July 1, 2009

Around the web, July 1

• My other blog, Overlawyered, turns ten years old today -- so far as anyone knows, the oldest weblog on law [Overlawyered]
• Look before you leap, guys: report for British courts suggests weakening loser-pays rule for class/collective actions [Hartley]
• You've probably never heard of this obscure federal appointee, but if EFCA passes he could soon be deciding your firm's labor future [ShopFloor]
• Blawg Review #218 [Adrian Dayton's Marketing Strategy and the Law]
• Fluoride -- yes, the same stuff dentists recommend and that figured in the plot of Dr. Strangelove -- is latest high-profile chemical set for mandatory warnings under California's Prop 65 [Cal Biz Lit, Popehat]
  
• Back pay awards for illegal-alien workers, notwithstanding the Supreme Court's ruling in Hoffman Plastics? [Workplace Prof]

June 5, 2009

Around the web, June 5

• Return of the rickety "medical crises cause most consumer bankruptcies" meme [McArdle, more; earlier here, here, etc.]
• Texas: bill advances that would make it easier for injured contract workers to sue property owners [San Antonio Express-News]
• Minnesota county officials denounce "one-way loser-pays" insurance proposal in legislature [Minneapolis St. Paul Business Journal]
• Plenty on the docket for lead as legal issue [Law and More/Cordrey, Mealey's]
  
• Imagine a legislative "compromise" on union organizing that in practice resulted in unions winning most organizational elections. Actually, that describes the current system [ShopFloor]
• When it comes to dubious Alien Tort Statute cases, bogus banana-worker claims are just the start [IBD editorial, related]
  

June 3, 2009

Thoughts on litigation financing

I'd like to opine briefly on the notion of litigation financing, which our editor referenced this morning, eliciting a very thoughtful reply from Larry Ribstein.

Walter has generally been a critic of the erosion of traditional restrictions on maintenance and champerty, dating back to his wonderful discussion of contingency fees in The Litigation Explosion (the chapter is available here). Like Walter, Lester Brickman, and others, I'm generally troubled by the perverse effects contigency fees can generate (for more, see my discussion with Alex Tabarrok here), though I wouldn't go so far as to eliminate such arrangements entirely, even assuming such were politically feasible.

In his post, Larry notes that we should distinguish among types of litigation and that outside funding helps to "eliminate the potential conflict of interest between a corporate client with diversified investors and a risk-averse lawyer who may have an incentive to settle cases that could be productively litigated," excellent points that shouldn't be ignored. I also think Larry is largely correct in stating that legal-system problems would best be remedied "directly by rules constraining improper litigation practices [than] indirectly by constraining firms' ability to pursue the litigation."

The question remains, however, to what degree "outside litigation financing might increase the amount of socially inefficient litigation." As Walter perhaps would, I would tend to believe that the answer could be, "significantly."

In her December paper on loser pays, my colleague Marie Gryphon describes how our current system of litigation encourages what she calls "abusive litigation." She defines "abusive lawsuits" as those that have "have little legal merit, regardless of the magnitude of the recovery sought." Abusive suits in turn break down into "lottery suits" -- those that combine "low legal merit and very high stakes" -- and "nuisance suits" -- those that combine "modest stakes and little legal merit."

Lottery suits include class action and birth-defect litigation: the stakes are so high that such suits have a substantial settlement value, even if the probability of ultimate success is very low. By reducing barriers to entry, outside litigation financing would probably encourage more such suits.

What I'd worry about even more, though, are nuisance suits, which consist primarily of small-value "shakedown suits" and mass-tort "manufactured suits." As a theoretical matter, the existence of such suits at all is a bit of a puzzle, as Marie explains in her paper. The mass-tort context is perhaps easiest to see. If a lawyer has a portfolio of some cases -- say, asbestos claims -- that are valid, but others that are bunk, he can collect on the bunk cases precisely because it is too expensive for a corporate defendant to litigate each case through to final judgment, since his costs are never reimbursed under the American Rule. Outside financing improves the lot of legitimate plaintiffs in mass-tort situations precisely because it would get rid of risk aversion that leads plaintiffs' lawyers to settle such claims on the cheap; but for the same reason it improves the credible threat presented by manufactured claims and thus increases their settlement value. So the total cost of such litigation rises. How one might view this problem depends on how one views such litigation, but the evidence from asbestos, silicosis, and Fen-Phen suggests that the ratio of bad to good cases is actually quite high.

So where are we left? If we limited large-award contingency fees and adopted loser-pays principles, there's much to be said for outside litigation financing. Indeed, Marie's proposal itself calls for eliminating maintenance and champerty barriers to outside insurance, an important access need for a loser-pays reform. (In separate conversations, Tony Sebok has expressed to me a tentative embrace of loser pays combined with outside financing.) Absent such reforms, however, I share Walter's worry about the real-world consequences that outside litigation financing brings.

June 1, 2009

Around the web, June 1

• Uh-oh: British report proposes seriously curtailing centuries-old loser-pays protections for defendants [Times Online]
• Trial lawyers' drive to curtail predispute arbitration agreements endangers employers' interests [Jottings By an Employer's Lawyer]
• Louisiana gasket maker facing torrent of asbestos suits is latest in U.S. Chamber's featured "Faces of Lawsuit Abuse" [video, more]
• Malcolm Carlisle, "Collective Redress Without Collective Action Litigation: The Challenge for Europe" [WLF, PDF]
• "Parade of Amici in Santa Clara Lead Lawsuit" [Cordrey, Lexis/Nexis] Civil Justice Association of California amicus filing is kind enough to cite my writing, see p. 10 [brief, PDF, more]
• MBTA, the Boston-area transit agency, budgets $7 to $9 million a year for settling employee lawsuits [Globe]

April 8, 2009

Georgia Legislature Adopts Automatic Stay of Discovery Rule

The Georgia legislature recently adopted a bill (H.B. 29) that, in addition to allowing for electronic service of pleadings via email, imposes an automatic stay of discovery in civil suits where the defendant files a motion to dismiss at or before the time when an answer must be filed.

Governor Perdue has already commented favorably on the bill, so its passage seems likely.

The logic of the bill is that it allows the defendant to avoid (or at least delay) the expense of discovery until the court has the opportunity to rule on the preliminary motion. The rationale is that defendants who expect to be dismissed at the preliminary motion stage should be entitled to avoid the expense of discovery.

The reform would not, however, do anything to reduce the expense of litigation for those cases where the plaintiff's pleadings are logically valid but ultimately non-merit-worthy. A preliminary motion does not address the ultimate merits of the case, but merely asks whether the plaintiff's complaint "states a claim on which relief may be granted."

While nearly half of all complaints are dismissed through motions for summary judgment, very few are dismissed on a motion to dismiss of the kind contemplated in H.B. 29.

HB 29 was originally coupled with a loser-pays provision that would have imposed the defendant's attorneys' fees on the plaintiff if the preliminary motion to dismiss prevailed but that provision was booted (at least in part) because lawmakers could not adequately define the term "substantial merit" (the lack of which would have triggered the payment of attorneys fees). In addition, the provision could have complicated the use of Georgia's somewhat unique "offer of judgment" rule in O.C.G.A. 9-11-68.

Fellow Atlantan Ken Shigley predicts that H.B. 29 will prompt a "rash of frivolous motions to dismiss as a stalling tactic" but will eventually become "much ado about nothing."

He reasons that defendants who file frivolous motions to dismiss will be sanctioned for doing so and that this will eventually curtail the practice, an outcome that's hard to dispute, although I seem to have missed the plaintiff's bar using that argument in favor of H.B. 29 before it was passed.

March 18, 2009

www.dcexaminer.com >> Manhattan Moment

MI's own Marie Gryphon summarizes her superb paper on fee-shifting in this great DC Examiner op-ed. Well done!

March 13, 2009

Loser-pays proposals in Georgia

The Georgia Senate stripped those provisions from Gov. Sonny Perdue's reform bill and passed only a considerably reduced version (via Robinette/TortsProf).

February 21, 2009

"Radical" suggestions for med-mal reform

Loser-pays may be one of the milder ones offered by emergency room blogger White Coat.

February 5, 2009

Legal reform proposed in Georgia

Gov. Sonny Perdue's recommendations include, among other steps, assessing attorneys' fees against those who file lawsuits thrown out as without merit [Macon.com, WSB, Dan Pero at the Atlanta Journal-Constitution, Atlanta Business Chronicle].

February 2, 2009

Litigation procedure in Ontario

How the mechanics of a lawsuit -- and, notably, the shifting of costs at its conclusion -- work up there:

Ontario is a cost-shifting or "loser pays" jurisdiction. As a practical matter, this means that a prevailing party is generally entitled to recover a portion of its legal costs, including both fees and disbursements, from the unsuccessful party. The proportion of actual costs incurred that are recoverable depends on the circumstances of the particular case. Absent unusual circumstances, "partial indemnity" awards in the range of 25 to 50 percent of actual costs are not uncommon.