53 RI Bar J., No. 1, Pg. 9 (July, 2004). Legal Realism, Legal Formalism and the D'Oench Duhme Doctrine: A Perspective on R.I. Depositors Econ. Prot. Corp. v. NFD.

• Author: Jerry Elmer, ESQ.

Rhode Island Bar Journal

Volume 53.

53 RI Bar J., No. 1, Pg. 9 (July, 2004).

Legal Realism, Legal Formalism and the D'Oench Duhme Doctrine: A Perspective on R.I. Depositors Econ. Prot. Corp. v. NFD

Legal Realism, Legal Formalism and the D'Oench Duhme Doctrine: A Perspective on R.I. Depositors Econ. Prot. Corp. v. NFDJerry Elmer, ESQ.Jerry Elmer is a partner in Goldenberg & Muri LLP.Perhaps the signal insight and achievement of the Legal Realist Movement in the first part of the twentieth century was to show that the conceit of the Legal Formalists in the nineteenth century that the law is "neutral, natural, and apolitical," (fn1) was just plain wrong. I can think of no case that demonstrates this Realist insight better than D'Oench Duhme v. Fed. Deposit Ins. Corp., (fn2) the case that gave rise to the eponymous D'Oench Duhme (pronounced dench doom) doctrine, a doctrine expressly imported into the common law of Rhode Island in 1997 in R.I. Depositors Econ. Prot. Corp. v. NFD. (fn3)

I represented the Plaintiff DEPCO in NFD, and I wrote the brief that extended to the Supreme Court the invitation to import the D'Oench Duhme doctrine into Rhode Island common law. The Court accepted the invitation. Whether the Court's decision was wise or unwise can be debated, but it is beyond cavil that the D'Oench Duhme doctrine represents a high-water mark of the triumph of Legal Realist reasoning in the twentieth century.

Formalism and RealismThe judges of the eighteenth century honestly believed that the law is neutral, natural, and apolitical.

By "natural," judges meant that the common law was truly to be found by common-law judges, not made by them. That is, the common law, as found by judges, is merely a reflection of common usage or normal commercial practice as it has developed over centuries and as it is found by the judges to be. Thus, in 1854 in the famous case Hadley v. Baxendale, (fn4) Baron Alderson lay down what law students today learn as the Rule of Hadley v. Baxendale regarding consequential damages not by citing court precedents but by examining what was common practice and usage among merchants. Similarly, in 1818 in Shepherd v. Hampton, (fn5) Chief Justice Marshall, writing for a unanimous Supreme Court, announced the commonly understood measure of contract damages being the price of the article at the time and place specified in the contract for delivery. Not a case is cited as precedent. This is the rule because that is the custom among merchants as it is found by the Court. In 1881 in Ghen v. Rich, (fn6) the Court was called upon to determine the damages due to the rightful owner of a dead, harpooned fin-back whale which had washed up on Cape Cod. The whale had been harpooned by one person, but the blubber had been tried (taken and boiled down) by someone else. The Court decided the case based upon the common practice and usage among whalers on Cape Cod; precedents are cited, but only as a reflection of what the common usage is. When eighteenth century lawyers said that common law judges find the law, this is just what they meant. The common law is "natural" in the sense that it merely reflects commercial practice and common usage as it developed naturally over centuries among businessmen.

By "apolitical," nineteenth century judges sought to contrast the superior, virtuous common law, which grew up over centuries as a result of "natural" usage with the inferior statutory law which was subject to the vagaries of political factions and possible influence-peddling by politicians. As Professor Horwitz writes:

The desire to separate law and politics has always been a central aspiration of the American legal profession. From the time of its earliest incarnation in postrevolutionary constitutional theory, politics in American thought has usually represented power and will, the clash of interests, and the subjectivity of values. Law, by contrast, has been the only plausible claimant to the role of objectivity and political neutrality. (fn7)

In this context, the current debate over controversial aspects of judge-made law would have been incomprehensible to legal scholars in the early nineteenth century. In a famous law review article, Judge Robert Bork railed against the "anomaly of judicial supremacy." (fn8) Said Bork: "If the judiciary really is supreme, able to rule when and as it sees fit, the society is not democratic." (fn9) Today, "it is typically recognized that statutes more directly reflect the opinions of society than does judge-made law, and are consequently entitled to a greater presumption of legitimacy than common-law rules." (fn10) But during the debate that surrounded the codification movement of the 1820's and 1830's, precisely the opposite view was held by conservatives. The common law, which had always existed and which was merely found by judges was widely seen as the true, legitimate law, in contrast to legislatively made law which was both often invented out of whole cloth and subject to base political pressures.

By "neutral," the eighteenth century judges meant something very close to "apolitical" as we have just discussed. Part of what strikes a modern reader in Chief Justice Taney's opinion in Dred Scott v. Sanford, (fn11) holding that Negroes, free or slave, were not citizens, is Taney's almost complete unwillingness to take responsibility for the decision he is writing. "Hey, don't look at me," Taney seems to be saying. "I am not making this stuff up. I am just finding the law as it is." The conceit was that a landmark ruling upholding the institution of slavery is not political at all; it is just a reflection of the true law as the judge finds it.

The insight of the Legal Realists is that the notion that the common law pronouncements of judges is neutral, natural and apolitical is nonsense. The Legal Realists said that the Dred Scott decision, for example, was not neutral and apolitical, but highly political in both its assumptions and its result. The Legal Realists argued that it was not an accident or a coincidence that during the mid-eighteenth century the background common law rule of torts underwent a metamorphosis from strict liability to negligence. These were the decades when the railroads were expanding westward and sparks from locomotives were setting an increasing number of fires in the hay ricks of farmers whose fields lay adjacent to the newly laid tracks. The metamorphosis in tort law at that time was a form of economic subsidy given the nascent railroad industry (and its capitalist owners).

The Legal Realists of the 1920's and 1930's were influenced by social scientists and by the insights of the new field of psychoanalysis. Freud's greatest contribution to twentieth-century thought may have been the idea that people's actions do not occur by accident or mistake, that there is no such thing as coincidence. There are reasons for people's actions, Freud taught, even if the reasons are subconscious - that is, not overtly available to the actor him- or herself. The Legal Realists took this insight into the world of law and argued that the rulings of common law judges did not just happen, but that there were important reasons for judges to rule as they did. Rulings often served a judge's perceived economic or class interests, and this could be true even in circumstances where the judge himself (fn12) may not be consciously aware of the fact.

The Lochner era was in full bloom as the Legal Realist movement was starting. During the Lochner era, a deeply conservative Supreme Court struck down literally hundreds of progressive state laws involving minimum wages, maximum work weeks, worker safety, child labor, and so forth. (fn13) The case for which the era was named was Lochner v. New York, (fn14) which struck down a New York law setting a maximum of 60-hour work week and 10-hour work day in New York bakeries. Another famous case of the era was Coppage v. Kansas, (fn15) one of two cases (fn16) that struck down so-called "yellow-dog contracts" - laws that made it illegal for employers to require that employees not join a union. In Coppage, Justice Pitney explained that different parties who are differently situated economically just naturally have unequal bargaining power, but this is perfectly fine because, in the Legal Formalist tradition, this is the natural way things exist:

No doubt, wherever the right of private property exists, there must and will be inequalities of fortune; and thus it naturally happens that parties negotiating about a contract are not equally unhampered by circumstances. This applies to all contracts, and not merely to that between employer and employee. Indeed a little reflection will show that wherever the right of private property and the right of free contract co-exist, each party when contracting is inevitably more or less influenced by the question whether he has much property, or little, or none.(fn17)The response of the Legal Realists was that it was not neutral, natural and apolitical for the Supreme Court to strike down hundreds of laws dealing with working conditions and safety; this was a highly political exercise in reactionary politics. Nor was it an accident or a coincidence that the nine geriatric white males on the Supreme Court all came from upper-class backgrounds, and not from among the ranks of the working poor. These decisions, instead, were made for certain reasons, even if perhaps the judges themselves were incapable of apprehending aspects of the economic...