Sunday, July 31, 2005

Small Print

Judge Richard Posner's essay in the NYT book review concerning news, news organizations, and blogs will be the subject of commentary by bloggers whose readership is far larger and whose comments are far more insightful than mine. Let me then point out a small local story that I think has a bearing on the larger issues discussed by Posner.

This past week, Macy's announced that it was discontinuing several of its regional department stores. One of those slated for demise is the Hecht Company chain in the Baltimore/Washington area. This has been met with some gnashing of teeth in the local paper, since Hecht's is the last survivor of the four department store chains that once dominated the Baltimore retail scene. More significant, perhaps, is this piece of information tucked away in the penultimate paragraph of the article in The Baltimore Sun:
Local newspapers, which now get two-thirds of the companies' advertising spending, likely will be the hardest hit. Hecht's is The Sun's largest advertiser.
My understanding is that Hecht's accounted for about 5 or 6% of the Sun's total ad revenues. These revenues will not be made up, since Macy's already has a presence in Baltimore and it is unlikely that it will feel the need to increase its total newspaper advertising efforts.

Growing up in Baltimore, there were three papers: The Sun (a/k/a, the "Morning Sun"), the Evening Sun, and the News-American. Now, only the Sun survives.

In its heyday, it was locally owned. It maintained a fairly substantial web of well-staffed bureaus in foreign countries (London, Moscow, Tel Aviv, etc.) and in Washington. Today, it is owned by a large national media conglomerate (the Tribune Company) and has few independently staffed foreign bureaus. I suspect that its Washington bureau is but a shadow of its former self.

Posner does not directly discuss the plight of local papers such as the Sun. It is, however, part of the topic that he addresses.

Local merchandisers command an ever decreasing share of any local market. Big box national merchants (everything from Wal-Mart, to Petco, to Circuit City), tend to use advertising inserts that go with the newspaper. The revenue paid to the newspaper to deliver these inserts is substantially less than that which is earned by having ads in the paper itself.

Even twenty years ago, it was difficult to obtain national newspapers, such as the New York Times or the Washington Post. Today, I get the NYT delivered to my home every morning--by the same delivery person who delivers the Sun. Of course, I can also get virtually every paper in the country for free (except the W$J) via the internet.

In ten years or so, the Sun will likely still exist, but in name only. It will be nothing more than local content provided by a small local staff incorporated into a paper that is primarily written by the non-local Tribune organization. I suspect that the local staff will be of relatively low quality, since they will be underpaid and with little or no possibilty of long-term career advancement. Since Maryland and Baltimore are both rather small, there will be little indepth coverage of local political affairs.

There is an irony in all of this, since more money than ever before is being spent by businesses in lobbying legislators in Annapolis. A vigorous local press, while not an antidote to corporate influence on the state legislative process, at least occasionally rakes enough muck to attentuate the worst excesses. I suspect that, within a fairly short period of time, that window on the political process will be bricked-up.

Friday, July 29, 2005

Complex Complexity

There have now been a number of additional postings on the "Is the tax code too complex" debate. See Joe Kristan here, Jim Maule here and here, and Kreig Mitchell here. It strikes me that there are really two different threads in the debate.

The first is the thread that I initially thought Jim Maule was following, namely, that the Code is so badly drafted that it's simply impenetrable. (Or, at least impenetrable for practical purposes, since the effort to decipher certain provisions is disproportionate to the resulting economic product.) I defended the honor of the drafters of the Code by pointing out the various burdens that they had to shoulder in the drafting process (political pressures for exceptions to general rules, the fact that the Code was written by a large "committee" over a period of years, etc.). Nevertheless, having looked into the abyss of the Code more than once until I found it staring back at me, I have a good deal of sympathy for Jim's position.

Joe Kristan takes another tack. He argues:
The tax code is asked to accomplish way too much. If the Code was used simply to raise the revenue necessary to fund government operations, it would be much simpler. But revenue-raising is the least of it nowadays.
Here, I find myself closer to Kreig Mitchell's corner. There is no way any tax mechanism can be "used simply to raise . . . revenue." Once there is a tax on something, anything, there is going to be a degree of distortion in the market. But once there is a decision to levy taxes (which, as Justice Holmes recognized, went hand-in-hand with the "decision" to forge ahead with civilization), the free market was no longer pure. The question is never "Does this tax (or tax break) affect market forces," because all taxes (and tax breaks) do so. The question should be "How does this tax (or tax break) affect the market and is that affect beneficial?"

Of course, having said that, it is also true that we perhaps ask too much of the tax system. In many cases, there are other, more focused and direct, ways to encourage or discourage various policies. However, a lack of focus may itself be a policy choice. Take charitable deductions for instance.

Those deductions finance your church and my synagogue. They finance my sons' Big State University and small liberal arts colleges. Lord only knows how many small and eclectic museums, arts councils, and theatre groups receive indirect subsidies through these provisions. What if we chose instead to take away the indirect subsidy with the expectation that direct government subsidies would take up the slack. Would it be the same? Of course not.

If we had to rely solely on government funding, the offerings would be made bland. By funding these community activities via the tax code, we end up with a substantially more heterdox and interesting culture.

One could argue, for instance, that the tax subsidy that flows to support private home ownership is socially wasteful. However, one should not argue that the tax code is to blame. The basic decision to encourage private home ownership is either correct or it's not. The tax code is merely the vehicle through which the decision is made operational.

What should be recognized, however, is that the tax code is a blunt tool. It cannot easily be used to effect subtle policy goals. And, the more we ask of the Code, the more complex and difficult to understand it becomes. At some point, of course, far from Kristan's fantasy of a "pure" tax code, the complexity does cause the system to bog down simply because the effort that has to be spent on compliance becomes Herculean. As is the case with much social policy, the answer to the question of whether a particular tax burden or break is beneficial is as much subjective as it is objective.

Wednesday, July 27, 2005

No Summer Soldier or Sunshine Patriot

Public figures of all sorts constantly profess their patriotism and love of this country's institutions. Most of these public displays ring false. Occasionally, however, there is an exception. This evening I came across one via Crooks and Liars.

At that site, you can find the transcript of the remarks of United States District Judge John Coughenour made while sentencing Ahmed Ressam, the "millennium bomber" convicted of plotting to blow up Los Angeles airport. Judge Coughenour said, in part, the following:
The message I would hope to convey in today's sentencing is two-fold: First, that we have the resolve in this country to deal with the subject of terrorism and people who engage in it should be prepared to sacrifice a major portion of their life in confinement.

Secondly, though, I would like to convey the message that our system works. We did not need to use a secret military tribunal, or detain the defendant indefinitely as an enemy combatant, or deny him the right to counsel, or invoke any proceedings beyond those guaranteed by or contrary to the United States Constitution.

I would suggest that the message to the world from today's sentencing is that our courts have not abandoned our commitment to the ideals that set our nation apart. We can deal with the threats to our national security without denying the accused fundamental constitutional protections.

Despite the fact that Mr. Ressam is not an American citizen and despite the fact that he entered this country intent upon killing American citizens, he received an effective, vigorous defense, and the opportunity to have his guilt or innocence determined by a jury of 12 ordinary citizens.

Most importantly, all of this occurred in the sunlight of a public trial. There were no secret proceedings, no indefinite detention, no denial of counsel.

The tragedy of September 11th shook our sense of security and made us realize that we, too, are vulnerable to acts of terrorism. Unfortunately, some believe that this threat renders our Constitution obsolete. This is a Constitution for which men and women have died and continue to die and which has made us a model among nations. If that view is allowed to prevail, the terrorists will have won.

It is my sworn duty, and as long as there is breath in my body I'll perform it, to support and defend the Constitution of the United States.

We will be in recess.
(Emphasis added.)

It is commonly believed that because federal judges have life tenure, they are unswayed by any public passion du jour. Not true. It is also believed that the highest form of bravery is to risk life and limb in combat. I don't think that it diminishes the sacrifices of those in the military to suggest that it is often much more difficult to resist the scorn of one's friends and neighbors by taking an unpopular stand. It is difficult even for a federal judge.

Judge Coughenour did not have to go out on a limb and attack the encroachments on our liberty posed by those waving the bloody shirt of 9/11. His bravery in making the short, simple, but elegant statement in the course of the sentencing would justify the award of the judicial equivalent of the Congressional Medal of Honor if there was such an award.

Thursday, July 21, 2005

Make Way! Fool Rushing In

On the 17th, Kreig Mitchell had a posting entitled The Case for the Internal Revenue Code. Mitchell takes issue with the concept that the Internal Revenue Code is overly complex or obscure. In summary, he concludes:
Having spent countless hours poring through the Code and the Regulations, I can tell you that our Code is not too complex. Our Code is clear, simple, and well organized given what it was designed to do. We should not complain about the Code; we should complain about the Treasury Regulations.
On the 20th, Profession James Maule responded to Mitchell's comments in a posting entitled The Code is Simple? NOT! In that posting, Maule concludes:
If the Code were so clear and simple as [Mitchell] contends, things such as Tax Management portfolios would not be necessary. Now, it could be that all the rest of us are lacking some special skill or insight, but I guarantee you there are times I read a Code provision, especially one recently enacted or amended, scratch my head (maybe that's why I'm losing my hair), read it again, read it to myself out loud, try to rewrite it, and sometimes begin inventing words to describe the poor quality of the provision.

And eventually along come the technical corrections. I wonder why those are necessary, he asks sarcastically.

Sorry, [Mitchell], on this one I flat out disagree. Even accepting the substantive mess that it has to reflect, the Code is not as well organized or drafted as it could be. After all, I think my translations are far less convoluted. I'll let the practitioners score that assertion.
Today, Mitchell responded. I think that his comments were a little too ad hominem for my taste. (And remember: I'm the guy who refers to those who oppose his positions on estate tax repeal and the gutting of the Social Security system as knaves and fools. Thus, it can be reasonably assumed that I have a high ad hominem threshold.) However, let me add a few observations to the debate.

At the outset, I happen to agree with Mitchell that the Code is fairly well organized. I would go further and even argue that the organization of the Code has a certain elegance about it. I also agree with Mitchell that the organization of the regulations is both haphazard and marked by significant gaps.

That having been said, however, the Code's draftsmanship leaves a great deal to be desired. Here, Maule has it correct: All too often, the writing is murky to the point of being totally opaque. I suspect that there are a number of reasons for this.

First, the Code is not a single document. It is an ongoing, dynamic document, built up layer by layer via successive amendatory enactments, many of them drafted in the wee hours of the morning. Under the circumstances, it is not surprising that there are numerous apparent conflicts between certain sections and downright incomprehensibly drafted provisions.

Second, the Code is a product of political give and take. As a consequence, virtually every general rule is followed by exceptions placed in the Code to address specific situtations. These specific exceptions can be either problems, real or imagined, by particular industries or businesses or ways to avoid the application of the general rules to broad classes of taxpayers. (As examples of the latter, consider the many provisions that do not apply to smaller transactions, the exemption of certain loans from the imputed interest rules, for instance.)

Third, at least with respect to income tax, what is being taxed is an intellectual concept. That is, while most of our clients understand income to mean the cash that they receive for their labor or when they sell assets, as any reasonably bright law student should be able to tell you, the concept of income is far broader than that. The fact that we are taxing a concept results in practical drafting difficulties in tacking down with precision when and how this rather elusive concept is taxed. The differential rates of tax imposed on different types of income only ratchet up these drafting problems.

Fourth, while I agree with Mitchell concerning the arrangement of the regulations, the more recently drafted regulations ("recent" in this context meaning those drafted in the last 15 years or so) are generally quite helpful in illuminating the relevant Code provisions. Of course, there are too many instances when Code provisions are not addressed in regulations.

Could the Code (and, here, I actually mean both the Code and the regulations) be drafted more clearly? Certainly. However to do so, the drafting process would have to take place in some arena where all participants are pledged only to make the Code clearer and not to make any substantive change in the law. This could occur, but only if the participants belong to a prietly caste who agreed to have their meetings on Mars with all communication with Earth cut off while they deliberate. (Sounds like the premise for an unlikely Twilight Zone episode.)

So who's right? On one hand, my experience with state statutes of various sorts leads me to side with Mitchell. By comparison with these statutes (other than Uniform Acts which tend to be well-drafted), the Code is a model of clarity.

On the other hand, I spent three hours today on a project where I had to cite chapter and verse with respect to the the tax treatment of non-resident aliens with respect to certain transactions in the U.S. The question was simple and the answer should have jumped out at me. It didn't. The reason that it didn't was that the Code in this area is at its cryptic best (or worse, depending on your point of view). In other words, there is a good case to be made for Maule's conclusion.

Where do I stand? A place in which I rarely reside--the middle.

Monday, July 18, 2005

Something Familiar, Something Peculiar, Comity Tonight!

Every day, it seems, we are told that we live in the era of globalization. There is, of course, a somewhat troubled underside to global trade, the issues attendant to dispute resolution when global deals go sour. In The Johns Hopkins Health System Corp. v. Al Reem General Trading & Company's Rep. Est., Judge Blake of the U.S. District Court for the District of Maryland addressed issues of comity and abstention where an action was pending in a foreign jurisdiction.

In 1999, Hopkins, through a subsidiary, entered into a business development agreement with Al Reem. Al Reem was to promote Hopkins in the United Arab Emirates so that medical professionals there would refer their patients to Hopkins. Al Reem also agreed to assist Hopkins in broadening its business activities in the U.A.E. After deduction of various expenses, Hopkins, through its subsidiary, and Al Reem were to split a certain percentage of the total charges collected by Hopkins from Al Reem referred patients.

Hopkins terminated the 1999 agreement in June of 2000. However, in July of 2000, Hopkins was advised by Al Reem's counsel that Al Reem had registered "agency agreements" for Hopkins in the U.A.E. Apparently, Hopkins never received a copy of any such agreement until late October, 2001, and the agreement it received was dated September 18, 1998.

Hopkins contends that the 1998 agreement is an outright forgery. It differs in several material respects from the agreement that Hopkins contends governs the parties' relationship and it contains numerous gramatical and typographical errors and inconsistencies. (My favorite is in the section that contains the major difference between the two documents. There, a percentage is set forth in numerals and then, in parenthesis, in words. This is different from the way numbers or percentages are set forth in the remainder of the agreement and is, of course, different from customary drafting in this country.)

In July, 2000, Al Reem filed suit in the U.A.E. Hopkins presented to the U.S. Court a number of alleged irregularities in the U.A.E. proceeding. While it had also raised these issues in the U.A.E. courts, its efforts there had all been denied. While no judgment as to liability had been entered against Hopkins in the U.A.E., the U.A.E. court had appointed an "independent expert" to assess damages. (Even though the judges in the U.A.E. had been educated in the U.A.E., Egypt, and England, they apparently confused the Queen of Hearts with Blackstone ("the plaintiff has no certain demand till after verdict").)

Judge Blake first addressed Al Reem's attack on the exercise of personal jurisdiction over it. Since this case is focused on a contract that was entered into in the U.S. and was to be substantially performed in Maryland, the Court wasted little time in rejecting Al Reem's jurisdictional arguments.

The more difficult issue before the court was the comity argument raised by Al Reem. Al Reem's argument was simple: We filed suit first, our court choice is as good as yours, and who are you to say otherwise. Judge Blake applied the four factors set forth in Colorado River Water Conservancy District v. U.S., 424 U.S. 800, 818 (1976), together with the two additional factors set out in Gannett Co., Inc. v. Clark Construction Group, Inc., 286 F.3d 737, 741 (4th Cir. 2002) and Al-Abood ex rel. Al-Abood v. El-Shamari, 217 F.3d 225. 232 (4th Cir. 2000) as follows:
  1. Which forum first assumed jurisdiction;

  2. The inconvenience of the federal forum;

  3. The desireability of avoiding piecemeal litigation;

  4. The order in which jurisdiction was obtained by the different forums;

  5. The source of governing law; and

  6. Whether the foreign proceedings are adequate to protect the parties' rights.
I could set forth a summary of the Court's rulings on these particular points, but I don't think that it would be a particularly edifying exercise. The guts of the ruling is more basic. Let me summarize:
  1. The owner and chairman of the board of Al Reem is His Royal Highness Sheikh Saeed Bin Tahnoun Al Nahayan, a member of the royal family and Executive Council member. The Sheikh is, ah, well connected in the U.A.E. He is the older son of the Ruler's Representative for Al Ain, the second largest city in Abu Dhabi. His father is a powerful member of the royal family, as his first cousin was the recently deceased President of the U.A.E. His aunt was the first wife of the former President and is the mother of the current President of the U.A.E. Thus, there was a good possibility of some judicial home cookin' in the U.A.E.

  2. The document upon which Al Reem relied was apparently a fairly patent fraud.

  3. The documents at issue were in English and almost all of the witnesses spoke fluent English. Yet, the U.A.E. proceedings were to be conducted in Arabic. This factor was given additional weight due to the fact that much of Hopkins' defense was based on the drafting errors in the document upon which Al Reem's claim rests. These errors, obvious to an experienced American fact finder, might not be as apparent to an Arabic-speaking judiciary.

  4. As noted above, judicial procedures in the U.A.E. fall somewhat short of U.S. due process standards.
When I first began to practice law, Baltimore City lawyers argued cases in Baltimore County with some trepidation, feeling that they were in a foreign jurisdiction. I suspect that enforcing rights in true foreign jurisdictions are even more challenging. My guess is that we are going to see a dramatic increase in the number of cases involving dueling courthouses. It is heartening to see that U.S. judges are not shy in asserting their rights to exercise jurisdiction over international commercial disputes involving American interests.

Thursday, July 14, 2005

Elmo Would Be Tickled

In a memorandum decision, E.J. Harrison & Sons, Inc. v. Commissioner, the Ninth Circuit overruled the Tax Court's determination that certain payments allegedly for compensation of the principal shareholder were unreasonable and thus not deductible.

The corporation was owned by Mrs. Harrison and her three sons. (The founder, Elmo Harrison, had died prior to the years in question.) In the years 1995, 1996, and 1997, Mrs. Harrison was paid compensation of almost $2.3 Million. In the same three year period, each of the sons was paid approximately $1.3 Million. The Tax Court found that a reasonable compensation for Mrs. Harrison in the three years in question would only be a total of about $300,000. The Tax Court's decision was based upon its conclusion that Mrs. Harrison's role in the corporation was equivalent to that of an outside board chair. In particular, the Tax Court had rejected ascribing any part of her compensation to her agreeing to guarantee loans to the company.

With respect to the loan guarantee issue, the Circuit Court seemed to be doing its own fact finding. Thus, it stated that:
Although the Harrison sons also provided personal guarantees, Mrs. Harrison's guarantee was key because she possessed greater wealth than the others and the lender viewed her as the decision-maker.
Compare this statement to the findings of the Tax Court:
Petitioner has also failed to establish what amount, if any, would have constituted a reasonable fee for Mrs. Harrison's personal guaranties . . . . There is no evidence of any significant financial risk to her. She was one of four guarantors, each jointly and severally liable for the guaranteed amounts. None of her property was encumbered under the terms of the guaranties, and there was never any threat of default by petitioner as primary debtor. Nor has petitioner shown that there was a disproportionate reliance by the bank on Mrs. Harrison's personal assets to satisfy the potential obligations of the guarantors. Mr. Summers, when asked why the bank required Mrs. Harrison to sign the guaranties, responded that the bank "wanted additional strength or support behind * * * [the collateral], and with her liquidity base, it was important to have her involvement." But it is entirely possible that Mr. Summers would have provided a similar response had he been asked why the bank had required guaranties from [the sons]. Moreover, it appears that much of Mrs. Harrison's wealth may have actually been attributable to the estate of her late husband in the form of the Survivor's Trust that acted as the coguarantor of the $16 million replacement guaranty executed in 1998. There is no evidence as to the relative values of the interests of Mrs. Harrison, Myron, James, and Ralph in the assets of that trust. Finally, the financial risk to Mrs. Harrison from guaranteeing loans to petitioner was further reduced to the extent that the Bank of America line of credit resulted in loans to [a related corporation].
(Emphasis added.)

The Circuit Court also gave significant weight to the day-to-day services rendered by Mrs. Harrision and her alleged decision-making authority. The Tax Court was fairly dismissive of her contributions in both of these areas.

The Circuit Court remanded the case to the Tax Court for further consideration, concluding that:
The reasonableness of Mrs. Harrison's compensation should have been evaluated based on her actual role as President of the corporation. At the very least, Mrs. Harrison's reasonable compensation should not have dropped below that of her sons during the audit years.
The Ninth Circuit's opinion is three and a half pages long. It addresses a variety of factors, (e.g., the loan guarantees, the actual services rendered by Mrs. Harrison, etc.), but never in a terribly analytical manner. Thus, by way of example, the Court does not attempt to ascribe specific values to any individual factor.

In contrast, the Tax Court's opinion (excluding the findings of facts), runs for thirty-four pages. The detailed statement of facts adds an addition twelve pages. The Tax Court's opinion is extradinarily analytical, setting forth in detail, for instance, the factors that warrant a reasonable allowance for the extension of a personal guaranty, and detailing why those factors were not present in this case.

The Ninth Circuit's opinion is little more than an expression of its judgment, relatively untethered to principle. Ultimately, the holding in E.J.Harrision can be summed up by paraphrasing Justice Stewart: "We may not be able to define reasonable compensation, but we know it when we see it." Of course, this formulation, if it can be called that, provides no real guidance to taxpayers, tax practitioners, or the government.

Monday, July 11, 2005


In Scherr v. Handgun Permit Review Board, the Maryland Court of Special Appeals took the opportunity to reject claims that an indvidual had a constitutional right to carry a gun without the necessity of obtaining a permit. The individual made the claims under both the Second Amendment to the United States Constitution and the Maryland Declaration of Rights. The Appellant's constitutional arguments were shot down by a three-volley fusillade from the Court.

In that part of the opinion that will be of most interest to a national audience, the Court rejected the holding of United States v. Emerson, 270 F.3d 203 (5th Cir. 2001), that there is a fundamental right to own and bear arms regardless of membership or service in a militia. The Court noted that the Emerson case stands alone, with every other circuit court having considered the issue concluding that the Constitution only grants a right to states to maintain militias.

The Court also distinguished Emerson since that case dealt with a federal statute. Here, only the action of a state was at issue and the opinion holds that the Second Amendment, being a limitation on the exercise of federal power, does not limit state action.

Finally, the Court held that the Maryland Declaration of Rights did not incorporate and apply to the state the alleged rights under the Second Amendment asserted by the appellant.

Anyone who has regular contact with members of the judiciary is aware of the extent to which they feel vulnerable to personal physical attack. It is simply inconceivable that any court would, after the events of 9/11 and the bombing of the Oklahoma federal building, reach a decision that would allow all and sundry to freely carry firearms. It's far easier to prevent nuts from getting guns in the first instance, than to try to pry them out of their cold, dead fingers after they've used them to wreak havoc.

Sunday, July 10, 2005

For the New Law Student

Gordon Smith at Conglomerate posed the question "If you could recommend only one book for an incoming law student, what would it be?"

Larry Ribstein recommended a book, a movie, and a song.

None of these, however, either speak to law students via the medium they are most attached to nor will they really prepare a law student for the challenges of professional practice that lie ahead (with the possible exception of Larry's recommendation of the Clash's version of I Fought the Law and the Law Won).

To remedy those omissions, I recommend a television series, namely Rumpole of the Bailey. Here, you have a fictional character who faces real life problems: clients who consistently lie to him, more successful partners who are constantly trying to stab him in the back, a spouse who doesn't understand why he's not as successful as her father, and judges who are his intellectual inferiors and who display a consistent pro-prosecutor bias. Yet, he perseveres. Kinda like most of the practicing lawyers I know.

Memo to Law School Professors: Law school should, in addition to training students in the intellectual discipline of the legal system, prepare them to practice as well.

Tuesday, July 05, 2005

Please Mr. Postman?

In yesterday's Baltimore Sun, there was an article about the Postal Service's plan to eliminate 120 post boxes (out of approximately 1900) in Baltimore City and Baltimore County to reduce costs. Opposition to the move comes primarily from senior citizens and people in lower income neighborhoods.

The use of fax machines by individuals for personal use never really took off. However, today over 50% of all homes have Internet access. This means that even non-business communications and transactions can be conducted electronically. Thus, a majority of us can send and receive emails and pay our bills electronically from home. And, of course, we can get newspapers and magazines and buy goods and services online. Various government services, such as motor vehicle license renewals, are increasingly available online.

There is no question but that this trend will accelerate because the transactional processing cost is so much lower than with traditional methods. By way of example, in Maryland one can renew a motor vehicle registration online literally up to the last minute before expiration. In exchange for extending to the consumer the speed and ease of taking care of this chore at home (not to mention the boon to procrastinators), the state government is able to reduce the costs of processing the transaction. After all, there is a reduction of amount of physical office space that has to be dedicated to renewals (often at fairly pricely leased locations) and, most importantly, the labor involved in processing the renewals is reduced. In due course, the number of locations where these sorts of transactions can be conducted on a face-to-face basis will decline and the their hours of operation will be cut back.

In a similar fashion, banks are attempting to promote various sorts of online payment methods because of the savings they realize.

And, of course, emails are both quicker and cheaper to send than letters.

I am certain that, initially, we will hear more complaints from groups that will not or can not participate in Internet commerce and communication. However, I suspect that the number of complaints will decline fairly rapidly as Internet access is viewed in the same way as telephone access is now.

When I began practicing law, there was twice daily mail delivery in the central business district. Today, that seems quaint. Within ten years, the conduct of personal business and commercial affairs via postal mail will seem equally archaic.


Via Denise Howell at Between Lawyers:
From, Registered E-post will soon be reality: "Since the beginning of 2005, the electronic signature in Switzerland has had the same status as a handwritten signature for contracts and business transactions."
The Wired GC dissents.

Sunday, July 03, 2005

A Tax Protester's Tale

There's a new blog in town, Everything Tax Law, written by Kreig Mitchell, a Boulder, Colorado tax lawyer.

His first person account of a tax protester's day in court (one that he viewed as a spectator, not one that he participated in as a protester) makes for great reading and not just for tax professionals either.

With the blogosphere (not to mention the blawgosphere) becoming increasingly crowded, it is difficult to recommend any particular blog as a "must read." I think that Everything Tax Law will likely fall into that diminishing category.

Saturday, July 02, 2005

Do You Wanna Know A Secret?

A case decided by the Maryland Court of Special Appeals on Thursday, Rite Aid Corp. v. Levy-Gray, addresses the question of whether the parties to litigation can, via the vehicle of a compromise settlement, flush a published opinion down memory hole. The Court denied the parties' request.

In the initial opinion in the case (here), the Court had addressed various questions concerning a pharmacist's liability for an alleged breach of an express warranty under Section 2-313 of the UCC. It upheld the customer's claim.

Subsequently, Rite Aid and the customer
[R]eached a conditional settlement for [the] lawsuit. The condition is that the lawsuit will be settled for a monetary payment made by Rite Aid to [the customer] if [the Court of Special Appeals] agrees to reverse its decision to report the opinion issued in [the] case.
In other words, Rite Aid would only settle if the case, precedentially speaking, became a never-was. Settlements of this sort highlight several issues.

First, they point up the asymetrical interests the parties have in product liability cases.

Rite Aid, for instance, fills numerous prescriptions every day. It thus faces potential loss many times its exposure in any particular case if an alleged error is "institutional." That is, if the alleged error results from some company-wide policy. That was the case here, since the theory of the alleged breach of warranty involved the computer printouts concerning the drug ingested by the plaintiff. Because Rite Aid provides such printouts with all prescriptions it fills, a successful prosecution of claims for defects or deficiencies in the printouts significantly raise its liability profile.

This leads companies, such as Rite Aid, to pour significant resources into the defense of litigation that challenge these institutional decisions. Of course, it can also cause companies in similar positions to invoke sort of a risk management theory to settle specific cases raising such issues for more money than their individual merits might otherwise mandate. In that way, the company avoids establishing a precedent that might apply to hundreds of thousands, if not millions, of transactions.

On the other hand, the individual plaintiff has a limited upside. After all, his or her damages are whatever they are and, generally speaking, the plaintiff's upside is not increased merely because the corporation's downside is large. Thus, there's no economic advantage to litigating a case merely to establish a broad policy principle. Of course, knowledge of the potential downside that a loss a defendant faces possibly will tend to discourage reasonable settlements based on the specific merits of a particular claim. Presumably, it also encourages cases that are marginal based on the expectation that large corporations will find it cost effective to settle even a case with limited merit rather than invite thousands of similar claims.

My personal view is that large corporations have a great advantage in dealing with the game theory issues presented in what might broadly be called "public policy cases." But that is an debate for another day. Here, I would like to focus on another question posed by the second opinion, namely what obligation do the courts have in maintaining silence about questions that would affect a large number of individuals in addition to the particular parties involved in a case.

The Court in Rite Aid refused to strike its previous opinion. In support of its decision, it quoted Polley v. Odom, 963 S.W.2d 917, 918 (Tex. App. 1998), as follows:
Because our opinion in this case addresses matters of public importance, our duty as a public tribunal constrains us to publish our decision.
The Court recognized not only the effect the asymetrical position of the parties could have on the outcome of any particular case, but it also noted how the asymetries could warp public policy. Thus, it quoted Benavides v. Jackson Nat'l Life Ins. Co., 820 F. Supp. 1284, 1289 (D. Colo. 1993), as follows:
The case law becomes what the party with the greatest resources wishes it to be. Economic prowess purchases more persuasive power than the marketplace of ideas and sound reasoning combined. Vacatur allows wealthy litigants to become, in effect, editors of their own treatises on the subjects which concern them. We have no kind words for such a practice. We can imagine few practices condoned by the judicial system that would have a less salutary effect on both the reality and the perception of its integrity.
I think that the policy underlying the Court's decision is sound. Large companies should not be allowed to bury their victims. But, of course, they do.

The growth in the number of contracts that demand that disputes be arbitrated rather than litigated effectively hides from public view alleged institutional wrongdoing. The policy of the courts, Maryland courts in particular, has been to encourage dispute resolution via arbitration. Arbitration has a lot to recommend it, namely the speed and cost effectiveness of the process. However, it also has its warts, not the least of which is that corporate defendants are at an advantage because they can direct cases to particular arbitration organizations. Thus, the arbitrators have an incentive not to rule harshly against their referral sources.

Just as importantly, an arbitrator's award, even if the finding is predicated on actions by the defendant that could affect large numbers of individuals who are in positions similar to that of the plaintiff, is not open to public view.

Finally, the opinion again raises the issue of why the Court of Special Appeals has a large class of opinions that are simply not widely available to public view via the Internet. The core policy underlying Rite Aid would seem to argue in favor of posting these opinions.

Friday, July 01, 2005

The Efficiencies of the Web

Effective today, in Maryland, all filers of business entity charter documents must indicate at the time of filing if they are "opting out" of having their original filed documents returned to them. If the filer fails to opt out or wants the original documents returned, there is an additional $5.00 fee. If the fee is not paid, the assumption will be that the filer did not want the original documents returned.

This is but one further example of the cost savings available through the use of the Internet. Because images of all filed documents are available at no charge for viewing and printing within 48 hours of their processing (which takes several days after the filing) by going to SDAT's website, there is really no reason to have the original documents returned. Making the process electronic saves significant costs such as postage and handling.

Found It!

Previously, I complained that reports from the Congressional Research Service aren't available to the public on the web. Via Kevin Drum, I have just learned about Open CRS, a private effort to collect CRS reports and put them in a single searchable archive on the web. So far they've collected 8,223 CRS reports.

As Drum explains:
CRS reports are commissioned by congressmen on a wide variety of topics, they're generally nonpartisan and reliable, and most of them run 5-10 pages, which makes them terrific introductions to complex issues.
Great news, but, like Drum, I still can't figure out why CRS refuses to post the reports itself. The Open CRS project depends on individuals obtaining reports from their Congressional representatives in pdf format and then submitting the reports to Open CRS for posting. Needless to say, this is a somewhat awkward procedure and will result in delays between the time the reports are issued and the time they are posted on the website.