The Faculty Lounge

You Had Me At "UCC." (Alternative caption: "Make My Day.")

Here's one to add to the list of cases with great opening lines:

For those who find great joy in reading about the Uniform Commercial Code ("UCC"), this case will make your day.

Arthur Glick Truck Sales, Inc. v. Stuphen East Corp. (S.D.N.Y. 12/18/12; Hon. Kenneth M. Karas).

Trolls

Nice little bit from artist Vi Hart over at Brain Pickings. Taming the Trolls.  A little uncomfortable psychoanalysis in the piece if negative comments get you down (which they do me from time to time). Brain Pickings is a great site and offers lots of wonderful tidbits of interest to academics and non-academics alike -- most of which have nothing to do with trolls and such.

Employers Requiring Facebook Passwords at Job Interviews

Some of my students recently made me aware of a practice by employers of asking job applicants to disclose Facebook passwords and usernames, or to actually log in to their Facebook accounts during a job interview and show prospective employers all their social networking information.  There are a few news stories here and here that suggest this practice has not become widespread, but my students' own experiences suggest a different story.  Is anyone aware how prevalent this practice is and whether there is any meaningful recourse against it? 

Chapter 9 Bankruptcy

In all the years I've taught bankruptcy, I've never more than mentioned Chapter 9 of the Bankruptcy Code. Chapter 9 deals with municipalities in financial distress (and Chapter 1 of the Code defines "municipalities" more broadly than one might expect).

Notwithstanding my limited knowledge of this narrow field of the law, the folks at the American Bankruptcy Institute asked me to moderate a call-in teleconference about the current state of Chapter 9. I was thankful that the panel of experts included the judge handling the bankruptcy of Stockton, California, a lawyer deeply involved with the Jefferson County, Alabama Chapter 9, Professor Juliet Moringiello from Widener who's written about the abortive bankruptcy of Harrisburg, Pennsylvania, as well as a representative of Wells Fargo who crunches the numbers on the creditworthiness of municipal debt.

I'm attaching a link to the ABI Newsroom page here from which you can connect to a recording of the teleconference. Not surprisingly, I think it would be most interesting to folks who teach bankruptcy law but there are some interesting Constitutional and local government law questions lurking in the background.

While the final number for bankruptcies in 2012 isn’t yet in, there were 17 through the first three quarters of the year. That's only one fewer than the greatest number since 1980 (18 in 1991) so I wouldn't be surprised to find out that 2012 will have set a new record. The panel didn't have time to address their predictions for 2013 but I suspect it will be about the same. The continuing low costs of borrowing generally, combined with a continuing rise in real estate values (and taxes), should keep most municipalities solvent, at least for now. However, the continued inadequate funding of retiree pensions and health benefits augurs ill for the longer-term future.

With all this in mind, perhaps I'll give Chapter 9 a full day this fall.

Does the Criminalization of Tort Inhibit Safety Investigation?

Thank you, Dan, for the kind words and giving me the chance to join you here.  With the recent news that BP has agreed to plead guilty to 14 criminal counts, including manslaughter, and pay to DOJ more than $4 billion to resolve all criminal charges stemming from the 2010 Deepwater Horizon blowout, I have been thinking much about an issue I haven’t thought much about since my days in practice as an aviation litigation attorney, namely the criminalization of what traditionally had been treated as simply tortious.  Excluding, of course, criminal investigations of intentional terrorist activity such as in the wake of Pan Am 103 and activity on 9/11, criminal investigations and prosecutions of transportation accidents were actually few and far between until we saw an uptick beginning in the early to mid-1990s beginning with the crash of Air-Inter flight 148 in Strasbourg, France, ValueJet flight 592 and then the Concorde crash in 2000.  More recently, a criminal investigation has been launched into the April 2012 crash of a 737 outside of Islamabad.  I and many of my former colleagues and former FAA Chief Counsel, Ken Quinn, see here, have grave concerns about the negative impact that criminalization of tortious activity has on the ability of safety agencies both inside and outside the aviation arena to comprehensively investigate the cause of the accident and  improve the safety of the activity that led to the harm (i.e., air safety, oil drilling safety) and prevent future incidents.  In practice, when criminal prosecution became a real possibility we saw the immediate “lawyering up” of key employees with potentially important safety-related information and the resultant non-cooperation or diminished cooperation in the safety investigation for fear of criminal prosecution.  How do we prevent the next Deepwater Horizon blowout if employees won’t talk to the safety investigators? 

Sometimes What We Publish Actually Matters

A bold statement!  Catch your breath and savor it (the statement, not your breath).

Some of you may be following the developing issue surrounding the dubious (and profoundly piggish) tactic indulged in by many private equity fund managers of avoiding (evading?) hundreds of millions of dollars in taxes on the management-fee portion of their compensation.  The strategy involves "waiving" the management fees--except they're not really waived, they're "invested" in the fund or a related vehicle and paid to the manager later.  So instead of paying the 35% ordinary income rate on the management fees, these Masters of the Universe pay the 15% capital gains rate--and pay it years after they earned the management fees.  The amounts involved are staggering.  Bain Capital alone has engaged in this tactic as to over $1 billion (yes, with a "B") in management fees, resulting in over $200 million in unpaid taxes from this company's personnel alone.  And this for people already taking home tens of millions of dollars a year after taxes.

New York Attorney General Eric Schneiderman has issued subpoenas to explore how many New York residents may have stiffed his state's treasury in this fashion.  The New York Times reported on it over the weekend here.

The Times' interest in what might be considered an abstruse tax issue is fueled in siginficant part by Republican Presidential Nominee Mitt Romney's longstanding relationship with Bain Capital, and the possibility that he personally benefited from these tactics either while he was actively working there, or as part of the "retirement" package he received when he left.  Unlike every presidential candidate in recent memory, Romney has famously refused to disclose his tax returns except for the last two years, fueling speculation that he is either a tax cheat or at the least the beneficiary of what are referred to in polite company as "aggressive" tax strategies available only to the superrich, resulting in his paying effective tax rates that are a fraction of ordinary working folks'.  (It is worth noting that not every private equity fund played this game.  A number of the most prestigious and successful funds, including Blackstone and Carlyle, reportedly eschewed it.)

Romney supporters deride Attorney General Schneiderman's investigation as politically motivated, and Schneiderman is in fact a Democrat reportedly with ties to the Obama administration.  Why that should discredit the inquiry whether a major-party candidate for President has underpaid his taxes by millions in the midst of an economic crisis--an inquiry that the candidate could resolve simply by disclosing to the electorate the same information every major party candidate for President has disclosed for decades--remains a riddle to me, but perhaps I lack vision.  To be fair, a Romney tax advisor represented categorically to the Times that "Governor Romney's retirement agreement did not give [his] blind trust or him the right to [engage in the fee-waiver strategy], and I can confirm that neither he nor the trust has ever done this, whether before or after he retired from Bain Capital."  The irreducibly concrete among us may be forgiven for preferring show to tell, but again I perhaps lack vision.

This is all very interesting, Bernie, I hear you say, but you drew me into this rather dismal lesson on federal tax policy on the premise you would show how the academic work I publish actually might matter.  Fair enough:  Prepare to be exhilarated.

The Wall Street Journalreports today (sub. req'd) that "a person familiar with [the NY AG's] office's thinking" has explained that the subpoenas were issued in July, before this issue sprang into public consciousness, and were raised by the office's taxpayer protection bureau (a bureau that apparently protects the taxpayers who do pay their taxes by pursuing the ones who don't) based on discussion of the issue in (wait for it . . .) "academic papers."  I would be remiss if I failed to point out that this phrase in the online report is hyperlinked directly to my brilliant and perspicacious colleague Gregg Polsky's 2009 paper describing and condemning this very strategy, Private Equity Management Fee Conversions, 122 Tax Notes 743 (2009) (ssrn here).

So sharpen your nibs, my friends--real regulators may rely on your work to brook the high and mighty.  And of course your mom likes it too.  Hats off to Gregg Polsky for making himself useful!

--Bernie

Who made you what you are?

    As many of you are no doubt aware, the centennial of Julia Child’s birth was August fifteenth. I was reminded of this yesterday when we enjoyed a Salade Niçoise made from her recipe:

 

    While this may not seem to have anything directly to do with the law, it served to remind me of a conversation I had with several of my colleagues a few years ago about the people who most influenced our legal career. As we listed the individuals who we felt were the most influential, all of us listed more individuals who are not lawyers than ones who are although all of us listed a least one first year law school professor. The “rules” of the game we played excluded family members.

    My list, in order of my exposure to them:

• Julia Child — The structure she created to explain the French culinary tradition convinced me that organization enhances all learning. I have been teaching my students to “cook” ever since.

• Joseph Koffler — my first year torts professor who demonstrated that demanding high performance from your students is crucial, but not as important as demanding it from yourself.

• Douglas Hofstadter — a computer science professor at Indiana University whose 1979 book, Gödel, Escher, Bach: An Eternal Golden Braid, is the most significant work of non-fiction I have ever read.

    So who are the three to five people who most influenced your legal career and why?

Is Google Overcharging Advertisers With Mistaken Clicks?

Am I alone in noticing that Google searches often load relatively slowly now, with unpaid results appearing about a half second before the paid ads at the top of the page?  More than once, at a particularly impatient moment, I've reached to click on the first (unpaid) result at the top of the page, only to discover that an ad had loaded into that same space a split second before my finger managed to complete the click.  I've then been directed to the advertiser.

This is a little irritating for me (though I've also accdientally landed on a the same page - except through a paid click.)  But I have to think this could be very irritating to those advertisers who pay for my uninteded visit.  It's not like I stay on the page.  I quickly back out, re-google, and wait for the results to fully load.

I wonder if this is just a glitch or an actual strategy?

Reason #387 To Take A Payment Systems Course

#387:  Master the denominations of U.S. dollar bills in circulation, knowledge that may save you some embarrassment at the check-out counter.

Related story here.

Laptop Use in Class: An "Arresting" Development

If you thought a student was using a laptop for other than a class-related purpose, might you be tempted to take action?

A few days ago, one professor did.  His story here.

"You can do it, Japan!" Penn Students Raise Funds for Japan Earthquake Relief

 
Members of the LL.M. Class of 2011 at the University of Pennsylvania Law School have joined with students from Wharton's Japan Club to fundraise for earthquake relief efforts in Japan.  The students are selling a t-shirt, with all proceeds going to the Red Cross.  Their email (reprinted with permission) appears below.

We are the Japanese LL.M. 2011 students of University of Pennsylvania Law School.

As you might know, the Japanese people are struggling to recover from the unimaginable wreckage and loss of life from the catastrophic earthquake and tsunami, which happened on March 11^th. Fortunately, all of our family members in Japan are safe, but about 380,000 people are still living in evacuation centers and are in desperate need of basic supplies. In addition to the thousands who lost their lives, more than 10,000 others are still missing.

In cooperation with the Wharton Japan Club, we Japanese law students have decided to do some fundraising in the Law School for the victims of the devastation. We are grateful if you would help us by buying a T-shirt and making a donation online here . Also, you can directly donate through this website here.  All donations and proceeds from the sale of T-shirts will go to the Red Cross, where the money will be used to help those affected by the earthquake and tsunami.

For updates on ways to help, please join this Facebook group. Any assistance you can provide would be most appreciated.

Sincerely,

Japanese LL.M. 2011 students of Penn Law

The t-shirt says in Japanese, "You can do it, Japan!"  The shirts are available for purchase only by residents of the U.S., Canada and Mexico.  World-wide donations are being accepted via the FirstGiving website here.  Kudos to the Penn students for putting this together. 

Who Needs a Pick-Me-Up?

As if the UCC itself didn't provide a sufficient buzz, now comes ... UCC coffee!

(Hat tip to Bob Lawless at Credit Slips.)

The Truth About Exam Grading (in four-part harmony)

Note: The Old Growth Timbres are already quite well aware of the injunction to keep the day job.

Wise Man Needs Ride

Alternate title:  The Camel, The Church, and The Torts Exam

Story here.

Perhaps I should pass this news along to the music minister at the local mega-church where I worship.  I'm attending our Christmas extravaganza this afternoon, and I'm told that an elephant will walk the aisle.  Guess I better check the location of my seats.

 

Circulus Inextricabilis

Three children are playing the game of "rock, paper, scissors."  They all throw down, one selecting the "rock," another the "paper," and the third a pair of "scissors."  Will we have a clear winner?

This issue pops up now and then in Secured Transactions, when three (or more) creditors are fighting over a pool of collateral with a value that falls short of adequately securing repayment of all of the debts (creating a genuine priority dispute).  The relevant legal rules may resolve the priority dispute as follows:  A beats B, B beats C, and C beats A.  Now what?

If this topic is of interest to you (it is, isn't it?!?!?!), you'll want to read Circular Priorities in Secured Transactions Law, authored by Roderick J. Wood (pictured), a professor on the law faculty at the University of Alberta.  Here's the SSRN abstract: 

Circular priority problems are endemic in secured transaction law.  A circular priority situation arises when there are three or more parties with competing claims to the same asset and there is no clear ranking of priority among them.  There are multiple approaches applied by courts or advanced by commentators to resolve circular priority problems.  The different mechanisms used by the courts to resolve a circular priority problem are evaluated using criteria that reflect the general values and goals of commercial law, and the mechanism that best accords with this criteria is identified.  Although consensus on the best way of breaking a circularity will reduce litigation costs, it does not provide a complete solution as it can be undermined by ex post bargaining among creditors.  Given this instability, priority rules should be designed so as to minimize the occasions when such problems can arise.

 The article appears at 47 Alberta Law Review 823-852 (2010).

Holiday Wrap-Up

It was a pleasure to visit The Lounge last month. Speaking of gifts, I thought I might sign off with a question about holiday activities in law schools around the country. In my experience, every school has been a little different. One school did not permit decorations of any kind (in fact, I was “spoken to” about a stocking on my door), another had a nice holiday party where no gifts were exchanged, and I have heard of others who contribute to various charities instead of exchanging gifts. How is this handled at your school? If gifts are exchanged, what were some of your favorites? Again, thanks to everyone at The Lounge for a delightful time, and Happy Holidays!

Attorney Files Motion ...

... to postpone a pre-trial hearing.  Reason? 

Click here to find out!

Mangling the Lingo

Most readers are aware that UCC Article 9 permits a lender to perfects its security interest in almost all types of collateral by filing a "financing statement" (also known as a UCC-1). 

A few times during every semester in which I'm teaching Sadistic Transactions a student will throw out the phrase "financial statement" (as in, "the creditor is perfected because it filed a financial statement").  I cringe, inwardly and outwardly, and the students soon learn the error of their ways.

My students aren't the only ones who, on occasion, commit this error.  Judges, too, have been known to make the same mistake.  See, e.g., Agriliance, L.L.C. v. Farmpro Serv., Inc., 328 F. Supp. 2d 958, 966 (S.D. Iowa 2003) (“filed the appropriate financial statement”); EH Yacht, LLC v. Egg Harbor, LLC, 84 F. Supp. 2d 556, 560 n.2 (D.N.J. 2000) (“the UCC financial statement”); 21 West Lancaster Corp. v. Main Line Restaurant, Inc., 614 F. Supp. 202, 203 (E.D. Pa. 1985) (“financial statements were timely filed”); U.S. v. Trans-World Bank, 382 F. Supp. 1100, 1103 (C.D. Cal. 1974) (“a financial statement filed with the California Secretary of State”); In re Tamis, 398 B.R. 124, 126 (Bankr. D.N.J. Dec. 2008) (“The Chase security interest was perfected by the recordation of a UCC-1 financial statement”); 1st Bank v. Winderl, 60 P.3d 998, 999 (Mont. 2002) (“two financial statements filed in 1990 and 1994”); LBM, Inc. v. Rushmore State Bank, 543 N.W.2d 780, 785 (S.D. 1996) (“a valid and filed financial statement”); Texas Beef Cattle Co. v. Green, 883 S.W.2d 415, 425 (Tex. Ct. App. 1994) (“filed financial statements”); Simmons Oil Corp. v. Holly Corp., 796 P.2d 189, 197 (Mont. 1990) (“Holly filed UCC financial statements in Montana.”).  And I recently discovered the same linguistic faux pas in a "problem" that appears in a leading commercial law casebook ("... quickly files an initial financial statement ...").

My point in writing this post isn't to hold myself out as one who never makes a mistake (I may not make this mistake, but I make plenty of others; e.g., approximate cause v. proximate cause, payroll evidence v. parole evidence, administratrix v. dominatrix, etc.).

My point is this:  to solicit other suggestions where a word or phrase, of significance to a particular body of law, is often mangled by its users.  What might those words or phrases be?

A Modest Contribution to the Literature, in Haiku

Big bad government.

How dare you take a piece of

What you helped me make!

Dear Santa ...

The holiday season will soon be upon us (but let's first get through the AALS Faculty Recruitment Conference!).  And thoughts will turn to buying that "perfect" gift for either the "hard to please" recipient or the "person who has everything."

Need some ideas?  Our friends at Neiman Marcus want to help!  Click here to peruse NM's annual Christmas catalog. 

And if any readers out there just happen to draw my name, I'd be quite pleased to receive this item.