Springer 'Law and Development' book: Introduction is now free for download

Recently I announced the publication of Law and Development, a new collection of research articles from multi-national and multi-disciplinary perspectives, as well as my own contribution, with Gaspar Kot, on comparative access to private-sector information in South Africa and Poland.  Publisher Springer has now authorized free public download, via SSRN, of the book's Introduction, from the co-editors, Piotr Szwedo, Jagiellonian University, Poland; Dai Tamada, Kobe University, Japan, and me.

Please enjoy our Introduction to Law and Development: Balancing Principles and Values.

Multidisciplinary 'Law and Development' book tackles hard problems from principled perspectives

[UPDATE, March 31, 2020: The Introduction to Law and Development is now available for free download from Springer, via SSRN.]

I am thrilled to announce the publication of Law and Development: Balancing Principles and Values, from Springer, a publication in the Kobe University Monograph Series in Social Science Research (flyer). While I was privileged to serve as a contributor and co-editor, with Professor Dai Tamada (law site), of Kobe University in Japan, this book has been a project of passion for our lead editor, my inspiring colleague and friend, Professor Piotr Szwedo. On the law faculty of the Jagiellonian University (UJ) in Poland, Professor Szwedo serves as head of the OKSPO Center for Foreign Law Schools and co-director of UJ law programs with the Columbus School of Law at The Catholic University of America, and the Université d’Orléans.

Born of an international conference organized by Professor Szwedo at UJ, this ambitious multidisciplinary collection examines the problem of "development" across the world especially from perspectives informed by morality and ethics. Here is the jacket précis:

This book examines the concept of ‘development’ from alternative perspectives and analyzes how different approaches influence law. ‘Sustainable development’ focuses on balancing economic progress, environmental protection, individual rights, and collective interests. It requires a holistic approach to human beings in their individual and social dimensions, which can be seen as a reference to ‘integral human development’ – a concept found in ethics. ‘Development’ can be considered as a value or a goal. But it also has a normative dimension influencing lawmaking and legal application; it is a rule of interpretation, which harmonizes the application of conflicting norms, and which is often based on the ethical and anthropological assumptions of the decision maker. This research examines how different approaches to ‘development’ and their impact on law can coexist in pluralistic and multicultural societies, and how to evaluate their legitimacy, analyzing the problem from an overarching theoretical perspective. It also discusses case studies stemming from different branches of law.

Prof. Szwedo

Prof. Tamada

In organizing the book's 13 contributed chapters, we envisioned and executed on four threads of approach: (1) conceptualizing development, (2) financing development, (3) development and society, and (4) applied sustainable development.  Scholars, lawyers, and scientists who approach development from diverse professional, geographic, and experiential perspectives all will find compelling inroads in this volume, which ranges from the highest echelons of philosophical thinking about the human condition to the most earthbound problems of how many fish swim in the sea.  With DOI links, here are the contents and contributors:

1. “Law & Development” in the Light of Philosophy of (Legal) History, by Tomáš Gábriš, Faculty of Law, Comenius University in Bratislava, Slovak Republic.
2. Populorum Progressio: Development and Law?, by Christine Mengès-Le Pape, University Toulouse, France.
3. Luigi Sturzo’s Socio-economic Development Theory and the Case of Italy: No Prophet in His Homeland, by Flavio Felice, University of Molise, Campobasso, Italy; and Luca Sandonà,University of Trieste, Trieste, Italy.
4. International Financial Aid, Catholic Social Doctrine and Sustainable Integral Human Development, by George Garvey, The Catholic University of America, Washington, D.C., USA.
5. Common but Differentiated Responsibilities for Developed and Developing States: A South African Perspective, by Zuzana Selementová, LL.M. (Cape Town), Valouch, and Attorneys-at-Law, Prague, Czech Republic.
6. Must Investments Contribute to the Development of the Host State? The Salini Test Scrutinised, by Dai Tamada, Graduate School of Law, Kobe University, Japan.
7. Water: The Common Heritage of Mankind?, by Franck Duhautoy, University of Warsaw, Centre of French Civilisation, Poland.
8. Private-Sector Transparency as Development Imperative: An African Inspiration, by Richard Peltz-Steele, University of Massachusetts, North Dartmouth, USA; and Gaspar Kot, Jagiellonian University, Kraków, Poland.
9. Between Economic Development and Human Rights: Balancing E-Commerce and Adult Content Filtering, by Adam Szafrański, Faculty of Law and Administration, University of Warsaw, Poland; Piotr Szwedo, Faculty of Law and Administration, Jagiellonian University, Kraków, Poland; and Małgorzata Klein, Faculty of Geography and Regional Studies, University of Warsaw, Poland.
10. A Comparative Law Approach to the Notion of Sustainable Development: An Example from Urban Planning Law, by Ermanno Calzolaio, University of Macerata, Italy.
11. Challenges Concerning ‘Development’: A Case-Study on Subsistence and Small-Scale Fisheries in South Africa, by Jan Glazewski, Institute of Marine & Environmental Law, University of Cape Town, South Africa.
12. Economic and Social Development in the Republic of South Africa’s New Model of Mineral Rights: Balancing Private Ownership, Community Rights, and Sovereignty, by Wojciech Bańczyk, Jagiellonian University, Kraków, Poland.
13. Sustainable Development as a New Trade Usage in International Sale of Goods Contracts, by Daniel Zatorski, Faculty of Law and Administration, Jagiellonian University, Kraków, Poland.

An introduction from the editors ties the work together.  Previews (with abstracts) of each chapter can be viewed from the book's home page at Springer (or from the DOI links above), where also a flyer about the book can be downloaded.  Working on this project has been a tremendous education for me on law and development.  My congratulations and deep gratitude extend to Professor Szwedo, Professor Tamada, and every one of the contributing authors.

The Mystery of the Student Loan Fraud, or Of In Pari Delicto, Respondeat Superior, et Cetera

A still mysterious financial fraud perpetrated on students of Merrimack College resulted in a high court ruling last week on agency law with important implications for tort liability and the equitable doctrine of in pari delicto.

Students at Merrimack College Orientation in 2015.
By Merrimack College (CC BY-NC-ND 2.0)

Merrimack is located in North Andover, Massachusetts (where the recent gas explosions occurred).  Merrimack is a small liberal arts college founded in the Roman Catholic tradition after World War II especially to serve returning vets.  Despite the depressed market in higher education, Merrimack this fall reported a record-size freshman class and plans to join Division I athletics.

In 2014, Merrimack financial aid director Christine Mordach pleaded guilty to federal criminal fraud charges, and in 2015, she was sentenced to a year’s imprisonment and ordered to pay $1.5 million in restitution.  She had been accused of perpetrating a scheme that replaced college scholarship awards with federal loan money on the college books.  The scheme came to light when a new accounting system started to inform students of federal Perkins debts they did not know they had.

Why Mordach did what she did is the mystery.  The scheme shored up the college’s bottom line through lean times, because money paid out of college coffers in grants was replaced with borrowed dollars that students would be on the hook to pay back.  But there was no evidence that Mordach was ordered to execute the scheme.  To the contrary, she seems to have taken steps to conceal it, which she did so well that Merrimack auditor KPMG gave the college a clean bill of health while the fraud was ongoing.

That brings us to the instant civil case.  Merrimack seeks to recover against KPMG on a range of theories, including breach of contract, professional malpractice, and negligent misrepresentation, for KPMG’s failure to detect the fraud.  KPMG won dismissal in the superior court upon the doctrine of in pari delicto.  Literally Latin for “in equal fault,” in pari delicto translates as the clean hands doctrine of equity.  In tort, the doctrine prevents a tortfeasor from recovering against a co-tortfeasor or innocent party—such as a bank robber who blames a co-conspirator for his bullet wound, or the burned arsonist who would blame firefighters for too slow a rescue.  Merrimack appealed the dismissal to the Massachusetts Supreme Judicial Court (SJC).

Being a doctrine in equity, rather than a rule, in pari delicto calls for a fact-sensitive application, operating as a function of the parties’ relative moral blameworthiness.  Thus in a 1985 case discussed in the instant opinion, the U.S. Supreme Court allowed would-be beneficiaries of insider trading to sue their tipsters for losses resulting from misinformation, even if both plaintiffs and defendants were wrongdoers.  The plaintiffs’ trading upon a failure to disclose was not “substantially equal” in moral culpability to the tipsters’ illegal insider disclosures, the Court decided, and public policy favored holding the tipsters to civil account.

KPMG Boston (Google Maps Aug. 2017)

KPMG argues more than just Merrimack’s benefit derived from a favorable financial picture.  KPMG argued successfully in the superior court that Mordach’s actions must be imputed strictly to Merrimack upon the tort-and-agency doctrine of respondeat superior, because Mordach was an employee of Merrimack and acted within the scope of her employment.  So if intentional fraud is imputed to Merrimack, then in pari delicto precludes recovery against KPMG for the diminished culpability state of mere negligence.

On the one hand, the SJC reasoned, look at the problem from the perspective of Merrimack students:  Were they to have sued Merrimack—not actually necessary, as the college spent $6 million to square its affairs with students—there is little doubt that Mordach’s intentional tort would have imputed strictly, even to an otherwise innocent Merrimack, through respondeat superior.  From where the student sits, the fraud was perpetrated by Merrimack’s financial aid office: Mordach and college, one and the same.  Merrimack might have sought indemnity from employee Mordach, but that’s always true in respondeat superior cases (notwithstanding employment contract).

On the other hand, the SJC reasoned, look at the problem from the perspective of Merrimack College:  Strict liability through the action of respondeat superior imputes liability irrespective of fault and certainly says nothing about moral blameworthiness.  Merrimack as liable to students is never adjudicated as bearing fault.  From a moral standpoint, Merrimack is at worst guilty of neglect, or failure to act, such as by negligent supervision of its financial-aid director.  So notwithstanding strict legal liability, Merrimack’s negligence would implicate moral blameworthiness of a magnitude less than what the college alleges of KPMG.

When co-tortfeasors both commit an intentional tort, in pari delicto precludes liability of one to the other.  But that’s not necessarily so when merely negligent co-tortfeasors A and B unwittingly combine efforts to cause loss to C, incidentally causing loss also to B.  In the subsequent action B v. A, the old contributory negligence rule, as a complete defense, would have effectuated the clean-hands doctrine.  But contemporary tort law commits negligent co-tortfeasors to comparative-fault analysis.  In a modified-comparative-fault jurisdiction such as Massachusetts, B may recover from A if A bore more fault than B, and B’s recovery is reduced in proportion to B’s own share of fault. 

The SJC decided that moral blameworthiness, not legal liability exposure, must be the guiding principle for an equitable doctrine.  Merrimack might be on the hook hypothetically for respondeat superior liability, and even negligent supervision.  But neither of those rules suggests moral blameworthiness greater than KPMG’s.  The case might be different if Mordach has been a senior executive of Merrimack; she was not.  And there is no evidence that Merrimack knew what Mordach was up to, much less directed her actions.

So in the absence of an intentional tortfeasor between Merrimack and KPMG, in pari delicto does not apply.  If Merrimack’s negligence contributed to its own losses, that will come out in the comparative-fault wash.  That conclusion is bolstered by a comparative-fault-like mechanism in Massachusetts statute that applies specifically to client-versus-auditor malpractice claims.  Accordingly, the SJC reversed and remanded.

Chief Justice Gants at UMass Law (2016)

The SJC received amicus briefs from the American Institute of Certified Public Accountants, the Massachusetts Academy of Trial Attorneys (MATA), and the Chelsea Housing Authority.  For the MATA, attorney Jeffrey Nolan argued, like in the U.S. Supreme Court insider trading case, that liability exposure is needed to hold KPMG accountable, especially in a market dominated by the Big Four accounting firms.  The housing authority also backed Merrimack, attorney Susan Whalen recounting her client’s victimization by internal misconduct that went undetected by accountants.  She asserted that in pari delicto has “the perverse result of de facto immunity for gross levels of negligence” by auditors (Law360, subscription required).

All of that is not to say that KPMG will be held liable.  Besides fault yet to be proved, the SJC affirmed the superior court’s leave for KPMG to amend its answer, adding a defense of release.  Ut victoriam tyranne?

The case is Merrimack College v. KPMG LLP, No. SJC-12434 (Mass. Sept. 27, 2018).  The opinion was authored by Chief Justice Ralph D. Gants, a graduate of Harvard undergrad and law, one-time AUSA, and 2016 recipient of an honorary law degree from UMass Law School.