Common Misconceptions About Law

This is a list of common misconceptions people have about the law (to be clear, every statement below is false):

Sources of Law

* The law is mostly the same everywhere.

* The law is the mostly the same everywhere in the U.S.

* Legal terms almost always mean exactly one thing no matter where they are used.

* The law mostly fits a criminal law paradigm of statutes that prohibit you from doing something and impose a punishment if you do that.

* The constitution tells you everything you need to know about the law.

* Only the U.S. Supreme Court has jurisdiction to decide the constitutionality of something.

* Usually, a determination that something is unconstitutional involves finding that a treaty, statute, ordinance, or regulation is unconstitutional.

* The law is mostly contained in statutes.

* It is rarely necessary to look at case law or regulations to determine the meaning of a statute.

* The "common law" is the same in every state.

* Only one state or country's law applies to a business operating on the Internet. In a variant of this, the most important way to determine which law applies to a business on the Internet is where its servers are physically located.

* The law is static and has changed only a little over time.

* Modern U.S. law is very similar to modern English law.

* The Declaration of Independence creates enforceable U.S. law.

* The U.N. Universal Declaration of Human Rights creates enforceable U.S. law.

* International law consists mostly of legal rules that can be litigated in international courts producing judgments that matter.

Judges

* Judges are heavily influenced by their personal feelings about litigants and their personal relationships to litigants and are strongly biased against particular people.

* Judges can do whatever they want and the person who wins is mostly determined not by what the law says but by which side has the best lawyers which is mostly a function of much each side spends on their lawyers.

* Family court judges are intentionally or ideologically biased against men.

* Judges are basically umpires with no independent ability to interpret the law in different ways.

* A judge's political philosophy and judicial ideology have no impact on how a judge rules in a case.

* Judicial decisions are purely a matter of legislating from the bench.

* Judge are being dishonest when they utilize "legal fictions."

Dishonesty

* Criminal defense lawyers are bad people who unethically try to make it possible for people guilty of serious crimes to avoid responsibility for their actions by being acquitted at trial of all of the charges against them.

* It is unethical to represent someone you as a lawyer know is guilty or liable for wrongdoing.

* Pleading not guilty in a criminal case when you are guilty is perjury.

* Lawyers are allowed to lie.

* Prosecutors are routinely punished when a court determines that they withheld exculpatory evidence from a criminal defendant in a case.

* Negotiated compromises are dishonest.

* Cops are legally required to tell the truth to criminal suspects.

* Cops almost always tell the truth in court.

* Cops are routinely punished by their employers or a court when a court finds that they violated a criminal suspect's constitutional rights.

* Perjury in court is frequently prosecuted criminally.

* People are more likely to tell the truth when they are under oath or are making a statement under penalty of perjury.

* You can make an evidentiary objection to testimony presented in court on the grounds that the person giving the testimony is lying.

Certainty

* The law mostly involves general principles that can be stated at a high level of generality and logically applied to any new situation.

* If you know the facts of a case with perfect certainty you can know the legal consequences of those facts with certainty. Conceiving of the law as rules rather than standards.

* The law has a clear answer to every hypothetical situation one can imagine.

* Legal questions that don't have clear answers are rare.

* Traffic laws clearly establish that one person is at fault and another person is not at fault in a car accident most of the time.

* Jury trials are highly accurate at reaching outcomes consistent with the true facts and the law.

Arbitration

* Arbitrators have to follow the law based upon the facts presented to them the way that judges do.

* Arbitration awards can be reviewed on the merits in an appeal.

* Arbitration is usually less expensive than going to court.

* Arbitration is usually much faster than going to court.

* Arbitrators are not more biased in favor of one side over the other than judges are.

* You can only be compelled to arbitrate a dispute if you sign a contract agreeing to arbitrate the dispute.

* Only contract disputes are subject to arbitration.

Criminal Justice

* Criminal cases can be filed only if the victim files a complaint with a law enforcement officer.

* People who are released from prison after having their convictions overturned are automatically entitled to substantial compensation.

* People who are acquitted in criminal cases usually receive compensation for their legal fees and the disruption that their lives experienced.

* The police and prosecutors have an enforceable legal obligation to prevent, investigate, and prosecute crimes committed against you, if they can.

* People who commit crimes other than murder are usually caught and punished for their crimes.

* When a criminal law is repealed, people incarcerated for violating that law are routinely released from prison.

* The fact that a witness recants testimony provided in a criminal trial that gave rise to a criminal conviction makes it highly likely that the person convicted will have their conviction vacated and be released from prison.

* Prosecutors routinely cooperate in having wrongful convictions which they secured overturned.

Finality

* Mistaken findings of fact made in a trial can usually be corrected in an appeal.

* Mistakes made in hearings and trials can usually be corrected later, and information provided in hearings and trials can usually be supplemented after the fact. 

The Value Of Legal Training

* Lawyers are mostly charging people for the written documents that they produce.

* Any reasonably literate person can quickly learn what they need to know to effectively act as their own lawyer with a modest amount of self-study on the Internet.

* Doing legal work yourself saves money while also giving rise to few risks.

* Non-lawyers can learn to be competent judges with tens of hours to a couple hundred hours of training.

* When you have a dispute with someone, you can have a lawyer write the person you have a dispute with a letter for a minimal fee or no legal fee and the other person is likely to concede that you are right and cooperate.

* People who win legal disputes usually have their attorney fees awarded to them in the United States.

* A large share of losing lawsuits fit the law's description of a legally frivolous, groundless, or vexatious lawsuit.

The Effectiveness Of The Law And Justice

* The law is self-executing.

* People rarely get away with breaking the law.

* People almost always conform the behavior they would have taken otherwise to what the law requires. The law powerfully influences everyday behavior.

* The law almost always produces fair outcomes, unless someone incompetently makes a mistake in applying it.

* Every wrong has a legal remedy.

* All violations of constitutional rights and obligations have a legal remedy.

* There is always someone who is legally liable for the harm caused by an accident.

Contracts

* Economic pressure is enough to make a contract involuntary and invalidate it.

* Statements made by someone involved in a circumstance that gives rise to a legal case that aren't corroborated in writing aren't "proof."

* Contracts are never binding unless they are in writing.

* Contracts are only binding if you have read them and understood their terms.

Miscellaneous Other Specific Legal Issues

* Obligations to a child depend on the nature of the events that led to the child's conception and the relationship between the parents.

* Children must always take the surname of their father.

* In the United States, illegitimate children can't inherit from their fathers.

* You can't be an intellectual property infringer if you don't make a profit and give credit to the source of the work.

* Bank deposits are basically currency in a safe waiting for you to need to use it.

* Debts for fraud and other willful misconduct are automatically non-dischargeable in bankruptcy without any need for the creditor to take legal action to establish the nature of the debt in the bankruptcy case.

* Non-citizens don't have legal rights.

* The doctrine of "corporate personhood" usually hurts the average person in a legal dispute with a big business.

* People who engage in criminal conduct or civil wrongs in the course of their employment by a corporation are immune from liability for their actions.

* The U.S. Constitution, the Second Amendment to the U.S. Constitution, and the Declaration of Independence create a legal right to overthrow an unjust government.

* Texas has a right to secede from the United States.

Should Bankruptcy Spite Exploitive Lenders To Consumers?

The notion that firms who lend more to consumers than they can reasonably repay should not have valid claims in bankruptcy has a certain charm and elegance to it.

Consumer financial protection law is dominated by ex-ante, contract-centered regulatory measures. But these measures largely fail to curb lenders' incentive to lend beyond consumers' ability to repay. 

The Article thus suggests an alternative approach: discouraging lenders from extending loans that cannot be repaid by dismissing the imprudent lender's claims in consumer bankruptcy. 

I argue that regulating underwriting decisions through bankruptcy is normatively desirable because it cuts through the artificial separation between consumer finance law and consumer bankruptcy law. By the same token, it not only overcomes the autonomy and effectiveness concerns attached to traditional consumer finance regulation, but may also enhance the internal coherence of consumer bankruptcy law.

Abigail Faust, Regulating Excessive Credit (Wisconsin Law Review, Forthcoming) on SSRN (December 2022).

Not Every College Program Is Worth It, And College Isn't Right For Every Student

Defaults on student loans, which are an empirical measure of inability to pay these loans which are almost impossible to discharge in bankruptcy, are highly concentrated among students who have dropped out, who weren't able to secure professional certification in their chosen fields, who attended "for profit" institutions of higher education, or attended other low quality (often private and religious) institutions of higher education. 

Also, some programs of study produce greater economic returns on investment than others.

Graduates of reputable higher educational institutions, especially those with a track record of having economic value, who manage to secure the relevant professional certifications, in contrast, have very low default rates even when the student loan debts that they owe are substantial.

An op-ed column lays out some of the relevant facts:

Before the federal government forgives student loan debt, it would be good to understand what makes the debt so onerous. The problem isn’t overwhelming debt — it’s underpowered education.

Postgraduate borrowers aren’t earning enough money to repay their loans because whatever they studied didn’t give them the skills to get a sufficiently well-paying job.

Think about it: Even a big debt is manageable if you incur it to get, say, a medical degree. Conversely, even a small debt is unaffordable if you major in a field with limited career prospects or low pay or, worse, you drop out with nothing to show for your efforts. The high price of tuition simply compounds the problem. . . .

According to the latest data from the Department of Education’s National Center for Education Statistics, only 26 percent of students who enrolled in private, for-profit institutions in 2013 managed to graduate within six years. Other schools’ six-year graduation rates weren’t great, either: 62 percent for public institutions and 68 percent for private nonprofits.

A report last year by Third Way, a center-left think tank, found more than 500 schools where the average low-income student who enrolls earns less than an average high school graduate, even 10 years after enrolling. “It’s unlikely that low-income students who attend these institutions will ever be able to recoup their educational investment,” the study said.

From this New York Times Op-Ed Article.

The Third Way report linked above used the following metric that is then broken down in the charts below, which tend to show that a 15 or 20 years to recoup net cost threshold would be quite reasonable.

There is a piece missing from this analysis, however, which is that many of the institutions with high default rates irresponsibly admit and accept tuition from large numbers of students who lack sufficient academic preparation and aptitude as demonstrated by secondary school curriculum, grades, test scores, and references, for example, to have a reasonable chance of graduating from the program and succeeding the the careers that these students are entering those programs to pursue.

While there is a positive credential effect associated with many degrees and majors, it is also the case that detailed measures of learning and value added are consistently lowest, on average, for the students admitted with marginal academic readiness for college.

Most often, these ill-prepared students incur substantial tuition, fees and sometimes room and board costs, to attend for a while, during which they are also forgoing opportunities to pursue work or apprenticeships that make more sense for them, much of it financed with student loan debt that can't be discharged in bankruptcy, and then they predictably fail and drop out. The students who do drop out in these circumstances often gain little or no educational benefit from the experience during which they were in over their heads. And, their failure does not build character, at least relative to successes that they could have had in a more suitable post-high school path.

One can argue that everyone ought to be able to have their chance, but one problem with that argument is that students who are ill-equipped to succeed in a particular high educational or post-high school program are often also in a poor position to accurate gauge their chances of success in doing so.

Many post-high school educational programs eligible for student loan financing so consistently admit students who are ill-prepared and fail, and offer such poor quality instruction, that the institutions should not continue to receive any public support or recognition and are basically fraudulent schemes.

Other programs provide outcomes comparable to public community colleges, but not significantly better, and with a much higher price tag for students, for the federal government that makes good on defaulted student loans, and at a much higher cost per successful graduating student.

Schools that are providing poor economic returns to their students are overwhelmingly admitting large numbers of low income students eligible for Pell grants who aren't academically prepared. More affluent students have social networks and resources sufficient to let them know that the problem institutions and/or programs are basically scams.

At other times, the problem is not an entire post-high school education program (I continue to use the term because many of these programs are not traditional academic degree programs), but just a few programs within that institution.

Advocates of the value of a generalize liberal education can argue that higher education is about more than money. But that ignores the fact that the most egregious offenders are predominantly offering pre-professional programs like the Marinello Schools of Beauty, used as a poster child for this problem in the article quoted above. Student loan defaults aren't coming mostly from liberal arts college program graduates who majored in classics or English literature.

This isn't to say that the non-profit and public higher education sectors are blameless. For the most part, they offer reasonably legitimate educational experiences and charge tuition that is less unreasonable relative to the quality of the programs that they offer. 

But, they too are frequently guilty of admitting academically unprepared students whom they set up to fail and don't provide the extra academic support to that students on the margin need to have a fighting chance, nor do they adequately warn marginal students that they are at heightened risk for failure.

Admittedly, predicting academic success is not an exact science. There are plenty of admitted students who have a very reasonable chance of success who nonetheless don't have the 90%+ odds of graduating and receiving any necessary professional certifications associated with their degrees that selective institutions of higher education do.

But it is also true, particularly at "open admissions" institutions and non-flagship public colleges and universities with lower retention rates, that the fact that often, probably a majority of the time, the fact that a particular student dropped out without graduating was eminently predictable before the first day of class. And, when that happens, the public that helped finance that predictably failed effort to pursue higher education is burned and the failed students, often burdened with student loans that are onerous for them, are frequently not better off compared to their other alternatives either.

More often than not, it is correlation and not causation, it is also true that students who aren't academically ready are also socio-economically less well off, and their predictable failures also burden their families much more severely than an upper middle class student who washes out in college.

This isn't to say that we shouldn't invest as a society in the betterment of young adults who aren't academically ready for college at the age of eighteen. But the funds our society invests in these young people could be spent on investments that put these young adults on paths to success rather than failure, and there are also plenty of people who, while they aren't ready for further education at age eighteen, have matured and are ready for further education and training five or ten or twenty years later.

We can also give those young people a boost by refusing to require educational credentials for employment that aren't actually necessary or beneficial for the job.

There are schools at providing great value to lower income students. The City University of New York, and the California State University System are standouts when it comes to four year degrees. So are a variety of public two year degree programs. No private or "for profit" colleges make the top ten cut in either four year degree or two year degree programs, and no private non-profits make the cut in certificate programs, although three "for profit" programs do:

* Teterboro School of Aeronautics in New Jersey, 

* Marian Health Careers Center in Los Angeles, and

* Alliant International University in San Diego.

Forty-six programs in Colorado were evaluated. The key portions of those evaluations and related analysis are below the fold. 

Constructive Solutions

Here are some selected legislative ideas to address public policy issues (UPDATED January 22, 2022):

Immigration

* Reduce barriers to naturalization by, for example, reducing or eliminating naturalization and exam fees, waiving citizenship and English language proficiency tests for certain candidates (e.g., graduates of U.S. high schools or colleges, graduates of foreign high schools or colleges with English as the primary language of instruction, people who have served in the U.S. military and their spouses, interpreters and former interpreters for the U.S. military or U.S. government, spouses of U.S. citizens with U.S. citizen children, adults over age sixty-five, and developmentally disabled persons), allowing accommodations for disabled test takers, and by making tests easier and more available;

* reduce or eliminate the fees for obtaining a passport or replacement passport;

* establish a path to citizenship  legislation for DACA program beneficiaries;

* clear up legal immigration backlogs, at least for close family and especially for the Philippines which has very low rates of undocumented immigration and a huge backlog; 

* replace criminal penalties with civil penalties for the lowest level immigration crimes (e.g. illegal entry);

* establish a class of licensed independent paraprofessionals authorized to act in lieu of lawyers in immigration cases;

* establish a right to counsel for all minors and all indigent persons in immigration cases;

* complete scrap and rebuilt from scratch the immigration court system which is notorious for arbitrary and capricious decision making that varies wildly from judge to judge;

* establish a statute of limitations (e.g. ten years) on deportability after illegal entry into the U.S., or upon overstaying a visa;

* establish a "immigration detainee's bill of rights" together with provisions allowing those rights to be enforced in private litigation and by a government immigrant advocate who is independent of the Department of Homeland Security;

Election Law and Access To Identification

* use federal/state/local/private funds to get photo IDs for people such as kids leaving high school, newlyweds who have changed their names, people leaving prison and/or jail, welfare beneficiaries, homeless people, senior citizens, and people with lost or stolen IDs. Also register them to vote.

* prepay mail in ballot postage (or make it free per federal law);

* fix the electoral vote counting law;

* lower state voting ages to sixteen years;

State and Local Elected Offices

* replace elected coroners with a state medical examiner's office;

* make county surveyors, county assessors, county treasurers, and state treasurers senior civil service positions rather than elected offices;

Health Care

* offer healthcare copay/deductible guaranteed loans/grants for people with health insurance;

* prohibit submission of provider charges directly to patients who have health insurance (require them to be sent to insurer instead with patient responsible only for amounts determined between health insurance and provider to be reasonable and only to extent to patient's share under health insurance);

* provide public funding for health care for people injured in crimes;

* provide public funding for health care for people injured in non-work related accidents (possibly piecemeal legislation, e.g., for people hurt outside a motor vehicle by uninsured motorists or in hit and runs);

* establish a large private endowment to finance reproductive health care that government programs and/or health insurance won't pay for;

* establish more new medical schools so that they country can produce more doctors each year (the number of medical school slots has remained almost constant for many decades despite a growing population);

Landlord-Tenant and Property Maintenance

* provide public funding for non-negligent moving to storage of the property of evicted people and homeless people;

* make renter's insurance mandatory for residential renters, with the landlord having a duty to insure that this requirement is complied with;

* establish some sort of sensible cap on lost future rent damages in residential leases terminated early (e.g. X months, or Y% of the amount claimed for Z months after the first X months);

* establish a right of a tenant to hire licensed (if applicable), bonded, and insured professionals to repair certain serious defects in property conditions at landlord expense if landlord fails to act within a statutorily set period of time after receiving legal notices from tenant;

* replace failure to maintain property ordinance violation fines with laws authorizing local governments to maintain properties at owner's expense;

Criminal Justice and Civil Rights

Criminal law 

* establish statutory exclusionary rule for confessions or testimony obtained using deception from governmental officials (possibly not as broad as 5th Amendment exclusionary rule in terms of fruit of the poisonous tree, for example);

* ban consideration of acquitted or uncharged conduct in sentencing (give this policy change retroactive effect);

* criminalize guards having sex with incarcerated people under their supervision;

* criminalize law enforcement officers having sex with people while on the job in the absence of a pre-existing relationship and an absence of exercise of law enforcement authority;

* make payments at a statutory rate in lieu of public defender representation for criminal defendants who have private criminal defense attorney and are acquitted;

* create a right to compensation without proof of fault or actual innocence for people whose incarceration pursuant to a conviction for a crime is vacated for reasons other than a pardon, and are released;

* create a right to compensation without proof of fault or actual innocence for people whose pre-trial arrest or incarceration is found to have not been supported by probable cause;

* end cash bond for pre-trial release in most cases;

* remove marijuana (and chemically or biologically related drugs) from the list of Controlled Substances under the federal Controlled Substances Act and retroactively pardon everyone convicted of mere possession under the Act for marijuana offenses;

* establish grants for private innocence project type non-profits;

* eliminate the authority of municipal governments to impose a sentence of incarceration for an ordinance violation;

* prohibit an appellate court from remanding a case reversed for an abuse of discretion by the judge in a criminal case to the same judge;

Civil law

* impose vicarious liability on governments for civil rights violations by their employees without independent proof of fault (if they don't promptly throw the violator under the bus by firing the employee promptly after a lawsuit or complaint is filed, and by establishing as a defense that the employee was acting contrary to the employer's policies);

* eliminate qualified immunity for governments that are vicariously liable for civil rights violations even if employees benefit from qualified immunity for their personal liability for civil rights violations;

* establish civil liability for violations of constitutional rights that arise from negligence, reckless, or willful and wanton conduct;

* give courts in civil rights action the authority to ban defendants found liable for violating civil rights from serving in law enforcement and/or possessing firearms;

* eliminate the immunity, absolute or qualified, from civil liability of any judge, prosecutor, or other elected official who has been convicted of a crime or ethical violation for conduct related to that crime or ethical violation with the statute of limitations on this claim deemed to arise only when the person bringing suit receives notice that the official was convicted of the related crime or ethical violation;

* end civil forfeiture, not incident to a judgment in a civil action against the owner as a named defendant or a criminal conviction of the owner, of assets that are not inherently contraband, and do not allow law enforcement agency budgets to economically benefit from civil forfeiture proceeds;

Enforcement

* create a state agency to investigate and prosecute law enforcement and prosecuting attorney violations of the law, civil rights violations, and ethical violations appointed by public defenders and/or civil rights lawyers;

Income Taxation

* treat tips as self-employment income, rather than wage and salary income, for income tax and withholding tax purposes;

Bankruptcy

* treat every claim acknowledged by a debtor in a bankruptcy in the debtor's schedules as one for which a proof of claim has been filed;

* require any entity majority owned or controlled by a bankruptcy petitioner to be included in the bankruptcy petitioner's bankruptcy;

* establish a new bankruptcy chapter for probate estates that limits relief to the automatic stay;

E-filing mechanics

* fully automate services of process upon the debtor, all parties that have filed claims in the case, and all creditors listed by the debtor in the e-filing system;

* allow creditors to file a proof of claim in a bankruptcy with an online form;

Limitations on claim discharges

* make it easier to prove that fraud/willful misconduct debts are non-dischargeable in bankruptcy without retrying underlying facts of a debt, and allow extensions of time to object to their discharge for excusable neglect or lack of notice;

* relax the standard for discharging student loan debt in bankruptcy by eliminating its non-dischargeability ten years after repayment begins, and in case where no degree has been is earned when repayment begins, where no professional licenses is obtained in a preprofessional program when repayment begins, in cases of wrongful educational institution or student loan lender practices, in cases of disability, and in other cases of unreasonable hardship;

Claim priority

* eliminate the priority in bankruptcy for tax debts other than withholding tax debts and tax liens;

* subordinate awards of punitive damages, debts for non-compensatory fines and penalties, statutory damages unrelated to actual compensatory damages, late fees, and the portion of interest on debts that exceeds non-default interest, to general creditors in bankruptcy,

* give priority in bankruptcy cases over other general creditor debt (mostly long term financing debt) to trade creditors whose debts would otherwise be general creditor debt;

* treat independent contractor payments for personal services as wages for purposes of bankruptcy priority;

Insider preferences and compensation

* claw back payments made to or authorized within one year prior to bankruptcy to equity owners;

* claw back payments made to or authorized within one year prior to bankruptcy to managers and executives in excess of (1) fair market value for the services rendered, (2) the compensation rate payable immediately prior to one year prior to bankruptcy, or when hired if first hired after that date (excluding any discretionary bonus payments), or (3) $50,000 per month (whichever of the three is smaller, but not less than minimum wage).

* limit payments to managers, executives during a bankruptcy to (1) fair market value for the services rendered, (2) the compensation rate payable immediately prior to one year prior to bankruptcy, or when hired if first hired after that date (excluding any discretionary bonus payments), or (3) $50,000 per month (whichever of the three is smaller, but not less than minimum wage).

* limit payments to legal counsel during bankruptcies pursuant to administratively set limits on total fees, contingency fee rates, and hourly rates;

* automatically cancel all equity interests of an entity that voluntarily files for bankruptcy with the authorization required to do so under state law (with a strict deadline for equity interest owners to assert that a bankruptcy was ultra vires to prevent this cancellation), and in any other case, as soon as it is established that the debts of the bankrupt exceed the assets of the bankrupt; 

Exemptions of assets from creditors claims and debtor income

* require individual debtors in bankruptcies to contribute to the bankruptcy estate an amount equal to the maximum wage garnishment allowed under state law for three years (or the equivalent in the case of a self-employed debtor) absent extraordinary circumstances set forth in the statute, in lieu of the current means-testing rule;

* place a uniform national dollar cap on the homestead exemption available in bankruptcy (e.g. $100,000 indexed) notwithstanding higher exemptions available under state law (but without increasing exemptions allowed under state law);

* allow tenancy-by-entirety protections from creditors only in joint bankruptcies of the owners;

* place a uniform national dollar cap on the exemption for retirement assets in bankruptcy (e.g. $500,000 indexed);

* place a uniform national dollar cap on the priority for alimony and child support in bankruptcy (e.g. $500,000 indexed);

Arbitration, Class Actions, And Jury Trial Waivers

* ban arbitration for child custody and establishment of child support matters;

* ban binding pre-dispute arbitration for intentional tort litigation;

* ban binding pre-dispute arbitration clauses for consumers, non-institutional investors, and non-unionized employees;

* allow arbitration awards in circumstances where arbitration is allowed to be reviewed for disregard of applicable law or failure to follow the arbitration rules agreed to by the parties;

* prohibit arbitration procedures from changing the substantive rights of the parties under non-arbitration law;

* require an occupational license to serve as an arbitrator and make that license subject to revocation for misconduct by an arbitrator;

* require public disclosure of arbitration awards in circumstances where arbitration is allowed;

* clarify statutorily that contract formation in cases where an arbitration agreement is present is for a court to decide and clarify that arbitration agreements must be in writings signed by the person against whom they are to be enforced unless select expressly specified exceptions to that requirement apply;

* ban class action waivers;

* ban jury trial waivers in connection with torts arising from personal physical injuries, and intentional torts other than business torts;

Private Law

* pass an anti-pre-emption statute (common in uniform and model laws) that  allows the law of ERISA plans and federal government provided benefit plans (e.g. federal government employee life insurance and retirement benefits) to be supplemented by common law and equity (and non-ERISA specific state law more generally) from the state where the plan administered or where the federal government employee is domiciled;

* establish a national index of marriages, civil unions, publicly filed domestic partnerships, marriage dissolutions, legal separations, and similar proceedings;

Debt collection

* subject assignees and purchasers of debts and business creditors of consumer debtors (subject to a de minimus exception) to the same obligations as debt collectors under the Fair Debt Collection Practices Act;

* establish strict liability sanctions for creditors, debt collectors, and attorneys seeking to enforce debts barred by a statute of limitations, a bankruptcy discharge, or res judicata (i.e. "zombie debt") in either a lawsuit or bankruptcy;

* prohibit making death an event of default under a contract in circumstances to be set forth in a statute, where prejudice to the other party under the contract is avoided;

Unlawful business practices

* make it a deceptive trade practice for a business to continue to use a contract, contact term, or procedure of a business has found to be void as contrary to public policy or illegal in a lawsuit in litigation with the business or in litigation in which an officer or director of the business participated with another business;

* make it an ethical violation for an attorney to draft a contract containing a term that the attorney knows is contrary to public policy or illegal under a binding precedent or statute, or to request such a term in a transactional negotiation;

Copyright

* in copyright infringement actions, eliminate statutory damages and limit awards to compensatory damages for lost profits of the copyright owner and/or disgorgement of amounts by which the infringer was unjustly enriched, together with costs, attorney fees, and interest;

* in copyright infringement actions, limit attorney fee and expert witness awards as part of court costs (combined) to not more than one-half of the damages awarded or $500, whichever is greater;

* impose a statutory civil fine upon anyone filing a wrongful takedown notice under the DCMA;

* establish mandatory copyright licensing for orphan works, translations of works that have not been translated in a timely fashion, and certain other transformative or independently innovative derivative works;

Worker's Compensation

* require worker's compensation death benefits to be at least comparable to the death benefits commonly awarded in wrongful death tort cases even in cases where a worker does not have a surviving spouse or surviving dependent children;

Debt Collection And Civil Procedure

Attorney fee and cost awards

* establish a statewide hourly rate for attorney services and paralegal services that counts are reasonable and/or fixed amounts for particular tasks, for use in fee shifting cases (at least in sanctions cases), in lieu of actual litigation of reasonableness on a case by case basis;

* in actions for money damages in which the prevailing party is entitled to attorney fees, limit the reasonable attorney fee and expert witness awards as part of court costs (combined) to not more than one-half of the damages awarded (or sought in the case of a prevailing defendant), or $500 (indexed), whichever is greater, even if the attorney fees and expert witness fees incurred were otherwise reasonable;

* allow a legal malpractice plaintiff to recover the plaintiff's attorney fees in the legal malpractice action as an element of damages;

Service of process and notice

* replace service of process by publication of a legal notice in a newspaper of record for several weeks, with service by process by notice in one of several public notice registries available in person at the courthouse and for free online (at no charge to the litigant) the entries in which have an index number that can be used to also serve the notice via text message, email, voice mail, postcard, and posted notices;

* establish a system in which an "interested person" such as a judgment creditor, a spouse, a former spouse with outstanding obligations owed to them, a secured creditor, or a creditor under a written contract, can automatically receive notice of the death of a person, the change of name of a person, probate proceedings concerning a person, bankruptcy proceedings concerning a person, lawsuits against a person, and personal property lien filings against a person;

* establish a system in which a person can automatically receive notice of new real estate record filings concerning a particular parcel of real property, and lawsuits relating to possession of a particular parcel of real property;

* allow substituted service of process of new lawsuits (i.e. service of process under Federal Rule of Civil Procedure 4 or the equivalent) to be made upon "gatekeepers" such as doormen or entry area receptionists, when access to a residence or business is restricted;

E-Filing related practices

* provide e-filing access to pro se parties;

* eliminate the requirement of a certificate of service for parties that e-file court documents since the e-filing system would handle this function automatically with third-party verifiability;

* create a publicly available database of contact information for attorneys and eliminate the requirement that attorneys with disclosed registration numbers in legal filings include their contact information on each document they file;

* give parties in cases with pro se litigants access to contract information about those litigants and eliminate the requirement that attorneys with disclosed registration numbers in legal filings include their contact information on each document they file;

Enforcement of money judgments

* give judgment liens in real property statewide scope where the judgment creditor can provide sufficient data about the judgment debtor to prevent similar name confusion;

* allow judgment creditors to gain access to the tax records (including information returns filed such as W-2s, K-1s and 1099s), and credit records, of judgment debtors, as a matter of course, at any time when judgment creditors would have a right to obtain information from judgment debtors directly about their assets and in bankruptcy cases;

* allow judgment creditors to execute upon ownership interests of judgment debtors in entities by giving notice of a judgment to the registered agent of the entity without regard to the form of the entity or whether its shares are certificated or not, or any buy-sell agreement of the company;

* establish detailed procedures and exhaustion of remedies requirements that must be followed in contempt of court proceedings alleging a willful failure to pay money or property in connection with a judgment or court order including a child support or alimony order;

Statutes of limitations

* make filing a lawsuit within the statute of limitations an element of every cause of action, that is part of the prima facie case which must be established in the complaint to state a claim, and upon which the burden of proof is on the person bringing the claim;

Procedures related to unlawful business practices

* give notice (in a publicly accessible document)  to the state attorney-general in the state where a lawsuit is filed, and also the state where an entity defendant is organized or an individual defendant is domiciled, of any lawsuit or counterclaim filed by a consumer or employee against a business or employer (so that someone can see patterns and practices of allegations whether or not the cases are settled), including product liability tort claims;

* give notice (in a publicly accessible document) to the state attorney-general in the state where a lawsuit is filed, and also the state where an entity defendant is organized or an individual defendant is domiciled of all court judgments in which a contract, contract term, or procedure of a business is found to be void as contrary to public policy or illegal;

* require a business to affirmatively disclosed that a contract, contact term, or procedure of a business has found to be void as contrary to public policy or illegal in a prior lawsuit, in litigation with the business related to that contract, contract term, or procedure.

Ethical obligations of attorneys in litigation

* require an attorney filing a civil action, or representing a party in a civil action, to disclose any assertion of law made that the lawyer knows is contrary to a controlling precedent (subject to an ongoing duty to supplement during the pendency of the litigation) even if the assertion of law does not violation Rule 11 (permitting good faith arguments to change the law) and subjecting the attorney to sanctions if the attorney's client does not prevail on the merits on that legal argument if it is not disclosed or withdrawn promptly after being identified;

* establish an ethical duty of an attorney at any stage of a proceeding (even an appeal) not to argue inferences regarding facts that are known to be factually untrue (even if the untrue facts are not themselves presented as evidence) before a tribunal in a civil matter without disclosing this reality to the tribunal;

Federal subject-matter jurisdiction

* eliminate ordinary diversity jurisdiction in cases in which both plaintiff and defendant have a U.S. domiciled party;

* eliminate general federal question jurisdiction in cases involving only non-government associated parties;

Federal personal jurisdiction

* restore the rule that general personal jurisdiction may be asserted over any entity that has any office for the conduct of business or a registered agent in a state;

* allow federal district courts where the plaintiff resides to assert personal jurisdiction over a defendant or third-party witness or garnishee who is not subject to the personal jurisdiction of any one U.S. state, or the District of Columbia, or any one U.S. territory, but does have sufficient contacts with the United States as a whole to be subject to its personal jurisdiction if the United States had been a single U.S. state;

Jury trials

* eliminate by statute, the right to a jury trial in state court in civil actions to enforce a written contract or lease signed by the party to be charged, or to sue in the alternative in such as case, for promissory estoppel or unjust enrichment;

* establish a right to a jury trial in state court with respect to counterclaims in civil actions in which there is no right to a jury trial on the claims in the complaint (i.e. repeal the "well-pleaded complaint rule" for jury trials);

Appeals

* prohibit an appellate court from remanding a case reversed for an abuse of discretion by the judge in a civil case to the same judge;

Pre-litigation discovery

* Allow a special proceeding called a pre-litigation inquiry, under a new rule of procedure in both state and in federal court, to be brought to allow prospective plaintiffs to engage in pre-litigation discovery regarding facts in the exclusive control of a prospective defendants, at the expense of the plaintiff, upon a showing that all elements of a cause of action except those requiring evidence in the exclusive control of a prospective defendant have been established, that is limited to facts in the exclusive control of a prospective defendant that are necessary to state a claim for relief (in response to new, more strict, pleading standards in Twombly, Iqbal, Warne, and related cases); 

Quality Of Life Laws

* nationalize can and bottle deposit laws;

* make public sidewalks public property for purposes of snow removal and maintenance;

Spam-like activity

* do anything that works to crack down on extended warranty solicitations, such as requiring a license number that must be disclosed in any solicitation in any medium to sell an extended warranty;

* do anything that works to reduce junk calling, including criminalizing caller ID spoofing and requiring phone companies to enact systems that prevents or makes it much more difficult to engage in caller ID spoofing;

* require all unsolicited telephone communications made, text messages, and emails to be recorded with records maintained for three years;

* establish "know your customer" laws related to firms that facilitate payments to people who are conducting fraudulent schemes resulting in payments from many people (ten or more that are in the aggregate in excess of $10,000) that can be triggered by complaints from people who have made payments or authorities as well as from business negligence, and require any company that engages in robocalling, mass faxing, mass texting, and mass email marketing (even if legal) to disclose that fact to their financial and payment systems providers;

* require a federal license (which is available as a matter of right to individuals who can do so legally, that can be revoked civilly for misconduct) to engage in robocalling, robo-faxing, mass texting, mass email marketing, and mass mailing through the U.S.P.S.

Bonded And Insured - A Way To Make The Economy More Robust

This is a proposal designed to protect governments entering into contracts, businesses in the course of their regular businesses, and other members of the general public, from the risk that a company that enjoys the benefits of limited liability becomes insolvent or goes bankrupt, except when these persons are consciously evaluating this risk because they are intentionally making an investment.

This would make our economy more robust and would make bankruptcies for covered businesses much less expensive, simpler, more swift, and much less likely to have contagion effects that propagate beyond the bankrupt firm.

It basically generalizes the model of agencies like the the FDIC and the Pension Benefit Guaranty Corporation (a government agency that partially pays obligations of insolvent defined benefit pension plans), which have proven to be very effective at mitigating the harm caused by insolvent major private institutions, especially during recessions and financial crises, thereby making the economy more robust and reducing systemic risk in the economy, and making the navigation of institution insolvency more smooth collectively and for innocent people affected by these insolvencies.

It is also inspired by regulations in other countries of limited liability entities that is more robust than in the U.S. and regulation of limited liability entities used in the practice of law in Colorado.

There is a good argument that some insurance requirement should be present for all limited liability entities. Realistically, almost all covered entities below already have insurance and the bonding requirement is the innovative part.

Who Would Be Subject To The Bonded And Insured System?

The basic idea is that certain companies would have to be bonded and insured. This would include:

Every company with publicly held equity or debt doing business in the United States or traded on a securities exchange in the United States. 

Every privately held limited liability entity with 50 or more persons providing services to it during the course of the most recent calendar year, for whom a W-2 or 1099 had to be issued. 

Every privately held limited liability entity bidding on or performing a significant contract or grant with a government in the United States. 

Every privately held limited liability entity bidding on or performing a significant contract or grant with a public charity doing business in the United States. A public charity would be a non-profit defined as such in the Internal Revenue Code. A public charity is doing business in the United States if it is organized under the laws of a government in the United States or if the contract or grant is to be performed for an office of the public charity in the United States or the contract is to be performed in the United States. 

A significant contract or grant would be a contract that is either more than $1,000,000, or more than $100,000 if the amount of the contract is more than 10% of the government entity or public charity's annual expenditures in its most recent fiscal year. 

Any company or non-profit that opts into the system even though it is not required to do so. A company that opted in would be authorized to advertise that fact. False claims of being bonding and insured voluntarily would be handled by the Fair Trade Commission (FTC).

What Would Participants Be Required To Do?

Participants would be required to obtain federal government regulatory agency approved bonding and insurance.

The company would be required to have certain kind of liability insurance in placxe. This would include: (1) comprehensive general liability insurance, (2) worker's compensation insurance, (3) automobile insurance and the equivalent for other vehicles, (4) construction defect coverage for firms engaging in construction, (5) professional liability insurance for firms providing professional services, (6) flood insurance for business with operations in flood plains, and (7) earthquake insurance for businesses located in high earthquake risks.  There would be no deductible as to third-parties on these insurance policies, but the insurance company could reserve a right to reimbursement for a deductible from the company up to an amount allowed by a formula or rule. The insurer would also provide a legal defense to the claims and eroding policies (where defense costs were paid from the policy limits) would be prohibited.

The company would be required to be bonded with a bonding agency meeting certain standards up to a dollar amount determined by a simple formula. Bonding agencies in the program would also have to pay a tax to fund a firm that would guarantee claims on bonds that are owed by insolvent bonding agencies. The bonding agency would be required to pay on demand any covered claim up to the dollar amount of the bond on a covered claim. 

Covered claim types would include properly "perfected" claims for essentially all trade creditors of a company including deductibles owed to insurance companies, money market loans (up to some formula cap amount), mechanic's lien claims where the company doesn't have primary contractual liability, and tax obligations other than income taxes (e.g. withholding taxes, sales taxes, excise taxes, and property taxes). The main liabilities that would not be covered claims would be (1)  finance debt (i.e. loans of cash for more than 91 days or large short term loans up to some formula cap amount, obligations on guarantees of such loans such as corporate bonds, unsecured bank loans, deficiency judgments on secured loans, and derivative instrument debts), (2) claims for income taxes, (3) claims on insurance claims in excess of policy limits, (4) civil claims for uninsurable tort claims, punitive damages and penalties, and (5) criminal penalties, fines and costs.

The most common way to "perfect" a claim would be to get a money judgment against the bonded company that has been unstayed and unpaid for five weeks (35 days) from entry of judgment. But insurance company deductible claims would be perfected if certified by the insurance company as having been paid by it and not reimbursed within 91 days but not more than three years, by the bonded company. Tax claims would be perfected when assessed. In the case of companies that have ceased to be going concerns, a Bond Claims Receiver, a public official similar to the U.S. bankruptcy trustee, would be appointed by a federal district court or bankruptcy court upon the petition of the company or its bonding agency or other claimant representatives where a mass claim filing was underway or imminent.

Bonding agencies would have a right to indemnification from the company bonded for the aggregate outstanding amount all claims paid by the bonding agency, plus a service fee in a contractually established amount subject to regulation by the federal government regulatory agency for each claim paid, plus interest at a rate similar to subordinated corporate bond interest rates on the outstanding balance owed each day. This indemnification right would be secured by a UCC-1 filed blanket security interest under the UCC in all of the tangible and intangible personal property of the company and recorded security interests in all of its real property, with these security interests subordinate only to purchase money security interests in the collateral (and refinancing of that debt), tax liens to the extent provided by law, HOA liens to the extent provided by law, and express subordinations agreed to by the bonding agency.

Bond premiums would be subject to an excise tax used to fund an agency that would pay some or all of covered bond claims in excess of bonding agency bond amount limits because the federal government agency's required bond amount limits were too low in the case of a particular company.

Establishing Regulations

A federal advisory board attached to the Commerce Department Bureau administering the program would establish regulations for the program.

The insurance coverages and minimum policy limits and maximum deductible  amounts required for each type of insurance would be established with a rule or formula, and this agency would also establish a simple formula to determine the dollar amount of the bond required.

This advisory board would also establish regulations to determine which state licensed insurance companies and bonding agencies would qualify for use by companies in the program. 

Primary regulation of bonding agencies and insurance companies would remain with state governments and would be ratified by this agency essentially providing a second look to make sure that state regulation of bonding company and insurance company reserves was not too lax. 

Enforcement

Publicly held companies would have to certify to the SEC that they were still bonded and insured on each regular report or with a special notice if this ceased to be the case. Compliance by publicly held companies would be enforced by the SEC. 

A small new Commerce Department Bureau with a tiny budget and few employees would enforce compliance with an administer the program in the case of non-publicly held companies, government agencies, and public charities. It would would have a system for sanctioning or bringing into compliance entities in its jurisdiction that should have been bonded and insured, but were not, and for dealing with bonding agencies and insurance companies that fail to comply with the rules.

The Commerce Department Bureau would also vet insurance and bonding companies that wished to participate in the program to determine if they complied with the regulations for the program and were eligible to provide insurance or bonding that satisfied the program's requirements.

Privately held companies with 50 or more employees would have to certify that they were bonded and insured on their tax returns each year with a notice given by the IRS to the Commerce Department Bureau, if they were not. Other privately held companies filing tax returns with the IRS would have to check a box that they were or were not covered on their annual tax return, and another box regarding whether they were or were not required to be covered which would be similarly reported if appropriate. Firms that were covered or required to be covered, but did not have to file their own tax returns with the IRS in a given year, would still have to file an annual report with the IRS certifying their compliance and informing it of their non-compliance with referral to the Commerce Department Bureau, if necessary. Public charities would certify compliance on their annual Form 990 filed with the IRS or risk losing public charity status and would also be referred to the Commerce Department Bureau if they were not.

Local governments and state agencies would be to certify compliance each year to a responsible state government official designated by the state, and that designated state official would certify compliance (subject to exceptions reported along with a report on the actions being taken by that state official to resolve the non-compliance) to the Commerce Department Bureau.

Bonding agencies and insurance companies of covered companies would have to notify  the SEC or the Commerce Department Bureau, as the case might be, if their bonds or insurance policies were terminated by the company covered by them for any reason. 

Complaints that a company required to be bonded and insured, or representing that it was bonded and insured, was not bonded and insured, could be made to the SEC for publicly held companies, to the designated state official for state and local governments, and to the Commerce Department Bureau otherwise. 

Complaints that a bonding agency or insurance company of a bonded and insured company was not acting properly would be referred to the state regulatory licensing that company.

A corps of Bond Claim Receivers would be established as an additional division of U.S. Bankruptcy Trustee's office. The U.S. Bankruptcy Trustee's office would not have any direct dealing with the Commerce Department Bureau or the SEC.

What Would This Mean?

Bankruptcies involving reorganizations of going concerns be limited to allocating the assets of the company left over after payment of purchase money secured debt, priority tax and HOA liens, and the bond indemnification lien debt. The only claimants in the bankruptcy would be (1) finance creditors, (2) income tax claims, (3) claims on insurance claims in excess of policy limits, (4) civil claims for uninsurable tort claims, punitive damages and penalties, and (5) criminal penalties, fines and costs.

Finance creditors would have loan covenants requiring excess insurance policies if in their financial judgment, the federal regulatory agency's minimum policy limits were too low and management didn't already decide to put that in place to protect equity owners.

People other than finance creditors dealing voluntarily with bonded and insured companies would almost never have uncollectible debts, thus protecting innocent people who have no choice but to do business with some big business in many circumstances. 

The fact that all of their legal obligations would be collectible would also encourage bonded and insured companies to act lawfully, relative to people who would be uncollectible vis-a-vis major tort or other debt obligations. This would prevent the contagion of unpaid claims of bonding and insured companies from taking down innocent firms that do business with them, governments that do business with them, and public charities.

This system would not impact the vast majority of existing small businesses or impede small business formation, but would highly the heightened default risk of dealing with these businesses as trade creditors. But individual small business defaults of non-government contractors don't pose the same systemic risk to the economy.

Personal Bankruptcies Down, Commercial Bankruptcies Up In Pandemic

This makes sense, but it is easy to see how one wouldn't have predicted it.

Bankruptcy filings by consumers under chapter 7 were down 22% last year compared with 2019, while individual filings under chapter 13 fell 46%. . . .

By contrast, commercial bankruptcy filings rose 29%, with more than 7,100 businesses seeking chapter 11 protection last year.…

Economists and bankruptcy lawyers say federal suspensions of evictions, home foreclosures and student-loan obligations have helped limit bankruptcies—though they worry bankruptcy rates could go up after aid ends. Household spending also dropped as people stayed home, canceled travel and socially distanced to avoid the coronavirus. Several rounds of government aid padded incomes with direct payments to households and enhanced unemployment benefits. The personal saving rate rose.

Via Marginal Revolution.

Observations From A Chapter 7 Bankruptcy

I recently analyzed the treatment of claims in the Chapter 7 bankruptcy of a medium sized business called Event Pro Strategies, which was a closely held promotions business that operated in about half a dozen or so states and the District of Columbia. It filed for bankruptcy prior to the pandemic, and the order for the final distribution of funds and closing the bankruptcy estate was recently entered. 

The overall trends in this case are typical of those reported in the literature of closely held business bankruptcies generally. 

There were 161 creditors in the bankruptcy. The tax claims of the District of Columbia are treated as state rather than federal tax claims as they are in bankruptcy, in general. The "other" unsecured general is the claim of a single private individual who extended unsecured financing credit to the firm (who was probably also one of the owners of the company).

I have favored a couple of significant changes in bankruptcy priority that would have had an impact on this case. 

One is to afford trade creditors (who received nothing in this bankruptcy case) a priority above that of general creditors and below that of other priority creditors in bankruptcy. The other is to end the priority of federal and state tax creditors (who received 8% and 12% of their claims respectively), and instead, to treat these creditors as general creditors.

If these reforms had been adopted, the trade creditors in this case would have received about 38% of their claims and tax creditors would have received nothing.

Basically, this is because this would reflect how badly the respective categories of creditors need the money. It also would reflect an adjustment of priorities that is common anyway in Chapter 11 bankruptcy reorganizations.

It also illustrates how inefficient the bankruptcy process is in these kinds of cases, with about 35% of the total funds available for distribution in the case going towards the bankruptcy trustee, the attorneys for the bankruptcy trustee, and their respective out of pocket expenses in connection with the case.

A Selection Of The Worst Federal Laws Currently In Force In The United States

The U.S. Constitution

1. The Electoral College. Article II, Section 1 (as amended).

2. The right to bear arms as interpreted in District of Columbia v. Heller, 554 U.S. 570 (2008) and McDonald v. City of Chicago, 561 U.S. 742 (2010). Second Amendment to the U.S. Constitution.

Federal Statutes and Interpretations Of Federal Statutes

1. The Federal Arbitration Act. 9 U.S.C. §§ 1-16. 

2. The nearly complete unavailability of a discharge in bankruptcy for student loans, even if you didn't graduate and a decade or more has passed since the loans were incurred. 11 U.S.C. § 523(a)(8). 

3. The lack of a statute of limitations after an unlawful entry during which a person can be deported. Primarily missing from the Immigration and Nationality Act. 8 U.S.C. §§ 1101-1537. 

4. Qualified immunity for law enforcement from civil liability arising under 42 U.S.C. § 1983. 

5. The lack of vicarious liability under 42 U.S.C. § 1983 for governmental employers. 

6. The habeas corpus provisions of the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA). 28 U.S.C. § 2254. 

7. ERISA pre-emption. 29 U.S.C. § 1144. 

8. The ability of states to opt out of Medicaid expansion under Obamacare, mostly as a result of the U.S. Supreme Court ruling in National Federation of Independent Business et al v. Sebelius, 567 U.S. 519 (2012), interpreting the Affordable Care Act, and especially 42 U. S. C. §§ 1396a, 1396c and 1396d.

9. Preferential tax treatment of capital gains under the Internal Revenue Code. 26 U.S.C. § 1(h).

10. The untaxed step up in basis of capital gains at death. 26 U.S.C. § 1014.

11. The disallowance of deductions for expenses involved in selling controlled substances (including marijuana) for income tax purposes. 26 U.S.C. § 280E.

12. Drug Enforcement Administration insistence on treating marijuana as a Class I controlled substance pursuant to 21 USC 812(b), for example, in its Notice of denial of petition to reschedule marijuana, 66(75) Federal Register 20038-20076 (April 18, 2001).