Our Fine Print Problem and How Lawyers Can Help Fix It
The Am Law Daily
The Fine Print: How Big Companies Use "Plain English" to Rob You Blind By David Cay Johnston (Penguin; 2012; 305 pp; $27.95)
Boilerplate: The Fine Print, Vanishing Rights, and the Rule of Law By Margaret Jane Radin (Princeton Univ. Press; 2013; 344 pp; $35)
There are two kinds of fine print lawyers create and interpret as part of their core functions as transaction cost engineers and the shock troopers of the "rule of law (capitalisms deal with the state to enforce private contracts). One is built into the framework of our laws themselves, and the other is built into the commercial framework of daily life. Taken together, a pair of recently published books reveal just how profound the influence of all that fine print has become.
David Cay Johnsona Reuters reporter who won a Pulitzer Prize-winning during his tenure with The New York Times and also serves as a lecturer at Syracuse Universitys law school, takes on the first kind. Legislative captureowning or renting legislators via campaign contributions, access and lobbyingpermits big business to create windfalls for itself at taxpayers and consumers expense via obscure provisions of the tax code, appropriations bills, and other laws and regulations. We, along with industry lobbyists, draft that sort of fine print, and merit Johnstons populist scorn for doing so.
Margaret Jane Radin, a law professor at the University of Michigan, takes on other kind. Companies market power and the acquiescence of courts makes boilerplatethose terms that we click to accept, sign, or just end up bound by whenever we download an app, withdraw our money from an ATM, park our cars in a lot, buy insurance, sign an employment agreement, hire a stockbroker, or engage in almost any other commercial transactionenforceable, even though it is not a contract representing a bargained-for outcome of the sort we studied in law school. We help our clients draft these so-called agreements and litigate the cases that extend their scope and effectiveness, and merit Radins considered judgment that by doing so we undermine the very rule of law we purport to uphold.
Reading these two fine books together provides a disturbing panorama of how deeply fine print has infiltrated our culture, the harm it causes both to our pocketbooks and the foundations of civil society itself, and the challenges involved in containing or rolling back its pernicious advance.
The Fine Print is the capstone of Johnstons trilogy anatomizing the growing inequities of our tax and regulatory systems during our new Gilded Age. Like its predecessors, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick you With the Bill (2007) and Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super-Richand Cheat Everybody Else (2003), the title of Johnstones latest book offers a pretty good summary of his thesis. But he puts his facts where his rhetoric is, and his superb skills as an investigative reporter produce convincing evidence of just how skewed things have gotten in favor of the already privileged.
Most important, Johnston exposes the big lie that has dominated all the blather in Washington about closing tax loopholes and eliminating government inefficiency to cut the deficit during the debt ceiling, fiscal cliff, sequester, and other phony budget crises that have played out over the last two years. You certainly heard lots about why ordinary folks no longer need the homeowners or charitable deductions, or extended unemployment benefits, or more food stamps, or why the country can no longer afford to properly index Social Security for inflation or pay for Medicare and Medicaid or even keep the Postal Service running. But there are lots of ways to cut the deficit other than on the backs of the 99 percent. How many of the kindfollowing kinds of tax expenditures and regulatory failures like the following buried in the fine print Johnston is bent on exposing did you hear about?
We expect states to give big corporations tax incentives to locate operations in their jurisdictions. But did you know that more than 2,700 companies have deals that let them keep all of the state income taxes withheld from their employees in return for purportedly creating local jobs (most of which are actually part of the zero-sum game of moving the same jobs around the country)? Examples Johnston cites:
- AMC Theaters, now owned by Chinese investors, got to keep $47M of withheld taxes for moving its headquarters ten miles from Kansas City, Missouri to Leawood, Kansas. this year, after being based in Kansas City since its founding in 1920.
- Before being bought by Google, in 2011, Motorola Mobility was allowed to withhold for itself $136M from its Illinois employees paychecks in return for not moving its operations out of state. Its departing CEO then got a severance payout worth $66Ma sum that was more than offset by the tax dollars flowing to Google rather than the state treasury.
- Pipeline operators enjoy gross margins of 42 percentmore than six times the 6.7 percent average for all U.S. companies. How is that possible in such a capital-intensive, regulated industry? One major contributing factor is the 1986 tax reform that eliminated the corporate income tax for most pipelines. But guess what? These companies still charge their customers for reimbursement of the taxes they dont paypure profit at the rate of about $3 billion per year, per Johnstons calculations. That costs each American family around $20 per year in terms of higher gas, oil, and electricity prices. The toll could escalate to $400 a yearone weeks take home pay for workers earning the median U.S. wage as of 2010if investor-owned public utilities current efforts to obtain the same treatment succeed, Johnston demonstrates. And these same utilities already receive so-called corporate welfare that permits them to charge their customers a monthly surcharge to recover the federal income taxes they do paybut at the full nominal 35 percent rate, rather than the actual 17 percent one (typically 17%). average rate.
This hidden system of upward wealth distribution built into Americas infrastructure is just one aspect of the subtle transfer of wealth from you and others to…investors that pervades the U.S. economy, according to Johnston. At the other end of the consumer ripoff spectrum, he argues, are the banks. For example:
- It costs banks about two cents per to handle each check that bounces. But the typical overdraft fee is now a deregulated $47. In 2010, Johnston reports, nearly half of the countrys banks would have been unprofitable but for their overdraft charge revenue, which was greater than their net income from operations. The real bottom line: these practices mostly hurt the low-wage workers who make up one-fourth of the employed adults in the U.S.and? who pay most of these fees.
- SLM Corporation (aka Sallie Mae), a public company that makes a third of the student loans issued in the U.S., charges an origination fee of up to 5 percent (often $300 or more) in exchange for issuing checks to the schools its borrowers attend. It insists on cutting checks each semester or quarter, so a student pays successive $300 fees for each segment of the academic year. In an era of burgeoning tuitions and decreased access to education, this extra burden harms those least able to afford it.
I could go on, as Johnston does in infuriating detail, but you get the picture. So, newly informed by Johnstons meticulous and dogged reporting, isnt it time to get out our pitchforks and seek remedies for these grotesque inequities?
Unfortunately, weve been disarmed, in part, by however outraged we may be by Johnstons tales of fine print follies, turning that outrage into action has been hindered by that other species of fine print: boilerplate. As Margaret Radin argues, the proliferation of adhesion contracts throughout the U.S. economy has enabled big business to create its own private legal universe that displaces the background framework of rights and remedies democratically granted to citizens by through the political process. Boilerplate typically exculpates companies from liability for harm they cause, precludes their customers from obtaining jury trials to resolve disputes, mandates arbitration generally rigged against individual plaintiffs, prevents class actions that are the only practical means of remedying things like the routine phone company overcharges and incorrect utility billing that Johnston amply documents, limits breach-of-warranty remedies to repair, replace or refund schemes that are designed to defeat the patience and resources of ordinary consumers, and compels acquiescence to privacy-abrogating uses of our personal data.
The law-and-economics schools justifications for boilerplate are as follows: First, it is required for efficiencys sake, to lower the costs associated with conducting mass-market transactions. Second, there is indeed a price for everything, even if the seller hasnt agreed to it, or even agreed to sell in the first place. But Radin deftly skewers the notion that consumers would voluntarily sell their legislatively mandated rights to privacy or tort remedies or a jury of their peers in exchange for lower prices for goods and services, and therefore theres no reason to even ask them first.
A system in which rights could be taken from people without their consent if they were paid the alleged market price for those rights would be a major departure from the norms that underpin the states legitimacy in enforcing private ordering schemes, Radin contends at one point. Boilerplate uses contract [theory] to destroy the underlying basis of contract, getting the state to enforce unfree choices as a form of commercial eminent domain. In effect, [the efficiency argument] turns the recipients rights, which we thought were covered by property rules requiring consent of the holder to accomplish divestment, into liability rules which can be condemned by a firm if compensation [in the form of lower prices] is paid. But the notion that an entity with market power can decide what rights to defeasecancel at what price undercuts the fundamental principles of autonomy and mutuality (the meeting of the minds) that are the basis of the rule of law.
Radin recasts the framework for analyzing boilerplate rights deletion schemes into what sorts of consumer and other rights and remedies ought to be alienable in the first place, and if so, to what extent and with what consent requirements. Since receipt of boilerplate is often more like an accident than a bargain, Radin suggests that tort concepts be used to regulate it. Boilerplate can be seen as part of the products it comes with, and like them can be judged to be defective or to cause harm if it inflicts a new tort Radin would like to call the intentional deprivation of basic legal rights. For starters, legislatures could ban outright certain kinds of terms, or create a series of black, white and grey lists to classify the degree of scrutiny they merit and who bears the burden of proof re their validity.
Boilerplate is exemplary scholarship: lucid, jargon-free, and focused on solving problems as well as identifying them. Its a model of the process, inside-the-system track for social change, as The Fine Print is for the movement, bash-the-system track. The Progressive era and the New DealAmericas last successful tamings of capitalism red inrun amok with greed, oppression and chicaneryshow the need for working both tracks at the same time to get anything done. As Big Law lawyers, were currently part of the problem. These two books are primers on how to be part of the solution.
Michael Stern, a former journalist and English professor, is a senior counsel in Cooleys technology transactions group.
This article originally appeared in The Am Law Daily.