April 1st Arrived Early

In its ceaseless quest to evade the law The Pirate Bay announced plans to build drone-based airborne servers–what it called Low Orbit Server Stations (LOSS)–destruction of which the site said would be “a real act of war.” TPB is nothing if not amusing. Flying file-sharing drones is not an inherently crazy idea–well, maybe it is inherently crazy, but the Electronic Countermeasures project has created them. Not the same as what The Huffington Post describes as TPB’s “madcap, potentially tongue-in-cheek, but brilliant scheme,” but on the same continuum. It is brilliant–as marketing, not a workable plan to avoid the law.

I think LOSS really stands for Laughing Our Selves Silly.*

*Or other words that start with S.

Commerce Clause Arguments

The media is filled with articles and reports on this week’s Supreme Court arguments on the Affordable Care Act. This WSJournal article (subscription required) efficiently summarizes the arguments and justices’ questions. Definitions of the relevant economic activity reveal a key distinction between the law’s challengers and supporters–the former focus on the market for health insurance, the latter on the market for health care. The two are obviously connected but the law’s opponents argue that one can be in the market for the latter without being in the market for the former. The media consensus is that the law is in trouble–on CNN Jeffrey Toobin called the Supreme Court session “a train wreck for the Obama administration–and that Justice Kennedy is the key.

ObamaCare at the Supreme Court

Beginning today the Supreme Court is hearing three days of arguments on the constitutionality of the Affordable Care Act. The first issue is whether the Court can even consider the law’s constitutionality now–a legalistic argument that in the words of a lawyer challenging the law is “a kind of practical joke that the court is playing on the public.” The 1867 Anti-Injunction Act requires that a tax can only be challenged after it has been paid. The ACA’s penalty–or is it a tax?–for failing to obtain health insurance does not go into effect until 2014 and would not be payable until federal tax returns are filed in 2015, which could mean the challenge must wait. It’s an argument only a lawyer could love, with the twist as to whether the payment imposed for failure to obtain health insurance is a tax. As the NYTimes explains:

In the health care law, Congress called the required payment a penalty rather than a tax. But the penalty is contained in the Internal Revenue Code, and the health care law says it is to be “assessed and collected in the same manner” as a tax.

Mr. Verrilli, representing the Obama administration, walks a fine line. He has told the court that the administration wants a prompt ruling on the health care law and that the 1867 law should not stand in the way. Yet the administration does not want to damage its ability to rely on the 1867 law in other cases.

There are other complications. Mr. Verrilli’s argument that the penalty is not a tax for purposes of the 1867 law is in potential tension with one he will make on Tuesday, that the mandate was authorized not only by Congress’s power under the commerce clause but also by its power to levy taxes.

Mr. Verrilli argues that the name that Congress gave the payment required for violating the mandate in the health care law — a penalty, not a tax — matters for purposes of the 1867 law but is irrelevant in connection with the constitutional taxing power, where “it is the practical operation of the provision, not its label, that controls.” (emphasis additional)

As I said, it’s an argument only a lawyer could love.

The Right Result

As punishment for its bounty system in which defensive players received cash awards for injuring opposing players the NFL has suspended New Orleans Saints coach Sean Payton for the 2012 season without pay and indefinitely suspended the Saints former defensive coordinator Gregg Williams. I agree with this punishment, although I think Williams–who was closest to the program and admitted that he knew at the time the bounty payments were wrong–should be barred from the NFL for life.

The Bloom is Off the Law School Rose

This NYTimes headline is a grace note to yesterday’s post about being a lawyer: For 2nd Year, a Sharp Drop in Law School Entrance Tests.  The substance:

The Law School Admission Council reported that the LSAT was given 129,925 times in the 2011-12 academic year. That was well off the 155,050 of the year before and far from the peak of 171,514 in the year before that. In all, the number of test takers has fallen by nearly 25 percent in the last two years.

Is that all? As Mona Lisa Vito says in My Cousin Vinny, “No, dere’s more!”:

The decline reflects a spreading view that the legal market in the United States is in terrible shape and will have a hard time absorbing the roughly 45,000 students who are expected to graduate from law school in each of the next three years. And the problem may be deep and systemic.  Many lawyers and law professors have argued in recent years that the legal market will either stagnate or shrink as technology allows more low-end legal work to be handled overseas, and as corporations demand more cost-efficient fee arrangements from their firms.

I am not against becoming a lawyer. I am against becoming a lawyer without serious consideration of one’s prospects for a satisfying legal career.  Evidently others are concluding the same.

If You Post It, They Will Come

This Forbes article’s title sums up its content: What Employers Are Thinking When They Look at Your Facebook Page. It includes a score sheet of “Five Big Qualities” used to rank college students based on information revealed on Facebook. (I hope whoever named it Five Big Qualities does not plan a marketing career): Extroversion, Agreeableness, Conscientiousness, Neurotocism, Openness to Experience. I’m most interested in the view of privacy expressed in a quotation from someone who opposes using Facebook in this way: “In my opinion you have no more business examining my Facebook entries than you would crashing a private cocktail party.” If a simple search allows me to read your Facebook entries then an apter analogy is  ” . . . than you would watching a cocktail party held outside in Central Park in the middle of the afternoon.” People can wring their hands over the appropriateness of winnowing candidates through social media postings, but if it can be found by a simple search, it will be used.

Looking for My Ticket to Wonderland

My friend Mike, who got me my first teaching job at Babson College in 1997, is in town today to lead a day-long accounting course in a fast-track MBA program. It’s primarily an online course but includes in-class components. Mike is a born teacher–he possesses a seemingly innate ability to break a problem into comprehensible parts–and enjoys teaching both in-person and online.

I’m very curious about the possibilities of online education. Reading a recent article in the NYTimes about Massive Open Online Courses (“MOOCs”) was like a big gulp of Kool-Aid. While the power to reach under-served populations, to impart knowledge to those who want to acquire it for its own sake, and to use technology that requires students to engage with the material are appealing, this passage truly hooked me:

[Stanford research professor and Google Fellow Sebastian] Thrun was enraptured by the scale of the course, and how it spawned its own culture, including a Facebook group, online discussions and an army of volunteer translators who made it available in 44 languages.  “Having done this, I can’t teach at Stanford again,” he said at a digital conference in Germany in January. “I feel like there’s a red pill and a blue pill, and you can take the blue pill and go back to your classroom and lecture your 20 students. But I’ve taken the red pill, and I’ve seen Wonderland.”

If You Are So Smart, Why Are You a Big-Firm Lawyer?

More cautionary news from the world Big Law. Dewey LeBoeuf–the mega-merger of venerable Dewey Ballentine and LeBoeuf Lamb–is in trouble:

Tens of millions of dollars in deferred compensation are owed to Dewey’s partners. Some have been told they are being paid a fraction of what they were promised. The firm is cutting 5 percent of its lawyers and 6 percent of its staff. Nineteen of its 300 partners have left Dewey since January, including heads of major practice areas. About a dozen more departures are expected.

Some of the blame goes to “financial missteps”–which is like saying heart stoppage was the cause of death. When was the last time a business failed because of wise financial decisions? The true problem is the profound change in the legal market, which

has yet to bounce back from a deep recession. Many of the lucrative practice areas that fueled growth during the market boom — securitizations, mergers and acquisitions and real estate — have failed to return to prefinancial crisis levels.

At the same time, expenses, which include the rising pay for young associates just out of law school, continue to accelerate. Further adding strain to firms’ finances are corporate clients who, operating in an uncertain environment, have become increasingly resistant to fee increases and are demanding discounts.

One recently published influential report on the state of the industry painted a grim picture.

“Since it is unlikely, based on overall economic conditions, that the demand for legal services will grow robustly for the foreseeable future, the legal industry will be forced to live with uncertainty for some time to come,” said the report, from Citi Private Bank and the Hildebrandt Institute.

Parse that second paragraph. “Rising pay for young associates just out of law school” and “corporate clients who . . . have become increasingly resistant to fee increases and are demanding discounts.” In other words, big law firms continue to pay big bucks to lure the highest-achieving law school graduates, while clients–those who pay the bills–demand discounts. One discount that the linked article does not mention is for hours billed by those high-paid young associates, who don’t actually know how to practice law. Some corporate clients refuse to pay anything for training young associates–they won’t allow them near their deals.  That’s an unsustainable business model, and partially explains the extraordinary attrition rate for those sought-after young associates:

Attrition of law firm associates has always been a blight on the profession. This attrition is financially painful as associates leave BigLaw in droves during their third or fourth years, at precisely the point when these associates become significant profit centers at the law firm. Attrition at these levels often reach the 60 – 80% level. The financial pain to law firms is compounded by the fact that law firms have by that point spent upwards of $500,000 to recruit and train each associate. In the current market, with clients by and large refusing to pay for the training of young associates, the financial burden to law firms caused by this attrition is further exacerbated.

Another explanation for associate attrition is inhospitable law-firm culture. Take a couple hundred Type-A young associates who are accustomed to thinking of themselves as the brightest bulbs in the chandelier, compensate them more than their objective worth (if they were worth what firms billed for their time clients wouldn’t refuse to pay for them), add mundane legal work–because in this climate that’s all that mid- and upper-level associates are willing to give them–and not even enough of that to keep everyone busy, require them to bill 2,000 hours a year, and shake vigorously. “Inhospitable” doesn’t begin to describe it.

And it’s not like young associates can honestly say if I can make it through this in a few years I’ll be skipping through fields of clover. A big firm lawyer without his or her own book of business will forever be feeding at someone else’s table.

At many large law firms, including Dewey, the compensation system has become a two-tiered structure where the highest-paid partners can make more than 12 times as much as the lowest-paid ones. On the high end are Dewey’s so-called rainmakers, the star partners who make millions of dollars a year executing corporate mergers and handling high-stakes business litigations. [The article mentions one partner with guaranteed annual income of $6 million.] On the low end are the majority of Dewey partners who are known as service partners. These lawyers are not responsible for client relationships. Instead, they handle more tedious legal tasks like drafting briefs and executing merger documents. They are paid at the bottom tier, about $450,000 a year . . .

$450k/year is top 1% money, but many lawyers realize the game isn’t worth the cost of the ticket. If they are smart or lucky they so realize before chaining themselves to a lifestyle that requires $450k/year. If not–misery loves company.

Culture War

Here’s a link to Greg Smith’s buzz-making NYT Op-Ed, Why I Am Leaving Goldman Sachs. It deserves to be read as an insider’s critique and to establish context for the buzz it is generating. Smith’s criticisms conform with my view of Goldman but I claim no special insights about the frim. From what I’ve come to understand about its culture I know I wouldn’t fit there, but that’s not saying much–I don’t fit the culture of many employers and institutions. It’s difficult to credit a 180-degree cultural shift in just over a decade. I expect the changes Smith relates  are not solely Goldman’s. He is not the same person at 33 that he was at 21–who is?–but his Op-Ed presents Goldman as the only variable. But even if one does not take his words as gospel or question the wisdom of tossing them over his shoulder as he walks out the door they have as Judge Grant liked to say, thrown the cat among the pigeons.