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Getting to Yes … or No: Dispute Resolution that Really Resolves Disputes

Litigation

By Merril HirshJuly-August 2015 | Print

Show of hands: How many people reading this are old enough to remember when civil litigation actually resolved disputes?

Okay, sure, there are pockets of that happening. In the part of the U.S. Justice Department where I started out, they still have cases that everyone knows will not settle. To settle those cases, someone would have to say: “Let's just agree that the statute is half unconstitutional.”

And, of course, cases do get resolved when someone wins on a motion to dismiss or summary judgment.

But when commercial cases involve factual disputes, the statistics are staggering.

The Administrative Office of the United States Courts reports that of the 255,071 civil cases federal district courts terminated in the 12-month period ending Sept. 30, 2013, only 3,129, or 1.2%, reached trial. (Available at http://ow.ly/NsH8t; see Table C-4.) Even among the 25,816 cases reaching pretrial, only 12.1% reached trial, and presumably some of those settled before a verdict. Id.

Whole legions of lawyers from well-respected firms have spent careers becoming experts on various fields of litigation without actually trying many—or any—cases in front of a judge or jury. And while the rule remains the same—prepare every case as if it is going to trial, because it might—the words “as if” say it all.

In fact, a good argument could be made that people should be preparing litigation not for trial at all but for settlement. It is a near certainty that, if a case survives motions, it will end with settlement. While having a case “trial-ready” is an important settlement factor, it is not necessarily the only, or even the most important, factor.

Enough, however, of railing against the civil litigation system. The point of this article is to rail against, or better put, to suggest a way to manage, its main alternative: arbitration. A 2014 article reported on the sad results of a 2011 Fortune 1000 ADR survey. Ryan Lamare, “The Evolution of ADR Systems at Large U.S. Corporations,” Dispute Resolution Magazine, V. 20 No. 3. (Spring 2014)(available at http://ow.ly/NsI93).

The survey updated an 18-year-old study. The bottom line: In 1997, Fortune 1000 companies, tired of litigation's expense and inefficiency, were overwhelmingly interested in using arbitration. In 2011, Fortune 1000 companies, tired of the expense and inefficiency of arbitration, were really more interested in mediation. [Alternatives' co-publisher, the CPR Institute, co-sponsored the study discussed in the Lamare article.]

Give us another 14 years, and in 2025, we can make mediation sufficiently expensive and inefficient that we will just have to stop having disputes entirely—a disastrous prospect for lawyers.

Not that agreement is necessarily a bad thing, mind you. It has a place, of course. But disagreement has a place, too. Our justice system requires that parties have access to decisions—not merely to adjudications so cumbersome and expensive that even our wealthiest companies, much less our citizens, are led, like the participants in Charles Dickens' Jarndyce and Jarndyce case, to “[s]uffer any wrong that can be done you rather than come here!” Charles Dickens, Bleak House, Chapter 1 (1852).

Even for a case destined to settle, effective disagreement is an important element of effective agreement. Fair settlements should be based on the merits of the dispute, and not just to the parties' willingness or resources to last longer in a war of attrition, or, even worse, ability to appear more obstinate at a negotiation or mediation.

The knowledge that in the real world cases rarely go to final decision undermines fair settlements by inviting parties to obtain resolutions through posturing (or bullying). Why worry about a realistic view of merits if no one will ever be declaring them?

So how do we get to an answer that reflects the merits? There are two steps: First, use case management to control the cost of a decision. Second, make that decision, or at least threaten to.

GETTING CONTROL OVER COSTS

The problem of resolution costs is not new, nor are the attempts at a solution. When I began practicing in the early 1980s, the big idea in dealing with litigation costs was supposed to be meeting and conferring. Advisory Committee Notes to the 1980 Amendments to Fed. R. Civ. P. 26.

That idea, reasonable enough on its face, was that if parties were genuinely required to talk through and seek to resolve disputes before they went to court, there would be fewer disputes. Then came the wave of numerical limitations—numbers of interrogatories, numbers of requests for admission, hours of deposition, etc.—coupled with signatures and sanctions for discovery abuse. See Advisory Committee Notes to the 1983 Amendments to Fed. R. Civ. P. 26. After that came requirements for initial disclosures. See Advisory Committee Notes to 1993 and 2000 Amendments to Fed. R. Civ. P. 26.

More recently, the change has been amendments to deal with electronic discovery. See Advisory Committee Notes to the 2006 Amendments to Fed. R. Civ. P. 26, 34.

Most recently, the Supreme Court adopted an even newer set of rules that, as the Advisory Committee on the Federal Rules of Civil Procedure explains, are also directed to holding down the cost of discovery. See Report of the Judicial Conference Committee on Rules of Practice and Procedure (September 2014)(available at http://ow.ly/NteKd)(referred to below as the Judicial Conference Report). These Rules were adopted by the U.S. Supreme Court and transmitted to Congress on April 29. (See http://ow.ly/NuQDG.)

Among other things, the newest rules amend Fed. R. Civ. P. 1 to specify that the rules “be construed, administered, and employed by the court and the parties to secure the just, speedy, and inexpensive determination of every action and proceeding”; delete the phrase “reasonably calculated to lead to the discovery of admissible evidence,” from Rule 26(b)(1), in favor of a statement that “Information within the scope of discovery need not be admissible in evidence to be discoverable”; and amend various of the discovery rules to include a concept of proportionality. Id.

All of these solutions have been thoughtful, well-meaning and (with the exception, as discussed below, of meeting and conferring) probably better than nothing. But all suffer from a common problem: Lawyers are remarkably lawless.

Ask lawyers whether it is proper to make a speaking objection at a deposition and everyone will say “no.” Attend a deposition, where there is no judge, and virtue may need to be its own reward. As author Mark Herrmann put it:

Deposition, defending: Seven hours locked in a room with a compulsive talker and a sociopath.

Deposition, taking: Seven hours of pretending to be a sociopath while locked in a room with an amnesiac and a compulsive obstructionist.

Mark Herrmann, The Curmudgeon's Guide to Practicing Law, 54 (2006).

The fact that the rules limit the experience to seven hours reflects well on the law's capacity for mercy, but it still does not make the experience optimal from the standpoint of efficiency or justice.

The problem with rules without tight case management is that they change the rules more than they change the incentive. If no one is going to, or can, call the judge, special master or arbitrator, lawyers have a significant incentive to overstep the line. If you knew for a fact that a judge would never intervene or would never impose sanctions, then there is an argument that “zealous advocacy” not only permits but requires the lawyer to take advantage of the situation.

I do not subscribe to this, and admire countervailing forces, like the Inns of Court. But the truth is that all the rules in the world will not stop abuse unless the rules are enforced.

And the Advisory Committee on Federal Rules relates that “almost half” of the respondents to a survey of Fellows from the American College of Trial Lawyers “believed that discovery is abused in almost every case, with the responses being the same for both plaintiffs and defense lawyers.” Judicial Conference Report, Rules Appendix at B-6 (emphasis added).

The reason the “meet and confer” requirement is worse than nothing is that, in a world where abuse is that common, the requirement creates a particular type of perverse incentive. In my experience with 30 years of meeting and conferring, I have found that lawyers who know that no issue can possibly go to court unless the opposition meets and confers first have a reason to treat their discovery demands and responses as opening salvos in a forced negotiation.

Call To Management

The problem: Court rules to streamline discovery and encourage resolution often don't accomplish those goals.

The other problem: Adjudicators who don't enforce.

The idea: A re-orientation is needed. Near-term decision-making in litigation and arbitration—for example, enforced discovery limits—act as a resolution incentive. In that context, mediation fits in nicely and works better.

Why make reasonable requests for discovery or reasonable responses if you cannot enforce them without a negotiation? If you want a reasonable outcome, start at an extreme, so you have room to negotiate. If the adjudicator—judge, jury, magistrate judge, or arbitrator—is never going to weigh in until after the negotiation, and probably will not want to hear the back and forth even then, it is very difficult for counsel to benefit from being reasonable at the outset.

Some years ago, I was involved in litigation that lasted about a decade and went through periods of discovery on different issues. Over time, both sides sent the other numerous sets of discovery. At one point, the opposition sent our side a set of 12,900 requests for admission.

During the entire course of the litigation, there was not a single request my side made for written discovery that received anything but objections in the first instance. No interrogatory answered. No request for admission answered. No request for production met with an offer to provide a single document.

Whenever we sought discovery, we knew the rule was going to be “no answers at all, unless we negotiate.”

Worse, the court had particularly strict rules on meeting and conferring, so the negotiations would stretch weeks and often months before we jointly “agreed” on a filing sufficient to demonstrate that we had met and conferred in a “genuine” effort to resolve the problem.

What the opposition did in the case was unfair and even unconscionable. But it was exactly what the rules, in operation, encouraged them to do. Perhaps they hoped we would not call them on every objection and they could avoid otherwise damaging discovery. And even if we did call them on every objection, they knew, as we did, that the court was unlikely to award sanctions and that the sanctions fight, itself, would be a distraction.

In cases where it can take weeks or months even to get the judge's attention, the problem compounds. Far worse than a dispute is a dispute that languishes. While substantive motions sit, both sides assume they will win. While discovery motions sit, both sides operate as if they have won. Issues beget issues.

CHANGE THE INCENTIVE

The antidote for the abuse that drives litigators nuts, and litigants from our legal system and even arbitrations, is not merely changing the rules, it is managing the case in a way that changes the incentive.

Judges, magistrate judges, special masters and arbitrators review what the parties are doing, and bless or condemn it. They reward litigants for making reasonable requests and objections, and not for staking out extreme positions for negotiation.

In the judicial system, there have been judges and magistrate judges who do this. The problem is that (1) they are relatively few, and (2) even good ones generally do not have the time or resources to manage complex civil litigation at this level of detail.

A criminal trial will always take precedence over a (rare) civil trial. The civil trial will always take precedence over the day-to-day management of cases during the years in which the case churns through discovery. And with a combination of judicial vacancies and budget cuts, even the finest judges need to do more with less.

Enter arbitrators and special masters.

Arbitrators and special masters should be perfectly positioned to provide the case management that the resource-strapped courts have difficulty providing because they can decide things.

As Prof. Lamare suggests, it is logical to assume that what has soured Fortune 1000 companies on arbitration is not the concern that arbitrators will enter decisions that are both contrary to law and effectively unreviewable. To the extent that is a concern, it has always been a concern. It is not news. As Lamare puts it, “Only fears regarding cost have grown considerably in the past 15 years.” See Lamare, Dispute Resolution Magazine, supra.

The problem of cost in arbitration lies not so much in arbitration replicating the breadth of discovery that has driven up the cost of civil litigation, but in arbitrations too often replicating the relatively hands-off case management that leads to the problem in litigation. If arbitrators, like judges, do not take control of complex cases, and manage them, they will be more expensive. Arbitrators and special masters who control cases save the parties far more money than they cost.

So, what does “case management” look like? John Wilkinson's Fall 2014 Dispute Resolution Magazine article identifies important practices for managing discovery in arbitration—including having a productive and careful first preliminary conference; remonstrating with counsel who have agreed to broader discovery than is efficient and productive in arbitration; developing a procedural order that is well-fashioned to the case; controlling e-discovery, and establishing an efficient system for resolving discovery disputes. John Wilkinson, “Arbitration Discovery: Getting It Right,” Dispute Resolution Magazine 4-7 (Fall 2014)(available at http://ow.ly/Ntd1I).

There's one more concept that should be added: If parties have an incentive to create expenses through the actions they take when the adjudicator is not looking, the adjudicator should be looking.

For example, an arbitrator—or, in a litigation setting, a special master—can instruct the parties to copy the adjudicator on written discovery, responses, and inter-party exchanges so that the parties have an incentive to be more reasonable in the first place.

If requests appear to be unreasonable, schedule a call to discuss the requests to determine with the parties what discovery they actually need. If answers appear to be evasive, schedule the call before the parties gear up for a fight. Attend, or at least be available for calls from, the depositions so that the parties have an incentive to avoid anything that would lead to a call.

Craft discovery rules to order based on complexity of the specific case, rather than trying to solve the problem merely with arbitrary rules about the number or length of depositions. Ensure the discovery fits.

Make sure there is a plan for electronic discovery that makes sense in light of the amount at stake in the dispute and the technology available. Consider having independent advice on e-discovery, or having an e-discovery expert meet with the parties to fashion fair, less expensive and efficient search strategies.

As the Advisory Committee notes in urging pending revisions to the Federal Rules of Civil Procedure, although amending the rules to contemplate cooperation “is a meaningful step,” a “rule amendment alone will not produce reasonable and cooperative behavior among litigants.” Judicial Conference Report, Rules Appendix Rules Appendix B-13.

Participants at the Duke Conference that led to the revisions “agreed that cases are resolved faster, fairer, and with less expense when judges manage them early and actively.” Id., at Appendix B-12. Put another way: what makes rules truly meaningful is creating an environment where cooperative behavior is more likely to be successful than uncooperative behavior. Managing the case aims to do that.

MAKING THE DECISION

The other significant contribution an arbitrator or special master can make to the decision-making process is to make a decision. Decisions and the threat of them are what limit disputes and create the incentive to be reasonable.

Decisions also are what parties deserve. It is all well and good to say, in principle, that negotiated resolutions are preferable to winners taking all. But in practice this is not always true.

Sometimes, parties really want an answer. Sometimes, parties cannot settle effectively because they need to be told by someone—anyone—what they need to do, and cannot take responsibility for compromising. Other times, their investment is not just in a dollar figure, but in a resolution that will help them to decide on conduct going forward.

Yet even if all people wanted was to get to a negotiated resolution, it is still essential to have a system that arrives at a decision. It is not accidental that cases settle on the courthouse steps, or with significant motions about to be decided. It is the threat of decision—not the theoretical possibility, but the real threat—that focuses the mind on resolutions that are possible and fair.

This makes the apparent distaste for arbitration over mediation among Fortune 1000 companies not just sad, but ironic. Business people, like litigants generally, yearn for answers at reasonable expense.

Mediation may help them find common ground, but it is less likely to be successful when it is not coupled with a realistic expectation of getting an answer in short order if it fails. In fact, arbitration generally does a good job of getting to decisions.

To illustrate the power of a threatened decision, contrast two approaches to dispute resolution. In one, the parties agree, in the event of a dispute, to meet, negotiate and mediate a possible solution.

In the other, the parties agree as follows: They will do presentations to a neutral for a day. At the end of the day, each side will put a number in a sealed envelope, as will the neutral. The next morning, they commence mediation with the agreement that, absent a new mutual agreement, they will open all three envelopes at 5:00 p.m., and the award will be the number that is closer to the neutral's.

Obviously, the sealed envelope procedure guarantees a resolution, whereas the first one does not. Therefore, it is more likely to be “successful” in that it resolves the dispute. It also is more likely to lead to a resolution that is, in fact, fair, and recognized by the parties as fair.

Clearly, this use of a neutral is just an example. But it illustrates a point: Arbitrators that create the incentives to solve problems efficiently are more likely to solve them efficiently. Sometimes the ability to get to “no” is the best way to get to “yes.”

Biography

  • The author, a partner in the Washington, D.C. office of Troutman Sanders LLP, is a litigator and a Fellow of the Chartered Institute of Arbitrators. The views in this article are his and do not purport to reflect those of Troutman Sanders or its clients. His Troutman Sanders bio page is available at http://ow.ly/NsDbL.

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