Empirical Legal Studies

Legal Academic Hiring Market, JD/PhD Debate, and the "Empirical Revolution"

As usual, Dave Hoffman (Temple) raises some quite interesting points over at Concurring Opinions (and here).

All You Need to Know About H.R. 3962

The good folks over at the Computational Legal Studies blog have an interesting take on the recently-passed H.R. 3962 (health care). Befitting the blog's overall "computational or complex systems" approach, the post contains more than a few interesting factoids. As Dan Martin Katz notes, "The bill is 1990 pages as 'typeset' by the House.  However, the 'substantive' words contained in bill are no longer than the length of a Harry Potter Novel."

Atkins' Influence on Death Row Litigation

The Supreme Court's 2002 Atkins decision raised interesting questions amenable to empirical analysis. In An Empirical Look at Atkins vs. Virginia and its Application in Capital Cases, Cornell colleagues (and leading death penalty defense attorneys) John Blume, Sheri Johnson, and Christopher Seeds, publish preliminary results from their look-back study of Atkins' influence. The abstract follows.

"In Atkins vs. Virginia, the Supreme Court declared that evolving standards of decency and the Eighth Amendment prohibit the death penalty for individuals with intellectual disability (formerly, "mental retardation"). Both supporters and opponents of the categorical exemption, however, have criticized the Atkins opinion. The Atkins dissent, for example, urged that the decision would open the gates of litigation to a flood of frivolous claims. Another prominent criticism, heard from those more supportive of the Court's ruling, has been that the language the Court used—communicating that states must 'generally conform' to the clinical definitions of mental retardation—is ambiguous enough to permit states to stray from the clinical definitions and, consequently, for death eligibility to vary depending upon the jurisdiction in which a defendant is charged. This Article presents preliminary data responsive to these issues, and reports three basic findings. First, Atkins has not opened floodgates of non-meritorious litigation. Second, the success rates for Atkins claims vary dramatically between states and state deviations from the clinical definitions appear to have a palpable impact. Third, as compared to their representation on death row, African-American defendants both file and win a disproportionately high number of Atkins claims."

"Empirical Holy War" -- Eisenberg v. US Chamber of Commerce

Reaction to a recent post on the Wall Street Journal Law Blog (here) makes it clear that my colleague Ted Eisenberg's (Cornell) data-driven critique (forthcoming in JELS) of the US Chamber of Commerce's annual state "rankings" of perceived "lawsuit climate" struck something of a raw nerve. As the WSJ notes, "The Chamber’s Institute for Legal Reform publishes an annual survey,  conducted by the Harris Poll, which ranks states from best to worst, according to how their judges treat class actions, the prevalence of punitive damages, and juries’ “predictability and fairness” among other factors." The WSJ's brief summary of Ted's critique of the survey follows:

"Eisenberg concludes that the survey itself is logically inconsistent. Respondents, for example, he writes, make incorrect conclusion about which states are the most favorable towards punitive damages due to erroneous impressions among the respondents or even misrepresentations of a state’s laws by the Chamber. He says that a state’s movement in the ranking — such as New Jersey’s, which plummeted in one year — could not be validated by a detailed analysis of legal events in the state. Another problem: respondents are given the prior year’s rankings before offering their opinions. This reduces the likelihood that a state could shake an unfavorable image, even if state law there had changed."

Anyone Using Stata v.11 Yet?

Before I finally commit to upgrading to Stata v.11 I'd appreciate any comments (pro or con) from anyone already using it. Major new versions of any software scare me a bit.

The End of an Era: the Bi-Modal Distribution for the Class of 2008

NALP has just posted its entry-level starting salary for class of 2008--i.e., the lawyers who started their jobs just as Bear Sterns and Lehman Bros unraveled and the credit markets completely froze up. 
 
Of the 22,305 law school graduates in NALP's sample (over half of all 2008 graduates), a remarkable 23% (5,130  '08 grads) reported an entry-level salary of $160,000.  In contrast, 42% of entry level lawyers reported salaries in the $40,000 to $65,000 range.  Once again, the central tendencies are a poor guide to the distribution as a whole: whereas the mean salary is a $92,000, the median salary was $72,000.   Further, the two modes ($50,000 and $160,000) are separated by $110,000.

Amidst all the layoffs, deferrals, salary cuts, and apprenticeship programs announced in 2009, it is safe to venture that the bi-modal era has peaked.  Every law school class for the foreseeable future will graduate to a much different economic landscape.  Although many students will regret the opportunity to earn such a big payday upon graduation, it brought with it intense billing pressure, client resentment, heavy leverage, and very little substantive training for new hires.  I would argue that profession as a whole (including current and future graduating classes) is better off with a lower entry level salary. 

Admittedly that is a long-term view for the profession as a whole.  In the short term, current students and recent graduates are in a world of hurt.  Specifically, law school debt loads continue to climb.  Thus, law schools are (rightfully) going to be under increased pressure to deliver value to our students.  I don't think most law professors and law school administrators fully appreciate the difficult times ahead.  For a provocative take on the current state of legal education, see Paul Lippe, Welcome to the Future: Time for Law School 4.0.

For some perspective on how this crazy market evolved, see:

• Henderson, Distribution of Starting Salaries for 2006: Best Graphic of the Year (Sept. 4, 2007)
• Henderson, How the Cravath System Created the Bi-Modal Distribution (July 18, 2008)
• Henderson, Class of 2007:  A More Extreme Bi-Modal Distribution (July 30, 2008)
• NALP, A Picture is Worth 1,000 Words (Sept. 2007).

After the jump are the distributions from 1991, 2006, and 2007.  The primary takeaway is that the bi-modal did not exist in the early 1990s.  It first emerged in 2000 (with the dot.com salary wars) and became progressively more extreme starting as the decade unfolded.  On Wednesday, I have an article coming out in the NALP Bulletin, entitled "The Bursting of the Pedigree Bubble," which will provide some additional analysis.

Supremely Empirical

As long as every other interested party is weighing in on Pres. Obama's first S.Ct. nomination, the least I can do is endorse Dave Hoffman's proposal for a nominee that, at a minimum, possesses a general familiarity and comfort with empirical methods. Although I can understand it when judges choose to simply ignore salient (and, I hope, well-crafted) empirical evidence brought before them (however much it might pain me), when judges (especially Justices) choose to engage with empirical work, however, they really should avoid botching things. In Exxon, Justice Souter's recent high-profile bungling (or "debacle" as Dave notes here; subsequent scholarly work on the issue is found here) falls below what I expect from my law students.  Dave's conclusion warrants repetition:

"The point is that at least some exposure in statistics and social science techniques is quickly becoming part of a well-rounded legal education. It should also be part of what we look for in a Justice."

Judicial Pay Debate Data

Over at the Volokh Conspiracy Eric Posner brings logitudinal data to the judicial pay debate. The data come from a paper on the same topic, Are Judges Overpaid?: A Skeptical Response to the Judicial Salary Debate, by Stephen Choi (NYU), Mitu Gulati (Duke), and Eric Posner (Chicago).

Selling BigLaw Short

It is mid-December and the vast majority of large law firms are frantically pressing their clients for their fees in order to pay down the firm's credit lines and generate a profit pool that can hold the partnership together.  See, e.g., Susan Beck, Collecting, But Hardly Calm and Cool, Am Law Daily (Dec. 10, 2008).  Every investor knows that leverage can be a wonderful thing in boom times but a killer in a down market.  In the last few years, law firms have expanded the use of two types of leverage:  (1) bank financing, often for working capital, and (2) salaried lawyers, in the form of contract attorneys, staff attorneys, associates, of counsel, and income partners, who each generate profits for the equity partners. 

Yet, with the potential for historically low collection rates, a large proportion of Biglaw firms are in one hell of a vise.  Salaried lawyers represent fixed costs.  And even if you lay them off, managers are under intense pressure to pay a reasonable severance (e.g., 6 months pay) to preserve the firm's reputation for an eventual recovery.  Further, firms with the most human capital leverage will nonetheless be stuck with vast expanses of Class A office space under lease terms negotiated during the salad days.  If Biglaw revenues go down 20% for the fiscal year, which is certainly in the realm of possibility for many firms with large capital market practices, profits could dive by 50% or more. 

Similar to what happened at Heller Ehrman, the grim financials could put the firms in violation of their bank lending agreements, see Drew Combs, Why Heller Died, The American Lawyer (Nov. 2008), thus requiring partners to pony up more cash.   Sensing trouble, lawyers with the most options start heading for the doors, initiating a sudden and rapid death spiral.  In short, there is good chance that several hallowed Biglaw firms, particularly those with weak balance sheets, will cease to exist sometime in early to mid 2009. 

Through the Law Firms Working Group, I have access to detailed financial reports for law firms in the Am Law 200 and the NLJ 250.  Here is what the revenues per lawyer (RPL) figures for Thelen and Heller Ehrman looked like for fiscal years 2003 to 2007:

Most firms in the Am Law 200 posted steady rises in RPL during the 2003 to 2007 time period.  But it is pretty amazing that in the cases of Thelen and Heller Ehrman, both old-line firms with established brands, seemingly modest diminutions in revenues were precurors to total collapse.  As noted by Marc Galanter and I in The Elastic Tournament, large law firms have become immensely fragile institutions.   As large firm lawyers, many of them young and connected to clients, flood the streets over the next several months, look for a new model of corporate law practice to emerge that is modest, thrifty, and more sustainable.

Closer to home for us academics, the collapse of Biglaw could have a signficant impact on law schools, particularly those at the top of the food chain who could pass along ever higher debt loads onto students because of a virtual lock on lucrative Biglaw jobs.  Cf. Mike Cahill, Legal Education Bubble?, PrawfsBlawg (Dec. 15, 2008).  Even if law school follows the usual countercyclical pattern of higher admission volumes, the lack of cheap capital in combination with the lack of high paying jobs may stifle enrollment.   It is time to pay attention and carefully evaluate assumptions we have formerly taken for granted.

Understanding the Financial Crisis

Like everyone else, I am struggling to get my head around exactly what happened to produce our current financial crisis.  That is a precondition of anticipating the longer term consequences.  In a single paragraph, this is what (I surmise) happened. 

Sometime during the 1990s, momentum began to build on Wall Street for securitizing home mortgages in new and exotic ways.  Residential real estate seemed like an attractive business because the yields were decent, the historical default rates were low, risk of loss was mitigated by pooling thousands of mortgages (which were, themselves, divided into parts), and the underlying assets (homes) generally went up in value, sometimes by a lot in major metropolitan areas.   Institutional investors had an insatiable appetite for these debt instruments, which were graded as safe by all the major rating agencies.  Further, respected companies like AIG wrote insurance on these instruments on the theory that they would never have to pay.  All the risk was supposedly hedged by "credits swaps," which are fancy and unregulated contracts between private parties.  So money gushed in.  Because virtually any loan could be sold the next day to Wall Street (who, in turn, could repackage them for a large profits within a short time), banks and other mortgage originators could make money with no risk (zero risk!).   This cycle continued even though the pool of mortgage applicants became weaker and weaker--eventually people with (a) bad credit, (b) no assets, and (c) no job.  This had the predictable effect of driving up the price of real estate to a frothy bubble. 

If we want to get back to good old-fashion, sane capitalism where risk is actually assessed before a lender gives a borrower money (and I do), we need to know what the underlying asset (a home) is really worth. 

Here, the news is not good.  According to this story in the New York Times, the price of real estate could tumble throughout 2009.  Frankly, this is where analogies to the 1930s seem like they have some traction.  When an average person's largest asset turns out to be a terrible investment, they have lost a lot of money in the stock market (any thoughts about privatizing Social Security now?),  and banks are failing left and right, it has a devastating effect on society's ability to pool risk--all the money ends up in the mattress, so to speak.   No surprise, people like my grandparents who lived through the Great Depression tended to be very cautious and risk averse with money.

Frankly, the issue now is not how to regulate Wall Street--the investment banks are gone.  It is how to unwind this mess.  The larger tragedy here is not the loss of money; it is the loss of trust by ordinary people in basic financial and commercial institutions.  They worked hard and played by the rules. Yet many of their homes will be worth less than what they paid for them, and retirement seems beyond reach.   Unregulated capitalism failed.  Like it or not, government is the only entity that can fill the breach. 

These two stories from This American Life, both 1-hour long audios, are the two best resources I have found on these topics:

• The Giant Pool of Money, May 9, 2008
• Another Frightening Show on the Economy, October 3, 2008