Why Do Tort Verdicts Get Bigger On Re-Trial?

The Nevada Accident & Injury Law Blog describes how a Nevada Jury Awards Las Vegas Man $60 Million:

A federal jury in Nevada last week awarded $60 million to a Las Vegas man who alleged Paul Revere Life Insurance Co. and the Unum Group denied in bad faith his claim for disability benefits.

This is one of those “be careful what you wish for” cases. In a previous trial, a jury awarded Plaintiff $11.6 million but it was overturned on appeal. So the case was tried again and the second jury awards five times what the first jury awarded.

I see that a lot, particularly in tort cases with verdicts over $1 million, and I don't think it's a coincidence.

At a tort (negligence, malpractice, breach of fiduciary duty, wrongful death, etc.) trial, the defendant usually holds most of the cards. They generally know which stones you overturned on discovery and which ones you did not, and they know which evidence that you have his most embarrassing and which evidence you do not have is most absolving.

More importantly, they were there. They really know what they did and did not do, and what they were thinking when they did it, and they certainly know what they intend to say.

It does not matter how many depositions you took -- you could have had people testifying for days -- and how much written discovery you collected, trial will still be full of surprises. Even if no new facts are revealed, you will see facts presented in a new light, often at odds with the light they were presented in pleadings and during discovery. (And you will have to quickly react to this new version of the truth: don't even try to argue to the jury that a fact was "presented in a different light during discovery.")

Trial makes the defendant show their cards, clearing away their natural advantage in a tort suit. You will see the strongest defense arguments and the most favorable defense evidence. More importantly, while you can always run a mock jury and see how neutral non-lawyers react to your evidence, you will never get a chance, pre-trial, to practice cross examining a defendant to see what evidence makes them squirm, babble, or obviously lie. A deposition will give you hints, but it will never show you what will really make a defendant fold or what they'll do when the chips are down.

My view is that these big cases aren't 50-50 or longshots, they're slam dunks if you have all the evidence, know where the defendant wants to go, and know where the defendant doesn't want to go. That's how a "big" verdict becomes a "blockbuster" verdict the second time around.

Posted on July 1, 2008 by Maxwell Kennerly
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Collaborative vs Cooperative vs Being A Good Lawyer

Via Settle It Now,

Gini Nelson of Engaging Conflicts ran a six-part series recently on "Adding Cooperative Practice to the ADR Toolkit."  Her final part in this series -- linked supra -- is the final entry of Guest Blogger Law Professor John Lande’s posts.  Linked here is his article The Promise and Perils of Collaborative Law -- which is also linked in Gini's blog with her comments here.

Before you run over to Gini's site to read Lande's excellent post or his great article, I'd like to simply bullet-point some observations based upon my four-years of full-time mediation and arbitration practice.

  • when I co-arbitrate with some of the best commercial arbitrators in the business -- these are Ivy League lawyers with many decades of experience representing Fortune 50 Companies in AmLaw 100 Law Firms, the ultimate decision changes many times during the course of deliberations and almost always could go either way.
  • having spent a considerable time in the Los Angeles Complex Court as an experienced commercial litigator "externing" for credit to earn my LL.M in '06, I can tell you that the deliberations in chambers of these highly respected jurists is not much different that those in which I have engaged when sitting on an arbitration panel

The take away?  No matter who is hearing your case, your chances of winning are 50-50.  Flip a coin.  Think this doesn't apply to you?  I have arbitrated cases being handled by the top ten law firms in the country.  I have seen those same type of firms litigate and try cases in the Complex Court.  It's 50-50 friends.

Here's from Lande's series:

In mediation, an impartial third party helps parties to negotiate an agreement. In Collaborative Law, at the beginning of a case, lawyers and parties sign a “participation agreement” to negotiate in good faith and disclose all relevant facts. The participation agreement includes a “disqualification” clause which provides that if any party decides to litigate, the Collaborative lawyers are disqualified from representing the parties, who must hire new lawyers if they want representation in litigation. The formal difference between Cooperative Practice and Collaborative Practice is that Cooperative Practice participation agreement does not include the disqualification provision.

...

Since a Cooperative process does not include a disqualification clause as in Collaborative cases, some people wonder if Cooperative process is any different from negotiation in litigated cases.

Although many lawyers negotiate cooperatively at times, a Cooperative process can provide greater predictability and confidence than in litigation. DCI members say that a Cooperative process creates a legal culture where cooperation is the norm. Traditional litigation-oriented practice normally does not involve an explicit process agreement. In litigation, lawyers often are not sure about the other side’s intentions and each side may feel that it needs to take tough positions to protect themselves. This sometimes creates a cycle of adversarial behavior that is hard to break out of.

I appreciate new approaches to the practice of law, I really do. But I both (1) don't agree all litigation is 50-50 and (2) fail to see how any of the above is different from good legal practice.

Regarding the first, I'm always suspicious of anything meant to be more persuasive by the inclusion of such terms as "Ivy League" and "top ten." You can see my post about the real motivations of General Counsel for some of the reasons I'm suspicious, given how none of them are immune from completely dropping the ball, obliterating their client's interests.

More importantly, I refuse to believe that any case is 50-50, much less all of them. It is absolutely true that anything could happen at trial and that slamdunk cases lose every day. It is also true that a rational argument can be made for almost anything, and that a factfinder, judge, mediator, arbitrator, or any other neutral would be derelict in their duty if they did not give serious consideration to the arguments made before them.

That said, in the real world people are innocent or guilty. People make mistakes or don't make mistakes. What they did was outrageous or it was not. Are there gray areas? Sure. That's why the law includes explicit burdens of proof and persuasion. In a criminal case, if a factfinder has a doubt about guilt that is founded in reason, they should return an innocent verdict. In a civil case, if a plaintiff has proven their claims are more likely true than not, the jury or judge should return a verdict in the plaintiff's favor.

Have you ever seen a situation in life in which, after complete consideration, you were still totally unable to reach any conclusion? Were you really Buridan's donkey? Spinoza doubted any rational person could find themselves in such a situation and I agree. If you can see a wide array of evidence and argument, which it is your sworn duty to evaluate, and yet you remain totally unmoved, then the problem lies with you, not with the inherent unknowability of the world.

Regarding the second, any plaintiff or defense attorney who truly has their eye on the client's interest will always keep in mind the possibility of resolving the matter. Just like I said above, slamdunk cases lose every single day of the week. I'm sure defense attorneys can chime in that completely frivolous cases can return extraordinary verdicts.

A good lawyer always has that in mind, as well as the financial and emotional cost of litigation. If referring to that process of continual re-evaluation and resolution as "cooperative law" makes it more likely to happen, then that is certainly a benefit to the profession, but litigators and trial lawyers shouldn't be told they're doing it wrong just because they don't use the name.

Same with "collaborative law." If the clients are willing to disclose everything upfront, then by all means we should take all steps to facilitate their resolution. Yet, I have to believe that such openness can only come from the clients, and then only for reasons external to the litigation itself. Disputes simply don't up and resolve themselves by changing the name of the process.
Posted on June 30, 2008 by Maxwell Kennerly
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Shareholder Activism and the "Eclipse of the Public Corporation"

Martin Lipton, who knows a thing or two about corporations, presents:

On June 25, I presented a paper entitled “Shareholder Activism and the “Eclipse of the Public Corporation”: Is the Current Wave of Activism Causing Another  Tectonic Shift in the American Corporate World?” at the 2008 Directors Forum of The University of Minnesota Law School. The paper discusses the pressures that have been pervasively eroding the centrality of the board of directors and transforming its role in the governance structure of public companies, with the end game being a new conception of the corporate organization. Against the backdrop of the subprime and leveraged loan financial crisis and other recent events, the paper addresses what I regard as the crux of the issue affecting public companies today: whether the institution of the corporate board can cope with these pressures and survive as the vital governing organ of public companies. Or, will a forced migration from director-centric governance to shareholder-centric governance, along with a concomitant transformation of the role of the board from guiding and advising management to ensuring compliance and performing due diligence, simply overwhelm American business corporations?

I say the latter, and that's why so many companies have gone private lately. The paper is available here. For reference, he notes what he thought a year and a half ago:

That is, while the public corporation would continue, it would be eclipsed by a new corporate form: the privately owned corporation that uses public and private debt, rather than public equity, as the major source of capital. Since the time I gave that speech, however, the subprime and leveraged loan financial crisis has significantly altered the corporate landscape.

The paper's worth a read, not least to see what one of the most-informed corporate thinkers has on his mind. Here's part of the conclusion:

At its core, the board-centric model of governance is premised on the notion that boards merit the vote of confidence of shareholders and the public markets, ...

That's the same thing I was thinking as I read the paper. Here's how he finishes that sentence:

and notwithstanding the strong current of distrust that runs through many corporate  governance reforms, history has proven this vote of confidence to be well deserved.

He has one piece of particularly strong evidence: in general, public corporations have done very well, returning 8-12% annually. But the idea has always been a little crazy.

Think of your typical pension fund investor and just how far removed they are from the actual use of their money in a basic corporation with minimal management structure. The investor gives their money to the pension fund (1) which purchases a moderate amount of control over the selection of a board of directors (2) that monitors and reviews the work of executives (3) who command their subordinates (4) to manage employees (5) actually working to make a return. Odds are, the investor could get closer to the employees on the ground by playing six degrees of separation.

That system was bound to come apart at some time. I think the information revolution of the past 20 years has finally made it happen by enabling detailed accounting and review of these massive organizations; trust is no long essential, it's merely good. Further, the Internet has increased the speed at which the market reacts, thus raising the stakes even further for investors, who now will only have a very small window in which to escape if internal misconduct becomes public. That's important because the desire to flee is strongly contradicted by the evidence that waiting out the market can trash traditional buy-and-hold strategies (e.g., missing the best ten months between small company stocks between 1925 and 1992 slashed gains from 12% to 6%).

In this day and age, investors can easily feel their money is trapped by a large public corporation.

So what's next? I think the information revolution will continue its course. Just as it is now possible to quickly do a wholesale accounting and review of a massive international corporation, it is also possible -- or at least soon will be possible -- for investors to keep close tabs on private corporations, even without the benefits of the openness and the economies of scale that come with public trading.

I thus foresee over the next few years growth in mid-size and large private corporations where the investors have extensive access to the records in real-time; perhaps not the same level as in a small private company, but far more than investors and public companies now have. We've already started to see that trend with the recent explosion of private equity groups like Blackstone.

What does it mean for lawyers? Well, it's hard to dispute that securities class actions have become tightly regulated. The Private Securities Litigation Reform Act of 1996 shrank the market for securities class actions, narrowing the field of plaintiff and defense lawyers while also tightening those claims to the ones with the strongest pre-litigation proof. There is thus simply less demand for securities class action work.

The private equity boom will go in the opposite direction. The marketplace for private companies with a large number of investors is unsettled and barely regulated, which makes for lawsuits. Most likely, the less-savvy companies will be thrown together with generic LLC agreements that fail to address a number of issues (always fertile ground for lawsuits) while the more-savvy ones will send everything to arbitration, where such disputes probably should be anyway. The truly savvy investors will submit to arbitration (to get faster results on valid claims), but will extract heavy concessions for it, like clauses permitting them extensive records review.

So who will fill that demand? Will securities class action attorneys start looking towards pushing fraud and similar claims through arbitration, or will commercial litigators move from ordinary inter-company breach of contract to intra-company shareholder and ownership disputes? Since few investors will be prepared to start shelling out serious funds it would require to prosecute these actions, I bet the former will probably have more of an impact than the latter, given how they are better suited structurally and temperamentally for plaintiff's work on a contingency basis.

 

Posted on June 30, 2008 by Maxwell Kennerly
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