From: wdstarr@athena.mit.edu (William December Starr)
Subject: Re: Law and Economics
Organization: Northeastern Law, Class of '93
Lines: 234
NNTP-Posting-Host: nw12-326-1.mit.edu
In-reply-to: thf2@midway.uchicago.edu


I'm going to be mixing together here stuff from two of Ted Frank's
articles, <1993Apr15.143623.25813@midway.uchicago.edu> (which was a
response to me) and <1993Apr16.011455.20518@midway.uchicago.edu> (a
response to Tim Smith)...

> > (Yes, I know, the _Boomer_ court didn't call it eminent domain.  But
> > if it walks like eminent domain and swims like eminent domain and
> > quacks like eminent domain...)  [wdstarr]
>
> Are all tort cases really eminent domain cases then?  What about
> bankruptcy?  Contract?

Eminent domain is a state-mandated transaction in which one party is
required to sell a piece of property which it owns to another party,
regardless of whether the first party wishes to sell at all, at a price
which is set by the state.  I fail to see how this doctrine can be found
in tort, bankruptcy or contract cases in general.  Well, okay, sort of
in bankruptcy...

*  *  *  *  *

>> If so, so what?  Since when are the courts supposed to be in the
>> business of preventing parties from reaping windfall settlements
>> from other parties when those settlements arise from wrongful acts
>> by those other parties?  [wdstarr]
>
> Since you said that _Boomer_'s reliance on economics led to an unjust
> result.  I'm pointing out that your alternative is far more unjust, in
> the traditional sense of the world.
>
> [Atlantic Cement's] act was not wrongful.  It did something that we as
> a capitalistic society should want them to do: build a factory, create
> industry and jobs.  The cost of compliance was grossly
> disproportionate to the damage faced by plaintiffs.

Bang.  Here's one of the places where we widely diverge.  You believe
that the courts, in deciding a civil dispute between two parties, should
consider as a factor -- perhaps as an overriding factor -- issues which
I believe the court should ignore as being irrelevant to the dispute.
_Boomer v.  Atlantic Cement Co._ was an action brought by one party,
Boomer, whose property rights were being violated on an ongoing basis by
another party, the Atlantic Cement Company.  The facts supported
Boomer's contention that Atlantic Cement was wrongfully damaging his
property, and Boomer asked the court to order Atlantic Cement to stop
doing so.  End of story.  There was no reason for the court to consider
such issues as what a capitalistic society would want Atlantic Cement to
do or whether the cost of compliance was disproportionate to the damage
faced by the plaintiffs.  Those issues had nothing to do with the case
before the court.

> Bill, if the government had stepped in and the EPA made a regulation
> requiring multi-million dollar cement plants to be shut down because
> of a smattering of cement dust, at a cost-benefit ratio of 15+:1,
> you'd be up in arms.  Why is it okay for the judicial branch to
> interfere this way, but not the legislative or executive branches?

I'd be up in arms?  Why do you assume that?  Quite the contrary, I'd
probably support the action, since it would be based on the same general
doctrine as the decision that I believe would have been correct in
_Boomer_: the idea that people's property rights should not be violated
for reasons of economic efficiency.  In _Boomer_ it was Boomer's
property rights which I believe the court should have protected; in the
hypothetical EPA ruling you've presented, it's the American people's
collective property rights in a healthy physical environment.  What
good is cost-benefit ratio of 15+:1 if you wind up with cement dust in
your air?

*  *  *  *  *

>>> Your rule makes it per se illegal to ever operate a cement plant.
>>> If the State of Massachusetts came up with a similar regulation,
>>> you'd be up in arms and complaining about interference with
>>> property rights, and Fifth Amendment violations.  Once again--why
>>> is it okay for the judicial branch to interfere this way, but not
>>> the legislative or executive branches?  Or are you not the
>>> libertarian you present yourself as being?  [Ted Frank]
>>
>> How would it be per se illegal to operate a cement plant?  Wouldn't
>> it just mean that when buying land for a cement plant, you would
>> have to either buy enough land so that most of the pollution would
>> stay on your land, or buy pollution easements from the surrounding
>> landowners?  [Tim Smith]
>
> All it takes is one holdout out of hundreds of neighbors to scrap the
> plant.  Furthermore, each of the neighbors is going to want the full
> benefit of the bargain under the resulting bilateral monopoly.  A
> bonanza for lawyers, to be sure, who get to negotiate each of these
> agreements, a windfall for homeowners who can extort away any profits
> the plant would make, but not particularly good for society.

Yes.  So what?  The courts are supposed to protect the specific rights
of individuals, not the general interests of some nebulous society.  If
society can have its cement plant without violating anyone's rights,
fine.  Otherwise society will somehow have to limp along with one less
cement plant.  (See, Ted, I really _am_ a libertarian after all! :-)

> That's the whole point behind the Coase Theorem.  In a world without
> transactions costs, the land will automatically be put to the best
> use, as it is transferred from person to person instantaneously
> without friction; the legal regime will not matter, because the result
> will be the same.  In a world such as ours, one with transactions
> costs, one wants the legal regime to approximate the end result to
> begin with, in order to minimize the transactions costs.

"One wants the legal regime to approximate the end result to begin with,
in order to minimize the transactions costs."???  Which "one" are you
speaking of?  _I_ want the legal regime to protect people's rights.
Besides, Coase's Theorem only has real application in the never-never
land of perfectly rational actors.  In the real world (1) some people
are going to be stubborn, ornery, spiteful or otherwise "irrational"
from a economic point of view and (2) the purpose of the courts is to
protect their right to be so.  I don't care if you can show me logically
that your cattle are only doing $100 of damage to my property per head,
so I should rationally sell you grazing rights to my land for, say, $150
per head -- I still retain the right to tell you that I just plain don't
want any damned cattle on my property, not at any price.

*   *   *   *   *

>> And then you say: "Everyone's property rights were protected; the
>> plaintiffs were made whole; unnecessary settlement costs were
>> avoided."  As above, I dispute your claim that the plaintiffs were
>> "made whole."  They were, in fact, by court action deprived of their
>> rights as owners of property to choose to sell or not sell that
>> property at a price acceptable to them.  [wdstarr]
>
> Then, by your argument, no tort plaintiff is ever made whole, because
> the award of damages in involuntary.  Why should we treat a nuisance
> plaintiff any different than any other tort plaintiff?  We don't
> require specific performance in the analogous contractual situation;
> why in tort?

Last question first: For the same reason as in contract law -- because
to do so would come dangerously close to treading on the Thirteenth
Amendment.

As to your "Then, by your argument, no tort plaintiff is ever made
whole, because the award of damages in involuntary" claim, you're at
least partially right.  Faced with situations in which the wrong has
already been done and the damage to the victim has already taken place
and cannot be reversed or undone, courts will try to set an equitable
price tag on the loss suffered by the victim and require the wrongdoer
to pay this price (rather than an inflated price which the victim might
prefer).  In these cases, the "sale" has already taken place and is
irreversible, and the court simply tries to ensure that a fair price is
paid, under the doctrines that (a) only in certain circumstances should
even a civil wrongdoer be forced to pay punitive or excessive prices and
(b) even a genuine victim should not profit in an unjustified or
inequitable manner from his victimhood.  Both of these doctrines may be
worth discussing or debating elsewhere, but neither is relevant to cases
like _Boomer_ in which the wrongful act and the loss stemming from it
are still in the future and _can_ be reversed/undone (i.e., prevented
from happening at all) by order of the court.

In these types of cases, all the court has to do is require that the
potential victim's property rights are protected until and unless he
agrees to sell them at a mutually-acceptable price.  There is no need
for the court to guess at the equitable value of the loss and force both
sides to accept its finding.  It can leave that operation up to the
parties themselves.

>> And again I ask: Since when are the courts supposed to be in the
>> business of ensuring that "unnecessary" settlement costs are avoided?
>> (If so, I've been miseducated -- I always thought that the courts were
>> supposed to be in the business of ensuring that justice is done.)
>
> Unnecessary settlement costs are unjust because they are punitive.

In cases like _Boomer_, they're simply a cost of doing business.  The
fact that the proprietors of the Atlantic Cement Co. got themselves into
a position in which they found themselves over this barrel is simply a
result of their own poor business decision to start up a cement plant
without _first_ trying to negotiate with Boomer and everyone else whose
property rights they'd be violating via the operation of their plant.
There's nothing punitive or unjust about it.

>> (2) It is "completely sensible" only if you believe that the alleged
>> right of the owners of Atlantic Cement to stay in business and avoid
>> losing a lot of their own money due to their own wrongful act, and
>> the alleged right of several hundred Atlantic Cement employees to
>> not have their jobs disappear, should trump the rights of people who
>> own property which was damaged by Atlantic Cement's wrongful acts.
>> [wdstarr]
>
> Anybody who ever commits a wrongful act should disgorge their entire
> set of possessions to wronged person?  Weren't you complaining about
> excess punitive damages before?

Anybody who wants to commit a wrongful act in the future should be
required to buy the right to do so from the victim, in advance.  And the
seller should be allowed to set his or her price for the privilege.  No
injustice, no punitive damages.

*   *   *   *   *

>>> You'd like Posner, Bill.  He's a libertarian.
>>
>>Really?  I didn't know that... what, if anything, has he had to say
>>about cases like _Boomer_?  [wdstarr]
>
> In EAL, he cites it as an example of bilateral monopoly that the court
> correctly avoided.  I'm sure its covered in the Landes and Posner book
> on tort law, presumably favorably, but I don't have that book in front
> of me.

Doesn't sound very much like a libertarian to me.  Libertarians tend to
believe in the rights of individual people, not societies.

*   *   *   *   *

>> I've admitted that my understanding of the field generally referred
>> to as "law and economics" is weak.  If it advocates the use of
>> economical analysis as one of many "tie-breaker" factors which
>> courts may use to help them reach decisions in cases in which the
>> dispute, as measured by the scale of "justice", is evenly balanced,
>> fine.  But as illustrated by _Boomer_, it is _not_ fine when the
>> courts start viewing the economics of a case as being more important
>> than the justice of a case.  [wdstarr]
>
> In this case the justice of the case was intricately tied up with the
> economics of the case.  Atlantic Cement committed a tort causing $185K
> of damage.  Should it pay in the millions?  Or just compensate for the
> damage it committed?

As stated above, the tort was _ongoing_.  Atlantic Cement wanted to be
able to _continue_ to violate Boomer's rights.  While the court may have
been justified in setting an equitable price tag on the damage already
committed, it had no reason and no need to set a price tag on the
_future_ violations of Boomer's rights and to then force Boomer to sell
at that price.

-- William December Starr <wdstarr@athena.mit.edu>

