Monday, June 29, 2009

Scalia invites assaults on national banks

Spitzerism Revisited. WSJ Editorial
Scalia invites assaults on national banks.
The Wall Street Journal, Jun 30, 2009, p A14

Eliot Spitzer has departed the national stage in ignominy, but the damage he did as an unrestrained state Attorney General lives on, notably in a dubious 5-4 victory yesterday before the Supreme Court.

The case is Cuomo v. Clearing House Association, but it was Mr. Spitzer, New York AG Andrew Cuomo's promiscuous predecessor, who brought the suit in 2005. At issue was whether New York's AG could demand mortgage data from federally chartered banks to fish for evidence of discrimination under the state's fair lending laws. Mr. Spitzer was running for Governor, and he wanted to play the racial lending card even as he now denounces the same banks for lending too much to the same people.

We'll defend federalism as staunchly as anyone, but the National Bank Act dates all the way back to the Lincoln Administration, and over the years the courts, including the High Court, have been clear about its intent: A national bank should be regulated by federal overseers and not subject to harassment by states for the way it conducts banking. As recently as two years ago, in Watters v. Wachovia, the Supreme Court upheld precisely this principle. But now a five-Justice majority, improbably led by Antonin Scalia, who was joined by the Court's entire liberal wing, has opened the gates of state regulation against national banks.

Justice Scalia's opinion distinguishes between "visitorial" and "prosecutorial" power over national banks. By visitorial he means the power to demand whatever information may be necessary to regulate an institution. Mr. Scalia argues that while the federal Office of the Comptroller of the Currency (OCC) has sole visitorial power over federal banks, state AGs may nonetheless "prosecute" those banks for violations of state law.

There's nothing wrong with this argument as it pertains to, say, state employment law, fraud or other laws of general applicability. No one argues that a national bank should be immune from a state sexual harassment investigation simply because its banking activities are regulated by the OCC.

But as Justice Clarence Thomas points out in his dissent, lending, including mortgage lending, is a core banking activity authorized by the 1864 National Bank Act and already regulated by the OCC. It is exactly the kind of banking that national banks are supposed to have the freedom to do under a law designed to create a uniform regulatory environment across the entire country.

Justice Scalia argues that prosecutorial pursuit of a national bank is fundamentally different from a bank regulator's visitorial powers because prosecutors are subject to judicial checks and balances. The Justice must not have been paying attention to Mr. Spitzer, whose career is a living testament to the ways that an unscrupulous AG can twist the power to prosecute into the power to "visit" and regulate and legislate. Justice Scalia's opinion may well expose national banks to the depredations of 50 state AGs, making a mockery of "national" bank regulation.

When the political progeny of Mr. Spitzer crank up their fishing expeditions against national banks, we doubt those banks will take much comfort because they are being "prosecuted," rather than "visited."

The health-care systems Democrats want to emulate don't allow contingency fees or large jury awards

How Other Countries Judge Malpractice. By RICHARD A. EPSTEIN
The health-care systems Democrats want to emulate don't allow contingency fees or large jury awards.
The Wall Street Journal, Jun 30, 2009, p A15

In his recent speech to the American Medical Association, President Barack Obama held out the tantalizing possibility of reforming medical malpractice law as part of a comprehensive overhaul of the U.S. health-care system. As usual, he hedged his bets by declining to endorse the only medical malpractice reform with real bite -- a national cap on damages for pain and suffering, such as the ones enacted in more than 30 states.

These caps are usually set between $250,000 to $500,000, and they can make a substantial difference. Other reforms, such as rules that limit contingency fees, shorten statutes of limitation, or confine each defendant's tort exposure to his proportionate share of the harm, have small and uncertain effects.

Medical malpractice, of course, is not just an American issue. And now that the U.S. is considering universal health-care systems similar to those found elsewhere, it's worth a quick peek at their medical malpractice systems -- which usually attract far less controversy, and are far less expensive, than our own.

Litigation in the U.S. has at least four distinctive procedural features that drive up malpractice costs. The first is jury trials, which can veer out of control and in any case introduce significant uncertainty. The second is the contingency-fee system, which allows well-heeled lawyers to self-finance litigation. The third is the rule that makes each side bear its own costs. This induces riskier lawsuits than are undertaken in most other countries, such as Canada, England and most of Europe, where the loser pays the legal costs of the winner. The fourth is extensive pretrial discovery outside the direct supervision of judges, which occurs far more readily here than elsewhere.

Even these features aren't the whole story. American judges frequently let juries decide whether honest mistakes are negligent. Judges in other nations are less likely to do so. American courts commonly think it proper for juries to infer medical negligence from the mere occurrence of a serious injury. European judges usually will not.

American plaintiffs are sometimes spared the heavy burden of identifying particular acts of negligence, or of showing the precise causal connection between a negligent act and an actual injury. Lastly, damage awards for lost income and medical expenses in the U.S. tend to dwarf awards made elsewhere -- in part because governments elsewhere provide this medical care from their nationalized systems. In sum, the medical malpractice system provides incentives for plaintiffs that really do matter. Americans, for example, file claims about 3.5 times more often than Canadians.

The overall picture is still more complex, since there are major variations in medical malpractice rules in different American states, and differences within states, such as between juries in big cities and those in small towns. Doctrinal reform cannot stop these abuses. What is needed is the replacement of juries with specialized commissions like those in France, which help reduce litigation expenses and promote uniformity in case outcomes across regions.

What then does this quick survey teach us about the ability of our system to deter medical injuries and compensate its victims? Not much that's encouraging.

A study led by David Studdert published in the 2006 New England Journal of Medicine concluded that the administrative expenses of the malpractice system were "exorbitant." And worse, it found errors in jury verdicts in about a quarter of the litigated cases. Juries denied compensation properly due in 16% of the cases, and awarded it about 10% of the time when it was unwarranted. These error rates don't include damage awards set at improper levels.

More disturbingly, a careful 1992 study by Donald Dewees and Michael Trebilcock in the Osgood Hall Law Journal concluded that the frequency of medical malpractice in Canada was about the same as in the U.S. -- for about 10% the total cost. In other words, our costly system doesn't seem to do much to deter malpractice. On medical malpractice at least, Canada does better than we do.

The U.S. cannot ignore serious reform. To be sure, medical malpractice premiums constitute well under 1% of the total U.S. health-care bill. But defensive medicine adds perhaps as much as 10%. High malpractice costs can shut down clinics that serve vulnerable populations, leading to more patient harm than the occasional case of malpractice.

The best reform would be to allow physicians, hospitals and patients to contract out of the liability mess by letting the parties reject state-imposed malpractice rules. They could, for example, choose to arbitrate, to waive jury trials, or to limit damage recovery. Stiff competition and the need to maintain reputation should keep medical providers in line in such a system. Market-based solutions that make the private sector more responsive should in turn undermine the case for moving head-first into a government-run health-care system with vast, unintended inefficiencies of its own.

Mr. Epstein is a professor of law at the University of Chicago, a senior fellow at the Hoover Institution, and a visiting professor at NYU Law School.

WaPo: The House considers a sensible bill to rein in the president's power to exclude court evidence

Fixing Abuses of State Secrets. WaPo Editorial
The House considers a sensible bill to rein in the president's power to exclude court evidence.
Monday, June 29, 2009

NO PRESIDENT should be trusted to be the sole arbiter of what evidence can and cannot be introduced in court. But that's essentially what has been happening for four decades in cases that touch on national security matters.

In the 1950s the Supreme Court gave the executive virtual carte blanche to determine what pieces of evidence or information must be withheld in civil lawsuits against the government; lower courts since then have routinely rubber-stamped the executive's secrecy claims.
The second Bush administration took the state secrets doctrine to new heights by arguing that an entire case should be dismissed -- sometimes at its earliest stages -- if it could touch on any information that could conceivably have national security ramifications. The Justice Department under President George W. Bush used this approach to try to quash litigation involving, among other things, domestic surveillance and extraordinary rendition (the forced transfer of detainees to countries where they may be tortured).

President Obama has said that the state secrets doctrine should be reformed, and he has promised to be more measured. Yet when confronted with actual cases the Obama Justice Department has adopted the same legal arguments as the Bush administration. The Obama administration, for example, recently asked the full U.S. Court of Appeals for the 9th Circuit to reconsider a panel decision that declined to dismiss a lawsuit brought by men who were subject to extraordinary rendition; the administration claimed that allowing the suit to go forward could harm national security. If Mr. Obama shapes a more circumscribed approach, as promised, that would be welcome.

But legislation is necessary to guarantee that all presidents abide by sensible rules that protect both national security and the ability of litigants to make their case in court. Rep. Jerrold Nadler (D-N.Y.) is the primary sponsor of legislation that sets out such rules; similar legislation has also been introduced in the Senate.

Under the State Secret Protection Act of 2009, a federal judge would be the arbiter and would make determinations on specific pieces of evidence. If a particular document or piece of evidence were deemed by the judge to be too sensitive to be shared with the plaintiff's lawyer, the government would be obligated to provide a redacted copy or, if that proved unworkable, an unclassified summary of what the evidence shows. If this approach still presented the risk of a national security breach, the judge could exclude the information but allow the plaintiff to proceed with the litigation unless the excluded information was absolutely necessary to the case. In these instances, the judge would be empowered to dismiss the case.

Independent scrutiny is necessary to ensure that the state secrets doctrine is being used legitimately and not to cover up embarrassing or incriminating evidence or episodes. The proposed legislation strikes the appropriate balance.

A Primer on the Employee Free Choice Act's Arbitration Provision

A Primer on the Employee Free Choice Act's Arbitration Provision. By F. Vincent Vernuccio
CEI, Jun 25, 2009

In the ongoing debate over the Employee Free Choice Act (EFCA, H.R. 1409, S 560), the Act’s card check provision has received a great deal of attention. This provision would effectively eliminate the secret ballot in union certification elections in favor of the card check process, in which union organizers ask workers to sign union cards out in the open. This exposes workers to high-pressure tactics that the secret ballot is designed to avoid. By focusing on its undemocratic nature, EFCA opponents have helped muster popular opposition to card check, and the bill has failed to move forward in Congress. However, EFCA supporters are now looking to craft a “compromise,” which would retain other harmful provisions in EFCA.

The Employee Free Choice Act’s Section 3, “Facilitating Initial Collective Bargaining Agreements,” has not received nearly as much attention as card check, but its implications could be enormous. If enacted as part of an EFCA “compromise,” it could fundamentally change the way businesses deal with their employees. Section 3 of EFCA empowers the federal government to impose mandatory binding compulsory interest arbitration, whereby government representatives are enjoined to create a fresh contract from scratch. It would allow the government to write “first contracts” between employers and unions even if one party objects.

Full Document Available in PDF