Category Archives: Courts

Yes, Virginia

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…the law applies to the Federal government, too.  At least to the SEC, as the Supreme Court has ruled.  In a case involving alleged special treatment for a mutual fund advisor—the fund supposedly allowed one investor to engage in frequent trading of the fund in violation of a rule that applied to all of the fund’s other investors—the SEC claimed it could alter, on its own recognizance, the statute of limitations for bringing an action against the trader.

As The Wall Street Journal described the matter,

The SEC faced a five-year statute of limitations on bringing a case.  The agency alleged the market timing took place between 1999 and 2002, but it didn’t bring a complaint until 2008.  The defendants, Marc J Gabelli and Bruce Alpert, argued the agency’s five-year clock ran from the time of the alleged offense, but the SEC said the clock should have started later, in late 2003, when it says it discovered the conduct.

The Supremes waved the BS flag at that claim.  Chief Justice John Roberts, writing for a unanimous Court, said

This Court, how­ever, has never applied the discovery rule in this context, where the plaintiff is not a defrauded victim seeking recompense, but is instead the Government bringing an enforcement action for civil penalties.

Roberts expanded on his statement:

There are good reasons why the fraud discovery rule has not been extended to Government civil penalty enforcement actions.  The dis­covery rule exists in part to preserve the claims of parties who have no reason to suspect fraud.  The Government is a different kind of plaintiff.  The SEC’s very purpose, for example, is to root out fraud, and it has many legal tools at hand to aid in that pursuit. The Gov­ernment in these types of cases also seeks a different type of relief.  The discovery rule helps to ensure that the injured receive recom­pense, but civil penalties go beyond compensation, are intended to punish, and label defendants wrongdoers.  Emphasizing the im­portance of time limits on penalty actions, Chief Justice Marshall admonished that it “would be utterly repugnant to the genius of our laws” if actions for penalties could “be brought at any distance of time.”

The opinion can be read here.

Score One for the Other Part of the 1st Amendment

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The Wall Street Journal’s Law Blog describes a victory for religious freedom.  In a case about which I first wrote just after its inception, a gang known as Freedom From Religion Foundation sued the village of Warren, MI, for having the temerity to put up a Christmas display without permitting FFRF to put up a sign next to it announcing that religion is “myth and superstition that hardens hearts and enslaves minds.”

First, Mayor James Fouts told them to take a hike, followed by their suit:

If you requested permission to put up a sandwich board saying that there is no Santa Claus, you would be met with the same response.  Santa Claus lives in the minds and hearts of many millions of children.  The belief of God and religion lives in the hearts and minds of hundreds of millions of people and is as much a part of the fabric of America, as the belief in democracy and freedom….

Your non-religion is not a recognized religion.  Please don’t hide behind the cloak of non-religion as an excuse to abuse other recognized religions.

Then a Michigan district court told these folks to take a hike.

Then the 6th Circuit told this…crowd…to take a hike.  On the matter of Warren’s alleged favoring of the religious over the secular, they had this:

That is not true even on its own terms.  All but one of the objects in the holiday display are nonreligious.  Ribbons, ornaments, reindeer, a lighted tree, wreaths, snowmen, a mailbox for Santa, elves, wrapped gift boxes, nutcrackers, poinsettias, candy canes, a “Winter Welcome” sign—all of them, all that is but the nativity scene—are secular…

A city does not run afoul of the Establishment Clause by including a creche in a holiday display that contains secular and religious symbols.

On the matter of the “Winter Welcome” greeting in particular, the 6th expanded with this [emphasis added]:

When one neighbor greets another in mid-December with “Happy Holidays,” it is the rare person who hears “Happy Holy Days.”  What was once the most religious of invocations has become one of the most faith-neutral, even secular.  One indeed can fairly wonder who has co-opted whom over time with these displays and words.  But that is a matter for another day.

On the gang’s bellyache that Fouts’ letter was itself some sort of cynical violation, the 6th had this:

These are not the words of someone trying to establish any one religion or religion in general; they are the words of someone trying to explain the common sense risks of disparaging faith-based and secular symbols, whether a creche or a Santa, alike….

It may be true that the Mayor misapprehended the Religion Clauses when he implied that atheists receive no protection from them by saying that the Foundation’s “non-religion” was “not a recognized religion.”  In this respect, the Mayor, apparently untrained as a lawyer, may not have missed his calling….  But this defense of his actions, premised on a misreading of precedent, does not transform his actions or the City’s display into an establishment.

On the gang’s crying about their free speech rights, here’s the 6th, again:

[Warren] could choose to add a Santa.  And it could choose to deny a sign saying, “There is no Santa.”  It could choose to incorporate a message about Ramadan.  And it could choose to deny a message disparaging any one religion or religion in general.  Just as Congress’s creation of a National Day of Prayer on the first Thursday of May does not compel the legislature to recognize a National Day of Non-Prayer each year, so too the City of Warren could opt to have a holiday display without a Winter Solstice sign.  Such holiday displays are quintessentially government speech….

And the Foundation, like everyone else, is free to urge the City to add or remove symbols from the display each year or to try to elect new officials to run the City—the customary answer to permissible government speech and the customary answer to policies with which citizens disagree.

FFRF Co-President Annie Laurie Gaylor responded to her loss without any sense of irony:

Apparently we are a Christian nation, and cities may prefer religion over non-religion[.]

On the first, well, duh.  On the second, she needs to ask her lawyer to read the 6th‘s opinion to her.  It’s not what they said.  Her lawyer can find that opinion can be found here.

Thus we see the benefit of not taking the easy way out—the coward’s way out—and acceding to the demands of such anti-freedom fighters as these as soon as the latter threaten.

These lose—as all bullies lose—when faced with forthright and just opposition.

Facing down bullies is expensive, certainly.  However that expense pales beside the expense of meekly surrendering freedoms for the demanding.  Once you pay the Danegelt, you never get rid of the Dane.

Who’s Responsible?

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The company who made and sold the product, or the company that bought the product from a third party which actually did the development?

That’s a somewhat convoluted statement of the question, isn’t it?  Maybe that’s what confused the Alabama Supreme Court.

This body of judges has decided that brand-name drug makers can be held liable for injuries caused by the generic versions of their products.  The particular case has a plaintiff buying a generic drug—a copy of a patented drug—developed and originally manufactured by Wyeth.  Pfizer Inc later acquired Wyeth, and Schwarz Pharma Inc also acquired rights to the drug.  The plaintiff sued, among others, Pfizer and Schwarz Pharma, and the Alabama Supremes let the suit against these two go forward.

Imagine that.  They didn’t make the product, but they’re responsible for anything that goes wrong.

As Pfizer notes,

Alabama’s decision would allow generic-drug makers “to reap the profits of drug sales while leaving brand manufacturers with the liability” and violate the basic legal tenet that a manufacturer is liable only for its products[.]

Chris Hood, plaintiff’s lawyer said, without a particle of irony,

The Alabama Supreme Court is the first and only supreme court of any state to adopt the theory of liability we advocate.  It correctly identified and applied basic tort principles overlooked by numerous lower courts which rejected similar theories.

A Blow for Responsibility

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The Wall Street Journal described one.

The court of the European Free Trade Association on Monday said Iceland didn’t breach European Economic Area directives on deposit guarantees by not compensating UK and Dutch depositors in Landsbanki’s online savings accounts, known as Icesave accounts.

The beef was this:

The EFTA Surveillance Authority, or ESA, which brought the case against Iceland, had claimed that Iceland should have made sure UK and Dutch savers who lost money on Icesave got repaid from deposit insurance.

UK and Dutch authorities compensated their own savers.

The EFTA ruled that EEA directives don’t

lay down an obligation on the State and its authorities to ensure compensation if a deposit guarantee scheme is unable to cope with its obligations in the event of a systemic crisis[.]

And that’s entirely appropriate.  A nation’s taxpayers should not be held liable for the failure of foreigners’ investment decisions, whether those failures stem from poor judgment, bad luck, or anything else.  A nation’s taxpayers should not be held liable for the failure of its own citizens’ investment decisions, come to that.

Investing is a risk, and it’s the degree of that risk that prices the return on the investment.  To destroy that pricing mechanism is both immoral and fiscally unsound.

Charles Duxbury and Charles Forelle do put up an interesting question in their article at the link above.

If deposit-guarantee programs don’t protect everyone, are they really effective?  That issue was raised by the European Commission, the EU’s executive arm, which joined the case against Iceland.  European deposit-guarantee programs, if they have any funds at all, hold a tiny fraction of the insured deposits in the system.

The interest, though, is in the lack of understanding of the nature of insurance and of the distinction between insurance and welfare that the existence of the question exposes.  Insurance is a risk-transfer for a fee proposition, and nothing else.  The insurer agrees to assume a part of the risk surrounding an event (a decision to place funds with an external agency, in this case), and in return for that assumption, the insured pays the insurer a fee commensurate with the risk being assumed: how much of the value is to be repaid in the event of a loss and the likelihood of that loss.  Of course, the fee to be paid varies with that risk.  Want more protection—want to be made completely whole in the event of a loss?  Pay a higher fee.

Welfare is the function of dinging taxpayers to make whole an individual who suffered a loss, regardless of the amount placed with an external agency (in this case) and regardless of the likelihood of any such loss.  Welfare in this sort of case is nothing more than a “I hurt, and you have money—pay me” government-enforced demand.

When even the Courts

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…ridicule Progressives.

From Bloomberg comes this item.  Our illustrious regulatory engine, the Environmental Protection Agency, has (rather, had) a rule that required refiners to mix 8.65 million gallons of cellulosic ethanol into their gasoline output last year.  In light of the fact that last year’s actual US production was 20,000 (!) gallons, all of which was exported to Brazil, the American Petroleum Institute went to court to get the mandate overturned.

Last week, the DC Circuit agreed.  In the court’s ruling is this gem:

Apart from their role as captive consumers, the refiners are in no position to ensure, or even contribute to, growth in the cellulosic biofuel industry.  “Do a good job, cellulosic fuel producers.  If you fail, we’ll fine your customers.”

Of course, the court also was serious in its ruling.  Citing Railway Labor Executives’ Ass’n v. Nat’l

Mediation Bd in the bowlegs, the court noted

(“Were courts to presume a delegation of power absent an express withholding of such power, agencies would enjoy virtually limitless hegemony….”).  Yet that is precisely what EPA appears to have done in projecting cellulosic biofuel production for 2012.

The case is American Petroleum Institute v U.S. Environmental Protection Agency, and the ruling can be seen here.

Naturally, in response to the ruling, Progressive whining has begun.  Bloomberg reports this, as well.

As a result of the ruling and uncertainty, investments in the nascent industry may fall, said Michael Frohlich, a spokesman for Growth Energy, which represents ethanol producers.

“It dampens any future investment, and creates a further level of vulnerability[.]”

Never mind that if the “nascent industry” can’t stand without government favoritism, it’s not ready for market in the first place.  But the collective views of individual Americans—free market imperatives—don’t count.  Only the collective views of Big Government do.