Monday, June 11, 2018

Legal Loopholes and Voting Paradoxes: A Theory

Nick Freeman is a well-known British lawyer. He rose to fame in the 1990s when he successfully defended a number of celebrity clients from dangerous driving prosecutions. He was particularly popular among footballers. His clients included Paul Ince, David Beckham and, perhaps most famously, Alex Ferguson. The case with Ferguson was notorious because of its somewhat scatalogical fact-pattern, and because Ferguson was the most high-profile football manager in the world at the time.

Ferguson was summonsed for speeding along the hard-shoulder of a clogged motorway. His excuse was that he desperately needed to use the bathroom due to an upset stomach he had been nursing from the previous day. He was stopped by the police and charged with an offence. He was in a tricky predicament since he already had a number of penalty points on his licence and being found guilty once more would put him off the road for a number of months.

Enter Freeman. Freeman knew that it was illegal to drive on the hard shoulder of a motorway, unless there was a medical emergency that justified doing so. Now, having a dodgy tummy might not be top of the list of justifying medical emergencies, and we might not look favourably on Ferguson if he set off on his journey knowing that there was a risk that this emergency might arise. But Freeman’s genius, such as it is, lay in arguing that Ferguson’s impending diarrhoea was indeed a justifying medical emergency and that Ferguson was not to be blamed for its sudden onset when he was stuck in the traffic jam. Freeman presented his case with such vigour that he eventually succeeded in getting Ferguson off.

This is typical of Freeman’s modus operandi. He uses an encyclopaedic knowledge of road traffic offences and criminal procedure to find obscure, relatively untested, arguments that benefit his clients. In other words, he finds ‘loopholes’ in the law. Indeed, so successful is he in doing this that he has been christened ‘Mr Loophole’ by the British tabloid press, a moniker he eventually, and somewhat reluctantly, took on for himself. His 2012 book The Art of the Loophole is a guidebook for anyone who wants to follow in his footsteps.

I’m not overly interested in Freeman and his practice, but I am interested in the general phenomenon of legal loopholes and why they arise. Anyone who has studied the law will know that they are pervasive and that the working life of the lawyer is often taken up in trying to find loopholes that work in favour of their clients. But the concept of a loophole is not well-defined, nor the reason for their persistence well-understood. Furthermore, the ethics of exploiting loopholes is hotly contested among lawyers and academics. I doubt I can resolve all those issues in this blogpost, but what I can do is share a theory of loopholes that has been defended by Leo Katz. I find Katz’s theory very interesting. It’s quite complex, relying as it does on an analogy between legal loopholes and voting paradoxes, but once you understand how it works it is quite illuminating. I hope to show why in what follows.

1. What is a Legal Loophole?
A legal loophole is one of those “you know when you see it” phenomena. It’s difficult to offer a precise definition. If I were to try, I would say that a loophole is some vagueness or ambiguity in a rule, or conflict between two legal rules, that can be used to benefit someone in a seemingly perverse or counterintuitive way (in a way that violates the ‘spirit’ if not the ‘letter’ of the law). But this definition is problematic since it seems quite value-laden. It seems to presuppose that exploiting a loophole is unethical since it involves using the law to perverse ends. But oftentimes people who make use of loopholes don’t see it that way. They often think they are using the law to a legitimate end. Take the Alex Ferguson case as an example. You could argue — and I’m sure he and Nick Freeman would argue — that he was making a perfectly legitimate use of the medical exemption rule.

This value-ladenness is something that Katz tries to avoid in his theory of loopholes. As we will see below, he thinks that loopholes are inherent to the logical structure of legal doctrines. Specifically, he claims that they emerge from the fact that legal doctrines try to balance occasionally conflicting principles (e.g. people should obey the rules of the road; there should be some leeway for medical emergencies). He argues that they do not arise simply from a mismatch between the law’s purpose/rationale and its linguistic formulation. It’ll be easier to understand this if we have some working examples. Katz uses about half a dozen in his analysis. I will focus on just three:

Asset Protection: James is a well-to-do doctor who has made a number of misguided business investments. He fears that he will have to declare personal bankruptcy, which will mean that the majority of his personal assets can be seized and sold off by his creditors. However, there is a legal rule stating that certain types of asset are ‘exempt’ from personal bankruptcy rules and cannot be seized by creditors. These are assets that are deemed essential/necessary to life and include things like a family home, pension and insurance. James knows this so he uses his remaining wealth to purchase these exempt assets. This last-minute flurry of purchases triggers his bankruptcy, but he doesn’t mind as his assets are protected.

Contrived Self Defence: Samson’s wife and children were brutally assaulted in a home invasion by three armed robbers. Samson vows revenge. He tracks the three armed robbers and confronts them late at night in a park. They do not know who he is but he provokes them into attacking him with seemingly lethal force. Samson then fights back and ends up fatally wounding one of the attackers, while the other two flee. Samson’s lawyer successfully argues at trial that his client acted in self-defence. (Something akin to this happens in the Death Wish movies from the 1970s)

Political Asylum: Ivan has emigrated to the United States. He wants to be granted an immigrant visa as soon as possible. He could go through the ordinary channels but has been told that these are slow and he is unlikely to succeed. Someone tells him that the fastest route is to be granted political asylum, but this requires proof that one is a political refugee. Upon learning this, Ivan quickly uploads a series of videos to Youtube in which he is critical of the political leadership in his home country. The videos go viral. It is widely known that people who have made similar statements in the past have been executed or assassinated by the regime. Ivan uses this to fast track his immigration visa.

Each of these cases involves someone using legal rules to their advantage, but in a way that doesn’t quite sit right with us. They are classic examples of loophole exploitation. They are, of course, highly stylised and simplified. Lawyers will no doubt be quick to point out that legal systems have additional rules and qualifications that address these scenarios. This is indeed true. Courts and legislatures frequently try to prevent people abusing the law by adding new laws. For example, they might add an extra qualification to the rule about political asylum to state that the reason for seeking political asylum have to arise before you land in the country in which you are seeking aslyum, and/or that they have to come from a sincere political conviction. But qualifications like this are often themselves subject to further loophole exploitation, and it can be difficult to implement them successfully. So there is often a continuous arms race between the law-makers and the would-be exploiters. The deeper question is why does this keep happening?

2. The Voting Analogy
The answer, according to Katz, is that legal doctrines are subject to the same kinds of ‘paradoxes’ as voting systems. It’s long been known that voting systems are subject to all kinds of perverse and counterintuitive manipulations. A ‘voting system’ can be defined as any system that tries to aggregate individual preferences over options into a collective or group preference over the same option set. Suppose three friends have to choose between one of two activities to perform for the weekend: fishing or skydiving. They decide to vote. Each expresses their preference for fishing or skydiving and they go with whatever the majority preference happens to be. That’s a classic voting system in action.

But once you go beyond the confines a simple majority vote on two options, you run into lots of problems. How you structure the voting system — Is it broken down into ‘rounds’? Do people vote on one preference or do they rank their preferences? — can make a big difference to the group outcome, often in ways that seem counterintuitive or perverse. Consider the following example, taken directly from Katz’s book:

Law School: Not too long ago, a certain law school had a problem with professors not marking their exam scripts on time. This meant that students weren’t getting their results on time and it was feared that it would have a knock-on impact on their ability to graduate. A group within the law school decided to do something about it. They introduced a proposal for a €100-a-day fine to be imposed on any professor who failed to submit their marks on time. A vote was to be taken on the proposal at the next faculty meeting. From informal conversations, it seemed that least two-thirds of the faculty approved the fine, but there was one individual — the worst procrastinator in the group — who was resolutely opposed to it. Before the meeting, he talked to everybody and realised that there were three equally-sized coalitions/groups in the faculty:

Radicals: Wanted to impose a €1000-a-day fine, but would be satisfied with a €100-a-day fine.
Moderates: Wanted to impose a €100-a-day fine but would be opposed to anything higher (i.e. would prefer the status quo to what the Radicals wanted most)
Conservatives: Didn’t want to impose any fine, but felt that if a fine was to be imposed then the fine should be really high, i.e. at least €1000-a-day, in order to be maximally effective.

The opposer organised the preference rankings of the groups into the table below.

He then realised that there was a way in which he could block the introduction of the €100 fine. Using a procedural rule in the Law School’s by-laws, he proposed a vote first be taken on amending the proposal to raise the fine from €100 to €1000 and then that a vote be taken on whether or not to introduce the fine. The rest of the school agreed. On the first vote, the Radicals and Conservatives formed a two-thirds majority and approved the increased amount in the proposal. On the second vote, the Moderates and Conservatives forms a two-thirds majority and rejected the introduction of the fine. The opposer got his way.

This is an example of a very famous voting paradox, first identified by the Marquis de Condorcet in the 18th century. If we label the three options facing the law faculty, we can begin to see the paradox more clearly. Call the introduction of a €100 fine ‘option A’; call the introduction of a €1000 fine ‘option B’; and call the status quo (i.e. no fine) ‘option C’. An ordinary ‘rule’ or ‘axiom’ of individual decision-making is that our preferences should be transitive, i.e. they should form a logically consistent hierarchy. If we prefer A to C and B to A then we should also, by logical inference, prefer B to C. If we turned around and said that we preferred C to B, then there would be something odd or inconsistent about our preferences. They would be intransitive. And yet this is exactly what is happening in the case of the Law School. Each individual has a logically consistent preference hierarchy, but the group as a whole does not. The group preferences are intransitive. We can see from the breakdown of the faculty preferences in the table above that there are (different) majority coalitions that prefer both A to C, B to A and C to B. It is this group intransitivity that can be exploited by our wily resolute opposer. He can manipulate the voting procedure so as to introduce a seemingly irrelevant third option (the €1000 fine) into the agenda and thereby unseat the majority coalition that favoured introducing the €100 fine.

Of course, this paradox arises from the vagaries of the particular voting system adopted by the Law School. You might think that another voting system would not be vulnerable to this problem. This is true, but only up to a point. There is another famous theorem from voting theory — Arrow’s impossibility theorem — which shows that any democratic voting system we might hope to create will be vulnerable to one or more paradoxes of this sort. The only voting system that completely avoids paradoxes is a dictatorship (where the preferences of one individual dictate the group preference), which of course is not really a voting system, except in some strict logical sense. You might like to know more about Arrow’s theorem. If so, I’d recommend reading Amartya Sen’s recent explanation of it, or indeed Katz’s simplified presentation of it in his book. I won’t go into it here because it is too complex and, in any event, I don’t think it is strictly necessary. If you understand the paradox that arises in the Law School example then you have pretty much everything you need to understand Katz’s theory of loopholes.

3. How Voting Paradoxes Explain Legal Loopholes
Katz’s theory claims that legal loopholes arise for the same reason that voting paradoxes arise. To accept Katz’s theory you need to accept three propositions. I’ll go through each of them in some detail.

Proposition One: Multi-criterial decision-making systems are like voting systems.

This is the critical first step in the argument. It requires some unpacking. Recall the earlier definition of a voting system: it is something that aggregates the preference rankings of individuals into a group preference ranking. How is that like a multi-criterial decision-making system? Well, first, think in more detail about a multi-criterial decision. Suppose you have to decide whether to take up a new job or stick with your old job. How would you make that decision? If you are like me, then you would use multiple criteria to help you decide. You would focus on the salary offer, the likely working conditions, the commuting time, the work-life balance made possible by the job, and so on. Each of these criteria can be used to rank the options before you. The salary criterion might rank the new job above the old job; the work-life balance criterion might rank the old job above the new job; and so on. Once you have established the ranking orders for each criterion, you’ll have to aggregate them together into a single choice. This is directly analogous to what happens in a voting system. The criteria are like voters: they each have their own preference ranking. The decision is like the group preference: it is what emerges from the amalgamation and aggregation of the individual preference rankings.

Of course, the analogy isn’t perfect. We often assign different weights to different criteria whereas in democratic voting systems we usually stick to a one-person-one-vote principle (though weighting is common in voting systems more generally). Furthermore, as Katz notes, decision-making criteria aren’t strategic whereas voters (sometimes) are. In other words, criteria don’t change their preference ranking in order to manipulate the final decision. But voters often do this because they anticipate and pre-empt the voting behaviour of others. Nevertheless these disanalogies don’t upset the argument that much. Indeed, Arrow himself developed a multi-criterial decision-making version of his impossibility theorem around the same time that he came up with the voting version. So the connection between the two phenomena has long been recognised.

This brings us to the second proposition:

Proposition 2: Legal rules/doctrines are like multicriterial decision-making systems.

This means that individual legal rules or doctrines often try to aggregate multiple decision-making criteria. Specifically, they try to aggregate different ethical criteria or policy criteria. Consider some of the rules/doctrines from the examples given earlier in this post. The self-defence rule, for example, has a number of elements to it. It entitles you to use lethal force to repel a seemingly lethal attack, but there are usually limitations to its use. The force has to be proportionate/necessary. We don’t want people killing each other willy-nilly. If less force could be used to repel the attack, or if you could avoid the attack completely by retreating, we usually prefer it if you do so. At the same time, we recognise that people have a right to defend their own rights: to stand their ground and protect themselves if someone else is brutally attacking them. The self-defence rule has to balance these two ethical principles. It has to allow people the right to defend themselves (and therefore respect the ‘rights principle’) and it has to make sure people don’t abuse this right by applying excessive/disproportionate punishment (and therefore respect the ‘proportionality principle’). Something similar is true in the case of the Asset Protection example given above. The relevant legal doctrine has to balance the right for creditors to be repaid what they are owed against the right/desirability of not depriving people of assets that are essential to their well-being. These principles can, on occasion, rank different actions in different ways. The job of the legal rule/doctrine is to help us to aggregate the rankings together and come up with the correct legal decision.

We now have everything we need to complete Katz’s argument:

Proposition 3: Because legal rules/doctrines are like multicriterial decision-making systems, and because multicriterial decision-making systems are like voting systems, they are vulnerable to the same kinds of paradoxes or perverse manipulations. These are what we call ‘legal loopholes’.

How do we get from the first two propositions to this? The gist of the argument is simply that multi-criterial decision-making systems are vulnerable to the same kinds of manipulative acts as voting systems. Go back to the earlier example of the Law School Vote. We saw there how one resolute procrastinator was able to defy the majority preference for some kind of fine to be introduced by manipulating the agenda of the vote. He did this by introducing a seemingly irrelevant third alternative (the €1000 a day fine) into the voting system. We should, of course, be cautious about how we use the term ‘irrelevant’ in this context. The term is adopted from decision theory and does not necessarily track with ordinary usage. In one sense, the introduction of the €1000-a-day option is very relevant: some people prefer it to the €100 a day option. But in another sense it is irrelevant: if group preferences were transitive, you wouldn’t expect its introduction to alter the relative ranking of the €100 a day fine and the status quo. And yet it does. By manipulating the agenda of the vote, the resolute procrastinator can ensure that it makes an absolutely critical difference. It flips the relative ranking of those two options, allowing the status quo to win out. Katz argues that this really shows that seemingly ‘irrelevant’ alternatives are actually much more relevant than initially suspected.

The question is whether something similar can happen with legal doctrines. Katz argues that it does. Sometimes, if we can introduce a seemingly irrelevant alternative into the picture, they can alter the decision. The self defence doctrine is a good illustration of this. In some cases of self defence, you don’t have the opportunity to safely retreat from the lethal attack. In these cases, you basically have two options, either you stay and be killed by your attacker; or you stay and fight back, killing your attacker. According to the law, both options are equally acceptable (i.e. both are legally permissible) from your perspective (what the attacker is doing to you may be legally impermissible but that is a separate question). Another way of putting it is that in this case, the proportionality principle and the rights principle point to the same legal evaluation. In other self-defence cases, you may have, in addition to the option of staying and being killed and staying and killing, the option of reasonable retreat. In these cases, the legal evaluation of the options is very different. Suddenly, the once legally permissible option of staying and killing your attacker might seem legally impermissible. Why didn’t you retreat when you had the chance? Katz argues that what is happening in this case is that the principles underlying the self defence doctrine rank the options differently: the rights principle says that standing your ground is permissible; the proportionality principle does not. We need to break the deadlock between them — to aggregate the different rankings into a legal decision — and so we (or, rather, most jurisdictions) allow the proportionality principle to win the day when the option of reasonable retreat is on the table.

The claim is that this is directly analogous to what happens in a voting system. Someone who wants to use the law to suit their purposes can manipulate contexts so that certain options are on the table (or not) and thus take advantage of the different rankings assigned to those options by the different underlying doctrines. That is what Samson is doing in the contrived self-defence case: by confronting his attackers in a park late at night he is taking reasonable retreat off the table. That is what James is doing in the asset protection case: by purchasing the exempt assets he is taking the option of seizing his assets and selling them off less reasonable. And that is what Ivan is doing in the political asylum case: by making his videos and speaking out against the regime in his home country, he is taking the option of returning to his home country and living an unmolested life off the table.

Clever lawyers can help individuals manipulate the agenda of legal decision-making in similar ways by advising them on how to limit or open up new options, or by providing evidence to support claims to the effect that certain options were or were not available to them.What’s more, following Arrow’s insights into voting, it would seem to follow that loophole exploitation of this sort is inevitable if the law is trying to aggregate different ethical/policy criteria. You can never completely eliminate loopholes from the law; they are inherent to the logic of legal decision-making.

4. Conclusion
That brings us to the end of this post. To briefly recap, loopholes are common and persistent phenomena in the law. The job of the lawyer is often conceived in terms of exploiting loopholes on behalf of their clients. I’ve been outlining Leo Katz’s theory of legal loopholes. This theory argues that legal loopholes are directly analogous to voting paradoxes. Just as voting paradoxes arise when we try to aggregate individual preference rankings into a group preference ranking; so too do legal loopholes arise when we try to aggregate the rankings assigned by different underlying ethical or policy principles into a single legal evaluation.

I like Katz’s theory because it draws an interesting connection between two seemingly disparate areas of social life (voting and legal decision-making). Intertheoretic unification of this sort is usually thought to be a virtue. That said, I am also drawn to it because it is quite elaborate and theoretically sophisticated. But neither of these things are necessarily virtues. One could argue that Katz’s theory is too clever by half and that a much simpler explanation of loopholes is possible. Also, I certainly haven’t tested to see whether it explains every putative case of a legal loophole. Indeed, I would worry that in the end it may not explain loopholes so much as redefine them (maybe in part because loopholes are not particularly well-defined in the first place).

Alas, I’ll have to leave those issues unresolved. I offer Katz’s theory for your consideration and leave you to play around with the details. If you would like to learn more, I would recommend reading Katz’s full explanation of his theory. It fleshes out the analogy between legal decision-making and voting in far more detail than I provided here.

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