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Emily Strauss at Duke has posted a fascinating new paper, Crisis Construction in Contract Boilerplate (Law & Contemp. Probs., forthcoming).  She examines how judges interpreted the boilerplate in RMBS contracts during the financial crisis, and finds that they relaxed their reading of certain provisions in order to enable injured investors to recover their losses, and then reverted to more strict readings when the crisis had passed.

Specifically, the RMBS contracts provided that the “sole remedy” available for loans that did not conform with quality specifications was for trust sponsors to repurchase the noncompliant loan.  Of course, during the crisis, investors alleged that huge percentages of loans backing the trusts were noncompliant, and a loan-by-loan repurchase requirement would have been, as a practical matter, impossible to pursue.  Strauss finds that judges interpreted the clause to permit investors to use sampling to identify noncompliant loans and claim damages, but only in the years following the crisis.  By 2015, they reverted to a stricter reading of the contracts.  She cites this an example of “crisis construction,” namely, the way that courts alter their readings of contracts during times of calamity in order to further some economic policy.  (Strauss discusses that phenomenon in her…

Chapter three in Mass Tort Deals by Elizabeth Chamblee Burch tackles repeat player dynamics in aggregate litigation.  If you’re interested in earlier posts on it, they’re available here and here.  

My biggest takeaway is that for the attorneys in this space, if they want to be in the room where it all goes down, they’ve got to bro down socialize and remain well-thought of by their well-connected colleagues. A lawyer’s ability to make a living in the space and generate results for clients seems to depend on relationships with other key players. So much depends on being well-connected:

  • the ability to get a leadership appointment;
  • the ability to get some of the work flow;
  • the ability to get a decent fee allocation;
  • the ability to get a settlement favoring your “inventory” of clients; and
  • the ability to get other attorneys to back any play you make.

Functionally, this means that attorneys face intense incentives to get along with other attorneys in the space.  This probably does not produce solid strategic behavior because attorneys may be more likely to simply agree with well-connected leaders than to press for things that might rock the boat a bit but generate better outcomes…

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The BLPB is abuzz with blockchain news this weekend!  Past posts have also addressed this topic (here, here, here, and here for a sampling). 

I’m excited to highlight the publication of the book: FinTech: Law and Regulation, edited by Jelena Madir.  Madir is the Director, Chief Counsel at the European Bank for Reconstruction and Development, in addition to having been an outstanding editor of this book, and a delight to work with (thanks, Jelena!).  I’m grateful for the opportunity to contribute to this important work, and thankful to Wharton Professor Kevin Werbach for inviting me to coauthor the chapter: Blockchain in Financial Services (thanks, Kevin!).  Werbach also recently published the highly-rated: The Blockchain and the New Architecture of Trust.  Two great book recommendations for BLPB readers!

A few weeks ago, we had an interesting opinion out of the 10th Circuit interpreting the scope of primary liability under Section 10(b) in the wake of the Supreme Court’s Lorenzo v. SEC decision.  The short version is that in Malouf v. SEC, the Tenth Circuit found that scheme liability under Section 10(b) (and parallel provisions of Section 17(a) and the Investment Advisers Act) may be incurred when a defendant knowingly fails to correct someone else’s false statement.  But matters are actually a bit more complicated.

More under the jump; warning, this post assumes basic familiarity with Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135 (2011) and Lorenzo.  If you want that backstory, see this post on Janus and the Lorenzo cert grant and my discussion of the actual Lorenzo decision.

Continuing to work my way through Mass Tort Deals by Elizabeth Chamblee Burch.  If you’re interested in the earlier post on it–it’s available here.  

The chapter is titled “Quid Pro Quo Arrangements” for good reason.  I finished the chapter with the sense that attorneys in the space negotiate with defendants to bargain away plaintiff rights in exchange for things the plaintiffs’ attorneys want for themselves and the defense lawyers want for their clients.  As someone who also teaches professional responsibility, I struggled to understand how many practices and agreements could ever be consistent with the ethics rules.

Take the settlement-recommendation provisions.  Lawyers enter into settlement agreements in these cases where they agree that they will recommend to every client in their “inventory” that they accept the settlement.  In many instances, they also put in writing that they will flat out drop clients and withdraw from representation if the clients do not agree to settle.  The ethics rules make whether to take a settlement offer a client decision.  And these “attorney-recommendation” provisions are common.  84% of the settlement agreements in the dataset have them.  53% of the time they also have the withdrawal provisions. 

What do you do if you…

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I want to wish all BLPB readers a wonderful Labor Day weekend holiday!  Enjoy!

I’ll also make a brief plug for the 2019 Annual Meeting of the Southeastern Academy of Legal Studies in Business (early bird deadline is September 15) in Montgomery, Alabama, November 7-9.  It will be a great conference – packed full of interesting presentations, and opportunities to meet/reconnect with business law scholars writing on diverse topics.  More information can be found here: SEALSB 2019.  It’s an event that will always be near and dear to my heart as it ultimately led me to writing for this blog!  Hope to see many of you in Montgomery in November!   

Delaware Chancery court is apparently being dragged into the presidential race, via a new attack ad against Joe Biden.  As reported by Shane Goldmacher, well:

There is so much to talk about here.

First, there’s the fact that the advertisement is misleading; Biden and Warren were apparently sparring about bankruptcy courts, not Chancery.

Second, there’s the fact that Biden – as a federal legislator – has no authority over Delaware Chancery. 

Third, there’s the fact that while I won’t dispute that Delaware courts are too white, Delaware Chancery, at least, now has 3 women and 4 men.  I’d be delighted to see more women on Chancery – and certainly the Delaware Supreme Court – but criticizing Chancery as too male is so last year.

Fourth, there’s the shifting numbers about the size of the ad buy; original reports said $500K, then the number was upped to $1 million, with print as…

If you’re interested in mass litigation–either through class actions or multi-district litigation–you undoubtedly know that the area can be overwhelmingly and mind-numbingly complex.  Mass Tort Deals by Elizabeth Chamblee Burch cuts through with simple language and accessible stories to help frame the key policy issues.  So far, I’m through the first chapter and have some thoughts.

The book frames the key issues well–how do we balance competing interests and resolve mass tort disputes.  And there are plenty of interests sitting in tension with each other:  judicial economy, efficiency, judicial desires for novelty and importance, plaintiffs’ counsel fees, lead plaintiff counsel fees, defense interests in global resolution, and more.  How we set the procedures up for these cases effectively controls how these cases will be resolved.  If judges lock less cooperative litigants out and limit access to discovery or other information, it essentially forces them to come to the table and play ball with the court’s chosen lawyers for a case.

From someone who has studied the class action context closely, one of the most surprising things to me about norms in the non-class mass tort space has been that the leadership arrangements seemingly operate as a lawless scrum.  There are…