<font color="purple"><u>Kerry's Tax Incentive System</u>

John Kerry proposes to encourage numerous employers to provide health insurance by creating tax incentives, allowing all Americans access to Congress' health care plan, and by having the federal government act in an umbrella capacity.  Kerry proposes to provide tax credits to small businesses that provide health insurance to low and moderate income employees (credit would cover up to 50% of employers cost).  Access to the Congress' health care plan would utilize "power in numbers" to increase bargaining power of small business employers to reduce premium cost.  Finally, having the federal government act in an umbrella capacity (by subsidizing high cost health care cases), Kerry hopes that providing this form of catastrophic insurance would reduce premiums by an average of $1,000 per American family.</font color="purple">

<font color="purple">The largest problem with these proposals is obvious--where will the funding come from?  Many experts have provided a wide range of cost estimates of these proposals, ranging from the mid to high hundreds of billions up to over a trillion dollars over a ten year period.  Kerry has never clearly articulated where the revenue needed for these plans will be derived from (other than rolling back parts of Bush's tax cuts).  This issue has been extensively covered in the media so I am only going discuss one potential tax implication to small businesses due to these proposals.   

In the second debate, Kerry famously looked into the camera and promised the American middle class that he would not raise their taxes.  For the purposes of this post, I am going to hold Kerry to his word and assume that he will only raise taxes on "millionaires."  The first problem with Kerry's proposal is in his definition of "millionaire."  Kerry is defining "millionaire" as anyone who's combined household income exceeds $200,000 a year.  This definition is going to include income derived from salary, S Corp income, partnership income, LLC income, investment income, etc.  The problem with Kerry's tax increases is that it will have a disproportionate affect on small business.

$200,000 a year may seem like a lot of money for the typical American family, but for a small business proprietor, it only equates to a moderately successful business year.  Small business income is highly unpredictable.  In bad economic years, a small business proprietor will yield far less than that proprietor would in good economic years.  This unpredictability in income forces the small business owner to be conservative with income in boom years because they can foresee lean years occurring in the not so distant future.  Therefore, a small business proprietor will make an estimate of average earnings over a long period of time (maybe for a five-year period) and base spending habits on that estimate.

Raising taxes on people with $200,000 or more a year in income will actually lower the average take home salary of a small business proprietor since it would tax the boom years too heavily.  For example: a small business proprietor may average $150,000 a year in salary for a 5-year period but the income distribution may be $100,000 a year for four years and $350,000 in one year.  Under the current tax system, the percentages in the different tax brackets are lined up so the tax savings of being in the lower tax bracket during lean years offsets the higher tax in the boom year.  Raising the tax bracket of $200,000 a year earners while maintaining the lower tax rates in the lower brackets distorts the offsets under the current system since the small business proprietor gets taxed heavier in boom years and the tax savings in lean years will not adequately offset this heavier tax burden.  Thus, the small business proprietor is being taxed more than a salaried employee earning $150,000 a year during the same period.  This will only stifle small business growth since the increased tax burden during boom years takes away money that the small business proprietor could have used to expand the business. 

The other problem with Kerry's proposal is that the statistics used to justify it are skewed.  Kerry claims that only 2% of Americans derive $200,000 a year or more in income.  Kerry's statistics fail to take into account incomes in a booming economy.  If you look at small business income between 1997-1999, one would see that a moderate percentage of small businesses earned more than $200,000 a year.  Thus, Kerry's tax increases will directly affect a large number of small businesses despite his claims to the contrary.  This would be bad for America since a slow down in small business growth would hurt the entire economy because much job growth in America is attributed to the growth in small business.

The final post will be up tomorrow.</font color="purple">

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HMO Accountability

Kerry's HMO accountability proposal would allow people to sue HMO's for injuries caused by coverage denial. What the plan is really calling for is an amendment to ERISA section 502(a) which limits damages to contract damages for all employer provided health insurance plans. Kerry's plan is clearly a response to the Supreme Court's 2004 decision of Aetna Health Inc. v. Davila, (124 S. Ct. 2488), which held that ERISA 502(a) preempted state malpractice actions against an HMO's treatment decision. (The more cynical side of me believes that Kerry's plan is also a response to the Trial Lawyers lobby).

I have no problem with holding HMO's accountable to state tort actions (or to amending ERISA 502(a) damages) because the facts of these cases are usually pretty egregious and the injured parties deserve more compensation than ERISA currently provides. The problem that I have with Kerry's plan to hold HMO's accountable is that it contradicts his plan of reducing health care costs and frivolous claims.

By opening up HMO's to liability for treatment decisions, Kerry would force health insurers to incur substantial costs in both defending the claims and risk of liability faced. Health insurers would then pass these costs on to all consumers thereby raising the cost of health insurance for all. Also, without implementing some form of tort reform (or caps on his new ERISA 502(a) damages), the liability that these insurers face could be very substantial. Juries would be very sympathetic to a victim of negligent coverage decisions because the insurer would be acting out of business judgment (the Ford Pinto case is an example of what happens when a large corporation chooses to expose individuals to harm because of business judgment).

The large costs of defense and the massive exposure to liability would make insurers more likely to settle claims before they get to trial. This system would create an incentive to bring frivolous claims since an insurer will find it cheaper to settle many of these claims than it is to investigate the allegations and to proceed to the certification program level.

Thus, this plan is not going to cure the problem of rising health care costs, in fact it will raise health insurance premiums. As I stated earlier, I am not against amending ERISA to allow for greater remedies, I am just trying to point out a fundamental contradiction in Kerry's health care plan. Kerry would need to provide more than just a certification program to counteract the increased costs that will be incurred by all because of the expanded insurer liability.

Note: I realize that many of my posts are contradictory (for example arguing for tort reform here and against it in other posts). It is not that I am against many of the proposals themselves, it is that both candidates' plans, taken as a whole, are problematic and would not cure the health care crisis. My final post will go into why many of these proposals would be better implemented by the states and not the federal government because the states can create a more cohesive plan, taking into account their own geographical problems. My first eight posts are meant to point out some of the flaws in each proposal and not to argue that the individual proposals have no redeeming value.

Post #8 in the series will be up on Sunday and my final post will be up on Monday morning.

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VI. John Kerry's Health Care Plan

Introduction

John Kerry is trying too hard to be everything to everyone. He is promising the moon and the stars but fails to articulate where the funding will come from (other than rolling back Bush's tax cuts). In theory, John Kerry's plan would be great. Kerry proposes having the federal government act in an umbrella capacity (i.e. having the government subsidize high cost medical claims) for employers providing insurance; he proposes giving all Americans access to Congress' health care plan; he plans to reduce frivolous claims by implementing a certification program; he proposes tax credits to certain small business employers who offer health insurance covering low to moderate income workers; and he plans to hold HMO's accountable for harm caused by denying patients necessary medical care. Kerry's plan is not feasible without substantial tax increases and will not significantly curb the trend of rising health care costs.

John Kerry's plan is interesting because it contains an obvious fundamental contradiction where Kerry cites frivolous claims as a problem (i.e. wants to implement a certification program) and then in the next breath he wants to hold HMO's accountable for harms caused by denying patients necessary medical care. Thus, his plan is looking to reduce litigation in one breath and increase litigation in the next. Today's post will focus on the problems with the certification program. Tomorrow's post will focus on the HMO accountability issue and its inconsistency with the certification program.

Certification Program

The certification program is intended to reduce the amount of frivolous malpractice claims. Kerry hopes to implement a federal medical certification agency that will review all medical malpractice claims and decide whether the claim is frivolous or not. In theory, the certification agency will be able to make this determination at less of a cost than a trial court could.

The problem with the certification program is that it will create a large federal bureaucracy that will ultimately raise the costs of all medical malpractice litigation. The first flaw in this program is the belief that there are a great amount of frivolous malpractice claims being filed (notice that tort reform makes this underlying assumption as well). A medical malpractice claim is extremely expensive to pursue all the way to trial. The cost of experts along with extensive discovery raises the costs of malpractice litigation well above the costs of other types of litigation. Therefore, an attorney will only aggressively litigate a malpractice case if they believe that a claim has merit. Yet, I am not naive enough to believe that there are not attorneys out there who will threaten litigation in the hopes of obtaining a quick settlement. The problem is that the certification program will not prevent lawyers from threatening litigation and it will raise the costs of bringing valid claims.

The certification program would require both the plaintiff and the defendant to proffer some evidence at an administrative hearing in order for the agency to make an informed decision (just reviewing the medical records would not be enough because of the complexity of malpractice cases). This would result in a sort of "mini-trial," thereby forcing the defendant doctor to gather evidence and formulate strategy to present a case. The "mini-trial will also inconvenience the doctor since he/she must take time out of his/her busy schedule to attend the hearing (along with any reputation damage incurred by claims). This "mini-trial" will create enough expense, inconvenience and reputation damage to force the doctors to settle minor frivolous claims just to avoid going to administrative hearing (much like employers will settle nuisance employment claims to avoid the expense associated with frivolous claims). Therefore, this system would have very little impact on the filing of frivolous claims in the pursuit of a quick buck.

Next, it needs to be determined whether the certification program is needed. The judicial system has a sort of built in certification program with summary judgment proceedings. Both summary judgment proceedings and administrative hearings would require about the same level of evidence and legal strategy to enable the decision-maker to formulate an informed decision about the frivolousness of the claim (note that in both cases a question of fact would ultimately go to trial). The only advantage that the administrative hearing would have over the summary judgment process is that the decision-maker in an administrative hearing would have a background in medical care. This is a big advantage over a regular judge but the advantage could be better accomplished by creating special regional malpractice courts where the trial judges have background in medicine (much like the court of chancery in Delaware for corporate law).

(It is important to note here that stiffer rule 11 sanctions against attorneys would also reduce the amount of frivolous claims being pursued in the judicial system)

The next problem with the certification program is the Due Process issues involved. To get over the Due Process hurdle the certification program would probably have to implement an appeals procedure. Once an appeals procedure is implemented, how much actual savings are being created? If a client truly feels that they have been wronged, they will appeal the negative agency ruling to a court. The court will then have to conduct a trial to make its determination (unless the administrative agency is given discretion to make broad findings of fact. But discretion to make broad findings of fact would greatly increase the costs of the administrative hearing). Therefore, a full court proceeding will have to occur somewhere along the line for an adequate determination to be made. This will not reduce the doctor's liability of costs in defending frivolous claims.

Another problem with the certification program is that it will raise the costs of bringing and defending malpractice claims with merit. The administrative hearing would add another proceeding to the judicial system, thereby raising the costs of litigating a malpractice claim. By raising the costs of defense, the certification program may actually raise the costs of malpractice insurance since the insurer will be called on to defend the action at both the administrative level along with all levels pursued in the judicial system.

For evidence that the certification program would ultimately fail in its goal of reducing frivolous claims one has to look no further than the field of employment law. If the certification program is implemented in a loose structure in an attempt to reduce the costs of defending such claims, then access to the program will become too easy (much like the EEOC). Once access becomes easy, attorneys will have another weapon to induce settlement of frivolous claims since the threat of bringing action becomes very real because the barrier to entry is lower. Thus, no matter how frivolous the claim is, there will always be an incentive to settle since the doctor will be forced to defend the claim (much like an employer will settle many frivolous employment claims because the costs of the nuisance are greater than the costs of settlement). If the certification structure has a rigid structure, then the process would look very "trial like" thereby not reducing the costs associated with defending the claim. In all, I believe the certification program would have very little impact on the amount of frivolous claims being brought and the potential dangers of such a program are great. The reduction of frivolous claims can better be achieved through other means.

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Tort Reform

President Bush is pushing for tort reform in the medical field in an attempt to reduce malpractice insurance premiums. The underlying theory is that capping the amount of punitive and compensatory damages will reduce the premiums on malpractice insurance, thereby reducing the cost of health care to patients. Also, tort reform is meant to reduce the amount of frivolous lawsuits since personal injury attorneys would be leery to bring suit on marginal cases because the limited awards may make the risks of fronting the costs of litigation less enticing.

Once you start dealing with tort reform in the medical arena you start going down a slippery slope. In theory, tort reform is great. It reduces the amount of frivolous lawsuits in this litigious happy country and it prevents greedy personal injury lawyers from collecting millions on someone else's pain. But in reality, tort reform is extremely complex with numerous arguments against it. The only argument that I will touch on in this post is that it has a strong propensity to discriminate against the poor and middle class.

By capping the amount of punitive and compensatory damages available to the injured party, tort reform skews the contingency fee calculus, turning what may be a valid claim into a marginal claim in the eyes of a personal injury attorney. (I.e. it shifts the entire calculus a few degrees towards not taking a case. For example cases that would be deemed a marginal case today would certainly not be taken, cases that would be deemed to have a fairly high degree of success would become marginal.) This will cause personal injury attorneys to only take a case on contingency when the case may yield a fairly substantial award and the case has a high probability of success. The personal injury attorney will handle all other personal injury claims on a retainer basis since the risk of litigating are greater than the potential fees. Thus, they will look to eliminate this risk by having the client pay all the costs of litigation. This system would inherently discriminate against the poor and middle class since they would only be able to find an attorney to litigate their malpractice claim on a contingency basis if the potential for damages is great enough and recovery is probable enough. Any claim that does not fit this criterion will be left unlitigated since the poor and middle class would be unable to pay the high costs associated with medical malpractice litigation.

Therefore, tort reform may reduce the costs of health care by reducing the number of lawsuits and amount of damages available but this reduction comes at a cost since poor and middle class individuals would be unable to afford litigating many legitimate claims. Therefore, tort reform would have the effect of leaving many severely injured people under-compensated and leaving many injured people wholly uncompensated. The minor reduction in health care premiums that tort reform would create is not worth the costs it would inflict on the injured poor and middle class.

In conclusion, I am not wholly against tort reform because I too think it is unjust when a personal injury attorney reaps large fees off of someone else's pain. The point of the post is just to briefly hit on the slippery slope that one goes down when considering a tort reform regime. I will touch on tort reform again in upcoming posts.

Note: I was under the failed assumption that readers of my series would have read my first post. Let me clarify this and prior posts. I am calling for the federal government to defer the health care issue to the states (as will be explored in post 9). Tort reform is a definite tool that the states could implement in a comprehensive approach to health care. Under this comprehensive approach, states will be better to handle the slippery slope problem because each state would have individualized needs and concerns (i.e. a state would be in a better position to determine sufficient caps). The point of posts 2-8 are not to entirely scrap each proposed plan, but rather to point out some of the plans flaws. This will allow me to describe why the proposals will be better implemented at the state level. Sorry about any confusion and I hope this helps.

Links to prior posts: post 1 post 2 post 3 and post 4

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Daniel Drezner and Henry Farrell have published an essay on blogging in the latest issue of Foreign Policy. Most of this will be old hat to those who regularly read blogs, but I found their thoughts about the relationship between blogging and traditional media most interesting. Including this:

Bloggers have become victims of their own success: As more mainstream media outlets hire bloggers to provide content, they become more directly integrated into politics as usual. Inevitably, blogs will lose some of their novelty and immediacy as they start being co-opted by the very institutions they purport to critique, as when both major U.S. political parties decided to credential some bloggers as journalists for their 2004 nominating conventions.

This seems so obviously wrong that I feel compelled to comment. If they were talking about an individual blog, they might have a point. But to suggest that blogging as a whole will be co-opted by mainstream media outlets ignores the fundamental characteristics that make blogging special: one person, one computer, one internet connection, and one idea. That is where blogging begins, that is why blogging truly is revolutionary, and that is why it will remain revolutionary.

Thanks to my colleague Greg Shaffer for the pointer.

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This was the oath uttered by Michael Ovitz, when he was asked earlier today whether he was truly recommitted to Disney on Nov. 1, 1996, as he wrote in a memo to Michael Eisner. "I wasn't going to leave there as a loser but I was being left out of meetings. Nobody was talking to me. I was cut out like cancer. I guess you could say I got pushed out the sixth floor window."

The problem is that Ovitz's story does not hang together. Under his version of events, he agreed to work at Disney after Eisner's heart attack (are we to infer that he felt sorry for Michael Eisner?), but was told by senior officers of the company that they would never report to him. (Maybe because he was ill-equipped for his job, a point he seemed to concede in testimony today.) Despite the documentary evidence to the contrary, he never abused his expense account. Moreover, he worked long hours and proffered brilliant ideas (such as buying half of Yahoo!) to Eisner, who rejected the ideas and inexplicably turned on his friend of 25 years, calling him a psychopath. "It all went downhill and I don't understand how and I never will."

Ovitz would have us believe that he walked into Disney as a solid team player, but was spurned for no apparent reason. Then paid $140 million to leave. Note to Ovitz: if you are going to counter the prevailing view that you were neither competent nor dedicated, you need to tell a story that explains the facts. Why did Disney executives react to you? Why would your friend Michael Eisner turn on you so suddenly? Under your version of events, this behavior is as difficult to comprehend as the popularity of The Apprentice.

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I just watched the last inning. Congrats, Boston fans. I could not have been more wrong. Mea culpa. I expected Boston to be out of gas after their emotional comeback against the Yankees, but the Cardinals were the ones who looked lethargic. Now, keep it together, Boston.

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Sick today. Cancelled two classes. Slept a lot. I hate being sick, but I appreciated the sleep. Looking forward to a better day tomorrow.

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IV. President Bush's Plan To Allow The Purchasing Of Health Insurance Across State Lines

Another Bush proposal is to allow people to shop across state lines for health insurance. This proposal is looking to expand a national model of insurance (i.e. see Progressive and GEICO for auto insurance) to the health insurance field. The belief is that people will use the internet or other tools to research health insurance rates across the country and purchase the policy or plan that best suits their needs.

The "shopping across state lines" plan sounds very simple in theory but is actually extremely complex. To better understand the problem, I need to provide a brief history of the insurance industry. In the 1940's the insurance industry pushed for state preemption of federal law in the insurance field in order to avoid being regulated by a much more aggressive federal government. Congress acquiesced to this request and enacted the McCarran-Ferguson Act to give the states reverse preemption power in the field of insurance. States then enacted different bureaucracies to oversee the insurance industry (i.e. the Commissioner of Insurance in Wisconsin). Therefore, each state regulates all insurance polices issued in the state. A state can decide whether insurance is mandatory (i.e. car insurance in most states) what provisions the policies must provide, damages available, regulate guarantee plans and residual plans, etc.

This brief history shows that each state has formulated state specific rules and regulations for the health insurance industry. To overcome the states' insurance structure, Bush's proposal can be accomplished in one of three ways: 1) allow across state line purchases without amending or overturning McCarran-Ferguson, 2) Overturn McCarran-Ferguson completely to allow federal regulation of the entire insurance market, 3) Amend McCarran-Ferguson so that only health insurance qualifies for federal preemption. All three options would be a nightmare to implement and would result in very little savings.

1) Not Amending or Overturning McCarran-Ferguson

By not amending or overturning McCarran-Ferguson, President Bush would be establishing a choice of law nightmare. This can best be explained with an example. Assume a Wisconsin employer has employees who are all Wisconsin residents. The Wisconsin employer decides to purchase an insurance plan from an insurance provider in Illinois since it offers the lowest premiums. Also assume that Wisconsin law mandates that all insurance policies sold in Wisconsin must cover experimental cancer procedures whereas Illinois has no such law. An employee covered by the plan later develops cancer and seeks to obtain an experimental cancer procedure. The employee goes to a Wisconsin court seeking a declaration that experimental cancer coverage is implied in all insurance contracts sold in Wisconsin. Whose law should be applied? Most choice of law tests would say that Wisconsin law should apply since it has the most contacts to the case (I'm simplifying the choice of law analysis for the sake of brevity). Thus, the insurer should be required to pay for this procedure. After a judgment like this comes down, all insurance premiums for policies sold in Wisconsin will be higher to adjust for this increased coverage. This would result in an insurance market that looks exactly like the one we have today and a court system flooded in litigation for insurance determinations (this added litigation would probably raise insurance premiums).

2) Overturn McCarran-Ferguson Completely And Have Federal Preemption Over The Insurance Industry

By overturning McCarran-Ferguson completely, the federal government would have to create an enormous federal bureaucracy and create a substantial amount of legislation to oversee the entire insurance industry (The field of pension law shows that this may not be desirable). Congress would have to regulate everything from health care to auto insurance to life insurance. People would lose any advantages their state has provided them in the insurance field over the years. What advantages would overturning McCarran-Ferguson yield? The answer to this question is quite complex since "for every give there is a take." If the federal government enacts legislation that has stricter coverage standards than your state currently has, then you will benefit from the increased coverage but you will be hurt by having to pay higher premiums. If the federal government enacts legislation that is less strict than the state you reside in, then you will benefit from lower premiums but will be hurt by receiving less coverage. At the end of the day, the average premium cost in America will stay the same as it is today, assuming Congress passes a middle ground standard between the strictest state and the most lenient state, thereby eroding any advantages that the "purchasing across state lines" plan seeks to obtain. [I am assuming that the insurers' savings of having a uniform plan across the nation (i.e. compliance efficiency) do not substantially outweigh the administrative costs of having to deal with the federal bureaucracy].

3) Amend McCarran-Ferguson So That Only Health Insurance Qualifies For Federal Preemption.

Amending McCarran-Fergusen so that only health insurance qualifies for federal preemption would have the same leveling effect as described in option 2, and thus will not reduce the costs of insurance from the levels we see today. It would also create a nightmare for the courts since the courts will have to determine what is "health insurance." It could be argued that liability insurance could fit into the definition of "health insurance" since it provides payments for medical costs. This argument is further bolstered by the concept of subrogation between a health insurer and a liability insurer. The problem is that many different forms of insurance contain a liability function (i.e. home, auto, business etc.) Would these policies be regulated by the states, by the federal government, or by both? This would open the floodgates of litigation on this point.

Therefore, all three alternatives contain flaws that are inconsistent with Bush's policy of a smaller federal government. Both overturning and amending McCarran-Ferguson would force the creation of a large federal bureaucracy to deal with insurance issues. It is the creation of large insurance bureaucracies that Bush is currently criticizing Kerry's plan on. Also, simple economics would tell us that allowing purchases over state lines would lead to little or no change in the average cost of health insurance. It will lower premiums for people who are at the high end of the premium scale (based on geographic location) but it will also reduce the quality of coverage. It would also raise premiums for individuals at the low end of the premium scale (based on geographic location) and will raise coverage. In the end, the costs and benefits will ultimately even out, leaving the problem of high health insurance premiums that we see today.

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The national spotlight is back on Wilmington as the Disney case is currently being tried before Chancellor William B. Chandler III of the Delaware Court of Chancery. This is a case that has been bouncing around the Delaware courts since 1997, and it has already become an important new addition to the corporate law pantheon. By the time this is over, the Delaware courts might have invented a powerful new method of reviewing director actions.

To a corporate lawyer, the most conspicuous feature of the claims in Disney is the absence of self-interest on the part of the Disney managers (other than Ovitz). Normally, absent self-interested behavior, the Delaware courts are very deferential to director action. In this instance, however, Chancellor Chandler paved the way for a stockholder win with his May 2003 ruling, denying Disney's motion to dismiss. In that opinion, the Chancellor wrote the following with regard to the latest stockholder complaint:

These facts, if true, do more than portray directors who, in a negligent or grossly negligent manner, merely failed to inform themselves or to deliberate adequately about an issue of material importance to their corporation. Instead, the facts alleged in the new complaint suggest that the defendant directors consciously and intentionally disregarded their responsibilities, adopting a "we don't care about the risks" attitude concerning a material corporate decision. Knowing or deliberate indifference by a director to his or her duty to act faithfully and with appropriate care is conduct, in my opinion, that may not have been taken honestly and in good faith to advance the best interests of the company. Put differently, all of the alleged facts, if true, imply that the defendant directors knew that they were making material decisions without adequate information and without adequate deliberation, and that they simply did not care if the decisions caused the corporation and its stockholders to suffer injury or loss. Viewed in this light, plaintiffs' new complaint sufficiently alleges a breach of the directors' obligation to act honestly and in good faith in the corporation's best interests for a Court to conclude, if the facts are true, that the defendant directors' conduct fell outside the protection of the business judgment rule.

Against that legal backdrop, the stockholders are now attempting to prove that the directors breached a fiduciary duty of good faith. The stockholders have brought three expert witnesses before the court: (1) Deborah DeMott of Duke Law School stated, "I saw no indication that the selection of Mr. Ovitz was preceded by a meeting of Disney's board of directors"; (2) John Donohue of Yale Law School testified that Ovitz "seemed to have no understanding at all" of his role and could have been fired for cause; and (3) Kevin Murphy of the University of Southern California testified, "The initial contract was one of the most generous - if not the most generous - ever offered to a non-C.E.O. in corporate America," and that Ovitz's pay was "unreasonable" and "not in the interest of shareholders."

The stockholder case against the directors looks strong, and the claim against Michael Ovitz appears to be even easier. Just last month, Chancellor Chandler denied Ovitz's attempt to dismiss one of the claims, which alleges a self-interested transaction. According to Chancellor Chandler:

Ovitz's negotiated separation from the company was an interested transaction within the meaning of section 144 because he, as a director and officer, engaged in a transaction with the corporation for which he was a fiduciary and received a benefit greater than that of Disney's stockholders, and this benefit was material to Ovitz. It was more than merely receiving what he was entitled to under his contract. Ovitz has argued that receiving his [Non-Fault Termination ("NFT")] was merely a pre-arranged contractual obligation, akin to receiving his salary. It is true that if Ovitz received a NFT, that he had a contractual right to receive the payout he did receive. But Ovitz did not have a contractual right to receive a NFT, which distinguishes this situation from the mere receipt of salary. Instead, Ovitz's receipt of a NFT was conditioned upon a one-time determination (to be made by Disney) that was not guaranteed by his contract, and Ovitz appears to have actively engaged in negotiations and decisionmaking that affected Disney's determination to grant the NFT.

This looks like a loser for Ovitz. The issue before the Court will be whether Ovitz dealt fairly with Disney, and that will be a hard case for Ovitz to make.

Over the next few weeks, I will be watching the case and offering insights. I welcome your comments on this important case.

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Forbes has ranked the most entrepreneurial campuses in the U.S. The methodology emphasizes "whether the school offers a major or concentration in entrepreneurial studies; whether the school operates programs like a small business incubator or venture capital fund to help students launch their own businesses; and whether the school offers opportunities for students to learn about entrepreneurship through internships or cooperative study."

And the winner is ... The University of North Carolina-Chapel Hill.

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Spanish chesses are a mixed bag for me. I am a mild fan of Manchego, a sheep's milk cheese, and Majorero, from goat's milk. Today, I picked up a Mahon cheese, which is made from cow's milk in Mahon, and I am a big fan. Mahon is the capital and port of Menorca, the most northerly of the Balearic Islands, in the Mediterranean Sea. At this fine website, I learned that Mahon "is ... the name given to all cow's milk cheeses produced on the island, as all cheese were exported from Mahon via the Mediterranean Sea." My cheese was creamy and just slightly salty, with a tangy aftertaste. Indeed, after my first bite, the inside of my mouth was tingling. It would make a great board cheese.

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One of my email buddies is my 11-year-old daughter. She just got an Gmail account, and we are trading daily messages. It's good typing practice for her, and we have various ongoing conversations. Today I received this rebuke: "How come you always tell me to write longer emails but you always write shorter ones?"

I have no response for that.

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III. President Bush's Association Health Plans

Association Health Plans (AHP) are another proposal that President Bush hopes will solve the high insurance premium problem. AHP's would allow small-businesses to band together to create a larger insurance pool. By the theory of "power in numbers", the association will then be able to negotiate more favorable health insurance rates from an insurance provider.

AHP's have many flaws is both the assemblage and the administration of the associations (see Kansas's 1980's experiment with AHP's in which many plans did not charge enough to its participants and the plans ended up going broke), but I will only focus on the one problem that I deem most alarming-- discrimination. AHP's suffer from the problem of redlining. Any rational small-business will not form an association with any other small-businesses whose employees create a greater risk than that of its own. Therefore, small-businesses with many employees in high-risk health categories will be frozen out by other small-businesses with less risky employees looking to reduce premiums. This will lead to two major problems: the first is that small-businesses will discriminate against other small-businesses in the formation of associations based on age, race, disability or any other actuarial category that will raise premiums; and the second problem is that the small-businesses in the greatest need of health care relief will be unable to attain it, leaving employees most in need of insurance uninsured.

Edit: I wanted to address an question that was emailed.
So since all won't benefit equally, none should benefit at all?
I agree that something needs to be done even if it has
disproportionate effects. the problem with AHPs is that the value of
have a large number of insureds is not so great as to reduce premiums
by that much. That is why most large companies are self insured with
an umbrella policy to cover the plan. This trend shows that the
associations will tend towards self insurance as well (once there are
enough participants to make it actuarially sound). The question then
becomes: who will administer this plan when there are numerous
employers? The association will likely hire a 3rd party administrator to run the plan (much like the failed Kansas experiment in the 80's).

Discrimination comes into affect once this association is formed. If
an association has low premiums, then more high risk companies will try to join the association. When they are rejected, the companies will file discrimination suits to enter the plan. The plan will have to formulate nondiscriminatory exclusion procedures (much like insurance companies do)in order to justify the exclusion. Reduced premiums would not be a sufficient justification. The costs of defending the suits will raise the administrative costs of the plan. If an association loses its control over who to let into the association then the benefits of forming an association will be minimal since the plan will have a wide spectrum of risks. Therefore, the only affect an association would have is to reduce the costs for high risk companies and raise the costs for low risk companies while creating a flood of litigation (low risk companies would probably stop forming associations because of this leaving only high risk companies). This would not solve the health care crisis.

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Your schedule for DC is set. Now comes the hard part: the interviews.

If you want general interviewing advice, I have only a little, and that will be idiosyncratic. I do not purport to be an expert on interviewing, and there is plenty of such advice already available on the internet. See here and here, for example. The main purpose of this entry is to discuss some of the subtler facets of Recruitment Conference interviewing.

So there you are, standing outside the interview suite. I hope you are on time. (When I was doing this, I showed up for the wrong slot for one school, missed my interview completely ... then got an offer for a callback. Which caused me to conclude that I was most effective in my absence.) If you are early, wait patiently for the appointed hour. Most schools have very full schedules, and if the door is not cracked open, chances are that they are with another candidate. If your time comes, and the door remains closed, a soft knock will alert the committee that you are waiting.

If you are late, make sincere apologies. You may have a packed schedule and the prior committee may have kept you too long, but that isn't my problem. Your task is to order your affairs in a manner that allows you to keep your commitments, and if you can't do that, you should have an explanation.

Most committees like to take a short break between candidates. They discuss the prior candidate, sharing preliminary impressions, and find the cv for the next candidate. They take rest room breaks or get drinks (hopefully non-alcoholic!). Just what you would expect them to do.

The entrance is simple, though it can be a bit awkward unless you are accustomed to people staring at you. We will have eight people on our committee, and that is a lot of handshaking. Oh, yeah, did I mention that you should shake hands with each member of the committee? Well, at least that's the way it works with our committee. I have seen candidates who step into the room and shrink back from the committee. Bad start. I try to help candidates out by extending a welcome hand, giving them a clue that this is the routine. Remember that this isn't rocket science. Take cues from your hosts about what is expected.

If you are expected to shake hands with everyone, it isn't necessary to repeat your own name eight times. We know who you are. But at least one indication about what we should call you would be nice. (First names, please. If you refer to yourself as "Dr. Jones" or some such thing, you are done.) If you have a name that is difficult for Americans, you might squeeze in more than one reference to it.

Also, saying the same thing in response to each introduction gets a bit awkward. Mix it up a little. "Hello." "Pleased to meet you." "Thank you for having me." Of course, you might save special recognition for members of the committee who have contacted you, especially if you have had telephone or email conversations.

It is possible to make a mistake here. I have heard stories of candidates who acknowledge only the male members of the committee or ignore the minority members. This is rude, and committee members may read even more into it than that. May you be justly punished if you do that.

The interview should go quickly. If it drags, that is a horrible sign. You have 20-25 minutes to make yourself memorable. It probably isn't a good idea to make yourself memorable through fashion. Wear conservative business attire and you will not have a concern. Paint your hair green or wear a tank top and you will become a story for future candidates to learn by.

Most committees are interested in exploring only a few topic areas: (1) your research agenda; (2) your teaching plans; and (3) your ideas about service to the law school, the community, or the profession. In discussing these topics, the committee will be attempting to evaluate the quality of your mind, as well as your collegiality. Here are some questions that you should be able to answer:

* "I notice that you have written on [topic A] and [topic B]. How do these fit into your research agenda?" In my view, some version of this question is the most important of the entire interview. You should have an "elevator speech" that will allow you to describe your research agenda quickly and compellingly. I have a strong preference for candidates who are interested in tackling fundamental issues, not technical problems. Among other things, a taste for fundamental questions will mark you as an interesting colleague, one who will make many connections with the other members of the faculty.

* Anything about your writings. One of my colleagues is fond of saying that he wants to "see how their minds work." The interview team from Wisconsin strives to ask challenging questions about your work, probing both the breadth and depth of your preparation and intellect. "Good" answers are responsive, engaging, and thoughtful, not evasive, glib, or dismissive.

* "When you were a law student, who was your favorite law professor, and what did you admire about that person?" Another variation of this question would focus on classroom teaching: "When you were a law student, who was your favorite classroom teacher, and what did you admire about that person's teaching method?" Most candidates do not have extensive teaching experience, but this question offers a window into a candidate's thoughts about teaching. The first version also provides an opportunity to speak about activities outside of the classroom. We are interested in knowing how you imagine your life as a law professor. If you have wildly unreasonable expectations for that life, it suggests that you have not thought through your decision to enter the profession.

* "How do you imagine yourself integrating your practice experiences into your classroom teaching, if at all?" This question can be varied to ask about research, too: "How will your practice experiences affect your research, if at all?" These are both sideways methods of asking about your work experiences. People who become law professors often daydream about it, thinking about how this case or that deal might be used to illustrate some principle or practice. We really want to know whether your experiences will enhance your work as a professor.

I have heard a lot of dumb questions from interview committees. Unfortunately, you do not get to pick and choose which questions you answer. Here are some dumb questions that you are likely to hear:

* "If you could teach any three (or four) classes, what would they be?" This is a dumb question because you have already expressed your preferences on the AALS form. It is possible that you may have changed your mind or that you were answering strategically rather than sincerely on the form, but such admissions are rare.

* "What kind of teacher will you be?" This is a dumb question because it tends to produce the same answer from every candidate: something about "modified Socratic method." This is, of course, a fairly safe answer because few of us have a strong preference for unyielding Socratic, and "modified Socratic" can include a broad range of classroom practices. Hint: it is probably better not to mention PowerPoint, even if you find it useful (as I do) because some law professors have a very strong bias against PowerPoint and anyone who likes it.

* "Why do you want to be a law professor?" Yuck! You might want to say, "Because I hate practicing law" or "Because I wanted more free time." Resist the temptation. This is a dumb question because it invites unspecific answers. We all have basically the same reasons for wanting to become law professors, and while some may be mainly interested in teaching while others are mainly interested in research, the committees shouldn't need a question like this to sort candidates along those lines. In response to this question, most candidates mumble something about how law fascinates them, how they want to have the time to do research on issues that interest them, blah, blah, blah. I would much rather hear a story, if you have one, about how you came to the realization that this was your calling.

When the interview is coming to a close, most schools will ask if you have any questions about the school. This is not simply a formality, and you can really trip here. First, have something ready for this moment. Second, if possible have something specific to the school, something that shows you have read their promotional materials and thought about what it would be like to teach there. Third, general questions like "How does your school support research?" are better than nothing (at least they show that you are interested in research), but they become very boring for the committee after a time. This can be sort of a downer at the end of a good interview. Fourth, some questions can be painfully dumb. "Do you have a collegial faculty?" Like we would tell you if we didn't! Fifth, do not ask questions about salary or benefits. You are not that far along in the process, yet.

That's it. You're done. Shake hands. Be grateful for the chance to meet all of your wonderful hosts, and exit.

After you leave, the committee members will do a quick pulse check to see how everyone feels about you. What distinguishes great candidates from good candidates? In my view, the best candidates have a passion for ideas. They simply love talking about law more than almost anything else. This is not a style point, and it's impossible to fake if the interview team is asking good questions.

If you would like to see prior installments in this series, see the following: Part III, Part II, and Part I.

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