In-house ACCess : In-house ACCess: Association of Corporate Counsel : ACC : The In-house Counsel Bar Association

Over the past week I have discussed this topic with a few lawyers. Two were from large national firms and both confirmed that the numbers of lawsuits were indeed falling and it was a national phenomenon. A sole practitioner back east had a similar observation.

Each offered different explanations. One suggested that clients had billion dollar problems and therefore had no inclination to engage in million dollar disputes. Although facially plausible, a client should still want to file a million dollar suit if the expected return is positive. What probably has changed is clients’ risk tolerance. The financial situation has resulted in their discounting the return, and perhaps the firm’s legal fees contribute to making the investment imprudent.

Another explanation was that the prior administration did not enforce regulatory law with the expected vigor of the present administration. This appears to be more of an explanation based on hope. Given the economic scenario, one certainly is not going to see the present administration focusing on anti-trust cases to curb undue profits—instead they are hoping for profits.

One lawyer suggested that tough economic times make business behavior more common, where good times encourage innovative business practices that either run afoul of a legal tenet or require litigation to establish the rules of the road. This is possible; however, desperation seems to be an equally strong incentive to push regulatory limits or look for creative solutions.

Another explanation is that economic difficulties result in juries developing a reluctance to grant large awards, thus discouraging tort claims. Certainly, that explanation has some merit if the plaintiffs’ counsel finds fewer cases that meet his threshold for a contingency investment. However, this should simply encourage firms with lower overheads to replace those with higher overheads.

So what is the explanation? The answer is a little of everything above, and perhaps - just perhaps - a cultural shift. The new economic normal forecasted by a number of analysts might have a legal culture analog where our society finds other less formal ways to either avoid or resolve disputes. It could be a cultural shift we can see, but as yet cannot explain.

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Federal Courts have long been the forum of choice for commercial enterprises. Except for rare cases where a particular federal court might result in what you perceive as an unsympathetic jury pool, trial lawyers representing commercial enterprises (I being one of them) typically chose to file a case in federal court or remove it to federal court if the opportunity presented itself.

In cases between individuals and companies, the fact that many state court judges appeared beholden to local citizens or attorneys because they were elected or their selection or retention in office depended on maintaining a favorable disposition of the local constituency, the predilection to be in federal court was very prevalent.

It is doubtful that there has been a change in this disposition and that the drastically lower volume of commercial cases in the federal court can be accounted for by an equivalent rise in state courts. I think litigation is down for a number of reasons which we will explore later.

However, if you were specifically concerned about federal court and what you could do to encourage more disputes to be resolved there, a fair analysis would lead you to the conclusion that regardless of the benefits it might have over a state court it is not a very efficient place to resolve a dispute.

Consider whether you would frequent this store:

Once you are in the store you have to prove you are a legitimate shopper and can conduct yourself competently, not merely to get into the store, but every time you want to go down a different aisle.

In fact, you have to do the same thing to get in line at the package pick-up and at the checkout line.

The clerks in the store are all trained as marketing specialists, but they know nothing about the products they are selling.

You are looking for a lawnmower to trim the areas your garden tractor cannot enter.
You go into the area with lawn tractors looking for the lawnmower and cannot find it, only to be told that it is at the end of the aisle with women’s underwear. You look at the display models, and the sales person can tell you how the display was designed and lighted, but nothing about the machines.


Finally you select a machine and you ask the clerk when it can be delivered. A few months he tells you, if you are lucky; perhaps a few years. Well, you ask if someone can go in the warehouse and see if there is one on the shelf. That would not be practical, he says, because more than 80% of the boxes are not labeled, so even if they pull one, chances are it will not be the one you wanted.

I have little doubt your first visit to this store would be your last if it was at all possible to avoid it, but it has many of the characteristics of the present federal court system—high costs of entry, lack of predictability, questionable adequacy of training of key staff on substantive matters, institutionalized lack of predictability, and no commitment to timely delivery of legal doctrines. We will look at this in more detail in part three.
 

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Bob Banks wrote in the Harvard Business Review a number of years ago that Xerox had a legal budget and it was always exceeded. For sure there are numerous legal expenses, but the culprit for breaking the budget was typically litigation.

Many ACC (formerly ACCA) members convened at the Brookings Institution to seek a remedy. They had tried the usual attempts to manage billings. These remedies get dusted off, renamed and revived to manage legal fees. Those of us who have been around long enough have seen them in their various reincarnations. Increase the number of law firms serving you to increase competition and loosen the dominance of any one firm. Then came “shrink the number” of the law firms serving you, so you negotiate a better price. Alcoa took this idea to extreme by reducing the number of firms serving it to one. It did not survive because it had its own price distortions built in.

These fee management schemes, flat billing, value billing, all come and go, and it is a bit amusing watching them rediscovered by new in-house attorneys who are convinced they have found the fountain of youth. But this is not about billing schemes; it is about lawsuits. Frustrated by the inability of these fee management schemes to control costs, many ACC senior counsel joined other members of the legal community and convened at the Brookings Institution in the mid 1990’s to fix the problem once and for all, at least in the federal court system, their forum of choice.

The newest version of cost control was based on the assumption it was a systemic problem. That is code for “none of our other solutions worked and it is not our fault”; it is therefore an endemic problem with system. The result was the Civil Justice Reform Act which had both its supporters and detractors. Then there were skeptics like me who believed that this too would pass.

The Civil Justice Reform Act had two fundamental premises at its heart. First, since no one else seems to be able to control costs, it was decided to give the courts the power to do it; and even better, they would design a process that encourages Alternative Dispute Resolution (“ADR”) and avoid the courts altogether. As ACC’s value challenge Version 9.2 illustrates, these rather dramatic efforts failed. ADR, upon solid scientific analysis, did not prove to have an impact on litigation costs, nor did the other attempts at case management.

However, in recent conversations with various court staff, a new concern is arising that is very troubling to the courts (we are talking jobs here) yet promises to dramatically reduce litigation expenses. Traditional commercial litigation is disappearing from the federal courts, perhaps the state courts as well.

In the next couple of blogs we speculate on causes of the phenomenon, and anyone with ideas please feel free to contribute.

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