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Is the 21st Century Going to Be One Ginormous Long-Tail Event?
In Book of Extremes: Why the 21st Century Isn’t Like the 20th Century, Ted Lewis builds the case for defining the 21st century as likely to become a morass of extreme events unlike any prior century in terms of magnitude and frequency. The core theme of the book is that the world has entered an era of unprecedented network scope and connectedness, which, while offering us all sorts of advantages like social media and global trade (if you think those are benefits), exposes society to massive cascading failures.
Lewis is clearly wired into complexity science, network analysis, and data science. He’s held a variety of positions in academia, industry, and publishing, and spins out a fascinating account of how all those and other disciplines are necessary to even begin to understand what is happening in the world today. He pulls from the internet, marine shipping, climate change, the financial system, and wealth concentrations to argue that we have gone well past the “tipping point” of exposure to black swan events and worse (see my prior posts on systemic risk and dragon kings). Although I disagree with Lewis’s assessment of prior centuries as essentially flat, linear, and relatively free of global networks and extreme events – anyone who thinks so should read Distant Mirror and 1493 – the evidence he amasses regarding the breadth, tightness, and impact of today’s interlinked social, economic, political, and technological networks is impressive. These networks of networks, while robust in one sense, are fragile in others—fragile in ways that can lead to extreme outlier failures. One example Lewis offers is the global shipping trade, which is a complex network linking lanes and ports and which depends disproportionately on just three ports (Hong Kong, Shanghai, and Los Angeles), so much so that failure of any one of those ports can bring down the whole network (which then cascades to other networks such as finance).
These massive networks also can produce behaviors that appear unusual and counter-intuitive. For example, although social media networks theoretically connect everyone around the world and should produce convergence and harmony, there is evidence they are more an agent of fragmentation. Consisten with LEwis’s theme, for example, Curtis Hougland explains in a post today on the Wharton School’s website how social media allow people that have been assembled according to conventional ordering (nations, religions, employment, education) to reassemble according to other personal affinities, thus cutting across traditional boundaries such as nation states. “Social media provides both an organizing tool through its ability to structure and facilitate communication and an organizing principle in the way people gravitate toward the extreme. In this way, social media accelerates political unrest like a giant centrifuge, sinning faster and faster and spitting out those who disagree.”
Book of Extremes provides an excellent, albeit fast and furious, tour through networks analysis, complex adaptive systems, data science, and an array of other disciplines. Lewis uses metaphors such as waves, flashes, sparks, booms, bubbles, shocks, and bombs to tie the science to real-world contexts with scads of historical and modern examples. His bottom line is that governments and individuals need to start taking big “leaps” to avoid continuing down the spiral leading to cascade failures, including more instances of private initiatives not waiting for government to lead, the way SpaceX has launched itself (pun intended).
So, what does this mean for law? For starters, if Lewis is right, get ready for a century of unprecedented demand on the legal system. Law students and young lawyers, watch trends, anticipate disruption, and think hard about what pressures these will place on the legal system to produce solutions, protect rights, and adapt new legal doctrines. You can help shape how law responds, and you can be the first to “jump on it” with thoughtful analysis and reasoned proposals for legal action. In short, think Law 2025!
Nicola Lettieri on the Big Data Deluge
Head to this Computational Legal Studies site post for an excellent Prezi by Nicola Lettieri of the University of Sannio on legal and other issues flowing from the “Big Data Deluge.” One part of the presentation dives deep into the field of law and computational social science, which IMHO is the future of legal research and scholarship.
Internet Millionaires: How Crowdfunding’s Viral Popularity Foreshadows a Future Need for Regulatory Compliance
Guest Post by Law 2050 Student Alex Nunn
As social media membership rates continually push to record heights, an emerging new trend is now seeking to turn your friends list into a pool of potential investors. “Crowdfunding,” as the movement has been coined, is the practice of raising capital by appealing directly to a large group of potential investors via the Internet. While the viability of such a trend might initially be met with skepticism, the equity-raising potential of crowdfunding has proven substantial. For example, in October 2012, Cloud Imperial Games pitched Star Citizen, a space combat video game, to the public and sought to raise the necessary capital for the game’s production through online crowdfunding. The idea quickly went viral, and by August 2014, the developer had raised $52 million dollars for its project, with over five hundred thousands individuals chipping in. On the more comical side, one individual used a crowdfunding site to raise $55,492 to help in his quest to make himself potato salad, while another start-up has raised £8,016 towards its mission to manufacture and sell giant inflatable sculptures of Lionel Richie’s head.
Undeniably, crowdfunding is attracting a significant amount of attention from prospective investors and commentators alike. Recently, however, the trend has caught the eye of a much more influential force – the United States government. Over opposition from the Securities and Exchange Commission, Congress passed the Jump-start Our Business Start-ups Act, or JOBS Act in 2012, which mandated regulatory support for crowdfunding. While the ability to quickly raise capital spurs on the current administration’s drive to bolster small business, the SEC remains wary of the movement due to the certain dangers that accompany crowdfunding.
For one, venture capitalism (the more formal method through which new businesses raise start-up funds) is an extremely risky endeavor for financial experts, with over eighty percent of start-ups failing in their first year. If even these seasoned financial professionals struggle to effectively predict the potential success of future start-ups, how much more vulnerable might crowdfunders be? Despite their enthusiasm, there exists a great potential for loss.
More importantly, crowdfunding is ripe for fraud. Through their crowdfunding campaigns, individuals can raise substantial sums without providing any identification, disclosure, or transparency with their plans. For example, despite its seemingly obvious unrealistic nature, an individual raised over $18,000 to manufacture his proposed “home quantum energy generator.” Predictably, his initial promise of free energy has yet to be fulfilled.
As crowdfunding grows out of its infancy, the movement’s stakeholders will increasingly demand legal aid. As one commentator notes, potential issues include questions over whether a crowdfunded start-up will be required to provide audited financial statements, and whether the funders, or even the funding portal, may share in any potential liability caused by the prospective campaign. Ultimately, the soaring popularity of crowdfunding will see a significant increase in the demand for regulatory compliance, especially as the SEC works towards issuing its final crowdfunding rules. As unassuming individuals find themselves on the receiving end of millions of dollars, their very first need, even before they begin to construct inflatable Lionel Richie sculptures, will be for sound advice on how to manage their funds in a safe, legal manner.
Law 2050 Student Projects on Trends in Law and Law Practice
Given how much time we spend in law school covering what the law was and is, one of the goals of my Law 2050 class is to get students to think about what the law will be and how they can help shape it’s future. I have students identify examples of two kinds of trends. The first is an “inside law” trend, such as new technology and new kinds of service providers, that will influence how law is practiced. The other is an “outside law” trend, such as developments in health care, technology, and the economy, that will influence how law evolves in response.
Last year I had students work in groups to present “pitches” in a shark-tank setting, with the pitch being an assessment of whether to invest in the trend (e.g., put money into a new legal practice technology or devote firm resources to developing a new practice area). This year I have used this phase of the class to develop some practical, practice-oriented writing skills: a blog post, a client alert letter, and a bar journal article. As was the case last year, once again I am thoroughly impressed with the topics the students selected, and their blog post assignments were top-notch. Watch for several of them in coming days as students serve as contributing bloggers!
Here’s a sample of the topics:
Inside Law Trends: lawyer coaching for pro se clients; IP prior art search outsourcing; third party litigation funding; Shake, the contract app; legal hackathons; legal fee analytics; Ravel Law; Mitratech’s software for in-house counsel; “low bono” law firms; legal project management firms; online dispute resolution; pricing consultants; Islamic finance practice; speech recognition programs for lawyers; Bryan Cave’s Rosetta project; legal knowledge engineering; telecommuting and the decline of the law office; Counsel on Call; Integron; business for lawyers training programs; legal solution engineers; Clerky; Axiom–is it becoming another BigLaw?; virtual courts; Legal Force; and compliance lawyering.
Outside Law Trends: digital signatures; commercial delivery drones; invisibility cloaking; Google Glass; neural implants; predictive policing; driverless cars; commercial space travel; e-money; The Internet of Things (embedded sensor networks); newsgathering drones; unmanned cargo ships; virtual patient consultations; 3D printing of guns and organs; apps to convert 3D iPhone photos to 3D printing; Apple’s fitness watch; automobile connectivity and privacy issues; texting detection technology for police; cloud storage issues; sea level rise; crowdfunding; negligent infliction of disease; ridesharing (Uber etc.); robotic surgery; renewable energy trends; extreme reality TV; fracking; human gene patenting; and police body cameras.
Needless to say, we are going to have some interesting class discussions!
Has All the Important Law Already Been Invented?
A few months ago the Wall Street Journal carried an article titled Has All the Important Stuff Already Been Invented? It was about a dispute between two Northwestern University economists over that very question. The basic gist:
Robert Gordon, a curmudgeonly 73-year-old economist, believes our best days are over. After a century of life-changing innovations that spurred growth, he says, human progress is slowing to a crawl.
Joel Mokyr, a cheerful 67-year-old economist, imagines a coming age of new inventions, including gene therapies to prolong our life span and miracle seeds that can feed the world without fertilizers.
Law 2050 being what it is, I had to ask the parallel question for law: Are the best days of legal innovation over, or are we entering a coming age of new legal “inventions”?
The first aspect of this to sort through is the difference between new law and new legal innovations. We’ll always be making new law—the question is whether any of it will be innovative. More to the point, what exactly is a “legal invention”?
My main field of research and practice, environmental law, has gone through several of what legal scholars suggest are “generations” of evolution. Each generation represents a significant innovation in the approach and content of the law. As my good friend Tony Arnold of The University of Louisville Law School framed it in a recent article, Fourth-Generation Environmental Law: Integrationist and Multimodal:
U.S. environmental law appears to have evolved from reliance primarily on common-law tort and property doctrines to government reservation and management of lands and natural resources to pollution control and prevention through command-and-control regulation, technology-based standards, and rule-of-law litigation. Some have characterized the latter collection of command-and-control statutes and regulations, administered with technology-based standards and enforced by rule-of-law litigation, as the first generation of environmental law. This generational classification is in contrast to what are often referred to as second generation environmental law methods that emphasize regulatory flexibility and the harnessing of economic incentives. These include compliance incentives, negotiated rulemaking (or “reg. neg.”), and market-based mechanisms. Some believe that the structure and practice of environmental law have now entered a third generational phase with the growing use of collaborative and voluntary processes, outcomes-based instrument choice, and reflexive law principles to achieve sustainable development and engage in ecosystem management. In each case, the new features of environmental law have simply been added to the existing features, making some modifications to the older structure but mostly just adding new generations to the family of environmental law.
He then predicts the emergence of a new, fourth generation:
Ecological and social forces of change—and the policy imperatives that they create—will move the next generation of environmental law towards integrationist and multimodal methods of addressing complex, interdependent, dynamic, and multiscalar environmental problems.
So the point is, legal inventions are new kinds of law, not just new law. And as Arnold suggests, it’s usually forces of change outside of and acting on law that spur legal innovation.
Certainly as much, and perhaps more than, any force of change, technology has rocked law over time into new configurations. So, going back to the Gordon-Mokyr debate, if Gordon is right then we can expect to see technology become less of a player in spurring legal innovations. But if cheerful Mokyr is right, we could be in store for new kinds of law we don’t even imagine today. Consider, for example, the increasing breadth and depth of information and knowledge being put at our fingertips through Big Data and machine learning. Could this lead to more than just new law, but also to legal innovation?
That’s the kind of question I put to my students in Law 2050. One assignment is to identify some economic, environmental, technological, or social trend and play with its potential legal consequences. What novel issues might it present? What legal responses will be appropriate? Do we need legal innovation to respond, or just new law? I’m looking forward to their projects and answers, and for now my strong hunch is that we have not seen the end of legal innovation, not by a long shot.
Law 2050 Rides Again!
Summer is over and classes start today here at Vanderbilt Law School, which means Law 2050 is back in action! Later today I will ramp up the second year of the Law 2050 class and begin posting about it and topics of interest to legal futurists.
The first order of business is to thank the many wonderful people who have agreed to be guest speakers in the class. Like last year’s lineup, it’s an exceptional set of presenters. Their perspectives bring life to the class and enhance the student experience in so many ways. Today’s post is devoted to them–many thanks to you all!
Aug. 25: Guest Speaker Panel – Law firm leaders discuss the state of the practice
- Andy Bayman – King & Spalding
- Beau Grenier – Bradley Arant
- Todd Rolapp – Bass Berry Sims
Aug. 26: Guest Speaker Panel – Corporate in-house counsel discuss the drivers of change
- Mike McCarthy – Quantumscape
- Celia Catlett – Texas Roadhouse
- Sara Finley – Caremark
Sept 9: Guest Speaker Panel – The globalization and consolidation of law firms
- Steve Mahon and Mark Ruehlmann – Squire Patton Boggs
Sept. 29: Guest speaker – Larry Bridgesmith of ERM Legal Solutions: Introduction to legal process management
Sept. 30: Guest speaker – Marc Jenkins of Cicayda: Introduction to e-discovery and information technology
Oct. 6: Panel Discussion: Alternatives to BigLaw – What is their “new normal”?
- Annie Passino – Southern Environmental Law Center
- Austin Payne – Tennessee Department of Environmental Conservation
- Alex Scarbrough Fisher – Thompson Burton
Oct. 14: Demonstration of Lex Machina Legal Analytics
Oct 20: Guest speaker – Zygmunt Plater of Boston College Law School: The future of environmental law
Oct. 27: Guest speaker – Michael Mills of Neota Logic: Introduction to Neota Logic compliance software
Nov. 17: Guest Speaker Panel – Law firm economics and advancement, big and small
- Patrick Cavanaugh – Blank Rome
- Walt Burton – Thompson Burton (invited)
Lawyers, Do Not Fail to Read “The Great Disruption”
For a concise but thorough and insightful summary of how machine learning technology will transform the legal profession, and a sobering prediction of the winners and losers, check out The Great Disruption: How Machine Intelligence Will Transform the Role of Lawyers in the Delivery of Legal Services. Written by John McGinnis of Northwestern University Law School and Russel Pearce of Fordham Law School, this is a no-nonsense assessment of where the legal profession is headed thanks to the really smart people who are working on really smart machines. The key message is to abandon all notion that the progress of machine learning technology, and its incursion into the legal industry, will be linear. For quite a while after they were invented, computers didn’t seem that “smart.” They assisted us. But the progress in computational capacity was moving exponentially forward all the time. It is only recently that computers have begun to go beyond assisting us to doing the things we do as competently as we do, or better (e.g., IBM’s Watson). The exponential progress is not going to stop here–the difference is that henceforth we will see computers leaving us behind rather than catching up.
The ability of machines to analyze and compose sophisticated text is already working its way into the journalism industry, and McGinnis and Pearce see law as the next logical target. They foresee five realms of legal practice as the prime domains for computers supplanting human lawyers: (1) discovery, which is well underway; (2) legal search technology advancing far beyond the Westlaw of today; (3) generation of complex form documents, such as Kiiac; (4) composing briefs and memos; and (5) predictive legal analytics, such as Lex Machina. All of these trends are well in motion already, and they are unstoppable.
All of this is a mixed bag for lawyers, as some aspects of these trends will allow lawyers to do their work more competently and cost-effectively. But the obvious underside of that is reduced demand for lawyers. So, who wins and who loses? McGinnis and Pearce identify several categories of winners (maybe the better term is survivors): (1) superstars who are empowered even more by access to the machines to help them deliver high stakes litigation and transactional services; (2) specialists in areas of novel, dynamic law and regulation subject to change, because the lack of patterns will make machine learning more difficult (check out EPA’s 645-page power plant emissions proposed regulation issued yesterday–job security for environmental lawyers!); (3) oral advocates, until the machines learn to talk; and (4) lawyers practicing in fields with high client emotional content, because machines don’t have personalities, yet. The lawyering sector hardest hit will be the journeyman lawyer writing wills, handling closings, reviewing documents, and drafting standard contracts, although some entrepreneurial lawyers will use the machines to deliver high-volume legal services for low and middle income clients who previously were shut out of access to lawyers.
Much of what’s in The Great Disruption can be found in longer, denser treatments of the legal industry, but McGinnis and Pearce have distilled the problem to its core and delivered a punchy, swift account like no other I’ve seen. I highly recommend it.
Big Data and Preventive Government: A Review of Joshua Mitts’ Proposal for a “Predictive Regulation” System
In Minority Report, Steven Spielberg’s futuristic movie set in 2050 Washington, D.C., three sibling “pre-cogs” are hooked up with wires and stored in a strange looking kiddie pool to predict the occurrence of criminal acts. The “Pre-Crime” unit of the local police, led by John Anderton (played by Tom Cruise), uses their predictions to arrest people before they commit the crimes, even if the person had no clue at the time that he or she was going to commit the crime. Things go a bit awry for Anderton when the pre-cogs predict he will commit murder. Of course, this prediction has been manipulated by Anderton’s mentor and boss to cover up his own past commission of murder, but the plot takes lots of unexpected twists to get us to that revelation. It’s quite a thriller, and the sci-fi element of the movie is really quite good, but there are deeper themes of free will and Big Government at play: if I don’t have any intent now to commit a crime next week, but the pre-cogs say the future will play out so that I do, does it make sense to arrest me now? Why not just tell me to change my path, or would that really change my path? Maybe taking me off the street for a week to prevent the crime is not such a bad idea, but convicting me of the crime seems a little tough, particularly given that I won’t commit it after all. Anyway, you get the picture.
As we don’t have pre-cogs to do our prediction for us, the goal of preventive government–a government that intervenes before a policy problem arises rather than in reaction to the emergence of a problem–has to rely on other prediction methods. One prediction method that is all the rage these days in a wide variety of applications involves using computers to unleash algorithms on huge, high-dimensional datasets (a/k/a/ Big Data) to pick up social, financial, and other trends.
In Predictive Regulation, Sullivan & Cromwell lawyer and recent Yale Law School grad Joshua Mitts lays out a fascinating case for using this prediction method in regulatory policy contexts, specifically the financial regulation domain. I cannot do the paper justice in this blog post, but his basic thesis is that a regulatory agency can use real-time computer assisted text analysis of large cultural publication datasets to spot social and other trends relevant to the agency’s mission, assess whether its current regulatory regime adequately accounts for the effects of the trend were it to play out as predicted, and adjust the regulations to prevent the predicted ill effects (or reinforce or take advantage of the good effects, one would think as well).
To demonstrate how an agency would do this and why it might be a good idea at least to do the text analysis, Mitts examined the Google Ngram text corpus for 2005-06, which consists of a word frequency database of the texts of a lot of books (it would take a person 80 years to read just the words from books published in 2000) for two-word phrases (bi-grams) relevant to the financial meltdown–phrases like “subprime lending,” “default swap,” “automated underwriting,” and “flipping property”–words that make us cringe today. He found that these phrases were spiking dramatically in the Ngram database for 2005-06 and reaching very high volumes, suggesting the presence of a social trend. At the same time, however, the Fed was stating that a housing bubble was unlikely because speculative flipping is difficult in homeowner dominated selling markets and blah blah blah. We know how that all turned out. Mitts’ point is that had the Fed been conducting the kind of text analysis he conducted ex post, they might have seen the world a different way.
Mitts is very careful not to overreach or overclaim in his work. It’s a well designed and executed case study with all caveats and qualifications clearly spelled out. But it is a stunningly good example of how text analysis could be useful to government policy development. Indeed, Mitts reports that he is developing what he calls a “forward-facing, dynamic” Real-Time Regulation system that scours readily available digital cultural publication sources (newspapers, blogs, social media, etc.) and posts trending summaries on a website. At the same time, the system also will scour regulatory agency publications for the FDIC, Fed, and SEC and post similar trending summaries. Divergence between the two is, of course, what he’s suggesting agencies look for and evaluate in terms of the need to intervene preventively.
For anyone interested in the future of legal computation as a policy tool, I highly recommend this paper–it walks the reader clearly through the methodology, findings, and conclusions, and sparks what in my mind if a truly intriguing set of policy question. There are numerous normative and practical questions raised by Mitts’ proposal not addressed in the paper, such as whether agencies could act fast enough under slow-going APA rulemaking processes, whether agencies conducting their own trend spotting must make their findings public, who decides which trends are “good” and “bad,” appropriate trending metrics, and the proportionality between trend behavior and government response, to name a few. While these don’t reach quite the level of profoundness evident in Minority Report, this is just the beginning of the era of legal computation. Who knows, maybe one day we will have pre-cogs, in the form of servers wired together and stored in pools of cooling oil.
Designing a Law 2050 Law School Curriculum
One of the final assignment prompts for my Law 2050 class asked the students to write a memo to the Law School Curriculum Committee recommending “how to innovate the curriculum to respond to the ‘new normal’ in the legal industry and best position students to enter and succeed in legal practice over first 10 years of their careers.” I received 45 very thoughtful and comprehensive responses. Recall that Law 2050 could best be described as a boot camp on the “new normal,” exploring everything from outsourcing to legal tech to how to make a practice out of Google Glass, so these students were primed to go on the topic of what to include in the curriculum beyond a survey course like Law 2050. Here’s my synthesis of what they would like to tell the Curriculum Committee.
First, four proposed new course cluster themes dominated the student proposals, with well over 80 percent of the papers proposing courses in two or more of these clusters:
- Legal Process/Project/Program Management: Students want to know more about efficient management of legal processes (e.g., due diligence), discrete projects (e.g., drafting a contract), and broad programs (e.g., managing origination of hundreds of similar contracts). This theme also includes suggestions for courses on E-discovery and Legal Risk Management, which draw on routinized and efficient process techniques.
- Legal Technologies and Technologists: Michael Mills’ presentation of Neota Logic’s flowcharting technology platform was one of the smash hits of the class, and a good number of students presented law-tech and big data companies for their case studies, such as Lex Machina and Tymetrix. Students want to understand what these emerging technologies do, how they work, and even how to design them. This theme also includes suggestions for courses on Legal Software and Coding and Legal Computation and Analytics, as well as a number of suggestions that the law-tech theme be designed around some type of clinical delivery model.
- Legal Entrepreneurism and Startup: Although much of the discussion of the “new normal” dwells on Big Law, plenty of class time focused on innovative legal startups such as Ravel Law and Casetext, as well as on how legal innovations can better support other industry entrepreneurs and startups. This theme also included many suggestions for a clinical setting, such as teaming up with business incubators.
- Legal Business Management and Innovation: With all the emphasis on “more for less” and “disruption,” students expressed a strong demand for courses they described as Law Firm Management and Finance, the Future of Legal Practice, Alternative Legal Services Business Models, Solo and Small Firm Practice, and similar themes.
Beyond these four dominant themes, which I am happy to say are being integrated into the offerings at Vanderbilt, quite a number of other innovations popped out of the papers, including:
- As courses like the above are integrated into the curriculum, design a Legal Technology and Management Certificate
- Push some of the content of Law 2050 themes into the 1L year
- Offer a course focusing on nontraditional legal jobs, such as legal process management, legal risk management, and regulatory compliance systems
- Offer a course on Comparative Legal Services Regulation
- Offer a course on Legal Leadership
- Include regulatory compliance flowcharting exercises in more classes
- Integrate the law-tech issues into the Professional Responsibility course
- Develop a year-long speaker series picking up on many of the Law 2050 themes
Finally, many students included proposals which, while not fitting within the Law 2050 scope directly, are consistent with the theme, heard over and over again, that they need to hit the ground running (or at least walking a lot faster than my peers and I were when we graduated!). The dominant topics in this category were:
- Expand extern and clinic offerings, and even make taking one mandatory
- Require each student to take at least two “skills” designated courses
- Include courses and training on non-trial pre-trial skills, such as taking depositions, interviewing clients, communicating with courts and other counsel, reading records, etc.
- Offer a course on understanding how businesses operate, how they make the “legal buy” decision, and how they manage their legal operations
- Offer a class on “behavioral practice skills” such as case evaluation, legal communications, and risk assessment and communication to clients
- Offer more and broader transactional document drafting courses
- Offer a three-year JD/MBA
- Offer a course like Harvard’s Legal Problem Solving workshop
- Offer a more practice-oriented advanced Legal Writing course covering short answer memos, white papers, client letters, letters to opposing counsel, drafting interrogatories and document requests, etc.
Overall, I found this set of papers impressive in terms of the attention my students gave to the exercise and their creative, thoughtful suggestions. I was also gratified to think that my class sparked such a depth of interest in learning more about the topics fitting under the Law 2050 roof. With this kind of student effort and input coming in the first offering of the class, I’m looking forward to the Fall 2014 class even more.
The New Jersey Supreme Court Discovers Ecosystem Services, Just in Time for Climate Change
Valuing ecosystem services—the streams of benefits functioning ecosystems provide to human populations—has become a powerful theme in natural resources management research and policy, but not so much yet in hard law to apply. The problem has not been with the ecosystem services that are obvious and well registered in markets—crops, recreation, timber, and water supply to name a few. We have plenty of law surrounding services like those. Rather, ecosystem services such as groundwater recharge by wetlands, storm surge protection by coastal dunes, and pollination by wild honeybees are not bought and sold in markets and thus suffer from a classic Tragedy of the Commons dilemma. People get that these are valuable benefits in a big picture sense, but incorporating these values in law—whether in protective regulations, performance standards, incentives, or in core principles of property law—has proven difficult. Yet with climate change looming as a threat to property in general—increased flooding, drought, storm surges, and other threats are not far into the future—it seems that there would be some urgency to incorporating ecosystem services ideas into property law.
One big step in that direction has come from a recent decision by the New Jersey Supreme Court regarding how much compensation beachfront owners are due when the state plops sand dunes on their property. See Borough of Harvey Cedars v. Karan, 70 Atlantic Rep. 524 (NJ 2013). Like many states, New Jersey (with federal help) spends considerable money shoring up the shore, so to speak, by importing sand to beaches subject to erosion. Sometimes these projects go further, in the form of constructing massive dunes on the beach to, in the court’s words, “serve as a barrier-wall, protecting homes and businesses…from the destructive fury of the ocean.” In other words, the idea is to create or supplement the dune ecosystem to enhance the flow of one very valuable ecosystem service—stopping storm surges. And after Hurricane Sandy, there’s not a person in New Jersey who doesn’t get that.
Well, maybe there are a few. There’s another ecosystem services that’s pretty valuable to beachfront owners—their view of the beach! You can see the problem already—higher dunes mean less view. So when the federal, state, and local governments embarked on a dune project in Long Beach Island, some property owners resisted. The project involved purchasing perpetual easements from the beachfront owners and constructing a 22-foot dune system the length of the beach. The local borough was more than willing to provide compensation for the easement, and most property owners were happy to have the dunes. One couple, however, decided not to sell. The borough exercised its power of eminent domain and took the easement from them anyway. Things got interesting when it came time to decide how much “just compensation” was due to the property owners.
This situation involves what is called a “partial taking” of property. If the borough had taken title to the entire property, the owners and the government would have argued over the fair market value of the entire parcel, which while contestable is fairly easy to determine within a reasonable range the same way appraisers estimate home values for loans. It’s trickier when the government is taking only part of the property (in this case the easement), because one has to determine the value of what was taken as well as the impact on the value of what remains. For over a century, New Jersey law allowed the government to offset the losses to the property owners for that “remainder” (in this case the diminished view) with the benefits the owners receive from the public project that required the partial taking (in this case the protection from the ocean), but only if the benefits were “special benefits” the owner received independent of the “general benefits” the project provides to the public at large. At the trial level in the case, the trial court ruled that the protection benefits from the dune project were general benefits, which meant the jury could not include them as offsets. Under that approach, the jury awarded the owners $375,000, and the appellate court affirmed. As is easy to imagine, if the government had to pay every beachfront owner a sum like that–and there were a lot of owners who refused to participate in the project–the project would have been dead in the water (no pun intended). (Note: I’m going to stay away from the part of the story involving public vilification of the recalcitrant owners, like when Governor Christie called them “knuckleheads.”)
The New Jersey Supreme court turned the case into an opportunity to ditch the outdated special benefits/general benefits doctrine. After a very careful review of the history and policy of the doctrine, the court concluded that “the terms special and general benefits do more to obscure than illuminate the basic principles governing the computation of just compensation in eminent domain cases.” Instead, the court ruled, “just compensation should be based on non-conjectural and quantifiable benefits, benefits that are capable of reasonable calculation at the time of the taking.”
From there the court made some rather obvious but refreshing observations about the dune project, as in “without the dune, the probability of serious damage or destruction to the [owners’] property increased dramatically over a thirty-year period,” and thus it is “likely that a rational purchaser would place a value on a protective barrier that shielded his property form partial or total destruction.” Seriously, this is not rocket science—if you want your house standing in 30 years, deal with the dunes!
The court sent the case back to the trial court with instructions that “at that trial, the Borough will have the opportunity to present evidence of any non-speculative, reasonably calculable benefits that inured to the advantage of the [owners’] property at the time of the taking.” In other words, calculate the value of the ecosystem services the dunes provide to beachfront owners. That trial never took place, however, because the parties settled – the borough paid the owners one dollar in compensation (and covered $24,000 of their attorneys fees). One can reasonably assume the property owners saw the writing on the wall.
The Karan case is a huge development for the law of ecosystem services. Not only did the court recognize the inherent value of the dunes, it gave that value firm legal status. One can anticipate many public infrastructure projects in the future as part of climate change adaptation, many of which will require use of or impacts to private property. As with the Long Beach Island dune project, one can hope that many of these infrastructure projects will rely on restoration, enhancement, or creation of natural ecosystems such as dunes, wetlands, and riparian habitat. Certainly just compensation will be due to the property owners, but at least in New Jersey the calculation of just compensation will include recognition of and valuation of the ecosystem services provided by those ecosystem-based projects.
Law 2050 