The Lawyers Who Ate California: Epilogue

Regulatory controversies help explain corporate flight in part, but why else is California struggling?

Tesla workers in Fremont, California

Washington [D.C.] is not a place to live in. The rents are high, the food is bad, the dust is disgusting, and the morals are deplorable. Go West, young man, go West and grow up with the country.

— New-York Daily Tribune, July 13, 1865

Horace Greeley’s famous injunction held up for a long time. Across parts of three centuries, people flocked to California by wagon, boat, train, car, even on foot, buzzing with dreams of living in a paradise of plenty, free of the “disgusting” dust and “high” rents of the industrial east.

Through the heydays of Hollywood, the Bay Area shipyards, and Silicon Valley, California symbolized freedom, innovation, and the second chance. Here the gangster on the run, the actress with a past, and the crackpot preacher, refugee family, and oft-fired inventor were all able to remake themselves, in this unique place where fame and respectability were somehow the same thing. If you could make it here, you could call yourself whatever you wanted. The Great Gatsby could never have been set in California, a state that agreed with Fitzgerald’s doomed hero, whose belief that “of course you can” repeat the past made him a tragic figure back East.

Thanks to its status at the forefront of everything in our culture, California began decades ago to develop problems other states hadn’t yet. Its entrepreneurial tradition began to cross-pollinate with its hyper-progressive politics, and along with building highways and skyscrapers it began to specialize in growing simple well-meaning laws into vast, ungovernable bureaucracies. As of last year the state boasted an astonishing 396,000 regulations, 100,000 more than its closest competitor, New York.

That number is one bigger thanks to Josiah Zayner, the controversial CEO of a small biotech firm called The Odin. Zayner was amazed to watch the state legislature take the time three years ago to pass a law prohibiting the sale of do-it-yourself genetic engineering kits, a rule that could only possibly apply to his firm.

“They specifically targeted my company,” says Zayner, who joined Oracle, Apple, and Tesla in moving to Austin, Texas. “I was also investigated by the California Medical Board, the California Department of Consumer Affairs, and audited by the California Employment Division. We’re glad to be out of there.”

Multiple other business figures cited CEQA, the California Environmental Quality Act, which accomplished good things at its inception in 1970 but has since seen exponential-to-cancerous growth, making home construction massively more expensive and pushing companies to relocate workforces to locales with more available housing.

Intended to modernize residential building, CEQA to some has instead become a backdoor subsidy to owners of the state’s stagnant pool of mid-century homes, mandating so many lengthy reviews and conditions that petitioners can NIMBY (Not In My Backyard) neighborhood projects to death and kill even environmentally friendly projects like bike paths and public transport. Even progressives have begun to feel empowered to openly hate on this statute. Democratic State Senator Scott Wiener called it the “the law that swallowed California.”

A common complaint is things in the state take forever. California announced a high-speed train in 1996 and the current plan is for service on the L.A-San Francisco line to begin in 2033. One executive I spoke with described the state’s development as “frozen in aspic.”

Stripe CEO Patrick Collison gave an interview to Noah Smith on Substack that compared the push-pull tension between the state’s penchant for innovation and its cumbersome if well-meaning morass of regulations as mimicking the dizzying dynamic of the Christopher Nolan movie Tenet:

California shifted mid century from being the US's fastest-growing state — 50% population growth between 1950 and 1960 — to a state that is somehow, improbably, shrinking… mostly because of the regulations the state’s inhabitants put in place that block the housing that's required to support California’s economic success. As a result, California has lost the “technology” of being able to affordably house its inhabitants. In these ways and many others, technology is both advancing rapidly and yet often receding in the state. (Tenet is a movie about time moving backwards and forwards simultaneously… as a result of its policies, California is the Tenet of states.)

The recent litigations involving companies like Riot Games, Activision, and Tesla similarly became so weighed down by accusations and counter-accusations, disputes and cross-disputes, involving so many different parties, that over time it’s become difficult to follow who’s fighting whom, and why, and in which direction cases are moving. It’s a wonder there isn’t a higher suicide rate among the state’s civil judges. Parts of the public record read like Wrestlemania for lawyers.

In one example, the Department of Fair Housing and Employment (DFEH) decided to bring in outside counsel in the cases involving both Riot Games and Activision, which didn’t go over well with its own lawyers. Tension over those decisions reached a point where the union for California’s public attorneys filed a complaint in April against the DFEH, arguing against the agency’s decision to bring the San Francisco-based Olivier Schreiber & Chao into the Riot Games case, and lawyers from the San Francisco office of Outten & Golden to pursue Activision.

Tesla, in its own motion filed in late May, made a note of the DFEH’s intramural battle:

Even the union representing DFEH’s staff attorneys has voiced objection to DFEH’s recent conduct — initiating proceedings for siphoning work away from DFEH attorneys (members of a union) and sending the work to private plaintiff law firms.

So many different entities are already part of the argument: Activision, Riot Games, Tesla, the DFEH, the Federal Equal Employment Opportunity Commission (EEOC), California’s Office of the Attorney General (OAG), and the state lawyers’ union, also known as California Attorneys, Administrative Law Judges, and Hearing Officers in State Employment, or CASE.

The ostensible reasons for the DFEH’s use of outside counsel in the Activision case are head-scratching. During its pursuit of the video game firm, the DFEH hired two attorneys who had worked on the EEOC’s own Activision case. Reportedly, the DFEH then assigned these lawyers to work on California’s Activision case, an arrangement the EEOC then claimed violated the Ethics in Government Act.

According to filings by CASE, the DFEH took all of one day to respond to the EEOC complaints with a decision to hire new lawyers:

On October 5, 2021, the day following the meeting with the EEOC, DFEH notified the OAG of the need to retain outside counsel. The notice stated, in part, “The DFEH needs to augment its in-house team with outside counsel with specialized knowledge and expertise in class action litigation, opposing reverse action settlement tactics, and state and federal procedure and anti-discrimination law.”

While not admitting it had birthed any conflict of interest by hiring EEOC attorneys who’d investigated Activision, the DFEH immediately decided that it needed to retain outside counsel in the Activision case as insurance, in case should it happen that somebody in the future would ultimately rule that such a conflict existed.

As CASE noted (emphasis mine): “DFEH contends the challenged legal services contracts are permissible and necessary to guard against adverse consequences in the underlying litigated matters due to potential conflicts of interest.” This argument, the CASE motion insists, makes no sense, since hiring the outside firm “does not cure the purported conflict of interest issue,” because the new firm, too, “admittedly works closely with DFEH’s assigned attorneys who are the subject of the EEOC’s ethical complaint.”

In other words, whether the DFEH used its own lawyers or outside counsel to pursue Activision, so long as the former EEOC lawyers are still in the picture, the same problem remains, at least in the eyes of the California public attorneys’ union. This issue continues to be a sticking point in the case and is one of countless issues that may have to be resolved before the Activision matter can reach a conclusion in any direction.

Why the state needed so badly to hire away and keep two former federal lawyers — who worked on a federal case it claims was a failure — that it’s now willing to hire a whole new crew of outside lawyers for the duration just in case the decision turns out to be judged unethical is a bizarre use of public resources, no matter how you slice it.

All this may not interest anyone who’s read and been angered by the allegations of misconduct at Activision, or is inclined to see it gouged for as much as possible. However, it’s already been shown that the DFEH, like the OFCCP before it, is radically rewriting the manual for corporate enforcement, in a way that will likely have ramifications extending far beyond these cases.

Having covered dozens of corporate settlements, I’ve seen how frequently it becomes a problem when regulators are too willing to jump into conciliation with firms accused of serious wrongdoing. Judge Jed Rakoff is right: regulators searching for appropriate penalties for companies that launder millions for drug cartels or sell worthless mortgage securities to pensioners should never be in a hurry to settle. However, the opposite scenario — in which the state avoids mediation at all costs and turns every dispute into Appomattox — doesn’t work, either.

After Tesla CEO Elon Musk announced his move out of state, the DFEH seethed in its complaint that his decision was nothing more than “another move to avoid accountability.” Even if you share the ordinary person’s distaste for corporations and rich executives, the angle from Sacramento in episodes like this is pretty hard to figure. One company leaving is one thing, but when it gets to be hundreds of companies packing up, with each taking thousands or tens of thousands of jobs, can they all be leaving to “avoid accountability”?

I first got interested in Activision last year, after a reader sent a fascinating article by a Swedish Marxist named Malcom Kyeyune, a.k.a. “Tinkzorg.” Kyeyune’s theory was that the high-profile harassment and discrimination case at Activision-Blizzard symbolized America’s decline into a “negative-sum” economy. To use a California literary reference, that meant no more living off the “fat of the land,” for with the well of plenty drying, even elites are now forced to feed off each other. In such a society, he wrote, “belligerence is not a choice,” and “you need to dispossess others” to get ahead, because “not doing so means losing your own way of life.”

Blizzard, he wrote, is superficially a story about harassment, but on another level a tale about this desperate fight over resources. “Though harassment is claimed to be a problem, the solution is not for men to stop harassing women, it is for Blizzard to do a whole other slew of things,” he wrote. “Firing the offending employees… is not a solution. In fact, the only ‘real’ way forward is for them to simply hire more people… most of which will have skillsets completely orthogonal to the development of video games.”

In an age when movie studios are less and less about making movies, and academic faculties stagnate while university rolls fatten with non-academic deans and sub-deans, does this sound familiar? Institutions everywhere are filling up with employees bearing skills “orthogonal” to the bureaucratic mission, part of what’s been packaged as progress but feels more like a vast jobs program for otherwise unemployable pseudo-intellectuals. “Hire us, pay us, give us and our clients sinecures at your expense,” Kyeyune writes, “or we will make life difficult for you.”

It’s conspicuous in the Activision-Blizzard complaint that at the very top, the DFEH says “the gaming industry continues to cater to men, even in California,” as if it were given that this is an issue that can or should be solved through regulatory attention. Then, after the oft-repeated headline claim that the firm maintains a “frat boy” culture, the DFEH says it has evidence that at Activision, “women who were not ‘huge gamers’ or ‘core gamers’… were excluded and treated as outsiders.’”

Is it the state’s job to make sure companies embrace and promote employees who aren’t interested in their core products? Applied enough times in enough directions, won’t that idea get weird really fast? The potential Tenet factor in that vision of regulation seems enormous, and not restricted to the hot-button gender-controversial world of gaming.

Hollywood became the center of a global cultural movement by producing films with box-office appeal but deeply questionable messaging. Detectives in noir movies smoked like they were impatient for cancer, proudly slapped gold-digging “dames” who were forever tempting virtuous men to murder, and made full-length movies that were Playboy centerfolds for the military hardware that by an extraordinary coincidence were also among the state’s most profitable exports.

The state even ended up being governed by an ex-actor who once starred in a movie, Predator, where all you needed to do to get a young Spanish-speaking girl in a jungle village to start blabbing intelligence in fluent English was to shout “No more games!” and shake her, super-hard. “It changes colors, like the chameleon,” came the sudden revelation of Arnold-shaken “Anna,” who added, “It uses the jungle...”

Predator made $100 million worldwide, big numbers for a 1987 movie, but was filled with scenes that could never be shot today. This is the paradox at the center of a lot of issues in today’s California. The state got filthy rich thanks to its pitch-perfect read of what markets all over the world wanted, but from the 1970s on, as even writers like Ezra Klein have hinted at, the state began to worry about how to balance the proceeds of its mastery of lowbrow markets with the desire of its most influential inhabitants to maintain reputations for the latest in progressive attitudes. Wiener for instance described to Klein residents who had a “‘Black Lives Matter’ sign in their window, but they’re opposing an affordable housing project… down the street.”

California is what happens when new money becomes old money. With no more endless frontier, the clean slate goes from a promised given to a thing offered to new settlers as a service, subject to regular review, by local boyars who’ve appointed themselves to set the price of indulgences. Greeley would have called those rents, and would never have found fame writing about this version of the American West. “Turn around, young man” just doesn’t have the same ring.