Thursday, March 25, 2010

Litigation - Has The Process Become The Purpose?

Richard Nagareda, law professor at Vanderbilt, is a really smart guy.  Bexis got to know him while Professor Nagareda was one of the Reporters for ALI’s Aggregate Litigation Principles Project and Bexis was a defense-oriented gadfly on the Members’ Consultative Group for that project.


Anyway, they kept in touch, and he’s given us a sneak peek at his latest paper entitled “1938 All Over Again? Pre-Trial as Trial in Complex Litigation.” It’s also supposed to be available here, and maybe it is, but we Luddites couldn’t get that site to work right, and had to beg him for a copy.

The primary thesis of the paper, in a nutshell is that, just as in 1938 when the original Federal Rules were adopted, we’re approaching a crisis point of sorts where issues of procedure are threatening to create an unacceptable level of distortion in the substance of litigation. That’s the first half of the title. The second half of the title reflects the paper’s secondary thesis – that the function of litigation as dispute resolution has evolved from resolution by trial to resolution by settlement . That’s what Professor Nagareda says on the very first page: “Settlement rather than trial has emerged as the dominant endgame of civil litigation, especially litigation complex in substance or procedural format.”  Paper at 1.

Now, being defense lawyers rather than academics, we’d quibble with that a bit.  We think there’s a third option – dismissal.  But in the context of mass torts, where the other side can send plaintiffs at you like regiments at the Somme, dismissals are now mostly part of pre-settlement maneuvering.  Only if we've got a really powerful defense, like preemption in In re Medtronic, Inc. Sprint Fidelis Leads Products Liability Litigation, 592 F. Supp.2d 1147 (D. Minn. 2009) (discussed here), or we can take advantage of a really dumb decision by the other side, see Maestas v. Sofamor Danek Group, Inc., 33 S.W.3d 805 (Tenn. 2000) (1500 cases dismissed where plaintiffs conceded a uniform discovery date outside the statute of limitations and then lost on tolling), do mass torts end in outright dismissal.

But then, you can say the same thing about trials. Maybe we’re forgetting something, but we can’t think of a trial outright ending a mass tort, one way or the other, since that big Bendectin mass causation trial well over twenty years ago.  See In re Bendectin Litigation, 857 F.2d 290 (6th Cir. 1988).
Professor Nagareda pursues the “disappearing trial” notion as key to the rise of procedure, rather than trial, as the driving force in modern litigation. He quotes stats, that we’re sure are accurate, that the rate of trials has dropped by 90% – from almost 19% of all cases back in 1938, to less than 2% today.  Paper at 1. That’s the truth, but we don’t think it’s the whole truth.  We suspect that there are every bit as many trials (that is, the numerator of the fraction) now as back then, rather it’s the total number of cases (the denominator) that has changed radically.  It's easy enough to find modern statistics, but it would take more time than it's worth to us to dig up decades old statistics to compare them to.

If there hasn't been a litigation explosion, then a lot of lawyers have spent a lot of money for nothing for a long time.  That's because a major sea change in litigation – something Professor Nagareda’s paper never mentions – is the extension of First Amendment protection to lawyer solicitation.  From auto accidents (in Philly, any non-at-fault driver in any accident reported to the police can expect at least two lawyer solicits) to prescription drug mass torts (just google the name of any drug that’s been mentioned in litigation) lawyer solicitation is now all around us.  That certainly wasn't the case in 1938.  So we think that the disappearance of trial is more of a relative than an absolute thing.

But that doesn’t make the phenomenon Professor Nagareda discusses any less real.

In response to this explosion of litigation, Professor Nagareda posits, the courts have successively elevated four procedural pinch points to try to winnow out the wheat from the chaff.  These are:  (1) summary judgment, (2) Daubert/expert admissibility, (3) class certification, and (4) Twombly/Iqbal/Rule 8/12 motions to dismiss. Paper at 13-20.  While we quibble with one chronological aspect of his analysis (as tort lawyers we push the date of the crackdown on class actions back to Amchem/Ortiz in the mid-90s, and the “rigorous analysis” language in GE v. Falcon, 457 U.S. 147, 161 (1982)), we think that the analysis as a whole is spot on.  In our “Taking Stock” post, the last three of those four items took the top three spots as the most favorable legal developments of our careers.  Summary judgment would have made that list as well, except we were mere babes in the woods then and there was no way we could claim any credit (or blame) for that.

Professor Nagareda also draws a distinction between pinch points that are “variance” related and those that are “cost imposition” related.  By “variance” he means sorting out cases that vary from their “expected value” chiefly by being really lousy cases.  “Cost imposition” is less jargony.  That means, duh!, a decision that does (or conversely, does not) impose litigation costs on a party (almost, but not always, our defendant clients).  With the litigation explosion bring hordes of nuisance cases into the system, the Nagareda paper recognizes (at some length, see pp. 4-6, 8) the effect of what it calls “p” – which stands for “probability of success.” Id. at 8.

The most important concept in the paper, as it serves as the jumping off point for just about everything that follows, is:

As p approaches zero, the settlement zone for a given lawsuit will tend to be defined primarily by the sum of the two sides’ litigation costs. Low-merit or unmeritorious litigation, in other words, has a settlement value that depends largely upon what one might call the overhead associated with the process of discerning that p is zero or nearly so.
Paper at 8. Basically, this is the academic way of defining what litigators call “nuisance value.”

In mass torts, nuisance value is the name of the game.  Between the enormous cost of discovery and the proliferation of bad cases brought about by the solicitation-driven litigation explosion, the “p” of a lot of cases is essentially the amount of discovery that courts permit plaintiffs to put defendants through.  That can be quite a lot in the modern mass tort model of litigation.  The idea is to file so many cases that the defendants, and more importantly the courts, are deterred from ever examining the merits of more than a small fraction.

And that brings us to Twombly/Iqbal – to which the Nagareda paper is ultimately directed. The first three of the pinch points: summary judgment, Daubert, and class certification, Professor Nagareda asserts, all dealt with variance, that is determining when cases are so weak that they should be dismissed on the merits before going further into litigation or to trial.  Paper at 20-24.  Twombly/Iqbal, on the other hand, “marks a shift in emphasis."  Id. at 24.  Rule 8/12 dismissal on the pleadings involves “cost imposition rather than variance.” Id.

There’s another place where we part company somewhat from Professor Nagareda – although we certainly understand why he thinks that way.  After all, as we pointed out recently, that’s how the Supreme Court in both Twombly and Iqbal framed its rationale.

But we think that the idea of a “plausible” complaint is also directed towards the a action's lack of intrinsic merit – and at the deepest level.  If a lawyer pleads a fact-free complaint full of legal conclusions that simply parrot the elements of a cause of action, that means one of two things:  (1) the lawyer’s simply lazy, in which case s/he should be forced to replead something that resembles a real cause of action, or (2) facts aren’t pleaded because the lawyer does not posses any facts that would establish a cause of action.

To us both alternatives, and especially the second, impact directly on the merits.  As we explained in detail in that earlier post, all of the elements of a pharmaceutical product liability cause of action are theoretically available to the plaintiff, either through medical records, drug warnings, or the opinions of expert witnesses available to hire.  If plaintiffs don’t plead them – or worse, can’t – they’re just hoping to use a fishing expedition to drive up the nuisance value of the case while hoping for something, anything that might make a case that they don’t have when they file it.

So we view Twombly/Iqbal as also being directed to the merits.

That being said, we certainly can’t, and don't, deny that tightening up Rule 8/12 is likewise directed at cost containment. In that sense it’s not that much different than class certification, though, since one of the basic rationales (again, as we mentioned in the earlier post) for doing with the earlier “when in doubt, certify” precedents, was the creation of intense pressure to settle regardless of the merits brought about by the sheer size of class actions.

But let’s return to the thesis of the paper:  how procedure is disrupting resolution of claims on the merits. Professor Nagareda posits that, in 1938, the motivation for the Federal Rules was that hypertechnical pleading was disrupting the ability of the litigation system to resolve cases at approximately their true value through trial.  Now, the need for change is that the extreme costs of discovery disrupt the ability of the litigation system to resolve cases at approximately their true value through settlement (or, we’d add, dismissal).  Paper at 25.

But, warns Professor Nagareda, the Supreme Court’s chosen method for addressing discovery costs is “indirect.”  Rather than regulating discovery directly (as one learns in driver's ed, the way to pass a truck is to pass the truck), the Supreme Court has required courts to identify those “implausibly” pleaded cases that shouldn’t be allowed discovery at all.  Paper at 25-26.  The Court even “derides the enterprise of direct judicial regulation of discovery abuse.”  Id. at 26.

Up to that point, we find ourselves nodding in agreement.  But then, we were hoping to find some acknowledgment that the Supreme Court had a point.  We believe there are quite valid reasons to be dismissive, even derisive, of the prospect for direct regulation of discovery abuse.  That's because for decades, the discovery rules have been amended and then amended again.  We’ve had pretrial conferences, self-executing discovery, and multitudes of local rules.  Nothing’s worked.  Discovery only gets more and more expensive – especially in complex cases.  And then electronic discovery happened.

Nuff said.

We, at least don’t blame the Court for trying something completely different.

But that doesn’t seem to bother Professor Nagareda.  He’s more interested in the “informational base” – specifically:

The problem is that, when judicial scrutiny of plausibility is to occur, the informational base on which the court may ascertain whether variance is normatively good or bad is itself quite thin, precisely because discovery has yet to take place.
Paper at 26-27.

We’ve thought about that, too.  We eventually came to the conclusion – typical defense lawyers that we are – that the point of the whole exercise is to decrease the amount of litigation.  Therefore, if a substantive cause of action depends upon hard-to-know, and thus hard-to-plead facts, that’s because the substantive law intended it that way.  The source of the law, be it courts or legislatures, wishes that such causes of action not be overused by litigants.

Professor Nagareda, by contrast, at times equates private litigation with “any other regulatory enterprise.” Paper at 28.

Therein, we think, lies part of the problem. Courts were not set up to be regulatory enterprises. They can serve that purpose, but compared to administrative bodies they’re expensive and cumbersome. The explosion in litigation (abetted, if not caused, by Conley anything-goes pleading) has been accompanied by a sense, held by lawyers, many judges, and law professors, too, that litigation is the best means to solve everybody’s problems.  We don’t happen to think that’s true.  Many of the hard-to-plead causes of action that have “information base” problems, we suspect, should best be left to true “regulatory enterprises” and not be addressed by civil litigation.

So, anyway, what do we do with this postulated reprise of 1938?  The first time around brought us the famously “transsubstantive” Federal Rules.  As we’ve suggested elsewhere, maybe with some causes of action that society chooses to favor – certainly not product liability litigation, we say – it’s time to retreat from transsubstantiveness (assuming that’s that word, since transubstantiation means something else).  One of the benefits we see is that Twombly/Iqbal places the burden of inertia, that is getting the legislature to act, as with the burden of proof, back on the plaintiff side where it belongs.

Professor Nagareda’s solution, however, remains mostly transsubtantive. Although hinting at possible specific fixes, Paper at 32 (discussing immunity), he would rather tinker with the rules some more.  One of his suggestions, we don’t really like:

the law might provide for the shifting of discovery costs post-pleading and pre-summary-judgment in the event that the court ultimately grants summary judgment for the responding party
Paper at 35.  That sounds good, but the problem, which we wished the Paper had discussed, is that courts don’t like to award sanctions – at least against poor little plaintiffs suing big bad corporations.  If a summary judgment motion came with a mandatory cost-shifting provision, then courts would be a lot less likely to grant summary judgment.  Generally, we like being out of litigation even more than we like taxing costs.  That’s why, everything else being equal, we’ll almost always trade possible costs for the plaintiff giving up an appeal.  Even when our clients are absolutely entitled to costs, as when we’ve won an appeal, courts all too often decide to cut the other side a break because our clients are big and the other side isn’t.

Besides, as Professor Nagareda recognizes, Paper at 35-36, we’d rather have Twombly/Iqbal and not have to worry about discovery at all.

Then there’s the other solution offered by the paper, the “informative ruling.” Paper at 38. That’s law-professor-speak for what we litigators usually call “without prejudice.”  Instead of the Rules’ current series of procedural steps that provide on/off switches for litigation, Professor Nagareda discusses a proposal that (both to him and to us) sounds a lot like alternative dispute resolution, only within the judicial context – the “preliminary judgment.”  Id. at 40-41.  What this would entail is before discovery, both sides giving the judge their best shot, and the judge responding by putting a number on the case.  That number would be used to encourage settlement.  Id. at 41 (“the anchor generated by the preliminary judgment would remain as a desirable source of influence on bargaining”).

It’s an interesting thought, but it still doesn’t solve the basic problem with non-binding arbitration, which is if the other side is bound and determined to use discovery costs to drive up the nuisance value of a bad case, that isn’t going to stop them.

But Professor Nagareda’s article has got us thinking.  Maybe there’s a way to combine the features of both of these ideas.  We haven’t thought this through entirely, but it would be possible to add attributes of the cost-shifting summary judgment motion discussed on pp. 35-37 of the Nagareda paper with the “preliminary judgment” idea presented on pp. 40-42?  That is, one goes through the preliminary judgment procedure of both sides presenting what they know about the case pre-discovery and the judge putting a dollar value on it. However, the judge doesn’t disclose what this number is at that time.  Then both sides are required simultaneously to submit their own numbers for their best estimate of what the case is worth.

That’s the preliminary judgment part of it.

What we see happening next is a form of cost shifting.  All three numbers are revealed, and the position of the judge’s number within the range provided by the party’s respective numbers determines who pays what for discovery.  To take an entirely hypothetical – but not unusual – situation, suppose that at the early stage, the plaintiffs unrealistically sought $500,000 and the defendant obdurately offered nothing at all.  That’s the range.  If the judge’s number were $100,000, that would be 20% of the plaintiff’s demand.  Such an outcome would then require that the plaintiff pays 80% of the defendant’s discovery costs, and the defendant pays 20% of the plaintiff’s costs. If the judge estimated that the case was worth $400,000, then the percentages would be flipped.

It’s a half-baked idea, we admit it.  We haven’t considered what to do, for example, if both parties’ numbers were more or less than the judge’s.  But as far as we know it’s an original idea, and it has some valuable attributes.  On the one hand, it doesn’t make cost-shifting dependent on an existing motion and thereby reduce the likelihood of that motion itself being granted.  On the other hand, it puts some teeth in a preliminary judgment process, which if lacking any mandatory force, and could well end up as mere busy work.

So we throw that idea out there for the academic types to tear apart.

Thanks, Professor Nagareda, for your provocative article.

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