a center entrance colonial house have to do with complex computer software?
A lot, it turns out, if you are interested in the borders that should attach to IP rights so as to best balance the need to encourage the creation of new products against the risk of stifling innovation. Anytime one renders a design or technical development exclusive to one owner, such as when an inventor obtains exclusivity by means of a patent or an author obtains it by means of holding the copyright, we encourage the original owner to exploit that product, but preclude others from doing the same. When we do that, it is important to create a structure that gives enough protection to the original inventor to motivate people to create new products, but not so much protection that it discourages others from creating related advancements; if we get that balance wrong, we impede the technological advancement that is the original purpose of granting exclusivity in the first place.
I was thinking of this today because of an odd correlation that popped up in my reading. I have litigated copyright infringement cases both over plans for commercial architecture and over very complex computer code, each time defending someone who had created and sold a new product but was charged with allegedly having infringed upon the prior copyright protected work of a prior author (in one case another architect, in the other a different software company). While I effectively won both cases – to the extent that very favorable settlements count as wins in a world in which 99% of cases never see a trial – the more interesting point is that I prevailed on both cases on essentially the same theory, which was that the similarities between my client’s work (whether the design for the building or the code for the software) and that of the holder of the copyright on the prior work concerned aspects of the prior author’s work that copyright law does not protect. Copyright law, through various means – such as the merger doctrine and others – does not protect common or universal design elements, nor does it protect substance that, in essence, cannot be designed around, such as certain problems in software coding that can only be solved in very limited ways. Copyright law allows later-in-time creators to make use of those types of elements in their work (whether that be the design of a house or the design of high value software) even if they were also used in previous, otherwise copyrightable work. In this way, copyright law successfully draws the line between encouraging innovation through the grant of exclusive ownership and corresponding rights of exploitation, on the one hand, and the risk, on the other, of stifling innovation through that grant of exclusivity; these doctrines keep open for other innovators the use of certain elements, whether lines of software code or aspects of building design or other forms of expression, without which further advancement of the art in question is not possible.
This is one of the great, somewhat hidden achievements of American copyright law, one that is worth bearing in mind, and perhaps emulating to some extent, in the world of patent law, as we try to come to grips with the patent troll phenomenon and the runaway nature of patent infringement litigation in this day and age. The trick to solving those problems in that area of the law right now is figuring out how to find that sweet spot – the one that copyright law has, to a large extent, already found – between granting enough exclusivity to drive innovation but not so much that it simply generates excessive patent infringement litigation and gives rise to mills full of patent trolls.
So the answer to the riddle that commenced this discourse lies in this excellent article on the manner in which doctrines limiting the scope of copyright protection just defeated an architect’s claim of copyright infringement based on the architect’s use of certain historical and consumer driven elements in a design for a classic New England colonial home. These same doctrines were, as I mentioned before, the basis for my prior representations of both architects and computer software programmers, with the doctrines generating good results in both circumstances. I liked how clearly the article articulated the use and role of these doctrines in the context of home design, and was immediately struck by the fact that you could replace the references to architect and houses with references to programmers and software and have an equally accurate article. The same copyright doctrines, in my experience, control the outcome of both litigation over building plans and over computer software. That consistency across the board is one of the things that makes American copyright law great, both intellectually and as a practitioner, and is what makes it possible for competitors to plan ahead and understand when they can, and when they cannot, touch on prior work.
Me, Lawyers Weekly and Patent Infringement Litigation
I am quoted extensively in this week’s Massachusetts Lawyers Weekly in the article “Businesses increasingly assert patents for strategic reasons,” which discusses companies bringing patent infringement claims against their competitors as a business tactic, and whether recent Supreme Court decisions making it theoretically easier to obtain an award of attorney’s fees will reduce the number of such suits. It’s a well done article, particularly because it is not just based on the anecdotal evidence provided by lawyers, like me, but also on existing hard data that supports the thesis that such claims are on the rise. It is definitely worth a read if you have an interest in this phenomenon.
Why Commonality is Relatively Easy to Prove in ERISA Class Actions
One should never underestimate the fundamental role that procedural and related tactical issues play in a case, and how they impact the very question of whether a plaintiff will ever be able to have a judge or jury rule on the merits of a case. Procedural barriers to prosecuting particular claims can be the end of a case, without anyone ever hearing the merits of the dispute, unless a plaintiff can hurdle them. In a sense, this phenomenon means that a plaintiff often has to prove two parts, broadly speaking, of a case to win: first the procedural and tactical niceties needed to even get the case in front of a fact finder, and then the actual merits. In what is sort of a mirror image, a defendant can prevail in a case simply by winning either one of those parts of the case.
This phenomenon means that there are procedural opportunities for a defendant to prevail without ever proving the merits of the defendant’s case, but, interestingly enough, this does not exist in reverse: there really is no such thing as a procedural advantage that might allow a plaintiff to prevail without ever proving the merits of the case (other than an outright default by a defendant, but that really doesn’t happen unless the defendant is judgment proof which, for a plaintiff, is the same thing as losing).
Nowhere is this phenomenon clearer than in class action litigation, in which lawyers and courts have taken to focusing on the procedural requirements for forming a class, in ways that to some extent tend to devalue, by comparison, the merits (or lack thereof, as the case may be) of what the putative class representatives and the class itself may have to say. This approach to class action litigation essentially gives pride of place to the propriety of forming a class, over the merits of the case. If the plaintiffs cannot get past this procedural hurdle, they will never get the merits of their case heard; simultaneously, if defendants can ensure that plaintiffs don’t get past that hurdle, then they effectively win without anyone ever getting to the merits of the claims.
Commonality – which is the requirement that the class members have some central part of their claims against the defendant in common – is the central focus of this aspect of class action litigation, but it has a less than great track record in precluding certification of classes in ERISA cases. There is a clear and interesting reason for this, but it is best approached by the back door, by first explaining how defendants faced with ERISA class actions attack commonality, and seek to use the requirement of commonality to preclude certification of a class and thereby end class action litigation before the merits of the action are reached.
As explained in this excellent blog post, there are a number of ways to attack commonality in an ERISA class action, by focusing on what may be different among the members of the proposed class. I like the article a great deal as a handy checklist for where to start with regard to investigating and challenging the existence of commonality – and by extension the propriety of forming a class – in ERISA litigation.
However, in the ERISA context, one should not be fooled into overconfidence by these types of lists or, as well, by the fact that this procedural tactic has been very effective in various types of class action cases. Commonality is simply not that difficult to prove in ERISA litigation, in comparison to other types of proposed class actions, such as wage cases. This is because, in general, breaches of fiduciary duty related to an ERISA plan affect all participants and beneficiaries in the same manner, which renders the ERISA violation at issue common to all members of a proposed class. The only real trick in this regard is for the plaintiffs to make sure they account for any aspects of the breach in question that might render only some participants (for instance, those in the plan during a certain time period) and not others subject to the violation, and to then draw appropriate lines around the makeup of the class so as to laser out any plan participants who were not affected and harmed by the particular conduct in question. Do this, and commonality exists.
Clamping Down on Patent Litigation as a Business Tactic Among Competitors
In the years leading up to the Wall Street collapse of 2008, I spent a fair amount of my time defending smaller tech and similar companies against intellectual property suits, including patent suits and preliminary injunction proceedings, often involving infringement claims that were, in my book, specious at best. Interestingly to me at the time, these were not suits brought by what have since come to be known, quite pejoratively and perhaps sometimes accurately, as patent trolls. Instead, they were brought by larger and more well-funded competitors in the marketplace, in a clear tactical decision to try to drive out smaller rivals by pursuing questionable claims of infringement. These were really just suits brought as business tactics, as the parties moved from competing in the marketplace to competing in the courtroom as well, a phenomenon I once summed up in the phrase “much as war is the continuation of politics by other means, patent litigation is the continuation of a business dispute by other means.” Interestingly, this dropped off substantially, at least among smaller companies, once the Great Recession hit, as companies became a lot more concerned with staying in business than with spending funds to sue competitors as a business tactic.
It’s interesting to note, though, that this has clearly picked up again over the past few years, even among smaller companies and separate from the similar attempts to gain business advantage in the courtroom pursued by large companies, such as Apple and Samsung, who are not so sensitive to the boom/bust cycle in pursuing such tactics. Given that the last time I saw this, the stock market dropped a gazillion points not long afterwards, one might want to ask whether this uptick is a sign of yet another stock market bubble.
But no matter, as that is a topic for another day, and events themselves will establish it one way or the other. Of more interest to me, and the reason I write today, is that, while everyone else is focused on the impact on patent trolls of the Supreme Court’s recent decision in Octane Fitness, LLC v. ICON Health and Fitness, Inc., which makes it easier for a wrongfully accused defendant in a patent action to recover fees from a plaintiff, I am more interested in whether this same new decision will make it a little less likely that a wealthier company with a questionable patent will take to the courts to try to shut down a comparatively less wealthy competitor or, if not shut them down, to at least bog them down in litigation they cannot afford except by shortchanging their business operations. That alone would be the most pro-business result I could imagine from a court known for issuing such decisions.
Under the patent act, attorney’s fees can be awarded in “exceptional cases,” and, as Porter Wright’s Melissa Barnett explained, the Supreme Court has now made it easier to satisfy that standard, holding that:
the term “exceptional” should be construed within its ordinary meaning, which the opinion states means “uncommon,” “rare” or “not ordinary.” (pg. 7). The court went on further to state that an “exceptional” case should be determined on a case-by-case basis and “is simply one that stands out from others with respect to the substantive strength of a party’s litigating position” or “the unreasonable manner in which the case was litigated.” (pg. 7-8). The requirement that patent litigants establish entitlement to fees under §285 by “clear and convincing evidence” also was rejected by the Supreme Court. The court held that “nothing in §285 justified such a high standard of proof,” but rather “demanded a simple discretionary inquiry.” (pg. 11).
To me, with regard to the issue I raised above, the question is whether courts will become more willing to grant attorney’s fees on a regular basis in circumstances where the plaintiff is not a patent troll, but instead a competitor who is pressing a questionable claim simply or predominately as a business tactic. If so, that risk would have to be factored into the cost benefit analysis of any company considering such a strategy, even one that is in the business of manufacturing or selling the product in question and is not a patent troll, and might well lead to less filing of infringement suits of the “patent infringement claim as business tactic” kind.
However, I am concerned that federal trial courts may well read the Supreme Court decision, given the environment in which it was issued – where all the focus is on trolling – as simply license to whack trolls, when a court views a patent infringement suit as nothing more than trolling for licensing fees. Time will tell as to whether it will also be used to reign in the type of cases I am describing here, but I was encouraged in this regard by something that Barnett wrote in her excellent blog post on the Supreme Court decision setting the new standard for awarding attorneys’ fees. She noted the existence in the case of “an email exchange between ICON executives that the suit was brought as a ‘matter of commercial strategy’ ” and, in fact, when you read the Supreme Court opinion, there is substantial documentation to this effect. The impact of this type of evidence on the question of whether to award fees in a case where a competitor uses patent infringement litigation as a business tactic is not fully developed in the Supreme Court opinion, but the reference in the decision to this type of evidence certainly opens the door for much more substantial consideration of this issue by lower courts in future cases.
As one who thinks that the proper place for business competitors to prove the worth of their products is – other than in the case of significant evidence of infringement – the marketplace, not the courtroom, I hope that turns out to be the case.
Can You Avoid Being Investigated by the Department of Labor?
I think pretty highly of the Department of Labor when it comes to ERISA governed plans, and feel they do a pretty good job across the board. That doesn’t mean, though, that you want to be investigated by them if you are a plan sponsor. It’s a little like being audited by the IRS – even if you didn’t do anything wrong and you don’t owe anything, it’s an experience you would rather avoid.
When it comes to 401(k) plans, there are a number of things that plan sponsors can do to avoid being the target of an investigation, and even more things they can do to make sure that, if they are investigated, the results are benign. I talk about them in detail in this article I am quoted in, “DOL Cracks Down on Employer 401(k) Issues,” on BenefitsPro.com.
The Fiduciary Exception to the Attorney-Client Privilege: What It Is and Why It Matters
One of the great advantages a Massachusetts ERISA litigator has is that our federal magistrate judges are very good with ERISA issues, which is something that is well illustrated by this decision on the scope of the fiduciary exception to the attorney-client privilege in ERISA litigation. In Kenney v. State Street, the magistrate judge dealt, in a very clean and easily understood manner, with the key issues that come into play under that doctrine, which have to do with its borders: to be exact, what attorney-client communications are subject to disclosure under this exception, and what ones are not. This is a more complicated issue of line drawing than it might appear at first glance because, in essence, you are considering the same course of communications, between the same lawyers and the same plan representatives, dealing with the same general topic (the plan’s operations), sometimes as part of the same in-person meeting, and deciding where the line falls as to the communications that must be produced and those that do not have to be produced.
The takeaway from Kenney on this line drawing is summarized nicely in this blog post by an unidentified Paul Hastings lawyer or two:
First, the attorney-client privilege is available for settlor matters, such as "adopting, amending, or terminating an ERISA plan" because those decisions do not involve ERISA fiduciary functions of managing or administering the plan.
Second, the attorney-client privilege is available to a plan fiduciary who seeks the advice of counsel in response to a threat of litigation by plan beneficiaries (or the government) against the fiduciary.
This is not an issue, by the way, that is just of academic interest, or something for clients and litigators to be concerned about after the fact, when a lawsuit is pending. A few years back there was a major top hat plan case in which some of the key evidence relied upon by the plaintiff consisted of emails and communications between the plan sponsor and its lawyers that were discoverable under these standards: that evidence was very helpful to the plaintiff, and was information that simply should not have been communicated in the manner it was (without, for instance, context and qualification) if it was ever going to see the light of day, rather than being forever cloaked behind the attorney-client privilege. Plans and their outside ERISA lawyers, who on a day to day basis in establishing and running a plan are typically not litigators, need to remember that their communications can end up in a courtroom in later litigation that cannot even be foreseen at the time of the communications in question, and should be careful with regard to the accuracy, context, phrasings and tone of such communications as a result.
AAA Arbitrations Now Include an Appeal Process for Complex Commercial Disputes
Years of experience litigating in the federal courts on the one hand, and arbitrating before the AAA on the other, have left me skeptical of the idea that arbitration is somehow preferable to the courts for resolving complex business disputes. My own experience is that, for those types of cases, arbitration is often not less expensive, seldom faster, and less likely to result in an accurate result (if you define accurate as a result roughly within the bell curve of possible results that an objective observer might forecast for a case). I discussed these issues in detail here, here and here in the past.
One of the bigger concerns I have discussed in the past is the risk of parties just assuming that arbitration is a better forum for a complex business dispute, rather than carefully considering in advance whether or not it is the better forum for their particular dispute and, even more importantly, for the factual and legal arguments they intend to advance. One of the important points I have discussed in the past is that a company and its counsel should carefully consider whether the strength of their position lies in legal arguments or instead in factual ones before electing arbitration, because it is a mistake to forego appellate review when your best arguments are legal. Arbitration panels themselves too frequently get the law wrong or reach incorrect results in cases where a complex or novel legal issue is outcome determinative, for a number of reasons, including an inherent tendency (for a number of reasons) to be more fact driven in their decision making than law driven. As those of you who practice in this area already know, appellate review of arbitration rulings by the courts is extremely limited and unlikely to overturn an award based simply on a glaring error in legal analysis by the arbitration panel, even though that is exactly the type of situation in which an appeals court would freely overrule a trial judge.
Now, the AAA is offering an appellate stage for complex commercial arbitrations, which will go far, at least on paper, towards addressing this problem. While it may not be preferable to going to court and having full appellate review by a federal circuit bench or state supreme court, it will at least allow the parties the opportunity to brief, address and possibly remedy legal errors by an arbitration panel. The devil, of course, will be in the details, but this is a promising step towards making the promise of arbitration – faster and less expensive but accurate dispute resolution – align with the reality.
Putting Limits on Patent Trolling: An Infringement Litigator's Perspective
The whole question of patent trolling, and the concern over it, is an issue that has gnawed at me for some time, having defended small companies against patent infringement claims by competing manufacturers and having prosecuted licensing disputes on behalf of non-manufacturing, but inventive, patent holders. My latest bugaboo on this topic is the massive patent infringement lawsuit launched by patent holding entity Rockstar against Google, and the continuing effort by state Attorney Generals to crack down on entities deemed by those offices to be trolls. What bothers me, at the end of the day, is the promiscuous use of the term patent troll, and the underlying – and somewhat Orwellian – extent to which the term is clearly thrown into the lexicon to create a negative impression of non-manufacturing patent holders who seek to enforce their rights. Certainly, there are some patent holding entities, and their accompanying lawyers, who are basically in the business of simply suing on patents to collect licensing revenue or damages. This does not, however, mean that it is fair or appropriate to call all patent holders who do not manufacture or sell in the market trolls, or to treat all such entities as somehow entitled to less than the full protection of the patent laws. Many of us have experience with university patent holders, or have worked –as I have– with inventors whose very purpose is to invent and patent a product, to thereafter license it (hopefully); sometimes these types of patent holders are never able to find a market for their product, and thus their invention is never manufactured, but this should not deprive them later of their right to damages if, years down the road, a company sells a product that infringes on one of their patents.
The Rockstar lawsuit is another perfect example. I was not the first (I suspect) and will probably not be the last to refer to IP litigation between two competitors in the marketplace as the continuation of business by other means and, frankly, I am not sure there is anything wrong with that. The big players are big boys, and if they want to invest a fortune in legal fees to attack their marketplace rivals in that way, so be it. It doesn’t change the fact, though, that such a patent infringement dispute is only tangentially about invention, and much more about collecting damages or obtaining a competitive advantage in the marketplace.
So what do you do? Everyone who sues over a patent but doesn’t manufacture or sell a product can’t be – and clearly isn’t – a patent troll, nor deserves to be tarred with that smear, and yet we know that the sole value of some patents, and sole reason for the existence of some of their holders, is to sue those who do manufacture and sell (and who by doing so create a significant number of jobs, something not true of entities that exist solely to prosecute patent infringement claims).
To my mind, the answer is easy, and doesn’t even require any type of extensive change to the patent laws or the patent process. Instead, all that is necessary is to change the damages provisions of the patent laws: create some type of sliding scale of potential recovery that is inverse to the extent of manufacturing activity, selling activity, or effort to do so (even if unsuccessful) by the patent holder. It would be easy enough to create some sort of step in the litigation process – just as there is a Markman hearing, or preliminary injunction hearing, or a summary judgment proceeding – where the evidence on this could be submitted and a court could decide this issue and determine the extent of potential damages if and when the case were to go to trial. Alternatively, one could decide that, instead, this determination should be a jury question to be decided as part of the trial. Either way, though, you could seriously alter the incentives for trolling if you made the damages recoverable by patent holders dependent on the extent to which they themselves had tried to put the patented product or method into the marketplace.
Me, Massachusetts Lawyers Weekly and Gross v. Sun Life
Eric Berkman’s article in this week’s Massachusetts Lawyers Weekly on Gross v. Sun Life, in which I am quoted, does an excellent job of explaining the case, particularly to those readers who do not have years of experience with ERISA cases, benefit litigation, or the long history of the law in this circuit governing benefit cases. I have written before of my thoughts on the Court’s opinion in Gross, but I realized, in reading Eric’s article, that his questions when he interviewed me for his article were astute enough to draw out some additional thoughts on the case, which I had not yet thought of when I posted about the case on my blog.
Eric presents those additional ideas of mine very well in his article and, citing my own personal interpretation of the fair use doctrine, I thought I would pass them along here:
Stephen Rosenberg, a Boston ERISA lawyer who typically represents insurers and employers, described the case as a “natural culmination of years of judicial approach” in this circuit.
“Whether or not it’s shown up in decisions, there’s been a certain level of skepticism on how best to apply standards of review to medical evidence in these circumstances,” said Rosenberg, who practices with the McCormack Firm and was not involved in the case. “It was only a matter of time before they deviated from Brigham and established a higher bar for obtaining discretionary review. The court makes clear — as do other circuits — that they really want to see a clear statement that ‘we retain discretion’ to decide the issues.”
He also said the ruling extends beyond long-term disability insurance plans. In many contexts, the employer itself, rather than an insurer, provides an ERISA plan and wants to maintain discretion to determine benefits eligibility, Rosenberg explained.
“These plans are often written by an in-house benefits person or an in-house attorney who has no ERISA expertise,” Rosenberg said. “Years later, when a dispute arises, the company will always want to claim discretionary review, and I think they’ll have to learn from this decision that they need to use the proper language in these types of plans as well.”
Player Safety and the Absence of Guaranteed Contracts in the NFL
I don’t want to turn this into a sports law blog, or – heaven forbid – an NFL blog (heaven knows, there are more than enough of those), but the latest work of the Washington Post on player injuries was too good to ignore. I promise, after this one, I will go back to ERISA and insurance blogging. However, those of you who have read me for awhile on the real subjects of this blog know that I am a fan of data. You want to convince me of something, show me data, and your reasoning, sources and the methodology behind it; I have little use or interest in argument by anecdote.
In “Do no harm: Retired NFL players endure a lifetime of hurt,” their latest article on the NFL’s problem with seriously injured players, the Washington Post’s Sally Jenkins, Rick Maese and Scott Clement detail survey findings as to the post-career injuries and physical conditions of retired NFL players. You should read it – the findings should be enough to dissuade anyone from continuing to think that retired NFL players with serious health issues are the outliers, rather than the norm. I often think that the articulate, well-dressed, well-off, clearly not that injured retired players on ESPN’s pregame shows and the other network’s football shows leave us with the impression that they, and not the injured and complaining retired players, are representative of the population of retired players. The Post’s survey data should make clear that is not the case.
To me, the most interesting aspect of the story is the players’ refrain that they constantly felt it necessary to play while injured (and with injuries serious enough that most of the general population would be out on long term disability benefits if they suffered from them) out of fear they would lose their jobs otherwise. The reason for this, they consistently explain, is the fact that NFL contracts are not guaranteed, and thus, if they lose their roster spot, they lose their livelihood. The Post quotes one former player thusly: “If you don’t play, they don’t pay. You will get cut if you are not on the field. That is why we play through injuries: we have to feed our families.”
Frankly, the fear that ownership will terminate them if they are injured and can’t work sounds more like an issue from late nineteenth century mining in this country than from a modern workplace (if you have ever read J. Anthony Lukas’ “Big Trouble,” than you know what I am talking about; if you haven’t read it, you should). And its easily fixed – just make NFL contracts guaranteed, like they are in other major sports, and the fear of losing their paychecks that drives players to play while seriously injured disappears.
In the Post’s series of articles and in articles elsewhere on the subject, NFL representatives claim they are working to make the game safer and to better take care of players and retired players, but point out that it is slow work. The Post’s article includes a discussion of this point:
The league is also conducting an ongoing campaign to reform what executives say is a “culture” of playing through pain.“That culture has existed and it needs to change,” said NFL Executive Vice President Jeff Pash. “That is a big part of what Commissioner [Roger] Goodell is trying to do. We’re trying to move toward a player safety culture. It’s going to take time, but I think we’re making progress, seeing them being more honest about their injuries.”
Making contracts guaranteed can be done almost instantaneously, and would significantly alter the culture of “playing hurt.” The NFL often likes to hide behind the collective bargaining agreement (“CBA”) as a reason why certain things can or cannot be done: I have little doubt though, that even to the extent changing to guaranteed contracts might relate to the CBA, that the players would agree pretty much immediately to amend the CBA to allow them, or even better, to mandate them.
I will tell you one thing. If I was representing the retired players in any of the class actions being prosecuted against the league for safety related issues, the first thing I would do when the Commissioner or anyone else testified that they were working to improve the situation, is cross them on why, if that’s true and the jury should believe them on that, they still don’t have guaranteed contracts that would give players some security in deciding to sit out when injured.
Lessons on Intellectual Property Litigation From the Baltimore Ravens Defense
This is a great story on long running copyright litigation between the Baltimore Ravens football club and a security guard and doodler, over the rights to the Ravens’ emblem. The court bifurcated the case, with liability being tried first. The jury in the liability portion of the case found infringement, but the next jury, in the damages portion of the case, awarded nothing in damages, finding that the plaintiff was not injured by the infringement. I bring this story up for three reasons. The first is that it is a just plain, good old fashioned read, even if you don’t care one bit about copyright law or, perhaps even more unforgivably, the Ravens.
The second though, is the more important one. I have done a fair bit of patent and copyright litigation (especially the latter) over the years, almost exclusively for defendants, and it is a lot harder to actually win and recover significant money on copyright infringement claims than many people – including most lawyers – believe. The headline stories of massive awards in patent infringement cases lead people to extrapolate across the board to other types of intellectual property cases, but those cases don’t actually extrapolate well. The various defenses available to defense counsel in copyright infringement cases makes for a tough road in that area for plaintiffs (much to my happiness, I admit, when I am representing copyright defendants).
And finally, the third point the article drives home is this one. When representing plaintiffs in intellectual property cases, always think twice before deciding to accept bifurcation without a vigorous battle. Its hard enough to convince a jury to find infringement, but once having done so, it is better to move onto damages in front of that same jury, with whom you have presumably already established credibility. Bifurcation forces the plaintiff to reestablish that credibility, and any sympathy, all over again in front of a new jury, and causes the plaintiff to lose whatever momentum led to the liability verdict in the first place. All trial lawyers have their own pet theories; that is one of mine.
A Belated Discovery and a New Blog to Recommend: ERISA Pundit
I am, for a change, flabbergasted and struck dumb: most people who know me will tell you I am seldom either. Luck, though, just landed me on ERISA Pundit, Warren von Schleicher’s well-written and insightful blog. Warren’s writing reminds me of a dirty, not really secret, secret about lawyers, especially litigators, which is that all lawyers think they are good writers, but very few demonstrate an actual foundation for that belief. Even a quick read of ERISAPundit makes clear that Warren isn’t among the latter; his writing brought a smile to my face on a cold January morning. If you haven’t read his blog yet, it is worth following this link.
I have to say, I had an amazingly busy 2012, but I still can’t believe I didn’t stumble across his blog until this morning.
Using the Economic Loss Doctrine to Defend Company Officers
One of the interesting aspects of litigating ERISA cases is the extent to which, for me anyway, it is part and parcel of a broader practice of representing directors and officers in litigation. From top hat agreements they have entered into, to being targeted in breach of fiduciary duty cases for decisions they participated in related to the management of an ERISA governed plan, directors and officers of all size companies spend a lot of their working life operating – in terms of legal issues – under the rubric of ERISA. In some ways, this is even more true of officers of entrepreneurial, emerging or smaller companies; due to the relative lack of hierarchy or distinct departments, in comparison to the largest corporations, officers of these types of companies often find themselves involved to one degree or another in almost every aspect of the company’s business, including retirement and other benefits that are likely to be governed by ERISA.
For me, one of the more interesting aspects of representing officers and directors in litigation is the question of when, if ever, they can be reached personally for actions that one would otherwise expect to be the responsibility of the company itself. Although lawyers are all taught in law school about the sanctity of the corporate form and the protection against liability it grants to company officers, lawyers quickly learn that, in practice, that is a principle more often honored in the breach. Both common and statutory law offer plaintiffs various ways around the protection of the corporate form, including, when it comes to retirement or benefit plans, breach of fiduciary duty claims under ERISA. The theories of piercing the corporate veil and participation in torts can also be exploited to avoid the shield against liability granted by the corporate form in many types of cases, although those can be difficult avenues to use to impose liability on a corporate officer.
All of these issues have one thing in common, which is a question of line drawing, consisting of determining exactly where the line should rest between the protection of the corporate form and the ability to impose liability on a company’s officers. One aspect of this line drawing that has always held great interest for me is the economic loss doctrine, which holds that contractual liabilities cannot be used as the basis for prosecuting tort claims. In the context of defending officers and directors against claims for personal liability based on a company’s actions, it serves as a strong defensive line against imposing tort liability on a corporate officer for the contractual liabilities and undertakings of the company itself. You can find a good example of this defense tactic in this summary judgment opinion issued by the business court in Philadelphia last week in one of my cases, in which I defended a corporate officer in exactly that type of case.
Empirical Proof of What I Always Thought (And Said): The Benefits of Litigation over Arbitration
This is great. I have lost count of how many times I have explained my view that arbitration is not, by definition, preferable to litigation for resolving disputes, and that instead, in each and every given case, a party should think carefully about which dispute resolution forum is preferable. I have written and spoken on the idea that, initially, company decision makers should put aside the assumption that arbitration will save money, because it generally does not. There are more controls on the litigation process than are built into the arbitration process and, as a result, if one side or another is interested in bogging down the process in excessive discovery, motion practice, or other efforts, they can more easily run up the costs in an arbitration than they can in litigation. Arbitration, as a result, is only less expensive if both parties set out in good faith to make it that way. If one party sees a tactical benefit in doing otherwise, though, the dynamics of arbitration make it far too easy to turn arbitration into an expensive, time consuming, seemingly never ending event. Judges, as a general rule, won’t allow this to the same extent in court.
Second, there are tactical considerations in deciding between arbitration and litigation, which have to do with the strength of a party’s case, and whether that strength is based on legal arguments or instead on facts. It is my view that a case based on legal theories is better prosecuted in court, for at least two reasons. First, motions to dismiss and summary judgment are effective avenues in that forum to have the court rule, relatively early on, as to the strength of those legal defenses. Arbitration panels are, for various reasons, more often inclined to hold all such issues over for the final hearing, eliminating the possibility of an early outcome without having to engage in a full evidentiary hearing on the evidence. In my experience, the only real consistent exception to this dynamic in arbitrations is when the arbitration panel is chaired by a well-regarded retired judge, who may be inclined to incorporate more of the courtroom structure into the arbitration process. Second, in a case built on legal theories, it is always better to have a second chance to press that theory if it is rejected the first time around, which litigation allows by means of appeal. Arbitration generally doesn’t allow that, as state arbitration acts and the Federal Arbitration Act generally impose very limited rights of appeal from arbitration rulings.
In this excellent article in Inside Counsel, authors Alan Dabdoub and Trey Cox provide empirical support for these views, which have, until now, been based simply on my own years of arbitrating and litigating cases, and of observing the difference between the two. The authors use a comparative study of 19 different cases, about half in arbitration and about half in litigation, to demonstrate that litigation, and not arbitration, can often be the faster and less expensive path for resolving disputes. It is well worth a read.
Working Backwards From a Closing
This is a very entertaining and interesting piece from AON’s Mark Hermann, leaving aside any qualms about the seriousness of the website that published it. In it, Hermann makes the case for litigation counsel to provide overviews to their clients structured around the question of how they plan to win the case, rather than just by providing an overview of the case and its history. I will take his thought one step further, and argue that every single thing a litigator does on a case should be done with that in mind; that, in essence, every decision in a case and every step taken should be subject to a litmus test of whether it gets the client one step closer to winning the case. In many ways, that was the thesis of this article of mine, on patent infringement litigation, in which I discussed the difficulties of cost faced by smaller companies forced to litigate such cases. Having litigated a number of intellectual property cases – including trying a patent case – for smaller and emerging companies who were facing off against deeper pocketed rivals, I knew that the key to cost containment was to focus strategy, discovery, expert issues, and motion practice only on the pieces needed to win at trial or summary judgment, and to avoid the siren song of pursuing interesting but expensive and likely not important side issues in the case. As I explained in the article, costs could be controlled by focusing only on the themes and issues relevant to winning, rather than pursuing every possible thing that could, but probably would not, affect the outcome of the case.
This approach – which Hermann likens to focusing on the closing of a trial – can and should influence everything a trial lawyer does, from the reporting to the client that is the focus of Hermann’s piece to discovery strategy to motion practice, all the way up to trial. If it doesn’t matter to winning, or to preventing the other side from winning (to the extent the two concepts aren’t entirely co-extensive), than it is has no purpose in a case. Deposition practice, for instance, is a perfect example. Sure, there are instances in which a deposition is taken just to get background information and understand what actually occurred. For the most part, though, depositions involve witnesses who have a known role in the events at issue and in those instances, I almost never ask a question that doesn’t already fit my plan for one of three things: what I am going to prove to obtain summary judgment, what I am going to use to prevent the other side from obtaining summary judgment, or what I am going to prove at trial. When it comes to a deposition, if a lawyer cannot explain how a particular question or answer fits into one of those three rubrics, 90% of the time the question and its answer has no purpose in the case, and serves only to extend the length of depositions and the cost of discovery to clients.
You can carry Hermann’s concern across the entire length of a case, from beginning to end. And, as Hermann suggests and my article on patent infringement litigation focused on, you can use that concern to reduce legal costs and get better results, all at the same time.
Litigating Executive Compensation Disputes
Is there a more hot button topic in the world, just as a general principle, than compensation, especially of the executive kind? From Salary.com to the outrage of politicians over financial industry pay, the subject is never far from your internet browser. In fact, just for amusement’s sake, I just googled executive compensation, and the first page of results had no less than three links claiming to tell me what executives throughout the country earn.
Of more interest to me professionally than what executives earn, though, is what happens when they end up litigating disputes with their employers over their compensation. ERISA often gets dragged into such disputes, although there are an increasing number of judicial decisions – though still few – questioning whether individual agreements with executives to set compensation should fall within ERISA, rather than being handled as pure breach of contract cases under state law. The forum, venue, nature of defenses, potential damages, and strategy in such disputes can all be greatly affected by whether the dispute should be governed by ERISA or is instead simply an old fashioned state law dispute.
I will be talking about this and more next week when I address the details of litigating executive compensation disputes in this MCLE seminar. Two other excellent speakers, Marcia Wagner and Philip Gordon, will be discussing various aspects of crafting and negotiating executive compensation agreements – I will then weigh in on what happens when that work, as it sometimes does, leads to the parties suing each other.
You can find registration information for the seminar itself and for the webcast here.
The IRS - A Safe Port in a Storm for Plan Fiduciaries (Sometimes, Anyway)
Well, as if there weren’t enough barriers to successfully prosecuting breach of fiduciary duty actions under ERISA, it turns out that you also can’t do it if the fiduciary’s errors consisted of wrongfully withholding benefits and turning them over to the IRS as tax payments. A participant, according to this opinion fresh off the presses of the Northern District of Illinois, can only remedy that mistake by getting the IRS to refund the money to them.
Defense lawyers are always fond at trial of having an empty seat – i.e., a missing potentially culpable party – to point to while saying my client didn’t do it, the person that should be sitting in that other chair at the defense table did. For those of you old enough to remember it, this defense theory is similar to, but not exactly the same as, the famous “Plan B” of noted fictional defense lawyers Donnell, Young, Dole, & Frutt, who somehow always managed to make that strategy work. For a plan fiduciary charged with fiduciary breaches or other errors related to tax aspects of a plan, pointing to the IRS and saying the participant’s only recourse is to seek a refund from the IRS is an extraordinarily potent variation of this defense. It also, as the decision in Mejia v Verizon et al appears to make clear, has a sound foundation in the federal code.
Once Again, a LexisNexis Top Law Blog
Some fun news to pass on today, which is that this blog has been named a LexisNexis top law blog for the third year running. Although I have certainly never made a Shermanesque proclamation against doing so, I have never campaigned for votes in the various top blog competitions out there, which makes recognition of this nature even more satisfying. I write this blog for many reasons, not the least of which is my endless fascination with its subject matter, and I am pleased to see that others share that interest in the topics I write on here. My thanks to LexisNexis for the recognition, and to all of you who wrote in to LexisNexis with comments recommending my blog for this honor.
When An Expert Deviates
Here is a little inside baseball for a Monday afternoon. No, not this kind of inside baseball – this kind. Its not really an ERISA story, at least not in any direct sense, but it is important to ERISA litigation nonetheless, for reasons I will get to in a moment. What I am referring to is this decision out of the First Circuit on the use of experts in a case that one of my colleagues, Robert La Hait, won the other day. Although it involves a dispute over an accidental death and dismemberment policy, a coverage some people obtain through their employers, the decision isn’t about ERISA rights or remedies, but rather about the extent to which an expert can testify at trial under the federal rules in a manner that deviates from the expert’s written report. Now, you have to remember that the rules themselves seem to suggest that, if something isn’t in an expert’s report, it can’t be said at trial, and there are certainly some district court judges who make clear that, at least in general principle, that is how they see it (I am not going to name names to protect the innocent, namely me). But the First Circuit ruling holds that there is some room for an expert to deviate from the written report disclosed to the other side, within reason and subject to the limits laid out in the decision. Its certainly worth a read, under any circumstance, for anyone who litigates expert intensive cases in the federal courts.
Beyond that, though, there is one specific hook in this case, that links it right back to ERISA litigation. Many areas of ERISA litigation raise significant issues that have to be addressed through expert testimony, including, for instance, financial expertise in breach of fiduciary duty cases involving investment selections, fees, and the like. The scope, accuracy and admissibility of expert testimony can become key, even outcome determinative at times, in ERISA cases, particularly breach of fiduciary duty cases. Several years ago, for instance, I was representing a third-party administrator charged by a plan sponsor with poor performance, and the case didn’t turn my client’s way until the eve of trial, when the court began seriously entertaining our challenges to the admissibility of the expert testimony proffered by the plan sponsor; it was the undercutting of that testimony that effectively ended the case. I tell this story for a reason, which is this: while the legal arguments about fiduciary standards and the like are important, it is equally important to pay attention in an ERISA case to the mechanical, nuts and bolts details of litigation (such as the admissibility of expert testimony) that lies at the heart of all federal court litigation. You can win or lose an ERISA case by falling down on either one of those points. This First Circuit ruling is a good example of one of the litigation details that cannot be missed while arguing over the complicated legal issues inherent in an ERISA case.
Lies, Damn Lies, Baseball Statistics and Wal-Mart
I don’t know, maybe I had something rattling around in my brain about statistics in light of the then still pending Wal-Mart case when I wrote my last post, ostensibly about the use (and misuse) of statistics in baseball analysis, and less ostensibly about the use (and misuse) of statistics in litigation. I certainly wasn’t conscious of any concern on my part about the Supreme Court and Wal-Mart when I wrote that post, but the post now seems to have an air of precognition to it, at least in hindsight (one wonders whether it is possible to have precognition in hindsight, given the dictionary definitions of those words, but nonetheless). I particularly wasn’t thinking about Wal-Mart when I wrote that post because, like most casual observers of that case, I had long ago come to think it of as a case about class certification and class action requirements, and not about issues such as the proper role of statistics in litigation.
Regardless, one of the most interesting things right off the bat to me about the Court’s ruling in Wal-Mart is the extent to which its rejection of the statistical evidence at issue mimics the views of statistics in litigation that permeate my post on baseball statistics. As both the Court’s decision and that post suggest, there is no legitimate basis to rely on statistics when they do not, in fact, establish factually a specific point that could not otherwise be proven in a different manner of presenting evidence. This is another way of saying that statistical analysis does not belong in a court case, at any stage, if it does not illuminate – and do so accurately - a point that could not otherwise be shown.
Lies, Damn Lies and Baseball Statistics
I am going to take a flyer, because after all this is my blog, and post a digression that really has nothing to do with the subjects of this blog, other than the fact that it relates to the significance of statistics and their impact on litigation, including financial litigation involving ERISA plans. I have talked before about the extent to which the role of statistics in this area – as in all of litigation, frankly – can quickly move the parties into the netherworld of half-truths, inaccurate modeling, and misleading statistic-based assumptions that spawned the well-worn phrase “lies, damn lies and statistics.” The phrase, for those of you not that familiar with it, basically reflects the idea that statistics, used for evil rather than good, can be used to try to show to be true something that is, in fact, not so, and that absent the cover of statistical analysis and complexity, would be seen quickly as either a lie or a damn lie.
This problem permeates litigation, whenever one moves into areas that require extrapolating from a small set of examples, such as determining damages across an entire class based on the data relevant to a limited number of class members or, in another type of scenario, determining contractual rates of performance by extrapolating from a defendant’s performance in a subset of cases. Cases built around such statistical approaches can run off the tracks, if one side or the other’s statistician applies suspect methodology. Of most fun to me, methodological errors, if the lawyers on the other side are astute enough to recognize them, can invalidate one side’s expert testimony and preclude its submission to a jury.
The extent to which statistics can be used or misused in this type of way to either illuminate or instead obfuscate what would otherwise be discernable to the observer has never been so well-illustrated as it has been in recent years by the explosion in the use of statistical analysis in major league baseball, a point both illustrated by and discussed in this article, from the new, overtly literate sports website Grantland (something I see as an attempt by ESPN to expand its tentacles to swallow up those few of us remaining sports fans who don’t think talking heads on a television screen yelling at each other about sports is all that interesting). Statistical analysis has devoured the front offices of baseball teams, replacing, in many instances, career observers and students of baseball, like a Pat Gillick, with laptop cradling, statistics-obsessed graduates of top-flight universities who, absent this opportunity to use math to grab central roles in baseball front offices, would have taken their math skills to Wall Street, or become well-paid actuaries.
However, what is getting lost in the shuffle here, and perhaps more than that in the smoke, mirrors and obfuscation that statistical analysis, when not properly placed in context, can generate, is that the statistical analysis being provided by the new, younger generation of baseball executives is not a “new” way of looking at baseball at all, but is simply the art of reducing observed reality to data that anyone with an understanding of the math can grasp and apply. What the data and their crunchers are doing is reducing the events that make up baseball games to numbers, so that people without vast experience observing the game and its myriad variations can understand and act on the game’s nuances. These analysts are not, however, doing anything more than illuminating facts that astute observers, after observing thousands of games and the variations inherent in them, have previously mastered based only on decades of watching the game and its possible outcomes in different circumstances, without ever reducing that knowledge to mere numbers and statistical formula. In essence, astute and experienced people who have seen enough baseball can tell you the same thing, and make the same judgment calls about which players are good at what, how to use players, what tactical decisions to make, and what players to sign, without ever needing the crutch of statistical analysis to do so. This, however, takes not just perception – something that not every baseball insider has – but also the decades of experience needed to see enough variation in the game, its players and its outcomes to be able to forecast outcomes. It is neither a coincidence nor an indicia of youthful expertise and comfort with math that the statistical revolution, such that it is, in baseball has resulted in ever younger baseball executives replacing much older, experienced warhorses. Rather, it is because turning the reality of baseball into numbers that can be analyzed independent of actual experience with the sport allows anyone astute enough to manipulate statistics to become an expert of a sort on baseball, without the need to first observe however many tens of thousands of hours of the sport that the old guard, without access to such data, had to see first hand before they could make the same evaluations and reach the same conclusions.
Want proof? You can find it right here in this article on Moneyball on Grantland, with its discussion of fielding being undervalued statistically, and the use of that fact by some teams to improve their ballclubs by focusing their spending on buying fielding. But there is nothing new about the idea that defense wins and that you can win by putting excellent fielders out there; all that is new is the reduction of that maxim to data points. Earl Weaver, whose expertise was developed by a lifetime spent watching baseball games, and who by doing so collected in his head – whether he realized it or not, although I think he did – all of the same data points that the new egghead baseball thinkers collate obsessively and then reduce to formulas on their laptops, always emphasized the importance of defense, yet he retired when most of the current generation of young baseball executives were in elementary school, assuming they were even born yet. Want more? Before the current statistical obsession turned to proving the role and importance of fielding, the baseball stat people were obsessed with demonstrating the lack of importance of bunting, hit and runs, and anything else that gave up outs and at-bats for free, in comparison to the importance of taking advantage of those opportunities at the plate; that whole idea is nothing more than the reduction to numbers of the Earl of Baltimore’s well-known hatred of bunting and the hit and run (something which some observers, incidentally, still think cost his team the 1979 World Series).
The point of this is not to belittle the new generation of baseball experts, who interpret baseball reality by what numbers tell them, but to illustrate a fact which too often gets missed: that statistics in baseball are not a new way of looking at the game, but are instead merely the reduction to numbers of a reality that others were already able to see. It has always troubled me that this simple fact has long been ignored in the glorification of the new baseball statistics, and in the idea that the older generation of baseball experts - people like Jack McKeon who somehow, despite not running SPSS packages for fun at night, still won a championship - suffered from a blind spot and did not know what the numbers showed.
And I suppose if I have to tie it back into the subject of this blog, and to my own professional preoccupations – which include the need to communicate clearly to juries and to understand when expert analysis is only interfering with doing that – I would point out that this is the perfect illustration of exactly how statistics, misused, can misrepresent reality in the courtroom. It is always important to grasp the extent to which statistics are clearly demonstrating a reality that cannot otherwise be seen, and when they are instead simply illustrating what could be seen without statistics and instead with careful observation. If you think about it, under the rules of evidence, statistical evidence doesn’t belong in a case in the latter instance, but can be truly illuminating in the former. The use of statistics in baseball, and how we think of them, is a perfect representation of this distinction.
On Disclosure and Conflicts of Interest
In my life as a trial lawyer, I have found myself in a recurrent situation, in which a judge or an arbitrator eventually looks at me in an argument over discovery and asks if I really want the information I am after, as it could run against me. I always answer the same way, to the effect that I am comfortable with facts, believe that more information is more likely to lead to the just result in the case, that I will trust the facts to show us which way to go, and that I am more than willing to let the facts come out in the open and drive the case. Now, the truth is that, before ever seeking the discovery that is at issue, I will have long since thought through the subject and become convinced that the evidence in question, once brought out, is far more likely to help my case than to harm it; the reality, from a tactical perspective is that, otherwise, I would not have pressed the point in the first place, with me going so far as to ask a court or arbitration panel to order production of the witness, or documents, or whatever else is in question. That said though, my response - to the effect that I favor the facts coming to light - is a true sentiment. Facts are stubborn things, in the classic formulation, and they decide cases; I am more than happy to have them see the light of day. Heck, I would certainly like to know of them while I can do something about them, even if they are bad for my case, than have them just show up for the first time out of some witness’ mouth on the stand in the middle of a trial.
I thought of this when I read this investment manager’s discussion of the Department of Labor’s expansion of the term fiduciary, which I discussed in my last post, and of the Department’s various initiatives related to fee disclosure, in particular his discussion of lobbying against those actions. Like facts in a lawsuit, the facts of revenue sharing, fees, and the like belong in the open, and can do nothing at the end of the day but improve outcomes for participants, plan sponsors, fiduciaries and the better advisors. What’s wrong with a little sunshine, a little transparency, and a lot of disclosure in this context? Frankly speaking, probably nothing. Participants will eventually end up with better outcomes, while plan sponsors and fiduciaries will have the information needed to best do their jobs, which will - if they use the information right - make them far less likely to get sued or, if sued, be held liable for fiduciary breaches. Meanwhile, we all know that advisors get paid fees, as of course they should; the only change is that everyone involved in the decision making will know who is getting paid what and for what exact services. Under that - possibly excessively rosy - view of the world, the end result should just be that the better advisors, who are providing better products and services at better prices, will get more of the business. What’s wrong with that, from a forest eye view?
Interview in Fiduciary News
I have written before, on many occasions, about the evolving nature of fiduciary status, and in particular on the shifting regulatory landscape in this regard. Here is an interview I gave to Fiduciary News on the latest proposed Department of Labor regulatory change concerning the meaning of the word fiduciary in the ERISA context. If you want more background detail on that regulatory change itself, you can find it here.
Percentage Players Die Broke Too
I have always wanted to write another blog about trial tactics and litigation strategy, and call it Percentage Players Die Broke Too, after the famous line by Paul Newman in the world’s finest film, The Hustler (that’s the first one, mind you, not the embarrassing sequel they did with Tom Cruise many decades later). For now, though, I am going to settle on adding a new subheading to the digressions section of this blog, titled “Percentage Players Die Broke Too: Notes on Litigation and Trial Tactics.”
And the very first entry in that section is a link to this excellent post here, by North Carolina business litigator Mack Sperling, about upcoming changes to the federal rules that are intended to end one of my favorite pieces of federal court gamesmanship, the discovery of communications between experts and the lawyers who retain them, as well as of draft versions of expert reports. For awhile there, before everyone caught on, you could get ahold of such material, which could often be of great help in impeaching an opposing expert, simply because opposing lawyers mistakenly believed that they could engage in such communications and have drafts of reports revised under the cloak of privilege. They could not do so, in fact, and nothing was more fun that seeing the face of opposing counsel when they learned this.
In truth, over the last few years, it has become rarer and rarer to find opposing counsel who walked into this trap, and it was more a question of whether a particular expert prepared drafts that contradicted his or her final report without realizing the earlier draft might be discoverable.
Nonetheless, as the author points out, those days are gone forever. I should just let them go.
An Emerging Consensus on Arbitrating Complex Commercial Disputes?
Well, I have written extensively on my skepticism about commercial arbitration as a tool for solving commercial disputes, and my belief that the courtroom is a better forum for most complex cases. It would take a lot of links to cover my past discussion of the pros and cons of this type of dispute resolution, and my reasons for thinking it a far weaker forum for a dispute between corporate entities than the courthouse. If you click on the category “Arbitration of Coverage Disputes” or the category “Arbitration” over on the left side, however, you will quickly find my past discussions of this topic. If you don’t want to do that, however, you could read this article here, which nicely sums up the same calculus that underlies my earlier posts on the efficacy, and sometimes lack thereof, of commercial arbitration.
Could the Deepwater Horizon Alter the Trajectory of ERISA Stock Drop Litigation?
BP has a giant employee savings plan, making it a prime target for stock drop type ERISA breach of fiduciary duty claims in light of the Deepwater Horizon leak, as I mentioned here in this post, and the lawsuits and the investigations that will eventually result in lawsuits are coming out of the woodwork as fast as vampires in one of the Twilight movies. As I noted in this earlier post, I am beyond skeptical of any such claims that are premised on the simple thesis that the fiduciaries breached their duties by not anticipating and accounting for the risk of this type of a loss when deciding to include or emphasize company stock in the plan. However, less flippantly and more exactingly, the same is not necessarily true for the alternative thesis, which I assume to be what many of these claims will play out as, that the fiduciary breach doesn’t relate to this specific environmental loss and its impact on the stock holding, but rather is that, in light of the regulatory and environmental universe in which BP operates, it was imprudent to hold or allow employees to hold a disproportionate amount of company stock; in other words, that the risk profile of the accounts as a whole was too high because too much of the investment was in company stock in an industry subject to unique and potentially catastrophic risks. Just a quick, non-analytical glance at BrightScope indicates a large company stock exposure in the BP employee savings plan, incidentally. In this sense, these claims, and the BP fiduciaries’ exposure, is no different than other instances of companies whose stock fell at a time that employee retirement accounts held a disproportionately high share of that one stock. What makes the claim here a little different, however, is the argument that there is something unique to the industry that calls for less company stock being offered to employees and instead a greater fiduciary emphasis on diversification than would be the case in other industries. For instance, if a Gillette or a Grace is sued after a stock drop, the argument is essentially that prudent investing practice as a whole calls for greater diversification, and the claims against the fiduciaries, to dress them up, may also include the argument that the fiduciaries should have anticipated stock market risks based on their knowledge of the company and its industry that should have caused them to prevent the excessive accumulation of company stock. With the BP claims, though, what you would have, I suspect, is less the argument that greater diversification was needed as a general principle, in favor instead of the argument that the oil industry itself is so subject to unique, stock value demolishing risks - from tanker crashes, to oil well blow outs, to nationalization, to wars - that it was simply imprudent to allow an excess exposure to the industry and certainly to any one particular company in that industry. (Incidentally, there is no better overview of these topics and the peculiar risks of the oil industry than Daniel Yergin’s The Prize, which may perhaps be necessary background reading for the law clerk of any judge assigned one of these cases).
Its an alluring theory, but one that raises the question of whether it plays out against the backdrop of past case law and the development of fiduciary standards when it comes to employer stock holdings, which would suggest that the claims on their merits have weaknesses, or whether instead they play out against the political backdrop of the Deepwater Horizon event and the economic losses it is strewing across a range of actors, including but not limited to the employee shareholders. If it plays out against that later backdrop - as a, perhaps, unseen or unspoken influence - the question becomes whether this fact pattern could shift the nature of these types of claims in a direction that could give them far more traction than the past history of claims of this nature suggests would otherwise be the case.
The Envelope, Please . . .
Funny that I referenced the Oscar Awards the other day in a post, as I just found out this blog has been nominated as a top insurance blog by LexisNexis. You know how all the Oscar nominees who don’t win always say its an honor just to be nominated? I never believe them - I am in this to win!
Can the Deepwater Horizon Spill Sink the Fiduciaries of BP's 401(k) Plan as Well?
Well, someone thinks so. You can count me, though, as monstrously skeptical that you could tag the fiduciaries of the BP 401(k) plan with breach of fiduciary duty for overexposure to company stock because they failed to expect the Deepwater Horizon explosion and account for it by greater diversification. On the other hand are two notes: (1) perhaps there is a circuit, somewhere out there, with fiduciary liability standards for company stock investment that are so loose that including BP stock ahead of such an event could be deemed an actionable breach; and (2) the decline in the value of the plan’s assets may be so large that, if a class gets certified, even a minor settlement to avoid a potential ruling against the fiduciaries could easily run into the tens of millions.
An Employer's Guide to Health Reform
I expect to be litigating, down the road, issues, complications and conundrums created by health care reform. Let’s be honest - its impossible to imagine any large structural undertaking not generating problems, including unforeseen ones, that will have to be resolved by the courts. For now, though, the issue is more one of planning for changes, and what needs to be done now to accommodate them. My colleague George Chimento, whose paper suggesting that employees should not be given the option of managing their own 401(k) accounts is discussed here, passes along this client advisory on “Baby Steps: an Employer's First Year under Health Reform,” which addresses these changes.
What Daubert Can Teach Us About Electronic Discovery Problems
I have written before, probably on more than one occasion, about the fundamental philosophical problem underlying electronic discovery, which is that lawyers and courts continue to view it through the traditional rubric of discovery, one formed in the world of paper documents, interrogatory answers, and deposition testimony. As I have discussed in the past, battles over scope, relevance, costs and burden in that context had some built in controls and limits, namely the actual range of existing files, documents and witnesses. Thus, except in the most extreme and outlier cases, allowing broad discovery wouldn’t overwhelm any party, back in the days of paper. That’s not the case today with electronic discovery, which, as we all know, can expand exponentially, without the type of built in, apparent physical limitations that exist with paper discovery.
As a result, when parties begin seeking electronic discovery under the old rubric of it should be produced if it could possibly lead to evidence, and courts look at an electronic discovery dispute through that old prism, you end up with a presumption of production and a correspondingly broad - and expensive - electronic discovery mandate. It is understandable that lawyers and the courts look at electronic discovery through this traditional frame of reference, for we are all products of our training and experience, and neither the federal rules nor the developing case law in this area push very strongly against this traditional approach to discovery. But the costs of applying the traditional discovery thinking to electronic discovery problems are high, because assuming the relevance of discovery and allowing unfettered electronic discovery without strong controls guarantees broad electronic discovery and high costs, given the expense of that area of discovery. The right approach and antidote to this, I have said before, is a shift away from the traditional thinking on discovery, and towards hands on judicial control of the process, one in which cases are staggered whenever possible to avoid electronic discovery into areas that, as the case plays out, may become unimportant (think of, for example, holding off on damages discovery until liability is proven), in which a party seeking electronic discovery that could be burdensome is required to really show an evidentiary basis for seeking it (think, for example, of requiring deposition testimony or other documentary evidence indicating that the electronic discovery could actually hold some evidence of value before the electronic discovery is allowed), and in which a party opposing the discovery must actually prove high cost and business disruption by competent and admissible evidence.
The analogy that comes to mind for me is a Daubert hearing, conducted to test the admissibility of an expert’s testimony in advance of trial. A similar type of mini-trial type proceeding would be a natural forum for testing whether electronic discovery, when challenged by a party, is warranted. It seems a safe assumption that, over time, the amount saved by parties from the reduction in the scope of electronic discovery that would likely ensue would significantly outweigh the increased discovery costs of engaging in a mini-trial of this nature. And as for the benefits to the courts? Well, all litigators know the old saying that nothing focuses the mind on settlement like a trial date; I suspect nothing will more motivate lawyers to compromise on, and agree to, a particular scope of electronic discovery, than the possibility of having to try the issue in a Daubert like setting.
Oh, and here’s a nice article on the problem from the National Law Journal that started this reverie for me this morning.
Attorneys as Fiduciaries
Are you, or have you ever been, a fiduciary? Sometimes I am tempted to open a deposition with exactly that question, phrased as a derivation of the famous McCarthy era line. While I doubt I ever would do it, it’s the million dollar question in most breach of fiduciary duty litigation under ERISA. It is so often outcome determinative, that many cases go away after a ruling on that threshold issue (whether by dismissal if the answer is no, or settlement if the answer is yes), without anyone ever tackling the question of whether imprudent conduct that fell below the fiduciary standard of care ever actually occurred.
That’s a long lead in to this interesting article published by BNA, in which I am interviewed, on the role of attorneys and whether they can become fiduciaries to the benefit plans with which they work. Lawyers who are in essence working in the traditional role of outside advisors to plans and their sponsors really shouldn’t be deemed fiduciaries, but one can envision, at least in theory, an attorney crossing the line and taking on decision making authority that rightly belongs to plan fiduciaries in a manner that could give traction to a claim that the attorney was, in fact, a fiduciary.
On a side note, I know creating content isn’t cheap, so thanks are due to BNA for freely allowing me to republish the article here.
Fees, Me and BrightScope
This is fun - I am quoted in a nice article on BrightScope, which you can find here, reprinted on The Intelligent 401k Advisor blog (you can find the original article on Workforce.com, but you will have to register to get access to it).
A Nicely Supported Overview of Global Warming Litigation and its Impact on Insurers
Well now, I think this is exactly what I said in this post here, as well as elsewhere on this blog in the past. Global warming litigation is heating up (pretty funny pun, huh?), litigation costs from the defense of those cases pose a significant threat to the insurance industry, and insurance coverage litigation to sort out coverage for those costs is bound to follow on the heels of such global warming cases. This story that popped up in my in-box today does, however, provide the most systematic overview of these points that I have seen to date. It’s a particularly provocative read right now, as I look out my window here in Boston at temperatures in the mid-forties and sunshine, even though its still just the beginning of March.
A Parable About the Cable Man
For reasons too obscure and uninteresting to mention, I have had almost nothing to do with the cable tv industry since, well, it was invented. What’s a DVR, anyway, and why would I want one? But yesterday, I had to obtain digital cable from my local cable company, and called them, braced to be gouged. Instead, I was offered a special deal for a year, much less than I was expecting to pay, with stuff I would never pay for thrown in. A few hours later, of course, the reason occurred to me. The cable monopoly I recall from my youth is not what I was dealing with, and I was instead talking to a cable company that had competition from dishes - Dish.com, I guess? - and the local telephone/internet/cable company, so instead of gouging me, they had to offer me a deal they figured would keep me as a customer. Classic economic, legal and antitrust theory holds that there are really just two ways to police pricing - competition or, in its absence, regulation. Competition, of course, is why I got my sweet deal on cable yesterday.
So what does this have to do with the topics of this blog? Seems like plenty, in that it is the absence of above board open competition that is at the root of much of the problems discussed in these pages concerning ERISA governed plans. I have discussed in many posts that the problem with health insurance coverage through employers has much less to do with the question of whether employers want to provide it than it has to do with the ever escalating cost of health insurance and the fact that providing health insurance is a punishing cost. Employers, in my view, are unfairly demonized as trying to avoid providing health insurance, but it is the cost that is driving their increasing balkiness about being, as I have described it in other posts, unofficially deputized as the providers of health insurance in this country. From where I sit, one of the fundamental problems with acts mandating health insurance provision or payments by employers is that they don’t account for this, either by reducing health insurance costs or by recognizing the business costs imposed by these types of statutes. Does anybody really think that the restaurants targeted by the San Francisco statute are swimming in profits? This article here, profiled on the Workplace Prof blog, describes this exact concern about costs as the driving force behind employer, and particularly small employer, health insurance decisions.
And perhaps one solution to the problem of the cost of providing health insurance - perhaps the most important one - is that what is good for the cable industry should also be sauce for the gander, i.e., much greater competition among, and significantly less market control by, health insurers, as pointed out in this op-ed piece here by Robert Reich (when even the archetype liberals are arguing that market competition is the answer to all evils, you know the world has turned upside down).
And the same thought continues across to 401(k) plans, and the ongoing issue of fees and costs in investment options, and how they are disclosed. What if, instead of arguing after the fact about whether the fees in a particular plan were too high, prudent fiduciary practices were deemed to require a competitive process for selecting investment options, in a manner forcing putative vendors to put their lowest cost options forward to win the business? Isn’t that what all the complaining about large asset plans that don’t use their size to win better pricing is about, after all? Instead of just complaining in the abstract that plan sponsors should have acted that way, or engaging in after the fact litigation to try to police how much should have been charged in fees, wouldn’t it make more sense to just require a fully competitive process among vendors for selecting investment options, conducted by fiduciaries - or their delegates - who have the knowledge base to understand the pricing structure of the proposed options?
In that version of the world, it would be a fiduciary obligation to impose a fully competitive, open call for investment options, and to select the best - including on fees, costs, disclosure and performance - from among them, with it being a fiduciary breach for failing to pursue this process (rather than it being a fiduciary breach for ending up with fees that are too high). The focus would return in this way to fiduciary practice, both in terms of judging conduct as meeting or failing to meet the standards of a fiduciary and in terms of whether to impose liability, rather than on an after the fact, necessarily subjective evaluation of the amount of fees, costs, or disclosure in a particular plan that resulted from the fiduciary’s decisions.
Open competition would certainly drive down the fees and costs in plans, while simultaneously giving fiduciaries a clear standard - namely their obligation to decide on the basis of such competition - against which to work. I can’t help but think that, like the cable customer, plan participants will end up with better and cheaper products to pick from, while plans - and their insurers - will spend substantially less on litigation costs.
How Will Climate Change Affect LTD Carriers?
Who knows? The only link between the two subjects that I know of right now is that this blog post is going to touch on both issues.
There are a couple of stories I thought I would pass along today that may be worth reading. In the first, here, I am quoted on climate change litigation and the potential costs to the insurance industry. Personally, I am hard pressed, as a litigator who spends a lot of time dealing with issues related to the admissibility of expert testimony under the current federal court structure, to imagine plaintiffs who are pressing a climate change case ever being able to prove causation, or, for that matter, even being able to submit expert testimony to prove causation. Take one particular hypothetical case, a claim that in essence pollution increased the ocean level and is responsible for some particular piece of coastal property damage. How would you ever prove causation in a federal court between the pollution and the rise in the water level, given the strict standards for admitting expert testimony under current federal law? Or for that matter, even if you could prove that element, how would you ever prove one particular defendant’s factory - or even those of an entire particular industry - was the cause, as opposed to hundreds of millions of automobiles or a million factories in China, just to give two examples? I don’t see the current state of the scientific research being sufficient for a court to allow experts to testify to the elements of causation needed to recover on these types of claims. That said, though, I also don’t think much of the theories used to recover the GNP of a mid-size country from the tobacco industry, but all that took was a couple of courts to give credence to such theories, and you know how that ended up after that. All it would take is one judge somewhere to allow plaintiffs to go forward on these types of claims, and industry - and quickly their insurers - will end up, at a minimum, footing the bill for very large defense costs in response to such cases.
The second story, here, I pass along just because it is fascinating, to anyone who handles long term disability cases or likes statistics, or both. Who knew doctors claimed long term disability at a disproportionate rate?
Three for Thursday
I am going to catch up on a number of items I have meant to blog on this week, all in one fell swoop. So here goes:
• I posted before about my appearance in an article in the Boston Business Journal, but one that was only available on-line to subscribers. Here it is in another forum, openly available.
• I, and a cast of thousands, have been saying for some time now that the plaintiffs’ class action bar has wisely latched onto ERISA breach of fiduciary duty theories as an excellent replacement for bringing pure securities actions. As I have discussed in other posts, there are a variety of reasons for this, including easier discovery and possibly easier avenues to recovery. In addition, securities law in the area of what we in ERISA would call “stock drop” type litigation is much more well developed than it is under ERISA, leaving more room for tactical and theoretical maneuvering. Beyond that, the sort of backlash in public opinion, in Congress and in court decisions that existed - at least prior to the most recent market meltdown - with regard to securities class action litigation was non-existent with regard to framing the same types of cases under ERISA. Here’s a dog bites man story out of Business Insurance reporting on this phenomenon. Anyone who has been reading this blog or similar sources over the past few years already knows what the article is reporting, but it is still a nicely done introduction to the topic.
•And speaking of using ERISA for class action litigation, one of the central questions with regard to the increasing use of that statute to press stock drop litigation and its cousin, excessive fee litigation, has long been whether it is a successful tactic. The successful defense of the excessive fee claims in Hecker v. John Deere, in the Seventh Circuit, at an early procedural stage and prior to detailed discovery into the facts of the plans and the fees at issue, strongly suggested that ERISA claims of this nature may be no more likely to get past the procedural stage and into expensive litigation of the merits than a pure securities theory would be. The Supreme Court’s subsequent pronouncements in Iqbal seemed to confirm the approach taken by the Seventh Circuit in Hecker, of testing the legal viability of the underlying ERISA based theories before allowing the plaintiffs to conduct discovery that might more strongly establish the legitimacy of their claims (or lack thereof, for that matter). As many have been reporting, the Eighth Circuit has just essentially taken the opposite tack, in a putative class action case against Wal-Mart, Braden v. Wal-Mart Stores. Braden can be understood, in part, as rejecting the approach taken by the Hecker court and finding that discovery is necessary before the merits of a complex excessive fees type claim can be decided. For more detail on Braden, here is Paul Secunda’s take on the matter over at the Workplace Prof (including a link to the case itself) and Roy Harmon’s take on the matter (which focuses nicely on the Rule 8 pleading requirements) at his always illuminating Health Plan Law blog. I have said before that with the increased focus on fees, the increased focus on the lack of retirement savings of most Americans, and the economic impact of high fees on returns in 401(k) plans, Hecker may turn out, in hindsight a few years down the road, to have been the high water mark for the corporate bar in defending against such claims. I am not sure whether that’s a good or a bad thing (I suspect, actually, that it’s a mix of both, but addressing that in depth here would make for an awfully long post), but it may well be the case either way.
Me and My Blog
Continuing last Friday’s line of digression away from the actual subjects of this blog, I thought I would pass along that I am featured in an article in the current edition of the Boston Business Journal, on the subject of legal blogs. Here’s a link to the article, although you need to be a subscriber to access the rest of the article (including the rest of the quotes from me and a smiling picture of my handsome visage).
Preemption, the Supreme Court, and Job Losses
I had two disparate items that I wanted to post on, one of which I didn’t really think had anything to do with the subject matters of this blog but that, nonetheless, was too cool a graphic not to pass on. Sitting here this morning, though, I figured out how to hook them together, so here goes. The first is the report, which many of you have heard by now, that the Supreme Court has sought the government’s views on whether to accept cert with regard to the Ninth Circuit’s ruling on preemption and the San Francisco health insurance mandate. I can throw out two, or actually three, quick thoughts on that one. First, dollars to donuts says the government’s advice is to not grant cert, and to wait and see whether federal health care reform either directly or in a de facto manner moots the entire question. Second, the reality is that, under current doctrines, that statute is preempted; the Supreme Court doesn’t necessarily have to overturn any precedents to find otherwise, but it is going to have to shift the analyses of the preemption case law to find that this statute is not preempted. Third, I can’t say - as one who has watched the questionable implementation in Massachusetts of its state legislated, and presumptively preempted, employer mandate - that I agree with those who think that preemption should be set aside to allow states to become bastions of experimentation on health insurance reform; anyone who has followed my posts on the Massachusetts statute knows I don’t think the states have the pocketbook or the firepower to handle the issue successfully.
What was the second item, the one that wasn’t clearly on point to this blog? Its this graphic representation of job losses and gains throughout the business cycle for different metropolitan locations across the country, a link I have shamelessly pirated this morning from the Workplace Prof blog. My first response to it was that I loved the graphical representation of complex data; it’s the same thing a trial lawyer has to do in a case of any level of complication, which is make the background information understandable, and this graphic does that beautifully. Trial graphics in particular have to serve this purpose, and this graphic could be the exemplar of exactly what computer generated graphics for trial should be: easily understandable and visually interesting representations of what otherwise would be difficult to grasp or, at best, tedious to follow information. But how do I link this graphic to this blog post? Easy, by using it like a trial graphic to make a point. If you move the time line to 2009 on the graphic, you will see the massive amounts of job losses - there is no better illustration of the point I have made time and again about employer mandates, which is that employers have enough on their plates without being made the official provider of health insurance (they have long been the unofficial one, but employer mandates push that responsibility even further). Employers should create jobs, not spend their time worrying about the costs and administrative burdens of legislated mandates such as the San Francisco ordinance or the Massachusetts Health Care Reform Act - this, in fact, may be the most concise justification for preemption of such acts I can think of.
A Personal Reflection on Iqbal
When it comes to the law, I am conservative by nature, in the “if it ain’t broke, don’t fix it” meaning of the word. I am not speaking here of substantive legal rules, or case outcomes, and how to view them, but instead of the bread and butter elements of a litigator’s life, evidentiary rules, rules of civil procedure, pleading requirements, burdens of proof, and the like. If something of that nature is working well enough in the real world, in places like the courtroom where the rubber meets the road when it comes to any high minded thinking about legal issues, I tend to be skeptical of proposed changes, whether that concerns new rules of expert disclosure or a doctrinal shift in a particular exception to the rule barring hearsay testimony.
What brings this to mind at this moment is the issue of Iqbal, and the requirement imposed by it that plaintiffs plead facts that could actually support a cause of action, with the accompanying instruction - or at least implication - to federal judges to look, in essence, critically at the facts as pled to determine whether there is a viable case that should be allowed to proceed. Even though such a rule adds to the arsenal of the lawyer representing a corporate defendant, of which I am one 80-something percent of the time, I had always felt the prior rules of initial pleading worked well enough, and that there was probably no need to mess around with it, although I always recognized that it made dismissal at the initial stages something that could almost never occur except in the instance of a plaintiff either truly erring in pleadings or pleading a cause of action that simply doesn’t exist.
But I have come to believe, as I have continued to read the plaintiffs’ bar’s criticism of Iqbal - see here for instance - and the academic analysis of it - see here - that the rule makes sense, and that Iqbal represents a change for the better. As in most things in the law, my take is based on my own experiences in the litigation of cases, which I think is the best laboratory for analyzing any particular rule of law - theory is all well and good, but what happens when you actually put something into practice, and how it affects the litigants and the administration of cases, is what matters. Years before Iqbal - and even Twombly, for that matter - I litigated a copyright infringement action in which I represented one of the defendants, and the court dismissed the action on a 12(b)(6) motion on the thesis that the complaint showed that the statute of limitations should bar the claim because the plaintiff had constructive notice of the infringement at a much earlier date than the actual date of discovery pled in the complaint. Although we did not have the language of Iqbal and Twombly to use at that time to describe such an investigation into the factual merits of a complaint at such an early stage, the court was in essence Iqbal-ling the complaint, and dismissing the action. This being pre-Iqbal, the action was eventually reinstated on appeal, on the ground that the then applicable rules for pleading a cause of action were satisfied and the grounds for a dismissal at that stage - which were very high prior to Iqbal - had not been met; in essence, the appeals court concluded that a determination on that issue would have to be made at a later date, and could not be done on a motion to dismiss under the pre-Iqbal rules. Remanded, then, to the district court, the case then proceeded through discovery, extensive motion practice, and a trial, after which the jury found the exact same thing that the court had concluded in reviewing the complaint: that the plaintiff should be found to have had constructive notice of the infringement at such an early date that the statute of limitations barred the claim. Thus, pre-Iqbal, you had one appeal and a trial to reach the exact same conclusion that the judge could see just from the face of the complaint, right at the beginning of the case.
Iqbal, now, prevents this scenario, and allows the court to make an early ruling of that nature, and it would have been the right way to handle that case. Who benefits from allowing such a case to go forward? My own view is no one, except maybe the lawyers billing on the case. The defendant has to litigate for years to get to the same conclusion that could have been reached at the beginning, and which Iqbal now allows the court to reach early on, while the plaintiff spends years chasing a claim that a court can rightly determine early on will never come to fruition. Iqbal, in the hands of careful jurists, protects both sides of the v. from such a Quixotic quest.
What Goes Up Just Keeps Going Up - Health Costs and Employer Mandates
For a long while, I have felt like a lone voice or (to mix my metaphors) at least the skunk at the garden party, when I have criticized employer mandates and, even more so, the Massachusetts Health Care Reform Act. As I have frequently discussed in various posts, the problem with these statutes is that they don’t target the real problem in the provision of health insurance by employers, which is cost - that is what is driving employers to reduce or not provide such insurance to their employees. Mandating insurance, payments or penalties simply penalizes employers for not being able to afford to do something that, pricing being better, they would have done - and historically did do - on their own, which is provide health insurance as an employee benefit.
Marcia Angell, a prominent Massachusetts physician, made this exact point about the Massachusetts Health Care Reform Act, when she explained that its fundamental flaw is that:
In Massachusetts [which enacted an individual mandate in 2006], there is no real price regulation. Essentially what the mandate does is say to people, you will go into this treacherous market and buy insurance at whatever price the companies choose to charge. In effect, it’s delivering a captive market to these profit-oriented companies. . . . Massachusetts already spends one-third more on health care than other states, and costs are rising at unsustainable rates. As a result, they’re chipping away at benefits, dropping beneficiaries and increasing premiums and co-payments.
Now, the Boston Globe today has an article reiterating and driving home this same point, in which it reports that “[t]he state’s major health insurers plan to raise premiums by about 10 percent next year, prompting many employers to reduce benefits and shift additional costs to workers.” The article goes on to point out that controlling costs was supposed to go hand in hand with the mandate imposed by the state’s reform act, but that obviously has not occurred.
I have said it before and I will say it again - mandating expensive coverage that is only getting more expensive is not a solution, and no state has pockets deep enough to solve this problem on its own.
On the Patentability of Computer-Generated Inventions
So, so, so very far behind. Its even creeped onto the blog, and in particular into our serialization of The Genie In the Machine. Oh, well, better late than never. Here is the last and final installment of our semi-serialization of Robert Plotkin’s book on automated inventing, and its impact on patent law. Meanwhile, you can find the first three installments here, here and here.
Automated Inventing: Should Computer-Generated Inventions be Patentable?
In my previous entries I have discussed how "artificial invention technology" is being used to invent new products automatically. In this entry I will argue that such computer-generated inventions should be patentable, but that the legal requirements for patentability will need to be recalibrated in light of artificial invention technology.
For an invention to be patentable, it must (among other things) be "nonobvious." Imagine, for example, that you design a new pencil. Assume that all previous pencils have been constructed from pine wood and that your pencil is constructed from oak, but in all other respects is the same as an existing pencil. Should you be entitled to a patent on your pencil? It satisfies patent law's "novelty" requirement because it differs in some way from previously-existing pencils. Yet it most likely does not satisfy patent law's "nonobviousness" requirement. A product is considered "obvious," and therefore not patentable, if the product design would have been obvious to a "person having ordinary skill in the art" of the product at the time the product was designed.
Patent law's "person having ordinary skill in the art" (PHOSITA), like tort law's "reasonable person," is a legal fiction, intended to represent the current level of skill of people currently practicing in a particular technological field (art). If a court were to determine whether your oak pencil is obvious, it would first ask, "what was the ordinary level of skill of pencil designers at the time you designed your pencil"? The court would answer this question by looking at factors such as the educational degrees typically held by pencil designers and the number of years of experience they have. A typical statement by a court is that "pencil designers of ordinary skill as of January 1, 2009 had a Bachelor's Degree in Mechanical Engineering and 6 years of work experience designing pencils." Based on this finding, the court attempts to determine whether such a hypothetical person would have found it obvious, on January 1, 2009, to construct pencils out of oak rather than pine.
If all pencil designers were to go back to school and obtain Ph.D.'s in Mechanical Engineering tomorrow, courts would recognize the resulting increased skill of the "person having ordinary skill in the art" in subsequent patent cases. The basic effect would be to raise the bar for nonobviousness, thereby making it more difficult for people to obtain patents on pencils.
Creation and adoption of artificial invention technology by pencil designers could have a similar real-world effect on the ability of pencil designers to create new pencils. One person who I interviewed for The Genie in the Machine said that he considers an engineer with a Bachelor's Degree, but equipped with artificial invention technology, to be as effective at solving problems as an unaided engineer with a Ph.D. If pencil designers worldwide were to adopt, and become skilled at using, artificial invention technology, the law of nonobviousness should take this increase in "effective inventive skill" into account. As a result, it should generally become more difficult to obtain patents on new pencils. Intuitively, someone should not be able to obtain a patent on a pencil that could have been created by any pencil designer merely by applying ordinary skill to widely-available invention automation technology.
Yet it is at best unclear whether this is how the nonobviousness standard will adapt to artificial invention technology. The caselaw on nonobviousness pays very little attention to the technologies that inventors use to assist them in the inventive process, focusing instead primarily on inventors' education and training. Even the U.S. Supreme Court's most recent pronouncement on obviousness in KSR v. Teleflex, 550 U.S. 398 (2007), declined to address this issue as directly as it could have. As a result, we are left with incomplete guidance regarding whether the level of skill of those having ordinary skill in an art in a particular patent case will be interpreted in light of the skill that those in the art have at using extant invention automation technology to solve problems. If invention automation technology is not taken into account when calibrating the level of skill of PHOSITA in particular cases, we run the risk of allowing inventions which could be produced using only ordinary skill to be patented. This would run counter to the very purpose of the nonobviousness requirement and of patent law itself.
As with the other topics addressed in my previous blog entry, I discuss the relationship between nonobviousness and invention automation technology in much more detail in The Genie in the Machine. I hope you have enjoyed this overview of the promise of invention automation technology, and of the challenges that such technology rises for patent law. I look forward to your comments and questions and to an ongoing dialogue.
If Wishes Were Horses - Or Patents - Or Something Like That
Oops. I was so busy Friday litigating two different ERISA cases that I plum forgot to post the latest episode of our semi-serialization of Robert Plotkin’s book on automated inventing and its impact on patent law, The Genie in the Machine: How Computer-Automated Inventing is Revolutionizing Law and Business. Anyway, better late than never, so here is the next installment.
Automated Inventing: Should Wishes be Patentable?
In my previous entry, I explained that you could view a human engineer who uses "artificial invention" technology to create a design for a new product as being analogous to an Aladdin who creates a new product by making a wish to a genie, as follows:
Human Inventor --> Wish --> Artificial Invention Technology --> Wish Come True (Product Design)
Based on the history of the patent system, we should expect that people will start filing patent applications for everything in this diagram that comes after the human inventor, namely the wish, the artificial invention technology, and the resulting product design. (In The Genie in the Machine I provide examples of patent applications which have already been filed -- and granted -- on the latter two of these three.) If we want patent law to grant such patents only when doing so will promote innovation, we need to make sure that the legal rules for patentability produce the right outcomes when applied to such patent applications.
First, consider wishes. What exactly do I mean by a "wish"? It is any description of a problem, written in a language that artificial invention software can understand, that the software can use to create a design for a product that solves the problem. For example, if you want to design a frame for an automobile that is as aerodynamic as an existing frame, but weighs 10% less, your wish might describe the aerodynamic requirements of the frame and its maximum weight. Some kinds of artificial invention software can use such a description to generate potential new car frame designs and -- using a simulator -- evaluate how well they match up to the requirements specified in your wish. The software then eliminates designs which fared poorly and modifies designs which performed well, in an attempt to produce even better designs. It then evaluates the new designs based on the criteria specified by your wish. It might repeat this process hundreds of times in an attempt to produce a product design -- what I have been calling the "wish come true" -- which satisfies your wish as closely as possible.
It may seem strange even to ask whether wishes should be patentable. Yet the kinds of wishes I am talking about are similar in some ways to traditional computer programs. Artificial wishes are a combination of instructions and data, written and stored in a physical form that can be processed automatically by a computer to perform a useful function. Therefore many, if not all, of the reasons that traditional software has been subject to patent protection also apply to artificial wishes.
Yet patent protection for software has remained highly controversial for almost 50 years. One reason is that computer programs are more "abstract" in some sense than cotton gins and other traditional nuts-and-bolts machines. Artificial wishes can be even more abstract than traditional programs. Therefore, to the extent that granting overly abstract patent claims can impede innovation, we need to be even more concerned about granting patents for artificial wishes.
We shouldn't, however, throw the baby out with the bathwater. Just as significant advances in software should be entitled to patent protection, even if the patents covering such software are relatively abstract, so too should new and useful artificial wishes be entitled to patent protection, so long as the legal requirements for patentability are applied with particular care to such patents. We should only grant a patent on an artificial wish if such a wish is truly new, useful, and nonobvious (the three fundamental requirements for patentability), if the specification of the patent describes how to use the wish in combination with artificial invention technology to produce new products, and if the patent's claims are written clearly.
I explain why this is the right solution in much more detail in The Genie in the Machine, where I also explain why artificial invention technology itself should be patentable. In my next, and final, blog entry I will explain why computer-generated inventions -- what I have been calling the "wish come true" -- should be patentable, and why it will be particularly tricky to apply patent law's "nonobviousness" standard to such inventions.
On Preemption of Pay or Play Acts and the Supreme Court
File this, I suppose, in the department of inevitable events - lawyers representing the restaurant industry have filed to have the Supreme Court review the Ninth Circuit ruling finding that the San Francisco pay or play ordinance is not preempted by ERISA. This is one of those instances where you can bet how the case will come out the same day the Court announces whether it will hear the case; if it does, the statute is going to be found preempted and the Ninth Circuit overruled, for reasons I referenced in passing here.
I do have a reason for posting on this, beyond wanting to get on board early with a prediction for the outcome (even Paul Secunda, back in his days as the Workplace Prof, would never have called a case before it was even accepted for hearing!), and that is this quote from the restaurant group’s lawyer, courtesy of the National Law Journal:
"One of the most important issues that we are debating in the country today is how health care is to be provided," said Jeff Tanenbaum, chairman of the labor and employment group in the San Francisco office of Nixon Peabody, who represents the Golden Gate Restaurant Association, which filed the petition on June 5. Golden Gate Restaurant Association v. City and County of San Francisco, No. 08-1515.
"This case comes down at a time when that debate is the focus of tremendous attention at the federal level. It is an issue that needs to be addressed at the federal level," he said.
I have said it time and time again on this blog, that ERISA preemption serves the admirable, even if perhaps inadvertent, role of forcing health care to be tackled at the only level it can be adequately addressed, the federal one, and not at the level of state governments, which simply don’t have the resources to pull it off, as this article here reminds us yet again (and this one too). I am happy to hear someone else say it as well.
The Impact of Automated Inventing on Patent Law - Round 2
Last week, we commenced our (quasi-) serialization of Robert Plotkin's book, The Genie in the Machine: How Computer-Automated Inventing is Revolutionizing Law and Business. Here, as promised, is part 2 in the series.
Automated Inventing: The Challenge for Patent Law
As I explained in my previous entry, increasingly powerful computer software is being used to automate the process of inventing. Since such software takes a wide variety of forms, I use the term "artificial invention technology" to refer to all of it. Patent law was originally developed in a time when all inventing was performed manually. Now, however, patent law must be ready to deal with attempts to patent artificial invention technology and the inventions it produces.
In my book, The Genie in the Machine, I explain how patent law can be updated to face this challenge. To give a flavor of how patent law needs to be reformed, let me start by explaining the meaning of the book's title. You can view a computer that is equipped with artificial invention software as a kind of artificial genie. A human inventor can provide such a computer with an abstract description of a problem that he or she wants to solve -- such as creating a toothbrush that can whiten teeth more efficiently than previous toothbrushes. This description, which must be written in a language that the artificial genie can understand, is like a wish for a better toothbrush. The artificial invention software (i.e., the genie) uses this artificial wish to create a computer model of an improved toothbrush -- the wish come true. In some cases, the product itself can be manufactured automatically based on the digital design.
In short, the basic pattern described above can be represented by the following simple diagram:
Human Inventor --> Wish --> Artificial Invention Technology --> Wish Come True (Product Design)
This exposes very clearly the questions that patent law must be prepared to answer, namely whether -- and under which circumstances -- each of the following should be patentable:
- Artificial "wishes" (the input that a human inventor provides to artificial invention technology to create a new product design)
- Artificial invention technology (the computer hardware and software that can create new product designs automatically)
- Wishes come true (product designs created using artificial invention technology)
In my next blog entry I will give a flavor for how patent law can be updated to answer these questions.
Commenting on Commenting
How Computer-Automated Inventing is Revolutionizing Law and Business
I have always maintained a digressions section of the blog, down in the corner of the left hand side of the blog, for the purpose of allowing me to talk about areas of my practice - like intellectual property litigation - other than those listed in the title of the blog; its also there to give me space for subjects that are of interest to me but of only tangential relation to the subjects of either the blog or my practice, such as the financial underpinnings of the Massachusetts Health Care Reform Act.
This time around I have decided to make use of my editorial prerogatives and the digressions section of the blog to welcome my first ever guest blogger, Robert Plotkin. Longtime readers may remember other references to Robert in patent related blog entries; Robert is a long time patent lawyer who specializes, in particular, in patent protection for computer technology, and was named a "Go-To Law Firm for Leading Technology Companies" by American Lawyer Media in 2008.
Stanford University Press has just published Robert’s new book, The Genie in the Machine: How Computer-Automated Inventing is Revolutionizing Law and Business, and the ideas behind it - the manner in which such automated inventing strays from and thus may impact the paradigms under which we understand patent prosecution and patent law - fascinate me. The Boston ERISA and Insurance Litigation blog, despite its massive advertising revenue (place tongue firmly in cheek while reading that line), lost the bidding for serialization rights for the book, so I asked Robert if he would write a series of blog posts detailing the issues covered by the book. Robert agreed, and I plan to run them every Friday for the next few weeks. Note that Robert’s blog on automated inventing, by the way, can be found here.
Here’s the first of the series:
Automatic Product Design and Its Impact on Patent Law
Inventors have long been using software to help them design new products. For example, computer-aided design (CAD) software enables engineers to draw three-dimensional models of the components of an automobile engine, and even to "connect" those components together to see how they will interact without needing to build physical prototypes.
Few people are aware that software now exists which can not only display product designs which have been drawn by a human engineer, but also create such designs itself. In addition, today's latest "artificial invention" software can simulate the operation of a new product -- such as an automobile engine -- evaluate its performance, and then refine the product design repeatedly to improve the end product. One example of such software -- Stephen Thaler's "Creativity Machine" -- has been called "Thomas Edison in a box." In my book, The Genie in the Machine, I describe the history of such technology and provide many real-world examples of the products it has been used to create -- everything from toothbrushes to antennas to the nosecone on the Japanese bullet train.
Artificial invention technology has the potential to enable us to create better products more quickly and inexpensively than ever before. Such software often produces designs that surprise expert human inventors, because software lacks the blindspots and prejudices that can stop human engineers from pursuing pathways that are fruitful but which contradict conventional wisdom. Businesses are already using invention automation software -- including evolutionary algorithms and artificial neural networks -- to slash their research and development costs.
Patent law has yet to grapple with the implications of computer-automated inventing. Yet it must do so if patent law is to continue promoting innovation. In my next blog entry, I will point out some of the challenges that artificial invention technology poses for patent law.
The Massachusetts Health Care Reform Act as a National Model . . .
Maybe of what not to do.
I couldn’t let this go by without noting it - he has a Nobel after all and I, well, I have a sixth man award from a high school basketball team. Paul Krugman on health care reform:
Without an effective public option, the Obama health care reform will be simply a national version of the health care reform in Massachusetts: a system that is a lot better than nothing but has done little to address the fundamental problem of a fragmented system, and as a result has done little to control rising health care costs.
I think I have read that description of the Massachusetts act before. No, wait, I think I wrote it.
The Massachusetts Health Care Reform Act: Demonstrating that ERISA Preemption is Health Care Reform's Best Friend
Well, I have argued more than once on these electronic pages that ERISA preemption, rather than being the whipping boy of choice for people who advocate state level health insurance mandates, should be understood as a key element in bringing about any type of effective change to the health insurance system. Why is that? Because ERISA preemption forbids the states from enacting health insurance reform statues since states cannot enact them without either deliberately or unavoidably rejiggering employer provided - and thus ERISA governed - health plans, meaning that any real change from the current employer provided (and voluntary) health insurance system can only take place on a national level. And why is this in turn good? Because states are kidding themselves if they think that they can, financially, pull off reform of the system on their own, as this article here demonstrates yet again. Although buried behind the praise for the fact that the state reform has increased access by decreasing the numbers of uninsured, the article notes that affordability problems have arisen, which cannot “be blamed on the state's overhaul, but on a much larger and troubling national trend [which is that] [h]ealthcare costs, in general, are increasing faster than inflation.” The city of San Francisco, or the Commonwealth of Massachusetts, cannot solve that problem, and they can’t fund it on their own, either. It’s a national problem, and one that ERISA preemption demands be handled nationally.
Hmm, Maybe I was Right?
I have been accused of being something of a troglodyte for not whole heartedly embracing the Massachusetts Health Care Reform act, including because it puts the cart before the horse in failing to recognize (and address) the fact that rapidly rising health care costs are the real problem driving accessibility and also because the statute is preempted, which matters because the problems it is trying to address can only really be targeted successfully in the long run on a national basis rather than on this type of state by state ad hoc approach, which Congress long ago precluded by means of ERISA preemption. Compare those posts to this and you will see that, yes indeed, it is costs that drive the problem and that the solution to that lies on a national basis, not a state by state one (see for instance, this recent column noting the impact of costs on the implementation of the Massachusetts Health Care Reform act, an issue much better addressed across the entire national pool of the insured).
The Supreme Court, Suffolk Superior Court and Ed Zelinsky, All Commenting on the Breadth of ERISA Preemption
Two interesting things worth passing along this week on the topic of ERISA preemption, both reinforcing its breadth. The first is this well-written analysis of preemption out of the state trial court in Massachusetts, unusual for the reason that, normally, if ERISA preemption exists, the case ends up by original or removal jurisdiction in federal court; you seldom see a state trial judge write extensively on this subject as a result. Moreover, you don’t always see any judge write this well and accurately on the subject:
This Court finds that these claims for contribution are barred under the ERISA preemption provision, 29 U.S.C. §1144(a), which supersedes "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . ." 29 U.S.C. §1144(a). "State law" under ERISA is not limited to state statutes; it includes judicial decisions declaring the common law of the state. 29 U.S.C. §1144(c) ("State law" includes "all laws, decisions, rules, regulations or other State action having the effect of law, of any State"). . . . To determine whether State law, namely, the common law of misrepresentation, "relates to" an employee benefit plan and is thus preempted, we must look to Congress's intent. "The purpose of Congress is the ultimate touchstone." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138 (1990), quoting Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 208, (1985). There can be no doubt that Congress intended that ERISA's preemption provision be broadly construed. See Ingersoll-Rand Co., supra, 498 U.S. at 138; Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46-47 (1987). The provision's "deliberately expansive" language was "designed to 'establish pension plan regulation as exclusively a federal concern.' " Pilot Life Ins. Co., supra at 46, quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981). See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98-100 (1983). "A law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Id. at 96-97. "Under this 'broad common-sense meaning,' a state law may 'relate to' a benefit plan, and thereby be preempted, even if the law is not specifically designed to affect such plans, or the effect is only indirect." Ingersoll-Rand Co., supra, 498 U.S. at 139, quoting Pilot Life Ins. Co., supra, 481 U.S. at 47.
In spite of its undeniable breadth, ERISA's preemption provision does not apply to every State action that affects an employee benefit plan. "Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw, supra, 463 U.S. at 100 n. 21. . . .Here, the alleged claim under the common law of negligence would directly relate to an ERISA plan because it would require a state court to determine the duty owed by these fiduciaries to an ERISA plan with respect to their investment of Plan monies. See Zipperer v. Raytheon Co., Inc., 493 F.3d 50, 53-54 (1st Cir. 2007) (finding that a negligence claim was preempted because it was based on the defendant's record-keeping responsibilities under an ERISA plan); Donavan v. Robbins, 752 F.2d 1170, 1180 (7th Cir. 1985) (declaring it "extremely unlikely that Congress would have wanted ERISA fiduciaries to be subject to the vagaries of state contribution law"). Even if the Massachusetts common law of negligence were to mirror precisely the fiduciary duty owed under federal ERISA law governing the investment of ERISA funds, the mere possibility that it would differ and be in conflict with ERISA's objectives is sufficient to require this state court to forbear from touching the contribution claim.
The case is Edward Marram as Trustee of the Geo-Centers, Inc. Profit Sharing Plan & Trust v. Kobrick Offshore Fund, Ltd. et al., out of Suffolk Superior Court, and you can find it at 2009 Mass. Super. LEXIS 85.
The second is Edward Zelinsky’s detailed analysis of the Ninth Circuit’s decision on the San Francisco health insurance ordinance, in which he lays out, in formal, analytical fashion, what many of us already concluded on a gut level - that the statute is a preempted invasion of rights controlled only by ERISA, no matter the false distinctions created by the Ninth Circuit in an attempt to avoid that conclusion. Writes Professor Zelinsky (courtesy of the Workplace Prof blog):
An exploration of the most recent decision of the U.S. Court of Appeals for the Ninth Circuit in Golden Gate Restaurant Association v. City and County of San Francisco (Golden Gate III) indicates that ERISA Section 514(a) preempts the San Francisco Health Care Security Ordinance. Two premises guide this exploration of Golden Gate III. First, employers’ ongoing payments to health care administrators, such as insurance companies, constitute employee benefit “plans” for ERISA purposes. Second, employers’ contributions are central features of their employee plans.
This first premise indicates that a San Francisco employer which regularly contributes to San Francisco pursuant to that City’s health ordinance thereby creates a “plan” for ERISA purposes. The ERISA status of this plan purchasing municipally-administered medical services is the same as the ERISA status of an analogous employer-financed plan paying a private administrator for comparable health care: As to all of these plans, ERISA Section 514(a) preempts state and local regulation.
Moreover, it is not persuasive for purposes of ERISA Section 514 to say (as does the Ninth Circuit) that San Francisco, by its health care ordinance, regulates employers’ health care contributions, but not employers’ health care plans. Contributions are central features of employers’ health care plans for their employees. By regulating employers’ contributions, San Francisco regulates employers’ plans.
Frankly, I thought the Supreme Court made clear in an offhand comment in Kennedy v. Dupont that the San Francisco statute, were it to come before it, would be found preempted, when the Court, in a gratuitous aside completely unnecessary to decide the issue before it, commented that a state law is preempted when it would “undermine the congressional goal of ‘minimiz[ing] the administrative and financial burden[s]’ on plan administrators.” Can you think of a better description of what the Rube Goldberg contraption that is the San Francisco ordinance does than that? And the same, by the way, holds true for the equally Rube Goldbergesque Massachusetts health care reform act as well.
Look, once again, many people may want these types of health insurance expanding statutes to exist, and the political consensus in Massachusetts means that such a statute is operating without court challenge, but that doesn’t mean they are not, in fact, preempted. They are, absent an actual change in the scope of preemption by the Supreme Court.
Some Notes on Fair Share Acts and the Economics of Health Insurance
I have argued many times on these - virtual - pages that fair share acts, and their backers’ obsession with trying to circumvent ERISA preemption, puts the cart before the horse, in that they focus on putting more health insurance obligations on employers without addressing the real reasons that employers struggle to provide health insurance, which is its ever expanding cost. Stories like this one here make me think that I have understated the case, and that demanding more insurance out of employers, without tackling the cost problem first, isn’t just putting the cart before the horse, but is actually just plain wrong headed, and bordering on the willfully obtuse (not to put too fine a point on it). It is all well and good to insist that everyone should have health insurance and access to health care, but simply blindly assuming that employers can pay for it is a mistaken premise that sits at the base of all fair share acts. It is cost that is driving the access and uninsured problem, an issue that is not addressed to any real degree by fair share acts, including the one in Massachusetts and the San Francisco version that has so far managed to survive preemption challenges.
On Education and Repetition
Well, I think Roy Harmon and I (mostly Roy, actually) just previewed for you what this webinar plans to cover, the ethical and privilege traps involved in providing legal counsel to ERISA governed plans and their administrators. Still - luckily for people like me and Roy who blog on these subjects and for the presenters of the seminar - there is literally always more to be said about these types of topics. That point was made crystal clear by this article here, which details a court ruling waiving the attorney-client privilege as a result of electronic discovery mistakes, just days after I posted - for the upteenth time - on my qualms about the impact of electronic discovery on clients, costs, and litigation, particularly in the data intensive realm of ERISA actions.
On the other hand, here’s a seminar on everything topical in ERISA breach of fiduciary duty litigation, presented by a who’s who’s of practitioners, which, by its description, is covering a lot more ground than can be trod by a few lone bloggers.
Electronic Discovery and the Federal Rules
Here is an excellent article on electronic discovery under the federal rules, and efforts to reduce the expense of this process by protecting against inadvertent waiver of privilege. As long time readers know, I have frequently criticized the structure and format of the federal rules, and their application by the courts, concerning electronic discovery, for the extraordinary burden and expense they impose on litigants. Moreover, I have focused on the fact that the major problem is that the scope of relevancy is very broad in discovery, which has not been too big a problem in traditional forms of discovery because the very nature of depositions, producing existing documents held in hard copy form, etc., puts some outside limits on the process and thus, on the expense. Electronic discovery, obviously, doesn’t have the benefit of being limited in this way by such simple physical restrictions of time and space; because the quantity of data that can and is stored is immense - and not as easily confined physically as, say, simply pulling all file folders at a client related to a particular transaction - the broad scope of relevancy, when applied to electronically stored information, can expand discovery obligations exponentially in comparison to traditional forms of discovery. For this reason, I have argued in the past that courts need to leave their past rubric for discovery (which basically consisted of the view that discovery is broad, the parties are expected to work most problems out among themselves, and court intervention is only warranted for outlier type issues) where it belongs, in the past, and create new approaches to dealing with electronic discovery, in which the courts - either pro-actively or in response to motion practice by the parties - attempt to focus electronic discovery in a manner that properly balances the importance of the documents in question with both the benefits of that discovery to the requesting party and the costs of that discovery. I am, sadly, still waiting for this to happen. The reason I like this article is its focus on the fact that electronic discovery is far too expensive, and that the latest attempt to target that problem is at best, a finger in the dyke approach, in that it just isn’t a lasting solution to the bigger problem. Moreover, the article rightly focuses on the construct that rests at the heart of the problem; the incompatibility of the historically broad definition of relevance applied in discovery with the amount of data now available in a technological society.
Litigators who read this blog already understand my obsession with this issue; while trying cases is the joy of the work, discovery - and fights over it - is the heavy lifting that takes up much of a litigator’s time and a client’s money. It’s a particular problem in ERISA cases, where any type of a plan with a significant number of participants is going to create a great deal of electronically stored data, almost none of it of relevance to any particular dispute yet still possibly open to discovery as things currently stand.
Apples and Oranges: Litigation Costs and QDROs in the Same Post
A couple of different things from my desk today that are worth passing on.
First, for those of you interested - as I am and have often discussed in these electronic pages - in the need to balance effective litigation tactics with the costs of litigation, particularly given discovery and e-discovery issues, I pass along this article here, which I truly enjoyed. In many ways, it mirrors what I said in my own article on the subject, which you can find here.
Second, the Supreme Court delved back into the ERISA world yesterday with an argument on what, from a practical perspective, is a particularly vexing problem that bedevils plan administrators: namely, who is entitled to plan proceeds when a plan participant has divorced and thereafter a dispute arises as to who should rightly get plan proceeds after the parties thought they had negotiated resolution of the issue as part of the divorce proceedings? The prototypical circumstance, which seems straight out of television but actually happens all the time, is the death of a plan participant who changed the beneficiary, post- divorce, to a new boy or girlfriend, in ways that contradict the agreed division of property made as part of the divorce. For those of you interested in this question, here is a terrific article on the details of the particular case before the Court, and here is the Workplace Prof’s analysis of the argument yesterday before the Court. My own general sense of the case is that it really revolves around the question of whether ERISA’s QDRO provisions, which are directed at this issue, are to be strictly construed and treated as the only manner in which payments in accordance with the plan’s express terms and the operative beneficiary designation can be avoided, or whether, instead, the issue can be handled in a more loosey-goosey fashion that, even if the QDRO provisions aren’t technically satisfied, effectuates the apparent intent of the divorcing parties. Me, I am betting the Court's opinion ends up at the former.
A Random Walk Through the Ninth Circuit's Preemption Ruling
Disparate thoughts. Connect the dots. Or maybe more unintended consequences. Take your pick. While many advocates of health care reform cheer the Ninth Circuit’s conclusion that ERISA does not preempt all state pay or play laws, I am a little dubious as to whether this represents anything more than a Pyrrhic victory for anyone actually interested in ensuring that everyone is insured. Report after report, many of them credible, tell us that employers, who provide most of the country’s health insurance, are aghast at the idea of losing ERISA preemption, and would consider it one more reason not to continue to provide health insurance to employees and to instead pull back from that role. I am hardly inclined to think that, should employers relinquish that role, state or federal governments are prepared fiscally or intellectually to step into the breach and effectively fill that hole well. I thought this before, in the past, and wrote about it in a number of postings (such as here), when we saw the financial costs of Massachusetts’ reform plan balloon, supposedly unexpectedly; I thought it again when we saw the effectiveness of federal government regulation of Wall Street; and I thought it for sure when I read Paul Krugman this morning.
Perhaps this obsession among health reform advocates with defeating ERISA preemption is a case of putting the cart before the horse; maybe we should first have effective non-employer health insurance structures in place, before we go trying to dismantle the preemption structures on which employers rely in choosing to provide health insurance to their employees.
A Top 50 Blog? I Always Thought So
During the Olympics, I read an interview with someone who said he just wanted to be the Michael Phelps of something, anything at all. While my aspirations may not run quite that unrealistically high, its certainly fun to be recognized as one of the top 50 of anything. LexisNexis has announced its list of the Top 50 insurance related blogs in the country, and -insert self-congratulatory pat on the back here- this blog is one of them. You can find the whole list here.
Electronic Discovery is . . .
B. Subject to abuse;
C. So expensive that it can force settlements even where the merits don’t warrant it;
D. An aspect of civil procedure that is still waiting for the courts to create a jurisprudence that will properly manage its potential costs and complexity;
E. Good only for vendors;
F. All of the above.
If you guessed F, you have been reading my posts over the last couple of years on this topic. Simply put, there is obviously an appropriate realm and scope for what lawyers refer to as electronic discovery - who hasn’t found something useful in an adversary’s deleted emails? - but the federal rules are written so broadly that in any given case, electronic discovery is likely to be much broader, more expensive, and more unworkable than is warranted by the value of the case or the value to accurate adjudication of the electronic discovery itself. I have talked many times on this blog about the need for the federal courts to develop a jurisprudence for electronic discovery that takes into account all of these issues before electronic discovery is allowed and relies upon those factors to focus the scope of electronic discovery and keep it as narrow as is possible; absent such an approach, electronic discovery, I have argued before, is going to become the monster that eat St. Louie, or more literally, the procedural rule that doomed litigation, already expensive, from being an even marginally effective tool for resolving complicated disputes. This will be too bad, because as readers of my posts on arbitration know, I am not a big fan of that method of alternative dispute resolution for resolving complicated cases and generally believe that American courts provide as good a forum for resolving disputes as anyone has yet devised.
Anyway, it looks like these concerns about electronic discovery are moving into the mainstream, as is reflected in this report, which echoes these concerns.
Is ERISA Preemption Coming to the Massachusetts Health Care Reform Act?
You know that theme music from the movie Jaws? Cue it up - the sharks are circling the Massachusetts Health Care Reform Act. Hard on the heels of the recent reports that the state is going to have to increase the financial obligations of employers to maintain the near universal coverage called for by the act comes this story noting the same thing I said yesterday, that increasing the obligations the act imposes on employers will likely provoke a preemption challenge. The story quotes a D.C. lawyer, Kevin Wrege, who says that several law firms there are getting ready to file suit over this and that "[a]ll they are lacking is a paying client and a green light." (I think that quote is what started the Jaws theme playing in the juke box of my mind.)
More substantively, here is an interesting survey piece from the Congressional Research Service (really, one of the jewels of the federal government, a source of generally thoughtful non-partisan analysis, in my experience) on ERISA preemption and its application to “pay or play statutes.” In particular, the piece focuses on the Massachusetts statute, and on the question of whether the First Circuit will find it preempted if it is challenged. In essence, and not too surprisingly, the author finds that the statute will likely be found preempted if the First Circuit follows the reasoning of the Fourth Circuit in Fielder (concerning the Wal-Mart Act in Maryland), but not if the First Circuit follows the reasoning to date of the Ninth Circuit in the on-going litigation over the San Francisco ordinance.
The piece also provides an interesting and detailed explanation of the provisions of the Massachusetts statute, and how it operates. The article parrots something I have said often on this blog, which is that it is likely that the low burdens at this point placed on employers by these provisions of the act is the likely reason no one has challenged it to date as preempted. When you read the piece, you will see pretty clearly both how low those burdens are at this point (it is hard, for instance, to imagine any major employer not already being in compliance just as a matter of course with the “play” requirements of the statute as they are described in the article, thus precluding the statute from significantly affecting them or their bottom lines) but also the avenues for those burdens to be increased.
Thanks is due to BenefitsLink, by the way, for passing the report along.
Massachusetts' Pay or Play Act: The Triumph of Hope Over Experience?
I have said it before and I will say it again: the day they fess up to the real costs of insuring the uninsured in Massachusetts and admit they need to pass that cost onto employers is the day before someone files a lawsuit asserting that the Massachusetts Health Care Reform Act is preempted. Take a look at this, and this.
What Patry Has to Do With ERISA
Permalink | Geez, I hope it isn’t something I said. Some of you may remember that a little while back, in a post discussing why I blog predominately on ERISA and insurance issues but only occasionally on intellectual property issues, I mentioned that there were a lot of terrific intellectual property blogs already out there, mentioning in particular William Patry’s copyright blog. Mr. Patry responded by quitting blogging.
I don’t really think I had anything to do with that, because he gave his primary reason for stopping, and it is one that is telling. He explained that:
my final reason for closing the blog [is] my fear that the blog was becoming too negative in tone. I regard myself as a centrist. I believe very much that in proper doses copyright is essential for certain classes of works, especially commercial movies, commercial sound recordings, and commercial books, the core copyright industries. I accept that the level of proper doses will vary from person to person and that my recommended dose may be lower (or higher) than others. But in my view, and that of my cherished brother Sir Hugh Laddie, we are well past the healthy dose stage and into the serious illness stage. Much like the U.S. economy, things are getting worse, not better. Copyright law has abandoned its reason for being: to encourage learning and the creation of new works. Instead, its principal functions now are to preserve existing failed business models, to suppress new business models and technologies, and to obtain, if possible, enormous windfall profits from activity that not only causes no harm, but which is beneficial to copyright owners.
What is interesting about this is I think that anyone who works on copyright or other intellectual property cases and who looks at things with clear eyes -rather than on the old mantra of where you stand depends on where you sit - knows there is some deep truth to what he is saying, and it is interesting in and of itself for that reason. But it becomes even more interesting when you tie it back in to this blog, and my prior discussions of my skepticism about the patenting of ERISA strategies, which, much like Patry’s comments about copyright, seems to me -as I discussed here- to serve only to lock down for one party the opportunity to pursue a specific business/ERISA related strategy, without any accompanying benefits to the public as a whole, such as encouraging innovation in the field, etc. Maybe I am just ERISA-centric, and I see everything as circling back to that topic, but that’s what I thought of when I read Patry’s post resigning from the blogosphere.
Understanding ERISA Preemption as a Legitimate Congressional Policy Determination
Permalink | Many, many people object to ERISA preemption, viewing it as some sort of nasty trick that defendants use to avoid liability in ERISA related cases. Do a quick search for ERISA and preemption on Google Blog and you will find that out pretty quick. But to me, they misunderstand preemption, which was a legitimate policy choice by the Congress that passed ERISA to maintain one consistent federal policy and body of law for purposes of employee benefits. It is worth noting that, some thirty years, countless judicial decisions enforcing preemption, and even more countless numbers of critics later, Congress still has never acted to change that - to, in effect, preempt preemption. Stories like this one here, about the funding problems with Massachusetts’ much lauded - and legally questionable under preemption standards - pay or play law validate Congress’ decision in this regard, as it demonstrates the sheer impossibility of executing effective major change in any significant area of employee benefit law - in this instance with regard to health insurance and health care - on a state by state level. As the article discusses, Massachusetts finds itself unable to fund the universal health care initiative it passed, to much self-congratulation, recently, and is now forced to change the financing structure that it originally relied upon and which was the basis for the law’s enaction and lack of preemption challenge; as I have discussed in the past on this blog, the Massachusetts act, unlike pay or play statutes and ordinances in virtually every other instance, has not been challenged in court as preempted simply because the direct financial burden on the business community was, as enacted, minimal, but I have predicted before that: (1) the statute will inevitably result in an increase of the costs passed onto the business community; and (2) a preemption challenge will come not long after that occurs. As the article reflects, the first one of those events is knocking at the door right now; the second one won’t be long behind it.
Insurance and the World at Large
Permalink | I am asked on occasion about the topics of this blog and their connection to my practice, more particularly how I ended up focusing the blog on its two primary subjects. For years, my litigation practice has focused primarily on three areas: intellectual property, ERISA and insurance coverage, in no particular order. A joke which I have long used and which always fails to elicit anything more than a pained half-smile is that 50% of my practice is insurance coverage, 50% of my practice is ERISA litigation, and 50% of my practice is intellectual property litigation.
Why did the blog end up focusing on two of those topics - ERISA and insurance coverage - and not the third, intellectual property? Well, one reason is that my experience is that intellectual property cases are heavily fact driven more than they are a product of interesting evolution in case law, limiting the appeal of blogging on them, and another is that, as a very knowledgeable legal blogging guru told me when I started the blog, there were already a lot of - mostly very good - intellectual property focused blogs; all you have to do is take one quick look at William Patry’s copyright blog to see how well tilled that soil already is.
But beyond that, and in contrast, I have found that my other two primary areas of practice, which are the central focuses of this blog (although as the digression section over on the blog topic list on the left hand side of your screen reflects, I do on occasion venture here into intellectual property issues of interest to me), provide a rich vein of endlessly interesting topics and legal developments. ERISA litigation, for instance, is a remarkably and endlessly evolving area of the law, as the courts develop what is in essence a federal common law covering the field, and as the courts deal with new types of retirement plans, plan investments, and increased litigation over both. And the intersection of insurance and the business world is a truly fascinating place to be, as the two come together at every major point in the economy and at every major issue in it as well. Here’s a good story, about the general counsel at Lloyd's of London, that makes that point.
A Few Words on the Practicalities of Electronic Discovery
Permalink | I have written a lot on the blog about electronic discovery, most recently in this post, and much of it relates to the legal issues revolving around whether and when to allow such discovery. Before it vanishes off their website, I thought I would pass along this piece out of the Massachusetts Lawyers Weekly that looks at electronic discovery from a more prosaic but equally important perspective, the practicalities of actually engaging in it.
On Discovery Problems and Solutions
Permalink | Here’s an interesting law review article, passed along in detail by the Workplace Prof, on problems, and potential solutions, in managing discovery. Discovery, to beat what must now be a dead horse, has become infinitely more complicated and expensive - with far more consequences for mistakes - in any type of complex litigation with the adoption of the federal rules governing electronic discovery (and in fact with the rise of computerized data itself). Regular readers know that I have argued before in this space that the courts need to develop a jurisprudence that analyzes the need for and cost of electronic discovery - which can often involve massive amounts of computer generated and/or stored data - in much greater depth than the more superficial analysis of discovery disputes that has historically been the norm: in essence, courts should engage in a more searching inquiry into disputes over electronic discovery, given their costs and how much of such data is likely to be irrelevant in any given case, before granting extensive discovery into electronically stored data. At a minimum, there should be a degree of inquiry that, even if it won’t allow conclusive enough findings to decide to outright not allow such discovery, will still allow an intelligent, reasoned limitation on exactly what the scope of that discovery should be. I would argue that, in cases that warrant it, it would even be appropriate to hold a mini-trial type proceeding, maybe of two or three witnesses, and then to rule on to what extent such discovery is warranted. This approach would be a far cry from how courts have traditionally addressed discovery disputes, but, as the article suggests, it is past time for the courts to begin applying a more systemic and in-depth approach to controlling discovery.
This is particularly important in the areas covered by this blog, ERISA litigation and insurance coverage litigation, where computerized data, communications and information processing, is almost literally the coin of the realm. Electronic discovery is therefore truly a major cost-driver and risk factor in these areas of the law. The development, at the boots on the ground level of magistrate judges (to whom discovery disputes are often assigned), special discovery masters and trial judges, of the law of electronic discovery provides an opening for courts to really address these issues, in the manner suggested by the article and with fresh eyes, and its an opportunity that should be taken advantage of, one that calls for curiosity, innovation and reasoned experimentation. I will give you one example, to make my point. One of my partners was recently handling a massive, multi-party litigation, in which there were numerous interrelated legal and factual issues, some of which may be outcome determinative. Rather than engage in the traditional approach of years of discovery with only minimal court oversight, followed by summary judgment motions, the court instead ordered some discovery, followed by summary judgment motions on the key potentially outcome determinative legal issues, followed by, if any party believed further discovery was needed to resolve those issues, the filing of Rule 56(f) affidavits to justify such discovery; the court would then decide what further discovery would be allowed before it would rule on the legal issues. The end result was order out of what otherwise could have been chaos, and a case that stayed on track towards resolution. It’s a good example of a court proactively using existing procedural tools to narrow the issues, and decide on what issues further and potentially expensive discovery is actually needed. This appears to be exactly the type of use of existing procedural tools and focus on the timing of discovery that the article's author is advocating as the means to improve discovery.
Legal Rights That Are Protected In Courts, May Well Be Lost In An Arbitration
Permalink | I haven’t commented in the past on this, because there was too much else going on directly on point with ERISA. However, as many of you may know, the Supreme Court issued an opinion a week or two back in essence concluding that parties may not contract between themselves to allow a court to review an arbitration award beyond the limited review provided for under the Federal Arbitration Act. As I have discussed on this blog more times than I care to remember, commercial arbitration suffers from a number of problems, and I have suggested in the past that commercial entities who want to arbitrate should take preemptive steps to solve those problems at the time they agree to arbitrate. Probably the biggest barrier to arbitration serving as a forum for complicated commercial disputes is that the Federal Arbitration Act effectively provides no substantive oversight of an arbitration ruling, making the arbitrator’s ruling the final decision, and only allows judicial review for the purpose of addressing any serious procedural errors during the course of an arbitration. Commercial entities have been well advised in the past to try to negotiate around this problem, to leave some type of judicial review in place that will provide oversight of an arbitration panel that is akin to what a federal appeals court provides to a trial court. The Supreme Court’s opinion effectively deprives parties who wish to arbitrate from agreeing to allow such a review by a federal court, making arbitration a forum that, quite simply, isn’t appropriate for a party that wants to maintain rights of appeal should the original decision maker - whether an arbitration panel, a trial judge or a jury - err significantly on either the particular law or the application of that law to the facts proven in the case.
Frankly, from a substantive real world approach, it’s the wrong decision. Arbitration can work for commercial entities, but not in a cookie cutter manner and only if they can negotiate around the problem of limited judicial review. The Supreme Court’s ruling precludes contractually remedying that problem. As a hypothetical question for a federal courts class, it might be the right answer; in the real world, it certainly isn’t. Indeed, I have commented in the past on empirical and anecdotal evidence that commercial entities are losing interest in resolving complicated business disputes by arbitration, and this ruling isn’t going to reverse, or even slow, that trend.
What’s the occasion for this soliloquy? This article right here, out of Texas Lawyer, which hits these notes right on the head (I like a good mixed metaphor on a Monday).
Back From Trial, But the World Kept Spinning In the Interim
Permalink | My trial finally concluded late yesterday after two weeks, with the jury returning a verdict in favor of my client (pause here for self-congratulatory pat on the back). While I was able to get some posts up last week, during the first week of trial, events during trial this past week left me with no time to post. A lot went on during that week that would be of interest to readers of this blog, running from the almost certain ERISA litigation that will follow from the Bear Stearns collapse, to further Department of Labor attempts to mandate transparency, to the Commonwealth of Massachusetts’ continuing efforts to single handedly prove that state regulation of employer provided health insurance benefits should, in fact, be preempted. We’ll return to these themes, and other topics, next week, now that we have time to get the printing press rolling again here.
Gone Fishing - Not Really
Permalink | I am starting a trial today, so my posting will be sporadic and erratic at best. As I did the last time I was trying a case, I will try to at least find time to pass along new court decisions, publications, or events of significance while I am on trial, even if I don’t comment much on them in the posts; if they warrant it, I will return to the posts later to discuss the issues in more detail.
Passing Along an Interesting Blog: Number One
Permalink | One interesting thing about the LaRue case is the amount of blog commentary it inspired. For me personally, the best aspect of that wasn’t so much what other bloggers had to say about the subject, but more the fact that the discussions brought some blogs to my attention that I had not previously been aware of. I thought I would pass along two of the more interesting ones to you, as they may be of interest to people who come here to read up on the ERISA and retirement benefit issues discussed in this blog.
The first is The Float, published by Interlake Capital Management. The Float is mostly focused on financial news related to 401(k) plans and the like, but is somewhat unique in that it blends discussion of those economic issues - as well as just plain old fashioned business media bashing - with intelligent comments on breaking legal issues affecting such plans, such as the LaRue decision. It’s a lot of fun to read, not the least of which is because you don’t need a Wall Street background to enjoy their financial commentary, just some interest in and experience with the subject.
I’ll pass the second blog along in my next post.
A Break from LaRue: Anticipating Insurance Coverage Disputes Over Climate Change Exposures
Permalink | Can’t do LaRue all the time, every post, although, frankly, the more one thinks about the Supreme Court’s three opinions, the more one can come up with to talk about. I will return to various issues raised by the opinion here and there, as time and interest allows. For now, though, I think I owe some posts that can be attributed to the insurance litigation side of this blog’s title to readers who are interested in that topic, and I have been thinking - when not obsessing over whether individuals can sue for mistakes in their 401(k) plans, that is - about all the legal seminars and publications that have been showing up in my in-box lately anticipating insurance coverage litigation over climate change issues. One of the interesting things about these is that they are showing up in droves now, long before suits seeking to recover for climate change losses have even been pursued. As I have said before on these electronic pages, insurance is the real leading edge indicator for a lot of issues, and one of them is climate change; the insurance industry will be one of the first to be heavily impacted by increased climate related losses, through its coverage of property and liability risks, and will, concomitantly, be one of the first to take concrete business steps in response to global warming. This early media drumbeat over insurance coverage issues related to climate change litigation reflects an eternal truth: that any possible new area of business liability, such as over climate change, will simultaneously spawn a cottage industry in representing businesses against insurers over those new liabilities. On a more substantive note, the particularly interesting thing to me about the seminars I am seeing is that these educational materials present the issue as essentially an extension into the climate change area of the legal developments generated during the last broadly contested, high stakes area of coverage disputes, namely environmental losses related to Superfund and other environmental liabilities. It’s a logical step, if one thinks about it: the environmental coverage disputes revolved primarily around the environmental impacts of the dumping of pollutants, and the new climate change issues will also concern environmental impacts, only in this instance ones that stem from the global warming impacts of certain business practices. The earlier environmental coverage rulings issued primarily in the late eighties and early nineties are thus a natural base on which to analyze the insurance coverage issues raised by climate change liabilities. In a way, it even fits the historical development of insurance coverage law. The environmental coverage litigation really expanded from, and built upon, the mass tort coverage disputes of asbestos, most concretely in the extension of trigger of coverage issues decided in that earlier context into the environmental pollution context; it only makes sense that the same historical evolution would continue into the next “hot” (pun intended) realm of insurance coverage litigation, in this instance by taking coverage decisions related to environmental polluting and rejiggering them to apply to climate change exposures.
Money Talks, Even About the Massachusetts Health Care Reform Act
Permalink | A number of different things I want to talk about, including an interesting decision discussing the obligations of plan sponsors when it comes to selecting advisors and some interesting thoughts on QDROs. I will sprinkle those in later, but for now I thought I would pass along Steve Bailey of the Boston Globe’s column today on the issues raised by the Massachusetts Health Care Reform Act, which basically mirrors what I have said in prior posts, such as my last one, about the statute and issues with its implementation. A couple of interesting tidbits to point out though, from his column. First note his reference to the fact that the statute effectively left the business community off the hook (in truth, this is only true financially, and even then only partly so; they still bear some administrative headaches, and some currently modest financial exposures), which fits exactly with my explanation in the past as to why the statute has not faced a preemption challenge in court to date. Second note his reference to the idea that the political and legislative will to continue with the program is strong. All well and good, but the issue now is the plan’s escalating costs, which are going to have to be borne by taxpayers or else by the business community; one wonders about the commitment of those who will actually have to pay the bill for this program. Anyone going to ask them?
The Massachusetts Health Care Reform Act as Evidence of the Need for Preemption
Permalink | Stories like this make clear that advocates of state fair share plans who like to point to the Massachusetts Health Care Reform Act as a shining exemplar of what could be accomplished if only ERISA preemption would go away are barking up the wrong tree. Rather, the article, with its discussion of spiraling costs to the state and the state’s need for federal funding to remedy the resulting shortfalls demonstrates the opposite, namely that, as I have argued in other posts, there is real reason to doubt whether the problem of the uninsured is one that can be cured on a state by state basis. Indeed, the fact that the Commonwealth needs significant - but as yet unpromised - infusions of federal money to effectuate coverage of the uninsured suggests that this problem cannot be solved by states and instead can only be solved on a larger playing field, namely at the federal level with the type of resources that only the federal government can commit to the issue. And if the issue can only be solved on a national level, and not on a state by state level, then isn’t that an argument for preemption? I hate to be a cynic, and prefer the title of skeptic, but there are a lot of reasons that ERISA preemption both exists and is valuable, and it is not the bogeyman preventing health insurance in this country that many of its critics make it out to be. There are real, fundamental problems in trying to increase health insurance coverage in this country, ones that are not solved by these state acts, which, as I have discussed before, basically play at the margins without addressing the real problem - cost - that is handicapping both the ability of employers to continue to provide health insurance to their employees and the ability of Massachusetts to actually successfully pull off its health insurance experiment.
And Still Another View on Preemption and the Massachusetts Health Care Reform Act
Permalink | I’ve noted in the past that the problem with state health care reform acts mandating health insurance is that they don’t tackle the issue that is deterring employers from providing broader health insurance benefits, namely the ever increasing and rapidly escalating cost of health insurance. In response, Massachusetts lawyer David Harlow argues on his blog that incremental steps towards resolving this problem are moving forward on their own schedule, separate from state legislation mandating employer provided health benefits, and cost control will come in time. Personally, I am skeptical that governments can actually control these costs, or even significantly reduce their annual rate of increase, but I would be happy to be wrong.
Someone Else's Thoughts On Preemption and the Massachusetts Health Care Reform Act
Permalink | People with thin skins - or who can’t laugh at themselves - shouldn’t write blogs. I got a good chuckle out of this over my morning coffee this morning.
The Lessons of the Massachusetts Health Care Reform Act's $400 Million Shortfall
Permalink | There’s a lot to be said about the preemption issues raised by state health insurance mandates and the assumptions that underlie the beliefs of those who argue that ERISA preemption should not be allowed to prevent states from experimenting with acts intended to remedy the problem of the uninsured. Articles like this one here, however, suggest the naivety of some of those assumptions, such as the idea that states are likely to really manage the problem in a more effective way than employers, operating under ERISA preemption, have managed to do so to date. Moreover, the article, in its discussion of the huge and apparently unexpected, or at least unplanned for, increase in the cost of insuring the uninsured under the Massachusetts Health Care Reform Act, really drives home a point I have made in other posts, that the problem with these statutes is that they do nothing to address the real problem affecting employer provision of health benefits, namely the extraordinary cost of providing those benefits; as the article reflects, Massachusetts’ much lauded experiment doesn’t target that at all, but simply shifts the pockets that will have to fund those extraordinary and ever increasing costs. And finally, if you look closely at some of the numbers discussed in the article, you come to understand the answer I have given to people who have wanted to know why no one has yet challenged the Massachusetts act as preempted; as I have told people, it’s not because the act isn’t preempted, it is instead because the financial costs to employers have yet to warrant such a challenge. The article explains that the state is anticipating some 400 million dollars in additional costs to provide health insurance under the statute to the uninsured, costs to be assumed by the taxpayers rather than by businesses through any obligation under the mandate to provide insurance; in this way, the Massachusetts statute is much more a mechanism - Trojan horse, some might say - to transfer the costs of the uninsured onto the tax rolls, rather than, by employer mandates, onto the business community. I think it is a safe bet that, had the act been drafted to transfer more of the health insurance costs onto the business community rather than onto the state taxpayers, you would have quickly seen a preemption challenge mounted. And finally in this regard, note the article’s reference to the amount of money that employers have paid to date for not providing the health insurance required by the statute, which is the underwhelming amount of 5 million dollars. I suspect Wal-Mart spent not too much less in legal fees to get the Maryland Fair Share Act overturned, and those aren’t numbers, spread across an entire business community, that are likely to provoke any economically rational business person to want to fund litigation over the act. Start to see those numbers creep up substantially, however, and you can safely plan for a preemption challenge.
The Governance of Retirement Plans in the Aftermath of the Subprime Meltdown
Permalink | Fellow blogger Susan Mangiero and I are quoted extensively in a very interesting article, available here, in the January issue of the Institutional Real Estate Letter. The article, titled Investing in Good Governance, focuses on one of - if not the only - potential silver linings in the whole subprime mortgage mess, namely the possibility that it will help to focus pension plan fiduciaries on the fiduciary obligations, particularly as related to protecting plan assets from ill advised and ill informed investments, that they owe to the plan itself and to plan participants.
A Handy Dandy Summary of the Law of Electronic Discovery
Permalink | Practicing lawyers like things that condense a lot of information accurately into relatively compact but still useful formats. I suspect - or at least hope - that is why many people read this blog, for instance. Along those lines, tucked in among the piles of junk email in my in box for mail order pharmacies and new books the publishers think I should buy, was an excellent little nugget from a company whose email newsletters on electronic discovery I do make a point to open and read. The company is CyberControls, and in the latest newsletter they passed along a Federal Judicial Center publication, “Managing Discovery of Electronic Information: A Pocket Guide for Judges.” I gave it a quick read this morning, and I cannot recommend it more highly. It’s a great starting point for the neophyte first facing electronic discovery issues in the federal courts, and a great standard reference point for the experienced electronic discovery practitioner.
SmartMoney on the Practicalities of Complying With ERISA
Permalink | This is a law oriented blog, obviously, and one of the things that is always worth remembering is that the complicated legal issues played out in the cases discussed here have real world implications for plan participants and for businesses trying to provide benefits to their employees. A nice reminder of that is here, in this article on SmartMoney.com, in which I and others are quoted on the question of how business owners should operate 401(k) plans in light of the potential for fiduciary liability being imposed under ERISA.
California, Fair Share Acts and Preemption: Have We Learned Anything At All?
Permalink | I’ve got a few things lined up this week to talk about, running from long term disability benefits litigation to avoiding ERISA litigation to subprime mortgages, but first I am going to veer off of my planned course to pass along and comment on a pair of interesting posts that showed up in my in-box today. They are both on the subject of California’s interest in trying to enact a fair share type statute imposing employer mandates and requiring the provision of health insurance, and you can find them here and here. I have talked before about the fact that California, like other state and local governments who tread this path, are likely walking right smack into the buzz saw of ERISA preemption, and much like the legislature of Maryland did in enacting its fair share act that was struck down by the courts, appear to be simply sticking their heads in the sand when it comes to this issue. That’s really the point of the two posts, which ask why the state government in California is moving in this direction without anyone even addressing this issue or trying to resolve it preemptively, before enacting a law that parallels laws that have been struck down from coast to coast (see this post here and here, for instance) as preempted. I asked the question before about the Maryland statute, the so-called Wal-Mart act, as to how the Maryland legislature could have gone down this road without having considered the ERISA preemption problem in advance, and these posts suggest that California is doing the same. Perhaps I need to create a category over on the left side of this blog titled “those who ignore the past are condemned to repeat it,” for the sole purpose of covering the seemingly endless examples in the area of health insurance of one state after another repeating the earlier mistakes of other state governments.
One of the posts on California’s efforts in this regard, namely this one here, suggests that some elements of the state government effort believe that the state can craft a statute that will not run afoul of ERISA or be preempted by ERISA. I am pretty skeptical that this is anything more than whistling past the graveyard. The closest I can come to an example of a state fair share type act that has not yet been found preempted is the Massachusetts health care reform act, and in my view, the only reason that hasn’t been declared preempted yet is that its burdens on employers are sufficiently limited at this point that no one has been motivated to challenge it in court. If anyone thinks that the entire business community (who, in the clever words of the New Yorker, have been unofficially deputized to carry the costs of health insurance in this country) would take a pass on this as well and allow a bellwether state like California to enact such a statute without it being challenged, I’ve got a bridge in Brooklyn that I’d like to sell you.
What the Copyright Act Teaches Us About ERISA Preemption
Permalink | Mixing up two of my professional interests and litigation specialties, ERISA and intellectual property, the United States Court of Appeals for the First Circuit just decided a case involving the scope of preemption under the Copyright Act. What’s particularly interesting to me is the characterization by a dissenting member of the panel about the scope of preemption under that statute as opposed to the scope of preemption under ERISA. The judge explained:
Unlike the few federal statutes which have been found to effect complete preemption (e.g., the governance of the Employee Retirement Income Security Act (ERISA) over all plan-"related" causes of action, see Metro. Life, 481 U.S. at 67; Hotz v. Blue Cross and Blue Shield of Mass., Inc., 292 F.3d 57, 59 (1st Cir. 2002)), the Copyright Act does not encompass all claims simply because the parties' dispute happens to involve a copyrighted work. See Venegas-Hernandez v. Asociacion de Compositores y Editores de Musica Latinoamericana, 424 F.3d 50, 58 (1st Cir. 2005) ("The Copyright Act does not draw into federal court all matters that pertain to copyright."); Royal, 833 F.2d at 2. . . .Unlike ERISA, 29 U.S.C. § 1144(a) (providing that ERISA "shall supersede any and all State laws" to the extent that those laws "relate to any employee benefit plan") (emphasis added), the Copyright Act's preemption provisions are not even remotely panoptic. The Copyright Act preempts only those "legal and equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified in § 106." 17 U.S.C. § 301(a) (emphasis added). Further, "[n]othing in [the Act] annuls or limits any rights or remedies under the common law or statutes of any State with respect to -- . . . activities violating legal or equitable rights that are not the equivalent to any of the exclusive rights within the general scope of copyright as specified in section 106A with respect to works of visual art." Id. § 301(b)(3) (emphasis added); see Blab T.V. of Mobile, Inc. v. Comcast Cable Commc'ns, Inc., 182 F.3d 851, 857 (11th Cir. 1999) (finding no complete preemption because the federal Cable Act contained language which "preserv[ed] state authority except in areas in which the exercise of this authority would be inconsistent with federal law"); cf. Metro. Life, 481 U.S. at 65-66 (citing -- as affirmative evidence of complete preemption -- legislative history that "[a]ll such actions in Federal or State courts are to be regarded as arising under the laws of the United States in similar fashion to those brought under section 301 of the Labor-Management Relations Act of 1947").
What’s interesting in this comparing and contrasting of the scope of preemption under ERISA and the Copyright Act is the focus on the deliberately broader language of preemption contained in ERISA and the deliberately narrower language of preemption contained in the Copyright Act. Many complain about the expansive scope of ERISA preemption that courts have applied, but as the dissenting judge's analysis here of preemption under the Copyright Act reflects, there is a sound statutory basis for imposing broad preemption of state law theories pursuant to ERISA, as Congress can and does expressly declare a statutory scope of preemption to be narrow when that reflects its intent and ERISA doesn’t contain that type of language.
The case is Cambridge Literary Properties v. W. Goebel Porzellanfabrik G.M.B.H., which you can find right here.
Talkin' With Tom Gies, Counsel for the Respondents in LaRue
I promised awhile back that I would run more interviews at some point on this blog, and we return today to our - granted, somewhat sporadic - series of interviews with movers and shakers in the worlds of ERISA and insurance. What provoked me to get back into the interviewing business, which I noted before are among the most difficult of posts to do well? The chance to provide more insight on the oral argument before the Supreme Court in LaRue v. DeWolff, Boberg, which was argued right after the Thanksgiving weekend. And with that lead in, here’s the blog’s interview with Tom Gies, a partner at Crowell & Moring in Washington, D.C., who was lead counsel for the respondents. Tom was gracious enough to provide some real thought provoking commentary on both the issues raised by the case and some aspects of the argument before the court:
Blog: How did you end up representing the respondents?
Tom Gies: We have represented the employer, and the plan, in a variety of employment, benefits, corporate and commercial litigation matters for years. They are longstanding valued clients of our firm. When this case was initially filed in the district court in South Carolina, we were retained to defend against the claim.
Blog: Many ERISA cases, particularly in the area of pensions and 401(k)s, never reach the merits, and instead are resolved by procedural motions addressed to whether there is even a cause of action or remedy available to the plaintiff. That’s what happened here. Would the law of ERISA be better developed, or the parties themselves better served, if courts were resolving questions such as those presented by LaRue after development of the facts of a particular case? On the merits, as it were, rather than on procedural issues?
Tom Gies: An interesting question. The case was pled and litigated in the district court solely as a Section 502(a)(3) claim. We moved for judgment on the pleadings because it was pretty obvious plaintiff sought compensatory damages that are not available under Section 502(a)(3), following the Supreme Court's "rather emphatic guidance" in Mertens, Great-West and Sereboff. Every court that has looked at this question so far agrees with us on this point. And, not to get too much into the prediction game, I think it is unlikely that the Supreme Court will use this case to reverse field on the question of what's appropriate equitable relief under Section 502(a)(3). Had plaintiff pled the 502(a)(2) claim in the district court, the litigation may well have proceeded differently. For instance, there may have been a more fully developed record after discovery, so that the case could be resolved on a motion for summary judgment. The Fourth Circuit was correct in observing that the 502(a)(2) claim was waived, having not been litigated in the district court. As with other types of litigation, the parties to ERISA actions are better served when the basic rules of engagement are followed and parties are not permitted to raise new issues for the first time on appeal. In our judgment, a more complete record in this case would have made it even easier for a reviewing court to understand that this is not a good vehicle for expanding the scope of Section 502(a)(2). A court looking at this fact pattern in response to a motion for summary judgment would readily conclude that this case does not present a triable claim for “losses to the plan” resulting from a fiduciary breach. More generally, I don’t think it’s wise to have some sort of special, more lenient, pleading rules in ERISA cases. The Supreme Court’s recent decision in Twombly recognizes the negative consequences, both to parties and the civil justice system, of the substantial costs imposed on defendants in having to go through discovery in complex litigation involving putative class claims. Those litigation costs are obvious in the 401k plan “stock drop” cases. The excessive fee claims present the same kinds of costs for employers and plan sponsors. The Court’s decision in Twombly wisely recognizes that bare allegations of a statutory violation, without more, should not subject a defendant to the tremendous cost of full-bore class action litigation. It shouldn’t make any difference whether such claims are brought by antitrust plaintiffs, Title VII claimants, or by lawyers representing ERISA participants.
Blog: Any particularly surprising questions or lines of inquiry at the oral argument directed at either you or LaRue’s counsel? What’s particularly interesting or surprising about it?
Tom Gies: Although the questioning of Mr. Stris regarding Section 502(a)(1)(B) was not a surprise (we mentioned it in our brief, and one of our amici devoted considerable time to the issue), I was intrigued with the implications in some of the questions asked by three of the Justices about the potential interplay between 502(a)(1)(B) and 502(a)(2). These questions suggest the Court will provide a careful analysis of the inter-relations of the various subdivisions of Section 502. The Court’s subsequent denial of certiorari in Eichorn v. AT&T may be another indication of the Court’s approach to this corner of ERISA law.
Blog: Any answers you’d like to have back? Any questions you’d like another shot at?
Tom Gies: I would have liked the opportunity to engage Justice Breyer more fully, perhaps in response to his second diamond theft hypothetical, on his question of "why" 502(a)(2) should not be read to extend to a situation like this. A decision to expand the remedies available under Section 502 has significant consequences because it is contrary to ERISA’s goal of encouraging plan formation. Permitting such lawsuits would inevitably require someone to make judgments as to a variety of issues, including: should there be a limit on damages, whether there should be jury trials for such claims, whether there should be an obligation on the part of the plaintiff to do some due diligence before bringing a damages action years after the alleged mistake, whether employers and plan sponsors can require arbitration of these kinds of claims, what should be done about the consequences of such litigation to the fiduciary insurance industry, and how would such claims be fit into the current rules for certification of class actions under Rule 23. There are surely others. These kinds of policy judgments seem best left to Congress.
Blog: Play it out for us. What’s the negatives for the industry if the Court reverses the Fourth Circuit and allows these types of claims to go forward?
Tom Gies: Imagine you have a new employee who joins your law firm, which, we assume, sponsors a 401k plan. Four years after you hire her, you get a lawsuit seeking compensatory damages for a violation of ERISA’s fiduciary duty rules. Her lawyer claims she was not given enrollment forms when she was hired, because of a mistake made by your HR director, and, as a result, employee contributions into the 401k plan were not made. The complaint goes on to assert that, had the contributions been made, she would have invested in Google the day after its IPO, and that the plan fiduciaries are personally liable for more than $500,000 in lost profits. When you look into it, your HR manager has a vague recollection that the employee took the paperwork and said she’d “think about” whether she wanted to join the plan. Should that case go to trial? Before a jury? Justice Scalia’s comment during oral argument in LaRue seemed to appreciate our point – there would be no end to the type of damages claims that plan participants could devise if these types of claims are permitted to go forward.
Imagine another situation. One of your employees who participates in your 401k plan had 75% of her account balance invested in mutual funds heavily concentrated in real estate. Now that those investments have lost considerable value, she seeks counsel. You get a complaint for compensatory damages that includes the allegation that someone in HR told the employee to “stay with” the real estate investments because that sector of the market would be sure to turn around soon.
The considerable costs of defending against such lawsuits will be born ultimately by employer plan sponsors. Fiduciary insurance will become even more expensive. Permitting these kinds of claims would undercut one of the fundamental assumptions made by employers in deciding to offer DC plans, rather than DB plans – the ability to shift investment risk to employees. All in all, a bad idea if you believe, as we do, that it’s critical not to take steps that would discourage employers, particularly small employers, from continuing to offer DC plan.
Blog: Paul Secunda, at the Workplace Prof blog, and I have been going around and around for a bit about whether ERISA is properly understood as having been intentionally enacted by Congress with only limited rights of recovery and remedy for plan participants. Clearly, that idea underlies DeWolff’s arguments to a substantial degree and, in fact, the lower courts’ rejection of LaRue’s claims can be understood as a recognition of this principle and of the fact that, as a result, LaRue simply has no recourse at this point. What’s your view on this? Are those of us who treat ERISA as specifically and intentionally limited in this way right about that?
Tom Gies: I start with Pilot Life and Mertens where the Court is clear in stating that ERISA represents a series of political compromises, not all of which were in favor of plan participants. ERISA is thus fundamentally different from other employee protection statutes. Encouraging plan formation, through the tax laws and otherwise, seems to me to be a cornerstone of the statute. And, of course, it’s not accurate to say that people like Mr. LaRue have “no recourse” in a situation like this. From what we know from the record, this is a case that could have been avoided by a telephone call. If you want to sell 100 shares of stock, you probably call your broker and place the trade. If you don’t get a confirmation order pretty quickly, you’ll call back, and if you don’t get a satisfactory answer, you’ll call her boss. If the boss won’t help you, you’ll escalate the situation until you get your trade executed. People like Mr. LaRue who want to trade securities in their 401k plan accounts have a variety of remedies available to them; they just don’t have a cause of action for compensatory damages based on a lost profits theory.
Blog: I shouldn’t put you on the spot, but I will - want to hazard a guess as to the outcome of the LaRue case?
Tom Gies: The Fourth Circuit will be affirmed 5-4, with the majority concluding that it is up to Congress to decide whether to extend the remedies currently set forth in Section 502.
Controlling Costs in Patent Infringement Litigation
Permalink | I tried a patent infringement case to a jury last spring, and while I was quite pleased with the outcome, I left the experience very concerned about the tremendous cost of litigating patent infringement cases. Thinking back over the course of the litigation, I was able to identify some central principles for reigning in the costs of such suits, and I now regularly use those ideas in guiding my own recommendations to clients and approaches to litigation in intellectual property cases. New England In-House magazine has now published my article on this topic, titled “Patent Litigation Doesn’t Have to be Prohibitively Expensive,” which details my ideas on controlling the expense of litigating these types of cases. You can find the article right here.
State Mandates and Health Insurance Pricing
Permalink | Well now, this morning I came across this interesting post here, on the State Policy Blog, comparing health insurance pricing in one semi-unregulated state insurance market (Colorado) and in a state, Massachusetts, with a state mandate requiring health insurance. As you can see from the post, the numbers show pricing is significantly higher in Massachusetts, which obviously now has a health care reform act in place that effectively requires employers and individuals to purchase health insurance, than it is in the unregulated portion of the Colorado market. The author’s intent is to demonstrate that state mandates and state regulation drive up pricing, but I am not convinced that the simple comparison of pricing demonstrates this at all. Initially, I can’t vouch for the actual data, or for the author’s characterization of the Colorado market in comparison to the Massachusetts market. But even if you take the numbers at face value, they threaten to prove nothing more than the truth of the old saying that there are three kinds of lies - lies, darn' lies and statistics. This is because, as discussed in prior posts such as this one, Massachusetts has very high costs of actual medical care compared to other regions of the country, for reasons that may very well be unique to Massachusetts and possibly as well to the few other areas of the country that, like Massachusetts, have a particularly high concentration of major teaching hospitals. Its been years since I have been to Colorado, but I don’t think, to my recollection and on my general reading, that it’s health care and health insurance market fits that description. As a result, comparing Colorado health insurance pricing to Massachusetts’ health insurance pricing is simply comparing apples to oranges - or maybe, given the states we are talking about, to cranberries - and tells you nothing about the effect on pricing of state mandates such as the one recently enacted in Massachusetts. That said though, it’s an interesting question how state mandates impact pricing compared to markets without state mandates in place, and I would love to see a carefully constructed economic study on the subject. Anyone seen any? If so, I’d love to see it.
Is It Just Plain Rational for Insurers to Pull Back from Coastal Markets?
Permalink | Anyone interested in the topics of this blog is probably familiar with the media coverage of homeowners insurers raising rates and/or simply withdrawing from writing homeowners insurance in coastal regions, including not just in the traditional hurricane regions of the south but up through New England as well. Many stories are replete with sturm und drang about the issue, ranging from political criticism of insurers to questioning of the companies’ motives. Studies like this one here, however, suggest that it is instead entirely rational for insurers, who should have a long term perspective in mind, to substantially reduce their exposure to coastal risks. The long term potential loss exposure in those markets is clearly growing exponentially, and it would be fundamentally irrational for insurers not to recognize and respond to it.
I have written before about the idea of insurance and insurers as leading indicators, and that is what you are seeing in this scenario as well. If insurers are unwilling to expose themselves to the increasing risk posed by coastal development in the era of global warming, then it may be that they are on to something, and the political sturm und drang should be directed at ameliorating the risks they are forecasting and trying to avoid, rather than at them for doing so.
Looking Under the Hood of Pension Plan Investments
Permalink | Word comes to me today from Susan Mangiero, who pens the Pension Risk Matters blog (that phrase reminds me just a little of one of my favorite move phrases of all time, “a lot of alliteration from anxious anchors”), that I am quoted in an interesting article by Liz Peek in the New York Sun today, titled “Pension Fund Litigation Could Slow Investments.” The gist of the article? That there is a lot of hidden risk in pension assets that fiduciaries and plan sponsors aren’t fully cognizant of, and that this reality is placing fiduciaries at risk of litigation. The article, relying on data from Susan’s new company that tracks pension related litigation, points out the swelling numbers of lawsuits being filed over this issue.
A Top Blog at the LexisNexis Insurance Law Center
Permalink | Some years back, I was on a job interview when I was asked a question by a senior partner in a fairly good sized firm. When I began my answer with the comment that I was loathe to brag, he interrupted me to say that it was a job interview, so if there was ever a time when it was appropriate to brag, it was then. Not bad advice, in hindsight. In much the same way and with the same sort of license, I thought I would mention that this blog has been included by the people at LexisNexis on its list of top blogs at its Insurance Law Center, which I can recommend to you as a good place to locate cases, commentary and timely information on insurance related issues. I am told that “the selection of [the Boston ERISA and Insurance Litigation] blog was made by insurance editors at Matthew Bender and LexisNexis Mealey's Insurance publications as one that can be relied upon to provide its readers with timely review and analysis on insurance and insurance related topics.” Well, we try to, anyways.
Either way, modesty - false or not - aside, I appreciate the recognition, and hope the readers of this blog find some more of the information they are looking for at the LexisNexis insurance law center.
High Health Care Costs and the Impact on Fair Share Acts
Permalink | Okay, I mentioned on Friday that I had come across some other interesting blogs and sites over the last few weeks that I wanted to pass along, and that I would do so over the next few days. I jumped off track on doing that right off the bat with this morning’s post on insurance and prior knowledge issues, but now I will return to one of those other blogs I wanted to pass along.
I have talked a lot about the Massachusetts Health Care Reform Act, and one of the things I discussed recently was Professor David Hyman’s article in which he pointed out that the "Massachusetts Health Care Reform Act has problems [unique to it] that stem from the particularly high cost of health care in Massachusetts relative to the rest of the country.” On this point, John Aloysius Cogan Jr., the Executive Assistant for Policy and Program Review for the Rhode Island Office of the Health Insurance Commissioner, recently had a terrific post on his Regulating Health Insurance blog that breaks down the component costs of health insurance and analyzes what elements are driving the high cost of health insurance. Echoing Professor Hyman’s point that it is the high cost of the health care itself that is problematic, John carefully documents that the high cost of health insurance is in fact driven by the cost of medical care itself and not, as is frequently argued and assumed by critics, by insurer profits. It’s an interesting analysis that fits well in any consideration of the merits and problems of state health insurance reform acts. Of course, the willingness of the public and the political class to accept John’s assertion that the driving factors in high health premiums are the costs of medical care itself isn’t helped by stories like this one here.
Let My People Go, or Something Like That: Granting Parties Greater Freedom to Construct an Arbitration Regime
Permalink | There was an interesting post yesterday on the Wall Street Journal Law Blog - which by its topics provides a nice little overview of the zeitgeist of the legal world at any given moment - on arbitration as an alternative to litigation. The post discusses a column from the Financial Times supporting the growth of arbitration in the face of consideration by the Supreme Court of a case concerning just how much freedom parties have in constructing the format of the arbitration under the Federal Arbitration Act. The column itself is here. What’s interesting to me about all of this is that at the same time business media of this nature is singing the praises of arbitration, the lawyers for much of that business community don’t much like it as a tool for resolving complicated disputes, as I have discussed in a number of posts, including - most recently - here. Is there a disjunct over the question of the efficacy of arbitration between the business communities and their lawyers, including their in-house lawyers, who are tending not to favor arbitration for their own disputes? Or is there only a disjunct between the media who cover that issue and the business community and its lawyers?
Incidentally, the Supreme Court case involving arbitration concerns the extent to which the parties can structure their rights and remedies in that process in the face of the Federal Arbitration Act, including the extent to which they can appeal an arbitrator’s ruling in the court system. As a frequent commentator on arbitration and one who regularly represents parties in arbitration, I have no doubt that expanding the power of the parties in such a manner can only improve arbitration, at least of commercial cases involving parties of roughly equal bargaining power.
Pay or Play Acts: There's No Free Lunch
Permalink | I have written before that the underlying structural problem with fair share and similar acts, like the Massachusetts Health Care Reform Act, that seek to mandate the provision of health insurance by employers is twofold: first, they play at the margins of a problem that is fundamentally about the base economics of health care costs and, second, they are walking advertisements for the law of unexpected consequences. Two stories that showed up on my (electronic) doorstep yesterday illustrate this beautifully. In the first, Healthcare Reform: The Economics of Pay or Play Employer Mandates, two Cornell University economists explain that, as expected, mandating the provision of health insurance will reduce employment levels among the exact population of lower waged - and presumably lower benefitted - workers that the statutes are intended to help by mandating that health insurance be added to their employment compensation. The authors further argue, however, that the statutes are “blunt instruments” for targeting the problem of the uninsured, as they have negative impacts on employees who already have health insurance through other sources, including by reducing employment levels of such employees. The point, in many ways, of this and other criticism of these statutes is that they look good on the surface, and certainly score political points in some instances for those who have championed them, but in practice they are nowhere near a panacea for the growing problem of the uninsured, a problem I have explained in past posts is one of fundamental economics related to the extraordinary costs that providing health insurance imposes on employers. And that leads directly to the second story of interest, from yesterday’s New York Times, explaining how Wal-Mart, the direct target of some of the pay or play mandates, such as the one enacted in Maryland, having defeated in court statutory attempts to force it to increase its health insurance spending, is beefing up the level of health benefits provided to its employees on its own as being good business and sound economics. The problem with health insurance and the issue of the uninsured is about fundamental economics, and these pay or play mandates, because they can’t repeal whatever laws exist in the dismal science, can’t strike at the root causes of the issue.
Permalink | If, like me, you are fascinated not just by ERISA but by history and politics, this two part law review article, by James Wooten at the University at Buffalo Law School, on how ERISA preemption came to be, looks to be a must read. Here’s the abridged version of the story detailed in his articles:
[The first of his two articles] recounts the key role of preemption issues in Congress's decision to pass ERISA. Until shortly before ERISA's enactment, employers and the AFL-CIO opposed comprehensive pension reform legislation. When states threatened to regulate private pension and welfare plans, however, the business community's and the AFL-CIO's strong desire for preemption all but forced them to support a federal pension reform law. Their support made passage of such legislation a virtual certainty. [The second of his two articles continues the story, explaining] how preemption issues led Congress to pass a broader pension reform law than it might otherwise have done. Business groups and the Nixon Administration hoped the congressional tax committees would limit the scope of federal regulation of pension plans. The congressional rules, however, gave jurisdiction over Congress's power to preempt state employment laws to the labor committees. Their control over preemption allowed the labor committees to bargain for broader regulation than business groups and the Administration preferred.
Some twenty years or so ago, the historian Arthur Schlesinger published his book The Cycles of American History, on the idea that certain themes in American political life rise, fall, and then rise again over predictable periods of time. In much the same way, you can see, in the current rush by states to enact fair share and other health insurance reform laws, a rebirth of the same urge to regulate that, as Professor Wooten points out, gave rise to ERISA preemption in the first place, some thirty years ago.
You can download Professor Wooten’s articles detailing this history here (the first article) and here (the second).
Robert Kingsley, Insurance Industry Oracle
Permalink | In the first and so far last of our series of interviews with people of interest in the insurance and ERISA communities (I will do more at some point, but the interview post turns out to be the most difficult and time consuming to do well, which is probably why most people leave them to professional journalists turned bloggers like Peter Lattman at the WSJLaw blog, who do them really, really well), veteran insurance executive Robert Kingsley discussed the pace of consolidation in the insurance industry. Asked whether he saw that trend continuing, Robert noted that “there is little doubt the pace of consolidation will accelerate” and explained that in an industry, such as insurance, flush with capital, consolidation was inevitable. Robert had more to say on the subject, and you can find it here.
I am reminded of Robert’s comments by this story here in Massachusetts, that Spain’s largest insurer has now offered to pay $2.2 billion for comparatively small Massachusetts insurer Commerce, with the intention of using it as a platform to grow its business in the American market. Commerce was previously known primarily as a Massachusetts company focused on automobile insurance.
One of the interesting aspects about the news coverage of the Commerce acquisition is that the Spanish insurer, Mapfre, already operates in some 40 countries, but has a relatively small footprint in the United States and intends to use the purchase as a primary vehicle to expand its operations here. As Robert pointed out in the interview he did for this blog, insurers are making growth promises to investors that cannot be met by organic growth, which is driving the need to grow through acquisitions; that drive to grow appears to have played a large role in this purchase as well.
What's Good for the Goose: Should the Rules of Electronic Discovery Apply Equally to All Cases?
Permalink | Michael Fox, who jots down his thoughts about employment law and other things over on his excellent blog, Jottings by an Employer’s Lawyer, raised an interesting point about electronic discovery in a post the other day when he was commenting on my recent discussion of whether electronic discovery threatens to render arbitration the better forum for resolving complex disputes. Michael pointed out that scalability is a key issue that should be considered when it comes to the appropriateness of ordering electronic discovery, and he raises the question of whether electronic discovery that is appropriate in a multimillion dollar case is equally appropriate in a case worth ten times less.
To ask the question is, in my book, to answer it, and I think that was Michael’s point as well. As the courts proceed to develop a body of jurisprudence governing electronic discovery, it seems clear that scalability is a factor that needs to be taken into account. It only makes sense, given the expense of electronic discovery, that as a case moves downrange in terms of the amount at issue, the obligation of a party seeking electronic discovery to actually document a need for such discovery (beyond basic and easily obtained emails and the like) and to evidence that such discovery is likely to be fruitful increase. I have talked before about my belief that the expense of this type of discovery requires that stricter showings of the need for such discovery be imposed than has traditionally been imposed on parties seeking discovery, and this is a natural concomitant of that idea. It is all part of the same thesis: that electronic discovery cannot be allowed to become the central focus and expense of litigation, must instead be treated as an adjunct to obtaining a just outcome, and as a result should be allowed only when and to the extent it is cost appropriate.
One View on What's Wrong With the Massachusetts Health Care Reform Act
Permalink | In yesterday’s post on Darren Abernethy’s paper on Fair Share statutes, I ended up riffing on the question of whether the Maryland legislature, by putting before the courts a particularly bad version of such a statute, had distorted the development of the law of ERISA preemption in a manner that would only hurt the cause of those who favor state health insurance mandates. I wondered whether the case law would develop differently if more balanced statutes, like the Massachusetts Health Care Reform Act, were analyzed by courts without the landscape of ERISA preemption having already been filled in by the decision holding the Maryland act to be preempted.
Critics of the Massachusetts act would likely argue that the Massachusetts version is so rife with problems that it is just as well if the legal environment, now that the Fourth Circuit has found the Maryland version of these types of laws to be preempted, is not too welcoming to such acts. That seems like a fair conclusion after reading law professor David Hyman’s piece on the “good, the bad and the ugly” in the Massachusetts statute, in which he pretty much takes the statute to task for being a poorly designed piece of state law. The Workplace Prof passed the article along, and you can find it here.
To the extent that the author’s analysis of the statute is right - that as economics and policy it just doesn’t work - it seems to support two points I have raised before on this blog concerning the Massachusetts act. First, that the questionable elements of the various acts enacted by the states suggest that federal preemption is a good thing, as a bulwark against what may be ill-conceived ideas by state governments when it comes to the topic of health insurance reform. And second, that the problem with these types of acts is that they play at the margins, and neither can nor do address the real cause of the problem of the uninsured, namely the incredible - and ever increasing - costs to employers of subsidizing health insurance in this country. This second point is one that appears to animate Professor Hyman’s piece, as he reflects on the fact that the Massachusetts statute has problems that stem from the particularly high cost of health care in Massachusetts relative to the rest of the country, as well as on the fact that the statute’s mandates are distorted by the high rate of health care inflation.
Preemption of Fair Share Acts: Did the Maryland Legislature Manage to Set The Whole Issue Back a Thousand Years?
Permalink | Here is Darren Abernethy’s law review note on preemption of state fair share acts that mandate that employers provide certain levels of health insurance. His note, which I have discussed before, is very well done, and Darren has generously allowed me to share it here in full. As readers may recall from earlier posts, Darren discusses the fact that the Maryland Fair Share Act, which as he points out in his note targeted Wal-Mart, was found by the Fourth Circuit to be preempted, and Darren proposes ways to create statutes of this type that might avoid preemption. It’s a terrific note, and in particular his history of the preemption jurisprudence is an excellent tutorial on that particular issue, and I myself will be quick to cite it on that point when briefing the issue in the future.
One particular aspect of Darren’s note struck a chord with me, and provoked a somewhat chilling thought. In discussing ways to craft these types of legislation that might avoid the preemption problem, he recommends - in essence - that such legislation be broad based, which is the opposite, in many ways, of the Maryland Fair Share Act, which I have argued before can be seen almost as a punitive statute aimed at only one employer. We all know the old saying that bad facts make bad law (or is it hard cases make bad law?), and the question that arises is whether that is a fair understanding of the Fourth Circuit’s Fielder decision that found Maryland’s Fair Share Act to be preempted. The Maryland statute clearly aimed at only one employer and was drafted to avoid implicating favored large Maryland employers such as Johns Hopkins Hospital, and that aspect of the statute can be seen in the district court and Fourth Circuit rulings as at least influencing, and possibly animating, the holdings by those courts that the statute was preempted. Might things have come out differently in the district court and the Fourth Circuit absent that factor? The statute might still have been found to be preempted, but it seems to me that those courts may at the least have been more open - even if still finding the act to be preempted - to nudging the law of preemption along in a way more favorable to these types of statutes had the courts been presented with a better and fairer looking attempt to mandate health insurance benefits. In essence, would the development of this area of the law be a little different if the leading court of appeals analysis of such a statute were, for example, of Massachusetts’ somewhat problematic but nonetheless broader health care reform act, than it will be given that the Fielder decision striking down the Maryland act now holds place of pride in that area of the law? Did the Maryland legislature, by putting one of the worst possible versions of such a statute before the courts, prevent the law from moving in a direction that might have helped such statutes avoid preemption?
Complying with the Massachusetts Health Care Reform Act
Permalink | I have written a fair amount about whether the Massachusetts Health Care Reform Act is preempted by ERISA, but not too much about the practicalities of complying with the act for as long as it remains unchallenged and unpreempted. This despite the fact that I have been asked a lot of questions about compliance by companies trying to understand their obligations under the act and who are trying to structure their operations to abide by it. An excellent website discussing the practicalities of the act and compliance crossed my desk the other day, maintained and made available by the Massachusetts Association of Health Underwriters (geez, there’s an association for everything these days). For those of you interested in the practicalities of the act, its an excellent resource. This link will take you right to it.
Where Patent Law Stands Today
Permalink | On Friday I feel free to deviate from the usual topics of this blog into the topics covered under the digressions category over on the left hand side of the blog. Today being Friday, that’s what I’m going to do, this time returning to an issue I have discussed before, the Supreme Court’s targeting last term of the law governing patent litigation and whether patent reform remains necessary - if it ever was - after the Court’s decisions. SCOTUSBlog has this post about the Michigan Law Review’s on-line companion and its collection of shorter pieces addressing exactly those questions. I have read most of the pieces, and in particular recommend Robert Armitage’s piece on the judiciary’s ability to respond to problems in this field of law without legislative reforms and Professor John Duffy’s piece on the impact of the Court’s treatment of the obviousness standard.
It’s a terrific collection, done just the way legal scholarship should be done to have relevance to the practicing bar and not just to other academics. Short, readable, accessible, and thought provoking. Exactly what I have argued before law reviews and law faculty must provide if they are to influence the development of the law, rather than just the heft of law reviews.
Electronic Discovery and the Calculus of Arbitration
Permalink | I have written before about electronic discovery and the amendments to the federal rules governing that discovery, and my theme has often been that the courts need to develop a jurisprudence concerning electronic discovery that carefully weighs the expense of the discovery versus the need for it before granting extensive (and expensive) electronic discovery. In this article here, DLA Piper partner Browning Marean points out that the expense of electronic discovery can often be so burdensome that it forces settlement without regard to the merits of a case; as he puts it in a very clever turn of phrase, “the possibility of extortion by discovery is too real a prospect.” I have said it before and I will say it again: we are at the opening phases of the development of the law of evidence and discovery in this area, and the courts need to establish a body of precedent governing this type of discovery that prevents electronic discovery from having this effect.
At the same time, I have discussed as well on this blog the consensus that arbitration is a poor forum for most complex cases and is often not an improvement - in terms of costs, efficiency or outcome - over litigation. The electronic discovery amendments to the federal rules may be in the process of changing that. Unburdened by the federal rules themselves or the developing case law concerning electronic discovery, an arbitration panel is free to fashion much narrower electronic discovery and to impose much stricter controls over it than courts are currently tending to impose,
all on the thesis that a large part of an arbitration panel’s job is to effectuate arbitration’s promise of cost effective dispute resolution. As a result, as electronic discovery costs go up in federal court, the comparative cost advantage of arbitration - which has been disappearing over the years - increases, possibly changing the calculus for litigants over whether or not to agree to arbitration.
One Proposal for Enacting Fair Share Legislation While Simultaneously Avoiding ERISA Preemption
Permalink | We previously mentioned William and Mary law student Darren Abernethy’s upcoming law review note presenting ideas on how to enact so-called fair share legislation - which attempts to obligate employers to provide certain levels of health insurance coverage - without running afoul of ERISA preemption. His note is now out, and those of you who, like me, don’t subscribe to the William and Mary Law Review, can access it right here. Here’s his abstract on what the note argues:
This Note examines Maryland's preempted statute and the United States District Court case that granted its opponents declaratory relief. After reviewing the Fair Share Act, the federal ERISA statute, and the significant changes in Supreme Court jurisprudence towards ERISA preemption in the past decade, this Note will offer new approaches through which states can modify the analytical framework outlined by the Fair Share Act to achieve improvements in the state-financing of Medicaid through large private employers. The goal of this Note is to analyze ways to fit future "fair share" legislation within the non-preempted confines of ERISA.
The proposed modifications include: (1) rewriting "fair share" laws as unequivocal, non-regulatory Medicaid taxes from which compliant employers may become exempt; (2) dulling the sharp edge of the FSA's punitive texture through decreasing the 100% shortfall tax to 35-50%; (3) expanding the options that employers have as "outlets" for meeting the 8% health expenditure benchmark, such as through an increase in non-medical fringe benefits, thus giving the statute a less coercive feel; (4) a "total package" benefits approach analogous to unpreempted ERISA prevailing wage cases; and (5) a state-initiated higher minimum wage for very large employers, with an incentivized exemption provision stating that an employer can revert back to the state or federal government's general minimum wage if the employer spends a certain percentage of payroll wages on employee health insurance.
Is This The End For Patenting ERISA Strategies?
Permalink | I have talked before - probably too much - on this blog about patents, patent reform, and the fact that the courts are in the process, as far as I am concerned, of reigning in what some see as abuse in the patent system and in patent infringement litigation against large technology and other companies. Of particular note, I have written before about the particular question of whether ERISA strategies should be subject to patent, and, as I discussed in a BNA article on the subject, I don’t run with those who think business method patents should be pushed that far. The Wall Street Journal law blog has an interesting post today that touches on all of this, in particular on a new appellate decision concerning business method patents that may well drive the final nail in the coffin on the idea of patenting ERISA strategies. As that blog puts it: “Legal experts say the court’s ruling . . .may make it more difficult to obtain and enforce business-method patents, which are granted for abstract processes rather than specific devices. . . .The decision suggests that business-method patents will now be considered invalid unless the invention has a practical application and can be linked to a particular technology, such as a computer. The court said that ‘mental processes—or processes of human thinking—standing alone aren’t patentable even if they have practical application.’" Seems to me that ERISA strategies fall exactly within that category of unpatentable mental processes. In fact, frankly, if you read the opinion itself, it is pretty doggone clear that ERISA strategy patents, as distinct from patents involving computer processes for managing ERISA claims for example, should never have been granted, and won’t be in the future.
Is Global Warming A Horror Movie Waiting to Happen for the Insurance Industry?
Permalink | My colleague, computer patent guru Robert Plotkin, once referred to insurance as a leading indicator when it comes to the issue of global warming, and I have talked before about the idea that governments and societies will act to curb global warming and to deal with related problems only when we reach the point that these problems pose severe economic problems for major sectors of the economy. I have written before about how truly fundamental this issue is, in particular, for the insurance industry, and about the fact that changes in insurance coverage are likely to be the first major noticeable economic response to the issues posed by global warming.
Now, I recognize that sounds like the sonorous introduction to some Ken Burns special on PBS, but it’s a hard topic to delve into while maintaining a warm and good natured tone. And the reason for that is laid out right here, in this fascinating opinion piece from the Washington Post on the response and thinking of leading elements of the insurance industry, including Lloyd’s, to global warming. The article lays out both the risks to the industry posed by climate change (risks the article describes as going right to the question of the sustainability of large sectors of the insurance industry) and the insurance industry’s response to the problem, which is to call - out of its own self-interest - for governments to address and remediate the problem.
You can get a pretty good flavor for what the article presents as the industry’s perspective on the problem right here, in this quote from the article:
Ten years ago, Peter Levene, chairman of Lloyds of London, was skeptical about global warming theories, but no longer. He believes carbon emissions caused by human activity are warming the Earth and causing severe weather-related events. "At Lloyds, we feel the effects of extreme weather more than most," he said in a March speech. "We don't just live with risk -- we have to pick up the pieces afterwards." Lloyds predicts that the United States will be hit by a hurricane causing $100 billion worth of damage, more than double that of Katrina. Industry analysts estimate that such an event would bankrupt as many as 40 insurers. Lloyd's has warned: "The insurance industry must start actively adjusting in response to greenhouse gas trends if it is to survive."
Pretty much what I said here, but I have to admit, the thought’s much more sobering coming from Mr. Levene than coming from a blog post.
Does KSR Mean Patent Reform Isn't Needed?
Permalink | Regular readers know I like hard data, including statistics or other quantitative support for a position. In their absence, most legal and policy arguments are, well, just opinions. With that in mind, LegalMetric, which studies and reports on patent litigation data, has provided an interesting snapshot of the impact on patent infringement litigation of the Supreme Court’s KSR ruling from a few months back. The company’s findings: that “[s]ince the Supreme Court decision in KSR, patent owner win rates [have fallen] substantially below their long-term averages.” You can find some slides provided by the company that detail their findings here, which the company has offered to let me post with the proviso that I note that the data is their property.
Now, KSR, for those of you readers who aren’t patent people, made it, in theory, easier to invalidate a patent and therefore to defend against a claim of patent infringement, as discussed here. The findings reported by LegalMetric obviously reflects a small snapshot of a very short window in time, but if it holds up, it would suggest that patent reform, which is being pursued vigorously at the federal level by corporations who are frequently targeted by patent infringement suits, is not really needed to stem the claimed tide of unsupportable and vexatious patent infringement suits. Rather, the only thing actually needed may have been to tweak the courts’ interpretation and application of existing patent law, a pro-defendant tweak that the Supreme Court, based on this data, very clearly provided with its ruling in KSR.
Some Interesting Papers on the Issue of State Health Reform Mandates
Permalink | I have posted a fair amount on the impact of what are becoming known generically as “Fair Share” statutes, which are attempts to “reform” health insurance on a state level by means of mandating that employers provide health insurance benefits. I have talked about three main themes in my various posts on this topic, all of which stem from a certain skepticism as to whether these types of legislative responses to the problem of the uninsured are as well thought out as they are well intended. The first is the question of whether they are preempted by ERISA, and whether the rush by many states into this topic is a waste of resources, on the thesis that these state initiatives are likely to be found preempted, under the current state of the law. The second is the question of intended and unintended outcomes, and whether many of these state laws are really well thought out, or, two, whether the legislatures enacting them really know what they are getting into (for instance, just think of the Maryland legislature naively believing it could enact a statute that only mandated health insurance for Wal-Mart employees without running afoul of ERISA preemption, which of course ended in the federal courts striking the act down as preempted). And the third, finally, is the fact that these acts don’t target the real problem underlying the high rates of the uninsured, namely the ever increasing costs of health insurance. I have talked about all of these quite a bit, and you can find posts on them by clicking on the preemption, health insurance, or Massachusetts Health Care Reform Act headings over on the left hand side of this blog.
Here’s a couple of interesting articles I wanted to pass along that hit on at least two, and maybe three, of these themes. The first is this article here, titled “Labor Market Effects of Employer Provided Health Insurance,” which explores the question of how mandating that employers provide health insurance, as many of these state reform acts do, impacts employment. One of its findings? That mandating health insurance for all workers does in fact distort the labor market, but that even more interestingly, although perhaps as one would expect, “mandating the insurance only for full-time workers leads to higher [rates of] coverage than [without a mandate, but also to] an increased number of part-time workers.” If, as one would expect and this article suggests, there is a trade off between employment and the extent to which state laws mandate health insurance coverage, one would hope that state legislatures carefully analyze this issue before joining the current rush to mandate health insurance coverage.
Now, I am beginning to feel obliged by the tenor of my posts on this issue to note that I don’t disagree that the rate of the uninsured in this country is a real problem, and that my skepticism really runs to whether the increasing number of state attempts to address the problem - something they are probably foreclosed from doing by ERISA preemption anyway - represents the most thoughtful and effective way to tackle this problem. And this thought leads to the second paper I wanted to mention, which is law student Darren Abernathy’s upcoming law review note addressing the question of how to draft these types of laws to avoid ERISA preemption. This, at least, is a thoughtful attempt to get around some of the problems that arise when states target the problem of the uninsured by means of health insurance reform statutes. We need more of that type of forward looking and proactive analysis, and less of the willy nilly charge into the issue we are seeing by many state and local governments, who, having apparently learned nothing from Maryland’s experience, just keep enacting legislation on the slim hope that it won’t be preempted, rather than on an analysis and strategy that might place the statutes they enact outside the scope of ERISA preemption.
Bowater, Preemption, the Wall Street Journal Law Blog, Massachusetts Health Care Costs, and Whatever Else Is On My Mind This Morning
If David Rossmiller can do a potpourri to avoid writing a full fledged blog post then, by gosh, so can I. Conveniently enough, I had some three small items on my mind this morning anyway, all of which I will mention here in one fell swoop:
? More on Bowater: For those of you who were interested in yesterday’s post about the First Circuit’s ruling in Bowater, concerning termination of a benefit plan and a foul up in executing it as part of a corporate acquisition, the ever watchful S.Cotus, who never misses anything on any subject at the First Circuit over at Appellate Law & Practice, has this in-depth review of the Bowater decision. S.Cotus delves into the labor law issues that were also at play in the case, in addition to the ERISA issue that I commented on yesterday.
? I posted earlier in the week on the question of rising health insurance costs and how that was the elephant in the room that all of these state based attempts to reform health insurance were avoiding, and how that justified the preemption of those state acts in favor of a federalized and consistent nationwide approach to the problem. The Boston Globe has a detailed article today laying out the extent of the increase in health insurance costs just here in Massachusetts. The essence of the article is in the opening paragraph: “Massachusetts health insurers are predicting their rates will increase by about 10 percent next year for most residents covered through employer health plans, marking the eighth consecutive year of double-digit premium hikes.” Funny, but Massachusetts just implemented health reform legislation, so how can this be? The answer, I suspect, is in this post here.
? And finally, on a sillier note, the Wall Street Journal Law Blog is fascinated right now with preemption, posting several times on various applications of the doctrine in the last few days. Yet despite the fixation on preemption, they omit entirely what we all know is the most important and interesting application of preemption, namely ERISA preemption. While I write slightly tounge in cheek on this point, the truth is that, as we see with the attempts of states to legislate health insurance coverage in the face of ERISA preemption, this is in fact the one area of preemption that consistently affects broad numbers of everyday, real life people, as opposed to the smaller subset of directly affected businesses involved in the preemption cases discussed by the Wall Street Journal Law Blog over the last couple of days.
Why Health Care Inflation Numbers Justify ERISA Preemption of State Health Care Reform Legislation
Permalink | Someone once said that Marx was wrong about a lot of things, but he was right that everything is economics. Nothing illustrates this maxim more than the various attempts by states to get around ERISA preemption - such as discussed here and here - and mandate health insurance coverage in one manner or another. These attempts by states - which are simply doomed to eventual court declarations that they are preempted- seek to force employers to expand health care availability and, in some cases such as Massachusetts, to get those who fall outside of the employer provided health insurance system to buy their own coverage. The problem is that these legislative attempts don’t affect the real problem, which is that the costs of providing health insurance has escalated to the point where employers face huge financial disincentives to expand their offerings of health insurance and uncovered employees cannot afford their own policies. Here it is in stark black and white (literally, since it comes from the NY Times, rather than from the USA Today, where I guess it would be in stark color): “[t]he cost of employer-sponsored health insurance premiums has increased 6.1 percent this year, well ahead of wage trends and consumer price inflation, but below the 7.7 percent increase in 2006, the Kaiser Family Foundation reported today.” Beyond that, the article points out that “health costs had increased 78 percent since 2001, more than four times as fast as prices and wages.”
The ever increasing impact on the bottom line of providing health insurance is why the employer provided system isn’t expanding to cover more people, and why the uninsured cannot insure themselves. Although the Massachusetts reform act takes some steps towards altering that dynamic, at least with regards to those not covered by employer provided plans and who must instead insure themselves, the simple fact is the various state reform acts aren’t really directed at fixing this fundamental base line problem (and they probably can’t attack this problem effectively on a state by state basis, just further driving home a point I have made previously, that the availability of health insurance coverage probably should not be addressed on a state by state basis, should be addressed on a national basis, and that ERISA preemption of these types of state acts is a good thing as a result). Unless and until the base problem of the economic numbers is tackled, these reform acts aren’t targeting the actual disease, just some of the symptoms of it.
More on the Question of When to Arbitrate and When to Instead Litigate
Permalink | Pretty much since I started writing this blog I have talked about how, in my experience, commercial arbitration is not a panacea and often is not a better forum than litigation for resolving disputes. My main point has always been that it depends on the particular dispute and on the details of a party’s position, including the strengths and weaknesses of that party’s case. Since beginning my run of comments on that theme, there has been no shortage of pieces in major media outlets basically saying the same thing, some of which I have linked to on occasion here on this blog.
I particularly like this latest one on the subject, however, by Jo Ann Shotwell Kaplan, the general counsel of the New England Legal Foundation, and thought I would pass it along. The article reports on a seminar the foundation hosted on the subject of commercial arbitration as a forum for deciding business disputes. One of the things that makes it worthwhile reading on a subject that has otherwise been well plowed elsewhere is the strength of the panel discussing the issue, and the article’s ability to capture some of the more subtle considerations in determining whether arbitration, or instead the courtroom, is the way to proceed. As an example, I particularly appreciated the point raised by one of the panelists, counsel to a major consumer products company, that arbitration is best used in the context of recurring disputes between the same players because in those instances the parties are motivated to make the best use of the system, but that arbitration is simply a failure when applied to one and done disputes that are subject to arbitration only because of a pre-dispute mandatory arbitration clause.
The second thing I liked about the article was a point it made which I simply have not seen made anywhere else, which in this world of media saturation is a rare occurrence. The article discusses the views of one arbitration expert that commercial arbitration, whatever its merits may be when resolving other types of disputes, is actually preferable to litigation with regard to international disputes, for two reasons. The first is that using arbitration puts the parties on the same playing field, removing from the equation the differences between the different legal systems applicable in the different countries where the businesses involved in the dispute are domiciled. The second, and almost stunning reason, is that commercial arbitration rulings out of this country are often more respected in other countries’ court systems than are court verdicts. The panelist, a Boston University Law School professor:
explained that a U.S. arbitration award has more international currency than a decision of the U.S. Supreme Court. Apparently other countries don’t think too much of our system of jury trials in civil cases and runaway punitive damage awards. They have agreed to enforce our arbitration awards, but not our court judgments.
More on Preemption and Health Care Reform in California
Permalink | I posted a couple of days back about California’s interest in enacting a state health care reform law that, like the current law in Massachusetts and the Maryland Fair Share Act that was struck down by the courts, operates at least in part by imposing new obligations on employers who provide health insurance to their employees. In the post, I noted my skepticism that the state could pull this off without running afoul of ERISA preemption. The National Law Journal has an interesting article, available here, on the same subject, from which I took away two thoughts. The first is that the consensus opinion is exactly the one I voiced earlier this week, that California’s attempt is almost certain to be subject to preemption if challenged in court. The second is that any statutory enactment of this nature in California is, in fact, certain to be challenged in court, and quickly, if only because of California’s bellwether status in American economic and political culture, and the possible influence on other states if such a statute is allowed to stand in California.
But I Digress: Robert Plotkin on Patent Applications and Changes at the PTO
Ever mystified by what goes on inside that black box with the colorful flat screen on top that sits on your desk at work? Me too, and when I am I check in with my colleague Robert Plotkin, a patent prosecutor who specializes in computer patents. Robert is a fine source of expertise on patent law and computer technology, and I thought I would pass along this link to his patent tip for August 07, which discusses changes at the Patent and Trademark Office concerning continuation applications. As Robert points out in his publication, the rule change will alter patent applications in a manner that may increase their expense, but do not go into effect until November, creating a short window that patent applicants should try to exploit before the effective date of these changes. And as Robert doesn’t point out in his note on the subject, but did mention to me - given that I litigate patent infringement actions but don’t prosecute patents - the shakeout from the rule change is likely to affect litigation over patents as well, as we move down the road and past the implementation date of these changes.
And aside from my professional interest in patent litigation, how does this relate back to the primary subject matters of this blog? Well, we might point out that business strategy patenting has caused ERISA law to crash head long into patent law, as discussed in this BNA article that I am quoted in.
California, Health Insurance and ERISA Preemption
Permalink | There’s an entertaining little story today in the Boston Globe on the question of whether, in the next few weeks, the California legislature and the Governor will roll out a state plan to reform health insurance by adding fees and other obligations to the employer provided health care system with the intent of providing universal health insurance, similar in some ways to what Massachusetts has done. I have talked frequently here about Massachusetts’ plan, which is in its earliest stages of implementation, with some concomitant glitches. Readers of this blog know I am highly skeptical of the ability of states to fashion these types of plans without running afoul of ERISA preemption, and, without knowing the details of the California plan, I am pretty skeptical they can pull it off either. In a nice little juxtaposition, for those of you who are interested in the question of how ERISA preemption impacts these types of attempts by states to change the health insurance paradigm, Sharon Reece out of the University of Maryland Law School has a very timely paper that is just out addressing the barrier posed by ERISA preemption to these types of state laws. The paper itself is available here, and the post from Richard Bales at Workplace Prof that brought it to my attention a few weeks back is here.
Latest Events at the Anne B. Kingsley Ovarian Cancer Foundation
Permalink | I think every blog should have an official charity or good cause, and this one’s is the Anne B. Kingsley Ovarian Cancer Foundation. Not only is it a truly good cause, but it also falls under this blog’s bailiwick, given that the Foundation’s founder is long-time insurance industry executive Robert Kingsley. The Foundation is currently running a fundraiser structured around a cookbook called Recipes Recollections Research, a collection of recipes from friends of the Foundation. Food and eventually a cure, who could ask for more? The Foundation’s website is here, and information on purchasing the cookbook to help support their work is here.
Electronic Discovery and the Hearsay Rule
Permalink | I like this article here about a judge’s extensive evidentiary analysis of the admissibility of electronically generated data, in particular the fact that the judge found that certain types of computer generated data are not subject in any manner, shape or form to the rule against hearsay. As the article sums up the judge’s point:
Perhaps the more important -- and interesting -- aspect of [U.S. Magistrate Judge] Grimm's opinion is his conclusion that information he describes as "electronically generated" is completely outside the hearsay rule. The hearsay rule is among the best known and important of the gate-keeping rules to screen evidence before it reaches the jury. Under the hearsay rule, a statement made outside of court may not be offered into evidence for its truth unless the statement falls within one or more specific exceptions (for example, when the statements are contained in business records, made by employees or agents, or made against the speaker's interests). Hearsay evidence is excluded at trial because there is no opportunity to cross-examine its creator to determine how reliable the evidence is. By electronically generated information, Grimm means information a computer creates itself. Electronically generated information can take a variety of forms. Grimm cites as an example the report a fax machine prints whenever a fax is sent. Another example (but which he does not cite) is "metadata." Metadata is information "created" by the computer that records (often without the user's knowledge and often without the user ever seeing it) what has happened to a particular document, such as who created the document, when it was created, who viewed it and who changed it.
A neat analysis of some of the ever evolving issues arising from the expansion of discovery into computer data, but I can’t say I really buy it. Even though the data and/or the information printed out is not directly inputted by a person, the computer system itself obviously didn’t create and store these types of information on its own or create it from some artificial intelligence of its own. The information is there, and stored and formatted in a particular manner, only because of software and other input placed there by humans for the purpose of having the system create, store and generate the data in a particular manner. As such, the information discussed by Judge Grimm is at root the creation, by extension, of the individuals who did that, rendering the computer generated information a statement of some human or another. The information is therefore more accurately thought of as the out of court statements of an individual, and should only be admissible if an applicable exception to the hearsay rule applies - most likely, as a business record of the party in control of the computer network that generated the data or that created the stored information.
In any event, beyond this one quibble over the application of the hearsay rule to certain forms of computer generated data, the judge’s full opinion on these issues, in the case of Lorraine v. Markel American Insurance Company, is actually terrific and I recommend it to anyone interested in electronic discovery and the rules of evidence. Indeed, it is really a terrific treatise not just on admissibility of electronically stored data, but on the federal rules of evidence themselves. And as I have mentioned before in other posts on the subject of electronic discovery, the evolving law on these types of issues is central to both ERISA and insurance litigation, the primary subject matters of this blog, due to the fact that the administration of ERISA plans and insurance claims are almost always computer based.
Patricia McGovern, the Beth Israel Deaconess Medical Center and the Massachusetts Health Care Reform Act
Permalink | There’s a nice interview today on the Massachusetts Lawyers Weekly website with the general counsel of Boston’s Beth Israel Deaconess Medical Center, Patricia McGovern. While the story is interesting enough in and of itself on the subject of the structure of a major hospital law department, I took particular note of Ms. McGovern’s comment that the hospital will be impacted by the Massachusetts Health Care Reform Act because of its expected effect on the state’s subsidized care pool. I have generally focused on that statute from the point of view of its impact on the business community and in particular on multi-state employers, and this was an excellent reminder that the statute is of concern to other affected parties for reasons unique to them.
Scott Turow on the Billable Hour
Permalink | I’m really veering off topic here on today’s post, although I have in the past managed to post about the billable hour system and link it to the question of how policyholders should pay their lawyers in insurance coverage disputes. Today, though, I won’t even rely on that fig leaf, preferring instead to just pass along an excellent article on an issue that both every lawyer and every client who reads this blog has given at least some thought to - the inherent problems of the billable hour. I have talked before on occasion about issues related to the billable hour, such as in this post, and this is a very common subject of discussion for legal bloggers - to the point where one even has a law firm whose business model rests primarily on its abolishment. Scott Turow, who has been the most successful of an entire generation of lawyer/fiction writers at combining practicing law at a high level with writing at the same level (I’m not going to debate here the literary values of John Grisham’s novels in comparison, but will note only that he gave up practicing for all intents and purposes when the book sales took off) has this excellent piece in the ABA Journal about the billable hour and his discomfort with it.
One thing I liked in particular about it was that, despite laying out - as all critics of the system do - his criticisms of the billable hour system, he notes that marketplace forces place some checks on its possible abuse. To me this goes directly to an important point that I think, as a regular reader of critical analyses of client billing, gets overlooked in many articles complaining about the billable hour: namely, that clients are more interested in whether they receive value for their dollar than they are in the particularities of how they are billed, whether by the hour or in an alternative method. Like all of us, they want to pay the right price for the right services, something pointed out in the anecdotes in this companion piece right here from the same issue of the ABA Journal. There’s nothing inherent in the billable hour model that prevents that, and that, combined with the fact that most lawyers do actually manage to bring about fair pricing despite the use of that billing system, is, more than any other reason, why it is still here with us.
Another Local Health Care Initiative Preempted, and What It Foretells for the Massachusetts Health Care Reform Act
Permalink | Roy Harmon over at his excellent Health Plan Law blog has the story of the decision last week by the United States District Court for the Eastern District of New York in Retail Industry Leaders Association v. Suffolk County, in which the court ruled that the Suffolk County Fair Share for Health Care Act (basically yet another local initiative directed at forcing Wal-Mart to provide greater health care coverage for its employees) is preempted by ERISA. The court’s opinion makes much of the fact that any attempt by a multi-state employer to comply with the statute would require the employer to create a different and separate administrative structure for that lone jurisdiction covered by the act, and that ERISA preemption applies as a result. The court’s approach drives home two points that I have commented on earlier in other posts on this blog.
First, with each local or state ordinance that is struck down as preempted, despite the attempt of each locality to insist that its statute is so fair or unintrusive that it should be left standing and it is alright if an employer has to do something different just with respect to that particular jurisdiction, it becomes apparent- or should, anyway, to anyone thinking through the issue - that, whatever the intentions of proponents of state laws altering health insurance on a state wide level, problems with the availability of health care and health insurance simply cannot be solved currently by a balkanized, state by state approach. Only addressing the problem at the federal level can possibly succeed; any other approach will result in employers facing the type of multiple and diverse administrative regimes that was rejected by the court in this most recent decision and that can only result in preemption.
Second, this decision points out that those who do not think that Massachusetts’ Health Care Reform Act is probably preempted are likely just whistling past the graveyard. Massachusetts’ statute is a fairly written and broadly applicable statute, and not the type of statute, like the one found preempted by the Eastern District of New York in this most recent preemption decision, that is simply a punitive statute, masquerading as a piece of broad based health care reform, directed at essentially one employer or one small class of employers (think big box retailers). Nonetheless, the exact same structural burdens and case law analyzed in the Eastern District’s decision likewise lead to the exact same conclusion - that ERISA preempts the act - when applied to the Massachusetts Health Care Reform Act. In truth, all you really need to do is globally replace the references in the Eastern District’s decision to the Suffolk County act with references to the Massachusetts statute, and you have the future ruling finding that the Massachusetts act is preempted.
Patent Infringement Cases Never Go To Trial, Yet Somehow Cost Billions of Dollars
Permalink | Having recently tried a patent infringement case to a jury, I was amused by this article in IP Law & Business pointing out that patent cases are almost never tried and few patent lawyers have actually tried a case to a jury. The key statistic is here, in this line in the article: “there were only 102 jury trials about patent disputes in 2006, out of 2,830 such cases filed, according to the Administrative Office of the U.S. Courts.” I had a lot of fun trying the case, and am circulating an article for publication based on lessons learned from it, but given these numbers, I can only wonder how soon it will be before I get another one past the hurdles of settlement and summary judgment, and into trial.
On a more substantive note, this article here recounts the research of James Bessen, a lecturer at Boston University Law School, who has found that the costs of patent infringement litigation actually exceed the economic value across all industries of patenting inventions. That’s a lot of legal fees, for a field of litigation that almost never gives rise to a trial. More interestingly, Bessen has gathered statistics suggesting that for many industries and many business people, pursuing patents may not be a profitable, or even useful, business strategy. His data points towards something we already know, which is that for those industries, such as the pharmaceutical industry, where holding exclusive rights on a product is crucial, the patent system drives both innovation and large profits, but that for decision makers in other industries, seeking a patent may not always be the best way to proceed with regard to a given product. Certainly though, for the individual inventor, it is probably the necessary first step to ever being able to successfully maintain marketplace control and exploitation of an invention, no matter if, across the economic universe as a whole, businesses may spend more money litigating patent disputes than they earn off of patents.
More Thoughts on Whether the Massachusetts Health Care Reform Act is Preempted
Permalink | Wow, don’t think Massachusetts’ health care reform law doesn’t dictate to employers what type of health insurance to provide, only in a more subtle way than the state of Maryland did with its Fair Share Act based - but unsuccessful, thanks to ERISA preemption- attempted bludgeoning of Wal-Mart? At the risk of picking a fight, which isn’t the reason I write this blog (trust me, with my practice, I have enough fights going on at any given time, without looking for one more), this seems to be what Brian King, over at his ERISA Law Blog, thinks. But it is hard to square that view with this article right here, from the Boston Globe today, explaining how the state’s largest health insurer has abandoned plans to offer employers the opportunity to provide employees with a healthcare plan involving only a 33% contribution by the employer, because of pressure from the state government, which wants higher contribution limits so as to better implement the state’s health care reform act.
Now I am not saying that a one third contribution by employers is what we should want, but there may well be businesses for whom that type of plan makes sense, and for whose employees it is a better option than whatever else the employer could afford. And there is little doubt, as you see in this article, that this is a choice that is being taken away from employers by state action, as a result of the health care reform act. In essence, the state is dictating higher employer contribution limits, apparently wanting them to be at 50% or better.
Now Brian’s post is about preemption, and whether the state act imposes the types of restrictions on employers that could render the act preempted. Requiring these higher levels of contribution by employers doesn’t necessarily mean the act is subject to ERISA preemption, but it is the kind of action that defeats the argument that the state’s health care reform act only minimally infringes on employers’ operation of their benefit plans and thus is not invasive enough to warrant preemption, an argument that I seem to see more and more when it comes to the Massachusetts health reform act.
The Difference Between Email and Correspondence and Why It Matters Under the Federal Electronic Discovery Rules
Permalink | The other thing about electronic discovery and the federal rules that was on my mind yesterday, as I mentioned in yesterday’s post, is emails, with the thoughts provoked by this article here on discovering emails from opposing parties. Now one mistake people often make when they are first confronted with the federal e-discovery rules is thinking that they govern and are really about the production of emails, and this mistake is understandable, given that nothing has become more ubiquitous in business life than email. But there is, with one exception, nothing special about email when it comes to the production of documents. Instead, as this article points out, emails should be seen as nothing more than correspondence or other types of routine business documents that must be produced if they concern the case; the easiest way to think about it is to view them as though they were letters, and think about whether they must be produced in the same way one would analyze whether a collection of letters is relevant and must be produced.
The only difference is, and this is where the e-discovery rules come into play, is that correspondence can only be produced if it physically was saved somewhere in a file; for cases involving events from some time in the past, it may well be the case that many letters have been discarded or were never kept, and thus they cannot be produced. For purposes of the litigation, it is as if they never existed, except and to the extent you can get someone to testify about their contents, and even then only if that testimony about the contents would be admissible. Otherwise, those letters may as well never have existed, at least for purposes of litigation.
And this is where email differs, because while someone may have long ago deleted emails from their own in-boxes, they may still exist elsewhere in a network or may be stored in back up formats. And what the electronic discovery rules essentially require is that, in that case, a party to litigation not treat the deleted emails as though they were discarded written correspondence, but instead go back into the computer system and the back up storage and either locate and produce those emails, or document that it would be just too dang expensive to do so. And the way the decisions applying the federal electronic discovery rules are going, I would expect it to be the first option, and wouldn’t count on successfully invoking the second. This, in turn, is why electronic discovery vendors and e-discovery lawyers are routinely advising companies now to be proactive when it comes to retention of such computerized information as emails, so that they are saved and sorted even in the absence of litigation, in a manner allowing their - relatively - easy access and searching if a lawsuit ever is instituted.
Electronic Discovery and the Choice of State Court or Federal Court
Permalink | A couple of thoughts that are on my mind today about electronic discovery, concerning a couple of articles related to the subject. The first, which I will talk about today (I will return to the other tomorrow, assuming no breaking news pushes me on to a different topic) has to do with some comments in this article here, which concerns continued disputes over the existence in Massachusetts of a court session dedicated to business disputes, or to so-called complex litigation. For those of you who don’t practice in Massachusetts, the state court system here has a judge rotation system that, at a minimum, it is fair to say tends to seem somewhat unusual, at best, to out of state lawyers litigating here. Under the system, rather than having one judge assigned to a case from beginning to end, the judges rotate from courtroom to courtroom and often from courthouse to courthouse, while the cases stay put in the same courtroom (known here as the cases staying in a particular “session”), with the result that different judges preside over the same case at different times. There are historical reasons for this, and people, including me, have lots of strong opinions, both pro and con, about this system, none of which I will delve into here. The business litigation session, among other things, mostly is a change from this rotation system; for cases deemed to qualify for the session, they stay with the same judge, who sits continually in the business litigation session.
Okay, with the history and context lesson done, on to my point. In the article, the suggestion is made that one potential benefit of litigating a business dispute in the state’s business litigation court is avoiding the electronic discovery rules of the federal courts, where most parties, as long as they can obtain jurisdiction, are likely to file complex business cases. I don’t really think that idea is quite right. In the first instance, avoiding the electronic discovery rules doesn’t change the fact that, in almost every complicated business dispute, you are going to have significant issues related to discovery of electronically stored information. You are not going to avoid this by being in state court, but are only going to avoid the now applicable federal rules governing disputes over such data. The federal courts have far more resources to deal with extensive discovery disputes over these issues than do the state courts in Massachusetts, including, among other things, lower case loads per judge and access to magistrate judges to assign discovery disputes to. So it may well be that a party that is anticipating electronic discovery and the discovery disputes that inevitably accompany it and chooses the state court system for that reason will simply be inadvertently shooting itself in the foot if it elects state court for that reason. It is not avoiding such discovery, only the federal rules that govern it, while putting the issue before a court with less resources to handle it. And second, if there is federal court jurisdiction over the case, the idea of preferring the state court’s business litigation session for purposes of avoiding the federal electronic discovery rules only makes sense if all parties to the case agree to doing so - otherwise, the case is simply going to get removed to the federal court by the defendant. So I don’t really think that the existence of the federal electronic discovery rules is really an argument for the existence or use of the state court’s business litigation session.
The Case for More Patent Infringement Litigation
Permalink | Well, not really. More like an argument for a little healthy skepticism when it comes to the subject of patent reform, which as pitched on blogs, in the popular media and elsewhere, really consists of proposals directed at two themes: reducing or at least discouraging the filing of patent infringement lawsuits, and restricting the ability to patent things that are not really advances at all. Now I am all for efforts to tighten the standards for patenting supposedly new discoveries, to more effectively limit patents to developments that are really innovative and not obvious, and anyone who has read my comments in this BNA article here knows I am a bit of a skeptic when it comes to the idea of broadly allowing patenting of business methods or other supposed advances that, frankly, just may not be all that unique or imaginative. And to some extent, we are already seeing a judicial response to this problem, as we see in the Supreme Court’s KSR ruling that makes it harder to maintain patents that do not reflect real innovation and advances in a particular art.
And I don’t necessarily even have a problem with pitches being made by the wealthier part of the tech industries that the patent laws be shifted to protect them against suits by inventors, or licensees, who do not manufacture but are instead simply holders of patents allegedly infringed upon by the manufacturers, such as argued for in this post here by the general counsel of Sun, although I think there should be a high bar for triggering such protections, namely proof, first, of real diligence by the alleged infringer in determining prior to manufacture whether there may be patents out there covering some aspect of the manufactured product and, second, of legitimate efforts by the manufacturer to license any such patents at fair market value.
But what we should be skeptical about is allowing some legitimate ideas for improving the patent system to be used as cover, almost as a Trojan horse, for what may well be a less legitimate goal of simply protecting large companies from smaller companies and even from lone inventors, which is what many people fear they are really hearing when someone with a vested interest in reducing patent infringement claims uses the term patent reform, and we should be very cautious when it comes to changes that reduce the incentives for the little guy or woman, even the lone tinkerer in a garage, to invent something. And the reason for this is right here, in this article about amateur inventors coming close to or bettering the best work of NASA and the large industrial companies that supply it.
Worried about jobs going overseas, about engineering and drug manufacturing going to India, about products being manufactured in China? The best defense against those events impoverishing the American economy is the kind of invention and developments of new products and ideas that the patent system encourages, and of the kind that is reflected in this article.
ERISA and Same Sex Marriage
Here’s a great story out of Boston, by means of the Workplace Prof, that touches on several obsessions of this blog - ERISA, the federal arbitration act, and court review of arbitration awards. As the Prof explains in this post here, a federal judge for the District of Massachusetts is seeking amicus briefs related to whether or not the court should affirm or instead vacate an arbitrator’s finding that an employer could limit ERISA governed health insurance benefits provided to employees’ spouses only to spouses of the opposite sex. The arbitrator had determined that the benefits were collectively bargained for and that the limitation was appropriate under the collective bargaining agreement.
Now, presumably, the matter is before the District Court here on a motion by the losing party in the arbitration to vacate the award, given that the court is asking for amicus to address the question of whether the arbitration award and the employee benefit plan approved of by the arbitrator violate a clear Massachusetts public policy, given the state’s protection of same sex marriages. The court is inquiring as well into the question of whether that public policy, if it can trump the arbitrator’s award and thereby justify setting aside the arbitration award, is itself trumped by ERISA preemption, with the result, presumably, that the benefits offered by the employer have to be left as is.
There aren’t many states where this issue could really come into play, one would think, although I don’t know how many other states other than Massachusetts allow gay marriage, and thus can have employee spouses who are not of the same sex. Beyond that, the court’s response shows a serious involvement by the court in the question of whether an arbitration award was proper, which I have argued before in this blog is the appropriate approach of a court presented with a challenge to an arbitration award. While one might say the court is really reaching out quite far to address this issue, more than one would normally expect from a district court judge, I will take that any day over the situation I have noted in other posts on this blog, where judges sometimes seems to simply reflexively approve arbitration awards, or at least start with some sort of barely rebuttable presumption that the award should be upheld, both of which are approaches that I do not believe are justified under the Federal Arbitration Act. In addition, it is not particularly out of the norm in this particular federal district to reach out for help from the legal and business community in this way in this type of a case, as I can recall other judges in this district requesting amicus briefs on difficult questions involving the interplay of ERISA and federal or state anti-discrimination laws. Moreover, other judges, as discussed in this post of mine from a little while back, in this district are likewise continuing to struggle with the impact of ERISA on employers as they try to figure out how to structure their employee benefits when it comes to spouses, partners and other dependents, in this brave new world we live in here in the Commonwealth of Massachusetts.
Incidentally, the underlying arbitration award is one that I discussed here, in this post, some time ago, in case you want to know more about the underlying controversy.
At the Crossroads of Trade Dress Infringement, Restaurants and Insurance Coverage
Permalink | There is a very interesting and entertaining article - if you like law, food, restaurants, intellectual property, or any combination of them - in the New York Times this morning, about a seafood restaurant suing a newer, competing restaurant for, basically, replicating - allegedly, as the two restaurants don’t look all that much alike to me in the limited pictures that ran with the article - the older restaurant’s menu and look.
Although the article pitches the issue and the lawsuit as new, I actually participated in litigation of the exact same case, for all intents and purposes, some fifteen or so years ago, involving two Boston area seafood restaurants, and whether the newer one had committed trade dress infringement. The end result? The newer one was really, right down to the style of its menu and pretty much everything else you can think of, cloning the older restaurant, and I know from personal experience that the public was actually confused about whether the new restaurant was affiliated with the older one, because prior to the lawsuit I had always assumed they were affiliated. The newer restaurant settled by agreeing to a number of changes that would clearly differentiate the two restaurants, and both restaurants remain thriving, expanding businesses almost two decades later, an amazing thing given the short shelf life of most restaurants.
And beyond the curiosity factor of the case described in the article, we can actually bring this story back around to the title subjects of this blog, by noting that, in that case years ago, the newer restaurant later litigated with its insurer whether there was insurance coverage for that lawsuit and its costs of retrofitting the restaurant to distinguish it from the other restaurant as part of the settlement. The restaurant lost the suit, not because the policy did not cover it, but because the restaurant defended and settled the case brought against it by the older restaurant before even notifying its insurer about the loss. Under the state of the law in this jurisdiction at that time, the restaurant was found to have forfeited coverage under its policy because its actions breached the notice and no voluntary payments clauses of the policy to the prejudice of the insurer (the outcome of that coverage litigation might arguably be different today under current law in Massachusetts, or at a minimum, the restaurant would have stronger arguments for coverage today despite these facts then it did then). And why did the restaurant delay? Because it didn’t know there might be coverage under its policy for the claim, or just assumed there would not be, illustrating the first rule of being a policyholder: always, always notify your insurer whenever a claim arises, and let the insurer figure out whether or not there is coverage for the claim rather than making your own guess.
Me and LaRue, and Business Insurance Too
Permalink | There is an article in Business Insurance magazine this week, the June 25th issue, on the Supreme Court accepting review of the LaRue decision, in which I am quoted. The article is here - subscription required - and if you read it, you will note that it ends on my comment that I expect the Supreme Court to overturn the Fourth Circuit. A short article intended really just as a little news blurb on the subject for the benefit of the magazine’s business management oriented readership, the reporter did not have the space to go into why I think the Court will overturn the lower court decision, but I, obviously, have the space to do so here. So to the extent anyone is interested in the question, here’s my thinking.
First, I don’t really expect the Court to do much, if anything, with the question of the scope of equitable remedies issue. If anything, given the language of the statute, despite the fact that many people want the Court to expand individual remedies and available damages under ERISA - including, I have found in my litigation practice, many District Court judges who are displeased with the limitations of the statute but nonetheless consider themselves duty bound to enforce its restrictions on recovery - the Court has probably read the range of equitable relief that can be pursued in as broad and pro-plaintiff a manner as the language allows, with its test of whether the relief sought would be equitable or not way back in the days of the divided bench. There simply isn’t much more you can do with the statute’s restriction of recovery in certain circumstances to equitable relief unless you are simply going to ignore the actual language of the statute and rewrite it by judicial fiat, which this Court certainly isn’t going to do and arguably, the thinking of Ronald Dworkin and his heirs aside, no court should do.
In a way, this issue is a perfect parallel to a long running and common problem in the insurance coverage field, in which there was an oft litigated dispute over whether insurance policies, because they only cover claims for damages, cover lawsuits seeking equitable relief, the issue being that the policies only cover damages and equitable relief is something different than damages. In both insurance coverage and ERISA cases - such as LaRue - the simple fact of the matter is that equitable relief does mean something particular, something that is different than a claim for damages, and the question is what is the impact of that difference.
Second, with regard to the more fundamental question of whether the individual plan participant could recover just for losses to his account in the plan, yes, I do think the Court will overrule the Fourth Circuit and find that such an individual plan participant can bring such an action. I can never recall whether the saying is that the Court follows the election returns, or is that the Court doesn’t follow the election returns, so I looked it up, and in fact the saying is that they follow the returns, although every author who writes this then adds qualifiers to the comment, such as in this piece here. Either way, the kind of relief sought by the plaintiff in the LaRue case, to be able to enforce his investment instructions in his own retirement savings account, clearly fits with the current Zeitgeist and, more interestingly, is of a piece - and a natural fit with - the changes to retirement savings plans put into place by the Pension Protection Act. Beyond that, the statutory language that is at issue in this part of the case is completely open to either the interpretation selected by the Fourth Circuit, or that sought by the plaintiff, and thus the Court can realign this part of ERISA without doing any violence to the statutory language. Combine these things, and I get a reversal.
Climate Change Litigation and the Insurance Industry
Permalink | Well now, we talked recently about how plaintiffs’ lawyers chasing fiduciaries appear likely to help drive changes in how fiduciaries of pension and defined contribution plans operate. Are we going to see the same with alternative energy companies and how businesses operate with regard to climate change issues? I have talked before about how climate change, in my view, will be successfully addressed if profits and losses - and those include liability exposures - drive companies to reduce greenhouse gas emissions and otherwise reduce their impact on the environment; as I wrote previously, the problems can be addressed if we create a business environment in which the winners are those who target these problems, and the losers are those who do not.
This article here, from the Dallas Morning News, and this blog post on it from the WSJ Law Blog point out that the lawyers are lining up to both sue and defend companies over climate change liabilities and exposures. Liability exposures are the kinds of costs of doing business that companies can be expected to want to avoid, and thus the rise of this area of the bar may well be a harbinger - much like the proverbial canary in a coal mine - of a further impetus on the part of the manufacturing and energy industries to reduce their contribution to global warming. Beyond that, the story told in that article and blog post emphasize a point I made in my earlier post on alternative energy issues and the insurance industry - that this is a liability issue, and as such, is by definition a serious threat and risk to the insurance industry, one that it needs to anticipate and account for in advance, rather than be gobsmacked after the fact like it was by long tail environmental and asbestos exposures.
Why You Should Hire a Lawyer With A Black Belt in Commercial Arbitration
Permalink | You know, the term martial arts is really just an umbrella for a whole range of more particular styles of physical combat, and the diversity is actually kind of fascinating. What does this have to do with anything? Well, I was reminded of this by this post from the Adjunct Law Prof on a ruling by the Virginia state supreme court concerning the grounds on which one can challenge an arbitration ruling when the arbitration is governed by the Virginia state arbitration act. Litigation is much like martial arts, in the sense that we subsume within that phrase a lot of areas that actually have their own specific quirks, and for which experience in one area may not necessarily transfer to success in another. Commercial arbitration, as the Adjunct Law Prof’s post reflects, is one such area. States have their own arbitration acts, unique to their states, and the federal system has its federal arbitration act, which is what most people talk of when discussing the law of arbitration. But the outcome of an arbitration can vary depending, as that post shows, on which particular arbitration act governs an arbitration. The Adjunct Law Prof’s post explains that the outcome in Virginia under that state’s arbitration act would be different under both New York law and in the federal system.
And thus among the black arts of arbitrating cases is knowing when, and how, to maneuver around various state arbitration acts and the federal arbitration act, and knowing how to get the best act for your case to be applicable. And subtleties like that are why it is important to hire a lawyer skilled and experienced with arbitration, rather than to just assume that litigation is litigation, and that a different set of skills is not necessary for the subset of litigation known as commercial arbitration.
The Massachusetts Health Care Reform Act and the Purposes of Preemption
Permalink | I have been meaning to come back to some issues concerning the Massachusetts Health Care Reform Act, the state’s potentially groundbreaking attempt to combine individual, employer and government roles to provide health insurance coverage for most of the Commonwealth’s uninsured, and now seems like a good time to do so, with its effective date coming up right around the corner. I have discussed before the question of whether the Act may be preempted by ERISA, and, if challenged, it would not surprise me if the employer obligations under the Act are struck as preempted. At the same time, it is important to bear in mind that the requirements imposed on employers by this particular statute are relatively benign, and this Act is nowhere near being the sort of heavy handed smackdown of particular targeted employers that was the now preempted and not particularly lamented law passed by the Maryland legislature that targeted Wal-Mart.
At the same time, the underlying issue with regard to preemption of state regulation of employer provided health insurance has to do with whether we should insist upon maintaining one consistent overlay of federal law and regulation on the subject, as is the case if state acts of this nature are consistently preempted, or whether we should instead, as the old saying goes, allow “a thousand flowers to bloom,” in the guise of allowing multiple different state experiments to address the problem of the uninsured. If the latter is to be the case, then that is where you really begin to run into problems of the type that underlie the preemption debate. It is one thing to say that the Massachusetts Act imposes only the most benign of record keeping and costs on nationwide employers, so perhaps preemption should not apply to it. But the issue becomes something entirely different when you instead consider having 30 or 40 or 50 states come up with their own experiments that likewise impose only minimal obligations on employers, each one so relatively benign, standing alone, that it is hard to justify declaring it preempted; when you combine all of those different regulatory regimes, however, then you start to get into the kind of conflicting and burdensome web of state actions that can become a real and legitimate burden to a nationwide employer. It is that ultimate result, that web of inconsistent state by state mandates, that the preemption requirement under ERISA is intended to guard against.
And a couple of other points on this question beg to be mentioned, although I don’t feel like I have seen them anywhere with regard to the preemption question. First, if you take away consistent overarching federal control of the question and allow state by state regulation of employer provided health insurance, how quick will we start to see a “race to the bottom” mentality, with at least some states looking to impose the least health care requirements possible on nationwide employers so as to attract businesses to relocate or at least site facilities there? We have seen it in the past with other subject areas that states pitch as competitive advantages over other states; I see no reason why health insurance should be one that is immune from such economic pressures and realities. There are certainly aspects of the Massachusetts Health Care Reform Act that I can think of right off the top of my head that a competing state could leave out, while incorporating in their own statutes all the other aspects of the Massachusetts Act, that might well tilt the balance - in at least a close case - for an employer deciding where to site its business.
Second, the idea of preferring state regulation of a health insurance marketplace that is predominately an employer provided product is premised, at heart, on the assumption that the state approaches will be an improvement over what could be done under the sort of federalized employer provided system we currently have. How confident really are we about this? It is probably fair to say we really won't know until at least some state - here Massachusetts - is allowed to impose its own regime and we wait and see how well it works out.
And when you consider all of these issues, this is when you start to get an inkling of why solving the uninsured problem on a federal level, rather than on a state by state level, with a consistent overall approach structured on the already existing infrastructure of the employer provided, ERISA governed model, may actually be the better approach.
Patenting Tax and ERISA Strategies
Permalink | There’s a hot topic of discussion out there all of a sudden - I think originally triggered by this post a few weeks back by Suzanne Wynn - concerning whether ERISA strategies should be able to be patented. The discussion, thanks to a detailed look at the issue in this week’s issue of the BNA Pension and Benefits Reporter, has finally reached the point where there is now more light than heat on the subject. I am quoted extensively in the BNA article, which is A WARNING TO ERISA PRACTITIONERS: YOUR BENEFIT PLAN STRATEGIES MAY BE PATENTED, 34 Pens. & Benefits Rep. (BNA) 1329. As per my usual practice of deeming it fair use for purposes of the copyright laws to quote verbatim sections of articles that quote me, here is what I had to say on the question of whether these types of strategies should be covered by the patent regime:
Stephen Rosenberg, a partner with The McCormack Firm LLC, Boston, told BNA in an e-mail May 20 that he is "not a big fan" of business method and similar patents, such as for tax strategies, because these patents "aren't really advancing technology and the like in the scientific or mechanical arts." Rosenberg is a commercial litigator who specializes in litigating ERISA and intellectual property cases.
"With regard to patenting ERISA ideas and methods in particular, I believe you are moving out of patenting innovation and really simply into the realm of what is, in essence, simply the professional knowledge and expertise of the practitioner," Rosenberg told BNA. He added that he did not believe that the counseling of a lawyer or other professional service provider, who is simply applying his or her learned expertise in a particular field of training, should fall within the patent regime. Rosenberg said he believes that advances in professional knowledge of ERISA "should belong to the profession as a whole, as part of the advancement of knowledge in that field."
Rosenberg said that the real purpose of a patent is to provide protection to those who have invested resources into inventing something and who, without patent protection to allow them to exploit the invention, would not profit from it sufficiently to warrant the investment. "I am hard pressed to believe that a professional in the ERISA community who comes up with a new idea for how to attack an ERISA strategy problem won't go forward without [the protection of a patent]; instead, they will sell it to the client, with the expectation the client will be impressed enough to keep returning for more professional services and will recommend that provider to others," Rosenberg said in the e-mail.
In addition, Rosenberg said he believes that patents should not be granted to advances that would be obvious to others who are skilled in the particular field. "I am highly skeptical that a new ERISA strategy is likely to be so beyond what other practitioners, presented with the same problem by clients, would have come up with that it would justify placing exclusivity in the hands of the first to seek a patent for it," Rosenberg added.
I guess you can tell from my comments that I think it is pushing business method patenting a little too far, and in a direction that is simply not beneficial to clients, the profession or the public.
This whole question of how far patent protection should be allowed to extend echoes as well in what the WSJ Law Blog is calling the Patent Reform Battle Royale among the real big spenders, Cisco and Goldman Sachs and big pharma, and in the alleged patent troll problem complained about by Sun’s general counsel on his blog. Weighing in on what they have to say and how it fits in with the questions posed in the BNA article would take a lot more words than I have time to type today, but their posts on the issue are worth taking the time to read; you can then draw your own conclusions as to whether their complaints about the patent system likewise support precluding the patenting of ERISA strategies. If you would like a little more substance on the patent reforms at issue, you can find it here and here.
More Recommended Reading: The Cavalcade of Risk
Permalink | The Cavalcade of Risk: 1st Anniversary Edition, is now up at Insure Blog. Noting that “it was a year ago this week that we published the first Cav,” Insure Blog explains that the Cav is intended as a round up “of interesting/unusual risk-related posts from around the blogosphere.” One of my posts is up on the Cavalcade, but perhaps of more interest to those of you who already read my posts, so are a number of other, interesting posts on insurance, employee benefit, and pension issues from some of my favorite bloggers. I recommend you take a quick gander, and hope you enjoy it.
Advertising Agencies, Copyright and Dead Pitchmen
Permalink | Does copyright matter in the real world, or is it just about billion dollar disputes between media companies and Google? In my own practice I see that it does, trickling right down to employee/employer relations in knowledge based industries. This article here is a perfect, and highly entertaining, example, discussing the improper use of a dead celebrity’s image in an advertisement, a brouhaha that grew, apparently, out of a misunderstanding as to the scope of copyright clearance actually obtained by the ad agency. And not only do you see in this article how a problem of this type can arise, but you also see the costs of not recognizing and avoiding the problem in advance - in this instance, the loss of a large account by the ad agency.
Commercial Arbitration and the Federal Arbitration Act
Permalink | Very few things can still reduce me to an adolescent rumble of uttering very, very, very cool, and it is particularly remarkable when something in the practice of law has that effect. These three posts, from Workplace Prof, Adjunct Law Prof Blog, and SCOTUSBLOG had that effect on me when I came in to them on my desktop this morning. They all discuss the fact that the Supreme Court has accepted a case presenting the question of whether parties to arbitration agreements can contract around the Federal Arbitration Act and change the extent of judicial review of an arbitrator’s ruling. As I have discussed in a number of posts in the past, I am one of many people who have a healthy skepticism about commercial arbitration, and one of my many concerns with the format has to do with the extremely limited judicial review of arbitration decisions, even ones that are obviously and fundamentally flawed. I discussed this point in some detail here. For those clients who are interested in arbitrating, I often counsel close analysis of the pluses and minuses of doing so, and in particular I recommend attention to the arbitration agreement itself with the idea of adding into it particular protections or litigation tools that would otherwise be missing from the process. Now, it looks like the Supreme Court will be addressing the question of to what extent parties can actually do this. As I said, very, very cool, at least to those of us with a long standing interest in the pros and cons of arbitration, and how to improve it by private agreement.
Alternative Energy, Insurance and Economic Forces
Permalink | This article on an upcoming law review study on the role, effect and potential liability exposure of the insurance industry with regard to climate change provides the perfect opportunity for me to branch out into a new line of discussion on this blog on another issue that is of professional and intellectual interest to me, alternative energy and the climate change debate. To be more precise, what has long interested me about this subject isn’t the doom and gloom sci-fi stuff, but the more prosaic question of the economic and marketplace realities and the myriad ways in which they interact with the need to reduce both oil dependency and greenhouse gas emissions. It seems to me that the profit motive is the real stick that will drive the changes needed to solve this problem and that the marketplace will pick what companies will win and what ones will lose as a result of this environmental issue. A simple example: as gas prices continue to move up, and as Toyota expands availability and lowers the cost of its hybrid engines, competitors who fall too far behind in the race to put oil efficient engines in their cars - anyone in Detroit listening? - will inevitably lose ever more market share to Toyota. It is a safe bet that oil usage per car in first world economies will inevitably decline, simply driven by gasoline pricing and the decisions of millions of individual consumers to avoid overpaying at the pump, and the companies who can cater to that dynamic will win in the marketplace, to their benefit as well as to that of the environment.
But this dynamic doesn’t have to be driven by pure marketplace forces alone. Instead, government tax and regulatory policies can goose those marketplace incentives significantly, prodding automobile companies to win the race against their competitors to produce the most gas efficient autos possible while simultaneously encouraging consumers to punish companies that fail to do so out of their own self-interest in avoiding high gasoline prices. That, in essence, is the point of this recent op-ed piece by the good folks at MIT.
And this article on the role of the insurance industry in climate change can be understood as making the same macro point - that climate change is an economic issue, and how the problem plays out depends on how those economic actors most affected by it respond to it. And for those of you who might be inclined to downplay the extent to which climate change will impact this industry, British insurance blogger ReRisk had this terrific post some time back, illustrating the property damage in the London market should sea levels rise over time. As he points out, will insurers actually continue to provide property coverage long term in such threatened areas? And if so, should forecasts of rising sea levels bear out, just imagine the loss payouts by the insurance industry.
Some Recommended Reading
Permalink | If there were a Pulitzer prize for blogging, this would get it. For those who have read the book Flags of our Fathers, or the millions more who have seen the movie, this post reminds us that the war in the pacific was made up of exactly those types of personal stories, only writ large over countless thousands more.
KSR, Patent Infringement and Obviousness
Permalink | I don’t know how many people with an interest in ERISA litigation share my interest as well in patent and other intellectual property litigation, although I know from experience that I am not the only lawyer who practices in both areas. Either way, for anyone who has been following the issue of the Supreme Court’s recent decision in KSR on the standards for proving that an invention was too obvious to be patented, this article here is as good an overview of the topic as I have come across. Its everything you need to know in a readable nutshell, which is not an easy trick when you are starting out with a complex subject that is founded on decades of jurisprudence on a particular issue.
And to tie the discussion back in more closely to the ostensible subject matter of this blog, here is Suzanne Wynn’s recent post pointing out the possibility of patenting particular approaches to solving ERISA problems; for those of you, who like me, might find the possibility of this occurring troubling, the new rules on proving obviousness might go far to precluding the patenting of such solutions to common problems in the ERISA field.
Electronic Discovery and the Federal Rules
Permalink | If I am a little obsessed with the topic of electronic discovery, I apologize, although I can explain it. Computer storage and manipulation of information is now the standard operating procedure for insurance companies, financial companies, third party administrators, and others involved with ERISA plans and insurance policies. As a result, the unique discovery issues raised by computerized data is very important in litigating cases in the areas covered by this blog, and has become an important, and frequent, issue in my own practice. Beyond that, though, is the fact that we are engaged in actually watching - and participating when possible in - the creation of a new body of important jurisprudence, concerning how courts will handle electronic discovery; this is something that doesn’t happen everyday.
And so I was very interested in this article, which discusses the development of the case law on electronic discovery at the federal district court level. The article points out that there are approximately fifty district court decisions to date that constitute the operative body of law on this subject, and that they provide “de facto national standards for e-discovery disputes.” The author then discusses two particular decisions in great detail, which in combination provide an excellent overview of how courts are handling the issue of electronic discovery.
Electronic Discovery and Cell Phones
Permalink | Well, here’s a curious thought. Do the electronic discovery amendments to the federal rules reach cell phone text messages? A recent article from BNA’s Digital Discovery and E-Evidence reporter put that thought in my head, and I am sure that the authors of that article have something to say on that point. As for me, well, if discovery obligations run that far, then its just more evidence, from where I sit, that courts really have to think about how far electronic discovery should be allowed to range, and should be prepared in any given case to set some limits, even if, horror of horrors to a litigator, it means that some otherwise relevant material might not be subject to discovery.
In the old days of paper discovery, it was acceptable to understand the limits of discovery as being limited only by the imagination of the party seeking discovery, and to allow discovery so long as only the most minimal requirement of relevance - that the documents sought might lead to admissible evidence - was satisfied. But as the example of cell phone text messages shows, with electronic communications and broad electronic dispersal of information, trying to run down every electronic communication or document that could even conceivably lead to admissible evidence is transparently a herculean task. And this is why, as I have said before, courts really need to start developing a jurisprudence of electronic discovery that requires real weighing of the costs to the producing party against the benefit to the requesting party before allowing broad electronic discovery, when the party from whom discovery is sought objects to the burden imposed on it.
Patent Infringement Trial
Permalink | Today’s post is sort of a place holder, in a way. My associate Eric Brodie, who is my crack science guy, and I are starting a patent infringement trial this morning in federal court that is expected to last two or three weeks. As a result, I don’t know how much I will be posting for the next couple weeks, although I will try to post here and there, when I have a chance, and will certainly make a point to at least put up short posts drawing attention to new decisions that are handed down while I am on trial or to particularly interesting blog posts or articles published during that time; the posts will undoubtedly lack much discussion by me about those decisions and publications, although, if they merit it, I will return to them to provide comments in a couple of weeks, when I have more time.
Blog vendor Kevin O’Keefe at LexBlog likes to suggest that lawyers blog during the downtime in trials, and comment on what is going on at court, in the interest of showing - in his words - that you not only talk the talk, but also walk the walk. I don’t know whether I will do that during this trial, partly because I am not all that comfortable with blogging about an ongoing court proceeding in which I am involved; I am not sure I feel that it fits my obligations to either the client or to the court, but, if there is something interesting to comment on involving something other than the case I am actually trying, I might put something up from court, maybe over the midmorning break. We’ll have to see on that.
Integrating Electronic Discovery with Business Practices
Permalink | I have a bit of a lawyer geek’s fascination with the electronic discovery amendments to the federal rules of civil procedure; they exist at an interesting intersection of evidence, discovery, and business management issues, each of which alone is interesting to me but that in combination, as they are with regard to these amendments, become a fascinating, almost gordian, knot of issues. In earlier posts, I have talked about a couple of issues raised by them. The first is the need for the courts to develop rules governing electronic discovery that are more rigorous than traditional standards for paper discovery, and that take into account the far greater cost that broad electronic discovery can impose. The second concerned the importance for companies to act proactively, and establish strong computer information systems that keep information well organized and easily accessible in the normal course of business, allowing cost effective data collection, review and production when things turn extraordinary, namely into litigation.
I thought, on both of these points, I would pass along this article that I liked, which really drives home the point that the best solution to the potentially backbreaking cost problem of electronic discovery is proper electronic document management on a day in day out basis in the operation of the business itself, rather than just tackling that issue latter on, after a suit is filed and electronic discovery is sought.
Architects and Copyrights - Who Holds the Rights in the Design of a Building?
Permalink | I have a confession to make: I like houses. I remember an old Arlo and Janis cartoon, in which they respond to a bad day by pulling out the plans for their dream home, which they know they will never build, and add another elaborate room to it: that’s me. And so I greatly enjoy this blog about a couple’s attempts to build their dream home. Now normally, this would not be grist for this blog, for obvious reasons, but for one thing - in a post yesterday, they mirrored reality for me, touching on issues in a case I greatly enjoyed litigating recently, which was a dispute over the right to use plans drawn up by an architect who was subsequently terminated from the project. Given my interest in architecture and copyright law, this case was an absolute ball from where I sit. And in this blog post, the authors are astounded when they learn that the contract forwarded to them by their architect was, first, one sided in that it protected the architect but not the party retaining the architect, and, two, made the plans the property of the architect, even though the authors were paying for them. Their shock falls right in line with what I have always thought of as the three take aways from that recent case I handled. First, that the standard architecture contract, drafted by the architects’ trade group, is completely one sided, was drafted that way intentionally, and should never simply be signed off on, without changes, by anyone retaining an architect to design property for them. Two, that the most egregious part of that standard contract is that it gives all rights in the design of the building to the party designing it, the architect, rather than the person who should hold it, the one paying for that design. And three, that the consumers of the services, unless represented by counsel, don’t know any of this, would be shocked if they did, normally just sign on the bottom line to get the project started, and never learn this unless and until something goes wrong with the project. That standard contract should never be signed off on as is, without changes made to some of these more one sided terms. And at the end of the day, for purposes of this post, it is simply fun to find these truths documented by this couple’s experience, discussed in their blog.
Why Hire Coverage Counsel?
Permalink | If I have said it once on this blog, in seminars and in meetings, I have said it a thousand times: always look to your insurance coverage when sued, even if you don’t think the lawsuit fits within the coverages you or your company purchased, and when necessary, such as if the dollar amounts at issue are significant, hire coverage counsel to look into that question and to press for coverage. There are various ways in which policies can be triggered, often providing at least coverage of defense costs for claims that do not seem to fall within the express language of a policy. In seminars, when I start talking about examples of coverage being found for patent infringement actions, despite the absence of any policy expressly granting coverage of such claims, that is when the pens start scribbling furiously in the audience. And that is just one example of the type of claims that experienced coverage counsel may be able to force into the scope of a policy, even a policy that may never have been written to cover that type of claim. Now I am not saying that all of those types of claims should be covered, but, given the vagaries of policy language and the manner in which courts interpret them, they sometimes are, regardless of whether or not they should be, and it is the job of a policyholder’s coverage counsel to try to find coverage where none was intended (and the job of the insurer’s coverage counsel to prevent that). This article makes the same point, discussing how marshaling corporate insurance policies when threatened with significant litigation should be a first step in defending the company.
Still More on Structural Conflicts of Interest
Permalink | Day 3 of my discussion of the First Circuit’s recent ruling concerning structural conflicts of interest and their impact on claims for benefits under ERISA: Workplace Prof blog has his take, and quotes from others, here, and one of my favorite, quirkier, law blogs, Appellate Law & Practice, has its take here.
Was it the Electronic Discovery Amendments to the Federal Rules or the Expensive Discovery Amendments?
I have discussed before electronic discovery and the corresponding amendments to the Federal Rules of Civil Procedure, and in particular the need to consider costs of the required discovery relative to the benefits to the requesting party. Personally, I am of the opinion that the scope of the rule changes combined with the massive changes in document creation and retention that computer technology has wrought requires a change in the collective mindsets of litigants and the courts when it comes to discovery. I think few will disagree that the modern history of discovery has been driven by a presumption that all documents that might be relevant ought to be produced, with no real corresponding emphasis on whether or not any particular set of documents really are sufficiently probative to justify production. I am of the opinion that electronic data and the costs of producing them have changed that, and that courts now need to move away from their presumption that a party should be required to broadly produce documents so long as the requesting party can make a rational explanation as to why they may be relevant, and to a fact based analysis of whether the requesting party’s justifications for the production warrant imposing the costs of large scale electronic production on the other party. In essence, it seems to me that courts should expect testimonial evidence, such as affidavits, establishing the relevance and importance of the electronic data being sought, before ordering production of electronic data, in cases in which a party resisting discovery has raised documented problems of cost in producing the electronic data.
Given the short judicial history of this issue at this point in time, I am always glad to find evidence that I am not alone in thinking this. This article lays out exactly the cost problem created by the electronic discovery rules, and suggests that an analysis of costs needs to play a central role in the development of how these rules are applied.
Three Out of Three Commentators Agree: Law Reviews Have Made Themselves Irrelevant
Well, I don’t know. Did I hit on something that was already percolating in the zeitgeist a few weeks ago when I addressed the increasing irrelevancy of law reviews in a post, or does someone at the New York Times read my blog? You will recall that, after having, as David Rossmiller pointed out, eaten my Wheaties before sitting down after breakfast to fire salvos at the law review/law school industrial complex, I had pointed out that law reviews have simply made themselves irrelevant to the practicing bar and the judiciary.
Echoing the themes of my earlier post, The Times today declares in a piece entitled “When Rendering Decisions, Judges Are Finding Law Reviews Irrelevant” (which you have to become an online subscriber to get access to) that “articles in law reviews have become more obscure in recent decades and the legal academy has become much less influential.”
I am pretty sure that’s what I just said, in my not too long ago post on the subject.
The Wall Street Journal Law Blog chimes in on the topic today as well, declaring that “Judges Are Ignoring Law Review Articles” and commenting on the Times article.
I don’t know, but maybe everybody who managed to get through law school pretty much knows this little secret about the overwhelming majority of law review articles, that they really add no value to the legal community and are written simply because they are the coin of the realm for advancing law careers. Frankly, the last time I can remember coming across a law review article that was relevant to the judiciary’s and the bar’s development of a particular cutting edge point of law was twenty something years ago, when a Columbia law student published an influential note on the subject of the essential facilities doctrine in antitrust law. To my recollection - this was something I last worked on in the 1980s - the article was regularly cited by courts presented with that then novel theory as authority summing up what the elements of a cause of action under that theory are if in fact the theory is even operative. In all the years since, I can’t recall a law review article that played a central part in the development of any particular line of jurisprudence. And if law review articles are not playing a central role in that development, then should we really be cutting down trees to publish them?
Animators at Law and Sophisticated Trial Graphics
I recently had a fun virtual meeting, by conference call and downloads, with Animators at Law, who produce 2D and 3D trial graphics, and in particular with Christine McCarey, a former in-house counsel and now the company’s national director of business development. I have been at this long enough to remember when trial graphics were big glorified poster boards or, worse yet, were projected by what appeared to be simply updated versions of the overhead projectors that jurors, typically recoiling in fright, remembered with horror from junior high school.
Well, that was then and this is now. Christine, tracking my professional interests, showed off some great pieces of work from a range of intellectual property and insurance coverage cases that were both imaginative and informative; in this visual age, they are the kind of things that a jury will actually note and remember. I particularly liked two examples, the first a graphic from a trade dress infringement trial that showed the defendant’s product literally morphing over time from its original design into a design that perfectly mimicked the plaintiff’s product (for those of you who don’t do this kind of work and wouldn’t know trade dress infringement from a cocktail dress, that kind of a match puts the defendant in the position of having to rely on technical legal defenses, while letting the plaintiff reinforce in the jury’s mind that, hey, the competing products look too much the same for this to be legal).
The second example that I really liked was a series of exhibits from an environmental insurance coverage case. What I liked best about them was that they took what is in essence a dry textual issue - what does insurance contract language mean and how does it apply to these facts - and transformed it into something visual and catchy. That’s no mean feet, and it’s a long way from those bar graphs showing layers of excess policies that passed for exhibits in insurance coverage cases lo these many years ago.
Fun stuff, and if you have an interest in state of the art trial graphics, you could certainly do worse than talk with Christine.
Anne B. Kingsley Ovarian Cancer Foundation
Permalink | When I posted my interview with veteran insurance executive Robert Kingsley a couple weeks ago, on the subjects of insurance industry consolidation and what insurers think about the lawyers they hire, I failed to mention that, in addition to his years in the industry, Rob is also the founder of the Anne B. Kingsley Ovarian Cancer Foundation, something which I probably should have included when I profiled him in the post. I was reminded of this when I received the foundation’s recent mailing announcing that the foundation, though young, had already made its first significant research grant.
I am a big supporter of the foundation, not least because Rob’s long record of success suggests to me that the foundation is likely to be a success as well. I would encourage you to take a look at the foundation’s website, and to pitch in with a contribution. I can assure you, its not a foundation where the donations will go to waste.
And that, I suppose, should satisfy the FCC requirement that all bloggers publish the required amount of public service posts. That’s a joke - if it went right by you, go down the hall and ask the communications lawyers at your firm to explain it.
Law Reviews Are Dead, They Just Don't Know It Yet
Permalink | Kevin O’Keefe, the trial lawyer turned legal blogging evangelist who runs LexBlog, the company that provides the technical support - but not any of the copy - for this blog and for the many other blogs listed on the lower left hand corner of this page, has been running a series of posts on the question of the impact of legal blogs on law reviews. I have my own thoughts, based on years of practice and my own stint on a review’s editorial board, on the question of what the growth of legal blogging means for the future of these august but hide bound publications. Now I try to stay away from blogging about blogging - in fact I think I have managed to blog for many months now without ever discussing the subject in a post - because I think it’s essentially navel gazing and it has nothing to do with the reason why people come to this blog, which - I hope not naively - I assume to be to learn about ERISA, intellectual property litigation and the law of insurance coverage. But I couldn’t let the subject raised by Kevin (who, by the way, has no compulsion against blogging about the topic of blogging because, well, that is what his blog is about - blogging) pass without commenting on it from the standpoint of a practicing litigator who focuses on the areas discussed in this blog.
When I came across Kevin’s posts on this topic, the old song lyric that video killed the radio star immediately started sounding in my ears, and no, I wasn’t listening to my ipod at the time. Law blogging is in the early stages of making detailed legal analysis on specific subject areas available to the entire legal community in ways that are both searchable and far more practical and useful than anything that law reviews generally provide. There is little doubt in my mind that practicing lawyers can find far more useful information about specific issues in insurance coverage, for instance, from David Rossmiller’s blog, or on the law of ERISA from Roy Harmon’s blog, or on intellectual property issues from Patently O, and so on and on, then they will ever locate in the published law reviews.
And why is this? There are multiple reasons. First, at the risk of being too negative, law reviews have, over the years, essentially become echo chambers for law faculty to talk to one another or, worse yet, have simply become a place for law professors to publish esoteric work that is absent significance to practicing lawyers or the courts simply because they feel they need to do so if they are to pursue tenure. This is hardly a novel criticism, as I can remember a federal judge - I forget who it was, but he was out of the industrial mid-west - pointing out years ago that published legal scholarship had no merit or relevance to what he did every day. Law blogs are obviously different; the point is to publish useful legal information at a level of legal sophistication sufficient to be relevant to the practicing community, the courts and clients. That is an entirely different audience than the one that law reviews are targeted at, and an entirely different type of information that is intended to be transmitted.
In fact, when I was in law school, a particular near octogenarian law professor, rumored to have been during his earlier days at Harvard the model for Professor Kingsfield in the book and movie The Paper Chase, spoke once about how, many years ago, the writing of treatises that were of practical use to the profession was considered a worthy output for a law professor, but how that was no longer the case. Instead, esoteric topics, the more so the better, were what advanced a career in legal scholarship.
Second, blogs are searchable in a matter of moments. Run a search for ERISA, for instance, over at Google Blog Search, and see how quickly you can find information about the differing approaches to the standard of review in ERISA cases when the administrator is operating under a conflict of interest, a favorite topic of this blog. Then compare that to how quickly you can actually find law review articles on this subject, with the exception of those pieces commented on and linked to in blog posts. I know that those articles are out there, because I have read many of them, but you won’t find them quickly, or without doing traditional types of legal research to locate them.
Third, law reviews have divorced themselves from the practicing lawyer, in multiple ways, only one of which I will comment on here, so as to avoid turning this blog post into, well, the length of a law review article. They make publication too time consuming for many successful lawyers to consider pursuing, thereby limiting the pool of potential author/experts - perhaps intentionally? - to law faculty. I have on my own hard drive, for instance, a nearly finished law review article covering the law of trade dress infringement in the First Circuit that grew out of a summary judgment memorandum in a trade dress infringement case I was litigating. The substance is all there, but finding the time to fix the cites, and dress up some of the transitions, and dot each I and cross each T? Almost impossible, unless I am going to assign it to an associate, which somehow strikes me as cheating. But what I may well do is finish it up to a nearly finished draft status, and put it up on this blog, and just plain bypass the time consuming law review publication system, while still putting the information easily in the hands of those who may have use for it. Blogs make all of this type of information far more readily available to the community than law reviews do or, frankly ever will, unless and until they not only add accompanying blogs but also make all of their text freely available for on-line searching.
So yes, whether you practice in ERISA, insurance coverage, intellectual property, or any of an endless variety of other practice areas, legal blogs are far and away the best source of information, and they are turning law reviews into dinosaurs. The whole subject reminds me of some discussions in Seth Godin’s book small is the new big that can essentially be summed up as, in the age of the internet, businesses can either change or die. As far as I am concerned, that is where law reviews find themselves right now: they can either figure out how to transform themselves into an easily accessible on-line repository of valued information, or they can continue to be marginalized, only at ever increasing speed, into a place where law professors simply go to impress one another.
Robert Kingsley on Insurance Industry Consolidation, and the Pros and Cons of Hiring Lawyers
This blog serves many purposes, at least in my mind. Among them is to bring to the reader information he or she may otherwise not have access to, and another is for me to investigate things in the insurance and ERISA fields that I am interested in. I think both of these purposes are well served by a recent discussion between the blog and Robert Kingsley, who until last year was the President and CEO of Financial Pacific Insurance Company, a California based insurer; Rob left the company after closing its sale to the Mercer Insurance Group. Rob spoke with the blog recently to provide some insight from inside the insurance industry:
Blog: You have certainly had a close up view of the trend towards consolidation in the insurance industry, having just overseen the sale of one insurer to another. Any thoughts on whether this trend will continue, accelerate, or instead slow down?
Rob: In a declining rate environment with the pressure to grow and companies flush with capital there is little doubt the pace of consolidation will accelerate.
Blog: Is the trend towards consolidation a positive or instead a negative for the industry?
Rob: I think consolidation is a good thing for any industry so long as the markets remain competitive and the barriers to new capital and new ideas remain relatively low. The fact of the matter is that smaller, entrepreneurial organizations innovate in ways the larger companies, due to their sheer size, are incapable of.
Blog: What about for the consuming public?
Rob: So long as the market remains competitive the trend toward consolidation will help consumers. For one thing, as companies grow through consolidation they achieve greater economies of scale in their expenses and a portion of the savings will be passed on to consumers in the form of lower rates.
Blog: What is driving the urge to merge in the industry?
Rob: The industry is over capitalized and companies have made certain growth and profit growth ‘promises’ to investors, which are simply not achievable through organic growth.
Blog: Big insurers, smaller insurers? Who’s got the bigger upside at this point?
Rob: I may be biased (having a small company background) but I am a believer in the small insurer. I think they generally know their markets better and react and respond to opportunity more effectively than their larger counterparts. It’s not a universal rule, but on average, smaller niche companies have outperformed their larger peers. Conning has performed a couple studies on this subject.
Blog: There is probably no bigger consumer of legal services than the insurance industry. From your point of view of having led a company that consumes those services, what is your biggest complaint about lawyers and the services they provide to clients?
Rob: The big disconnect is that the lawyers are selling time and the insurance companies are buying results. That’s all I say about that subject (note my wife is an attorney).
Blog: What’s the single biggest thing lawyers could do to better serve clients like the company you headed?
Rob: Financial Pacific had (has) an in-house law firm that handled 80% or more of our litigated cases. The reason we formed that firm was to change the economics of the loss adjustment process. When a carrier is paying an hourly fee to an attorney it can affect the carrier’s settlement appetite and price point. Turning that variable cost into a fixed cost allows the carrier to cleanly evaluate the merits of the litigated case without being affected by the ‘meter is running’ mentality. Law firms that are sensitive to that dynamic and/or are willing to be evaluated and compensated based on their results (their outputs) as opposed to their inputs (hours) would be valuable and highly coveted.
Blog: Rob, thanks for your time.
Intellectual Property, Advertising Injury Coverages, and Licensing
Permalink | At the risk of turning this into blog reader month, I thought today I would pass along this article on the use of intellectual property in growing a business that was passed along to me by blog reader Mike Kraft of Customer Standpoint, who specialize in the analysis of the customer experience. It may not be entirely on point for this blog, but for those of you who may come here looking for information on advertising injury coverages, which, as I have discussed before, can cover some intellectual property claims against insureds, it is a good overview of how any business, including insured companies, put intellectual property assets to use.
Moreover, you can see in the article the range of activities - beyond just inventing technology, which is the popular image of intellectual property development - that businesses engage in involving their intellectual property assets and, if you think about it, you can spot all the different possible points of liability exposure in those actions. Advertising injury coverage can insulate a company against liability on at least some of those fronts, and the question for lawyers and brokers who represent insureds who engage in these types of activities is how to structure an insurance program that protects against all the other liabilities as well.
Insurance Coverage Trial Exhibits
I added a new category today, Insurance Coverage Trials, as a place to collect useful tips, ideas and articles on trying insurance coverage cases that might be useful to readers of this blog who either try such cases or hire (and thereafter manage) lawyers who try such cases. What prompted this idea was a long and very comprehensive pretrial conference in a patent infringement action I am litigating, during which I got to thinking about trial graphics and other fancy doodads and geegaws to submit to the jury; this in turn reminded me of Marc Mayerson's terrific, near scholarly recent piece about designing and admitting into evidence trial graphics in insurance coverage litigation. Marc talks in detail about best practices in designing these types of trial aids, and about the rules for getting them before the jury. What I like best though, I think, is that his post is really focused on design issues, and about what types of graphics best communicate information to a jury.
Readers of other posts of mine, like this one here, know I have a layperson's interest in design (the very thing which got me interested in intellectual property litigation and rights in the first place), so it is fun for me to see a lawyer address from a somewhat different direction, namely that of graphic design, a subject - trial graphics and exhibits - that litigators normally don't consider from that perspective.
I should probably take a page from my elders at this blogging business, and create a blogroll on the links section on my blog listing the blogs I read regularly and that are good resources on issues addressed by this blog. For now though, I continue with my Logrolling entries to record that information. And with that in mind, I wanted to note that Susan Mangiero, at her blog Pension Risk Matters, has a terrific synthesis of recent posts and other work, including mine, on the question of unreasonably high 401(k) fees and the possibility that they can support a breach of fiduciary duty claim under ERISA. Beyond that, I am a regular reader of Susan's work, which covers issues involving pension management and governance, and can recommend it to others who may have an interest in the subject.
Patent Infringement, Copyright Infringement, and the Costs of Doing Business
In addition to litigating ERISA and insurance coverage cases, I have maintained a pretty active intellectual property litigation practice for a number of years. Routinely, when I meet with business people to discuss intellectual property problems, the subject of the expense of protecting intellectual property rights and how to control legal costs in doing so comes up. This is especially the case when I talk with entrepreneurs and people at small start ups who feel that the intellectual property at the heart of their business plans has been misappropriated by someone else - often a more established competitor - but don't think they can afford to do anything about it given the high hourly rates often charged by lawyers.
Now I have written before about better ways to fund insurance coverage litigation than simply paying counsel by the hour, and when it comes to protecting intellectual property, I tell these people the same thing, that they should not let the billable hour model frighten them off from protecting their intellectual property and vindicating their rights. There are, or should be if the lawyers they are talking to are willing to put a little skin of their own in the game, other ways to pay counsel, that are more economically feasible for businesses that don't already have the deepest pockets in the world, but hope to some day, than paying lawyers by the hour to prosecute a patent or copyright infringement action.
And this article here presents those options quite nicely, although in more words than I use when I discuss the same topics with business folk.
Where do I get my information and how do I stay up to date? From sources like BNA's new pension and benefits blog, hosted right now by Nell Hennessy, who has the experience to really discuss pension issues. She has a nice post up right now listing blogs, including this one, that cover ERISA, pension and benefit issues, and it is a nice handy cheat sheet of sources of information on the topics covered by this blog. I haven't read all of the blogs Nell noted, but I have read many of them, and they are the cream of the blogging crop on these issues.
Oh, and by the way, I am dimly aware that some use the term blogrolling to refer to bloggers talking about other bloggers. I do, however, prefer the more classic American political term logrolling, with all of its historical connotations.
Retirement Benefits and Fiduciary Duties under ERISA
There is a nice and complimentary write up of this blog at Workplace Prof Blog, one of my favorite sources for a wide range of information related to employee benefits, including ERISA, such as this post on a petition for writ of certiorari arising out of a recent Ninth Circuit ruling concerning the fiduciary obligations of the administrator of an employee deferred profit sharing plan. The petition is itself interesting reading, and is available here (thanks to the efforts of the Workplace Prof), and details what the petitioner views as a split among the circuits on two specific points concerning the law of ERISA. The first is whether a plan participant can sue a fiduciary for breaches of fiduciary duty that harmed only a subset of a plan's participants and not the plan as a whole, while the second concerns the extent to which the administrator of a retirement plan can follow, or instead must decline to follow, a plan sponsor's directive that is not prudent from an investment perspective.
Tough choices that these types of cases present, as to where to draw the line between the sponsor's right to operate its plan and the protection that should be extended to the participants. Perhaps the question of whether the participant can protect herself within the structure of the plan, seperate from what the administrator or sponsor does, might act as a guide post on where that line should be drawn.
David Rossmiller, one of the pioneers, along with Marc Mayerson, of insurance coverage blogging, has kind words to say about the Boston ERISA and Insurance Litigation Blog here and again here. I can, in turn, commend David's Insurance Coverage Law Blog to those of you who, like me, are always looking for more to read on the law of insurance and insurance coverage. Every week David has at least two or three posts that I could happily borrow from/riff about on this blog, and only a little self-discipline prevents me from relying so heavily on his work.
Beyond that, a quick survey of David's posts always uncovers something that lawyers who practice in this area can borrow to use in their own cases. I can ensure you, for instance, that it won't be long before one of my briefs accuses an adversary of mounting the "Big Rock Candy Mountain" defense.
Coverage for Copyright Infringement and Why You Should Buy It
In a recent posting I discussed the value to insureds of purchasing an endorsement adding advertising injury coverage to their commercial liability policies when they acquire or renew them because it can grant coverage of at least defense costs in some intellectual property cases, at a minimum copyright infringement claims; this is discussed at http://www.bostonerisalaw.com/archives/cat-advertising-injury.html.
It is most valuable to smaller businesses who cannot carry the tens and hundreds of thousands of dollars that it can take to litigate even the most reasonably sized copyright infringement dispute. Bruce MacEwan, on his blog Adam Smith, Esq, http://www.adamsmithesq.com/blog/, wrote a series of postings recently concerning copyright infringement claims being threatened against him by a major media company for information posted on his website. Of interest to me is one in which he describes being advised that
One motivation for doing this is the remark of an IP practitioner and friend who, unsolicited, volunteered the opinion that "There are entire in-house law departments devoted to sending out legally unjustified cease and desist letters." And the truly bad news is not that dismaying commentary on the paucity of ethics, but his additional observation that far more than half the time, threats work.http://www.bmacewen.com/blog/archives/2006/05/copyright_law_fair_use_an_1.html#more
We can presume that most of the times that this threat works it is because the recipient cannot afford to defend itself against a copyright infringement lawsuit, or at least the calculus is that the profits from the allegedly - but possibly not - infringing activity is less than the cost of defending against that claim. Being insured against such a claim, and knowing that at a minimum the insurer will provide a defense against the copyright infringement lawsuit that will be filed if the cease and desist letter is not complied with, changes the calculus immeasurably. Suddenly, the only real issue for the recipient is whether it is, in fact, infringing on someone else's copyright, not whether it is too expensive to litigate the question and find out.
Once again, insurance to the rescue. More importantly, once again, companies and their counsel simply should not overlook the value of paying a little more for add ons, such as advertising injury coverage, that are typically available.
Insuring and Litigating Design Disputes
What does design, and more particularly the rise of design in modern industrial China, have to do with ERISA and insurance? Little, something and nothing.
A little, because business liability policies often contain advertising injury coverage, which can provide coverage for copyright infringement claims in certain circumstances. You can read my very out of date article on advertising injury coverage - from 1992 - here: Download file. Of note for present purposes, reflecting my lawyerly obsession with footnotes, is footnote one, which details the causes of action covered under advertising injury coverage endorsements.
Something, because one of the areas in which I practice extensively is defending insureds against intellectual property lawsuits in cases where the advertising injury coverage is triggered and the insurer will cover the claim. It is worth noting that this coverage can lead to insurers at least paying for the defense of many types of intellectual property claims, not just copyright infringement actions. I have handled cases in which everything from patent infringement to trade dress infringement actions have been defended by insurers. This comes about because the lawsuits also include a claim for copyright infringement, and the copyright infringement claim triggers the advertising injury coverage, resulting in the insurer having an obligation to defend the insured against the lawsuit. In most jurisdictions an insurer, if it must provide a defense against one count in a lawsuit must also provide a defense against the other counts in the lawsuit (with variations and exceptions not relevant to this discussion, but which can be very important to the particular insured defendant in a particular case). As a result, the other claims made in a copyright infringement lawsuit, such as claims for patent infringement or trademark infringement that are often "bundled" in a lawsuit with a copyright infringement claim, also end up being defended by the insurer. See the following link, which includes an example of a "bundled" case of this nature in which I defended a party charged with patent infringement, trade dress infringement and copyright infringement: http://www.mccormackfirm.com/new.html.
And finally nothing, because the relationship has as much as anything to do with my personal and professional interest in design, and how you protect it. I cannot read an article on architecture, industrial or other design in any setting without immediately thinking about how ownership of it can be protected. There is a fascinating article in today's New York Times on the rise of, for lack of a better term, a commercial design economy in China, that highlights several designers and architects, and their recent work. The article highlights the interplay between traditional Chinese forms and materials, and the country's newest designs and designers. http://www.nytimes.com/2006/04/20/garden/20china.html?_r=1&oref=slogin. In reading it, I immediately jump to the questions of what parts of it can be protected, which owners/designers can limit the rights of others to replicate it, and how that can be done. Issues ranging from claiming trade dress protection in the products, to an architect's copyright in a building design come immediately into play. It fit with a case I am handling, in which the question of the extent of an architect's ownership of and copyright in his design of a building was at issue. You can find a one paragraph discussion about that case here: http://www.mccormackfirm.com/new.html.