Mark A. Behrens and Virginia Knapp Dorell of the international law firm Shook, Hardy & Bacon, L.L.P., in an article originally published on Corporate LiveWire, outline proposed amendments to the Federal Rules of Civil Procedure released by the Advisory Committee on Civil Rules. These suggested fixes are aimed at curbing litigation costs, especially those related to discovery.
Recently in Procedure Category
Following on the heels of its passage of the FACT Act last week, the House took up the issue of lawsuit abuse more broadly:
On Thursday, November 14, the Lawsuit Abuse Reduction Act (LARA), H.R. 2655, was passed by the U.S. House of Representatives on a 228-195 vote. LARA is designed to curb the filing of frivolous lawsuits by restoring mandatory sanctions (e.g. payment of attorney fees) where a court determines a claim to be frivolous. It would amend Rule 11 of the Federal Rules of Civil Procedure to provide for mandatory sanctions and also eliminate the "safe harbor" provision which currently allows parties to withdraw a frivolous claim within 21 days without consequences.
From a procedural standpoint, this bill would streamline the Rule 11 process by delineating a bright-line rule for remedies if a claim is deemed frivolous. This would allow for increased judicial economy in the decision-making process, because judges would not have to spend additional time determining whether sanctions are appropriate for a given case. Instead, the focus would shift strictly towards determining the appropriate size and scope of the sanctions.
From a substantive standpoint, the Rule 11 reform would create greater certainty of consequences for the claimant. Because the claimant knows that an initial ruling that a claim is frivolous leads to mandated sanctions, the subjectivity of the judge's view on whether sanctions should be applied becomes irrelevant.
At the same time, because the judge retains subjectivity as to the breadth of the sanctions, the claimant does not have the variables necessary to measure whether it still might be worth it to bring a claim or group of claims. As a result, the claimant would naturally be reluctant to bring a substandard claim in the first place, especially because the removal of the safe harbor provision would make it even riskier to do so.
Today, the Supreme Court decided American Express v. Italian Colors (PDF) (holding, 5-3, that the fact that necessary expert-witness costs exceed the expected return on low-value individual claims, premised on federal law, does not, under the judicially created "effective vindication" doctrine, mean that arbitration clause class-action waivers are unenforceable). (The justices here lined up in the "usual" way -- with Justice Scalia writing for the majority and Justice Kagan for the dissent; Justice Sotomayor, who considered the case below on the Second Circuit, recused.)
See Ted's earlier posts on the case here (at cert stage) and here (after filings of merits briefs). We also hosted a featured discussion on the case between Ted and Cardozo law professor Myriam Gilles here. And see Ted's Manhattan Institute paper on arbitration-clause waivers of class-action remedies here, and reaction here (Greve) and here (Wood).
Because, as Ted has noted, "the litigation lobby has already beat the bushes to create unfair animus against arbitration clauses," it's important to emphasize what the decision says and what it doesn't. Justice Kagan's very well-written dissent to the contrary, the majority opinion does not suggest that companies can invoke any and every arbitration provision to preclude the vindication of federal rights.
Plaintiffs in asymmetrical litigation can often force settlement by threatening to impose large discovery expenses on the defendant. Even in a meritless case, if a judge is willing to approve a low-cost settlement that pays the class counsel, both sides can find it profitable to settle rather than litigate. (Moreover, in a meritorious case, conducting unreasonably broad discovery can be a means to boost lodestar to rationalize larger fees when a court is evaluating a settlement agreement: the discovery is reviewed by low-paid associate attorneys with a highly profitable lodestar billing rate, and the class counsel then uses that figure to rationalize a disproportionate fee at the tail end of the case.)
In Boeynaems v. LA Fitness International, LLC, 2012 WL 3536306 (E.D. Pa. Aug. 16, 2012), the defendant faced onerous supplemental discovery requests after already producing substantial information. As Sean Wajert reports:
Judge Michael Baylson ruled that when class action plaintiffs request "very extensive discovery, compliance with which will be very expensive," plaintiffs typically should share defendant's discovery costs - at least until plaintiffs' certification motion has been filed and decided. ... "If the plaintiffs have confidence in their contention that the Court should certify the class, then the plaintiffs should have no objection to making an investment."
Read the whole thing.
Marc Herrmann notes that judges have unrealistic expectations regarding e-discovery. Of course, they're encouraged to have such unrealistic expectations by plaintiffs' lawyers in asymmetric discovery cases. Acting as if a mere snap of the fingers can result in the full production of electronic documents means that judges can treat the normal frictions of failure as evidence of bad-faith that could lead to sanctions precluding a defendant from defending itself at trial. And if those consequences are a possibility, then that means that defendants can't risk spending less than top dollar on discovery, meaning that plaintiffs' lawyers have additional leverage to extract rents in nuisance settlements. Add the incentives of insurers indifferent between paying defense lawyers and paying plaintiffs' lawyers, and now any case that can get past the motion to dismiss stage is worth millions, no matter how meritless, and more if the court exercises its discretion to let discovery proceed while to motion to dismiss is pending. So it's of mild concern when a law professor argues (via Steinman) that whether to stay discovery while a motion to dismiss is pending should be adjudicated on a multi-factor-test case-by-case basis, pooh-poohing the costs of discovery, or the incentives of plaintiffs to increase the costs of discovery. Under such a regime, even bringing a case that can't survive a motion to dismiss would be profitable. Among the factors missing from Kevin Lynch's analysis: the incentive of judges to permit discovery to go forward and refuse to rule on a motion to dismiss, hoping that this creates an incentive to settle that gets cases off the docket.
We had noted a trend of courts being willing to use 28 U.S.C. §1920, which permits cost-shifting of the expenses of "making copies," to the much greater costs of e-discovery by broadly construing the meaning of "making copies." In the first appellate decision on the topic, Race Tires America v. Hoosier Racing Tire Corp., the Third Circuit has rejected that broad interpretation, and held that only $30,000 of a $365,000 e-discovery expense fell within the parameters of §1920. The opinion has interesting language on the expense of e-discovery in the first footnote. More at WSJ Law Blog.
Relatedly: Professor William Hubbard testifies about the costs of discovery, with particular attention paid to the long tail.
Also relatedly: Steve Susman argues for "mutual disarmament" in the discovery game. Of course, that sort of voluntary agreement is only possible in the scenario where anticipated discovery costs are not asymmetric.
Fed. R. Civ. Proc. 53 permits a judge to appoint a "special master" to resolve complicated pretrial matters that the judge does not have time to do; most state courts have similar procedures. Such special masters are typically experienced attorneys who charge the full billing rate of experienced attorneys; rather than being put out for competitive bid, judges often pick a friend for the lucrative assignment. The existence of a rule as a safety valve allows courts to handle heavier dockets, but that in itself has its own distorting effects. A judge has reduced incentive to narrow the scope of discovery; heck, the privilege log disputes alone can generate hundreds of thousands of dollars, and create unreasonable standards that add tremendous expense to litigation beyond what is paid to the special master.
A recent scandal in New York reported by the Daily News suggests other possible problems: in 1999, Manhattan Supreme Court Justice Sherry Klein Heitler appointed Laraine Pacheco special master in a series of asbestos cases, and in 2005, Pacheco was making $368,000 a year overseeing settlement discussions. Pacheco lost her lucrative position last week when it was learned that she had overbilled parties—including city and state taxpayers—$400,000. Pacheco had previously come under fire for wanting to hold these settlement discussions near her vacation home in Tucson, Arizona, inviting lawyers to do so as a junket (and suggesting they shop at her daughter's jewelry store).
This is an area that merits much more study by the legal reform community.
that Philadelphia courts host an especially large number of cases and have a larger docket than expected; Philadelphia plaintiffs are less likely to settle than plaintiffs in other state courts; and Philadelphia plaintiffs are disproportionately likely to prefer jury trials.
H.B. 1552, pending in the Pennsylvania legislature, would require suits to be filed in the county where the injury occurred. Plaintiffs' lawyers claim that the bill is unconstitutional because the legislature doesn't have authority to regulate civil procedure.
The Supreme Court's 2007 decision in Bell Atlantic Corp. v. Twombly has baffled and mystified both practitioners and scholars, casting aside the well-settled rule for evaluating motions to dismiss in favor of an amorphous "plausibility" standard. This Article argues that Twombly was not revolutionary but simply part of the Court's ever-expanding application of the familiar three-factor Mathews v. Eldridge test. Misused discovery can deprive litigants of property and liberty interests, and in some cases Mathews requires the safeguard of dismissing the complaint. This Article's insight explains Twombly's origins and structure, while also suggesting a source for lower courts to draw on in developing post-Twombly jurisprudence.
An interesting implication is that loosened pleading standards are not permissible without loser-pays.
Accidental Justice: The Dilemmas of Tort Law
Judging Science: Scientific Knowledge and the Federal Courts
Galileo's Revenge: Junk Science in the Courtroom
The Litigation Explosion: What Happened When America Unleashed the Lawsuit
The Path to the T.J. Hooper: Of Custom and Due Care
Courts of Convenience
The Selection of Disputes for Litigation