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Standardizing Efficiencies in Business Litigation

By Heath J. Szymczak – April 23, 2013

 

The past 20 years have transformed business litigation. We have witnessed a perfect storm of expanding legal issues, contracting budgets, and clogging dockets. The deluge of discovery issues involving digital devices and social media threatens to overwhelm the system. Attorneys and the courts have been asked to do more with less, and they have struggled to keep up. Reactive adjustments to these challenges have come in fits and starts, including rule changes, court experiments, and various pilot projects. The receding tide of resources over the past few years, however, has left various approaches stranded among the rocks, exposed. The shrinking tidal pool of the legal market is more competitive than ever. Litigators must adapt and evolve in this changing environment.


The good news is that litigators have an opportunity to distinguish themselves through practical and cost-saving litigation techniques. Efficient adjudication leads to better capital utilization, more reliable contracts, and greater public confidence in the legal system; it also leads to happier clients. Rethinking traditional litigation approaches is not only the right thing to do but also good for business. It is good for the economy, for clients, and the profession.


Efficiency Considerations—A Look Back
Historically, companies (particularly those from out of town) generally preferred litigation in federal courts over state courts, not because they were more specialized, but because they were perceived as safe harbors from local favoritism. Federal procedural rules were also viewed as superior to the rules of many states courts. In recent years, however, many have complained that the federal courts are becoming less and less attractive for the efficient litigation of business disputes. See Gregory P. Joseph, “Federal Litigation—Where Did It Go Off Track?,” Litigation, Vol. 4, No. 4 (Summer 2008). The federal system does not have a specialized division for business litigation.


The reluctance of the courts to adapt to business litigation caused many companies to avoid them altogether. They feared judges who were unfamiliar with business disputes, who would either not understand their issues or be bored by them. The business community had a concern that this could lead to inconsistent results, undermining its ability to make informed business decisions. Arbitration emerged as an alternative to generic, unspecialized courts. Companies were willing to give up the right to appeal in the hope that arbitrators with business expertise would get the issues right in the first place, take less time, and cost less money. Mandatory arbitration clauses sprang up with greater frequency in contracts. Companies used the written word to take control of their litigation destiny.


There is a growing perception, however, that many of the advantages of arbitration, particularly in terms of cost savings, have eroded. See Christopher R. Drahozal, “Business Courts and the Future of Arbitration,” 10 Cardozo J. Conflict Resol. 491 (2009). Arbitration often ends up costing just as much as, or more than, litigation. See Alan Dabdoub & Trey Cox, “Which Costs Less: Arbitration or Litigation?,” Inside Couns., Dec. 6, 2012. This is due in part to the up-front fees (which are a function of the amount in controversy) and the fact that dispositive motions are almost nonexistent. There is also a belief, justified or not, that arbitrators are more inclined to “split the baby,” rather than make a difficult decision. There are still many reasons to chose arbitration over litigation (for example, privacy, jury avoidance), but it appears that those reasons increasingly have less to do with saving money. See Steven Badger, “To Arbitrate or Litigate, That Is the Question,” Ind. Law., Jan. 2, 2013.


Business Courts—20 Years Later
State business courts arose in response to the concerns of the business community, and they borrowed much from the arbitration model. This year marks the twentieth anniversary of the creation of New York’s business court “experiment,” one of the first in the nation. On January 1, 1993, four justices of New York’s Supreme Court were assigned to hear commercial cases in New York County. In 1995, under the leadership of Chief Judge Judith S. Kaye, and with the guidance of Robert L. Haig and E. Leo Milonas (a former Appellate Division justice), the blueprint for a statewide system of business courts, called the “Commercial Division,” was rolled out. The judges had significant backgrounds in business litigation, focused exclusively on commercial disputes, and their courts were distinguished by early intervention, emphasis on mediation, and aggressive case management. Initial results were impressive. The time for resolution of commercial cases was cut down by about 30 percent, and the number of pretrial settlements rose by over 80 percent. See Robert L. Haig, “Can New York’s New Commercial Division Resolve Business Disputes as Well as Anyone?,” 13 Touro L. Rev. 191, 204 (1996–1997).


New York took a lesson from Adam Smith and his pin factory and applied it to business litigation: Division of labor and specialization work. This is a simple idea. Surprisingly, however, business courts are a relatively recent phenomenon and have been quite rare in the United States. The Delaware Court of Chancery has played a prominent role in the development of the nation’s corporate law since the 1930s, but it rarely heard commercial cases involving claims for money damages. Over the past 20 years, specialized business courts have been established in more than 19 states. In 2010, Delaware even created its own business court. Most recently, Michigan has created a business court that will open its doors in 2013. Many companies are finding litigation in state business courts at least equally attractive as arbitration or federal court litigation, if not more so.


Many of New York’s business courts (particularly in New York City) are busier than ever. This success is now ironically something of a problem. The gears of the business court machinery are beginning to strain under the weight of an increasing caseload and decreasing budgetary support. There are calls for more funds, more judges, special discovery masters (similar to magistrates in federal courts), more law clerks, and more technology. New York’s civil procedural rules also still lag behind federal practice, particularly with regard to e-discovery and expert discovery, which is holding back its business courts.


Last year, two reports were issued in New York in an effort to address these issues: one from the Faster-Cheaper-Smarter Working Group of the New York State Bar Association’s Commercial and Federal Litigation Section and one from New York’s Chief Judge Jonathan Lippman’s Task Force on Commercial Litigation in the 21st Century. These reports were put together by experienced members of the judiciary, as well as both in-house and outside counsel, and provide many valuable insights. Although they are cut largely from the cloth of the New York experience, their concepts certainly are applicable across jurisdictional boundaries.


Although the federal courts still do not have specialized courts for business disputes, they are experimenting with some interesting litigation models. One example is an optional “Fast Track” program with truncated discovery and tight time frames instituted by Judge Timothy D. DeGiusti in the United States District Court for the Western District of Oklahoma. It resembles a “rocket docket” with attributes very similar to arbitration. Unfortunately, it has not seen many takers. Another example is the “Pilot Project” of the Southern District of New York. The project is mandatory for selected “Complex Civil Cases.” It has a somewhat expedited pace, aggressive case management, and truncations to the discovery process (such as better handling of privilege log disputes and active engagement in e-discovery). The Pilot Project started in November of 2011 and will end in May of 2013. Many eyes are watching with anticipation to see what we can learn from this progressive program.


Is There a Better Mousetrap? Limits to What the Courts Can Do
It is tempting to think of the courts as laboratories—that if we just design them a little better and come up with better rules, efficiency will automatically follow. The reality is, however, that there are limits to how much progress can be made by simply adjusting the rules and the process. As noted, Oklahoma worked to develop a creative voluntary program but could not attract many participants. You can also try to order people to use a system, but if they do not like it, they will only seek to avoid the courts again. Parties and attorneys must be invested and must believe in the process. The truth is that there are only so many ways you can reconfigure the maze—eventually, the mice themselves have to run through it. We do not need a “better mousetrap”; we need better-behaving mice.


The phrase “Pyrrhic victory” is used to describe victory that ruins the victor. It refers to King Pyrrhus of Epirus, a Greek general and statesman, and second cousin to Alexander the Great. After “winning” a battle (and losing half his army), he was said to remark, “If I win another such battle, I will be returning to Greece alone.” Unfortunately, King Pyrrhus, Esq., is still among us. He is at Starbucks right now, sipping a high-test latte and getting ready to head over to court to argue a bevy of discovery motions. He believes in discovery and lots of it. Sadly, some litigators and companies are simply not interested in efficient litigation. Some pursue litigation as a business strategy: They purposely strive for delay and increased costs to gain a tactical or competitive advantage. No level of creativity will cure this. The use of traditional measures, such as monetary and procedural sanctions, is about all that can be done.


This type of behavior, however, is not all that is holding us back. The bigger problem is inertia. The majority of litigators are simply too comfortable defaulting to traditional lock-step approaches, are too busy to think about it, or are simply unaware of any alternatives. See William H. Webster & Kathleen A. Bryan, “Urgent Need for New Litigation Approach,” Nat’l L.J., Jan. 21, 2013; see also Robert L. Haig et al., “Making the Case for Change,” A.B.A. J., Apr. 2008. There have been systematic efforts to address this problem by some of the brightest legal minds in the country, including those involved with the Sedona Conference and the Duke Conference. Both of these efforts espouse an amazingly simple concept: Zealous advocacy does not presuppose a clenched fist.


The Pen Really Is Mightier Than the Sword
The only way to truly contain litigation costs and improve efficiency is to promote reasoned cooperation, particularly in the discovery process. More often than not, advancement of a client’s interests can best be achieved through cooperation rather than reflexive confrontation. See Olivier A. Taillieu & Mark Wolf, “Cutting Litigation Costs Without Compromise,” Litigation, Vol. 38, No. 1 (Fall 2011). Confrontation is the natural (even primal) response to competition (think “fight or flight” and “survival of the fittest”). Cooperation is counterintuitive. However, our duty as advocates is not just to win at all costs, but to maximize results; that is, to achieve results that make sense. Litigators who make litigation personal, or strive to develop their own reputations as “tough litigators,” are doing their clients a disservice.


Companies and their counsel cannot rely on the courts to solve all their problems. They must take control. In the past, when companies were unhappy with the court system, they did something about it: They picked up their pens. They drafted arbitration and forum selection clauses. The trend now is to try to get the best of both worlds by incorporating, through written agreements, more of the advantages of arbitration within the formal court process. Parties are doing this before litigation with “economical litigation agreements” and during litigation through “pretrial agreements.”


Formal procedural rules strive to balance broad competing interests, but they are not “one size fits all.” See Lorna G. Schofield, “Greater Efficiency in Civil Procedure,” Litigation, Vol. 36, No. 3 (Spring 2010). Every case has its own nuances and should be custom-fitted as much as possible. Attorney Stephen Susman, who is active in the ABA Section of Litigation, is a pioneer in this area. See Stephen D. Susman & Johnny W. Carter, “Better Litigating Through Pretrial Agreements,” Litigation, Vol. 38, No. 1 (Fall 2011). Parties are often free to craft their own litigation tracks by stipulation, and the courts are more than happy to allow them this flexibility. Mr. Susman was recently involved in the development of the Southern District of New York’s Pilot Project, described above, which incorporates many features of these agreements.


Reaching for the Brass Ring
Alfred Montapert once said, “Don’t confuse motion and progress. A rocking horse keeps moving but doesn’t make any progress.” The same holds true for litigation. Many litigators are not only on a rocking horse, but they are on a rocking horse attached to a carousel. They move a lot, but they are not making much progress. Old habits force them to go in circles, a vicious cycle that leads to costly and inefficient litigation. Many old carousels used to have a “brass ring” that riders would grab to win a prize. To grab it, you had to stretch and lean way out. It was meant to be uncomfortable. Efficient business litigation is our brass ring. Getting there may be a little uncomfortable, but our prize is a better operating legal system and happier clients.


Breaking this cycle will not be easy. Court-ordered programs are a good way to at least expose litigators to these concepts, but mutual agreement is always better than force; agreement creates a feeling of ownership, whereas force is often met with resistance. (Newton’s Third Law of Motion applies to human nature: “Every action is met with an equal and opposite reaction.”). Litigators need repeated exposure to these concepts to learn their value, they need training, and they need a pathway cut for them. The use of standardized form agreements, form protective orders, and form discovery requests might help. The training should start in law school and be continued in practice by bar associations.


The courts can help too. The best thing they can do is early intervention; hit the “emergency stop” on the carousel. Allow the parties to take a time out; measure what is at stake in the litigation against the costs that will be involved; encourage mediation; and educate the parties about the use of alternative, customized protocols. Sometimes all that is needed to resolve a case is to allow the parties to vent, to air out their frustrations, assumptions, and misconceptions. Other times all that is needed is limited discovery on narrow factual issues to “break the log jam.” If litigation is still required, the courts, along with mediators, can work with the parties to develop an agreed-to, customized discovery plan that makes sense for the case.


Keywords: litigation, business torts, arbitration, mediation, litigation agreements, discovery


Heath J. Szymczak is a partner and Litigation Department chair at Jaeckle, Fleischmann & Mugel, LLP in Buffalo, New York.


 
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