Words are fun.
Take, for example, the French word "petard." Without looking it up, I'd always assumed a "petard" was some strange form of Gallic lasso, seeing as people over on the Continent were constantly being hoisted by it. But two recent incidents from the legal annals of the District of Columbia (more on this in a bit) gave me occasion to actually look up the word. What did I find?
petard / n. ... French petard, from Old French, from peter, to break wind, from pet, a breaking of wind. ... The French used petard, "a loud discharge of intestinal gas," for a kind of infernal engine for blasting through the gates of a city.
So as it turns out, when you dig down into the history of the language, to be "hoist by one's own petard" doesn't refer to cowboys and rodeos at all. It can, however, as easily refer to being injured by one's own bomb ... or by one's own, er, intestinal gas. Which brings us at last to the subject of lawyers.
Gasbag gets comeuppance
So I hear that our little legal circus here in the nation's capital has attracted some attention outside the Beltway. No doubt by now you've heard of the District of Columbia administrative law judge, one Mr. Pearson, who sued the local mom-and-pop "Custom Cleaners" for $54 million over a $10.50 alteration job gone horribly wrong. This case was so made-for-primetime that it even worked its way into fellow Fool Selena Maranjian's most recent edition of "Weird Financial News."
In a nutshell, the story played out as follows:
Soon-to-be-Administrative Law Judge Pearson is about to take up his first job in three years and has put on a bit of weight in the interim. He brings his $1,000 suit to Custom Cleaners for an alteration to fit it to his new form.
Returning to Custom Cleaners to pick up his suit, our hero learns his jacket is fine, but the pants have gone missing. A flurry of action ensues, beginning with a request that the missing pants be located, continuing through a proffer of pants that Pearson denies are his, and ending with a demand that Custom Cleaners pay for an entire, brand-new suit. The store's obligatory "Satisfaction Guaranteed" placard demands no less, argues Pearson.
The story skids inexorably into the twilight zone at this point. When Pearson's not unreasonable demand for a new suit is ignored, he files a lawsuit (pun not so much intended as required by the strictures of the English language). His demand: $67 million (yes, he eventually relented and lopped $13 million off the top) in compensation. Not just on his own behalf, you understand -- he only wants a piddling $2.5 million to compensate his "mental anguish" and "inconvenience," and to pay attorney's fees ... to himself. He asked that the balance of his claim be spent to educate the good citizens of the District of Columbia on their rights under the local consumer protection act.
In a verdict rendered yesterday, Judge Judith Bartnoff of the District of Columbia Superior Court rules: "A reasonable consumer would not interpret 'Satisfaction Guaranteed' to mean that a merchant is required to satisfy a customer's unreasonable demands or to accede to demands that the merchant has reasonable grounds to dispute."
The grounds in this case being a good-faith belief that Pearson might have unwittingly delivered to Custom Cleaners a mismatched suit composed of the undisputed coat, and a pair of pants hanging hidden underneath it, which were not the pants he thought them to be. And the unreasonable demand being Pearson's sworn assertion that he believes a "Satisfaction Guaranteed" sign constitutes a pledge to pay to a customer literally any sum required to make the customer happy.
Judges gone wild
Tailor-made for a Motley Fool piece as this story is already, it just wouldn't be complete without a mention of a related news item reported in yesterday's Washington Post. Responding to an Office of Personnel Management directive published in March, confirming that all federal administrative law judges must possess licenses to practice law, the Association of Administrative Law Judges has just filed a lawsuit of its own, arguing that the OPM's rule is "arbitrary, capricious," and at the risk of verbosity, also "not rational."
Whether this second lawsuit constitutes a priori proof that administrative law judges are not "real" judges at all, or is a simple transparent attempt by these $100,000-per-year-salaried lawyers to save $200 (tax-deductible) in bar dues, I haven't yet decided.
But what does any of this have to do with investing?
An excellent point, and I'm glad you brought it up. How all of the above ties into investing is as follows: Now that Pearson has lost his lawsuit at the trial stage, he has not just lost his chance at a $54 million windfall. Judge Bartnoff also ordered him to pay Custom Cleaners' court costs (a few thousand dollars), and may well order him to pay the defendants' attorneys fees -- which could be $100,000 or more. While a righteous-sounding sanction on its face, sadly, this is America, land of the free retrial.
I would not be at all surprised if, upon receiving such a command from the bench, the clearly litigious Pearson responds by appealing the verdict. And appealing again if he loses the first appeal. Unfortunately, the way the U.S. legal system works, the higher a case goes up the appellate ladder, the more binding legal authority it gathers at each successive rung -- and the more danger an adverse (or from Pearson's point of view, favorable) ruling poses to U.S. companies that offer a guarantee of satisfaction with their services. Running a quick Google search, I quickly identified a handful of companies that could be affected if Pearson one day wins on an appeal:
- Tax-prep specialist H&R Block
- A certain hotel chain soon to be acquired by an arm of Citigroup
- Various small, independent sellers on Amazon.com
(NASDAQ:AMZN)and eBay (NASDAQ:EBAY).
- Options trader OptionsXpress
- Educational-software maker Blackboard
- And, last but not least, Wal-Mart
For the time being, businesses and the investors who own them can breathe a sigh of relief that Pearson has been deflated, and they owe a debt of thanks to Judge Bartnoff for this. As for the future, let's just hope that if this case lands before an appellate court one day, the judges remember to include in their decision a riff on Justice Goldberg's recitation in Kennedy v. Mendoza-Martinez: a "Satisfaction Guaranteed" placard may purport to protect a consumer's rights, but it is not a suicide pact.
Fool contributor Rich Smith practices law, but isn't yet perfect. He owns shares of OptionsXpress, but of no other company named above. Amazon and eBay have been recommended by our Stock Advisor newsletter. Blackboard is a Hidden Gems selection and Wal-Mart is an Inside Value pick. The Motley Fool's disclosure policy is blind as Lady Justice, and carries a sword twice as sharp.