Editor: Corporate counsel are troubled by the ability of the plaintiffs' bar to use in civil litigation otherwise privileged information made available to a prosecutor. How serious is this problem?
Dorkey: They are right to be worried. I start with the proposition that the courts do not give much credence to assertions of privilege. Once you are involved in civil litigation, by and large things that many people think are privileged are not. And the situation worsens when matters privileged under even that narrow statement end up being turned over to prosecutors. One could easily imagine a privileged communication with counsel that includes counsel's advice to the effect that a particular action may be illegal, which could be used to establish criminal intent if the client then engaged in that action, and which would obviously set the stage for larger civil damages.
Editor: Do you see any solutions on the horizon?
Dorkey: I wish I did. What happened with Enron, what happened with WorldCom, what happened with Adelphia were tremendous economic blows to the economy. It is a tribute to our economy that we withstood all that. But thousands and thousands of people, ordinary Americans, lost a lot of money, and a huge amount of savings. In response to that, it is natural that the political forces would want to ensure, first, that the people who caused those losses are punished and, second, that it will not happen again. So what you have is an overreaction. Over time the climate will change. Corporations will continue to operate under the stricter regime established by Sarbanes-Oxley with the result that there should be fewer massive scandals, and prosecutors will eventually turn their attention to other concerns.
Editor: Are discovery costs driving settlements? Should the courts monitor discovery more closely and place limitations on its scope early in the process unless broader discovery is clearly warranted?
Dorkey: Discovery, particularly electronic discovery, can be a major expense in a lawsuit. If you have two companies of equal size, each side has an interest in being "reasonable" about what it is going to need. But when you have asymmetrical litigation such as in an employment case between an individual plaintiff and a corporation, especially one with a number of employees who may have dealt with the plaintiff or his/her records, then plaintiff's counsel can ask for a huge number of documents and emails, and the request can appear reasonable on its face, but not in reality. Ultimately, the cost of complying with the discovery request may be greater than the value of the case.
It seems to me that we should have a rule of proportionality, perhaps explicitly in the Federal Rules of Civil Procedure. Although as a matter of common sense, most judges looking at a $100,000 case will not order discovery whose cost far exceeds that sum, it may make sense for there to be an explicit rule of proportionality that an advocate can point to.
Editor: Given the difficulties involved in e-discovery, do you feel that there is a risk that the other side may ask the judge to impose penalties for failure to produce documents even though you make all reasonable efforts to comply?
Dorkey: That has always been the rule even with paper discovery. The difference is in the nature of the technology. With paper, it is easier to throw things away than to keep them. With electronic materials, they are easier to keep than destroy and, as a practical matter, they are impossible to destroy. For a company that is a large financial institution or other large complex corporation, it is next to impossible to know where everything is or that every document has been retrieved to a certainty. From one's own personal experience, it is often difficult to find a particular e-mail. You tend to forget where you filed it, and searching for it may involve a variety of search techniques. That situation is multiplied many fold for large corporations, even though they have recourse to more sophisticated search technologies and a huge industry of consultants who thrive on these sorts of projects; and they still cannot find everything. If a party cannot persuade the judge that he/she acted in good faith in discovery, sanctions can be imposed that range from issue preclusion to an unfavorable jury instruction to default. And we all know that many advocates are simply playing "gotcha" litigation. Just as with the scope of discovery, judges need to apply some concept of proportionality to sanctions in cases involving large amounts of e-data that reflect the common-sense fact that some e-mails may not be found or may - embarrassingly - turn up later in the litigation.
Editor: What about punitive damages? There is great concern among many corporate counsel that the potential for large punitive damages may result in unreasonably high settlements.
Dorkey: I think the situation is better now in light of the State Farm decision in which the Supreme Court essentially held that punitives should be no more than a single-digit multiplier. However, it is up to many trial courts to adhere to that view both in letter and, more importantly, in spirit. And plaintiffs' lawyers work hard to get more categories of damages within the rubric of actual or compensatory damages.
Editor: You may, in order to avoid further problems, reach an accord with the prosecutor and admit wrongdoing even if your actions were perfectly legal. Nevertheless you have admitted wrongdoing. Doesn't that set you up for punitive damages in a civil suit that might follow?
Dorkey: I think it would depend a lot on the facts. Certainly, it would make it hard for you to defend against compensatory damages. If you think of it in terms of your own reactions, you are less likely to get upset with somebody who admits a mistake than with someone who obdurately refuses to do so. The plea and the admission of guilt make it very hard to deal with compensatory damages, but I am not sure that it would in and of itself affect punitive damages.
Editor: Should judges be required in their instructions to jurors to spell out standards for assessing punitive damages that would include considering mitigating circumstances, such as the existence of a good faith compliance program?
Dorkey: It is not clear to me that doing things by rule and saying judges have to do this or that is really a good idea. It does not make sense to ask someone to be a judge and then circumscribe that judge's decisions by rules. The whole idea of people serving as judges is to have them exercise their judgment in dealing with the situation before them. They are required to follow the law, and, of course, the judge should - and is required by law - to instruct the jury correctly on each element of the case. Rather than a specific rule, I like the idea of patterned jury instructions that advocates can argue should be adopted and judges can use in their discretion.
However, this points to a need for better judges and better training for judges. We are fortunate in New York that many judges have come from a commercial practice where they have seen how businesses operate.
Editor: It seems that a wider range of corporate behavior is being criminalized. What are your reactions to this development?
Dorkey: It is unfortunate. As a general statement without regard to any application in particular, I think we've over criminalized what has traditionally and logically been civil behavior, particularly in regard to corporate behavior.
Editor: Let me ask you about whether you see cases fleeing the system because they are settled to avoid possible criminal prosecution or a large judgment?
Dorkey: Corporations have been settling cases to avoid a potentially disastrous jury outcome for as long as I have been practicing law. What is different in recent times is increased criminal prosecutions, which can put a company out of business - like Arthur Andersen - or can send executives to jail. In our litigation system, it is up to the party to know what is in its own best interest, and so each company has the option of either defending its actions in court or settling. It is difficult enough for an executive to go to trial facing a risk of a large judgment; it becomes even harder if proceeding with the case could expose the corporation to potential prosecution for a criminal offense. It changes the equation in favor of settlement. We all see an increased level of activity by state attorneys general and by other states and federal regulators. But let's face it, the excesses of Enron and WorldCom and other companies hurt a lot of people. As a result of that, there is a tendency to find ways to punish the guilty and to make sure it does not happen in other situations where guilt is not quite so clear. But that's the nature of our legal system. One side is always trying to push the boundaries of the law beyond where it is.
Editor: Do you have any advice that would help a corporation decide whether to fight or flee?
Dorkey: Unfortunately, there is no silver bullet. There are two components to dealing with serious cases. You have to analyze the facts and law on a case-by-case basis. And this would include the quality of representation and how public the issues are. You also need to analyze the collateral consequences - for instance, will settling bring out more cases, or will losing? Can we plan for the judgment and provide for it over time? What will our customers say about defending ourselves? Will we be criticized by the media, NGOs, analysts, government? Is the product/business line in question at the end of its useful life or near the beginning? What might discovery reveal about our business that could hurt us in another context? In an anonymous case, it is usually about the merits. In a high-profile case, settlement decisions tend to be driven by an analysis of collateral consequences.