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Was Iqbal a Big Win for Business?

Today's WSJ has an interesting story about the potential impact of the Supreme Court's decision in Ashcroft v. Iqbal, a 5-4 decision rejecting Javaid Iqbal's effort to sue various high-level government officials for his alleged mistreatment and detention after September 11.

Ashcroft v. Iqbal, released in May, will make it harder to bring a lawsuit without specific factual evidence, raising the threshold for moving a case into expensive litigation and possibly saving companies millions of dollars in legal fees. The case was overshadowed by other business rulings on consumer lawsuits, environmental and employment law and other matters in a term set to end Monday, but legal experts said it may be the most important. . . .

In the case, a Pakistani named Javaid Iqbal sued government officials over his detainment after Sept. 11, 2001. The Supreme Court ruled that Mr. Iqbal didn't have sufficient factual evidence to proceed with his discrimination claims.

"While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations," Justice Anthony Kennedy wrote in the 5-4 opinion. He cited the 2007 decision in Bell Atlantic Corp. v. Twombly, an antitrust case that outlined what plaintiffs must assert to make it through initial court proceedings.

As a result of the Iqbal ruling, businesses may find it easier to fend off lawsuits by persuading courts to dismiss complaints early in litigation. . . .

The decision translates most easily to business cases that list not only a single company, but also its parent company and affiliates, Ms. Willis said. The court didn't allow Mr. Iqbal to assert that government officials had "supervisory liability" for the orders that resulted in his arrest.

More broadly, the opinion clarifies that the Twombly ruling applies beyond antitrust cases. It also makes it harder to press a lawsuit without making more substantive, factual allegations.

martinned (mail) (www):
That point was already made on Prawfs shortly after Iqbal was issued. (The big Prawfs posts in Iqbal are this one and this one, both of May 18th, but the one I linked to is most directly on point.)

Strict pleading rules favour the defendant, and in this day and age (big) business are much more likely to be the defendant than the plaintiff.
6.27.2009 11:06am
ruuffles (mail) (www):

possibly saving companies millions of dollars in legal fees

Ugh, this should be in the editorials as it plainly igonores the fact that many plaintiffs would be shut out of the courts.
6.27.2009 12:05pm
martinned (mail) (www):

many plaintiffs would be shut out of the courts.

I think the argument is that that is a feature, not a bug.
6.27.2009 12:11pm
mga (mail):
I entirely agree with Professor Adler that Iqbal is, as a practical matter, the most important decision of the Term. The animating force behind both Iqbal and Twombly is the asymmetric cost of discovery in cases in which an individual plaintiff sues a corporation, especially in a class action. Under modern discovery rules, the plaintiff can force the corporation to review and produce every document and every e-mail that is remotely related to the claim, at a cost of millions of dollars. The plaintiff has next to no documents or e-mails relevant to the case, so his/her cost of responding to discovery is minimal. Plaintiffs' lawyers can and do exploit that asymmetry to extract settlements of even the most meritless claims. Twombly and Iqbal hold that, before that process starts, the plaintiff has to have some evidence of wrongdoing, not just the hope that he find some in discovery.
6.27.2009 12:30pm
rosetta's stones:
We could make them provide evidence up front, or just make it "loser pays", and call it good. Personally, I'd go for both.

Nobody's shut out of the courts, ruuffles. You can take all the cases you want. Provide the required evidence, and a bond for the opposition's legal fees, and you and your clients are in. Shouldn't be too hard, if all your cases are solid, as I'm sure they are.
6.27.2009 12:40pm
martinned (mail) (www):

We could make them provide evidence up front

Does that mean letting the plaintiff do some limited discovery before the Rule 12(b)(6) motion?
6.27.2009 1:01pm
rosetta's stones:
martinned, I don't know a Rule 12b6 motion from breakfast, so I can't answer your question specifically.

Generically, however, it should take more than merely filing a lawsuit to initiate a process which causes others to spend money. That "more" is what you're referencing, I assume.
6.27.2009 1:30pm
David M. Nieporent (www):
Strict pleading rules favour the defendant, and in this day and age (big) business are much more likely to be the defendant than the plaintiff.
Someone hasn't been reading their ATLA talking points. They routinely point out that businesses file more suits than individuals do.
6.27.2009 1:44pm
martinned (mail) (www):
@Rosetta's Stones: Sorry, a 12(b)(6) motion is a motion asking the court to throw out the case because the pleadings don't allege enough fact, or in legal lingo: to throw it out for failure to state a claim upon which relief can be granted. Here is the text of rule 12. The effect of Iqbal and Twombly is to make it easier to grant such a motion.

While I am sympathetic to the concerns of the surpeme court here, I'd argue that the proper way to change the pleading rules is by changing the Federal Rules of Civil Procedure. That does not involve Congress at all, but rather is done by the Supreme Court after consultation within the judicial branch. Also, it is important to make sure it does not become de facto impossible to bring certain cases. The Court shouldn't use pleading rules to abolish laws it doesn't like.

Instead, rather than increase the demands for pleading, maybe it would be better to give the judge more tools to manage the discovery process. Instead of having the plaintiff simply ask for everything, maybe they should be allowed to ask for only a little at first, depending on the level of detail in their pleadings. After that first step, they court could then allow further discovery or not, depending on whether it looks like the case is going anywhere.
6.27.2009 1:50pm
martinned (mail) (www):

Someone hasn't been reading their ATLA talking points. They routinely point out that businesses file more suits than individuals do.

I'm sure they do, but those aren't generally the kinds of cases where pleading standards are likely to be a problem. Pleading is particularly important in cases where the evidence lies overwhelmingly with the defendant, such as civil antitrust cases or product liability cases. Those tend to have (big) business mostly as the defendant.
6.27.2009 1:53pm
Soronel Haetir (mail):
martinned,

I don't think making judges manage discovery is a strategy that is going anywhere. That would mean even more work on the docket.

I have huge problems with discovery anyway for self-incrimination reasons even though that has been held not to apply in civil contexts. The plaintiff should have to prove their case without resorting to material provided by the defendant. For the sorts of cases that should be addressed through civil remedies rather than criminal that standard should be fine.
6.27.2009 1:57pm
rosetta's stones:

Also, it is important to make sure it does not become de facto impossible to bring certain cases.


I'm sensitive to that, but an allegation that on its face is unsupported by evidence should be suspect. Incremental discovery, formally requested and precisely targeted? An interesting idea, and worth exploring.

I'd remind you that we're back to our previous argument... about technically illiterate judges... who wouldn't know what to incrementally discover in many cases... and are prone to default to releasing it all, I suspect. Another bogus enabler to our litigative society, which might be alleviated by a more diversely skilled pool of judges.
6.27.2009 2:03pm
Connecticut Lawyer (mail):
As a lawyer with 28 years of experience, the last 15 in-house, I would vote to eliminate discovery altogether and return to the so-called bad old days of suprise, ambush and skillful lawyering.

Allowing parties to prove their cases out of the records of the opposing party, at great expense to the opposing party, has not accomplished any great social goal so far as I can tell apart from making the plaintiffs' bar rich beyond belief. Broad discovery rules haven't made litigation cheaper, more predictable or more efficient, which were their original goals. On the contrary, the costs of litigation and the time required to resolve cases have soared and the outcome of cases is just as hard to predict.

The current Supreme Court is one of the very few judicial bodies to show even the slightest concern for the expense of discovery. Most judges think e-discovery is cheap: push a button and there are all your documents, no fuss, no muss, no cost. The plaintiffs' bar, and, apparently, the Supreme Court, knows better.
6.27.2009 2:10pm
troll_dc2 (mail):

I have huge problems with discovery anyway for self-incrimination reasons even though that has been held not to apply in civil contexts. The plaintiff should have to prove their case without resorting to material provided by the defendant. For the sorts of cases that should be addressed through civil remedies rather than criminal that standard should be fine.



If your approach were adopted, few plaintiffs indeed could win a Title VII or ADEA case.
6.27.2009 2:40pm
Mahan Atma (mail):
Iqbal is a clear example of a case where conservative judges are quite willing to ignore the plain language of a rule when it's a rule they don't like.
6.27.2009 3:54pm
Libertarian1 (mail):
Connecticut lawyer: I have huge problems with discovery anyway for self-incrimination reasons even though that has been held not to apply in civil contexts. The plaintiff should have to prove their case without resorting to material provided by the defendant. For the sorts of cases that should be addressed through civil remedies rather than criminal that standard should be fine.



Troll-_DC2: If your approach were adopted, few plaintiffs indeed could win a Title VII or ADEA case.



You make a very convincing argument in favor of Connecticut Lawyer's main point.
6.27.2009 3:59pm
martinned (mail) (www):

You make a very convincing argument in favor of Connecticut Lawyer's main point.

Like I said:

The Court shouldn't use pleading rules to abolish laws it doesn't like.
6.27.2009 4:05pm
Libertarian1 (mail):
David M. Nieporent:

Someone hasn't been reading their ATLA talking points. They routinely point out that businesses file more suits than individuals do.



martinned:

I'm sure they do, but those aren't generally the kinds of cases where pleading standards are likely to be a problem. Pleading is particularly important in cases where the evidence lies overwhelmingly with the defendant, such as civil antitrust cases or product liability cases. Those tend to have (big) business mostly as the defendant.




I suspect David knows this very well and was being sarcastic. He posts on Overlawyered and is almost always very clever and thought-provoking.
6.27.2009 4:10pm
troll_dc2 (mail):

The Court shouldn't use pleading rules to abolish laws it doesn't like.




Or to put it a little more abstractly, it should not use procedural rules to achieve substantive ends.

With regard to Title VII and the ADEA, I assume that quite a few participants on this blog would like to see those causes of action disappear because they do not believe that discrimination exists and that the concept is just a victim-first ploy by trial lawyers. If only that were so!

Anyway, the essence of discrimination is difference in treatment, and that can be shown only by comparison to the treatment of others who are sufficiently similarly situated. The evidence to show this is mostly in the employer's files. The more that discovery is restricted, the harder it becomes to prove a claim. Hence, my opening sentence.
6.27.2009 4:14pm
interruptus:

Instead, rather than increase the demands for pleading, maybe it would be better to give the judge more tools to manage the discovery process. Instead of having the plaintiff simply ask for everything, maybe they should be allowed to ask for only a little at first, depending on the level of detail in their pleadings. After that first step, they court could then allow further discovery or not, depending on whether it looks like the case is going anywhere.

That's precisely what the Iqbal dissent proposed, for what it's worth, and in fact it argued that judges already have those tools through wide-ranging discretionary authority to control discovery. They more specifically proposed a limited discovery phase prior to summary judgment briefing, with cases that couldn't provide evidence of plausibility thrown out at summary judgment prior to full discovery. The Iqbal majority preferred to do that at the Rule 12(b)(6) stage, which is a bit strange, given the purpose of pleading rules isn't to judge the merits of claims.
6.27.2009 4:42pm
Greek Geek:
Do any of you actually practice law? As an antitrust litigator, Twombly certainly makes the initial motion to dismiss much easier to write. However, it is certainly no dofficult bar to surpass - on the defense side, we wrote approximately 40 Twombly motions to dismiss over the last 2 years since it came out, and I can think of a grand total of one that has been granted. Settle down, folks, this is a case that actually has done what is was supposed to do.
6.27.2009 4:45pm
MCM (mail):
Do any of you actually practice law? As an antitrust litigator, Twombly certainly makes the initial motion to dismiss much easier to write. However, it is certainly no dofficult bar to surpass - on the defense side, we wrote approximately 40 Twombly motions to dismiss over the last 2 years since it came out, and I can think of a grand total of one that has been granted. Settle down, folks, this is a case that actually has done what is was supposed to do.


This may be true in antitrust, but won't there be areas of the law where it will be a more "difficult bar to surpass"?
6.27.2009 7:07pm
Just Dropping By (mail):
Allowing parties to prove their cases out of the records of the opposing party, at great expense to the opposing party, has not accomplished any great social goal so far as I can tell apart from making the plaintiffs' bar rich beyond belief. Broad discovery rules haven't made litigation cheaper, more predictable or more efficient, which were their original goals.

I'd strongly disagree about discovery having failed to make cases more predictable/less expensive. Commercial litigation typically ends in settlements these days because discovery permits the parties to more accurately gauge the strengths and weaknesses of their cases, do a cost benefit analysis, and then reach a number they can live with.

I am also completely mind-boggled by the attitude a number of posters have that parties should be required to prove their cases exclusively using documents in their own possession. A huge number of completely meritorious intellectual property, trade secret, negligent misrepresentation, fraud, etc. cases would be wiped out. Conversely, how could a defendant prove the affirmative defenses of mitigation, statute of limitations (which is dependent on when the plaintiff knew or should have known about the claim), etc., without access to the plaintiff's internal documents and correspondence?
6.27.2009 7:48pm
mga4 (mail) (www):
The notion that a plaintiff has to allege more than conclusory formulas is not a "conservative" notion. The author of Twombly was Justice Souter, nobody's idea of a conservative. justice Breyer concurred. Indeed, no one on the Iqbar dissent questionaed the basic holding of Twombly, just whether Iqbar satisfied it.
6.27.2009 9:00pm
Adam B. (www):
What Martinned said. The way to amend FRCP 8(a) is by amending it, not by pretending its language does not exist.
6.27.2009 9:09pm
David M. Nieporent (www):
I don't think making judges manage discovery is a strategy that is going anywhere. That would mean even more work on the docket.
I agree with this as a general statement. It's one of those proposals that sounds better on paper, coming from non-litigators, than in real life. Judges already go out of their way to avoid dealing with discovery issues. They don't want to micromanage discovery, and doing so would just make discovery take even longer.

I have huge problems with discovery anyway for self-incrimination reasons even though that has been held not to apply in civil contexts. The plaintiff should have to prove their case without resorting to material provided by the defendant. For the sorts of cases that should be addressed through civil remedies rather than criminal that standard should be fine.
It doesn't apply in criminal contexts either; generally speaking, producing documents is not testimony.

And no, that standard isn't fine in civil cases. There are zillions of causes of action that require information that would only be in the hands of the defendant. Think something as basic as common law fraud. I have to show that the defendant knew his representations were false.
6.27.2009 10:09pm
zippypinhead:
This case only slightly raises the Fed.R.Civ.P. 8(a)(2) notice pleading hurdle for surviving a 12(b)(6) motion. Certainly neither Twombly nor Iqbal require anything like the sort of particularlity necessary to allege fraud under Rule 9(b). At bottom, most plaintiffs with claims that are ultimately going to be found to be meritorious are still going to be able to meet the requirements of Twombly/Iqbal. And even after these cases, the Federal rule is still looser than in some of the state systems that require fact, rather than notice, pleading.

Where I suspect the tightening of the pleading standard is going to have the most impact is in the typical conclusory allegations one sees when the usual suspect plaintiffs' securities bar jumps on bad earnings news and starts crawling out of the woodwork with their derivative class action strike suits. A type of suit that, frankly, ought to have a bit higher hurdle to leap.

Although:
"I have huge problems with discovery anyway for self-incrimination reasons even though that has been held not to apply in civil contexts. The plaintiff should have to prove their case without resorting to material provided by the defendant."
OK, sure. Just so long as the current adverse inference instruction survives - if you take 5 in a civil case, the trier of fact is entitled to presume that the truthful answer WOULD incriminate you, and such a presumption, without more, can be sufficient to support a verdict for the civil plaintiff. Or would you prefer the European/Japanese government "dawn raid" civil search warrant execution procedure - where the authorities sweep in and haul away your files and computers for mere civil or administrative claims - rather than using on discovery demands or subpoenas like they have to over here in the colonies?

Maybe you'd better reconsider the relative benefits of civil discovery versus other possibilities...
6.27.2009 10:20pm
Displaced Midwesterner:
I have to agree with several of the comments here. It's a bit hard to square either Twombly or Iqbal with rule 8. But I think Greek Geek's got a point too. District judges seem to be somewhat reluctant to actually follow either case and instead are sticking with the familiar standards for the most part. This may actually be more in tune with the spirit of those cases, which frankly sound like the Supreme Court getting rid of cases they don't like when they can't find any other good basis for doing so. I'm guessing the district courts will increasingly follow suit and ultimately Twombly and Iqbal will become names trotted out when a judge just wants to dispose of something. So really they represent an expansion of judges' discretionary power to dismiss cases they don't like.

On a side note, I'm all for abolishing discovery, so long as its ok for attorneys to break into corporate offices and steal any documents they feel like they need. I would limit this to lawyers. It will go a long way toward spicing up the lives of poor associates. I'm sure they would much prefer either rappelling down the glass walls of some hq in an office park or staging an all-night watch over the building, depending on which side they are in, to bankers' boxes.
6.27.2009 10:36pm
Elliott Ness:
I'm all for abolishing discovery, so long as its ok for attorneys to break into corporate offices and steal any documents they feel like they need.... It will go a long way toward spicing up the lives of poor associates.

Sounds like the poor Biglaw associate who wrote this should consider applying to the FBI or Secret Service. Special Agents on white collar investigations get to do this with some regularity, and even get qualified immunity, assuming the magistrate actually signed the warrant application first. And they get to wear raid jackets and carry really hot semiautomatic sidearms while removing all the docs and computer hard drives from the subject company's headquarters. And best of all - the company's lawyers can't even



stop them (at least not without running a serious risk of getting handcuffed and charged with obstruction themselves).
6.27.2009 11:17pm
moremony services (mail) (www):
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6.28.2009 1:34am
Displaced Midwesterner:

Sounds like the poor Biglaw associate who wrote this should consider applying to the FBI or Secret Service.


I'm not in Biglaw and never plan to be. But I have some sympathy for my friends who are.

Given the rest of your comment and the handle, though, I'm guessing you're biglaw or in-house counsel who wishes he could be on the other side of one of those federal raids or could at least resist in the way I propose for our brave new world of no civil discovery.
6.28.2009 2:46am
Mike McDougal:
Has Twombly plausibility led to an increase in Rule 11 motions for sanctions?

The hypothesis would be that more more detailed pleading requirements leads to more stretched or fabricated facts, which leads to Rule 11 motions for sanctions.
6.28.2009 4:38am
Mike McDougal:

zippypinhead: "And even after these cases, the Federal rule is still looser than in some of the state systems that require fact, rather than notice, pleading."

I'm not sure what you're getting at. Other states have stuck to good old fashioned notice pleading and have rejected Twombly. E.g., Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417, 189 P.3d 344 (2008).
6.28.2009 4:57am
Stash:
Greek Geek:

You are so right. PSLRA and CAFA were also hailed as big pluses for defendants. Neither those statutes nor Iqbal affect the great majority of cases. My main question now is what is the remaining difference between "fact pleading" and "notice pleading"? Personally, I always ignored it and used fact pleading in drafting federal complaints because I mainly do financial fraud cases which require particularity under Rule 9(b). I also do a fair amount of breach of contract defense work, so I have seen the issue from both sides and do not think it makes that much difference. A motion to dismiss is somewhat easier to win under fact pleading, but since it usually results in leave to replead, it may just act as a roadmap for an otherwise clueless opponent. Indeed, that may be the primary effect of Iqba.Many states never abandoned fact pleading, but defendants almost uniformly preferred federal court during the heydey of pure notice pleading. It would be interesting to see if there is any appreciable difference in litigation patterns between otherwise similar states with "fact pleading" versus those with "notice pleading." I doubt it.

It is apparent that the folks who think we should do away with discovery have never defended a case. Without it, it would be virtually impossible to get rid of a case on summary judgment. Without plaintiff's admissions you are usually left with "issues of fact" that compel a trial. You would not have the time or expert advice that might allow you to disqualify plaintiff's expert--instead plaintiff would be entitled to blindside you with the testimony at trial. Documents you have never seen or that differ from the ones provided by your client would surface. Witnesses you never heard of would appear.

If every trial was reduced to nothing more than a swearing contest where witnesses and documents that have never been examined or investigated are the rule, I suspect you would get more, not fewer, frivolous cases. Significantly reducing the cost of litigation, like any other price reduction, will result in more, not less litigation.

Second, discovery costs are not just a burden to a defendant. People seem to believe that there is no economic disincentive for plaintiffs' attorneys to bring lousy cases. This is not true. When attorneys take a case on contingency, they may need to literally invest millions of dollars in it. High discovery costs for a defendant translate into high discovery costs for the plaintiff. Somebody has to read the million pages of documents that are produced. Even with searchable imaged documents, hundreds, if not thousands of hours must be spent combing through the materials.

Virtually every contingency case of any size is carefully vetted and evaluated before being accepted. Many are rejected and never brought despite the fact that they may be meritorious. If the cost of litigating the case exceeds any likely potential fee, the wrongdoer is off the hook. Most attorneys are not interested in a case that might net them no more than $10/hour however important it might be to the client and no matter how odious the defendant's conduct might have been.

Of course bad cases are brought all the time. Like any other market mistep these are mostly a result of bad information or bad judgment--or a client who is willing to pay by the hour.
6.28.2009 4:59am
David M. Nieporent (www):
Second, discovery costs are not just a burden to a defendant. People seem to believe that there is no economic disincentive for plaintiffs' attorneys to bring lousy cases. This is not true. When attorneys take a case on contingency, they may need to literally invest millions of dollars in it. High discovery costs for a defendant translate into high discovery costs for the plaintiff. Somebody has to read the million pages of documents that are produced. Even with searchable imaged documents, hundreds, if not thousands of hours must be spent combing through the materials.
What you're saying is that there are potentially large costs on each side. True. But what your argument ignores is that the potentially large rewards are all on one side. There's no such thing as a windfall defense verdict; the best you can do on the defense side is come out where you started.

If the plaintiff's lawyer takes the case, and halfway through discovery he realizes it's a likely loser, he can drop the cast and he's only out his own costs. If halfway through discovery the defendant realizes it's a likely loser, the defendant is out its own costs, plus the settlement amount. (Plus, in some contexts, the plaintiff's legal fees.) Indeed, in some cases it's a bet-the-company case, and so even if it isn't a likely loser, he has to settle.
6.28.2009 2:18pm
rosetta's stones:
Stash, the plaintiff brought those high discovery costs on himself, in bringing a lawsuit. I hope you're not implying I should feel sorry for this guy, because he decided to incur these costs. I don't.

If he's got a case, he should walk in with it mapped out, not looking to map it out after the fact. He should be holding something that establishes the basis for his lawsuit, at minimum. We can argue over whether he should be entitled to more following initial review and acceptance of his lawsuit, but free flowing discovery seems unfair and inefficient... if not illegitimate.

And riddle me this. If I'm doing litigation support, never having laid eyes on anybody involved previous to the case, from secretary to courtroom janitor, then why are my documents discoverable?

Why should the opposition be allowed to dig for information in my work, which has only been executed in response to the opposition's choice not to settle?
6.28.2009 7:00pm
zippypinhead:
I think Stash got it about right at 4:59 am (Sunday am? Yikes!). David's response overlooks one thing in arguing:
What you're saying is that there are potentially large costs on each side. True. But what your argument ignores is that the potentially large rewards are all on one side. There's no such thing as a windfall defense verdict; the best you can do on the defense side is come out where you started.
Not necessarily true. In contract disputes, intellectual property, antitrust, and business litigation in general - and even in some tort litigation - there are often a plethora of counterclaims, cross-claims, and interpleader actions. An original defendant may well end up as a cross- or counter-claim plaintiff, and by the time culpability is sorted out, may not have to settle for the status quo ante.

At bottom, liberal discovery rules tend to permit the parties more accurately to value the case, and to reach more rational settlements. Trial by ambush, just like a military ambush, at least metaphorically tends to be bloody, unpredictable, and creates both unforeseen collateral damage and incentives for later retaliatory action.
6.28.2009 7:47pm
rosetta's stones:
At bottom, liberal discovery rules tend to permit the parties more accurately to value the case, and to reach more rational settlements.

"Accurately" isn't the precise word, but in any event, it's swallowed by the true effects of liberal discovery, in that it changes what they're valuing, and this is not necessarily something the court should be doing. Bring it into court, if you have it. If you don't...



Trial by ambush, just like a military ambush, at least metaphorically tends to be bloody, unpredictable, and creates both unforeseen collateral damage and incentives for later retaliatory action.

Sue away, if that's what you want. But if you're truly uncomfortable with the frequency of lawsuits, I'd suggest loser pays. And take away liberal discovery, and you may dampen that frequency as well.
6.28.2009 8:37pm
Stash:
David M. Nieporent:


If the plaintiff's lawyer takes the case, and halfway through discovery he realizes it's a likely loser, he can drop the cast and he's only out his own costs.


This is not strictly true. Voluntary dismissal usually requires payment of the defendant's costs. Though these do not include attorney's fees, they can be substantial. As a practical matter they are often not sought against individuals because they do not have the ability to pay. Insisting upon and trying to collect would only burn through more attorneys'fees for no reason. Also as a practical matter, the costs are not coming out of the plaintiff's pocket, they are being advanced by the attorney and the situation you describe is the last place any attorney wants to end up. True, the attorney's bad judgment has cost the defendant money, but there is already a strong incentive not to pursue such cases.

I note also the sparse use of offers of judgment under the Federal Rules. A defendant can, at any time, offer a judgment amount to the plaintiff. If the plaintiff rejects the offer and recovers less than the offer, the plaintiff is liable for the defendant's costs and fees from the date of the offer. Theoretically, a defendant with a likely winner could offer a ten dollar judgment to the plaintiff on the filing of the complaint, and collect fees and costs after winning. Against individuals this is, again, a useless act, because the fees would be uncollectible. I also note that "loser pays" is written into many contracts, yet contract litigation remains popular. It is my experience that when it comes time for settlement, the clause is ignored, and each side bears its own costs. Only in the 1% or so of cases that are actually tried is the clause given effect.

I am not pretending that the litigation system is perfect. But its costs have an impact on both sides that often work to the defendant's advantage as well. I already noted the situation where a wrong is too small to justify the transaction costs of litigation. The defendant walks and the social cost is imposed on the victim.

Another situation that I have personally observed is where liability is likely, but the amount is so large that the return on the money exceeds the costs of drawing out the case. In such a situation, despite likely liability, there is no financial incentive to settle the case. Particularly where the underlying wrong has put the plaintiff in financial distress, massive discovery costs and attorney fees can easily result in a settlement well below both the harm imposed on the plaintiff and the benefit the defendant derived from committing the wrong.

The problem I see is that there is no way to determine, other than litigation, which situation is involved and who is being squeezed or coerced by litigation costs. And the "bet the company" situation works both ways as well. The plaintiff wants to collect, but does not want to force the company into bankruptcy and stand in line with the other creditors. Recently, after obtaining summary judgment on liability, we had to settle for about 25 cents on the dollar of recoverable damages. The fact that full payment would have ruined the company resulted in a delaying defense that drew out discovery and the litigation for years. (Previous offer: 2.5 cents on the dollar). So, while a "bet the company" case may force a company to settle even if it is a likely winner, transaction costs and the risk of bankruptcy work in favor of the company that is a likely loser. The simple fact is that whichever party is "right" is the one harmed by the risks and costs of litigation.

An opposite example is a contract defense case we recently reluctantly settled. The other side had somehow found an attorney willing to work on contingency, and the case, though a loser, would have cost more to reach summary judgment than the amount of exposure. Sure, we got the complaint dismissed--but with leave to replead. The judge straight out told us this was too small a case to litigate and that we should settle it. He was right, but it hurt.


But what your argument ignores is that the potentially large rewards are all on one side. There's no such thing as a windfall defense verdict; the best you can do on the defense side is come out where you started.



I have some quarrel with the word "reward." At least theoretically, plaintiffs generally collect "damages", not "rewards". In many of the cases I litigate as plaintiff (financial fraud), the defendant has already collected its windfall--at my client's expense. In such a case, a "not guilty" is, in fact, a "windfall defense verdict." Certainly OJ's verdict was a windfall defense verdict. And, any settlement that allows the guilty defendant to keep any of its ill-gotten gains is also a "windfall." The opportunity litigation provides "to beat the rap" either through trial or "war of attrition" litigation provides what are often quite large "windfalls" for the defendant.

Litigation, like democracy, is the worst system in the world for resolving disputes--until you look at all the others. I have no problem fiddling with its rules to create an "even playing field." Much fiddling has been done and will continue. But I do not think there is anything that will ever eliminate the harm the system does to the party who is right--whether plaintiff or defendant.
6.28.2009 9:36pm
Stash:
rosetta's stones:


Stash, the plaintiff brought those high discovery costs on himself, in bringing a lawsuit. I hope you're not implying I should feel sorry for this guy, because he decided to incur these costs. I don't.


Not at all. I am just quarrelling with the notion the all costs of a lawsuit are on the defendant and that discovery costs do not create an incentive for attorneys to carefully screen cases before bringing them.


If he's got a case, he should walk in with it mapped out, not looking to map it out after the fact. He should be holding something that establishes the basis for his lawsuit, at minimum. We can argue over whether he should be entitled to more following initial review and acceptance of his lawsuit, but free flowing discovery seems unfair and inefficient... if not illegitimate.


Believe it or not "holding something that establishes the basis for his lawsuit" has always been a requirement. But that "something" need not be a document that is in the possession in the defendant. And just because you have a basis for your lawsuit, does not mean you have to have proof.

Let's say you lose your dry-cleaning ticket. Nevertheless, you ask the dry-cleaner to return your favorite clothes. You insist that they look up your name and give you your clothes based on their records. You just engaged in "unfair" discovery.

But lets say they refuse and you sue. Your "basis" is the allegation that you brought the clothes in and gave it to them. They deny the allegations. They claim you are just some crazy person seeking damages for imaginary clothes. If the clothes ever existed, maybe you just threw them in the trash and are seeking a "windfall" from a convenient deep pocket you want to blame, perhaps egged on by your greedy and unscrupulous attorney. In a world without discovery, you have no right to make them produce their copy of the ticket. Since the burden of proof is on you, you lose. "Bring it into court, if you have it. If you don't... " Tough luck, eh? Your clothes remain at the dry cleaner. The "fairness" you want has now been exercised.


And riddle me this. If I'm doing litigation support, never having laid eyes on anybody involved previous to the case, from secretary to courtroom janitor, then why are my documents discoverable?

Why should the opposition be allowed to dig for information in my work, which has only been executed in response to the opposition's choice not to settle?


The answer to the riddle is the circumstances under which it is being allowed. Usually "litigation support" work, particularly with respect to the pending litigation is work-product privileged. Either there has been a waiver of the privilege, some "special need" has been demonstrated or there is some colorable allegation that your company is not complying with discovery. Examples I have seen where this kind of discovery is allowed involves withholding witness statements or documents, destruction of documents, false claims of privilege, inadequate document searches, or inflated claims of being "overburdened."

Let's say you make a discovery request to the dry cleaners and they say "oh, sorry, we have not been able to find our duplicate tickets for the week you say you brought in the clothes." Or, "sorry, we do not keep the paper tickets. We just image them on proprietary software that will not translate to any normal format for less than a cost of $80,000.00." If these assertions are made by litigation support, it would not be surprising if some discovery was allowed to test these assertions. [BTW: the $80k conversion cost excuse is from an actual case of mine. Ther real cost turned out to be a little over $300, that's three-hundred, which we promptly paid.]

With due respect, an attitude in "litigation support" that the entire discovery process is unfair undermines the best interests of the company if it results in a failure to reasonably comply with discovery requests. Such failures can result in big losses for the company independent of the merits of the underlying suit.
6.28.2009 11:43pm
David M. Nieporent (www):
I note also the sparse use of offers of judgment under the Federal Rules. A defendant can, at any time, offer a judgment amount to the plaintiff. If the plaintiff rejects the offer and recovers less than the offer, the plaintiff is liable for the defendant's costs and fees from the date of the offer. Theoretically, a defendant with a likely winner could offer a ten dollar judgment to the plaintiff on the filing of the complaint, and collect fees and costs after winning. Against individuals this is, again, a useless act, because the fees would be uncollectible. I also note that "loser pays" is written into many contracts, yet contract litigation remains popular. It is my experience that when it comes time for settlement, the clause is ignored, and each side bears its own costs. Only in the 1% or so of cases that are actually tried is the clause given effect.
Some states have a more powerful offer of judgment rule, but the Federal rule is weak. The 'fees' you reference don't include attorneys' fees, and that's the overwhelming bulk of litigation costs.
6.29.2009 12:09am
David M. Nieporent (www):
I have some quarrel with the word "reward." At least theoretically, plaintiffs generally collect "damages", not "rewards". In many of the cases I litigate as plaintiff (financial fraud), the defendant has already collected its windfall--at my client's expense.
If it's real fraud -- as opposed to victimless 'consumer fraud' -- then yes. But you're assuming your conclusion -- that the defendant was in fact in the wrong.
In such a case, a "not guilty" is, in fact, a "windfall defense verdict." Certainly OJ's verdict was a windfall defense verdict.
OJ spent millions of dollars, and ended up -- as far as the legal system was concerned -- where he was before the criminal trial began.

That's the point. The defendant can't end up in a better position than he was before the lawsuit; he's guaranteed to come out behind, because even if he wins he's out his attorneys' fees. Yes, dragging out the litigation can help the defendant -- but only by running up his own costs.
6.29.2009 12:31am
rosetta's stones:
I am just quarrelling with the notion the all costs of a lawsuit are on the defendant and that discovery costs do not create an incentive for attorneys to carefully screen cases before bringing them.

None of the costs of a lawsuit should be on a defendant, until such time as a plaintiff can produce something that persuades me that his claim has merit. Him saying so isn't persuasive.

Know what? If you lose the winning Powerball lottery ticket, you don't win the lottery. If you lose your laundry ticket, you run a risk for that as well. And if it just so happened you lost it the day the laundry turned gangsta, that's really bad luck, I'd agree. So, should we slant towards the one guy who lost his ticket, or should we slant towards all the responsible guys who run their laundry properly, but still get sued? I choose to slant towards the responsible guys.

You better lose the laundry ticket hypo. Ever since that judge sued for $80M for his pants, it's sorta lost its luster. ;-)

Your point may be to promote fairness, but there is a cost for the promotion of fairness, if it also promotes litigation. Liberal discovery can only promote litigation. Society pays the cost of litigation regardless of who the rules are skewed toward... plaintiff's litigators or defendant's litigators. It also pays for the costs of courts to process them. At least one of the many public interest here is to decrease this cost.

Loser pays would help here. So would tightened discovery.

I'm glad to hear my work products aren't immediately discoverable by law, there is some sanity I guess. It hasn't always happened, but I do dislike having my meticulous files rifled and scattered apart by some shyster, then having to listen to him asking me questions about things in them that he has not a clue about, and wouldn't understand even if I sat there all day explaining. It's just fishing.
6.29.2009 12:35am
ReaderY:
Good-bye notice pleading, hello fact pleading.
6.29.2009 12:37am
ohwilleke:
There is almost no doubt in my mind or that of most observers that Iqbal is a win for business to some extent, although it really needs to be seen hand in hand with Twombly, which it simply reinforces and clarifies.

The early empirical evidence from Twombly is that it has had a signficiant pro-defendant impact in civil rights and employment cases, but that other classes of cases either haven't had much impact (as expected in, e.g., routine automobile accident cases and breach of contract cases), or involves classes of cases where suits are not common and similar enough to do a good statistical analysis (e.g. anti-trust, civil RICO). Some parts of the law that might otherwise have been impacted by Iqbal (e.g. securities cases and fraud cases) were already subject to heightened pleading requirements.

It is also worth noting that Twombly and Iqbal have little impact in cases where at least one cause of action against a particular defendant does state a claim, allowing discovery which can provide a basis to amend a suit later to fit newly discovered facts in many situations.
6.29.2009 7:58pm

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