Ideoblog

Is there life at the AALS?

Steve Bainbridge says he "can count the number of "informative and engaging" [AALS] panels I've seen on the fingers of one hand."

I don't remember a lot great AALS panels either, but then I really don't remember much of anything. But I think I recall some interesting sessions where the stars presented short versions of important work. The AALS has become a victim of the profession's evolution and integration with the rest of academia. All those real academic conferences and workshops don't leave a lot of intellectual energy for the AALS.

But, hey, I'll be there:

• Friday at 9:00 chairing a panel on bankruptcy and bailouts at the Federalist Society.
• Friday at 4:00 talking about the law and economics of conflicts of law, which of course means The Law Market.
• Saturday at 9:00 talking about "managerial tort liability" at the Agency/Partnership section.

So, yes, there will be some "informative and engaging" AALS panels.

Hope to see you in NoLa.

Terrorism and the right to fly

Holman Jenkins says in today's WSJ:

Contrary to the nugget thinkers who see every Umar Farouk as a security failure, the fact that terrorists are reduced to smuggling explosive materials on-board in their underwear, without the casings and detonators that make for an efficient explosion, is proof of our success in deterring them from even trying to board with a capable bomb. Amazingly, our checked-baggage screening, as imperfect as it's known to be, also appears to pose an unacceptable risk of detection.

Silly are the outrage and accusations simply because Mr. Abdulmutallab was on a list (along with 550,000 others about whom suspicions have been raised) without keeping him off a flight. Critics really seem to be saying that, politically, security personnel can't maintain any lists that are bigger or different from the no-fly list—which is ridiculous.

Let's be realistic—efficient counterterrorism requires the setting of priorities. There has to be more than one list. Yet the reaction to Farouk Abdulmutallab may soon mean there will be one list and eventually everybody will be on it and nobody will be able to fly.

Jenkins poses the right questions: what is "efficient counterterrorism" and how do we know when we've got it.

He's partly right that the fact that Farouk set his pants on fire on an airplane is not proof that we don't have efficient counterterrorism, and indeed is an indication that part of our screening process is working. He's also right that not every suspect should land on a no-fly list and that we need to have two lists. But I would have preferred that he make it clear that Abdulmutallab should have been on the no-fly list. Remember that he was not just somebody who fit a general suspect profile, but somebody who was suspected of being dangerous by his own father.

Whether or not I'm right about this specific person, there's a much more important principle at stake: what is the proper balance between the public's safety and individuals' right to fly? We are willing to inflict a lot of suffering on the general flying public for what seem to be minor increases in safety. Exactly how much have we gained by all those plastic bag rules and taking off our shoes that forces terrorists to sew explosives into their underwear and go to the bathroom to get it out? What do we gain by keeping people out of the bathrooms for the last hour of flight when the terrorists can get ready in the middle of the flight? Should we keep passengers out of the bathroom for the whole flight? Should we prevent people from covering themselves with blankets? We may not be telling ordinary people that they can't fly, but we're certainly making flying a much less viable form of transportation.

Meanwhile, liberal use of the no-fly list does accomplish something. There is only a limited supply of people who look, sound and act like everybody else and yet are willing to blow themselves up on planes. Often these people identify themselves by their prior history. Culling these people out further reduces the supply. At the same time, announcing that they will be allowed to fly sends an important signal to terrorist organizations: next time you know that you can use somebody like Abdulmutallab, only with a little more training. Next time he might get it right.

Putting Abdulmutallab on a no-fly list might have turned out to be unfair to him. Maybe he was just having a spat with his vindictive father. But at some point, as long as authorities are making good faith, fact-based determinations, the public's interest in safe and tolerable flying has got to be weighed against individuals' right to fly.

Update: Steve Bainbridge comments that "I don't understand Larry to be arguing for 'profiling.' Racial or religious profiling is morally wrong and likely to be counterproductive by radicalizing those subjected to it." No, I'm not suggesting profiling, and join Steve's condemnation. My point, as he says, "is that the government seems to find it easier to make flying intolerable for everyone instead of getting its intelligence act together."

The death of satire

One of the saddest things about recent events is that the very funny Dave Barry has been reduced from an over-the-top satirist to a straight news reporter. Consider his year-end roundup:

the giant insurance company AIG, which received $170 billion in taxpayer bailouts and posted a $61 billion loss, is paying executive bonuses totaling hundreds of millions of dollars. This news shocks and outrages Obama and members of Congress, who happen to be the very people who passed the legislation that authorized both the bailouts and the bonuses, but of course they did that during a crisis and thus had no time to find out what the hell they were voting for. To correct this situation, some congresspersons propose a 90 percent tax on the bonuses, followed by beheadings, followed by the passage of tough new financial legislation that nobody in Congress will read or understand.

In other economic news, the chief executive of GM resigns under pressure from the White House, which notes that it inherited the automobile crisis from the Bush administration. GM is now essentially a subsidiary of the federal government, which promises to use its legendary business and marketing savvy to get the crippled auto giant back on its feet, starting with an exciting new lineup of cars such as the Chevrolet Consensus, a "green" car featuring a compressed-soybean chassis, the world's first engine powered entirely by dew, and a 14,500-page owner's manual, accompanied by nearly 6,000 pages of amendments.

Businessman Bernard Madoff pleads guilty to bilking investors out of $65 billion in a Ponzi scheme, forcing the Obama administration to withdraw his nomination for secretary of commerce.

Barry unfortunately went to print even before Janet Napolitano, secretary of "homeland security" announced after a year in which there were more terrorist incidents and thwarted plots in the U.S. than any year since 2001, and after an incident in which a man suspected of being a terrorist by his own father was allowed to fly a plane like an ordinary passenger, and almost succeeded in destroying an airplane but for a faulty detonator and a heroic fellow passenger, and was then indicted like an ordinary criminal and protected from an interrogation that might have saved some other passenger plane from destruction, that "one thing I'd like to point out is that the system worked."

The former satirist Dave Barry could not even hope to top that.

Lawyers and horse-teeth floaters

The WSJ writes about folks "who pry open a horse's mouth, grab hold of the tongue, and commence sawing away at the back molars with a power tool."

Texas and other states want to license them. The floaters are suing, claiming that this would violate a Texas constitutional provision that "no citizen of this state shall be deprived of life, liberty, property, privileges or immunities, or in any manner disfranchised, except by the due course of the law of the land." They're getting help from the Institute for Justice.

In Texas alone, the institute is fighting on behalf of eyebrow threaders (who use cotton thread to remove unwanted facial hair), wig servicers (who fit and style fake locks), equine massage therapists, interior designers, locksmiths and karate instructors. The institute's clients argue that the state has imposed costly and unnecessary requirements for training or licensing. Fifty years ago, just 3% of American workers were regulated or licensed by government agencies, according to the Institute for Justice. Today, it's 35%. The lawyers describe the floater flap as the leading edge of a slippery slope: If folks who file horse teeth must be licensed, who's next? Bull castrators? Cattle dehorners? Computer technicians? The group lost a teeth-floating suit in Minnesota last year but remains undaunted.

A few months ago I discussed another IJ suit on behalf of tour guides. Seems "you need a license to talk about history for money in Philly (also NYC and Washington)."

Then I asked, "[s]o, now let's talk about legal services.  What kind of talking about law should the government regulate?"

Glad you asked.

Welcome to single payer

As I said recently:

Assuming the bill becomes law and survives challenge . . .I wonder what private companies would want to remain in the health insurance industry. Sort of makes all the debate about the "public option" look kind of quaint.

Here's the New Yorker's James Surowiecki:

Americans, and American politicians, have decided that people should have guaranteed access to insurance, and that they shouldn't have to worry about losing it just because they get laid off or fall ill. * * *

Congress's support for community rating and universal access doesn't fit well with its insistence that health-care reform must rely on private insurance companies. After all, measuring risk, and setting prices accordingly, is the raison d'être of a health-insurance company. * * *

The truth is that we could do just fine without them: an insurance system with community rating and universal access has no need of private insurers. In fact, the U.S. already has such a system: it's known as Medicare. In most areas, it's true, private companies do a better job of managing costs and providing services than the government does. But not when it comes to health care: over the past decade, Medicare's spending has risen more slowly than that of private insurers. A single-payer system also has the advantage of spreading risk across the biggest patient pool possible. So if you want to make health insurance available to everyone, regardless of risk, the most sensible solution would be to expand Medicare to everyone. * * *

[B]y writing community rating and universal access into law, Congress will effectively be committing itself to the idea that health care, regardless of risk, is a right.

I fundamentally disagree with Surowiecki's conclusions. Medicare "works" by price controls, and price controls don't work. But at least he's honest, which is more than we're getting from our Congress and President.

Again, why fly?

Steve Bainbridge:

In a couple of weeks, many of my fellow law professors will be traveling to New Orleans for the annual meeting of the Association of American Law Schools. I bailed out on that trip a while back, due to the AALS' asinine registration fee rules. The announcement of the moronic new air travel security precautions, however, makes me even more glad I'm not going.

More from Steve on The Stupid Agency here and here.

There is another way – and that's how I'm going to New Orleans in two weeks.

Christmas movies

I'll be taking a break over the next few days. Nobody should be reading blawgs now anyway. You should be watching some movies!

What to watch for Christmas? Well, I'm watching Withnail & I to celebrate total holiday dissolution. It is decidedly not a Christmas movie.

But suppose you want to see a Christmas movie? What's the greatest Christmas movie?

That's simple – there aren't any great Christmas movies. As I understand Christmas (as an outsider to the religion), the point is uplift. There's nothing wrong with uplift, and uplifting movies can be very entertaining. But I don't see how they can have that ultimate ambiguity that is a necessary condition for greatness.

If you must watch a "Christmas movie," then go for Die Hard. Well, at least the action occurred at a Christmas party gone bad. My favorite lines:

Hans Gruber (the villain, played by Alan Rickman): This time John Wayne does not walk off into the sunset with Grace Kelly.

John McClane (Bruce Willis): That was Gary Cooper, asshole.

I like that because I remember when I saw the movie for the first time I came out with the line about the same time as Bruce Willis. A hazard of spending your life in movies.

I'll be back before New Year's.

Don’t eat in Chinese restaurants

Tyler Cowen provides an economic rationale based partly on product market discipline – the more "mainstream interest" in a cuisine, the more likelihood of "sell-out behavior on the part of the restaurant." So, in the U.S., Korean, Vietnamese and Nepalese are safe, Mexican risky and "[t]he most dangerous cuisine to try, in the United States at least, is Chinese.  Your best working assumption is that the restaurant simply isn't any good."

This suggests a significant market in information concerning the riskier cuisines – which Tyler provides – including a fair number of Chinese restaurants.

Wouldn't it follow that a Chinese restaurant with an entirely Mandarin or Cantonese menu, or one that has few American customers, is ok? But then does it go downhill when the Americans (seeing that they are rare) start flocking to it. Will the restaurants deliberately drive the Americans away (surly service, refusal to translate) because that market is too fickle, preferring to focus on their more reliable Chinese clientele? Or will they stick to their ethnic guns out of pride?

I wonder what else this applies to. For example, are art house foreign films likely to be good, but heavily advertised Hollywood films risky? (One might say that the studio's investment in promotion bonds its assertion of quality, but in fact it probably just represents the studio's hit-or-miss judgment that the unwashed masses will like it.) What about television shows on obscure cable networks? Off-off-off Broadway shows? But not in Dubuque?

A Christmas letter

We all get them, and we appreciate the competitive spirit that pushes their writers to top every previous one.   With that in mind, I present to you my colleague Wayne LaFave's Christmas letter. Beat this!

Contracting for termination of an LLC

Peter Mahler writes about Lola Cars International, Ltd. v. Krohn Racing, LLC, in which Delaware VC Noble, among other things, ordered dissolution of an LLC under §18-802 of the Delaware LLC Act on the ground that it was "not reasonably practicable to carry on the business in conformity with" the LLC operating agreement.   I'll leave some of the details to his blog post and focus on the main issue – when does and should the court order dissolution for deadlock when the agreement apparently provides for an alternative?

Applying the dissolution standard in Fisk Ventures, LLC v. Segal, 2009 WL 73957 (Del Ch. Jan. 13, 2009) (which I discussed approvingly here) the court held that the members were deadlocked and it was not reasonably practicable to continue. But did the operating agreement provide a mechanism to resolve the deadlock? There was a voluntary buyout, but as in Fisk, the court would not force exercise contrary to the agreement to resolve the deadlock.

However, unlike Fisk, the operating agreement also authorized either member to terminate the agreement after a breach by the other member. The parties were sharing control under the operating agreement although one had a 51% ownership interest. Accordingly, the minority owner's (Krohn's) termination of the agreement evidently would have would have triggered the Delaware default provisions and therefore turned control over to the majority owner.

As Mr. Mahler points out, "the provision is useless to Krohn for the obvious reason that it would not want to gift sole control to LCI by invoking termination based on LCI's breach.  No one should be surprised that this venture ended up in Delaware Chancery Court." Thus, as Mr. Mahler observes, "there are dysfunctional incentives built into the bargain that render it extremely short-sighted." But the parties did have a deal that seemingly precludes dissolution under the Fisk standard, though the case isn't clear exactly what the contractual consequences of termination were supposed to be.

Despite this alternative remedy, the court refused to dismiss the complaint for dissolution because it held that the fact that it provided for alternatives to dissolution did not constitute a contract around the judicial dissolution remedy in § 18-802. The court reasoned that

Each of the termination provisions contained in the Operating Agreement is permissive and may be triggered at a member's election. Moreover, the Operating Agreement nowhere requires that a member terminate the Operating Agreement solely in accord with its stipulated termination provisions. Thus, the Court cannot conclude that these terms are exclusive. It simply cannot be true that a number of nonexclusive, permissive termination clauses in the Operating Agreement can preclude judicial dissolution as provided for in the Act (footnote omitted).

The court also dismissed plaintiff's second complaint for termination under the agreement, but without prejudice to permit Lola to refile alleging that it had met the agreement's notice provisions. Plaintiff also has a derivative suit against Krohn alleging mismanagement by the venture's CEO, who was Krohn's manager.

What should happen now? Specifically, should the court let the termination provision under the agreement play out, or should it dissolve for oppression?

As I pointed out in my post on Fisk,

The problem with the [oppression] remedy is that it may be hard to square with the contract. After all, the whole reason for the remedy is that the contract does not provide for exit, yet the court is providing one. One might say that the parties in effect adopted the statutory default rules, including the oppression remedy. But it still may not be clear how the parties wanted those defaults to fit with their agreement. Also, if the oppression remedy is mandatory, did they really have a choice?

I observed that Chancellor Chandler's opinion in Fisk "provides the best way yet out of this conundrum" because the only alternative there would have been to force exercise of the contractual put, contrary to the agreement. The court rightly refused to "substitute its business judgment for that of Fisk Ventures simply because Segal believes that will be in his best interest."

In the present case, however, the court didn't have to force anybody to do anything – the plaintiff voluntarily exercised its termination right under the agreement.

The main question here is whether the court should hold that the oppression remedy was waived. This invokes another case, R & R Capital. As I have discussed, the court there properly enforced a clear waiver of judicial dissolution. There was no such explicit waiver in the Lola agreement – simply an agreement specifying alternative remedies. But overall, the agreement arguably did express the parties' intent as to how to dissolve the relationship.

Moreover, the statute calls for judicial dissolution "when it is "not reasonably practicable to carry on the business in conformity with a limited liability company agreement." or similar language. This language has the advantage of inviting the court to analyze the parties' expectations under the agreement. In my discussion of these issues in Rise of the Uncorporation, 180-82, I emphasize the dissolution remedy's "connection with the agreement." These expectations arguably are embodied in the agreement's termination provision. This provision may not be ideal, but it has the virtue of being what the parties agreed to.

Finally, even enforcing the termination provision will not necessarily get rid of the derivative suit. These suits raise other problems in very closely held LLCs, as I discuss here.

The bottom line is that this case indicates that the legal drafting "technology" in LLCs still has not been perfected. This leaves the courts to struggle through the relationship between the agreement and the default provisions of the statute. Perhaps the best thing that can be said for the way things stand in Lola is that it encourages parties to LLCs to get their act together in the agreement or face watching their expectations go through a statutory wringer.