Eugene Volokh's Blog, page 2684

Steven Schwarcz on a Financial Regulatory Framework for Systemic Risk

(Kenneth Anderson)

Duke University Law School's Steven L. Schwarcz is a leading and prolific commentator on financial regulation and, I'm pleased to say, my c0-author on a book on financial regulatory reform (which, I'm less pleased to say, I have taken my own sweet time finishing; talk about a moving target!).   Steve is ahead of the curve both in the conceptualization of financial regulation as well as pointing to new areas in which problems are likely to emerge (e.g., his last and frankly disturbing draft article on the use and abuse of Special Purposes Entities in state and municipal finance).  Steve often posts to SSRN keynote speeches from conferences, which put the thesis in the plain language of a delivered talk, accessible to a broader public including students and non-specialists, before working it up into a much more detailed and formal scholarly article.  Last week Steve delivered the keynote address at a major conference of the European Central Bank on financial regulation in the EU, and his topic was finding a framework for regulating systemic risk (here at SSRN).  It's crisp and clear, and by no means limited to specialists in its accessibility.

"The Case Should Proceed Under Ecclesiastical Islamic Law" / Jews, Ketubahs, and Gets

(Eugene Volokh)

The St. Petersburg Times reports that the Florida Court of Appeals has affirmed, without opinion, the trial judge's order in this case (thanks to Prof. Howard Friedman [Religion Clause] and Victor Steinbok for the pointer); so I thought I'd repost the item I wrote about the trial court decision in March:

There's been much talk about the trial court decision in Mansour v. Islamic Education Center, a Florida trial court case. I think the court erred, for reasons I discuss in item 3 below, but I think the matter is more complex than some suggest. Here's an excerpt from the court decision:

This action was filed in 2008 to resolve issues relating to the corporate governance of the Islamic Education Center of Tampa, Inc. ("IEC"). The IEC is a learning center and community center for Muslims in the Tampa Bay area. The dispute began in the early 2000s, but was exacerbated by disagreement concerning control of the cash proceeds from an eminent domain settlement [and a purported binding arbitration of the matter –EV]....

From the outset of learning of the purported arbitration award, the court's concern has been whether there were ecclesiastical principles for dispute resolution involved that would compel the court to adopt the arbitration decision without considering state law. Decisional case law both in Florida and the United States Supreme Court tells us that ecclesiastical law controls certain relations between members of a religious organization, whether a church, synagogue, temple or mosque....

The court has concluded that as to the question of enforceability of the arbitrator's award the case should proceed under ecclesiastical Islamic law. Based upon the testimony before the court at this time, under ecclesiastical law, pursuant to the Qur'an, Islamic brothers should attempt to resolve a dispute among themselves. If Islamic brothers are unable to do so, they can agree to present the dispute to the greater community of Islamic brothers within the mosque or the Muslim community for resolution. If that is not done or does not result in a resolution of the dispute, the dispute is to be presented to an Islamic judge for determination, and that is or can be an A'lim.

The court will require further testimony to determine whether the Islamic dispute resolution procedures have been followed in this matter. When the hearing was recessed to reconvene at a later date the defense was presenting its case. Counsel advised that he anticipated calling between five and seven witnesses.

1. To begin with, I think it's entirely proper to have binding arbitration, by religious authorities applying religious law, of disputes within a religious organizations related to the governance or property of the organization. Members of religious organizations, whether Presbyterians, Anglicans, Catholics, Muslims, Jews, or anyone else — naturally have disputes about how the organization is to function. Those disputes often turn on their understanding of what their religion requires. American courts are constitutionally barred from resolve such religious disputes. They may resolve disputes involving religion-neutral principles of law, for instance the interpretation of secular terms of contracts, trusts, bylaws, and the like. But often the dispute is about the religious terms of the provisions, and considering religious law is the only way of resolve it with an eye towards the true understanding of the parties to the original documents.

This is why, in cases involving hierarchical churches, the Supreme Court has held that secular courts must defer to the decisions of "the highest ecclesiastical tribunals of the hierarchical church." When the religious organization is not hierarchically organized, letting the parties to the dispute select an arbitrator or arbitrators who would resolve disputes using religious law (whether the selection is done at the time of the dispute or before), is functionally similar to deferring to a hierarchical church's adjudicatory body. Let the imam/rabbi/minister/etc. resolve the question, as per the parties' agreement to arbitrate. Then enforce the result of the arbitration. That's just the neutral application of neutral principles of contract law, applied to the contract to arbitrate.

2. Nor does the fact that this involves Islamic law, as opposed to Jewish law or Christian law as understood by particular Christian arbitrators, affect the analysis. Islamic law has provisions that are contrary to American public policy, as does Leviticus — part of the body of Jewish and Christian law — and for that matter English law, French law, Canadian law, and so on. No American court would enforce an arbitral decision ordering thieves to have their hands cut off or adulterers to be put to death, just American courts wouldn't apply English libel law or Canadian "hate speech" law. But none of this should prevent American courts from enforcing arbitral decisions rendered under foreign or religious law, where the decisions do not involve any court action that would be contrary to American public policy, but simply resolve commercial disputes or disputes related to the governance of a religious body.

3. But despite this, I think the court erred, not in being open to enforcing a religious arbitration decision, but in proposing to use "ecclesiastical Islamic law" to evaluate the validity of the "dispute resolution procedures" that were used. If there is a contract that provides, in secular terms, for certain procedures — that this particular person is to be the arbitrator, or that the proceeding is to happen at a particular time in a particular place — or for certain preconditions (e.g., as one side says, that "Dr. Bahraini had to agree to Mr. Shabiri serving as the arbitrator and second, the other side in the dispute had to dismiss their lawsuit"), then a court may decide if those terms can be met. But a secular court may not resolve terms that can only be interpreted by determining what "Islamic law" calls for, since that would involve taking sides as to the proper meaning of Islamic law.

I discuss this in more detail in this post, but the short summary is that I think this rule is called for by the same constitutional decisions I mentioned in item 1 above. Secular courts may not be arbiters of religious law, either as to the substance of a religious dispute, or as to whether the proper religious procedures were followed in a private arbitration of the dispute. And while this might indeed be inconvenient for parties that do want their disputes resolved through religious law, the First Amendment requires that any religious controversies be resolved outside the secular court system — for instance, through contractually provided-for arbitration — and any controversies about the resolution of those controversies be resolved using neutral principles of law that don't require religious decisionmaking (e.g., a contract about the arbitration procedures that is written entirely in secular terms).

4. Now let me shift from Islamic law to Jewish law, and from religious bodies to divorces. As it happens, a week before the Florida court decision, an Illinois appellate court handed down a decision in Schneider v. Schneider, which suffers from the same problem. Schneider in turn relied on In re Marriage of Goldman (Ill. App. Ct. 1990), and both cases dealt with a common problem among religious Jews: A couple gets divorced in civil court, and the husband refuses to give the wife a religious divorce (called a get). This means that, under Jewish law, the wife can't get remarried; and it also means — if the woman wants to remain a part of a Jewish religious community that cares about such matters — that the husband can use his power to give a get as a bargaining chip in divorce negotiations.

Because of a concern about husbands' not giving gets, some states have passed special laws on the subject (which I think are likely unconstitutional, for reasons I discuss here). But the Illinois courts had a different approach to the matter.

Religious Jewish wedding include a contract called a ketubah, which has, as one of its normal provisions, "Be thou my wife according to the law of Moses and Israel." The courts in Goldman and Schneider concluded that the ketubah is not just a religious symbol, but is actually a binding contract, that the contract called for the application of Orthodox Jewish law, that Orthodox Jewish law required the husband to give a get, and that secular courts could therefore enforce this contract:

[T]he trial court properly found that the parties intended the ketubah to be a contract that the status and validity of their marriage would be governed by Orthodox Jewish law. The uncontroverted expert testimony presented at trial established that Orthodox Jewish law requires the husband to obtain and deliver to his wife an Orthodox get upon dissolution of the marriage. Rabbi Schwartz testified that although the giving of a get is ordinarily a voluntary act on the part of the husband, a certain degree of compulsion is acceptable under the circumstances presented here, where Kenneth abandoned Annette and refused to cohabit with her and support her according to the terms of the marriage contract. Kenneth Goldman presented no expert testimony to the contrary. Before ordering specific performance of a contract, a court must find that its terms are sufficiently certain and definite that the court can require the specific thing contracted for to be done. We believe that the court's order of specific performance was justified by the evidence before it.

Naturally, Schneider and Goldman differ in some respects from Mansour, the Islamic arbitration case, but the core point is similar: A court concludes that, based on the terms of a contract and the perceived intention of the parties, the parties wanted the contract to be enforced using religious law. It then decides, based on expert evidence, what the religious law — "ecclesiastical Islamic law" or "Orthodox Jewish law" — requires, and then enforces this understanding of the parties' agreement (again, unless it is somehow contrary to some specific public policy of the state).

Now for the reasons I mentioned in item 3, I don't think this is constitutionally permissible. As they say, Three Jews, Four Opinions, and I suspect the same is true to a large extent about Muslims, Christians, and pretty much everyone else. Different Jews have different views about what Orthodox Jewish law "really" calls for, and different Muslims have different views about "ecclesiastical Islamic law." A court may not take sides in those religious disputes.

To be sure, a court can say that it's not trying to decide what the religious law "really" requires (though note that Mansour and Goldman both did speak in terms of applying the religious law, presumably as it "really" is), but just what the parties thought it required, so that the court is simply enforcing the parties' agreement. But in practice the parties will often not have thought about the particular details of the religious law provision, and how it would play out with regard to some future dispute. The court's decision would thus in practice be an attempt to determine the true meaning of the religious law. And that, I think, is something that secular courts may not do under the Supreme Court's First Amendment jurisprudence.

But in any case, I mention Schneider and Goldman chiefly to highlight what I've often said before — many of the disputes about accommodations of Islamic religious practice, about enforcing of Islamic arbitrations, and so on are just special cases of much broader disputes that the American legal system has dealt with for over two centuries. There's nothing specially shocking or even highly novel about them. They're not some special new monkey wrench that Muslims are throwing into our legal system; Christians, Jews, and others have routinely raised such issues before, and continue to do so today.

Sometimes the Muslim claimants should prevail (again, whether it comes to religious exemptions from generally applicable laws or employer practices, or to enforcement of religious arbitrations). Sometimes they should lose. Sometimes they should prevail, but do lose, and sometimes they should lose, but nonetheless prevail. But that is no different from what we've been seeing with regard to other religious claimants for many years.

Do Profs Teach What Law School Exams Test?

(John Goldberg, guest-blogging)

Guest Blog by Barry Friedman and John Goldberg

We've been blogging here at the Volokh Conspiracy about law school exams and our new book Open Book: Succeeding on Exams from the First Day of Law School.

In response to a post about how exams mirror law practice, several commentators raised a fair question: do law professors teach what gets tested for on exams?

Our answer is: sometimes yes, sometimes no, and maybe.

Perhaps the most poignant of concerns was that of Mario O who said law professors should teach issue-spotting more deliberately, writing: "It's like showing people pictures of violins and reading books about violins — but never touching one — and then for the final the student has to perform a solo with an orchestra."

For what it is worth, we agree — we devote several chapters of our book to meticulously taking apart the issue-spotting process, showing how to spot issues, apply rules, argue both sides, all the skills that go into writing a good exam.

But we think there are reasons professors don't do more. Here, we speculate, welcoming your reactions.

Our suspicion is that the folks who are now law professors tended to be students to whom the particular skill of exam-taking came naturally. If so, it would not be a huge surprise to learn that they often underestimate the challenge that exams pose for many students. This is not an excuse, just an explanation: if you find something intuitive, you may have trouble appreciating that others find it counter-intuitive.

There's another, more substantive problem at work here. It is not at all easy to teach what makes a good or bad legal argument. Several commenters pointed out that this best is learned in practice. We think this is true, albeit overstated. In the classroom — especially a Socratic classroom — the professor is (or should be) pushing students to make arguments and giving the students a feel for what makes for a better or worse argument.

Finally, there is a point to the "inside-out" approach of the law school classroom. Legal argument requires knowledge of law, and professors tend to teach cases rather than problems because the cases pull double-duty as lessons in substance and reasoning. This response is not entirely sufficient. There can and should be cases and problems. Probably most of us could do better in ensuring a proper mix between the two.

Richard Epstein Reviews Rehabilitating Lochner

(David Bernstein)

Here is a link to the review, in the latest issue of the Claremont Review of Books. Scott Johnson of Powerline has a brief comment on/summary of the review here.

As a reminder, if you are interested in reading the book but don't want to buy it University of Chicago Press is offering a 30-day e-reader version license for $7.00.

Parallels Between Interchange Fees and Google

(Todd Zywicki)

I've been thinking the past couple of days about the parallels between price controls on debit card interchange fees and the investigations of Google after reading Eric Schmidt's comments as reported by Gordon Crovitz in the WSJ:

Mr. Schmidt had just given his first congressional testimony. He was called before the Senate Judiciary Antitrust Subcommittee to answer allegations that Google is a monopolist, a charge the Federal Trade Commission is also investigating.

"So we get hauled in front of the Congress for developing a product that's free, that serves a billion people. OK? I mean, I don't know how to say it any clearer," Mr. Schmidt told the Post. "It's not like we raised prices. We could lower prices from free to . . . lower than free? You see what I'm saying?"

The parallel, of course, is that search engines and payment cards are two paradigm examples of two-sided markets where one side of the market–invariably the more inelastic side–bears the bulk of the cost in maintaining the platform.  And so, until the Durbin Amendment at least, consumers received debit cards for free and merchants (the more inelastic parties) bore the cost of operating the system.  For search engines, consumers get an unlimited number of free searches and clicks–with all those costs paid by advertisers (the inelastic parties).

If I follow the logic of apologists for the Durbin Amendment, what follows next is price controls on Google Ads with the goal of eliminating free search engines, thereby making the cost of search more "transparent" to consumers and eliminating the subsidy from consumers who don't search on line to those who do.

Of course, this isn't the nub of the government's antitrust case against Google.  But the very fact that it is recognized that would be an illogical way of thinking about consumer harm in the case of Google illustrates the fallacy of the reasoning with respect to payment cards.

Hal Singer makes some similar points about the similarities between the FCC's Open Internet order and payment card price controls at Truth on the Market.

President Nixon on Justice Rehnquist

(Eugene Volokh)

From the Nixon Tapes, as quoted by Kevin J. McMahon, Nixon's Court (2011):

Nixon: Incidentally, what is Rehnquist? I suppose he's a damn Protestant?
Attorney General John Mitchell: I'm sure of that. He's just as WASPish as WASPish can be.
Nixon: Yeah, well, that's too damn bad. Tell him to change his religion.
Mitchell: All right, I'll get him baptized this afternoon.
Nixon: Well, get him baptized and castrated, no, they don't do that, i mean they circumcise — no, that's the Jews. Well anyway, whatever he is, get him changed.

[image error]

"In Case the Occupy Movement Doesn't Work" — Let's Legally Require "Mandatory Social Media Service" to "Increase Empathy"

(Eugene Volokh)

Now here's an idea whose time hasn't come, and is unlikely to come, from Edward Boches (Creativity_Unbound). (Boches is "Chief Innovation Officer" at a relatively prominent advertising agency, though he writes the blog on his own behalf, not the agency's.) The plan:

Here's my idea for saving America in case the Occupy Movement doesn't work. It's an idea that could help us increase empathy. It takes full advantage of social media's true potential. It's a program that steals from the military and juries — practices that do work — when it comes to creating interdependency.

Mandatory social media service

We require every 18-year-old in America to participate in mandatory social media service as part of a daily or weekly routine for one year.We assign our young adults to a racially diverse online social group comprised of 12 people from different regions, backgrounds, income brackets. (Google+ is a potential platform.)We present each group with a social challenge -– obesity, jobs, poverty, high cost of education, even the problem of young men getting their sex education from watching online porn — and we ask them to solve the problem.We give them benchmarks, goals, and require an outcome in the form of an idea, a program, a new policy or maybe just a video.Finally we aggregate all of the solutions on one public website where the press, our legislatures, businesses and educators can access, rate and maybe even implement the ideas.

And when some of the 18-year-olds — resentful of being forced to hang out with people they didn't choose, and not faced with the normal social pressures that make us be polite to people right around us — start saying nasty things to each other, I take it we'll just charge them with cyberbullying (perhaps with a hate crime sentencing enhancement), right? Or perhaps the "official moderator, someone to coach and keep track" in case "partisan differences challenge collaboration" (two of the possible implementation options that the column suggests) will just work it all out.

Actually, I agree that a sense of community and common citizenship is pretty important for our democracy. I just think that legal coercion is a pretty poor way of trying to arrange it — poor as a matter of respecting 18-year-olds' rights, and poor as a matter of actually accomplishing something worthwhile. And even if such legal coercion is sometimes justified when military service or jury decisionmaking are involved, that hardly supports slipping down the slope to thinking that the government should be free to order citizens to speak and to listen for the sake of "increas[ing] empathy" or "creating interdependency."

And I say that even assuming that — God forbid! — "the Occupy Movement doesn't work."

[image error]

Revisiting the 5-Cent DC Bag Tax

(Orin Kerr)

Back in January 2010, I had the following post on the then-new DC Bag tax:

A new law recently went into effect in the District of Columbia, the "Anacostia River Clean Up and Protection Act of 2009″. The law does two things. First, it prohibits the sale or distribution of non-recyclable plastic bags in the District of Columbia at either the retail or wholesale level. Second, and more recognizably to consumers, it requires grocery stores and restaurants to charge customers 5 cents for each carryout bag the store provides. If you're at a DC sandwich shop, for example, the shop will no longer automatically bag your sandwich. Instead, they'll ask you if you want a bag: If you want a bag, you are charged 5 cents for it.

Here's the language from Section 5(a) of the new law:
A fee of $.05 per recyclable paper and plastic carryout bag is hereby established for consumers making purchases from Retail Establishments.
(1) Fees must be paid by the consumer at the time of purchase.
(2) Retail Establishments may not pay the fee on behalf of consumers.
(3) All Retail Establishments shall indicate on the consumer transaction receipt the number of disposable carryout bags provided and the total amount of fee charged.

The idea behind the bag tax is that requiring an itemized 5 cent-per-bag charge will have an outsized impact on consumer behavior. Customers will use fewer bags and get in the habit of carrying a reusable bag with them, even though the actual fee is quite small. Notably, the law effectively prohibits stores from leaving out bags for customer: Each bag distributed needs to be noted and charged for individually, so the stores need to keep them behind the counter.

As you might guess, there's also a revenue angle to the law. The stores keep 1 cent for each bag tax free and the remaining 4 cents goes into a government fund to clean up the Anacostia river. The government also can obtain fines from stores that violate the Act.

There are a lot different angles we could consider here, but I want to focus on the question of whether the law will work as planned. We have a lot of readers in and around DC. I'm curious, what's your experience with the new law? Has it changed your bag use habits? Or if it hasn't yet, do you think it will?

I asked that question when the tax was new, and I thought I would ask again to see how it has worked out. Readers in the DC area, has the law changed your bag use habits over the long term? And more broadly, has your view of the tax changed in the two years or so since the tax was enacted?

UPDATE: My colleague Lisa Fairfax recently had this useful post on studies that have been done to figure out the impact of the law.

The Economics and Regulation of Bank Overdraft Protection

(Todd Zywicki)

I've posted a new paper on SSRN, "The Economics and Regulation of Bank Overdraft Protection."   Here's the abstract:

Consumer use of bank overdraft protection has risen rapidly over the past decade, leading to increased scrutiny and the imposition of new regulations. Public and political debate regarding overdraft protection has highlighted anecdotal stories about irresponsible college students who overdraw their accounts to buy a cup of coffee, thereby triggering substantial overdraft fees. But there has been little systematic examination of the safety and soundness or consumer protection issues implicated by the increased use of overdraft protection.

Available evidence indicates that those who rely on overdraft protection tend to have low credit ratings, use overdraft protection because it is sometimes less expensive, to maintain short-term liquidity needs, and more convenient than available alternatives. These alternatives include other credit options, such as payday lending, or options such bounced checks or dishonored payments, which may result in eviction or termination of utilities or other services.

There is also no evidence that those who use overdraft protection are unaware of the cost or otherwise use overdraft protection foolishly or unknowingly. In addition, there is no evidence that banks are earning economic rents off the issuance of overdraft protection, as increases in overdraft revenues have been offset by dramatic increases in free checking, improved quality, and free services offered to bank customers. A serious reduction in overdraft revenues would reverse all of these trends and result in many consumers being driven out of the mainstream financial system, especially low-income consumers.

Absent a demonstrable market failure or demonstration of systematic consumer abuse, restriction on consumer choice of overdraft protection would likely impose substantial costs on consumers and banks with minimal gains.

This will also be the paper that I will be contributing to the Washington & Lee Law Review Symposium on "Regulation in the Fringe Economy" coming up on November 10–11.

Why Title Posts with Questions?

(Jonathan H. Adler)

The Guardian reports on a new study that found scientific papers with questions in their titles are downloaded more often than others but cited less.  Articles with colons in the title are both downloaded less and cited less.