Monthly Archives: December 2016

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Discovery Costs and Default Rules

Brian T. Fitzpatrick & Cameron T. Norris, One-Way Fee Shifting After Summary Judgment (2016), available on SSRN.

In One-Way Fee Shifting After Summary Judgment, Brian Fitzpatrick and his student, Cameron Norris, address what has been the dominant impulse in federal procedural reform for the past thirty-five years: reducing cost and delay in civil litigation.

The most recent effort to curb litigation expense — the 2015 amendments to the Federal Rules of Civil Procedure that, among other things, sought to invigorate the concept of proportional discovery expenditures that had first found its way into the Rules in 1983 — has been widely criticized as feckless. Switching the proportionality requirement from (principally) Federal Rule 26(b)(2) to (principally) Federal Rule 26(b)(1) and then eliminating “subject matter” discovery seem to be little more than moving the deck chairs on the Titanic, given that judges have no more tools in 2016 to determine whether discovery is proportional than they had in prior years, and “subject matter” discovery was minimal at best.

One fundamental difficulty with requiring that discovery be proportional to the needs of the case — as alluring as this principle is in theory — is its informational demand. Neither the parties nor the judge can quantify with any certainty the most relevant proportionality variables: how much the case is worth, how much discovery will cost, or how much the information will affect the likelihood of recovery (including how much follow-on discovery might affect this calculus). Equally problematic is that the parties often have a private incentive to engage in discovery that, from society’s viewpoint, is disproportionate.

Take a simple example in which all the variables are known. The plaintiff has a 50% chance of winning a $100,000 claim. The plaintiff seeks discovery costing $7,000 that will increase the odds of victory to 60%. But the defendant will then seek to obtain discovery to discredit the new information, and at a cost of $4,000, can successfully minimize the impact of the discovery, reducing the plaintiff’s chances of recovery to 55%.

As an initial matter (and without regard for who pays for the discovery), the plaintiff’s discovery seems proportional: a $7,000 expenditure increases the expected value of the case by $10,000 (from $50,000 to $60,000). When the defendant’s countermeasures are considered, however, this discovery is not justified. Looked at in total, the plaintiff’s discovery request has triggered $11,000 in expenses (the original $7,000 in response to the plaintiff’s request, plus an additional $4,000 for countermeasure discovery) but moved the value of the case by only $5,000. To the extent that proportionality is judged in cost-benefit terms, this discovery is not proportional.

Confounding the calculation in some cases is the American approach to paying for discovery: as a rule, the requesting party bears the burden of making the request (a burden that is often fairly minimal), while the responding party bears the burden of providing the discovery. On the assumption that the defendant bears the $7,000 cost of providing the initial discovery while the plaintiff bears the $4,000 cost of providing the countermeasure discovery, this “responder pays” approach gives the plaintiff an incentive to ask for the initial discovery: a $4,000 expense yields a $5,000 increase in case value (from $50,000 to $55,000). And the defendant has an incentive to ask for the countermeasure discovery: at an expense of $0, the value of the case falls by $5,000.

If each party bore its own costs — and another 2015 reform hinted that judges should consider this “requester pays” approach more broadly — then an omniscient plaintiff would not have requested the initial discovery: the plaintiff would expect to expend $7,000 to yield a benefit of $5,000. But on facts that were styled differently, it could be shown that the requester-pays approach (as well as the loser-pays approach adopted in countries other than the United States) would also lead to inefficient discovery. The sad reality is that the private incentive to invest in litigation often diverges from the public goal, represented inter alia in the proportionality principle, of cost-effective action by the parties.

But the most immediate problem with proportionality is the improbability that the parties and the judge have access to information of the precision that the hypothetical provides. The parties and judge may have some sense of the cost of the discovery itself, but the value of the claim, the likelihood of winning, and the impact of countermeasure discovery on the value and likelihood are dimly graspable at best, and simply unknowable in most cases. Any proportionality rule that asks the judge to engage in a case-by-case cost-benefit analysis regarding the cost of discovery sounds great as an aspirational matter but is unenforceable in practice — as our thirty-three-year history with proportionality shows.

For that reason, default rules become attractive. Such rules may not offer finely tuned balancing of costs and benefits in each case. But a default rule that, in the main, leads to a more efficient outcome may yield more benefit in the long run than a more tailored approach that is unwieldy in practice. Fitzpatrick and Norris propose a new kind of default rule to deal with excessive discovery expenditures. It is ingeniously simple: require the plaintiff to pay the difference between the plaintiff’s discovery expenses and the defendant’s discovery expenses — but only when the plaintiff loses a motion for summary judgment. This modified requester-pays rule does not kick in if the plaintiff prevails in whole or part on the motion for summary judgment, or if the plaintiff settles or voluntarily dismisses the case before summary judgment is entered.

The authors argue that this rule is better than pure producer-pays, requester-pays, or loser-pays regimes, including the present producer-pays approach with a proportionality principle. A lose-summary-judgment-and-pay-the-discovery-cost-differential rule particularly targets the problem of asymmetric discovery, in which one party (typically a defendant) has access to far more information than the other party (typically the plaintiff). In a producer-pays world with asymmetric information, the plaintiff has an incentive to ask the defendant for significant amounts of information as a means of driving up settlement values. To recur to the example above, if we assume that the plaintiff’s discovery requests would require the defendant to spend $60,000 to respond, the defendant has an incentive to settle even a frivolous case for substantial value. By shifting the differential between the plaintiff’s and the defendant’s discovery costs (in other words, the measurable extent of the asymmetry) to the plaintiff when the plaintiff persists in prosecuting the case despite the lack of a “genuine dispute as to any material fact,” a plaintiff’s incentive to engage in “impositional discovery” (discovery so costly that it shakes a defendant down to settle a meritless case) is vastly reduced.

As a stand-alone way to limit discovery costs, the authors’ proposal seems insufficient. To the extent the problem is excessively costly discovery, the solution is overinclusive in one way. There are well-known empirical analyses (here, here, and here) that the cost of discovery is not excessive, except in a small subset of cases. The authors dispute the validity of some of this data, but perhaps they need not. Even if the data are correct, the “problem cases” involving excessive discovery expenditures are also likely to be cases with vigorous summary-judgment practice; therefore, the proposal could make headway to contain discovery costs in the cases in which containment is most needed.

The proposal is also underinclusive in some ways. There are data (here and here) about how frequently summary judgment is sought and how frequently it terminates an entire lawsuit; summary-judgment termination occurs in fewer than 10% of federal civil cases (6 to 7% seems to be about right in most district courts). So the authors’ solution would not affect discovery costs in most cases, unless the proposal has an outsized in terrorem effect. On the positive side, however, the proposal might affect cases in which the cost of discovery is greatest (on the reasonable assumption of a substantial overlap between cases involving high discovery costs and cases in which summary-judgment motions are filed). It also fails to address situations in which the asymmetry in discoverable information favors the defendant, who can force the plaintiff to expend substantial amounts on discovery. Like Federal Rule 68, this proposal is a one-way ratchet that operates only in favor of defendants. But it is not clear that many cases feature such asymmetries. Even if their proposed rule is underinclusive, therefore, it takes a small bite out of the problem of discovery cost — and could do more if joined with proposals to curb excessive discovery in other cases.

Of course, it is in the nature of default rules to be over- and underinclusive, so these concerns do not doom the idea of making plaintiffs pay the differential in discovery costs when they lose a summary-judgment motion. The greatest drawbacks to the proposal are its untoward side effects. As the authors acknowledge, defendants have an incentive to run up their discovery-response costs, precisely to keep risk-averse plaintiffs from pressing their claims. Moreover, the proposal may make some defendants less willing to settle litigation and more willing to play the case out through summary judgment precisely to recoup discovery costs, thus increasing overall litigation costs.

More generally, as Samuel Issacharoff and George Loewenstein have shown, any toughening of summary-judgment standards for plaintiffs suppresses settlement values for plaintiffs’ claims across the board; the same effect seems likely under the authors’ proposal. As the authors acknowledge, judges who realize the consequences to plaintiffs when summary judgment is granted (that they must pay the discovery cost differential) may become less willing to do so, thus defeating the purpose of the proposal. Finally, the proposal would add to the perception that federal courts are pro-defendant, which might drive some plaintiffs into state courts that did not adopt this proposal, or, more problematically, discourage them from bringing meritorious suits at all.

My preference is for a broader approach to litigation costs (about which I have written in a prior post and elsewhere): require the parties to establish, and live within, litigation budgets (including a budget for discovery). Such an approach is perhaps too radical for most, although litigants in England have been faring reasonably well under a variant of this method for nearly four years. Fitzpatrick and Norris’s proposed rule is perhaps more politically palatable: less sweeping and more targeted at cases susceptible to disposition on summary judgment. In the end, however, its side effects seem sufficiently grave and its reach sufficiently narrow that implementing the proposal without first trying it out on a pilot or experimental basis is probably a mistake.

But the impulse behind the proposal — to find simple, workable solutions that allow us to abandon an amorphous proportionality inquiry — is exactly right. May many more such proposals blossom in the years to come.

Cite as: Jay Tidmarsh, Discovery Costs and Default Rules, JOTWELL (December 19, 2016) (reviewing Brian T. Fitzpatrick & Cameron T. Norris, One-Way Fee Shifting After Summary Judgment (2016), available on SSRN), http://courtslaw.jotwell.com/discovery-costs-and-default-rules/.
 
 

Time to Say Goodbye to Forum Non Conveniens?

Maggie Gardner, Retiring Forum Non Conveniens, 92 N.Y.U. L. Rev. (forthcoming 2017), available at SSRN.

The doctrine of forum non conveniens is a mainstay in the modern defendant’s procedural arsenal in transnational cases. Under this common law doctrine, which the Supreme Court first recognized at the federal level in 1947, a judge may consider a number of private and public factors to decide whether a lawsuit over which it otherwise has jurisdiction should be dismissed and (at the plaintiff’s initiative) relitigated in another, non-U.S. forum. In her thorough and thought-provoking article, Maggie Gardner goes beyond the multitude of scholars who have called for the doctrine to be refined, reformed, or limited, and instead calls for its retirement from federal procedural law altogether.

Gardner recognizes the enormity of this task, and suggests jettisoning forum non conveniens only after presenting a careful history of the doctrine and a thorough canvassing of the critiques and reform proposals that have dotted the lower-court and scholarly landscapes over the past few decades.

Gardner identifies several problems with forum non conveniens, both in the doctrine and the proposed reforms. She argues that the doctrine, once rooted in notions of international litigation and principles of comity, was refashioned for the domestic context before it mutated again to its current role in transnational litigation. This meandering doctrinal path has left forum non conveniens with an odd assortment of vestiges of domestic and international concerns that are no longer meaningfully relevant to modern transnational litigation. In addition to these doctrinal mismatches, Gardner argues that the doctrine focuses an outsized lens on the issue of availability of evidence in long-distance situations – a problem that does not plague modern litigation, where the feasibility of access to evidence is facilitated by modern technology and ease of travel. The doctrinal difficulties are linked to the problems with proposed reforms. Because reform efforts take the doctrine’s existence and multi-factored test as their starting point, they tend to only add more complexity to the doctrine. But as Gardner ably shows, it is the layers of complexity that created the problems in the first place.

Other difficulties stem from forum non conveniens’ status as a common law doctrine. Forum non conveniens became an exclusive tool of transnational litigation because its more general domestic application was edged out by statutes such as 28 U.S.C. § 1404(a), which allows for transfer of venue within the federal system. The changing nature of litigation, and particularly transnational litigation, makes the general test for forum non conveniens, as adopted in 1947 and reconfigured for the transnational context in 1981, an awkward fit. One would think that a discretionary common law doctrine would be precisely what this situation calls for – that the evolutionary nature of common law reasoning would provide the necessary adaptability to a new litigation landscape and that the discretionary nature of the doctrine would allow judges to use it as a flexible backstop. But Gardner convincingly argues that the standard itself is the wrong test and that reforms, which should be easy to generate within a common law doctrine, are “partial, inconsistent, and generally unsuccessful.” Due to the awkward fit of well-intentioned but inconsistent reforms with the wrong test, a true reform of forum non conveniens becomes “difficult, perhaps impossible.”

I am skeptical, however, that retiring forum non conveniens would ameliorate many of the doctrinal problems she identifies. One of Gardner’s insights is that forum non conveniens analysis is redundant in light of the inquiries made under several other procedural doctrines such as personal jurisdiction, the presumption against extraterritoriality, and the enforcement of forum-selection clauses. With the “safety valve” of forum non conveniens gone, courts would rely more on these other doctrines for policing the outer boundaries of transnational litigation in U.S. courts. There is no guarantee that the sloppiness of forum non conveniens would not simply reappear as problematic inconsistencies in their new doctrinal homes. Personal jurisdiction is already notorious for its lack of clarity. And because personal jurisdiction carries the weight of constitutional due process, the boundaries of the availability of an American forum for transnational litigation might become simultaneously more unforgiving and more unpredictable. Gardner recognizes this objection and argues that the redundant focus of comity and “exorbitant” exercises of jurisdiction in transnational cases in both forum non conveniens and personal jurisdiction is part of what has enabled the Supreme Court to keep generating imprecise and inconsistent opinions in both arenas. Narrowing the inquiry to one doctrine might nudge the Court towards a more narrowly tailored and coherent personal jurisdiction doctrine in both international and domestic cases.

But it may be that forum non conveniens is more rhetorical flourish than anything else, and that the difficulties and vagaries of personal jurisdiction, particularly as applied to foreign defendants, will continue even without the doctrinal distraction of forum non conveniens. Moreover, relocating to personal jurisdiction many of the doctrinal fights over the propriety of the use of American forums for resolution of transnational disputes may have some unfortunate consequences for personal jurisdiction doctrine. Many of the doctrines that govern ordinary access by ordinary parties to ordinary U.S. courts already are driven by outlier fact patterns and defendants, frequently foreign or remote defendants. When this fight must now occur almost entirely within the boundaries of personal jurisdiction doctrine, I fear that the contours and rhetoric of personal jurisdiction will be further driven by an outsized focus on the transnational, rather than an orderly and measured focus on the typical.

Gardner’s article concludes with the suggestion that the most promising way to retire forum non conveniens is through legislative intervention. Gardner suggests that the federal government pursue reinvigorated negotiations for a harmonized judgments treaty, which would then be implemented by statute into domestic law. She envisions that such legislation would limit forum non conveniens to “exceptional circumstances” and would focus exclusively on a refined private-interest analysis. I believe that she is correct in identifying this as the strongest path forward, and would suggest that its success would be bolstered by simultaneous legislative intervention into the doctrines of personal jurisdiction and forum selection clauses. Without a holistic legislative approach, the problems that Gardner so aptly identifies will only live to see another day as residents of new doctrinal arenas.

Cite as: Robin Effron, Time to Say Goodbye to Forum Non Conveniens?, JOTWELL (December 8, 2016) (reviewing Maggie Gardner, Retiring Forum Non Conveniens, 92 N.Y.U. L. Rev. (forthcoming 2017), available at SSRN), http://courtslaw.jotwell.com/time-to-say-goodbye-to-forum-non-conveniens/.