Friends and colleagues

To our friends and colleagues in Houston, Miami, SE Texas and the East Coast hit by hurricanes Harvey and Irma, hoping that you and your families are safe, and that if your homes or offices were flooded or damaged, the rebuild is swift and as problem-free as possible.

As regular readers of this Newsletter know, in each issue I present a summary of recent research reports, legal decisions and news articles that I hope my readers will find of interest and worthy of their time to peruse and perhaps download and read in their entirety.  I focus on two areas:  corporate governance and alternative dispute resolution (“ADR”).  Additionally, I almost always include two to three articles concerning matters of general interest in my “Interesting Cases/Articles of the Month” section.

Beginning with Governance, this month I present two articles.  First, I present a “Research Spotlight” published by the Stanford Graduate School of Business’ Corporate Governance Research Initiative on unethical behavior in corporations published in late August 2017.  Additionally, I present another research piece, this one by the Investor Responsibility Research Center Institute, regarding the impact of activist investors on board composition.

For my ADR readers, I present two cases.  The first is a case arising in Miami in which one of the parties’ attorneys is a former judge who was listed on the trial judge’s Facebook page as a “Friend.”  The opposing party moved to disqualify the judge asserting that in light of the Facebook “Friend” relationship he had “a well-grounded fear of not receiving a fair and impartial trial.”  The second is a piece by a colleague setting forth a view I share:  that expanding arbitration clauses’ scope of review and adopting arbitral appellate procedures will, as the author states, “promote speedier, cheaper, and more efficient results in the average case.”

Lastly, I present articles of general interest in my “Interesting Cases/Articles of the Month” section.  This month, I present three pieces.  First, a confession:  I’ve become a bit obsessed with the constitutional propriety of many of our president’s actions.  As regular readers of this Newsletter know, I’ve been following and reporting on the pending emoluments clause litigation.  This issue’s article addresses another matter – our president’s pardon of Sheriff Joe Arpaio.  Also presented is piece reporting that pink noise and certain sound waves enhance not just sleep, but memory.  Finally, I present two articles regarding a decision in late August by a California State Bar committee to address the low pass rate of the California Bar Exam by . . . . . you guessed it, lowering the minimum passing score.

This Month’s Articles

Corporate Governance

• Research Spotlight – Corporate Governance Failure, Fraud, & Scandal:  The Stanford Graduate School of Business’ Corporate Governance Research Initiative, in late July, published a compilation of recent research regarding unethical behavior in corporations.  The findings are set forth in easy to read charts.  Also included in the Spotlight is data regarding the economic impact of such behavior.
• Impact of Shareholder Activism on Board Composition:  The Investor Responsibility Research Center Institute (IRRCi) and Institutional Shareholder Services Inc. (ISS) teamed up to study the impact of activist investors on board composition.  380 new board candidates were put forth by activist investors during the 3 year study period.  The study examined the demographics of those potential directors and the profiles of the boards following the activist investor activities.

Alternative Dispute Resolution

• Herssein and Herssein, P.A., etc., et al., Petitioners, v. United Services Automobile Association:  This case, heard in a Florida State court, addresses the question whether a judge must recuse him/herself because s/he is a Facebook “Friend” of one of the attorneys in the case.  Answer:  no.  More important than the answer, however, is the standard established and the reasoning.   While the case arises out of a court proceeding and does not involve arbitration, the same issues and rationale apply to arbitrators.
• Making Arbitration More Appealing:  In this piece by a 30 year litigation veteran and former deputy general counsel of a financial services company in charge of the company’s worldwide dispute resolution, the argument is made that parties to a dispute to be arbitrated should permit limited appellate review of their arbitration awards and adopt the appellate procedures of their arbitral institution.  Why?  Lower cost and greater efficiency.  I fully agree!

Interesting Articles/Cases of the Month

• A Pardon for Arpaio Would Put Trump in Uncharted Territory:   Written and published a couple of days prior to Trump’s pardoning “Sheriff Joe,” the author argues that such a pardon is an unconstitutional act.  The article is a worthy read for lawyers and non-lawyers who are thinking about the limits of presidential powers.
• Sound Waves Enhance Deep Sleep and Memory:  A study at Northwestern University School of Medicine has found that by synchronizing sound to brain waves, sleep can be improved in older adults and as a result, memory improved.  While larger studies are necessary, the innovative technology is promising.
• California’s Answer to Low Bar Pass Rates:  California has historically had one of the most difficult licensing exams for lawyers, and as a result one of the country’s lowest pass rates for those taking the exam.  In recent years the pass rate has worsened, and as a result California’s law schools are responding.  Unfortunately, their proffered solution is not to improve their education or strengthen their admission standards.  Rather, they’re lobbying for a lowered minimum pass score on the licensing exam.

I hope you find one or more of the below articles of interest and worthy of your inbox’s space.

Warm regards,

Jim Reiman

Articles / Corporate Governance

Research Spotlight – Corporate Governance Failure, Fraud, & Scandal  

The Stanford Graduate School of Business’ Corporate Governance Research Initiative periodically compiles the current research data on a particular subject and publishes the results.  In July, they set out the findings of multiple studies regarding unethical corporate behavior and the economic impact of such.  Included is data regarding the types of unethical (or fraudulent) behavior, the tactics used to conceal the wrongful conduct, the behavioral cues that can serve as a “red flag” to indicate fraud, and the economic impacts of the wrongful activity.

The factoid that caught my eye, and that I found stunning, was the finding that 42% of executives admitted that they would be “willing to engage in unethical activities to meet financial targets.”  Indeed, nearly twice as many executives would justify unethical behavior to meet financial targets than would improperly offer entertainment.

Another arguably shocking finding was that 42% of CEO’s who are known to have engaged in unethical behavior were NOT fired.

I’ve set forth four of the Spotlight’s charts below, but encourage readers to view the entire Spotlight – it’s illuminating.

 David F. Larcker, Brian Tayan, “Corporate Governance Data: Failure, Fraud, and Scandal,” CGRI Quick Guide Series. Corporate Governance Research Initiative, July 2017

The Impact of Shareholder Activism on Board Refreshment Trends at S&P 1500 Firms:

The Investor Responsibility Research Center Institute (IRRCi) is a nonprofit research organization that funds corporate governance research as well as research on the capital markets that impacts how investors and companies make decisions.  In early September, they published a report relating the results of a study (the “Study”) they commissioned and conducted by Institutional Shareholder Services Inc. (ISS) reviewing the board composition of S&P 1500 companies that were the subject of activist investor actions.  As the Study’s report notes in its introduction, “[f]ew business-related topics provoke more passionate discussions than shareholder activism at specific companies.”  Also noted in the introduction to the Study’s report:  “Lost in this heated long versus short-term debate is the significant, real-time impact that such activism has on corporate board membership and demographics.”  The Study presented looks at those demographics and their impact on the board profiles of the affected companies.

While I generally try to keep at 40,000 feet when summarizing research reports for this Newsletter, in the case of this study it’s important to understand exactly what was looked at and the methodology used:

“This study examines the impact of public shareholder activism on board refreshment at S&P 1500 companies targeted by activists from 2011 to 2015.  Public shareholder activism refers to any shareholder activism that (1) occurred between Jan. 1, 2011 and Dec. 31, 2015, and (2) was publicly disclosed. The study period concludes in 2015 so that data for a full calendar year following activist campaigns could be analyzed. Data was captured as of the shareholder meeting dates.

Part I examines individual dissident nominees on ballots (whether they ultimately joined the board or not) in proxy contests, directors appointed via settlements with activist shareholders, and directors appointed unilaterally by boards in connection with shareholder activism.

Part II examines changes to board profiles made in connection with public shareholder activism.

Data was captured for all S&P 1500 directors with less than one year of tenure at meetings scheduled to be held between Jan. 1, 2011 and Dec. 31, 2015. The directors were then assigned to one of four classifications:

1. All dissident nominees on ballots in proxy contests;

2. Directors appointed or nominated by incumbent boards through publicly-disclosed settlements with activist shareholders;

3. Directors appointed or nominated unilaterally by incumbent boards in connection with public shareholder activism; and

4. Directors appointed or nominated prior to and not in connection with public shareholder activism.

The Study’s findings are summarized below:

Part 1 – Individual Director Demographics:

• Activism resulted in younger boards:   Dissident nominees and directors appointed via settlements (“Dissident Directors”) were younger, on average, than directors appointed unilaterally by boards (“Board Appointees”).
• Activism did not promote gender or ethnic diversity:  While the rate at which females were selected as dissident nominees or Board Appointees in contested situations increased over the course of the study, it trailed the rising tide of female board representation in the broader S&P 1500 universe.  Less than five percent of Study Directors were ethnically or racially diverse. While minority representation across the entire S&P 1500 board universe slowly increased over the course of the study, from 9.3 percent in 2011 to 10.1 percent in 2015, the rate at which individuals with diverse ethnic and racial backgrounds were selected as Dissident Directors and Board Appointees was relatively uniform and trailed that of the broader index by more than five percentage points.
• Activism increased board independence:  No surprise here – dissident nominees and directors appointed to boards via settlements were more likely to be “independent” than directors appointed unilaterally by boards.
• Investment professionals and sitting executives dominated the candidate pool for contested director elections:  Corporate executives and financial services professionals were the “favored occupations” in contested elections as activists tended to select investors and incumbents tended to select executives.  Dissident Directors were nearly three times more likely to be “financial services professionals” than Board Appointees, while Board Appointees were nearly twice as likely to be “executives” than Dissident Directors.
• Directors with prior board experience were preferred, but prior experience was not required:  While boardroom experience was not “a prerequisite for contest candidates, [m]ore than half of the Study Directors held outside board seats.”  Most of the contest directors with board experience sat on either one or two outside boards, however “a sizable minority pushed the over-boarded envelope.”

Part II of the study examined the impact of activist reconstituted boards on overall board profiles rather than individual director demographics.  Given the individual director demographic findings, most of the overall board profile findings were predictable:  boards post activist investor actions were “younger, shorter tenured, slightly-larger, more independent, and more financially literate, but less diverse, than their pre-activism versions.”  However, a couple of additional findings are worth noting:

• “Board size remained relatively steady despite membership changes. Although average board size at Study Companies increased from [9.0] to 9.4 seats, less than half (41.9 percent) of the Study Companies experienced a post-activism boost in board size. 18.3 percent of Study Companies experienced a decline in board size following shareholder activism, while board size was unchanged at 39.8 percent of Study Companies.”
• “Activism added financial expertise to boards. The proportion of board seats at Study Companies occupied by ‘financial experts’ increased” as did the “number of Study Companies with at least one, two, or three ‘financial experts’.”

The Study’s report is replete with easy to read charts, making the document an easy read or skim.  Additionally, a webinar describing the Study is available for on-line viewing:

 The full Study Report:  Andrew Borek, Zachary Friesner, Patrick McGurn, “The Impact of Shareholder Activism on Board Refreshment  Trends at S&P 1500 Firms,” Investor Responsibility Research Center Institute, August, 2017
 Webinar describing the Study’s Report:

Articles / Alternative Dispute Resolution

Herssein and Herssein, P.A., etc., et al., Petitioners, v. United Services Automobile Association

This case, heard in the Third District Court of Appeals for the State of Florida (Miami), addresses the question often asked in the arbitration world:  does a social media relationship constitute a sufficient relationship to mandate disqualification to preside over the dispute?  In the Florida case presented, at issue was whether a state court judge (not an arbitrator) had to recuse himself.

The facts are straightforward.  The plaintiff, a law firm, sued its former client for breach of contract and fraud.  During the course of the litigation, the plaintiff alleged that one of the defendants’ executives had engaged in witness tampering and indicated that the executive would be a potential witness and a potential defendant.  In response, the defendant retained an ex-circuit court judge, Reyes, to represent the executive.  The plaintiff thereupon filed a motion to disqualify the trial judge “based in part on the fact that Reyes is listed as a ‘friend’ on the trial judge’s personal Facebook page.”  The plaintiff supported its motion to disqualify with an affidavit by the plaintiff’s principals in which they “swore, ‘because the trial judge is Facebook friends with Reyes. . . I have a well-grounded fear of not receiving a fair and impartial trial.  Further, based on the trial judge being Facebook friends with Reyes, I believe that Reyes. . . has influenced the trial judge.’”

The Florida Appellate Court denied the motion and permitted the case to proceed with the original trial judge.  In reaching its decision, the Court first articulated the standard for granting a motion to disqualify a judge:

The test for determining the legal sufficiency of a motion for disqualification is whether “the facts alleged (which must be taken as true) would prompt a reasonably prudent person to fear that he could not get a fair and impartial trial.”

*     *     *

The issue in this case is therefore whether a reasonably prudent person would fear that he or she could not get a fair and impartial trial because the judge is a Facebook friend with a lawyer who represents a potential witness and party to the lawsuit. At the outset, we note as a general matter, that “allegations of mere ‘friendship’ with an attorney or an interested party have been deemed insufficient to disqualify a judge.”  [citation omitted]   

*     *     *

If friendship alone with a lawyer or member of a firm is a basis for disqualification, then most judges in rural and semi-rural areas and many in metropolitan areas would be subject to disqualification in a large number of cases.  [citation omitted].

*     *     *

The designation of a person as a “friend” on Facebook does not differentiate between a close friend and a distant acquaintance. Because a “friend” on a social networking website is not necessarily a friend in the traditional sense of the word, we hold that the mere fact that a judge is a Facebook “friend” with a lawyer for a potential party or witness, without more, does not provide a basis for a well-grounded fear that the judge cannot be impartial or that the judge is under the influence of the Facebook “friend.”

For those readers who serve as arbitrators, I note that several contributors to arbitration blogs and ADR websites have pointed to this case and suggested that it supports the generally accepted belief that mere social media connections (“Friends” on Facebook, “Links” on LinkedIn) are not sufficient to automatically disqualify arbitrators from sitting on panels.  Others have used it to repeat the general arbitration maxim that social media relationships should be disclosed, and yet others have opined, as one prominent arbitrator in the San Francisco area has noted:

“Social media has evolved to the point that a reasonably prudent person would not presume that a social media relationship necessarily implies a close relationship.  [Some commentators have suggested a cautious approach:  disclose such relationships.]  At a certain point, however, and perhaps we are already there, we should not be making unnecessary disclosures that we have social media accounts. It serves little purpose when our obligation is to disclose relationships that may raise concern.”

While I agree with this San Francisco arbitrator, personally I’ll continue to disclose that I have a LinkedIn account and continue to add the disclosure on my website (https://reimanadr.com/disclosure/) to my appointment disclosures.

 The full opinion, Law Offices of Herssein and Herssein, P.A., etc., et al., Petitioners, v. United Services Automobile Association, No. 3D17-1421, Third District Court of Appeal State of Florida, August 23, 2017

Making Arbitration More Appealing

Those immersed in the arbitration world know that many of the world’s leading arbitral institutions have amended their rules to provide for limited, expedited, appeals.  While some of these rules have been on the books for 2-3 years, only a handful of appeals have occurred.  Why?  Many of the commercial lawyers who write arbitration clauses for their contracts still do not know that these rules exist, and many arbitrators and litigators who arbitrate and who advise the transactional lawyers who write the arbitration clauses do not believe that these rules enhance the arbitration process.

Speaking personally, and from the perspective of a former CEO, current board director and consumer of legal services, I believe the appellate procedures are a great boon to arbitration and materially enhance arbitration’s attractiveness.  Thus, I was very pleased to see the piece by Mike Lampert presented.  Mike is a 30 year litigation veteran and former deputy general counsel of a major financial services company in charge of his company’s worldwide disputes.  He not only advocates the use of these rules, but bases his recommendation on two of arbitration’s greatest potential advantages:  lower cost and greater efficiency.

In recent years, arbitration has become both costly and lengthy as litigants (particularly in the US) bring their court litigation customs and practices to arbitration.  As Mike points out, the cost of three arbitrators, and the scheduling challenges of coordinating five busy professionals (three arbitrators plus the lead counsel of the claimant and respondent) are often significant contributing factors in increasing the cost and time of arbitration.  The essence of Mike’s thesis:  cost will be reduced by two thirds and the scheduling challenges (hence delays) of multiple arbitrators will be materially reduced if one arbitrator rather than three is used.  Thus, Mike asks:  why do we use three arbitrators?  No one requires a panel of three arbitrators, and courts have only one judge.

Mike’s (and most attorneys’) answer:

“If two heads are better than one, as we learn growing up, many believe that three will be even better. More importantly, while two [arbitrators] might tie, three won’t. . . .[P]arties choose a three-person panel because it reduces the chances of a wrong result and even more strongly reduces the chances of a bizarre result. No business professional wants to explain to their superior that to save some money and time, they agreed to a procedure that produced a bizarre result.”  

Here’s the crux of the issue:  one of arbitration’s greatest advantages, and the reason that many litigants and their counsel prefer it to court litigation, is finality.  There is no appeal process.  Once the arbitral tribunal rules and renders its award, that’s it!  It is extremely difficult to vacate an award.  As Mike states:  “Error of law or fact, even when obvious, plain, clear, or indisputable, is not usually sufficient to vacate an award.”  As he also states:

“A panel of three [arbitrators] thus seems required to reduce the chances of the bizarre [or an incorrect] result. But it is a protection that comes at a price. Significant extra costs in time and money are incurred in most cases, all to protect against the extraordinary bizarre in a very few.”

Solution:  the new arbitral rules providing for limited, expedited appeals.

“Several of the major arbitral forums, CPR [International Institute for Conflict Prevention and Resolution], JAMS, and AAA/ICDR [American Arbitration Association / International Centre for Dispute Resolution] have an optional appeal procedure that the parties can invoke in their agreement to arbitrate. ICSID [The International Centre for Settlement of Investment Disputes], an affiliate of the World Bank for investor-state disputes, provides an optional appellate body as does the World Trade Organization.

In order to keep the arbitration process fast and efficient, most of these institutions’ appellate rules set fast pleading and hearing schedules, limit what the appellate panel may review, and proffer appellate panels of only arbitrators with great experience and the highest reputations.

For example, the American Arbitration Association / International Centre for Dispute Resolution’s appellate rules are designed so that the entire process will take no more than three months.  There are only two limited grounds upon which an appeal may be brought:  “(1) an error of law that is material and prejudicial; or (2) determinations of fact that are clearly erroneous.”  The length of briefs is limited to 30 pages and must be filed within 21 days, andthe panel must render its decision and issue its award within 30 days.

As Mike states in his conclusion:

Agreement by the parties to some form of review of an arbitral award greater than the extremely limited scope in the New York Convention, the FAA [Federal Arbitration Act] or similar sources, promotes the ability of the parties to have the case heard by a single arbitrator.  Because expanded review provides comfort against seriously erroneous results, there is no need for two additional arbitrators in every case to prevent serious error. Shifting to a single arbitrator, as the . . . data show, produces speedier and less expensive results on average: time and money often correlate in dispute resolution. Thus, providing for an appellate process in drafting the arbitration agreement with a single arbitrator at first instance is likely to promote the parties’ shared goal of securing a “just, speedy, and inexpensive determination of” their dispute.

I fully agree!  The arbitral institutions’ appellate rules’ existence should be promoted and their use embraced.

 Lampert, Michael; “Making Arbitration More Appealing;” ACC Docket, May, 2017

 American Arbitration Association, “Optional Appellate Arbitration Rules,” November 1, 2013

Articles / Interesting Case of the Month

A Pardon for Arpaio Would Put Trump in Uncharted Territory:  

This article is an op-ed piece appearing in the New York Times the Friday before our president pardoned Arizona Sheriff Joe Apraio.  The author, Marty Redish, is a professor of constitutional law at Northwestern University’s Pritzker School of Law and the author of “Judicial Independence and the American Constitution: A Democratic Paradox.”  Redish argues that contrary to what many in the media have opined, there are limits to a president’s power to pardon and that the pardon of “Sheriff Joe” (as Donald Trump likes to call him) exceeded the president’s pardon power.

Redish admits:  “This is uncharted territory. Yes, on its face the Constitution’s pardon power would seem unlimited.”  He also admits that his theory is “novel,” and that he knows of no Supreme Court decision addressing the arguments he makes.  Nonetheless, Redish asserts that in fact limits do exist to a president’s pardon powers, and Trump exceeded them.

Redish’s analysis is based upon a fundamental general principal of constitutional law:

[It is] a principle of constitutional law [that] anything in the body of the Constitution inconsistent with the directive of an amendment is necessarily pre-empted or modified by that amendment. 

In other words, if a particular right or power set forth in an amendment to the Constitution is in conflict with a right or power set forth in the original body of the Constitution, the rights/powers set forth in the amendment prevail and those in the original body of the document become over-ruled or subservient.  If one thinks about this, it makes perfect sense.  Otherwise, an amendment would be meaningless.

Applying this concept to the pardon power and the Arpaio pardon, Redish looks to the due process clause of the Fifth Amendment and sees a conflict.  Before focusing on the Fifth Amendment and Redish’s perceived conflict, one must understand exactly what Arpaio was convicted of, and why the Arpaio pardon, as Redish says, “is different.”

The sheriff was convicted of violating constitutional rights, in defiance of a court order involving racial profiling. Should the president indicate that he does not think Mr. Arpaio should be punished for that, he would signal that governmental agents who violate judicial injunctions are likely to be pardoned, even though their behavior violated constitutional rights, when their illegal actions are consistent with presidential policies.

Restated, Arpaio was found by a Federal Court to have violated the Constitution by arresting, detaining, or harassing individuals based upon their race.  In the context of the Constitution’s Fifth Amendment, Arpaio violated these individuals’ right to liberty without due process of law.

Arpaio was ordered by a Court to cease such conduct.  When he refused to do so, Arpaio was found to have knowingly ignored the Court’s order and to have continued to violate individuals’ constitutional rights.  For this, he was convicted of contempt of court.  This is the conviction that Trump pardoned.  Thus, Trump pardoned an individual whose crime was to knowingly violate individuals’ constitutional rights.

Returning to Redish’s theory, Trump used a constitutional right set forth in the body of the Constitution to over-rule the enforcement of a right set forth in an amendment to the Constitution.  Because an Amendment’s rights and powers supersede those set forth in the body of the Constitution, Redish argues that Trump did not possess the power to pardon Arpaio.

In American constitutional democracy, democratic choices are limited by restraints imposed by the Constitution. The due process clause of the Fifth Amendment dictates that neither life nor liberty nor property may be deprived absent “due process,” which the Supreme Court construes to require adjudication by a neutral judge.

In short, under the Constitution one cannot be deprived of liberty without a court ruling upon the legality of the detention. The power of courts to restrain government officers from depriving citizens of liberty absent judicial process is the only meaningful way courts have to enforce important constitutional protections. But if the president can employ the pardon power to circumvent constitutional protections of liberty, there is very little left of the constitutional checks on presidential power.

I’m not a constitutional scholar, but Redish’s argument makes a whole lot of sense to me.

  Redish, Martin; “A Pardon for Arpaio Would Put Trump in Uncharted Territory;” The New York Times;  August 24, 2017

Sound Waves Enhance Deep Sleep and Memory:

A recently concluded study at Northwestern University Feinberg School of Medicine has found that so called “pink noise” such as the sound of a waterfall “significantly enhanced deep sleep in older adults and improved their ability to recall words.”

In the study, 13 participants 60 and older received one night of acoustic stimulation and one night of sham stimulation. The sham stimulation procedure was identical to the acoustic one, but participants did not hear any noise during sleep. For both the sham and acoustic stimulation sessions, the individuals took a memory test at night and again the next morning. Recall ability after the sham stimulation generally improved on the morning test by a few percent. However, the average improvement was three times larger after pink-noise stimulation. 

Before heading out and buying one of those machines that plays “soothing” sounds, know that the Northwestern study used a “novel” sound system which synchronized the sounds to specific brain activity.

The study used a new approach, which reads an individual’s brain waves in real time and locks in the gentle sound stimulation during a precise moment of neuron communication during deep sleep, which varies for each person.

During deep sleep, each brain wave or oscillation slows to about one per second compared to 10 oscillations per second during wakefulness.

Giovanni Santostasi, a study coauthor, developed an algorithm that delivers the sound during the rising portion of slow wave oscillations. This stimulation enhances synchronization of the neurons’ activity.

After the sound stimulation, the older participants’ slow waves increased during sleep.

Per the study’s authors:

“Larger studies are needed to confirm the efficacy of this method and then ‘the idea is to be able to offer this for people to use at home.”. . .’We want to move this to long-term, at-home studies.’. . . The goal is to determine whether acoustic stimulation can enhance memory in adults with mild cognitive impairment.  

*     *     *

This is an innovative, simple and safe non-medication approach that may help improve brain health,” said senior author Dr. Phyllis Zee, professor of neurology at Northwestern University Feinberg School of Medicine and a Northwestern Medicine sleep specialist. “This is a potential tool for enhancing memory in older populations and attenuating normal age-related memory decline.” 

 Paul, Marla; “Sound Waves Enhance Deep Sleep and Memory;” Northwestern Now, August 15, 2017

California’s Answer to Low Bar Pass Rates:  

Several articles have appeared in recent years regarding the steadily increasing fail rates for law school graduates taking their state’s licensing exam (called the “bar exam”).  The hard truth is that as the legal job market has shrunk and other professional opportunities have developed, many who 25 years ago would have gone to law school are now pursuing careers and advanced degrees in business, public policy and other professions.  The result:  the number of applicants to law school classes has declined and, except for the elite tier of law schools, law school admissions officers are delving deeper into their applicant pools and admitting less qualified students.  Flash forward three years, and it is not surprising to see bar exam fail rates increasing.

The fail rate increase in California is particularly high, and this in turn has rightly caused law school administrators in the State to act.  Forgive my editorializing, but the law schools’ response to the issue does not bode well for the legal profession and, candidly, is deeply disappointing.  As reported in The Recorder (a legal publication):

A California State Bar committee stocked with law school deans recommended. . . that the Supreme Court [which governs lawyer licensing in California] reduce the bar exam passing score from 144 to as low as 135.

*     *     *

The question of what the appropriate cut score should be has come into sharp focus, and intense debate, over the last year as the exam’s pass rate has tumbled. The bar posted an online survey on the topic and received more than 34,000 responses from attorneys. A slightly different survey was offered to July 2017 exam-takers and 4,188 of them responded.

The results were starkly different among the groups. About 80 percent of attorney-respondents opposed lowering the cut score. More than 90 percent of test-takers said the score should be reduced—a majority said it should be lower than 141.

So, who did the law school deans listen to?

The Law School Council endorsed setting the state’s passing score between 135 and 139, a lower range than the 141 to 144 that a previous bar-commissioned study had suggested. . . . An Aug. 25 letter signed by 19 of 21 [American Bar Association]-approved law school deans recommended the score be temporarily set between 133 and 139 while the bar completes its analysis.

Were this not sufficiently disheartening, here’s more:

[T]he Association of California Accredited Law Schools, a group whose members are law schools with state accreditation, not [American Bar Association] accreditation, sent a letter to California bar leadership Sept. 1, asking that the cut score be lowered to 139.

I won’t rant, so I’ll just say that lowering the bar exam pass score is wrong and not the way to fix the increasing fail rate problem.

Prior to July of this year, the California Supreme Court had delegated to the California Bar Association the duty of setting the minimum pass score for the State’s bar exam.  In July, however, the California Supreme Court reasserted its control over the issue and determined that it, and not the Bar Association, would set the minimum Bar Score.  Nonetheless, the State Bar Association’s Board of Trustees made its recommendation to the Court.

So, what did State Bar of California’s Board of Trustees do?  In an act of decisive leadership they determined not to recommend a minimum pass score.  Instead, they “voted . . . in favor of providing the [Supreme C]ourt with three possibilities–keep the score where it is, lower the score to [141] or lower it to [139].”

There is good news here.  As noted, in July the California Supreme Court reasserted its control over the issue and determined that it and not the Bar Association would determine the minimum pass score.  Now, we have to wait and see what the Court decides.

Oh, and to make matters worse, California isn’t the only state avoiding the real issue – the rising number of law school graduates who are not capable of passing their State’s licensing exam.

[T]he Oregon and Nevada Supreme Courts, both lowered their cut scores this summer. The Oregon Supreme Court changed the score from 284 to 276, . . . and the Nevada Supreme Court changed its bar exam cut score from 140 to 138. . .

 Miller, Cheryl; “California Bar Committee Endorses Lowering Exam Pass-Score;” The Recorder; August 31, 2017

Ward, Stephanie Francis; “California Bar Board Of Trustees Sends State Supreme Court 3 Options For Bar Exam Cut Score;” ABA Journal; September 6, 2017