Chunlin Leonhard Paper on How Contract Law Enabled the Subprime Crisis

Chunlin Leonhard

of Loyola University New Orleans has written Subprime Mortgages and the Case for Broadening the Duty of Good Faith., 45 University of San Francisco Law Review 621 (2011). Here's the abstract:

In the wake of “the most virulent global financial crisis” caused by defaults in subprime mortgages and derivative financial products in 2007 and 2008, much finger pointing and soul searching have been taking place on different fronts. Scholarly attention primarily focuses on the financial industry and regulations. This article argues that US contract law played an enabling, albeit hidden, role in the subprime mortgage crisis. US contract law facilitated the subprime mortgage crisis in two First, US contract law’s laissez faire paradigm has incentivized parties to pursue their self interests while failing to provide any constraint on excessive pursuit of self interests. Second, the current contract law paradigm has also contributed to the subprime mortgage crisis by having nurtured a US business culture of everyone for him or herself. contract law’s general tolerance of parties’ single minded pursuit of self interest has led to a “moral deficit.” This article proposes that US contract law adopt a more proactive paradigm by recognizing a broader duty of good faith in economic relationships prior to the formation of a contract.

 

 

Internet Anonymity. Really?

Anonymous speech is often valued, even protected in some situations by the First Amendment. On this blog, we have posted frequently on legal efforts to assure that corporate and government critics (and others) are free to speak anonymously on the Internet. But do the legal nicities matter in reality? Andy Baio at wired.com has explained at length how the identity of a supposedly anonymous blogger who was "using all the ordinary precautions for hiding his identity" was revealed in under a minute using Google Analytics. (I don't know whether and to what extent Baio is right, but his post seemed worth a look.)

Class Action Coupon Suit With a Twist

Coupon settlements are controversial, as in "we sued for lots of money, and all we got was this worthless coupon!" In fact, the Class Action Fairness Act of 2005 devotes a section, 28 U.S.C. 1712, to trying to rein in coupon settlements by regulating attorney's fees in those cases. For perhaps the best judicial analysis of a coupon settlement, see In re General Motors, 55 F.3d 768 (3d Cir. 1995).

But here is a case where the class wants coupons. Southwest Airlines issues free-drink coupons to some of its in-flight customers. Without the coupon, the drinks cost about $5 each. The coupons have no expiration date, and do not say that they have to be used on the day of the flight. And, originally, they didn't -- that is, Southwest would honor previously issued coupons at any time. But, then, Southwest changed its mind: It would only honor coupons on the day of issuance. If you collected coupons -- the named plaintiff has 45 of them -- you are now out of luck. So, if the class settles for $1 per class member, will the objectors howl "we sued for coupons, and all we got was the worthless buck!?" 

CreditCards.Com Article on New Maryland Debt Collection Rules

Here.  The article also reports on the industry's self-regulation efforts, apparently an attempt to forestall tougher rules from the Consumer Financial Protection Bureau.

Barney on Newt

Yesterday, we told you about Newt Gingrich's claim that he knew all along about the mortgage meltdown and had advised Freddie Mac on steps it could take to avert it. (Funny, though, that Gingrich forgot to advise the American people of the coming crisis.) Gingrich also claimed that Freddie Mac had paid him $300,000 for his advice when it seems that the real amount was more than $1.5 million.

Now, Representative Barney Frank is responding. Gingrich had previously blamed Frank for the financial crisis, saying that he helped create the subprime mortgage debacle and that "[i]f you want to put people in jail ... you ought to start with Barney Frank and [former Senator] Chris Dodd.” For Frank's part, he admits that, because of idelogical preconceptions, “I was late in seeing [the financial crisis], no question.” But he has little patience for Gingrich, commenting yesterday on Gingrich's relationship with Freddie Mac:

[Gingrich is] fundamentally intellectually dishonest. He’s a man with no ethical core whatsoever. ...There are a number of conservatives whom I respect … Newt’s just never had any principles, so no I’m not surprised about this at all.

The randy rabbi is rebuffed — again

by Paul Alan Levy

I reported last spring that Mordechai Tendler, having lost his effort to identify four anonymous bloggers so that he could sue for defamation over their comments on reports that he had abused his religious authority to have sexual relations with congregants, had issued new subpoenas seeking to identify them.  The new subpoenas were for the purported purpose of supporting his claim for damages from the congregation for having fired him.  The appellate courts in New York had previously held that his discharge did not follow the procedures required by his employment contract, and the case had gone back to the trial court to decide the amount of damages. 

Justice Victor Alfieri of New York’s Supreme Court has now quashed the subpoena, and the ground for his ruling is particularly significant.  Our motion to quash had raised a number of procedural grounds as well as arguing that the nexus between Tendler’s damages claims and the bloggers’ identities was too tenuous to justify taking away their right to speak anonymously.  But Justice Alfieri chose a broader ground for his ruling. 

Unlike subpoenas sought to identify defendants so that an action can proceed against them, which only require the plaintiff to show that he has a legal and factual basis for his claims against the Does so that that need can be weighed against the right to speak anonymously (the so-called Dendrite test), when a litigant seeks to identify non-party anonymous speakers to develop evidence for use against his litigation adversary, a greater showing is needed.  Under the 2theMart test, the evidence has to relate to a core claim or defense in the case, or, as the cases sometimes say, the discovery has to “go to the heart of the case.”  When the evidence is needed only to affect the amount of damages obtainable from the defendants, we had argued, that is not a sufficiently compelling reason for depriving a blogger of the right to criticize anonymously. Justice Alfieri accepted this argument, thus providing broad protection of anonymous speech.

Progress at the EEOC

This story from the National Law Journal explains that in FY 2011 the federal Equal Employment Opportunity Commission (EEOC) -- the federal government's anti-employment-discrimination agency -- recovered a record amount of money ($365 million) for victims of discrimination in cases that it brought against employers. (The EEOC brings relatively few cases. Most cases are brought privately by the alleged victims themselves after the EEOC declines to take on the case.) Moreover, despite receiving more claims of discrmination than ever before in FY 2011, the EEOC worked down its large backlog of cases by about 10%. FY 2011 was the first time since 2002 that the agency had pared down its backlog.

Associated Press's Worldwide Study Finds that Half the Countries with Open Government Laws Don't Follow Them

Read about this amazing study here. The AP's Facebook page associated with the study contains links to all sorts of information, including this story about why Tony Blair regrets his support for Great Britain's open government law. Here is the AP's FOIA home page, which contains more open government information.

Will the Supreme Court Do Away with the Disparate Impact Test in Lending Discrimination?

The Court has granted cert in Magner v. Gallagher, where the issues are described as "(1) Whether disparate impact claims are cognizable under the Fair Housing Act; and, if so (2) what test should be used to analyze them."  The SCOTUS blog, from which the issue statement just quoted is taken, has helpful links, while the American Banker has coverage here (paid subscription may be required).  If the Court rules that disparate impact is not usable under the FHA, it may lead to a similar rule for the Equal Credit Opportunity Act, which would obviously make it harder to bring such cases, especially in the Seventh Circuit, which has rejected the other main test for ECOA cases, disparate treatment.

More Cuts in Civil Legal Services for Poor People

Under a FY 2012 budget deal reached between Democrats and Republicans, the Legal Services Corporation (LSC) will receive $348 million to support all 136 federally-funded civil legal services programs for poor people around the nation. Among many other things, these legal services programs help poor people with consumer law issues, such as foreclosure, bankruptcy, and debt collection abuse.

This budget deal is around $50 million less than the LSC budget approved by the Senate a couple weeks ago, $22 million less than LSC's FY 2010 budget, and far less than the $517 million that LSC had requested. LSC funded programs have been cutting staff because of decreasing budgets, and John Levi, chair of LSC's Board, says that the FY 2012 budget deal will result in further staff cuts.

LSC budget cuts are nothing new: The FY 1981 LSC budget, in actual 1981 dollars, was $321 million. Since 1981, according to the Bureau of Labor Statistics, the cost of living has increased 249%. To stay even in real terms with the FY 1981 budget of $321 million, today's LSC budget would have to be $799 million.