July 30, 2008
Fourth Annual Conglomerate Junior Scholars Workshop: Ethan Leib on Friends as Fiduciaries
Posted by Christine Hurt

Welcome back to the second round in the Fourth Annual Conglomerate Junior Scholars Workshop.  Today's featured author is Ethan Leib, an associate professor at Hastings College of Law, where he teaches Contracts and Constitutional Law, among other things.  Ethan is a prolific scholar, writing on such varied topics as direct democracy, supermajoritarianism, and most recently the role of friendship and family ties in the law.  In addition to blogging at Prawfsblawg, Ethan also has an upcoming book (not his first) with our blog friends Jennifer Collins and Dan Markel with Oxford University Press, Privilege or Punish:  Criminal Justice and the Challenge of Family Ties.  Ethan's paper today strays over into our arena here at the Glom, Friends as Fiduciaries:

The Article argues that the law of fiduciary duties provides a good framework for friends to understand their duties to one another better, gives courts a useful set of rhetorical and analytical tools to employ when they are forced to entertain disputes that arise between close friends, and, finally, can help direct courts to furnish betrayed friends certain kinds of remedies that are most appropriate for achieving justice within that dispute context. This is not the first Article to make an effort to expand the reach of the fiduciary concept into new sorts of relationships that are not always considered within the ambit of fiduciary duty law. But the case for thinking of friends as fiduciaries is exceedingly persuasive and underappreciated, both in the law and in our lives.

Today's expert commentary will be provided by former workshop participant Eric Goldman, Brett McDonnell, Curtis Bridgeman, and Doug Moll. Each commentator's remarks will appear below this post. Readers, commentators, and authors are invited and encouraged to participate in the comments to this post. Happy Reading!

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Comments (16)

1. Posted by Ethan Leib on July 30, 2008 @ 8:25 | Permalink

Let me first thank Christine Hurt for selecting my paper for inclusion in the Fourth Annual Conglomerate Junior Scholars Workshop and for organizing this event. I have certainly found the corporate law community very responsive as I’ve been working on this paper (even though fiduciary law is well outside my usual areas of concentration), but I am very appreciative for the opportunity to have this forum focus upon and publicize my recent work on fiduciary law.

I'll follow Brian's lead and comment individually on all the replies below throughout the day.


2. Posted by Ethan Leib on July 30, 2008 @ 8:31 | Permalink

Well, having seen now that the comments to the other posts are closed, I guess I'll put some responses here.

Let’s start with Brett McDonnell’s generous and helpful comments. I was quite delighted to learn through his commentary that I may have yet another title in my series already locked up: Once I finish Friends as Fiduciaries and Friendship as Relational Contract (currently in progress), I might get cracking on Friendship as Partnership! Of course, there has to be some limit to how many analogies with friendship I can mine in business law; but I don’t think I’m done just yet. In any event, as I suggest in the next piece of this project (Friendship as Relational Contract), I might actually have some reservations about the analogy with partnership precisely because it is generally not true of friendships that we share equally within them. So to the extent that Professor McDonnell pushes the analogy with partnership because of its presumption of egalitarian sharing, I’m not actually sure I think that is a plausible model for friendship. But I have to think some more about that.

Professor McDonnell is most worried about how any reorientation of fiduciary law to protect used friends can possibly deter the particular form of advantage-taking that I argue ought to be policed through fiduciary law. This may be a completely plausible reason to remain unconvinced by my argument: Professor McDonnell is certainly right that we don’t go to lawyers or do Westlaw research when we engage in friendship as such, so it would be hard to learn that there is a law that controls our behavior. If we don’t learn that the law controls our behavior, it is hard to see how law can shape it. So what can I hope to achieve?

I think several things can be said in reply. In the first place, I doubt it is true that people only learn that the law controls their conduct (and, accordingly, conform their conduct to the legal norms) through lawyers or legal research. Maybe it is easier to control director behavior on corporate boards because they may routinely consult the law and the hortatory moral rhetoric of judicial decisions (though something about even this simple story smells fishy). But many of us still generally hope the criminal law deters crime even though an “average” criminal probably doesn’t consult with a lawyer or law books before committing a crime. Something about the justice system’s coercive enforcement mechanisms is supposed to penetrate into society to help members control their conduct. There is nothing very mysterious about this either: information about coercion trickles down somewhat easily. If the law stopped being so ambivalent and duplicitous about its control of conduct within friendships, we wouldn’t need lawyers to tell us not to swindle our friends.

There is a deeper response, perhaps, but I’m not actually sure what I think about the merits of this strategy of reply – or if it is ultimately consistent with the general gist of my argument as it stands now. Maybe Professor McDonnell is a deterrence theorist but the case for treating friends as fiduciaries is a moral or retributive one. That is, maybe it doesn’t matter if friends would learn to abstain from their wrongdoing in advance under my regime; that they engage in the wrongdoing of taking advantage of their close friends is reason enough to “punish” them civilly, through the sanctions available under fiduciary law. If that is the right way to think about it (and I am far from sure it is), it would alleviate the concern that I’m not accomplishing anything in enforcing the fiduciary duties of friendship. What I’m accomplishing is giving vulnerable people who get taken advantage of a compensatory remedy commensurable with the wrong they suffer. This actually might have ramifications for the sort of remedy I recommend because as I’ve written the paper, I do credit the deterrence potential of fiduciary remedies. But that may not be a necessary part of the picture, mutatis mutandis.

Finally, one might concede both Professor McDonnell’s deterrence orientation and his view that we have to consult lawyers to conform our conduct with the law but still think that friends do consult lawyers in many of the sorts of cases to which fiduciary duties would apply. When we sell our business or our home to our friends, we may very well get lawyers involved. Many of the cases I cite as examples of the friendship-fiduciary contexts the law has encountered actually seem like ones in which parties would traditionally be represented by counsel. In the hypo with which I begin, when David P sells out John D to Dan L for a million dollar consulting agreement, David P may very well choose to get representation. In these sorts of cases, lawyers would better know how to instruct their clients to behave if only courts would get consistent about the role of friendship in fiduciary law.


3. Posted by David Zaring on July 30, 2008 @ 8:41 | Permalink

Ah, perhaps I should post my comment to Eric Goldman's take here:

I'm right there with you [Eric] on the "why legalize this?" import of the post. One of the basic aspects of friendship is that it evolves over time - and some friendships end. Fiduciary relationships don't evolve. I guess this could be solved with good evidence: "are these people really still friends?" But I am not sure it would be worth the candle.


4. Posted by Ethan Leib on July 30, 2008 @ 8:42 | Permalink

Professor Goldman’s comments were also helpful for me to think through, though I confess that his are the more typical reactions I have tended to field in my attempts to execute this research agenda in friendship & the law. I realize I am up against a pretty big taboo: people like the idea that the law just leaves friends well enough alone. But people also shudder at the thought that we have to put a price on human life, on human limbs, and on human relationships – even though we do put a price on human life, on human limbs, and on human relationships all the time in our legal institutions. As I have tried to show in previous work and here, the law doesn’t leave our friendships untouched. This isn’t an argument that it shouldn’t get out of our friendships, of course, but it is a reminder that some people’s pristine view of friendship needs some muddying. You may think friendships are law-free but that doesn’t seem to be the reality, as case reporters reveal time and again. The question isn’t really, in the first place, whether the law should intervene but how the law should intervene, since it is already there. If Professor Goldman is right that I can’t win no matter how persuasive I am because people just know I must be wrong, that would be frustrating. It may be my station here – but I’m going to keep trying to get people to get past their feelings of taboo.

Professor Goldman may be right that a bunch of other doctrines might overlap with the friends as fiduciary doctrine from time to time (or even, heaven forbid, in my little hypothetical to motivate the paper). But it is hard for me to worry too much about that; I’ve found dozens of cases where courts are quite confused about how to handle the charge that friends’ owe one another fiduciary duties in certain commercial contexts. I’m not making up a cause of action out of whole cloth and it didn’t take me long to find that there were a class of cases about friendship and fiduciary duties that weren’t being resolved through other doctrinal avenues (which may ultimately be a cover for what people are really litigating about anyway: a betrayed friendship). If I can help courts get clear that they keep revisiting this problem, that will be some contribution to helping resolve a repeating fact pattern that most commentators and judges have simply not seen before. I have no doubt that even if I get courts comfortable with the idea of treating friends as fiduciaries, much will turn on context and idiosyncratic facts of any particular case. That doesn’t bother me either: telling courts that they can use friendship predicates to find a breach of a fiduciary duty is enough for my purposes. Fact sensitive inquiries about trust and vulnerability are part and parcel of fiduciary law anyway. Many courts already agree with the proposition that friendship can be a predicate for fiduciary obligation but some remain of the view that friendship cannot serve as the relevant predicate to establish a fiduciary duty. I’d like courts to feel free to follow the former cases and reject the latter. Will this “add much” to current doctrine? I can’t really speculate as to the quantum but it strikes me as an advance in the current muddle of fiduciary law.

It is probably true that Professor Goldman and I will remain at loggerheads on the ultimate substance. He doesn’t want remediation for certain kinds of breaches of trust and loyalty to close friends and I do. Will that remediation improve friendship? I’m not sure. I suspect fewer people will pretend to be our friends only to screw us later. I suspect more people will be clear about their intentions when engaging in potentially conflicted transactions. And honesty and disclosure are goods within friendships. I confess that in light of my experience of close friendship, I find it very difficult to believe that friendship will really be deterred on account of a body of law that gets triggered when they enter into certain transactional contexts and violate basic norms of conduct. I am also somewhat confused by Professor Goldman’s confidence both that law can’t make a difference (in that it can’t be strong enough to help friendship) and that it will make a big difference (in that it will destroy friendship).

Maybe Professor Goldman will shun me at Bay Area parties or reject an invite on Facebook (of which I’m not a member, in any event) to avoid legal duties. But I think his worry is misplaced: First, I clearly reserve fiduciary treatment only for close friends, in which there is vulnerability. Your Friendsters and acquaintances are safe, I think. Second, only real betrayals with clear monetary damages are worth suing over – so we’re unlikely to see much litigation outside the commercial context with something substantial at stake (Remember the “floodgates” argument in Balfour? Who could really take that seriously?). There is also a stigma – and psychic costs, as Professor Goldman mentions – to suing, so I would expect to see few friends really litigating these cases to death, unless there was a major violation. Finally, trading the opportunity to be friends with me only to avoid the legal duty not to screw me over in a serious way is pretty much your loss!

I admit that I’d like to believe that my small efforts to get the law to be more sensitive to the vulnerability within friendship can improve the institution. I admit that I actually believe it will do the institution some good to have some kinds of legal recognition (that are not just smuggled through bastardizing other doctrines to do stealth remediation). I think it will enhance the law’s resonance to the citizenry more generally and induce compliance throughout the legal system. I also think, as I suggested in response to Professor McDonnell, that some behavior can be deterred.

But even if one is skeptical about that causal relationship, so long as law doesn’t really disrupt the practice (and I’m pretty underwhelmed with the idea that I’m going to sully friendships by giving the seriously screwed a cause of action in a small class of cases), I can’t see why we shouldn’t use the law to remediate some extreme sorts of wrongdoing. As I suggested in response to Professor McDonnell, there may be a retributive case for the “friends as fiduciaries” doctrine that I need to explore further.

I share Professor Goldman’s intuition that we need to tread carefully here: the doctrine must have limits. But the contexts upon which I’ve concentrated in this paper shouldn’t be all that alarming. It isn’t like I’m suggesting causes of action for “friendship heart balm” torts like “alienation of affections,” “breach of a promise to be friends,” “criminal conversations” and “seductions” – nor am I arguing for a cause of action for “jactitation of friendship.” That some fiduciary obligations should attach to friends (and fiduciary law itself underwrites these obligations anyway) just doesn’t seem all that threatening to the institution, nor is it likely to support much expansion into the territory that really seems to worry Professor Goldman. As I suggested when I first embarked on my friendship & the law project, there are a hundred ways friendships have been and could be relevant in the law. I don’t support all of them and don’t think this one will be a “gateway” doctrine that will facilitate the law’s intervention in every aspect of our intimate affairs.

One final point on the worry about the costs of letting parties and courts waste time on evidence supporting a “friends as fiduciaries” claim. That is a real cost to parties and the system. Best think about it before you go and violate your duty of loyalty or sell out or out from under your close friends.

I’ve gone on too long. The point of this workshop (for me anyway) is for me to rethink and rework some of these ideas, not to defend them. For that opportunity, I thank Professor Goldman’s engaging reply. To be fair, I’m busy at work on a new paper called Friendship as Relational Contract – which will address some of the gaps Friends as Fiduciaries leaves wide open. For example, there is much more to say about the interaction of legal and social norms; the new paper focuses on that issue much more clearly than this one. Stay tuned.


5. Posted by Gordon Smith on July 30, 2008 @ 9:03 | Permalink

Ethan,

Nice responses. You have come a long way in thinking about this topic, and your paper is very provocative.

Can I ask about "Friendship as Relational Contract," even though that is not the paper before us? As you undoubtedly have discovered, economists think of "relational contracts" as "self-enforcing" agreements, meaning (in the words of a leading book on contract theory) that "some credible future punishment threat [other than judicial enforcement] in the event of noncompliance induces each party to stick to agreed terms." Is that your understanding of "relational contracts"? If it were, I wonder what law has to do with it.

Actually, this isn't completely about that next paper, but rather about the Fiduciaries paper. If friendship is relational contract in the sense described above, then it is self-enforcing and fiduciary duty is, at best, superfluous. Right?


6. Posted by Ethan Leib on July 30, 2008 @ 9:04 | Permalink

David--

I don't quite understand the import of stasis to the fiduciary obligation and remedy. Surely other relationships "evolve" over time. And friendships end like relationships with lawyers and family. But those endings don't always discharge the fiduciary's obligations (of, say, confidentiality). Of course, deciding when a friendship starts and ends is a tricky business -- and surely some obligations turn on negligence or malfeasance during the actual relationship. But I can't see why the fact that a friendship can end should produce a conclusion that you can't have fiduciary obligations during them.

I've devoted quite a number of pages to the "why legalize this" issue and can't reproduce them here. As I said in response to Eric, there are resonance gains, protection of trust and the vulnerable gains (which is what fiduciary law is there for in the first place), and there is the speculation that it might actually help an institution in decline. The internet isn't going to solve all our problems.


7. Posted by Jeff Lipshaw on July 30, 2008 @ 9:04 | Permalink

It's indeed a provocative thesis, and I had given Ethan some comments, as I recall, on the UCLA Law Review Friendship and the Law article that preceded this one.

The opening hypothetical is effective in drawing out what of this relationship is business and what is friendship. My reaction on first read was that nothing in the hypothetical invoked issues of friendship - it's all business - but my later reaction was, indeed, that's the point. Can you leverage the mere friendship into some the state has an interest in enforcing?

At the risk of being trite, this feels like a hammer in search of a nail, the hammer being law's model. And I apologize in advance for interjecting my stuff shamelessly. I want to express more generally a theme that comes through in the commenters' posts, namely, that this (following on the equally good UCLA article) is a well-done depiction of a world viewed through the cognitive faculties of a lawyer, exposing the upsides, but also the significant downsides of doing so.

My basic thesis is that law, at least for the last 125 years of so, is, doctrinally and otherwise, a reductive model, and one that by its nature requires one to objectify - that is, look at from the outside and reduce to "elements" (either doctrinal or social scientific) - relationships whose essence was previously subjective and interpersonal. I explored the implications of this most recent in an short thought-piece essay, Law's Illusion, about the process of judgment, (which cites Ethan's UCLA piece) and before that on the more general question of thinking like a lawyer in Models & Games. (Brett McDonnell heard an early version of this at MLEA last year.)

I will also have a piece dealing with the objective-subjective issue in contract theory coming out in the Canadian Journal of Law and Jurisprudence very shortly (I'll post it on SSRN - it is a response to Seana Shiffrin's Harvard Law Review article on the divergence of promise and contract).

The great thing about Ethan's piece is the courage and the rigor. Like many of the commenters, I think encouraging law's colonization of the non-legal, combined with what Linda Ross Meyer at Quinnipiac called the "technical colonization" of the law, is a worrisome thing. Law's Illusion suggests it's a worrisome thing as between lawyers and their clients (and all non-lawyers) and as between law professors and their students. And it helps that somebody is willing to stretch the limits to demonstrate what makes it worrisome! So I second the commenters' praise on that score as well.


8. Posted by Ethan Leib on July 30, 2008 @ 9:09 | Permalink

Gordon--

I'm happy to send you the new paper offline; I'm hoping to finish it for this cycle. The short of it is that I'm not using the economists' definition of relational contracting but the definition and concept used by most relational contract theorists in law schools (like Macneil, Macauley, Gordon, Feinman, Speidel, etc). That actually puts in salient relief that relational contracting always relies on both legal and social norms for enforcement. I realize the economist want a neater division. But in the real world, I think relational contracting does rely on both. You'll see how I manage the issue in the new paper!


9. Posted by Ethan Leib on July 30, 2008 @ 9:11 | Permalink

Alright people. Have to deal with some family obligations for a bit -- but I'll be back to alleviate all your concerns about colonization in no time.


10. Posted by Ethan Leib on July 30, 2008 @ 10:02 | Permalink

On colonization. I think I'll have to read Jeff Lipshaw's stuff more carefully to understand what he really thinks about this, but my instinct is that it is the group of folks who are eager to purify the legal sphere and the social sphere that contribute to the very pathology Jeff is eager to avoid. I don't worry too much about colonization (in the very modest policy proposals I offer -- at the extreme, of course, I see the problem) because the law and the social sphere simply aren't pure: the law relies on affect and relational characteristics -- and our relationships involve transactions. I think the "debasement" thesis (a version of this colonization thesis I treat in Friendship as Relational Contract) just depends for its vitality on a vision of economics and social life that is unrealistic. I think Viviana Zelizer's book, The Purchase of Intimacy, is a nice introduction to this idea: that the separate spheres notion is misleading. And yet one really needs it to get the debasement thesis off the ground in its strong form.

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