[In]Securities Guest Blog: Dear Prudence by Aegis Frumento Esq

May 21, 2020

Dear Prudence

Here's an oddly fun fact: From 1750 to about 1800 -- during our country's formative years -- the word "prudence" was 13 times more popular than it is today. It was part of our so-called Founders' intellectual and actual vocabulary. They knew it well.

Not so much today, though, even if "prudent" seems to be the adjective of choice to describe how to "reopen" the economy. "We're trying to be prudent and careful and we want to keep people safe," said Pennsylvania Governor Wolf. He's not alone; every governor in the nation seems to have described his or her actions as "prudent" in the past few weeks. 

It's good to have the word back, even if only temporarily. Too bad hardly anyone really understands it. People these days think it means being careful, or more likely "risk averse," cowardly even. It doesn't mean any of that. 

From the time of the Greeks, Prudence was considered the first of the four Cardinal Virtues. Without Prudence the other three, Courage, Temperance and Justice, are mere abstractions. Prudence directed a course of action. Prudence, phronesis as Aristotle would have pronounced it, meant knowing the appropriate thing to do in the appropriate circumstance. It means having practical wisdom, acting sensibly in the real world. It is the Mother Virtue because you have to know how to act appropriately to the situation before you need muster the courage to act moderately and fairly.

Notice that to act prudently does not mean, necessarily, to act on "principle." It means to know the practical thing to do. If all your actions are forced by some fixed idea that applies regardless of circumstance, then you may be called many things -- like idealistic, or steadfast, or even pig-headed -- but you are not prudent. Prudence recognizes that the world is too big and too complex to be captured by simplistic one-size-fits-all theories about what's right. Prudence accepts that what might be the right thing here today may very well be the wrong thing tomorrow somewhere else, and that consistency is the hobgoblin of small minds.

The best lawyers are prudent. They do not try to shoehorn a wild and wooly reality into some neat theoretical box. They are comfortable with ambiguity, with inconsistency, with contradictions. They appreciate exactly what Walt Whitman meant when he said, "Do I contradict myself? Very well then I contradict myself. (I am large, I contain multitudes.)" 

Unfortunately, over the past 150 years, law professors have become enamored of theories of law, one after another, to explain how cases are decided. First, they started thinking that The Law was a self-contained logical system, like math, and that if one knew the formulas one could always find the "right answer." But lawyers could find plenty of authorities to support all three sides of any argument, so no internally consistent logic could be discerned. So, they figured, something outside the law itself was driving judges' decisions. Different "somethings" have been identified and advocated for over time. Some said it was the judges' personal upbringings; others said it was economic principles; others said it was the prevailing social order. Today the faddish "somethings" are things like "natural law," or whatever "originalism" really means. 

None of them really work, because they all try to squeeze reality into intellectual boxes always too small to hold it. But if The Law is not logically consistent and no overarching theory of decision controls it, how do we lawyers do it? It's harder to do than to grasp, really. Lawyering is a craft, not so different from woodworking or pottery. There are good decisions and bad decisions, just like there are good chairs and bad chairs. The test of a good decision is its prudence -- how appropriate it is to the problem, how comfortably it fits. It is easy to write a decision that pedantically cleaves to some theory; any law student could do it. It is harder, and more creative and fulfilling, to craft a solution that is elegant, both legally supportable and appropriate to the facts.

What got me thinking about all this was the Wisconsin Supreme Court's decision last week overruling the Governor's stay-at-home order. I was asked what I thought about it, and I couldn't say. All I knew about it was what I read in the papers, and that's not the place to go if you want to understand what a court did. So I read the thing, all 161 pages of it. Wisconsin Legislature v. Palm, https://www.wicourts.gov/sc/opinion/DisplayDocument.pdf?content=pdf&seqNo=260868.
The majority opinions, consisting of the main opinion and three concurrences, take up 86 of those pages. When it takes 86 pages to justify a decision, you know that decision is hard to justify. And so it is.

The long and short of the case is that the Governor declared an emergency over COVID-19, and directed the state Health Department to issue appropriate orders to contain the spread of the disease. The Health Department, over the Governor's letterhead, issued Order 28 requiring people to stay home under threat of criminal penalties. https://evers.wi.gov/Documents/COVID19/EMO28-SaferAtHome.pdf. The Republican-controlled legislature sued, claiming the Health Commissioner didn't have the authority to issue that order without going through a rule-making process.

The Supreme Court took 86 pages because it had to go through this logical sequence:

1. The Legislature has the ability to bring the suit.

2. Order 28 is a Rule under the appropriate statute

3. As a Rule it needed to go through a rule-making procedure.

4. Because it didn't, Order 28 is unenforceable (except for section 4(a) closing schools; no one knows why).

But, what about the pandemic? Doesn't matter, said the court. The emergency exercise of untrammeled government power is the first step to tyranny. Remember Korematsu

Korematsu v. United States, 323 U.S. 214 (1944) https://supreme.justia.com/cases/federal/us
, for those who've forgotten, was the infamous Supreme Court case that allowed the US government to relocate Japanese-Americans to remote internment camps during World War II. That case, now thoroughly discredited, is trotted out whenever someone is upset about some governmental action. It's a cheap rhetorical trick. Whoever thinks a stay-at-home order during a pandemic is in any real way comparable to forced relocation to a concentration camp has left Prudence far behind.

By the way, no one in the Palm case suggested that the Governor could not have issued the equivalent of Order 28 directly. Had he done it himself, it presumably would have been fine under the Governor's constitutional emergency powers. So here's how the decision might have gone:

1. The Governor has the power to declare emergencies and issue orders to deal with them.

2. The Governor declared an emergency over COVID-19.

3. Order 28 was issued by the Governor's delegate under the Governor's authority.

4. Therefore Order 28 is valid for the duration of the emergency.

Also, the Health Commission has the statutory authority to issue emergency orders that expire in 150 days, so the decision could have gone this way too:

1. Order 28, whatever it may be called, was issued in the context of a well-recognized emergency, and is effectively an emergency order.

2. Therefore Order 28 is valid for 150 days. 

Or even:

1. The legislature as a body is not injured by Order 28, so it can't sue.

2. Case dismissed.

Palm was decided as it was because the Wisconsin Supreme Court chose to go down one logical path instead of another. The logic of the case is not the problem with it. As you can see, there were other ways to decide this case, all equally logical as far as The Law goes. The problem with Palm is that logic took precedence over reality. The result was not illogical, but imprudent. The decision was not appropriate to the reality of a state trying to stem a pandemic. That's why it's a bad decision. It's uncomfortable like a wobbly chair.

And that's the danger with all theory-laden decisions. They should be viewed skeptically, no matter how well-reasoned. Indeed, it is a mistake to attack bad decisions on their logic, because that is not their flaw. As G.K. Chesterton wrote, "A madman is not someone who has lost his reason but someone who has lost everything but his reason." Of all that's lost on the road to madness, Prudence goes first.


Aegis J. Frumento

380 Lexington Avenue
New York, NY 10168

Aegis Frumento is a partner of Stern Tannenbaum & Bell, and co-heads the firm's Financial Markets Practice. Mr. Frumento represents persons and businesses in all aspects of commercial, corporate and securities matters and dispute resolution (including trials and arbitrations); SEC and FINRA regulated firms and persons on regulatory compliance issues and in SEC and FINRA enforcement investigations and proceedings; and senior executives of public corporations personal securities law and corporate governance matters.  Mr. Frumento also represents clients in forming and registering broker-dealers and registered investment advisers, in developing compliance policies, procedures and controls, and in adopting proper disclosure documents. Those now include industry professionals looking to adapt blockchain technologies to finance and financial market enterprises.

Prior to joining the firm, Mr. Frumento was a managing director of Citigroup and Morgan Stanley, a partner and the head of the financial markets group of Duane Morris LLP, and the managing partner of Singer Frumento LLP.

He graduated from Harvard College in 1976 and New York University School of Law in 1979. Mr. Frumento is a frequent author and speaker on securities law issues, and is often quoted in the media on current securities law developments.

NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of BrokeAndBroker.com Blog.

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