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Novelist Raymond Chandler once said, “The law isn’t justice. It’s a very imperfect mechanism. If you press exactly the right buttons and are also lucky, justice may show up in the answer.” A new book by Bruce Cannon Gibney, a litigator turned venture capitalist, gives credence to that idea. The Nonsense Factory: The Making and Breaking of the American Legal System looks at how jurisprudence has decayed over the last 70 years as laws have become needlessly complex, clouded by politics and influenced by money. Gibney, an early investor in PayPal and other tech companies, also wrote a book critical of baby boomers, A Generation of Sociopaths. He spoke on the Knowledge@Wharton radio show on SiriusXM about the dysfunction in the American legal system and how it hurts businesses, consumers and the “average Joe.” (Listen to the podcast at the top of this page.)
An edited transcript of the conversation follows.
Knowledge@Wharton: Where and why has the legal system failed us?
Bruce Cannon Gibney: The reason I wrote the book is, when I was a litigator, everything made a narrow sort of sense. I was out there to win a case, there were rules, and I just trundled along. Then I became a client and realized you could never get a straight answer to any question worth asking. That’s a different perspective. That’s the perspective that 322 million Americans have, and it’s totally unacceptable. The law needs to be able to answer basic questions like, “Where can I put my toilet during a remodel? Is this person an independent contractor, an employee?” It doesn’t. Everything is, “It depends based on some obscure factual test with 45 different prongs.”
Even the “it depends” is farcical because what it actually depends on is discretion exercised by the executive branch, including the bureaucracies that report to the executive. The reason why is that the law has just bloated out of control. There are 50,000 rules for everything. Because they can’t all be applied evenhandedly, the only way they’re applied is that the executive, the enforcer, gets to decide who’s going to be punished for what.
It’s a pick-and-choose system. This leads to everything from spotty and somewhat arbitrary regulation for businesses to the qualitatively different experience of things like [incidents of] police brutality and what have you. It’s all a product of the law’s failure to understand itself and to know what it’s trying to achieve.
“The law has just bloated out of control. There are 50,000 rules for everything.”
Knowledge@Wharton: In your experience as a venture capitalist, how has this failure by the legal system affected tech companies?
Gibney: The real impact is coming down the pike over the next five to 10 years. For a long time, we really hoped in Silicon Valley that we could just ignore Washington. We discovered that wasn’t true. The law reaches everything. It reserves the right to touch anything it wants. One of the most frustrating things is most businesses want to do the right thing. It can be very difficult to know what the law considers to be the right thing. Sometimes the law pursues self-defeating policies, in part because the constituent parts of the law — Congress, the bureaucracies, the prosecutors and the judiciary — don’t really understand each other and how each other works. They don’t understand the public and the industries they’re supposed to regulate, so you see these counterproductive, counterintuitive outcomes.
There is a narrative now that we don’t want companies to be too big, and we don’t like that companies are staying private forever and doing whatever they want, unaccountable to the public markets. But it was the law — when it changed about a decade ago to expand the de facto public company rule, which let companies stay private forever — that encouraged private companies to stay that way. So, you’ll find that one part of the law does one thing and thinks it’s fixing one problem, and it ends up blowing up something else. Then the law tries to fix that problem and creates two more. It becomes a hydra-headed monster, where really no one knows what’s supposed to be achieved or how to do it.
I think the way that all this is going to play out over the next couple years is in antitrust. It will be in privacy and in financial regulation, which is increasingly moving into the tech sector as you move into virtual banking and so forth. And I don’t think the law is going to do a particularly good job. I just base that on the past 80 years of it not having done a very good job at regulating. It doesn’t understand all the industries it wants to regulate.
Because the bureaucracies write the rules and report to the executive, this isn’t supposed to be the case. But, in fact, that introduced an enormous amount of policy volatility between administrations. As a business person, I’d rather have a rule that’s slightly not great but completely consistent than to oscillate every year between a rule that’s wonderful, then one that’s terrible, and then one that is TBD. That’s deeply unhelpful for businesses.
I don’t think that the climate is particularly good. We all want to be pro-consumer. That’s ultimately the goal for all companies: They’re pro-consumer even if their consumers are other businesses. The law gets in the way of that, even though the law itself is supposed to be pro-consumer. We saw this recently with the Apple v. Pepper decision, which was the antitrust case that came down from the Supreme Court. The goal of antitrust law has never been entirely clear. This is about the size of the company, it’s about the price the consumer pays, it’s about some amorphous power that people are exercising. But in the end, they were trying to benefit consumers. I’m not sure if this decision will benefit consumers. I think it will take away a lot of the value that Apple brings to its consumers, which is ease and security.
Knowledge@Wharton: Do you believe some of these problems with the clarity and transparency of the law can be corrected?
Gibney: Every businessman is essentially an optimist, right? You go out and think that you can make a profit. I’m going to be optimistic and say that they can be corrected if the legal system reforms itself. I just don’t think the legal system, in its current incarnation, is capable of doing everything that we’d like it to do. I don’t think it can make rules all that sensibly. I don’t think it can make stable rules. I don’t think the various parts of the legal system understand each other. I think one of the things that’s most underappreciated about the legal system is that each part of the legal assembly line really has no idea what the other one is doing, nor do they understand what the end product is supposed to be.
Knowledge@Wharton: Has all of this confusion slowed the legal process?
Gibney: Yes, the courts are very slow. Litigation became so incredibly expensive that it did two things. One, it drove companies to pursue arbitration, not just as a cynical ploy to get out of things, but because the court system wasn’t really working that well. That was perceived as anti-consumer, which it has ended up being. But businesses thought they had no choice.
The second thing is, as courts bog down, as regulations proliferate and become more complex, it actually favors the largest companies because only they can afford the compliance teams and legal departments and $2,000 an hour that New York law firms charge. That’s not an exaggeration, by the way. I just got a bill with a $2,000-an-hour line item on it. It favors sides, so you end up with this weird cycle of self-defeat with the law. Every time it tries to improve itself, allegedly for the benefit of the public, it accidentally shoots a couple members of the public in its attempt at good deeds.
“Each part of the legal assembly line really has no idea what the other one is doing, nor do they understand what the end product is supposed to be.”
Knowledge@Wharton: How has the dysfunction increased costs?
Gibney: Everyone in business eventually will require a lawyer. A lot of people individually require lawyers. I think this is clogging everything up and reducing consumer choice. It’s making products more expensive. All these things ultimately filter down because, of course, the largest law firm on Earth is the United States government. We know how much they spend and what that costs the economy. I’m not anti-government; I’m just saying that we all pay that legal price in the form of taxes. Taxes are essentially a legal services bill. And I don’t think that the legal system in general has done a great job about thinking about price and how to address it on the supply side.
There are exactly as many good law schools today as there were 35 years ago. Insofar as the primary input for legal services is human beings who are performing services, that means legal prices are going to go up. That’s unhelpful and distorting, and no one has done anything about it. Just in the same way that no one has done anything to figure out a better way to bill clients than the billable hour, which was introduced in the 1950s. We need to innovate again. But we haven’t. Law is a cartel, which is odd because you have members of a cartel regulating the anti-cartel Federal Trade Commission. But that’s one of law’s weird little ironies. So, law needs to take all this stuff seriously and think about how it wants to achieve what the public good requires.
Knowledge@Wharton: Are law schools doing a good job?
Gibney: One of the most alarming stories of the past 30 years in the law is the defunding of public legal education, which has really affected prices, especially at the low end of the scale for people who can’t afford counsel. The other thing is the law schools themselves haven’t changed in about 100 years. Now, they produce some outstanding scholarship. As research institutions, the top 50 law schools are amazing, truly high-quality product. As pedagogical sort of trade schools, like dental school or electrician school, they’re less good because they don’t provide the practical skills in the default curriculum that clients want.
If you go out to drinks with partners at these law firms, they’ll say, “Listen, the law schools didn’t teach our associates how to do anything, and they don’t understand client needs.” The honest reply to those partners is, “Neither do you,” because lawyers really don’t understand their clients. That’s a class that needs to be taught in law school.
Knowledge@Wharton: One of the chapters discusses policing. How has that been impacted by some of these failures of the legal system?
Gibney: The police are in an unenviable position. They have been asked to be social services; that’s not their core mission. Their core mission is to prevent crime. But they’re required to do tasks that are outside their remit and outside of their training. That already is going to cause problems if you don’t know how to handle a mentally ill person or you don’t have the facilities to deal with them. The outcomes are necessarily going to be fairly bad.
One of the other problems that we’ve had is the law believes that every problem can be solved with a rule, and preferably 30 rules. As these rules and criminal statutes and quasi-criminal regulations proliferate, we have so many federal crimes that no one can count them anymore. The Department of Justice tried in 1982 and couldn’t do it. There were just too many. So, the police have been asked to enforce everything. They can’t possibly do that as a practical matter, which means that enforcement tends to feel very discretionary, sometimes arbitrary. It opens the window for bias.
Police have been put in a very difficult system by a legislature that responds to election season demands. “Hey, we need to get tough on crime. Pass a law on whatever the issue du jour is.” Then we’re all stuck with the results, and police can apply that to us, as citizens, because ignorance of the law is not an excuse. And that’s challenging.
Knowledge@Wharton: Can you talk about your chapter on bureaucracy and the role politics plays in the legal system?
Gibney: One of the things that is underappreciated is the degree to which the White House controls the regulatory state. I’m not some ultra-anarcho-libertarian who wants to do away with bureaucracies entirely. I think they serve a valuable purpose. I don’t think that all their functions should report to the executive. But through an obscure entity known as the Office of Information and Regulatory Affairs (OIRA), the White House exercises the right of review, which means they can modify, suborn or kill any regulation that’s economically significant, which is anything that involves more than $100 million of economic activity. Given inflation, that’s basically every rule.
“Police have been put in a very difficult system by a legislature that responds to election season demands.”
All these rules funnel up to the White House. They’re reviewed by this 45-person office, and there’s no way 45 people can look over the entire regulatory scheme. What you end up with is political decisions being made about highly technical things. A 45-person office has 90 days to review nuclear regulatory matters, along with commercial fishing guides, oil leases and what have you. It’s not going to do a great job, but it will make political decisions based on political gut instinct. That’s bad for business, and it’s also bad for democracy.
Knowledge@Wharton: You state in the book that there are instances when our court system does not have a handle on the evidence in cases. How does that play out?
Gibney: When you go to court, you think — you hope — that everything will be decided based on the law and the facts, and the facts are the evidence. But the courts don’t have a great way to cope with evidence, and this is especially important in two ways. One, lawyers aren’t famous for being numerate, but everything in law now involves numbers, contracts, antitrust, scientific evidence, and so on. Courts make math mistakes all the time. Private lawyers make math mistakes all the time. That’s very problematic because it’s usually a dollar figure that you need to calculate in civil cases, and you want to get that number right. If courts aren’t great at the math and lawyers aren’t either, the just outcome won’t actually be just.
The second problem is technical evidence, forensic evidence. There is no great way to filter out junk science. Most of what we see on TV is not rigorous science. It was all ginned up by law enforcement, so it wasn’t created independently, and it’s been shown by scientists to be unreliable.
The third problem is there’s just a lot of evidence. Anyone who’s been subject to document request as a business or received a subpoena or what have you, you can have literally millions of pages of stuff to sort through. That’s very expensive, and the law needs to find a way to cut off that fishing expedition. It allows smaller plaintiffs asymmetric power sometimes against larger plaintiffs because they can impose enormous costs just by lobbing in a five-page document request.
If it’s “everything related to your billing practices,” for AT&T, that’s like a 30-billion page document request. A 30-billion page document request for a suit that’s worth $50,000 at most, just even allowing that is unjust and determines the outcome of the case. Evidence isn’t this sort of side show; it’s core to the economics of litigation. But I don’t think that the law appreciates that.
Knowledge@Wharton: In many cases, the people who make the laws are not held accountable to them, or it’s the big guy against the little guy. Can you talk about this unevenness in the law?
“Our adversarial legal system is premised on the idea that we’ll disagree about everything.”
Gibney: Yes. I’ll give you a frivolous example and a serious example. The frivolous example is, no one is excited when they see the jury duty summons in their mailbox, right? Congress has decided, in its infinite wisdom, that that is an inconvenience from which our nation’s elected representatives should be exempt. There are reasonable arguments. You know, they’re very important people, blah, blah, blah. But when the chief justice got a jury summons, he showed up for jury duty. Now, he wasn’t selected. And I can tell you, as a litigator, I wouldn’t have picked him. You don’t want a Supreme Court justice on there. But the legislators just exempt themselves, and they exempt themselves from a lot of things.
The most disturbing thing is something called sovereign immunity and its offshoot, qualified immunity. These doctrines collectively say the government can’t be sued unless it consents to be sued. That is not an accountable self-governing republic if the government can do whatever it wants to you and basically get away with it unless it says, “Ah, we’re feeling indulgent today. By all means, sue us.” That’s not okay.
Qualified immunity is a somewhat narrower indulgence granted to people like police, which says, “Listen, if you couldn’t understand the law, if reasonable minds could disagree, if the law’s unclear, then if you engage in an act of misconduct, we’re going to give you the benefit of the doubt and let you go.” The problem with that excuse is, and I can say this as a lawyer, nothing in the law is clear, all reasonable minds disagree. In fact, our adversarial legal system is premised on the idea that we’ll disagree about everything. In the words of Supreme Court Justice Sonia Sotomayor, this essentially licenses cops to shoot first and ask questions later. And that’s not great, either.
Knowledge@Wharton: Are there one or two areas that you see as suffering the most because of this? Is it the average Joe?
Gibney: It is the average Joe, especially the poorest 25%. When the law comes knocking, I can sit there and pick up the phone to a giant New York law firm. If you look at the Fed numbers, the average person can afford about 18 hours of legal representation, so the median household can afford functionally zero. As an economic matter, there is no economic right to counsel. That’s a real problem.
Any single legal event can bankrupt people. It’s as serious a problem as medical over-billing and health care costs, and it hasn’t been addressed. Medical costs should be addressed first, because the consequence of not getting health care is you might die. But the second thing on the list should be the law because the second-worst consequence is that the law might imprison you, execute you. So, it should be higher on our priority list than it is now. The law needs to be a lot clearer. It is the operating system for humanity. If we just treat it as this perpetual inconvenience that could never be better, it really won’t be, and society will decay.