In 1789, as the inchoate American government was climbing out of the mountainous debt left over from the Revolutionary War, a thorny political problem emerged. While most of the chattering class was consumed with the debate over whether the states’ war debt should be federalized, another far more visceral controversy arose. Because the Continental Congress lacked funds during the war, the Revolution was funded partly by wealthy private citizens who invested in bonds. As a result of the lack of governmental money, many American soldiers were given worthless IOUs at the end of the war, as states scampered for a way to give the patriots their back pay. Many of these soldiers panicked, and sold their IOUs to speculators for as little as fifteen cents on the dollar. The problem was, once the federal government began repaying the debt, the value of the bonds soared. So who should get the money: the patriots who fought bravely for their country and only sold the IOUs because of fear they would get nothing from their government, or the speculators?
Perhaps real estate investors and their attorneys have reason to be cautiously optimistic: economic reports released this week indicate signs of life in the real estate market. As reported by the Associated Press, the National Association of Realtors saw increases in pending home sales for the ninth straight month. And for the first time in six months, construction spending saw an increase. Optimists say these numbers, in conjunction with recent reports that home prices are climbing, indicate long-term recovery for both the residential and commercial real estate sectors.
Yet many analysts argue that these spikes are temporary. The growth in construction spending amounted to a measly 0.04%, and the rise in pending sales contracts over the last nine months is attributable to the homebuyer tax credit, which the Obama Administration and Congress recently extended.
I suppose time will tell which analysis is correct. But while commentators continue to debate, real estate investors have shifted their focus from traditional residential and commercial endeavors to a sector less affected by the downturn: healthcare properties. Continue reading “A Decade-Old Statute Pays Dividends for REIT Investors and Their Attorneys”
At last month’s Conference on the Wisconsin Supreme Court, the panel discussing the Court’s business law cases during the 2008-2009 term began with an observation and a question. The panel noted that there were three business law cases in which the votes of the Justices split on a 5-2 basis. These cases were Farmer’s Automobile Ins. Assn. v. Union Pacific Ry., 2009 WI 73; Krier v. Vilione, 2009 WI 45; and Star Direct, Inc. v. Dal Pra, 2009 WI 76. The question our panel asked was “Is this 5-2 split just a coincidence, or is something else going on?”
I cannot speak for my co-panelists, Tom Shriner and Leonard Leverson, and these comments should not be interpreted to reflect their views. However, I have concluded that, taken together, the three dissents filed by Justices Abrahamson and Bradley in the aforementioned cases can be read as an clear admonishment to their two newest colleagues on the Wisconsin Supreme Court.
The message that comes through to me, loud and clear, is one of disapproval of Justices Ziegler and Gableman for failing to adhere to the unwritten standards of professionalism that apply to the highest court in the State. It’s as if these two members of the “old guard” feel it necessary to remind their colleagues that they now sit on a Supreme Court, and that there are certain things that one just doesn’t do as a Supreme Court Justice. That the concerns of the dissenters have arisen in the context of three cases involving business law disputes is nothing more than a coincidence. Continue reading “Memo To The New Justices: That’s Not How We Do Things On The Court”
The baseball antitrust exemption has turned out to be one of the great anomalies of American law. First recognized in the Supreme Court’s Federal Baseball decision in 1922 at a time when “commerce” was understood much more narrowly than it would be in the post-New Deal world, the exemption took on a life of its own in the 1953 Toolson decision when the Supreme Court acknowledged that professional baseball was commerce after all but that it was leaving the matter of invalidating the exemption to Congress. In 1972, the Court reasserted the exemption in Flood v. Kuhn, and Congress reaffirmed it in 1999 in the Curt Flood Act in regard to all matters covered by the exemption except major league labor relations.
While there is no question that the Major League Baseball antitrust exemption still exists, it is not at all clear what aspects of the baseball business are protected by the exemption. Does it apply to any undertaking by Major League Baseball, or is it limited to certain baseball-specific activities? Comments made by my colleague Matt Mitten in an interview presented elsewhere suggest that Matt believes that the exemption applies to all aspects of the professional baseball business.
I am not sure that this is true. A quarter of a century ago the federal district court for the Southern District of Texas ruled that the baseball antitrust exemption did not extend to restrictions on broadcasting. (Henderson Broadcasting Corp. v. Houston Sports Ass’n, Inc, 541 F. Supp. 263, 265-72 (S.D. Tex. 1982)) So far as I can tell this decision has never been overruled or even directly contradicted by a decision of a different court. Although the Supreme Court has provided no definitive answer, the conventional wisdom appears to be that the exemption applies only to matters central to the “business of baseball.” This was the standard adopted in the relatively recent case, Major League Baseball v. Crist, 331 F.3d 1177, 1183 (11th Cir. 2003).
Of course this interpretation just replaces one question with another. We still have to ask what aspects of the baseball business are “central” to its operation, and as of yet, we have no definitive answer. Clearly territorial monopolies, minor league salary caps; and restrictions of minor league player mobility are central to the operation of baseball, but what else falls into this category?
Now Major League Baseball has gone and entered into a contract with Topps, Inc., giving that company the exclusive right to use Major League team names and logos with in the production of baseball cards. Topps’ primary competitor in the baseball card market, Upper Deck, can still issue baseball cards of players under its non-exclusive license with the Major League Baseball Players Association, but it will not be permitted to use team names or symbols on its cards. As a practical matter, this will probably force the company out of the baseball card business, at least until Topps’ exclusive license expires.
It is hard for me to see how the production of baseball cards by an independent company could constitute an activity “central to the business of baseball.” There was a time when baseball cards were a primary way that fans, particularly young fans, learned about the teams and players of Major League Baseball, but in the age of the Internet, it is hard to believe that baseball cards are in anyway a necessary component of marketing Major League Baseball to the public (if they ever were). Consequently, the new Topps monopoly will likely to be found to be subject to antitrust challenge. Whether or not the challenge will succeed is a topic for a different post.
On an entirely personal note, I have extremely fond memories of the old Topps baseball card monopoly that existed from 1956 to 1980. In that period, only Topps produced baseball cards, and the cards were printed on cheap cardboard, packed to the gills with information about the pictured player not otherwise readily available, and packaged with super sweet sticks of bubble gum. Even with the gum, they were incredibly inexpensive—a penny a card until the late 1960’s, and less than two-cents a card until the late 1970’s.
There were almost no baseball card shops in that era, so cards had to be purchased by the pack in regular stores that sold candy. If you were missing a player’s card that you felt you needed, you had to buy more packs or else figure out a way to trade with a friend who had a card of the player you wanted. Many kids learned the rudiments of negotiation from such exchanges.
In fact, the only problem with the old Topps monopoly was that it wasn’t a true monopoly. Fleer, which competed with Topps in the larger bubble gum market managed to sign a few well-known players including a handful of stars—Ted Williams, Maury Wills, and Wilmer “Vinegar Bend” Mizell (who was later a congressman from North Carolina) for example—but the company never had enough players under contract to produce its own bubblegum based player set. In 1962, the year he was the National League’s Most Valuable Player, the only way to get a Maury Wills baseball card was to find one on the back of a Post Cereal box.
Because the Topps monopoly only applied to cards packaged with bubblegum or its equivalents cards could be marketed with other products, although that rarely happened. (The Post experiment of putting baseball cards on cereal boxes only lasted for three years.). In that era, no one thought of simply marketing the cards alone.
If the new Topps monopoly can somehow bring back the magic to baseball card collecting, then it will be a restraint of trade that we should gladly accept.
At first blush, one would not think that Barney Frank and Stephen Hawking would have anything in common. The first is the Chairman of the House Financial Services Committee, and is currently conducting hearings on the regulatory reform of the financial markets. The second is the noted University of Cambridge professor of theoretical physics and the author of the best selling book A Brief History of Time.
However, in my mind both men are associated with the Second Law of Thermodynamics. This law of physics states that the entropy of an isolated system always increases over time. Stephen Hawking described it in more comprehensible terms in A Brief History of Time:
It is a common experience that disorder will increase if things are left to themselves. . . . In any closed system disorder, or entropy, always increases with time.
Therefore, when I think of Hawking, I think of someone who can explain the Second Law of Thermodynamics. When I think of Barney Frank, I think of someone who is desperately trying to avoid its operation.
I would contend that all forms of market regulation follow the Second Law of Thermodynamics. In each case, a comprehensive statutory scheme is enacted as law, it imposes a closed system of rules on market actors, and over time the scheme inexorably breaks down. Federal securities regulation, which began with the Securities Act of 1933 and the Securities Exchange Act of 1934, provides the perfect case history of this principle in action. Continue reading “Regulation and the Second Law of Thermodynamics”
The National Law Journal recently reported that the law firm of Howrey & Simon has adopted an innovative training program for new associates. Newly hired lawyers will serve a two year “apprenticeship” prior to being fully integrated into the law firm. This program will reduce the number and the compensation of the law school graduates hired by the firm, and it is part of Howrey’s overall program to eliminate “lockstep” salary increases for its associates.
Lawyers in Howrey’s apprenticeship program will be paid significantly less than the going rate for first year associates at other large law firms. During their first year, the new associates will take firm sponsored classes on legal writing and gain practical experience by working on pro bono matters. During their second year, the associates in the program will spend several months “embedded” at client sites where their work will be charged at a reduced billing rate. The law firm’s managing partner compared the apprenticeship program to the training programs typically employed in the medical and accounting professions.
The Howrey program provides an opportunity to reconsider the entire continuum of legal education: a process that begins with undergraduate instruction, continues through law school, and is perpetuated by continuing legal education requirements. From time to time, each stage in the continuum comes under scrutiny, as Rick Esenberg’s post on Reengineering Law School illustrates. In my opinion, the continuum should be viewed holistically when we evaluate whether we are succeeding at training competent and ethical members of the legal profession. Law schools, law firms and the state bar all need to cooperate in order to ensure that there are no gaps in the preparation that new lawyers receive as they start their careers. As a member of the Wisconsin Legal Education Commission in 1996, I argued in favor of a program of mandatory skills-based CLE instruction for recent bar admittees. Many of our students are undoubtedly pleased that the State Bar chose not to implement this particular Commission recommendation.
Given my predisposition in favor of practical training, I should be supportive of the Howrey apprenticeship model. Instead, I find myself troubled. In particular, I am wary of the idea of embedding future corporate lawyers within a client’s legal department for any significant period of time. Continue reading “The Apprentice”
Since last month China has been on an economic rampage that could have serious long- term effects on the United States and Europe. While Americans have been inundated with a vast and steady diet of “news” focused on personalities (the ongoing deaths of Michael Jackson and Farrah Fawcett and the death-like experiences of Governor Mark Sanford, Senator John Ensign, and Governor Sarah Palin, just to name a few) the economic movements in China that will have a much more significant impact on Americans and their futures have gone virtually unreported by both the American major print and electronic reporting media. Unlike American media, foreign news services have given front-page coverage and deep analytical assessments of China’s economic developments.
Examples of these significant developments include: Continue reading “The New China Syndrome”
Today marks the 75th anniversary of the Communications Act of 1934. For most of its existence, the Communications Act provided much of the essential regulatory structure for the telecommunications (in Title II of the Act) and broadcast (in Title III) industries. The former provided some of the basis for my own practice back in the 1990s as an associate at a large Chicago law firm, one of whose primary clients was American Telephone & Telegraph Co. (or “AT&T,” as at one point it was formally renamed).
Of considerably broader importance, the Communications Act created the Federal Communications Commission (FCC), which has had an extraordinary effect over the decades on the American economy and society. Not so long ago there were calls to abolish the FCC, but they have not achieved success.
This is not to suggest that the FCC is riding high in all respects. Continue reading “75th Anniversary of the FCC”
Senator Charles Schumer recently announced plans to introduce the “Shareholder Bill of Rights Act of 2009.” This bill is a compendium of corporate governance reforms that shareholder activists have been advocating for many years. Among other things, the bill would require companies to elect the entire board of directors each year, rather than putting only a portion of the board up for a vote. It would also require that directors receive a majority of the votes cast before being allowed to serve, and the bill would make it easier for shareholders to nominate their own director candidates to run in opposition to the candidates nominated by management.
Senator Schumer’s bill is best understood as embodying the principle that, when it comes to corporate governance, more democracy is always better. The assumption is that corporate governance will improve in tandem with increased shareholder voting power. I question that assumption.
First, more democracy might actually lead to worse directors. Continue reading “Legislation of the Year . . . If the Year Is 1950”
Last fall, I commented on this blog about the potential effect of an Obama administration on the nature of antitrust enforcement in the United States. In particular, I noted that a new Obama administration might focus on repairing the lack of antitrust enforcement that had resulted over the past few years through a slavish adherence to Chicago School analysis. On Monday of this week, Christine Varney, Assistant Attorney General for the Antitrust Division, revealed an antitrust plan for the Department of Justice that removed any doubts that the Obama administration is shifting dramatically from the “theoretical economics” laden Chicago School antitrust philosophy and practices that dominated the enforcement goals of the Bush administration to a pragmatic antitrust policy based on the realities in the marketplace.
Rejecting the “laissez-faire” views that the Antitrust Division had practiced over the past eight years and attempted to enshrine in a policy statement in 2008, Ms. Varney declared that small- and medium-sized competitors, suppliers, and distributors are encouraged to whistle-blow on any anticompetitive practices. Indeed, she stated the government would welcome hearing from those who were suffering at the hands of dominant entities. Although Ms. Varney did not go so far as to adopt the European Union view of dominance as against the evolved modern American view that monopoly in itself is legal and that the burden is on the plaintiff to show that the defendant had attempted to further its monopoly position through anticompetitive practices, she hinted that challenges based on dominance will be given a much more welcome hearing. Moreover, Ms. Varney indicated that mergers will be scrutinized very carefully, especially in certain sectors of the economy. Continue reading “Federal Government Antitrust Policy Returns to Reality”
The Director of the Securities and Exchange Commission’s 21st Century Disclosure Initiative, Dr. Bill Lutz, was on the Marquette University campus May 4. He was kind enough to give an update on the Initiative over lunch to a group of faculty from the Law School and the College of Business Administration. Dr. Lutz is an interesting choice to lead the SEC’s effort to reconceptualize the manner in which the agency collects, analyzes, and disseminates financial information. He is Professor of English emeritus at Rutgers University, and one rarely thinks of the words “English language” and Form 10-K in the same breath.
The 21st Century Disclosure Initiative finished its Report in January 2009. You can read the Report here: www.sec.gov/spotlight/disclosureinitiative/report.shtml. The recommendations in the Report are both modest and potentially revolutionary. Today the SEC continues to operate under the same system of preparing and filing specific disclosure documents such as annual reports and quarterly reports that was instituted in 1934. In the 1990s, the Commission adopted EDGAR, a system for filing and viewing each individual report electronically. However, the “document centric” format remains and anyone searching for specific items of company data today on EDGAR still has to typically scroll through hundreds of pages to find what they are looking for.
The Report by the Initiative proposes the adoption of company-specific databases for each company required to file reports with the SEC. Continue reading “Little Reforms Have Big Implications at SEC”
“A beggar’s mistake harms no one but the beggar. A king’s mistake, however, harms everyone but the king. Too often, the measure of power lies not in the number who obey your will, but in the number who will suffer your stupidity,” writes R. Scott Bakker in his latest novel, The Judging Eye.
Bakker’s proverb seems to apply to the current economic situation (climate, recession, downturn, depression, hiccup, what are we calling it again?) and especially the continuing outcry over AIG’s payment of $160 million in bonuses after accepting more than $170 billion in bailout money. Continue reading “AIG, Bailouts, and Suffering Stupidity”