Tag: Frank Easterbrook

What Is ‘Unreasonable’ Compensation? And Who Gets to Decide?

As could be expected, the effects of the financial crisis — and people’s reaction thereto — are starting to make their way to the least political branch of government, the judiciary.  The Supreme Court this term will be hearing several cases that could have serious repercussions on our economic recovery, one of which led us to file an amicus brief.  Here’s the situation:

The Investment Company Act of 1940 places on investment advisers a fiduciary duty with respect to the compensation they receive for the services they provide their clients. In the case of Jones v. Harris Associates, shareholders in various mutual funds contend that their adviser fees were excessive and violated the ICA. The Seventh Circuit, the federal appellate court based in Chicago, affirmed the judgment of the district court that the fees were not excessive but also expressly disapproved of the  methodology for evaluating such claims used by the Second Circuit (based in New York). Judge Frank Easterbrook’s opinion explains that the ICA creates a fiduciary duty but does not act as a rate regulator, and that judicial price-setting does not accompany fiduciary duties. Judge Richard Posner, writing for five judges, dissented from the denial of an en banc rehearing. The Supreme Court agreed to review the case to settle the circuit split.

Our brief supports the investment adviser and makes three arguments:

  1. All persons have a fundamental human right to whatever compensation their contracting partners freely and honestly choose to pay them.
  2. Courts have no power to second-guess the reasonableness of any salary or compensation agreement honestly and freely signed by both contracting parties.
  3. The ICA’s fiduciary duty requires only fair dealing, not any particular outcome.

Thanks to Cato adjunct scholar Tim Sandefur for spearheading this effort, and to Cato legal associate Matthew Aichele for helping with much of the attendant busywork.

‘The Police Became a Mob’

Chief Judge Frank Easterbrook recounts the horrific police attack on Frank Jude in a ruling this month from the Seventh Circuit Court of Appeals. 

By way of background, Jude tagged along with some young ladies to a house party late one evening.  The party was mostly off-duty cops who immediately made Jude feel unwelcome.  Jude left after just 5 minutes, but several men followed him out to the street and accused him of stealing someone’s police badge.  Then the beating began:

Men punched Jude’s face and torso; when he fell to the ground, they kicked his head and thighs. The partygoers behaved as a mob. Not a single person in the house tried to stop the attack or even to call for aid. Jon Clausing, who had slashed Harris’s face, explained his conduct as “just kind of going along with everybody.” That is the way of the mob. Society has police forces to pose a counterweight to mobs, yet here the police became a mob.

Schabel and Martinez were on duty and had not been drinking, so they should have put a stop to the violence. Instead Schabel joined it, while Martinez watched. On being told that Jude had stolen Spengler’s badge, Schabel called Jude a “motherfucker” and stomped on his face until others could hear bones breaking. After telling Martinez “I’m really sorry you have to see this,” Daniel Masarik picked Jude off the ground and kicked him in the crotch so hard that his body left the ground. Jon Bartlett then took one of Schabel’s pens and pressed it into each of Jude’s ear canals, causing severe injury and excruciating pain. The men also broke two of Jude’s fingers by bending them back until they snapped. Spengler put a gun to Jude’s head and said: “I’m the fucking police. I can do whatever I want to do. I could kill you.” Bartlett used a knife to cut off Jude’s jacket and pants, leaving him naked on the street in a pool of his own blood.

The attack was so violent that it couldn’t be ignored.  Several officers were prosecuted, but the blue wall of silence kicked in and several officers committed perjury to shield their criminal acts.  Judge Easterbrook writes, “The distance between civilization and barbarity, and the time needed to pass from one state to the other, is depressingly short.” 

Read the whole thing (pdf).  Previous coverage here.

HT: Sentencing Law and Policy.