Mr. Davidson clearly doesn’t approve of the type of thinking used by Ms. Warren’s students, i.e., believing that a forum selection clause could plausibly be part of an economic trade-off for prospective customers. Mr. Davidson would prefer that the students use a different mental model–one that assumes that Carnival was trying to use forum selection as a way to screw their customers and drive up costs for their competitors. I have to say that I was exposed to a lot of models when I was in B-school, but this one never came up as a viable option.

Whether or not a company ought to be able to use forum selection clauses in this way to drive down their costs is, of course, a matter for the law to decide. But to invent a conspiratorial, value-destroying model of capitalism to support limiting contract terms, I think, intentionally obfuscates the core arguments of this discussion.

I think the last time I dealt with this case was in my Int’l Business Transactions course where we discussed possible consequences of the decision; I wouldn’t call it “propaganda.” The ideas expressed above are my own.

I do believe you’re right in pointing out that there should be a limit to which corporations can insulate themselves from litigation (such as not being able to contract out of fraud, as you point out). But to me (and perhaps only to me) Carnival Cruise Lines was beginning to reach that threshold. I doubt most people would have read the forum selection clause (information cost) or, even if read, would have understood its consequences (same), which is a cause for concern because the potential consequences of the clause (litigation in a foreign venue) would (potentially) be greater than the information cost. But there are probably some people who would have bought it anyway (weighing risk and possible future costs of litigation far away v. ticket price).

Ok, that’s about all I can muster for a friday…what was this post about again?

Mr. Magid was taught in law school that the motive for the clause was that it cut Carnival’s costs.

He is right in sensing that there was no proof of this proposition.

He was not taught that it could have been just as likely that Carnival was “freeriding,” profiting at the expense of the next business who tries to sell a product or service to the customer who go screwed by Carnival.

Those how do not understanding the freeriding proposition need to recall that the customer is also supposed to be a rational economic man. Having been screwed by Carinval, when he or she next buys something, the transaction costs will go up for that seller, who must deal with a now hostile customer. It is for this reason that Court’s, wisely, refuse to enforce contracts that limit a party’s right to rescind for fraud, See Abry Partners v LP 2006 WL 358236, for such will drive up the transaction costs for everyone.

Those who defend lying never consider that is less expensive to put lying SOBs in jail and to deter lying in that manner than it is to bit every coin in one pocket–which any reader of Mark Twain knows was a common practice when “lead coins” circulated widely.

Nor, was he taught that the clause could have just as easily been inserted by management as a part of a pattern and practice of lying and concealing–if customers can go to court, it may hasten the day that the directors learn what is up. The recent BP explosion in Houston appears to be a prime example of this sort of “budget based” crime. Similar cases exist for cruise ships–look at all the ship born flu-like virus cases now (the Delta Queen has had to cancel cruises).

Nor was he taught that the clause may just have been some “product” sold by a law firm to the general counsel, via comp. tickets to a hockey game.

In other words, what Mr. Magid was taught was a half truth–spin and propaganda–the whole picture was not set out. He should start asking, why such an incomplete discussion?

What I remember striking me about this case in law school though (about 3 years ago), was that Carnival was able to put boiler plate language on the back of a ticket and contract out of the consumers’ access to courts. In negotiated sales contracts, I think it makes sense for both parties to limit the forum in which to bring their claims, for certainty purposes (will a certain clause be enforceable under British law? Will the ship pass through Florida waters, etc.). But it’s negotiated to the satisfaction of both parties.

There just seemed to be something approaching the unconscionable when a cruise line can cut costs by limiting the forum in which its customers can seek access to justice.

This was exactly my impression of the discussion as well (at least, the description of it).

I could identify lots of other pieces, but that is all. Economic theory, today, is incapable of answering most legal questions, I believe. I would make an exception for some antitrust issues. It is, too me, teaching propaganda to suggest otherwise to students.

I realize it is “fun” to some to argue about fact or theory, but Carnival Cruise exposes deeper flaws—the court wholly misses the free riding and agency issues.

As for concepts like supply and demand, my 2 cents is that students should already have that knowledge before admission. Then they would not be tempted to listen to someone who says a supplier will cut costs, if their costs drop. If that were true, why did oil prices go up this summer? Production costs didn’t rise–instead we saw demand + fear.

In sum, students need to be taught the distinction between a good theory or tool and spin. The court bought spin in Carnival Cruise and someone ought to jolly well say such. Some self promoters of “law and economics” are urber pandering and someone needs to say that, also.

If anyone would bother to read my posts you will see that I believe there is a lot that law profs should be doing viz economics, but I will admit it is a pretty far cry from where faculties are now

as for those who are engaged in a pity party because of my comments, I can only say, get a life

When I read about Warren’s complaint, I was actually gratified that her law students seemed sufficiently imbued with economic logic to make their stand. I think the general state of econ learning is this country among all students is appalling, the effect of which is clearly seen in polls where the vast majority of Americans believed that last year’s rise in gas prices was the result of Big Oil price gouging. My main concern upon reading that the student’s starting point was the “all-controlling… deductive logic of economics” was the awful possibility that perhaps the only people who understand economic logic are going into law.

Lastly, I cannot help that point out that your argument that economics is useless appeals to the concepts of supply and demand, risk, agency costs, diversification and free-riding. Perhaps you believe that teaching students to learn these concepts well isn’t such a bad idea after all.