Warren on fact, law and theory

Harvard's Elizabeth Warren has an interesting post over at Credit Slips. It caught my attention because I’m currently working on a project about jurisdictional competition to which it directly relates. But my thoughts, like Professor Warren’s, go beyond that project. 

Here's Professor Warren's post in full:

I was teaching Carnival Cruise Lines to my first-year contract students. This is the Supreme Court opinion holding that a forum selection clause in the fine print on the back of a cruise line ticket binds a customer who bought the ticket near her home in Washington state and was injured on the cruise to travel to Flordia to sue. As we discussed the opinion, a student explained that the clause is good for everyone (except the woman who was injured) because, quoting the Court, "passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the form of reduced fares reflecting the savings that the cruise line enjoys."

Is this a question of fact or of law?  "Fact, of course," said the students. So I asked how this fact could be proven. What followed was a wonderful, multi-student discussion of maginal pricing, elasticity of demand, etc. Even as I pressed on the presumptions underlying the deductive model--fully informed parties, competitive markets, low transactions costs, etc--the students hung on to their model. They were smart and sophisticated in their arguments, but the bottom line was that they "proved" the fact of lower costs deductively by appling what they saw as immutable economic principles.

When I pointed out that this lovely conversation was all about theory and not fact, they were resistant. So I reversed and asked what the plaintiff might offer as proof to show that the justice was wrong. Much silence followed.

I finally filled in the blanks, suggesting some empirical tests--ticket prices for companies that do/don't use such clauses, changes in pricing before/after such clauses are used, evaulation of whether cost is large enough to be reflected in price, etc. They got the idea and had some good suggestions

What struck me, and the reason I bring it to this group, is how these very bright students seemed to believe that deductive logic produced a "fact" that they could not or would not challenge. Perhaps my class was abberational, but it made me wonder about how we are educating our students, both before and during law school. Is it all about deduction, with nothing left over for reality?

I speculate that my contracts class includes several future law teachers and future policy makers, many future community leaders and a lot of future voters. If the deductive logic of economics is all-controling, then empirical work--indeed, empirical questions--will always remain at the intellectual and political margins.

The class reminded me that empirical scholarship is important, but empirical teaching may be more important. These students are our future.

To begin with, I'm not sure about the precise inquiry the Professor was engaged in.  It might be useful to present some context -- the full paragraph that included Professor Warren's quote, from Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 593-94 (1991) (citations omitted):

In evaluating the reasonableness of the forum clause at issue in this case, we must refine the analysis of The Bremen to account for the realities of form passage contracts. As an initial matter, we do not adopt the Court of Appeals' determination that a nonnegotiated forum-selection clause in a form ticket contract is never enforceable simply because it is not the subject of bargaining. Including a reasonable forum clause in a form contract of this kind well may be permissible for several reasons: First, a cruise line has a special interest in limiting the fora in which it potentially could be subject to suit. Because a cruise ship typically carries passengers from many locales, it is not unlikely that a mishap on a cruise could subject the cruise line to litigation in several different fora. Additionally, a clause establishing ex ante the forum for dispute resolution has the salutary effect of dispelling any confusion about where suits arising from the contract must be brought and defended, sparing litigants the time and expense of pretrial motions to determine the correct forum and conserving judicial resources that otherwise would be devoted to deciding those motions. Finally, it stands to reason that passengers who purchase tickets containing a forum clause like that at issue in this case benefit in the form of reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be sued.

As this paragraph makes clear, Justice Blackmum was responding to the Court of Appeals conclusion that such clauses should never be enforced because they’re not negotiated. In other words, the availability of a market means that direct negotiation should not be an absolute prerequisite to enforcement.

This paragraph contains Justice Blackmun's reasoning against the Court of Appeals' conclusion.  Recall that, according to Professor Warren's report, she asked the students whether this was "fact" or "law."  Given only that choice, the students responded that it was "fact," which seems logical since it was reasoning in support of a legal conclusion, and not the legal conclusion itself. 

But then Professor Warren appears, again from her post, to have changed the question:  was it "fact" or "theory."  That's a different and somewhat more difficult question.  She was concerned that the students "resisted."  But even as an aged law professor, I'm not familiar with this distinction, so it's not surprising the students were confused. Perhaps the professor means to distinguish between something that does, and something that does not, require additional proof.  Is she referring to the distinctions discussed in Imre Lakatos' Proofs and Refutations?  Or what? 

Professor Warren clearly wants to contrast some correct method of reasoning with the erroneous "deductions" of the economic model.  But it's not clear who exactly is engaging in this erroneous reasoning.  Not Justice Blackmun, who as just noted was only suggesting reasons why bargaining should not be an absolute prerequisite to enforcement.  Not the students, at least from Professor Warren's description, because they were apparently making the fact-law distinction, and seemed quite willing to recognize the qualifications necessary to make the leap to economic proof of some sort.

Then Professor Warren discusses what kind of "proof" would show the Justice was "wrong."  But the kinds of tests she proposes would show no such thing. First, to repeat, all that Blackmun was saying is that negotiations should not be required to validate a contract because markets work. It's true that he infelicitously offered his statement without that explicit qualification, but the qualification was inherent in the paragraph. 

Moreover, even accepting Blackmun's statement as a conclusion, or hypothesis, the tests Professor Warren offered could do no more than provide evidence consistent with the null hypothesis that forum selection clauses do not lower prices.  In order to make the leap to "proof" that the Justice was "wrong" we have to accept the theory that this evidence should be enough.  For example, what level of significance should we require?  Who bears the burden of proof?

The fact is that law and economics types would not accept the sort of statement that Blackmun made as anything more than a falsifiable hypothesis, and possibly even as less than that. An important advantage of law and economics is that it provides an orderly and careful way to reason through these issues.  The whole point is to avoid normative conclusions that are not supported by the evidence. 

Having said all that, I agree with Professor Warren's bottom line conclusions:  we must be concerned about the views of “future law teachers and future policy makers, many future community leaders and a lot of future voters” in a class at Harvard Law (and I can understand why she's worried that they were not appalled by the Court's market oriented approach in Carnival Cruise); "empirical teaching"  is important; and we must recognize the potential dangers of empirical teaching -- that it offers opportunities to leverage facts into normative conclusions. 

Comments

[M. Hodak]

Full disclosure: I didn't read every last word of Larry's treatise above, but I'll offer my take with perhaps incomplete information:

I'm amazingly gratified that the law students apparently, uniformly understood economic logic well enough to make that stand. One of my pet peeves is the utter lack of econ requirement in our schools, the effect of which is clearly seen in a poll last year where over 90% of people believed that the rise in gas prices was the result of Big Oil price rigging. I'm sure that Larry makes a good point about the fine distinctions that Ms. Warren was supposedly offering in her complaint, but I'm just thrilled that the starting point is the "all-controlling...deductive logic of economics."

Maybe the future of this country is not so bleak, after all. Unless the only people who understand economic logic are going into law. Then, we're screwed.

[Robert Schwartz]

"I can understand why she's worried that they were not appalled by the Court's market oriented approach in Carnival Cruise"

I can't. What's wrong with a market oriented approach? That it is not sufficently socialist?

I know why Warren didn't like it. She is a hard core lefty. Why is it a problem for you?

[Larry Ribstein]

That was obviously my point.

[Kate Litvak]

Hilarious. Reminds me of people who insist that "evolution is a theory, not a fact." As if “theory” is something akin to "fantasy" or "speculation".

[anonymous 1L]

I was in Professor Warren's class this fall; her post refers to an exchange we had in class one day. I grant that this particular example of a judge deciding a matter of fact through deduction is not the strongest or clearest instance. she only spent so much time on the instance in Carnival because it was the first time we saw the phenomenon in the semester.

If you want a better example, which she also did in class, see Alaska Packers v. Domenico. In that case, some fishermen were paid primarily by the fish (i.e. $2 per fish or something), and the fisherman argued that the company which had hired them gave them poor-quality nets to use. Without inquiring into the facts, the judge essentially said "but that makes no sense; of course the company wants to catch as many fish as possible!" A little squib in our casebook pointed out that, in those days, the canneries each had a maximum quantity of salmon that they wanted to sell, and any fish above that quantity were thrown out, but they still would have to pay the fisherman for catching them. Thus, there is a very good explanation for why the company might provide sub-standard nets (trying to hit that ceiling exactly). The court ruled out a factual issue by deduction.

How about that one?