By James Bowden

On June 28, 2012, the last day of the U.S. Supreme Court’s 2011 term, saw a surprising and important decision handed down in National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al., the challenge to the Affordable Care Act (the “ACA”). While most of the news media was focused on the decision in the ACA challenge, the Supreme Court also issued an opinion in U.S. v. Alvarez on the same day overturning the Stolen Valor Act of 2005 in a decision likely to become a key piece of the Court’s First Amendment jurisprudence.

I’m not going to attempt to provide incisive legal commentary on the ACA opinion - there is plenty of good commentary available with far more insight than I can muster, and frequent readers know that “incisive legal commentary” isn’t really what I do. I will go ahead and say that my predictions on the outcome of the ACA challenge were wrong.  Being wrong in my predictions puts me in good company, however - the decision surprised most court watchers. In an opinion authored by Chief Justice John Roberts, the Chief Justice joined what is commonly understood to be the more liberal members of the Court in upholding the majority of the ACA. The individual mandate, a key provision of the ACA which was the primary lightning rod for conservative criticism, was held constitutional under the federal government’s power to tax but not under the Constitution’s Commerce Clause. Interestingly, in evaluating the applicability of the Anti-Injunction Act heard in oral arguments, the Court held that the penalty for not purchasing insurance was not a “tax” for purposes of the Anti-Injunction Act; curious, considering the foothold found for the constitutionality of the individual mandate was held to be that the penalty was a permissible application of Congress’s power to tax. The portion of the opinion that most surprised me was the holding that the Medicaid expansion, which required states to abide by the increase in eligibility under Medicaid or lose all Medicaid funding, was unconstitutional as excessively coercive. A former professor of mine at Vanderbilt University Law School must be quite pleased with this holding - James Blumstein’s students should expect the subject matter to come up on future Constitutional Law II exams.

The opinion is really worth a read, even if it is a bit long, mostly because of the intended audience both the opinion and the dissent are clearly written for. Unlike many Supreme Court opinions, which focus on obscure and esoteric areas of law, the ACA opinion is written for consumption by the most novice of court watchers. The introduction to Chief Justice Robert’s opinion (and the corresponding dissent) cite opinions that first year law students (and even high school students taking classes on American Government) would be familiar: Marbury v. Madison, Gibbons v. Ogden and Wickard v. Filburn are all discussed. Waller’s very own Judge Alberto Gonzales was interviewed on America Live with Megyn Kelly, Morning Joe, and Anderson Cooper 360 regarding the opinion. Judge Gonzales was involved with vetting John Roberts when he was appointed to his current position by President Bush. Note to whoever does CNN’s webpage addresses - it is “Gonzales” with an “s.”

I’m a bit disappointed that the ACA ruling took the spotlight away from the decision in the Alvarez case. The respondent, Xavier Alvarez, kicked off his first meeting as a member of the Three Valley Water District in Claremont, California by telling the assembly that “Back in 1987, I was awarded the Congressional Medal of Honor.” It seems that Mr. Alvarez is quite the fabulist, and the statement that he had won the Congressional Medal of Honor, much like many of his other life stories (including that he had played for the Detroit Red Wings) was a lie. Unfortunately for Mr. Alvarez, under the Stolen Valor Act of 2005, lying about earning a Congressional Medal of Honor carries a penalty of not more than one year in prison.

In holding the Stolen Valor Act unconstitutional, the Court provides a significant advancement of the Court’s First Amendment jurisprudence. The opinion distinguishes simple lies from statements that are not protected by the First Amendment, including fraud, “fighting words,” inciting violence, and defamation. There are a good number of quotes from this opinion worth remembering; the majority opinion even gives a nod to George Orwell:

“Permitting the government to decree this speech to be a criminal offense, whether shouted from the rooftops or made in a barely audible whisper, would endorse government authority to compile a list of subjects about which false statements are punishable. That governmental power has no clear limiting principal. Our constitutional tradition stands against the idea that we need Oceania’s Ministry of Truth.”

This is the core of the Alvarez opinion: that allowing the government to punish statements simply for the fact that they are false gives the government the power to determine what is true. It is also an excellent opinion for readers in an era, as mentioned above, in which Supreme Court opinions are too often inaccessible to most readers. Justice William O. Douglas would be proud. I think it is worth noting that the dissent filed in the case was written by Justice Alito, which is in keeping with his more restrictive views on the protections afforded by the First Amendment. Here are two more great quotes from the opinion in parting:

“The remedy for speech that is false is speech that is true. This is the ordinary course in a free society. The response to the unreasoned is the rational; to the uninformed, the enlightened; to the straight-out lie, the simple truth.” 

          and 

“The Nation well knows that one of the costs of the First Amendment is that it protects the speech we detest as well as the speech we embrace.”

By James Bowden

Well, it wasn't quite that bad. On Wednesday, I had the privilege of contributing to a podcast on eugenics and North Carolina's recently announced restitution program for victims of involuntary sterilization on the Legal Talk Network with Alfred Brophy, a professor of law at the University of North Carolina School of Law at Chapel Hill as moderated by J. Craig Williams. If you want to find out what happens when a law professor who has published two scholarly works on a legal issue discusses the subject with a blogger who wrote 300-odd words about a story he heard on National Public Radio while he drove to work, here it is.

Thank you to the Legal Talk Network for the opportunity to participate and to Alfred Brophy for, well, putting up with me.

By James Bowden

A large number of the clients I work with are for-profit healthcare companies, and a significant percentage of those clients focus on providing healthcare in non-urban areas. Nonprofit healthcare providers in rural America face a number of very significant challenges, including substantial difficulties in hiring and retaining good physicians and growing amounts of bad debt caused by an unfavorable ratio of patients receiving unreimbursed care to patients covered by private health insurance. For-profit healthcare companies are well-suited to alleviate theses problems. Three of the most notable benefits that for-profit healthcare companies can offer non-urban healthcare providers are (1) access to the capital markets to obtain working capital and cash for necessary capital investment, (2) economies of scale to diffuse back-office costs and management expenses, and, most relevant to this post, (3) more effective physician recruiting and retention programs.

A large amount of thought around recruiting and retention is built around physician compensation, which is a very difficult topic considering the restrictions on physician compensation presented by the federal Stark and Anti-Kickback laws. The impact of these restrictions are all the more important in non-urban healthcare recruiting. Put simply, the economics and the regulatory environment that non-urban healthcare providers operate under restrict the ability to draw talent with large compensation packages. That is why my ears perked up to this story about "mission-focused medicine" at a hospital in Ashland, Kansas. The logic is beautifully simple: physicians that are willing to be healthcare providers in rural America often aren't particularly motivated by money--they are happy to take a pay cut to work in a setting where their help matters to the community. The answer is similarly elegant: the Ashland Clinic now offers eight weeks off to do overseas missionary work. It looks like the plan is working--the clinic has physician staff where it had none prior to the implementation of mission-focused medicine.

What the Ashland Clinic is doing is interesting. Instead of asking how much they are willing to pay for the people that they want, they are instead asking what traits they are looking for in people they hire and what things those people are driven by and recruiting accordingly. The type of people that a company seeks to hire and the manner in which the firm compensates them can have profound effects on the behavior of the employees. I think the most profound example is presented by hotel staff at the Taj Mahal Palace Hotel in Mumbai, India. When that hotel was attacked by terrorists in 2008, hotel employees who had every opportunity to flee with their lives instead stayed to help the guests. The kitchen employees formed a human shield behind which hotel guests escaped to safety; in the process each was shot to death. The general manager kept working to save the hotel patrons even after his family died in the fire set by the terrorists. A Harvard business professor traced the selflessness of the Taj employees to recruitment and reward--the hotel is owned by a family that puts a high value on social justice, and employees are hired from small communities on the basis of their educator's recommendation that the recruits were respectful and empathetic. The employees are then rewarded promptly for acts of kindness towards guests. The unintended consequence appears to be that the Taj Hotel unwittingly hired a staff chock full of real heroes.

So how does this post have anything to do with young lawyers? Well, frankly, our recruiting model doesn't hold up quite as well as those of the Ashland Clinic and the Taj Hotel. I don't think I have to get too deep into it, either, but I think it is pretty safe to say that the lures large firms generally hold out to recruits are generally twofold: money and power. That may be dangerous in a profession where instilling trust and showing dedication are of paramount importance, and selfishness is an Achilles heel. It might also explain the old saying that the best students in law school end up becoming law school professors. 

By James Bowden

Welcome back, monetary policy sports fans. In round one, the U.S. clobbered the E.U. with its enlightened monetary and fiscal policies. But what about the political institutions that underlie the decisions that our combatants made when confronted by crises? Let’s take the gloves off and find out:

• Fiscal integration doesn’t work without political integration. The European Union is effectively a treaty system connecting the participating countries in an agreement to share a currency and not take on more than a certain percentage of GDP in debt, with one central bank. The United States is a politically and fiscally integrated federation of states, with one central bank. The difference is stark. Because the nations that make up the Eurozone have differing fiscal, political and social policies and positions, the only unifying factor is their currency – so if Greece’s economy falls apart, each individual nation has to perform its own risk assessment as to whether assistance is warranted. Conversely, if, say, Idaho’s failing economy was rending the social fabric of its communities, the United States would not seriously consider the possibility of doing nothing. That puts the U.S. on the board with one. 
• The Eurozone has no effective built-in checks and balances.  You know those wonderful, self-equalizing checks and balances that you learned about in grade school? The ones that balance competing interests of majority rule with individual liberty, the power of coequal branches of government, and the relationship between the states and the federal government? Yeah, the Eurozone doesn’t really have those. Since the only unifying factor is currency, the financial well-being of the constituents are directly tied to the whims of the economic center of gravity, which is Germany – an economy featuring a robust manufacturing industry, a trade surplus, and a borderline-psychotic fear of inflation. Beware, smaller European economies with real estate and tourism based economies, because the folks holding the purse strings don’t have the same interests that you do. Look at it in a constitutional sense: the U.S. apportions legislative power in a bicameral system, allocating representation by population in the House of Representatives and by equal representation per state in the Senate, with majority rule in each chamber (sort of). The Eurozone system effectively operates on a system that would be similar to California and New York making all monetary decisions for the country, and each state trying to maintain a functioning economy and government in the middle – unless the issue required unanimity, in which case Rhode Island could hold up the policy making process completely at its whim. Doesn’t sound very democratic, does it? Hurray for democracy, and hurray for the U.S.A. We win this one. 
• It isn’t your tax rate; it’s your tax collection rate. I know that Americans hate taxes, and the only good taxes are no taxes (or, alternatively, the taxes someone else pays that you get the benefit of). But the U.S. actually has an excellent collection rate; despite the relative rarity of audits and enforcement action, almost all taxes due are collected. Fraud is exceedingly rare. In Greece, tax evasion is a national pastime. No kidding – leading up to their collapse, the Greeks collected somewhere around 66% of the total taxes legally due. That’s a 33% evasion rate, and a 100% inability on the part of the government to realistically project the level of debt that the country’s economy can realistically service. Maybe it isn’t a question of law – maybe it is an issue with implementation, but either way Greece was doing it wrong. So that’s a big thumbs up to the U.S. tax system. Rare praise, I know.
  

By James Bowden

It appears that the Eurozone may have, at least temporarily, staved off the possibility of rapidly collapsing into a debt-lined, lava-filled hole in the earth with a new, comprehensive strategy to deal with the mounting E.U. debt crisis. I thought this would be a perfect opportunity to look at some of the differences between the U.S.’s and the European Union’s fiscal, political and legal systems to illustrate why the same financial crisis has led to such different results, in convenient bullet-point format: 

By  James Bowden

Pop Quiz: does a hotel blatantly oppress an individual or a group’s right to freedom of speech by canceling a contract with an anti-Islamic organization seeking to hold a conference on the basis that it may cause interruptions to the hotel’s business? 

a)       No.

b)       Yes

c)       Both A and B

d)       Wait, what? 

If you went to law school and you answered B or C, you should probably seek a refund of your tuition money. Fact: private persons cannot violate the First Amendment guaranty of freedom of speech. The restriction only applies to state actors. But thank you for playing.

By Kathleen Pearson 

Did you see this article and survey from the ABA Journal last week?  The article asked readers to answer these six questions in the comment section:

1. How long did it take you to get a job in the legal field?
2. Did you get the position you wanted, or did you compromise?
3. How many interviews did you go on?
4. What was your salary range for that first job?
5. Would you recommend attending law school to a recent graduate?
6. What year did you graduate from law school?

By James Bowden

Small businesses are the prime engine for job creation in the United States, and small businesses start with an idea and someone with the guts to put the blood, sweat, and tears into building that idea into a business. Unfortunately, most entrepreneurs start their businesses in a hole when it comes to capital formation. This leads to an unfortunate convergence of two related problems: a need to seek investments from others and an inability to afford good legal advice.

I think that business schools should have a class on practical securities laws for entrepreneurs. Securities laws are complex, often counter-intuitive, and the consequences for finding yourself on the wrong side of them are, well … They’ll put a big damper on a start-up company. So, in the mean time, here are a few tips for entrepreneurs looking to do some capital raising for their small business:

• DO NOT expect venture capital firms or angel investors to be interested if a few hundred thousand dollars is more than enough. Professional investors will not be interested in taking the risk of losing everything in exchange for a percentage return on a few hundred thousand bucks, and the cost of putting the terms on paper will wash out any gains. 
• DO put pen to paper if and when you do receive invested funds. Informality is great for many things, but when you are taking other people’s money it is best to keep a record. Also, if you are wondering whether you should keep the money in a segregated account held in the name of the business, you (a) should definitely do so, and (b) should be dolt slapped for even considering putting the money you raise in a personal account. 
• DO NOT advertise investments in your business on Facebook, Twitter, or any other social media site. Short summary of federal securities laws - offering investment opportunities in a business by internet message qualifies as an offer to sell securities, and securities offerings come in three types: registered, exempt, and illegal. Registered offerings aren’t the domain of start-ups, so don’t worry about those yet. In order to be exempt, offerings have to qualify into certain statutory or rule-based exemptions. Staying within the exemptions offered by federal law means staying small, both in offering size and number of investors solicited, and not engaging in advertising or general solicitation. I’m not aware of any case where an offer to sell securities sent via Facebook status update has been subject to a regulatory action, but this is probably a race you don’t want to win. 
• DO know what you are offering, specifically whether it is equity or debt, and make it very clear to any and all investors. Equity is (generally) a fractional interest in the business as a going concern representing opportunity to participate in the upside benefit of the success of a company, but if the company doesn’t succeed the equity holders get nothing. Debt is an unqualified promise to pay. Both categories come in all different stripes, but the difference between the two is the difference between night and day. Of course, if you are just getting a loan (from a bank, the small business administration, or even your parents), that debt is not a security. Bonds are securities. If you have any question about the difference, ask someone.
• DO provide a write-up of what an investor will be investing in. Describe the business, the management, the market, the geographic area served, etc., etc. Err on the side of disclosure. Make sure all of the facts are correct. Include every bit of information that is necessary to ensure that the information you do include isn’t misleading. Proofread. 
• DO NOT provide promises of future performance. The term sheet, offering memorandum, or whatever you choose to call it should qualify all financial projections and projections of future performance as being subject to factors not in the control of the business, and point out that investments in a start-up business involve a high degree of risk. Investors should know to independently investigate the business, ask questions, and be instructed not to rely on any projections provided by the business, financial or otherwise. 
• DO know what kind of offering you are going to go with. For the most part, small businesses will be starting with small offerings to people they know – also known as “Friends and Family Offerings.”  The tough thing about friends and family is that you probably don’t want money to come between you, even if they are eager to support you. The level of formality of the investment, whether it is phrased as a loan or if you issue stock in the new business, is something that you will need to think carefully about. This may not be legal advice but the sad truth is that many (if not most) entrepreneurial efforts fail, and no one is sure what makes those that do succeed different from those that fail. If telling a friend or family member that they have lost their entire investment isn’t a conversation you think you could have with them it probably isn’t a good idea to ask them to invest in the first place.
  

I think that is a good start.  I'll work on a syllabus if any of the business schools are interested.