Published By: Maxwell S. Kennerly, Esquire

I so often see the Board of Directors at a company acting badly that it’s almost is heartening to see things done the right way.

After a protracted period of familial disputes over the company, including a prior lawsuit, one side sent a Demand Letter, as is proper, alleging various Board members “breached their fiduciary duties and engaged in wrongful, self-serving and bad faith acts and omissions … which have resulted in catastrophic injury to [the Company] and corresponding and substantial loss of value to [the challenger’s] stock [in the Company].”

That prompted a Board Meeting where:

Attorney Sonnenfeld discussed the Demand Letter, corresponding ALI Principles, and the duty of care owed by the board to respond to the Demand Letter. He advised, ‘evaluation of the demand should be made by independent and disinterested directors.’ At that point, [the Members accused of wrongdoing] were excused from the meeting. ‘The meeting continued, attended by the independent and disinterested Directors … ‘ At that point, Attorney Sonnenfeld discussed the proper formation of a special litigation committee to address the issues in the Demand Letter. He advised that such committee retain independent counsel ‘to develop a response to the demand letter’ and he provided a preliminary list of candidates and their qualifications. He further ‘discussed the possible role and functions of the Committee in conjunction with the independent counsel.’ "

Lemenestrel v. Warden, 2008 PA Super 295 (Pa. Super. Ct. 2008)(emphasis added).

The company then hired independent counsel to perform an internal investigation of the claims, who concluded “there was no basis or evidence upon which to support a suit by the Company against the Wardens and that, therefore, pursuing those claims through litigation would not be in the best interests of the Company.”

Since the Board followed all the appropriate procedures, the Superior Court upheld the Court of Common Pleas’ holding that the Board’s decision not to pursue litigation was protected under the business judgment rule:

‘Decisions regarding litigation by or on behalf of a corporation, including shareholder derivative actions, are business decisions as much as any other financial decision. As such, they are within the province of the board of directors.’ The Cuker Court cautioned that, ‘if a court makes a preliminary determination that a business decision was made under proper circumstances, however that concept is currently defined, then the business judgment rule prohibits the court from going further and examining the merits of the underlying business decision.’ In other words: ‘Without considering the merits of the action, a court should determine the validity of the board’s decision to terminate the litigation; if that decision was made in accordance with the appropriate standards, then the court should dismiss the derivative action prior to litigation on the merits.’

Id., citing Cuker v. Mikalauskas, 547 Pa. 600, 692 A.2d 1042 (Pa. 1997), which adopted The American Law Institute’s Principles of Corporate Governance: Analysis and Recommendations ("ALI Principles"), particularly sections 7.07-7.10 and 7.13.

I’m sure the internal investigation was both a substantial burden on time and attention and a considerable expense, but look what it accomplished. An ounce of prevention is worth a pound of cure.

 

On Christmas Eve, Judge Feess in the Warner Brothers / Fox dispute over the movie rights to the noir comic The Watchmen gave Fox what might be a nine-figure Christmas gift: granting, in part, Fox’s motion for summary judgment. You can read a copy of the initial order, which Judge Feess has promised to expand upon, over at Corante’s Copyfight.

If you are not familiar with the dispute, here is all you need to know if you don’t want to read my prior post): Fox initially purchased the movie rights to Watchmen, was unable to do anything useful with them and so entered into a series of complicated agreements with a producer, Lawrence Gordon, and his company, agreements which, arguably, preserved Fox’s distribution rights for the movie, and provided for a number of options and scenarios that were never exercised (even though many of them could have been exercised).

Initially, Judge Feess ruled that a jury trial would be necessary because, even though the dispute rose entirely under legal interpretations of undisputed documents, there were a number of factual ambiguities that a jury would have to decide before the court could rule on the legal issues. Trial is scheduled to begin this month.

Such was the case until, as Judge Feess’ order describes it,

Gordon’s testimony regarding the facts, circumstances, and events surrounding the negotiation of the 1994 agreements would have been of assistance to the Court in evaluating the objectives of the parties at that time. However, Gordon refused to testify on that subject during his deposition because he supposedly could not separate what he knows based on his own recollection from what he learned from counsel. Gordon’s counsel therefore asserted the attorney/client privilege and instructed Gordon not to answer any questions on the subject.

There are a couple of potential explanations for Gordon’s lawyer recommending Gordon assert privilege to avoid discussing the most pivotal issues in the case, including:

  • A genuine concern that, in the middle of the deposition, his multi-millionaire successful businessman client would blurt out damaging and heretofore privileged conversations with his attorney;
  • A concern that every arguable waiver of privilege necessarily translates into a complete and total waiver of attorney-client privilege for every discussion relating to the case;
  • A reflexive expression of years of habitually frustrating opponents depositions with each and every potentially viable objection; or,
  • A fit of madness.

Judge Feess was, shall we say, unimpressed with this tactical decision:

The Court takes a dim view of this conduct and questions whether the assertion of the privilege was proper. Moreover, the assertion of the privilege does have a consequence: having now reached a decision based on the record before it, the Court will not, during the remainder of this case, receive any evidence from Gordon that attempts to contradict any aspect of this Court’s ruling on the copyright issues under discussion.

Thus, with a single obtuscatory tactic at a deposition, Gordon’s lawyer was able to permanently foreclose Gordon from contesting Fox’s version of the facts, resulting in there being no further genuine issues of material fact, making summary judgment appropriate.

I was not there and I do not know what potentially privileged information Gordon and his lawyer were trying to keep secret.

I do know, however, that one of the worst things a party to a lawsuit can do is to refuse to answer a question in discovery, at a deposition or at trial. You might as well paint a target on your back. A half-decent trial lawyer will have no trouble forging the molten steel of a refusal into the weapon of the trial lawyer’s choice.

And that’s the best case scenario. The worst case scenario is for the court to conclude that you are trying to play games with the legal system and to destroy your claims accordingly.
 

It’s Sunday and I’m preparing for an arbitration (as the American Arbitration Association calls it, a "Large, Complex Commercial Dispute") which gets underway tomorrow.

Hopefully your day will be a little more relaxed. Get those neurons going with some reading not related to your job:

On Christmas Eve, the Third Circuit issued its opinion in Jurinko v. The Medical Protective Company and The Medical Care Availability and Reduction of Error (MCARE) Fund, a fascinating insurance bad faith claim arising from the failure to tender policy limits in a medical malpractice case, prompting an article in yesterday’s Legal Intelligencer and a flurry of twitter and blog activity. Perhaps it’s a lesson to all of us in the limitations of twitter and blogs and other rapid-response social media. Bob Ambrogi’s tweet “3rd Circuit imposes 1-1 ratio for punitive to compensatory damages” was technically correct, as was this AmLawDaily blog post summarizing the holding:

The court, citing two U.S. Supreme Court rulings (including the Exxon case), ruled that the award was excessive under a test the high court devised in a 2003 case. The judges went further, though, in concluding that the Supreme Court’s general path points toward a 1-1 ratio between compensatory and punitive damages becoming a general guidepost. Good news for corporate defense lawyers.

Both, however, miss the point: the Third Circuit didn’t create or recognize a brightline 1-to-1 ratio. It’s a little more complicated than that.

Taking the “precedential” and “non-precedential” designations at face value (in spite of Federal Rule of Appellate Procedure 32.1 making such designations irrelevant), the non-precedential Jurinko opinion must give way to the precedential CGB Occupational Therapy v. RAJ Health Services, et al. opinion of August 23, 2007, which reduced a verdict of 18-to-1 punitive-to-compensatory damages down to 7-to-1 in another case also involving purely economic damages (and thus falling squarely under State Farm and Gore).

On the face of the two opinions, the take-home message is that, in the wake of recent Supreme Court precedent, trial and appellate courts will give very little weight to jury’s punitive damages awards and will instead look anew at the facts to determine, in the court’s own judgment, the degree to which the plaintiff established the State Farm v. Campbell elements for exceeding the 1-to-1 ratio:

(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the [factfinder] and the civil penalties authorized or imposed in comparable cases.

State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003). (I note here how courts frequently overturn jury verdicts awarding punitives but never overturn verdicts denying punitives.)

Viewed that way, the distinction between the cases is clear: the conduct of Medical Protective was not nearly as reprehensible as the conduct of Sunrise (the company responsible for the most wrongful conduct in CGB Occupational Therapy), because Medical Protective merely acted in an outrageous manner to protect its own financial interests, rather than intentionally setting out to harm the plaintiff, as Sunrise did. The size of the respective underlying compensatory awards was also critical: in Jurinko, the jury awarded $1,658,345 in compensatory damages, as compared to the $109,000 awarded in CGB.

In essence, as a defendant’s conduct becomes worse, punitives above 1-to-1 are allowed but will be discounted by the size of the compensatory damages. (Again, note how no opinion will conclude, for example, “because the jury did not recognize how truly reprehensible the defendant’s conduct was, we hereby triple the punitive damages awarded.”)

Which brings me to what I believe is the real meaning behind both of these cases: courts have begun to take an economic, as opposed to legal, view of punitive damages. In line with the Supreme Court’s criticism in Exxon v. Baker of “the stark unpredictability of punitive awards” – an economic, not legal, concern – courts are increasingly unwilling to uphold verdicts designed to financially punish defendants (one of the explicit goals of punitive damages), even where the defendant has acted in a manner the court itself has recognized as “outrageous” and “reprehensible.”

I think that’s a shame, particularly given the mechanism by which such civil immunity from bankruptcy is being enacted: constitutional interpretation, the second most powerful weapon in the legal arsenal after constitutional amendment. If the duly-elected legislature decides that unlimited punitive damages awards are outweighed by the need for “predictability” after outrageous and reprehensible conduct, that’s one matter, but to see the courts usurp an economic policy determination under the rubric of constitutional interpretation is quite another.

If you were injured by medical malpractice, contact a Philadelphia medical malpractice attorney.

The Philadelphia Inquirer published a review of the just-released biography of Jim Beasley, the founder of my firm:

Legendary Philadelphia trial lawyer Jim Beasley achieved national fame – and vast wealth – by magically spinning humdrum details into compelling courtroom drama. Former Inquirer reporter Ralph Cipriano’s account of Beasley’s life, unfortunately, too often does the opposite. …

Part of the problem is structural. The original book idea was for Beasley and Cipriano to write about Beasley’s big cases, which are world-class: Epic battles against The Inquirer on behalf of Dick Sprague; Beasley versus boxing impresario Don King; Beasley winning a record $907 million wrongful-death verdict against fugitive murderer Ira Einhorn; Beasley as the first lawyer to serve legal process on the Taliban after 9/11 – followed by a $100 million-plus judgment.

It was a good plan.

But then Beasley died.

Still, Cipriano stuck with the one-case, one-chapter format. Deprived of Beasley’s insights, however, Cipriano was forced to rely instead on juiceless trial transcripts, which are often stilted and obtuse. The result: a narrative that covers an impressively broad legal landscape, often interesting and insightful, but with a formulaic feel at odds with Beasley’s verve and spontaneity.

It’s not surprising that I have a more favorable view of the book — look to the right and you can see a picture of the book’s cover, which is link to the book’s webpage. I know the author. I went to the law school that now bears Beasley’s name and work at the firm Beasley founded.

I don’t know David Marston and I don’t think he meant to be unfair, but I do think one mistaken impression should be corrected: most of the book arose from original reporting, not trial transcripts, a distinction that comes across readily when reading it.

Take the cases listed above: Cipriano got the Inquirer editor, the judge, and the defense lawyer in Richard Sprague’s case to talk, as well as the federal court mediator in the case against Don King. It’s a fascinating read, better than you’ll get in most trial or lawyer books, with a quick pace.

True, Beasley’s own voice is not in the book, but so what? When’s the last time you read a great biography, particularly one of a trial lawyer, with ample assistance from the subject? Even the most humble of subjects come across as arrogant and self-serving when opining upon their own legacy.

Truth be told, most "authorized" or "cooperative" biographies are terrible, with insufficient distance from their subjects. Robert Caro’s The Power Broker, for example, one of the finest biographies ever written, was done without any assistance whatsoever from Robert Moses, but rather good old fashioned shoe leather and long conversations, pen and pad in hand, with Moses’ contemporaries.

Martson also missed, to me, the critical part where Jim Beasley’s personality shines through in the book: that awful title, Courtroom Cowboy, which caused Michael Smerconish to drop his head in his hands when Beasley chose it. You can’t read words so self-assured without them smacking you in the face.

Which is how he wanted it.

The American Lawyer describes the case:

Quinn Emanuel Urquhart Oliver & Hedges has been hit with a malpractice lawsuit that claims the firm botched a $48.8 million settlement even as it took in some $12 million in contingency fees.

… The complaint against Quinn Emanuel highlights how — as a result of a contingency agreement that essentially guaranteed Quinn Emanuel half of any amount recovered up to $20 million and 20 percent thereafter — the firm has received approximately $12 million in fees for representing Kurtin. That amount is equal to what Kurtin himself has gotten to date from the settlement, which was reached a little more than four months after Quinn Emanuel took on the case.

… An initial payment of $21 million, which Quinn Emanuel essentially split with Kurtin, was received. But, according to court documents, a payment due June 30, 2006, of $13.1 million, as well as an additional payment outlined in the settlement agreement, was never sent.

… Kurtin initially retained Quinn Emanuel again to try to enforce the settlement agreement through arbitration. The firm even offered up the services of litigation partners Ken Chiate, Jeff McFarland and Bruce Van Dalsem at its "half-rate" of $300 per hour. According to the amended engagement agreement, those partners usually bill out at between $650 and $775.

I’ve written about Quinn Emmanuel’s contingency-fee practice before; it’s not quite the plaintiff’s firm writ large it’s reputed to be, since the bulk of their work is not on a contingency fee.

I’m baffled by this new story. Under the fee agreement as described, Quinn is entitled to another 20% of the remaining $27.8 million, yet they were unwilling to enforce the agreement except on a discounted hourly rate?

Maybe I’m charitable, but I don’t think I would need someone to pay me more by the hour to chase down $5.56 million in fees via arbitration of an iron-clad settlement agreement. In fact, it sounds like the additional hourly fees with be comparatively small even at >$650 — you’re arbitrating a settlement agreement you executed! — and would cause more client dissatisfaction than they would be worth.

There’s another wrinkle:

A public relations representative at SunCal Cos. did not return calls seeking comment. In an interview in March with the Orange County Register, a company executive said that Kurtin’s suit was without merit and that the company had previously met all its obligations to him.

In general, a lawyer’s comment to the media is one of three possibilities: 

  1. The other side’s case is frivolous garbage.
  2. There may be legitimate issues, but I’ll win.
  3. No comment.

I would expect a party that was knowingly in default of a settlement agreement to go with #3 since a properly drafted settlement agreement should be easily enforceable. To hear the settlor go with #1 suggests they really don’t think they are in default, which makes me wonder how the two parties to the settlement could have such radically differing views of their obligations. Sure, commercial litigation settlements can be complicated, but this settlement seemed pretty simple: it’s just money instead of a continuing relationship.

Which leaves us to ponder only two explanations for Quinn Emmanuel’s proposed hourly rates:

  1. Quinn Emmanuel thought their client’s settlement enforcement action had merit, but chose to let $5.56 million in their own fees sit unless they could bill $300 an additional hour recovering them.
  2. Quinn Emmanuel thought their client’s settlement enforcement action had no merit but were willing to fight it anyway, on a discount.

#1 does not make any sense. #2 could have a lot of possible explanations, none of them flattering.

Maybe the story is incorrect or incomplete. Maybe the case will reveal some more important facts. As it stands, this case does not look good for them.

From the Associated Press:

Pardo’s downward slide ended Christmas Eve, when the 45-year-old electrical engineer donned a Santa suit and massacred nine people at his former in-laws’ house in Covina, where a family Christmas party was under way. He then used a homemade device disguised as a present to spray racing fuel that quickly sent the home up in flames.

Pardo had planned to flee to Canada following the killing spree but suffered third-degree burns in the fire — which melted part of the Santa suit to him — and decided to kill himself instead, investigators said. His body, with a bullet wound to the head, was found at his brother’s home about 40 miles away.

…

Pardo had a 9-year-old son, Matthew, by another former girlfriend, Elena Lucano. He had not seen the child for years, but apparently was claiming him as a dependent for tax purposes. Lucano told the Los Angeles Times that she didn’t know Pardo was claiming their son as a dependent.

The boy was left severely brain damaged as a toddler when he fell into a backyard swimming pool on Jan. 6, 2001 while Pardo was alone with him at his former home in Woodland Hills, according to attorney Jeffrey Alvirez, who represented Lucano in the resulting court case.

Medical costs reached $340,000. Lucano sued Pardo to obtain money from his $100,000 homeowner’s insurance policy and about $36,000 was put into a trust fund for the boy, who requires constant care. Pardo never contributed any more money to the boy’s care.

"He never spent a dime on his son," Alvirez said.

A high school girlfriend described Pardo as, back then, having been "a very easygoing person, a very friendly guy." Now he’s the Santa Gunman, after years of ignoring his own disabled child.

I often hear that personal injury plaintiffs want to "get lucky" with their accident, that the most important consideration is to ensure no one gets a "windfall." No doubt, there are plenty of people who want to find a reason to sue or to profit from a trivial infraction. I reject cases like that every day.

But let’s be clear: no one who needs a trial lawyer is "lucky." Most of my catastrophic injury or wrongful death cases look like Matthew’s. A child, a loved one, or an "easygoing, friendly" person was going about their ordinary life, doing something everyone else has done, when something went terribly wrong.

It wasn’t too long ago that Matthew’s case would be considered a hunt for a "windfall;" after all, they were suing over something his own father did. Law students will recall Arizona’s Broadbent v. Broadbent case, 184 Ariz. 74, 907 P.2d 43 (1995), a favorite of textbooks, which involved similar circumstances and the doctrine of "parental immunity."

There are obviously far more causes of the tragedy here — from mental illness, to a messy divorce, to losing his job — than his son’s accident. But I can’t help but wonder what Bruce Pardo’s life would have been like if his son had never been injured. I’m sure he wondered, too.

In the New York Times:

Some years ago, the evolutionist and atheist Richard Dawkins pointed out to me that Sir Isaac Newton, the founder of modern physics and mathematics, and arguably the greatest scientist of all time, was born on Christmas Day, and that therefore Newton’s Birthday could be an alternative, if somewhat nerdy, excuse for a winter holiday.

Think of the merchandise! Newton is said to have discovered the phenomenon of gravity by watching apples fall in an orchard. (His insight came after pondering why they always fall down, rather than upwards or sideways.) Newton’s Birthday cards could feature the great man discovering gravity by watching a Christmas decoration fall from a tree. (This is a little anachronistic — Christmas trees didn’t come to England until later — but I don’t think we should let that get in the way.)

All very jolly — but then, ’tis the season. Yet things are not so simple. It turns out that the date of Newton’s birthday is a little contentious. Newton was born in England on Christmas Day 1642 according to the Julian calendar — the calendar in use in England at the time. But by the 1640s, much of the rest of Europe was using the Gregorian calendar (the one in general use today); according to this calendar, Newton was born on Jan. 4, 1643.

Rather than bickering about whether Dec. 25 or Jan. 4 is the better date to observe Newton’s Birthday, I think we should embrace the discrepancy and have an extended festival. After all, the festival of Christmas properly continues for a further 12 days, until the feast of the Epiphany on Jan. 6. So the festival of Newton could begin on Christmas Day and then continue for an extra 10 days, representing the interval between the calendars.

A splendid idea, I can see no reasonable objection to taking off December 25 through January 6. In terms of gross domestic product, it’s what happens anyway.

While on the subject: Isaac Newton was born severely premature, so small that he fit into a quart mug. He was not expected to live.

If you’re aware of any holidays other than Newtonmas being celebrated today, please, go and enjoy them.

Yesterday’s Wall Street Journal included an editorial by Dan Slater (who runs the WSJ Law Blog) called "The Debate Over Who Pays Fees When Litigants Mount Attacks," suggesting reconsideration of the “English Rule,” in which unsuccessful litigants are required to reimburse their opponent’s legal fees and costs (a/k/a the “loser pays” system), as contrasted to the “American Rule,” in which each party bears their own legal expenses: 

Legal experts think a loser-pays system cuts down on frivolous suits. Those clearly hurt the U.S. The nation’s tort system cost $245.7 billion in 2003, amounting to about 2.2% of total gross domestic product, according to a report from professional services firm Towers Perrin. The percentage of GDP spent on litigation was at least twice those in the U.K. and Germany.

At the same time, say experts, the insurance helps mitigate the pitfalls of a loser-pays system. "Insurance does move in to fill the gap for those suits that might not otherwise be brought in a loser-pays system," says Paul Lomas, a London-based litigator at Freshfields Bruckhaus Deringer.

Initially, a few factual corrections are in order.

First, the Towers Perrin study claiming that litigation costs amount to 2.2% of total gross domestic product has been roundly criticized as being baseless and inflated. For example, the study unfairly lumps together actual litigation costs, like attorneys fees, with the routine functioning of our torts and insurance system. As the Wall Street Journal itself noted over two years ago,

But here’s the problem: critics of past years’ studies — and there are many — say the number and the projections that come with it are deeply flawed. For instance, they include payments that don’t involve the legal system at all. Say somebody smashes his car into the back of your new SUV and his insurance company sends you a $5,000 check to fix the damage. That gets counted as a tort cost in Tillinghast’s number. Critics say it’s just a transfer payment from somebody who wasn’t driving carefully to somebody who has been legitimately wronged. How is that evidence of a system run amok?

"It’s just so inflated," J. Robert Hunter, the director of insurance for the Consumer Federation of America and a former Texas insurance commissioner, says of the Tillinghast figure. Critics also argue that other insurance-industry costs that aren’t the fault of a burdensome tort system — such as the salaries of insurance-industry CEOs — show up in its calculations.

"Math Divides Critics As Startling Toll of Torts Is Added Up," By LIAM PLEVEN, March 13, 2006; Page A2.

Second, plaintiff’s lawyers are in no sense “accustomed to being the exclusive financier of litigation.” The primary "financier" of litigation in America is the insurance industry, turning its good hands into boxing gloves when injured parties seek more than nominal compensation. Even in the context Slater is thinking about – the plaintiff’s side of personal injury tort suits – there are hundreds of companies willing to loan money to plaintiff’s firms and/or plaintiffs for a piece of the eventual recovery. Ordinary business banks also loan to firms after performing the same due diligence they would with an company.

All of these companies, however, have the same restriction that would have to be imposed in a loser pays insurance system: the financier has absolutely no say as to whether the case will be settled or not. Such limitation is appropriate to ensure uncompromised decision-making and is analogous to similar barriers on the defense side, in which the defendant, with limited exceptions, retains control over whether to settle and where the defense lawyer nominally represents only the defendant and not the insurance carrier as well, so as not to divide the lawyer’s loyalties and prejudice the defendant.

Third, most states already recognize a form of “loser pays” in the claim for wrongful use of civil proceedings, which permits the victims of frivolous lawsuits to recover damages caused by such frivolous lawsuits. It has bite here in Pennsylvania — the "Dragonetti Act" has resulted in multi-million-dollar outcomes.

There’s also, of course, the "loser pays" already at the heart of contingent fee cases: if I lose a case, I get nothing. No reimbursement for my time. No reimbursement for my expenses. Nothing. A total loss.

Which brings me to my primary objection to the loser pays system. I would not object to receiving a guaranteed income like my brethren of the defense bar instead of bearing the risk that years of effort and tens of thousands – potentially hundreds of thousands – of dollars will be spent in vain, but I would object, on grounds of fairness, to penalizing a party that brought a valid claim merely because they did not meet their burden of proof.

Consider a typical medical malpractice case. Most of the facts are uncontested. The dispute centers on whether the physician-defendant breached the standard of care, whether such breach caused any harm, and what damages resulted.

In all states of which I am aware, the first two elements require expert medical testimony. To even start a lawsuit here in Pennsylvania, I need a certificate of merit from a qualified physician establishing those two elements. To prevail at trial, obviously, I need in-court credible testimony from a qualified physician establishing those elements to a reasonable degree of medical certainty.

No expert testimony, no claim. Period. That is to say, by law the first two elements are matters entirely outside the understanding of any plaintiff except for physicians who happen to be victims of malpractice in the specialty they currently practice or teach.

If, in good faith, my client and I believed our qualified expert’s opinion on matters the law says are beyond our understanding, why should we be punished if a jury accepts the defendant’s version instead of our’s?

Deterrence? Of what? Claims a qualified expert physician thought were valid? Should I be deterred merely because the defense found someone to say otherwise? In medical malpractice, there’s always some doctor somewhere willing to say that my client coincidentally suffered a heart attack or stroke or spontaneous decapitation regardless of the record or the probabilities.

Why would we want to deter valid claims? Isn’t the point of a civil justice system to offer people the opportunity to present their claims in fair and open court?

I’m wary, too, of considering the lower litigation costs in Europe as a positive sign of judicial health (if, indeed, they are lower, given the inflated numbers of the US study). Many European countries routinely apply legal doctrines we consider abhorrent in the United States, such as the onerous standards applied to publishers in libel cases in the United Kingdom, standards incompatible with First Amendment principles of free speech.

When all is said and done, the effective result of loser pays, whether insured or not, is to change the civil system from one in which a plaintiff must convince a jury of the rightness of their cause with the preponderance of the evidence to one in which a potential client must convince a lawyer and/or insurance company of the rightness of their cause beyond a reasonable doubt. The client must convince the lawyer/insurer not only that their case is worth their damages, but that their case is worth well beyond their damages, to mitigate the direct loss the lawyer or insurer will incur if they lose.

The practical effect, then, would be to intimidate plaintiffs’ lawyers like me into rejecting the vast majority of legitimate cases because, even though I may feel they have a strong likelihood of prevailing, I simply can’t afford to test my luck with anything other than the handful of cases I’m sure will win.

UPDATE: Dan Slater got plenty of email, as he relates on the WSJ Law Blog.

If you were injured by medical malpractice, contact a Philadelphia medical malpractice attorney. 
If you have been seriously injured, contact a personal injury lawyer.

Yesterday we discussed the outrageous attorneys fees in the Robertson v. Princeton suit, which amounted to $80 million in pre-trial litigation costs and $40 million in projected trial costs. Based on those fees, it seems each side had a team of 6 lawyers working all day, every day, for all 6.5 years of the litigation, all for a case more comparable in size to a complicated personal injury / wrongful death case than a major commercial or business case.

It’s time to ask some basic business / commercial litigation questions.

Did the lawyers engage in ‘total war’ litigation? Did the clients understand that decision?

Unfortunately, Mercer County (in New Jersey, where the litigation took place) doesn’t keep its hearing and docket lists up permanently or publish its orders. Did the Robertsons decide it would be tactically advantageous to pummel Princeton with discovery requests? Did Princeton decide it would be tactically advantageous to stonewall every discovery request? Did everything require a motion or two?

When there’s a paying client (as opposed to an insurance carrier or a contingent fee agreement), most litigators will sit down with their client early in the case and ask: how do you want me to handle it? If a client asks for ‘the works,’ an experienced, tough litigator would have no trouble churning through $500,000 in fees on a simple bread-and-butter business contract dispute. Add in any variables — like sophisticated accounting, extensive documentation or novel issues — and you’ll start the process at $1 million, breaching $5 million well before trial.

But that’s still not $40 million apiece.

Did the clients understand the workflow at the law firms?

Even if we generously assume that some of the $80 million comes from work in the years preceding the actual lawsuit, we still have whole teams of lawyers working full time.

Pareto’s 80/20 rule applies just as much to litigation as it does to any other business. Did either of these clients recognize what, exactly, the firms were doing?

  • Did the lawyers assert privilege as broadly as possible and then force litigation on every issue?
  • Did the lawyers apply any thought to whom they should depose, or did they depose everyone who arguably was aware of discoverable facts?
  • Was every brief right at the page limit, chock full of barely-relevant cases that took hours to track down even on issues where the judge had considerable discretion?

That is to say, did either party hire a liitigation consultant, ask their in-house counsel, or use their common sense to assess if the work was really needed or if the litigation attorneys were churning through hours as fast as they could?

Did the lawyers and clients consider alternative dispute resolution?

The core of Robertson involved dry and technical issues of legal interpretation, accounting and oversight. There was no “pain and suffering” component. Witness credibility was not the critical factor. All of the main reasons a party would either want non-lawyers or a jury of twelve reviewing a case were absent.

Why, then, did the parties subject the Mercer County Superior Court to this punishment? Did the clients really understand the ramifications of staying in state court and the delays and additional attorneys’ fees that usually come with such a decision? Did the parties even consider arbitration?

In an antitrust case much larger than Robertson (a different antitrust case from the one mentioned above), Visa, Mastercard and AmEx resolved their multi-billion-dollar largely-legal dispute in arbitration. Why not here? Discovery probably would have gone much more smoothly, with Princeton more easily obtaining confidentiality and the Robertsons more easily obtaining documents.

Did the lawyers and clients consider alternative fee arrangements?

The Robertsons, as plaintiffs, paid an effective fee of 44% of their total recovery of $90 million.

A 40% gross-recovery contingent fee agreement is not uncommon in complex, expensive and/or risky business disputes; here, however, the client received none of the benefits of a contingent fee. As best I can tell, the lawyers bore no risk and paid no expenses out of pocket — the clients did.

Did the Robertsons consider a contingent fee agreement? 40% would have been cheaper and during the six years of litigation their foundation could have held onto the money, investing it tax-free. They could also have done a blended agreement, with the Robertsons covering costs and expenses and the attorneys claiming, say, one-third of the recovery.

Princeton, in turn, paid $40 million over six years to defend a claim they later settled for $90 million. Making matters worse, the $40 million likely came in the unpredictable form that managers hate, with huge swings depending on the litigation, invoiced in a manner completely opaque to non-lawyers and lawyers not familiar with the case.

Did Princeton consider, say, a flat fee? The controversy had been brewing for almost forty years, with Princeton well aware of the major factual issues. The major legal issues are all apparent on the face of the complaint, which is only 68 pages long. Obviously, there will be an extensive accounting, lots of discovery and document review, and a couple big motions for summary judgment with regard to characterizations of various payments and the duties of your clients.

It’s a big case but it’s not unbounded in scope. It’s not a class action or antitrust case sprawling over dozens of parties and whole industries; it’s a dispute between a university and a foundation over a specific sum of money and a specific grant.

You could do it with the “feeding frenzy” team: two lead attorneys and a handful of associates and paralegals.

They could have blended that fee as well: Princeton covers external costs and expenses, like the accounting firm and deposition costs, with a flat fee payable every six months for attorneys’ fees. Going off of our big firm average hourly rate of $348, estimating the case will take up half of their 12,000 billable hours per year available time, puts us at $1 million every six months. Princeton would have ended the case for less than $18 million, including all costs and expenses.

These are all just ideas, any one of which would have likely saved millions.

Was anyone really looking out for the client? Are non-profits the new profit centers for lawyers?

Maybe in the end we have another example of the dangers of using “OPM.” No individual or for-profit enterprise paid a dime for this excess and waste; it all came out of “charity.”

The Robertsons paid for the suit via the Banbury Fund, which they control. As best I can tell, they exhausted most of the Fund’s assets on this suit, though they are being reimbursed under the settlement.

Princeton paid for it out of their multi-billion-dollar endowment; as part of the settlement, the funds expended will be deducted from the Robertson Foundation as it is dissolved into Princeton’s general endowment.

So, there you have it. $80 million in litigation fees to move $50 million from one charity to another. Princeton President Shirley M. Tilghman called the whole case “a tragedy” because the legal fees could have been spent on education. I’d agree, except that I can’t help but wonder what steps Princeton could have taken to reign in their costs; you can’t blame the other side for everything.