21st Century Issues - The Federal Rules Need Updating

Monday, February 1, 2010 - 01:00

Jeffrey W. Jackson,Daniel E. Troy, Timothy A. Pratt, Carla Powers Herron, Edward Miller

This month and next we will be featuring articles and interviews with respect to the need to modify our judicial system to reflect 21st century issues. To set the stage, Lawyers For Civil Justice (LCJ) asked general counsel and litigation managers to summarize their thoughts. Set forth below are their Statements:

Facts Are Required From Corporate Counsel To Support Rule Changes

Jeffrey W. Jackson, Senior Vice President and General Counsel, State Farm Mutual Automobile Insurance Company

Lawyers who regularly represent Corporate America are keenly aware of the substantial direct costs associated with today's discovery practices. The costs are often disproportionate to the overall cost of litigation and consume resources which could otherwise be devoted elsewhere. Discovery "horror stories" abound - the multi-year, multi-million-dollar discovery on a case ultimately dismissed as without merit, the six-figure sanction for inadvertent failure to produce electronic documents ultimately irrelevant to the matter at hand - which illustrate the problems with discovery and support the need for rationality and proportionality in civil discovery matters. But rather than referee a "battle of the anecdotes," the Federal Advisory Committee on Civil Rules has expressed a strong desire for credible, objective data to consider as it embarks on a re-write of the Federal Rules of Civil Procedure. Just as an individual judge often requires objective evidence that a far-reaching discovery request is "burdensome and oppressive," the Federal Advisory Committee understandably desires data illustrating that our legal system as a whole, and discovery in particular, takes too long and costs too much.

The fact of the matter is objective data that reflects the day-to-day experience of American Business in the courts must come from American Business - from companies like State Farm who are among the most prolific consumers of the civil court system governed by the Federal Rules of Civil Procedure.That's why State Farm has opted to participate in the current litigation cost survey being conducted by Northwestern University School of Law's Searle Center on Law, Regulation and Economic Growth, and we're actively encouraging our peers to participate, too. While the data collection requires time and effort, we are convinced the information ultimately produced will illustrate the need for rationality and proportionality in the litigation environment.Additionally, Lawyers for Civil Justice is coordinating a "white paper" project, which will provide context for the results of this survey. We encourage all in-house counsel who care about balance, efficiency and cost in America's civil justice system to support this data-gathering effort conducted by the Searle Center.

A Strong Fact-Based Pleading Standard Is Needed

Daniel E. Troy, Senior Vice President and General Counsel, GlaxoSmith-Kline

Defense counsel should actively advocate for a strong, fact-based pleading standard for federal civil lawsuits. Rule 8, adopted in 1938, was intended to streamline cumbersome, highly formalistic pleading requirements that kept meritorious cases out of court. Courts have interpreted Rule 8's pleading standard over time to balance the rights of both plaintiffs and defendants in light of the ever-increasing scale and complexity of litigation and the burdens that accompany it, such as the amount and expense of discovery.

Courts applying the "plausibility pleading" standard set forth by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (2007) and Ashcroft v. Iqbal (2009) strike the appropriate balance to encourage the efficient and fair resolution of cases by screening out weak and meritless claims while not barring plaintiffs from court for formalistic errors. Its benefits include:

Focusing parties on the truly important issues in a lawsuit, thereby encouraging reduced discovery, lower costs, and a faster and fair result in the case.

In many pharmaceutical product liability cases, the primary issue is failure to adequately warn but plaintiffs allege manufacturing and design defect claims as well. Those claims are eventually dropped - after expensive and time-consuming discovery and motions practice. A federal district court in Ohio recently applied Twombly/Iqbal to focus the parties on the failure to warn claim at the heart of a pharmaceutical product liability case, giving the plaintiff her day in court, but dispensing with the manufacturing and design defect allegations that simply provided a "formulaic recitation of the elements of a claim" and failed to allege adequate facts.

Preventing plaintiffs from fraudulently joining in-state defendants to keep cases against out-of-state defendants in state courts.

Plaintiffs typically name an in-state defendant along with other defendants and use boilerplate language to allege the in-state defendant is liable for the same reasons as the out-of-state defendants. Rather than accept such conclusory allegations, federal district courts should apply Twombly/Iqbal when evaluating whether to ignore the citizenship of a fraudulently joined defendant when they decide motions for remand.

Curbing the dubious practice of suing companies with no known connection to a case on the premise that their connection, if any, will be ascertained during discovery.

This practice, common in asbestos and other toxic tort litigation, recently was rejected in a products liability case in federal district court in Colorado. Plaintiffs alleged two pharmaceutical companies "may" have manufactured the analgesic drug at issue. The court dismissed the complaint, finding allegations of "mere possibility" did not satisfy the Twombly/Iqbal pleading standard.

Apply Proportionality With Teeth To E-Discovery

Timothy A. Pratt, Executive Vice President, Secretary and General Counsel, Boston Scientific Corporation

I am very supportive of changes in the Federal Rules of Civil Procedure that require litigation costs to be right-sized and outcomes to be driven by the merits of the case. What that requires is a sharpening of the rules around discovery to ensure that the costs and scope of discovery are proportionate to the case at hand. However, I am much less interested in proportionality as a concept then I am in proportionality in execution. No matter how we define proportionality, the benefits will not be achieved unless the parties are incentivized by self-interest or judicial oversight to apply proportionality.

Let's assume that a corporation is defending a case that does not have high stakes, and the plaintiff serves an overreaching discovery request. There are three potential outcomes when the corporation objects to the scope of discovery. One, the judge does not want to get overly-involved in discovery matters, believing that discovery should be wide open, and permits the discovery to stand. Two, the court strictly applies proportionality to the case, forcing the plaintiff's counsel to justify the reach of discovery and limiting discovery to the size and complexity of the case. Three, the court advises the plaintiff's counsel that there will be an allocation of the costs of discovery during the course of the case. In other words, if plaintiff's counsel wants to persist in the discovery that has been served, the plaintiff's counsel may be forced to pay a portion of the costs if discovery is found to be vexatious or excessive. If the financial self-interest of the plaintiff and counsel is in play, the scope of discovery will be voluntarily scaled down.It is amazing how reasonable accommodations are made when all parties have some skin in the game.

I firmly believe that there should be a fact-based, law-based, logic-based justification for the discovery that any party undertakes. And the party proposing the discovery should have the burden of justifying the scope. That will drive proportionality into the process. Nothing is more important than having an engaged judge, early in the process. Engaged judges take the time to understand the case and manage it to secure a just, speedy and inexpensive resolution of every action as required by the very first rule of the Federal Rules of Civil Procedure. Some judges are compulsively effective at this.Others, less so. Our system of justice should train judges on effective discovery management.

In addition to managing discovery, judges can make a difference by managing cases well. In the first pretrial conference, the judge should explore how to stage the case. In other words, which issues should be resolved first? In many cases, there are dominant issues that should be resolved in the early stages of the case. Discovery and motion practice should be focused on those controlling issues. It is in the best interests of all parties for potentially dispositive issues to be addressed early in a case. Waiting until the eve of trial to resolve dispositive issues - after the parties have invested significant time and expense - does not advance the interests of justice or the cost-effective management of cases.

In the end of the day, our civil justice system should be guided by one over-riding principle - MERITS COUNT. Who wins at trial and how cases are settled should be driven purely by the factual and legal merits of a case. If settlement decisions are driven by cost factors or disruption avoidance, the system has failed. Wanting to avoid millions of dollars because of uncontrolled discovery injects an inappropriate factor into the settlement process. Facing the prospect of having to pay unnecessary legal defense costs because a case drags on for years should not drive settlement. Whether a party should pay money and, if so, how much should be singularly based on issues of liability. Forcing settlements on any other basis betrays the fundamental foundation of our system of civil justice

In conclusion, I urge all to become engaged. We should never stop trying to improve the rules that underlie our federal court system. If the rules need to be changed, provide the empirical evidence to make that case. Work with organizations like Lawyers for Civil Justice. Let the drafters of the rules hear your voice. We can and should make a difference. We are not protecting ourselves; we are improving the system that is the hallmark of our civilized society and on which we rely to resolve disputes fairly, effectively and timely.

Summary Judgment Should Be A Preferred And Early Method Of Resolution

Carla Powers Herron, Group Counsel Litigation, Shell Oil Company

Litigation as a means of civil dispute resolution in the United States has become too expensive, time consuming, and unpredictable. Litigation transaction costs in this country are more than double those of other developed nations and pose a substantial barrier to economic growth. The Federal Rules of Civil Procedure, as they have been interpreted and applied since the 1930s, have become part of the problem. Rather than facilitating a just, economical, and speedy resolution of disputes, their application now often results in unnecessary delay and cost for all parties. Rule revision proposals by the American College of Trial Lawyers (ACTL) and the Institute for the Advancement of the American Legal System (IAALS) would go far to narrow and frame issues, properly focus discovery, expedite cases, and reduce costs.

Discovery should be a tool to identify relevant facts, not an end in itself. Narrowing discovery through fact pleading to the core issues in dispute will require rule changes and a mindset reorientation for lawyers and judges. Summary judgment should be a preferred and early method of disposition when the facts or claims do not provide grounds for recovery. These motions should be heard and ruled upon early in the case, not on the eve of or during trial. There is no reason for parties to spend energy and money on protracted litigation when a cognizable claim can't be pleaded or proved.

Lawyers for Civil Justice has been working closely with the Federal Rules Advisory Committee, ACTL, IAALS, and other organizations to identify and develop appropriate priorities, rules language, and analysis to assist in this process. LCJ is in the process of preparing white papers on the rules issues that will be presented at the Federal Rules Advisory Committee conference at Duke University in May. Similarly, scores of companies are assembling empirical data under the direction of the Searle Center at Northwestern University Law School to aid in issue and solution identification for the May conference.

Working together, members of the bar can do much to restore balance, economy, focus, and common sense to our civil justice system.

E-Discovery's Adverse Impact On The Competitiveness Of The U.S. As A Business Location

Edward Miller, Vice President, Associate General Counsel and Chief Compliance Officer, Boehringer Ingelheim Corporation

E-discovery has had an adverse impact on the competitiveness of the United States as a business location. Although it has negatively impacted domestic companies, it places an even greater burden on foreign companies doing business in the U.S.

The information technology (IT) systems of U.S. companies are often more amenable to responding to litigation, whereas the IT systems of foreign-headquartered companies often are not. It is expensive and time consuming for a multinational company headquartered abroad, often with a variety of different IT systems around the world, to go into those systems to gather the information demanded by U.S. e-discovery. Given the breadth of discovery allowed in the United States, even the cost of translating documents can be enormous. So when a foreign multinational is looking to make significant investments around the world, it must consider whether locating a facility in the United States and creating jobs there is worth the cost, expense and risk of being exposed to U.S.-style litigation. In our industry, which employs a large number of highly skilled research and development positions, the risk that the U.S. will lose out in the competition for these high-paying jobs is very real. Around the world, there is a perception that engaging in business in the United States opens one up to broad intrusive and highly expensive discovery and frivolous litigation.

There are special problems because privacy laws of many countries throughout the world prohibit e-discovery. This puts foreign companies in a very difficult place - often faced with the choice of either violating a discovery order or violating a local law. What is most disturbing is that some Plaintiffs try to take advantage of it by trying to put companies in a position where they can't comply with the e-discovery requirements of U.S. courts without violating applicable foreign law.

U.S. and foreign companies doing business here are made particularly vulnerable to litigation excesses as a result of notice pleading that permits e-discovery to be used as an investigative tool to see whether a viable cause of action can be found. Even if no basis for the litigation can be found, the threat of costly e-discovery can result in a costly settlement of even unmeritorious litigation.

One way to help mitigate this risk is to support the LCJ initiatives directed at reducing the burden of U.S. style litigation, including e-discovery. The U.S. Federal Rules of Civil Procedure are being reviewed at this time, and LCJ is providing input. Hopefully, something will be incorporated in the U.S. rules that brings to the attention of U.S. courts that international obstacles exist. Because the federal courts tend to be a prototype for the state courts , I hope that we can make progress at the federal level, and that then the states would follow.