Liman Public Interest Workshop. Rationing Law: Subsidizing Access to Justice in Democracies. Spring 2015 Syllabus. Mondays, 6:10-8 pm, Room 124

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1 Liman Public Interest Workshop Rationing Law: Subsidizing Access to Justice in Democracies Spring 2015 Syllabus Mondays, 6:10-8 pm, Room 124 March 30 (Class 9): Unnecessary Litigation : A Critique of Courts A large anti-court movement has formed and had a remarkable impact in terms of rules, statutes, and doctrine in the United States. What is the nature of the critique? What are the empirical claims and how might they be tested? How are the concerns translated into law? Who are the many defendants complaining about the system? What are the concerns of the poor defendants in the junk justice debt collection mill, and how might they be addressed? U.S. Chamber of Commerce Institute for Legal Reform, Lawsuit Abuse Impact, American Tort Reform Association, Judicial Hellholes , pdf Elizabeth G. Thornburg, Judicial Hellholes, Lawsuit Climates, and Bad Social Science: Lessons from West Virginia, 10 W. Va. L. Rev (2008) Mayer Brown LLP, Do Class Actions Benefit Class Members?: An Empirical Analysis of Class Actions, mayerbrownclassactionstudy.pdf Peter A. Holland, Junk Justice: A Statistical Analysis of 4,400 Lawsuits Filed by Debt Buyers, 26 Loyola Consumer L. Rev. 179 (2014) Stephen B. Burbank & Sean Farhang, Litigation Reform: An Institutional Approach, 162 U. Penn. L. Rev (2014) (SKIM) Optional: Lawyers for Civil Justice, Comment to the Advisory Committee on Civil Rules and its Rule 23 Subcommittee, Repairing the Disconnect Between Class Actions and Class Members: Why Rules Governing No Injury Cases, Certification Standards for Issue Classes, and Notice Need Reform (Aug. 13, 2014). Marc Galanter, An Oil Strike in Hell: Contemporary Legends in the Civil Justice System, 40 Ariz. L. Rev.717 (1998)

2 Lawsuit Abuse Impact The United States is the world leader in lawsuits, which cost the U.S. economy $264 billion per year or about $850 per year for every man, woman and child in the United States. That hurts families, businesses, local communities and America s ability to compete in the global economy. America has the world s costliest legal system. As a percentage of our economy, U.S. legal liability costs are double those of the UK, three times higher than those in France and five times higher than those in Japan. Our nation s litigation addiction harms America s ability to compete for jobs and investment in a global economy. Just as important, lawsuit abuse harms workers and communities across the United States. Consider: Litigation costs small businesses in America over $100 billion per year. One in three small business owners report that they have been sued or threatened with a lawsuit and if sued, more than two-thirds say they would likely have to pass legal costs on to consumers, reduce employee benefits and hold off on hiring new employees. In other words, the ultimate victims of lawsuit abuse are consumers (in the form of higher prices) and workers (in the form of lost jobs and benefits). Consider one example of how lawsuit abuse destroyed a business, killed jobs and decimated a community. For nearly fifty years, gasoline can manufacturer Blitz USA was a pillar of the small town of Miami, Oklahoma. They produced 75 % of all portable gas cans sold in the United States, and more than 100 families depended on Blitz for their livelihoods. But then a small group of plaintiffs lawyers put Blitz USA out of business. These trail lawyers concocted a legal theory that sought to blame Blitz for the handful of injuries caused by misuse of gas cans. The resulting lawsuits forced the company to close its doors. Over a hundred workers lost their jobs and benefits, and the town of Miami lost one of its most important employers while the lawyers made millions. The factory has since reopened under foreign ownership but with fewer jobs. It s not just businesses that suffer from frivolous litigation. In Huntington, West Virginia, the local school district removed swings from elementary school playgrounds following a Liman Workshop Spring 2015 Lawsuit abuse impact

3 lawsuit. In Rancho Cordova, California, a local community center was forced to close because of an abusive lawsuit. In 2011, New York City had to spend $550 million on lawsuit costs which comes to approximately $70 for every resident of the city. From workers on a gas can assembly line to kids in a West Virginia playground, the victims of lawsuit abuse are all around us. Little wonder, then, that nine out of ten American voters believe there are too many meritless lawsuits. Policymakers should take note and enact commonsense reforms to improve America s lawsuit climate. Liman Workshop Spring 2015 Lawsuit abuse impact

4 JUDICIAL HELLHOLES 2013/2014 Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

5 CONTENTS PREFACE...2 EXECUTIVE SUMMARY...3 JUDICIAL HELLHOLES California....7 Louisiana...11 New York City...15 West Virginia Madison & St. Clair Counties, Illinois...22 South Florida...24 WATCH LIST Cook County, Illinois Baltimore, Maryland Philadelphia, Pennsylvania Newport News, Virginia New Hampshire...36 City of St. Louis, Missouri Clark County, Nevada Jones County, Mississippi Spartanburg County, South Carolina...40 Atlantic County, New Jersey...41 DISHONORABLE MENTIONS Oklahoma Supreme Court Nullifies Comprehensive Tort Reform Law...43 Alabama Supreme Court Imposes Innovator Liability...43 Florida Supreme Court Invalidates Doctor-Patient Arbitration Agreement Illinois Appellate Decisions Add to High Workers Comp Costs Massachusetts High Court Absurdly Expands Consumer Protection Law...45 Minnesota Court Of Appeals Creates New Right to Sue New Jersey Appellate Court Invites Claims Against Texters...47 POINTS OF LIGHT IN THE COURTS...48 Colorado Supreme Court Instructs Trial Courts to Rein in Discovery...48 Idaho Justices Uphold Vexatious Litigant Rule...48 Illinois Supreme Court Strikes Blow Against Forum Shopping...49 Maryland Court of Appeals Retains Contributory Negligence Defense...49 New Jersey Supreme Court Strengthens Medical-Expert Standard...50 Colorado and Oklahoma Protect Consumers from Lawsuit Lenders...50 U.S. Fifth Circuit Upholds Mississippi s Limit on Noneconomic Damages...51 IN THE LEGISLATURES Fourteen States Enacted Positive, Significant Civil Justice Reforms...52 ATTORNEY GENERAL ACTIONS State AGs Crackdown on Patent Trolls...53 West Virginia AG Adopts Transparency in Hiring Of Outside Counsel...54 SPECIAL SECTION Plaintiffs Lawyers Try To Keep Class Actions in Judicial Hellholes...55 THE MAKING OF A JUDICIAL HELLHOLE...59 Copyright 2013 by American Tort Reform Foundation Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

6 PREFACE Since 2002 the American Tort Reform Association s (ATRA) Judicial Hellholes program has built on the American Tort Reform Foundation s (ATRF) annual report of the same name, documenting developments in places where judges in civil cases systematically apply laws and court procedures in an unfair and unbalanced manner, generally against defendants. More recently the lawsuit industry has begun aggressively lobbying for legislative and regulatory expansions of liability, as well, so Judicial Hellholes reporting has evolved to include such law- and rulemaking activity, much of which can affect the fairness of a state s lawsuit climate as readily as judicial actions. Though entire states are occasionally cited as Hellholes, specific counties or courts in a given state more typically warrant such citations. And importantly, jurisdictions singled out by Judicial Hellholes reporting are not the only Judicial Hellholes in the United States; they are simply among the worst. Judicial Hellholes reports compile the most significant court rulings and legislative actions over the course of the year as documented in real-time online. The report also reflects feedback gathered from ATRA members and other firsthand sources. Because the program has become widely known, ATRA also continually receives tips and additional information, which ATRF then researches independently through publicly available court documents, judicial branch statistics, press accounts, and various studies. The Judicial Hellholes program considers only civil litigation; it does not reflect in any way on the criminal justice system. ABOUT THE AMERICAN TORT REFORM FOUNDATION The American Tort Reform Foundation (ATRF) is a District of Columbia nonprofit corporation, founded in The primary purpose of the Foundation is to educate the general public about: how the American civil justice system operates; the role of tort law in the civil justice system; and the impact of tort law on the public and private sectors. Judicial Hellholes is a registered trademark of ATRA being used under license by ATRF. 2 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

7 EXECUTIVE SUMMARY 1 CALIFORNIA 2 LOUISIANA JUDICIAL HELLHOLES 2013/ NEW YORK CITY 4 WEST VIRGINIA 5 MADISON & ST. CLAIR COUNTIES, ILLINOIS 6 SOUTH FLORIDA JUDICIAL HELLHOLES 2013/2014 The report shines its brightest spotlight on six areas of the country that have developed reputations as Judicial Hellholes: #1 CALIFORNIA sits atop the Judicial Hellholes rankings once again, as average Californians feel the pinch of the he-sues-she-sues-everyone-sues litigation climate. The food industry is the latest target of plaintiffs lawyers who seek to take advantage of the state s plaintiff-friendly consumer protection laws and a federal court s perceived receptivity to such lawsuits. A half-hearted legislative reform did little to stem the tide of disability-access lawsuits, brought by a cadre of professional plaintiffs and profiteering lawyers, which has shuttered small businesses. Asbestos litigation continues to migrate from reform states into California s permissive courts. And even after other state courts rejected public nuisance lawsuits against companies that formerly made lead paint, personal injury lawyers representing 10 local governments still persist with such a claim, pending before a California judge. #2 LOUISIANA rockets up the Judicial Hellholes list after the state s high court gave new life to abusive legacy lawsuits that threaten the state s onshore oil and gas production. A levee board and two parishes, aided by private lawyers, also seek money from energy companies for shoreline restoration projects that are not in line with the state s Master Plan. Despite its efforts to be a good corporate citizen in the wake of the Deepwater Horizon oil spill, BP is being fleeced by fictitious claims. And state Attorney General James Buddy Caldwell continues to offer lucrative legal work to his friends and political supporters without open bidding or oversight. #3 NEW YORK CITY s litigation climate grows more costly for taxpayers, consumers, those seeking health care and the unemployed. But the man in charge of the New York State Assembly moonlights for a powerful personal injury law firm and is determined to kill civil justice reform proposals, such as amendments to the state s antiquated scaffold law that drives construction insurance costs through the roof. Meanwhile, the New York City Asbestos Litigation docket, known as NYCAL, is moving in the opposition direction of courts in other states, providing unfair procedural advantages to plaintiffs lawyers. The judge overseeing the asbestos docket is currently considering a reintroduction of punitive damages, which would deplete resources available to future claimants and make cases more difficult to settle. And even a Long Island congresswoman has filed a questionable asbestos claim, while state lawmakers/lawyers resist disclosure of their conflicts of interest. #4 WEST VIRGINIA s sole appellate court expanded liability again this year by imposing a new duty on property owners to protect guests from even the most open and obvious of hazards. The move comes after the court allowed a punitive damages award based largely on the amount of the plaintiff s attorney s fees a move that amounted to punishing the defendant for defending itself in court. The state s new attorney general has undertaken positive ethics reforms, but a court ruling that expanded the office s power to hire contingency-fee lawyers could Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

8 make for more trouble down the road. And Mountain State courts continue to circumvent the workers compensation system, issue excessive verdicts, and welcome questionable asbestos litigation. #5 MADISON COUNTY, ILLINOIS remains the nation s epicenter for asbestos litigation, with about one in every four asbestos cases across the U.S. filed there. The county is experiencing a significant uptick in lawsuits by people with lung cancer, which likely was not caused by asbestos exposure. Madison County s neighbor, ST. CLAIR COUNTY, has not only seen a similar increase in lung cancer cases, but is attracting lawsuits against drug makers. Some of the cases are filed on behalf of groups of dozens of plaintiffs, a technique designed to skirt the mass action threshold of the Class Action Fairness Act (CAFA). CAFA made it appropriately easier for defendants to have large, multi-state lawsuits decided in a neutral federal court rather than a Judicial Hellhole. #6 SOUTH FLORIDA may be known for sunny weather, but the outlook is always cloudy for its residents and insurers, who face higher costs thanks to the excessive liability climate. A broken bad-faith law incentivizes plaintiffs lawyers to delay or obstruct settlement offers by insurers in order to pursue a large payday by alleging the insurer failed to settle claims in good faith. South Florida s personal injury attorneys also have developed methods to inflate damages for medical expenses by hiding actual costs or seeking recovery for unnecessary procedures. And perhaps learning from colleagues in California, South Florida plaintiffs lawyers are bringing more disability-access lawsuits against small businesses, too. WATCH LIST Beyond the Judicial Hellholes, this report calls attention to 10 additional jurisdictions that bear watching due to their histories of abusive litigation or troubling developments. Watch List jurisdictions fall on the cusp they may drop into the Hellholes abyss or rise to the promise of Equal Justice Under Law. The unusually large number of Watch List jurisdictions relative to full-blown Judicial Hellholes shows progress. As the public and policymakers, learn more about the negative economic effects of poorly balanced civil courts, they are more likely to undertake reforms before their jurisdictions warrant designation among the Judicial Hellholes. COOK COUNTY, ILLINOIS CITY OF BALTIMORE, MARYLAND PHILADELPHIA, PENNSYLVANIA NEWPORT NEWS, VIRGINIA NEW HAMPSHIRE CITY OF ST. LOUIS, MISSOURI CLARK COUNTY, NEVADA JONES COUNTY, MISSISSIPPI COOK COUNTY, ILLINOIS is viewed as one of the most inhospitable places for a business to face a lawsuit SPARTANBURG, SOUTH CAROLINA in the country. It could get worse, following a court ATLANTIC COUNTY, NEW JERSEY ruling that lays a welcome mat for product liability lawsuits from around the state, a worrisome development for any company whose goods land on shelves in Illinois. And Chicago itself is routinely targeted by plaintiffs looking for an easy settlement a culture of lawsuit abuse that has cost the city $192 million since THE CITY OF BALTIMORE, MARYLAND teeters on the cusp this year as some gains were made when a trial court denied a powerful plaintiff firm s attempt to consolidate 13,000 unrelated asbestos cases and the state s high court resisted several plaintiff lawyers attempts to expand liability. But the continuing manipulation of asbestos trust fund claims and lawsuits demonstrate how plaintiffs attorneys take advantage of a playing field that remains tilted in their favor. PHILADELPHIA, PENNSYLVANIA has improved its procedures for mass tort litigation and the state now more fairly allocates damages based on a party s responsibility for an injury. Cases before the state s high court, however, 4 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

9 could change the way the state handles class actions, product liability, and forum shopping for better or worse. The state legislature s consideration of proposals that would increase liability and litigation in the state also warrants close monitoring. NEWPORT NEWS, VIRGINIA stands out among the most plaintiff-friendly jurisdictions for asbestos cases in the country, despite Virginia s generally conservative tort jurisprudence and recent reforms. The court has set a low bar for scientific reliability of expert testimony, relaxed causation standards, hidden from juries what the plaintiff s employer knew about the health hazards of asbestos, and prevented product makers from asserting widely-accepted defenses. NEW HAMPSHIRE is facing a messy situation, and it is not in the groundwater, but in the legal system. The state s liability environment is awash with plaintiff-friendly rulings, contingency-fee lawyers, and legislators looking to use a record $236 million verdict as a windfall to fatten state coffers, instead of the environmental cleanup for which it was intended. CITY OF ST. LOUIS, MISSOURI is becoming a favored location for mass tort cases, with courts permitting lawyers to combine multiple plaintiffs in a single lawsuit. That, along with a recent record-setting punitive damages award and a liability-expanding supreme court, have businesses operating in the region worried. CLARK COUNTY, NEVADA was declared the undisputed jackpot justice capital of the world after its court delivered another $500 million verdict in April, the latest in a string of extraordinary awards stemming from a hepatitis C outbreak. Though the doctor behind the clinic outbreak was criminally sentenced to 18 years to life, civil cases have respectively pinned hundreds of millions of dollars in liability on an innocent drug maker and distributor, and, most recently, a health insurer. The state attorney general s use of out-of-state contingency-fee lawyers to sue a mortgage lender in Clark County is pending before the Nevada Supreme Court. And the high court adopted a controversial and expansive premises liability standard that could prove costly for businesses in Clark County s Las Vegas and throughout the state. JONES COUNTY, MISSISSIPPI is a last bastion for silica lawsuits, which have dried up in other, more reasonable jurisdictions following a federal judge s fraud investigation in But in Jones County, where a local judge recently reversed a defense verdict, going to trial is a risky bet for defendants in product-liability cases. SPARTANBURG, SOUTH CAROLINA is the place of choice for contingency-fee lawyers who use their home field advantage to sue pharmaceutical companies on behalf of the state. ATLANTIC COUNTY, NEW JERSEY remains still a battleground for pharmaceutical companies who face an uphill slog against a judge they say is biased. New Jersey s highest court is poised to rule on that question of bias. DISHONORABLE MENTIONS Dishonorable Mentions, which highlight singularly unsound court decisions, go to the: Oklahoma Supreme Court for nullifying a comprehensive tort reform law passed in 2009, costing the state needless time and money as the legislature was forced to reconvene and re-enact each provision of the law separately; Alabama Supreme Court for being the first and only state supreme court to impose so-called innovator liability on a drug company for generic products it did not make or sell; Florida Supreme Court for invalidating an arbitration agreement governing medical care disputes; Illinois appellate courts for expanding workers compensation liability beyond its intended scope and providing excessive compensation; Massachusetts Supreme Judicial Court for allowing a trial judge to misuse the state s consumer protection law to award triple damages against a small business, even though a jury found the business s owners not responsible for the harm; Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

10 Minnesota Court of Appeals for using the state s Consumer Fraud Act to create a new private right to sue when the legislature explicitly chose not to authorize such a right; and New Jersey s Superior Court Appellate Division for ruling that a person who sends distracting text messages to someone who is driving may be liable if there is an accident. POINTS OF LIGHT This year s report again enthusiastically emphasizes the good news from some of the Judicial Hellholes and other jurisdictions across the country. Points of Light are examples of, among other things, fair and balanced judicial decisions that adhere to the rule of law and positive legislative reforms. Points of Light are awarded to the: Colorado Supreme Court for instructing trial courts to play an active role in reining in overly broad discovery; Idaho Supreme Court for unanimously standing against vexatious litigants ; Illinois Supreme Court for striking a blow against the filing of asbestos cases with no connection to the state in its Judicial Hellholes; Maryland Court of Appeals for retaining a longstanding rule that a defendant is not liable when a plaintiff s own actions contributed to his or her injury; New Jersey Supreme Court for strengthening the standard for expert testimony in medical liability lawsuits; Colorado Court of Appeals and Oklahoma s legislature and governor for protecting consumers and their states civil justice systems from abusive third-party financing of lawsuits; and U.S. Court of Appeals for the Fifth Circuit for upholding Mississippi s $1 million limit on noneconomic damages in general personal injury cases. In addition to these significant court rulings, legislatures in fourteen states enacted significant, positive civil justice reforms, including Alabama, Arizona, Florida, Louisiana, Montana, New Hampshire, New Jersey, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Virginia and Wisconsin. Although this report often criticizes state attorneys general, particularly with respect to the hiring of privatesector lawyers to represent their states on a contingency-fee basis, they also deserve recognition for steps they take to improve the civil justice system. Accordingly, this year s report praises West Virginia Attorney General Patrick Morrisey s new transparency policy for hiring outside counsel, which provides a stark break from the practices of his predecessor. It also applauds the actions of the AGs of Vermont, Nebraska, and Massachusetts for cracking down on abusive patent litigation. SPECIAL FEATURE This year s report highlights troubling attempts by plaintiffs lawyers to circumvent the federal Class Action Fairness Act (CAFA) by keeping massive, multi-state lawsuits in Judicial Hellholes, rather than having them heard in neutral federal courts. 6 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

11 POINTS OF LIGHT There are five ways to douse the flames in Judicial Hellholes and help out-ofbalance jurisdictions develop more evenhanded civil courts: 1 Constructive media attention and public education can help encourage reform; 2 Trial court judges can engage in self-correction; 3 Appellate courts can overturn bad trial court decisions and limit future judicial malfeasance; 4 Legislatures and other state officials can adopt reforms; and 5 Voters can reject liability-expanding judges or enact ballot referenda to address particular problems. In its Points of Light section, the Judicial Hellholes report highlights jurisdictions in which judges, legislators, the electorate and/or the media have intervened to stem abusive judicial practices. These jurisdictions set an example for how a courthouse, city, county or state can emerge from the depths of a hellhole or otherwise keep itself from sinking to those depths in the first place. This year s report again focuses on both judicial and legislative actions, and also commends several state attorneys general who acted to address lawsuit abuse. IN THE COURTS COLORADO SUPREME COURT INSTRUCTS TRIAL COURTS TO REIN IN DISCOVERY A Colorado Supreme Court decision in June instructed trial courts to take an active role in managing discovery to curb abuses and delays, and to lower litigation costs. Plaintiffs lawyers often abuse the discovery process, demanding millions of seemingly irrelevant paper and electronic documents from defendants in order to drive litigation costs high enough to force settlements or otherwise provide grounds for additional lawsuits. Such a fishing expedition is what a trial judge allowed in DCP Midstream LLP v. Anadarko Petroleum Corporation. But the defendant appealed to Colorado s high court, which unanimously remanded the case back to the trial court with instructions to require plaintiffs to show the relevance of the discovery documents they sought. Chief Justice Michael Bender, writing for the court, told Colorado trial courts that they must determine the appropriate scope of discovery in light of the reasonable needs of the case and tailor discovery to those needs. Some legal observers view the case as a landmark decision, because judges often take a hands-off approach to discovery disputes. ATRA had filed an amicus brief urging the high court to set reasonable discovery limits and hopes other state supreme courts will follow suit. IDAHO JUSTICES UPHOLD VEXATIOUS LITIGANT RULE In April 2013, the Idaho Supreme Court unanimously upheld a lower court s decision to declare a frequent lawsuit filer a vexatious litigant under a court rule aimed at neutralizing those who repeatedly file frivolous lawsuits. Holli Lundahl Telford will now need a judge s permission before bringing another lawsuit in Gem State courts. Administrative District Court Judge David Nye issued the pre-filing order after several other district court and magistrate judges made the request. Judge Nye found that Telford satisfied the criteria set by the law for a vexatious litigant because state courts in Utah and Texas, federal courts in California, Idaho and Montana, and the U.S. 48 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

12 Supreme Court had already designated her as such. Telford also qualified as a vexatious litigant because she had filed three or more pro se litigations in Idaho courts that were determined adversely to her over a seven-year period. A search of court records by the Idaho State Journal revealed that Telford had filed nine cases in Idaho courts since Not surprisingly, Telford challenged her designation as a vexatious litigant with bizarre accusations, meritless arguments regarding the rule s constitutionality, and factually and legally questionable procedural claims. The Idaho Supreme Court rejected each of Telford s arguments in the first appeal of a vexatious litigant designation under the rule, which went into effect in July 2011, just months before her designation. Telford was also order to pay the costs associated with her appeal. Telford ILLINOIS SUPREME COURT STRIKES BLOW AGAINST FORUM SHOPPING As this report has repeatedly documented, certain Illinois counties have long attracted plaintiffs lawyers from around the country. In December 2012, the Illinois Supreme Court dealt a blow to the ability of plaintiffs lawyers to file their cases before judges they believe will be most receptive to their claims. The Illinois Supreme Court ruling reversed a St. Clair County trial court s refusal, affirmed by a divided mid-level appellate court, to dismiss a Mississippi man s asbestos lawsuit against a railroad that had no connection to Illinois. In that case, Fennel v. Illinois Central Railroad Co., the plaintiff was a lifelong Mississippi resident. He worked primarily in Mississippi and his exposure to asbestos occurred primarily in Mississippi and Louisiana. The vast majority of the witnesses, including the plaintiff s treating physicians, were located in Mississippi. In fact, the plaintiff s lawyers originally filed the claim in a Mississippi state court before re-filing in St. Clair County. The lawsuit s only Illinois connections, the court found, were that the plaintiff s attorneys and an expert witness for the plaintiff were located in the state, and that a defendant s law firm, which had accumulated evidence in asbestos litigation, was located not far from the St. Clair courthouse. St. Clair County Judge Lloyd Cueto had extended the welcome mat to asbestos claims in his court, writing in his order retaining the Mississippi case that St. Clair County no longer has congested trial dockets. In fact, there are so few trials that as a matter of policy in Courtroom 404 if the attorneys agree on a jury week they get it. Guaranteed! But the Illinois Supreme Court decided that, Decent judicial administration cannot tolerate forum shopping as a persuasive or even legitimate reason for burdening communities with litigation that arose elsewhere and should, in all justice, be tried there. The high court instructed lower courts to more carefully consider all of the factors governing whether a case should be dismissed because it has a greater connection, and is Judge Cueto more fairly decided, in another jurisdiction. The decision could help curtail forum shopping, reducing the flow of lawsuits from other states to Illinois counties viewed as Judicial Hellholes. MARYLAND COURT OF APPEALS RETAINS CONTRIBUTORY NEGLIGENCE DEFENSE On July 9, 2013, Maryland s highest court retained the doctrine of contributory negligence in Coleman v. Soccer Association of Columbia. Contributory negligence, a settled part of state law for more than 165, years and prevents someone at fault for his or her own injuries from collecting damages in a lawsuit. In the opinion, Judge John Eldridge cited the Court s decision in a 1983 case, in which the court also chose not to adopt comparative negligence, which allows a person who is partially at fault to recover damages. Judge Eldridge emphasized that the Court, in its prior ruling, declined to abandon the doctrine of contributory negligence in favor of comparative negligence, pointing out that such change involves fundamental and basic public policy considerations properly to be addressed by the legislature. He pointed to the legislature s express choice to not adopt comparative fault through proposed legislation 21 different times before the court s 1983 decision and continually since. Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

13 The opinion concluded, Although this Court has the authority to change the common law rule of contributory negligence, we decline to abrogate Maryland s long-established common law principle of contributory negligence. NEW JERSEY SUPREME COURT STRENGTHENS MEDICAL-EXPERT STANDARD At issue in medical liability lawsuits is whether a doctor s treatment of a patient fell below the level of care and skill that, in light of the surrounding circumstances, is recognized as acceptable and appropriate by similarly qualified and reasonably prudent health care providers. Expert testimony is necessary to establish this standard of care and evaluate whether the treatment provided by the patient s doctor met that standard. In New Jersey, some courts had allowed doctors to testify as expert witnesses when they did not specialize in the type of care provided to the patient. Such expert testimony may lead to erroneous results. In April, a unanimous New Jersey Supreme Court provided a helpful safeguard in such malpractice cases, ruling that an expert witness on a patient s behalf must hold the same credentials as the physicians accused of making a mistake. While licensed doctors share the same basic foundation of medical knowledge, they practice in very different areas. Even when two doctors have experience treating similar conditions, they may do so in substantially different environments and contexts. For example, an emergency room doctor is likely to have experience stabilizing patients who are rushed to the hospital after a heart attack, while a cardiologist may have more in-depth knowledge of heart conditions and the efficacy of surgery. An ER doctor does not have the expertise to testify to whether a cardiologist properly performed open-heart surgery. Nor is a cardiologist in a position to judge whether, in an emergency room s sometimes chaotic circumstances, a doctor diagnosed and responded quickly enough to a heart attack. That is precisely what occurred in the New Jersey case, which involved two ER physicians who treated a patient for carbon monoxide poisoning stemming from inhalation of fumes during home remodeling work. The plaintiff s expert critiqued the care provided by the ER physicians based on his experience as doctor who is board certified in internal and preventive medicine and who specializes in the use of hyperbaric oxygen in the treatment of carbon monoxide poisoning. Although the expert was not an ER doctor, it was his view that the ER doctors should have immediately referred the patient for treatment with hyperbaric oxygen, a treatment method with mixed scientific support. Wisely, the New Jersey Supreme Court found that if a plaintiff s lawyer is going to sue an ER doctor, he or she must present supporting testimony by another ER doctor to establish the standard of care. The court s decision furthers the purposes of New Jersey s Patients First Act, which responded to a dramatic escalation in medical liability insurance premiums that jeopardize accessible and affordable health care in the Garden State. COLORADO AND OKLAHOMA PROTECT CONSUMERS FROM LAWSUIT LENDERS As Abraham Lincoln encapsulated succinctly in an 1850 law lecture, Never stir up litigation. A worse man can scarcely be found than one who does this. This year, both a state court and legislature acted in the spirit of Lincoln s words when they stemmed abusive lawsuit lending practices. In recent years, an industry has emerged in which certain businesses offer to lend funds to plaintiffs in exchange for a portion of the expected settlement in personal injury lawsuits. Consumer lawsuit lenders seek out plaintiffs and offer them up front cash to cover immediate living or medical expenses while they are engaged in a lawsuit. These loans, which are often provided at sky-high interest rates, are then paid back to the lender from any settlement or judgment award the plaintiff may later receive. Lawsuit loan balances can quickly explode and leave borrowers, as the New York Times has illustrated, literally worse off than they would have been if they had lost their lawsuits. Legal standards have traditionally prohibited third-party financing of litigation for good reasons: It introduces significant ethical issues that threaten the fairness of the judicial system, encourages questionable claims that might 50 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

14 not otherwise be litigated, and it can discourage reasonable settlements, as ATRA detailed in comments submitted to the American Bar Association. The growing lawsuit lending industry takes the position that their services are not subject to safeguards established for consumer loans. In May 2013, a unanimous Colorado Court of Appeals rejected that position. In that case, two of the nation s largest lawsuit lenders, Oasis and LawCash, unsuccessfully sued Colorado Attorney General John W. Suthers and the Administrator of Colorado s Uniform Consumer Credit Code after the state found the lenders had violated the law. The court agreed with the attorney general, significantly hemming in a controversial industry that many call predatory. Also this year, Oklahoma Governor Mary Fallin signed the nation s first law to curb lawsuit lending abuses. The new law, enacted in May, clarifies that lawsuit lenders are subject to the Uniform Consumer Credit Code so that they must play by the same rules as others who provide loans in the state. U.S. FIFTH CIRCUIT UPHOLDS MISSISSIPPI S LIMIT ON NONECONOMIC DAMAGES In February 2013 the U.S. Court of Appeals for the Fifth Circuit upheld Mississippi s limit on noneconomic damages in general personal injury cases. By an overwhelming majority, Mississippi lawmakers enacted a $1 million limit on subjective awards for pain and suffering in The limit was among several reforms that helped Mississippi jurisdictions climb out of the ranks of Judicial Hellholes. The Fifth Circuit found that Mississippi s limit on noneconomic damages did not violate the state constitution s jury-trial guarantee and separation of powers provisions. State law places no restriction on the amount that a plaintiff can recover for economic losses, such as medical expenses or lost income. Mississippi Governor Phil Bryant had urged the Fifth Circuit to uphold the limit on noneconomic damages, saying it was crucial to reducing insurance premiums, boosting local economies and shedding the state s reputation as a haven for jackpot justice. In fact, in asking the court to uphold the law, Governor Bryant s brief emphasized that Mississippi once was a poster child for tort reform, repeatedly named as a Judicial Hellhole between Governor Bryant 2002 and The Fifth Circuit found that litigants right to a jury trial does not negate legislators authority to define available legal remedies. It also found that the noneconomic damages limit did not interfere with judges power to reduce excessive verdicts nor impermissibly constitute a legislatively promulgated procedural rule. The federal appellate court had earlier asked the Mississippi Supreme Court to weigh in on the law s constitutionality, but the state s highest court declined to do so, finding that because the jury did not itemize how much of the award represented noneconomic damages, it could not evaluate whether the cap had definitely been exceeded. Observers are closely watching how a state appellate court will rule on a pending challenge to the state s $500,000 limit on noneconomic damages in medical negligence actions. The 2002 law helped avert a health care crisis, improved patient access to care, and allowed Mississippi doctors to find affordable insurance. Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

15 IN THE LEGISLATURES Fourteen states adopted significant, positive civil justice reforms during the 2013 legislative sessions. Below, in alphabetical order, is a state-by-state listing of some of these new laws: Alabama placed safeguards on state hiring of private lawyers on a contingent-fee basis (H.B. 227). Arizona adopted fair procedures for class actions, including interlocutory appeal of certification rulings (S.B. 1346). Florida finally replaced its anything-goes standard for expert testimony with the more rigorous Daubert standard that experts use reliable methods, joining the federal courts and most states (H.B. 7015). Louisiana passed two modest reforms, one that clarified class action standards (H.B. 472), and another than protects a defendant s right to a trial by jury in small civil cases (H.B. 589). Montana protected the ability of defendants to appeal an extraordinary award by limiting the bond that a defendant can be required to pay to protect its assets during the appellate process to $50 million (H.B. 224). New Hampshire authorized judges to order vexatious litigants (those who have filed three or more frivolous lawsuits) to retain an attorney of good character to represent them in all actions or to post a cash or surety bond sufficient to cover all attorney fees and anticipated damages (S.B. 96). New Jersey reasonably limited the threat of, and costly burdens imposed on corporations by, activist shareholder class action and derivative lawsuits (A.B. 3123). Oklahoma required trasparency between the asbestos claims filed with trust funds of bankrupt companies and lawsuits filed in court (S.B. 404), clarified that businesses that engage in lawsuit lending are subject to Oklahoma s Uniform Consumer Credit Code (S.B. 1016), and recognized that, when a contract includes an agreed-upon post-judgment interest rate, that rate applies (S.B. 1080). And as noted among Dishonorable Mentions on page 43, Oklahoma lawmakers quickly responded this year when the state s high court struck down a bipartisan, comprehensive civil justice reform package enacted in 2009 on grounds that it violated the state constitution s single issue clause, by convening in special session and passing 23 separate bills, one at a time. Pennsylvania allowed health care providers to make benevolent gestures prior to the start of medical malpractice lawsuits and not have those statements or gestures used against them as long as such actions are not statements of negligence or fault. (S.B. 379) Tennessee adopted a higher standard for punishing a company with punitive damages when it is only vicariously liable for the conduct of another (S.B. 222) and limited liability of each party in a multi-defendant suit to damages in proportion to its responsibility (S.B. 56). Texas provided an automatic mechanism for state courts to dismiss long dormant asbestos and silica claims, while preserving a claimant s ability to refile a dismissed case should the claimant develop an impairing condition (H.B. 1325). Utah codified current state law regarding trespass liability to provide that a land owner does not owe a duty of care to a trespasser except in a few limited circumstances (H.B. 347). Virginia adopted closer review of expert witness opinions in medical malpractice litigation (H.B. 1545) and required plaintiffs to have their claims certified by a qualified physician before filing suit (S.B. 699), amended the state s venue law to reduce forum shopping (H.B. 1618), and codified cur- NO TRESPASSING! AND NO LAWSUITS 52 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

16 rent state law regarding trespass liability to provide that a land owner does not owe a duty of care to a trespasser except in a few limited circumstances where a common law or statutory right of action already exists (H.B. 2004). Wisconsin adopted three important pieces of reform; one that governs the practice of government hiring private, outside plaintiff attorneys on a contingency fee basis (A.B. 27); another that created a clear reasonable standard for physicians when providing patients with information about the risks and benefits of reasonable alternate treatment and made it clear that a negligent diagnosis claim is separate from an informed consent claim (A.B. 139); and finally, one that made much needed changes to Wisconsin s lemon law. Specifically, the legislature eliminated automatic double damages; added more time for the manufacturer and dealer to provide a comparable vehicle; reduced the statute of limitations; allowed a court to extend deadlines, reduce, damages, attorneys fees and costs if a party fails to reasonably cooperate with another party; and clarified what constitutes out of service (A.B. 200). STATE ATTORNEYS GENERAL STATE AGS CRACK DOWN ON PATENT TROLLS Three state attorneys general deserve credit for taking action to crack down on so-called patent trolls, entities that exist solely to accumulate patent rights and threaten lawsuits. These entities own and assert patents, but generally produce no real products or services. During the past decade or so, patent litigation has surged. Patent lawsuits filed in the United States nearly doubled between 2009 and More than 60% of these cases are filed by patent trolls. As a report prepared for President Barack Obama noted, Although many significant settlements are from large companies, the majority of PAE suits target small and inventor-driven companies. For example, one lawyer who represents patent trolls has sent more than 8,000 letters to coffee shops, restaurants, and hotels that provided Wi-Fi service to customers, threatening them with lawsuits if they did not pay licensing fees of $2,500 to $3,000 for the associated technology, as documented in a recent Manhattan Institute report. Those targeted by patent trolls often settle to avoid substantial litigation costs and the disruption of their operations. As the Judicial Hellholes report previously observed, the Eastern District of Texas is the most popular venue for patent trolls because the court moves cases to trial quickly and its juries are perceived to be plaintiff-friendly. Two other federal courts, the District of Delaware and the Central District of California, also host significant patent troll litigation. In May, Vermont Attorney General William Sorrell was the first to bring an action against MPHJ Technology Investments, LLC (MPHJ), claiming the entity s conduct violated the state s unfair and deceptive business practices law. MPHJ allegedly sent dozens of predatory demand letters to small businesses, accusing them of infringing patents by using basic office photocopiers to attach scanned documents to s. MPHJ demanded that the businesses either purchase a license of $1,000 per employee or be sued for patent infringement. Two months later, Nebraska Attorney General Jon Bruning ordered MPHJ to stop sending demand letters to local businesses while the state investigates whether the letters violated consumer protection laws. Minnesota Attorney General Lori Swanson launched a similar investigation, which in August led to a settlement with MPHJ. Under its terms, MPHJ may not send demand letters to anyone in Minnesota without first giving the Attorney General s office notice and receiving its consent. Most recently, Massachusetts Attorney General Martha Coakley warned that her office is also considering ways to crack down on patent trolls. While she did not mention any specific actions, Coakley expressed concern that these frivolous lawsuits are serving as an anchor on our startup companies and our innovation economy as a whole. INNOVATION N OT LITIGATIO N Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

17 WEST VIRGINIA AG ADOPTS OUTSIDE COUNSEL HIRING POLICY Time and again, former West Virginia Attorney General Darrell McGraw hired personal injury lawyers to bring lawsuits on behalf of the state. Not coincidentally, many of these personal injury lawyers had contributed to his political campaigns. He gained a reputation as leading the way for the expanding, troubling practice of states farming out the work of law enforcement to contingency-fee lawyers who are motivated by profit and self-interest, not justice and the public interest. McGraw s well-documented, behind-closed-doors-with-the-shades-drawn deals fueled the state s reputation as a Judicial Hellhole. And it was one of several factors that finally prompted West Virginia voters to retire the long-serving attorney general last Election Day. Refreshingly, his successor, Patrick Morrisey, moved quickly to let the sunshine in. While Morrisey defended his office s authority to hire outside counsel in a court case stemming from his predecessor s practices, he concurrently developed a new policy to govern any future contracts that his office may enter. After providing the public with notice of the proposed policy and an opportunity to comment, Morrisey adopted a new policy that provides a process for hiring outside counsel when the attorney general s in-house staff lacks specialized experience or may otherwise be unavailable to prosecute timely litigation in the public interest. The adopted policy went into effect on July 16, AG Morrisey The new policy includes, first and foremost, a long overdue competitive bidding process for the selection of outside counsel that is comparable to those for road- or school-building contracts. Another important provision calls for the attorney general to provide written explanations as to why, precisely, office staff needs help from outside lawyers for particular lawsuits. In addition to providing safeguards intended to ensure that the attorney general s office remains in control of the litigation for which outside counsel is hired, Morrisey s new policy sets critical limits on just how much of the taxpayers money outside counsel can siphon off in contingency fees. All of these provisions are significant steps in the right direction. Attorney General Morrisey deserves considerable credit for bringing the hiring of outside counsel into the light. And West Virginia voters deserve credit for choosing good-government reform over more of the same old shady dealings that had damaged their state s reputation. Digging out of a Judicial Hellhole is not easy, but it can be done when both citizens and policymakers grab shovels and work together. 54 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

18 SPECIAL FEATURE PLAINTIFFS LAWYERS TRY TO KEEP CLASS ACTIONS IN JUDICIAL HELLHOLES Congress enacted the Class Action Fairness Act of 2005 (CAFA) in response to a handful of jurisdictions, such as Madison County, Illinois, becoming magnets for massive lawsuits against out-of-state businesses. CAFA, which gained bipartisan support, moved many of these multi-state class actions into neutral federal courts. Plaintiffs lawyers, however, have developed strategies to exploit exceptions in the law to dodge federal jurisdiction and keep their cases in state courts, which are often those considered Judicial Hellholes. To game the system, plaintiffs use a two-pronged approach with increasing frequency and, unfortunately, success: (1) join token plaintiffs from defendants home states for the sole purpose of defeating federal jurisdiction over multi-state ( diversity ) cases; and (2) gerrymander plaintiffs into groups of less than 100 in order to avoid federal jurisdiction over mass actions under CAFA. As readers of this report might guess, plaintiffs often use these tricks to try to keep suits in Judicial Hellholes, including state courts in California and St. Clair County, Madison County, and Cook County, Illinois. Other mass actions percolating in South Florida; St. Louis, Missouri; and Nueces and Hidalgo County, Texas; likewise showcase plaintiff efforts to keep cases in courts highlighted in this report. Until courts see these schemes for what they are, defendants around the country will continue to labor under the burden of litigating a multiplicity of claims in plaintiff-friendly jurisdictions; claims that should be removed to federal court. In 2005, Congress enacted the Class Action Fairness Act (CAFA). It was bipartisan legislation Senators Barack Obama, Chuck Schumer, and Dianne Feinstein all supported it, for instance intended to end certain abusive practices in a handful of quirky state court jurisdictions that, in Congress s view, were extracting suspiciously exorbitant settlements from out-of-state defendant corporations. These state courts, though few in number, could work an unusual amount of mischief, Congress determined, because their lax procedural rules permitted local lawyers to recruit plaintiffs from all over the country to file their cases there. Dispassionate academics referred to such courts as magnet jurisdictions, wry plaintiffs lawyers called them magic counties, and irate tort reformers called them judicial hellholes. Fortune, 1/7/13 FRAUDULENT MISJOINDER The first way plaintiffs attempt to evade federal jurisdiction is by including as parties one or more plaintiffs from a defendant s home state. This fraudulent misjoinder is the flip side of another plaintiff favorite: fraudulent joinder, where a plaintiff names a token local defendant for the sole purpose of defeating federal jurisdiction. In that circumstance, if the plaintiff has no real claim against the local defendant, another defendant may move the matter to federal court by arguing that the token defendant was joined only to avoid deciding the case in federal court. The federal diversity law s aim of providing a neutral federal forum for out-of-state defendants is equally threatened by the inclusion of token, local plaintiffs. The Eleventh Circuit first sounded the alarm over this strategy for violating a defendant s right to move multi-state cases from state to federal court. But other courts have not followed the Eleventh Circuit s lead. This is partly because the issue is difficult to raise in federal appellate courts. When a federal trial court sends a case back to state court, the decision is usually Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

19 not appealable. And in one notable instance where the procedural posture of a case allowed a federal appellate court to consider misjoined plaintiffs, the Eighth Circuit punted on the opportunity to crack down on fraudulent misjoinder. The court found that federal court rules permit all reasonably related claims for relief by or against different parties to be tried in a single proceeding. What was it that led the Eighth Circuit to find that a Minnesota state court was the right place to try the claims of over 100 plaintiffs, divided among three lawsuits, from states such as Pennsylvania, New Jersey, and New York together? According to the court, it was enough that all plaintiffs alleged some injury resulting from the defendants hormone replacement therapy. Even though the individual plaintiffs alleged different injuries suffered in their home states after their own doctors, also in their home states, evaluated the patients unique medical symptoms before prescribing the defendant s drug, the Eighth Circuit felt that a single proceeding was fine. Numerous district courts within the Eighth Circuit have since followed In re Prempro and returned multi-plaintiff cases to friendly state courts with no chance for defendants to appeal the remand decisions. Worse still, plaintiffs have used fraudulent misjoinder to avoid federal jurisdiction even after the federal court system creates a Multi-District Litigation (MDL) docket often at the request of the same plaintiffs counsel to consolidate the cases for purposes of ruling on evidentiary and procedural issues before trial. The federal Judicial Panel on Multi-District Litigation will only order cases transferred and consolidated for coordinated MDL proceedings where it will promote the just and efficient conduct of the actions. But plaintiffs who engage in jurisdictional gamesmanship through fraudulent misjoinder to avoid federal MDLs in favor of Judicial Hellholes are thwarting the entire purpose of MDL proceedings by making cases less efficient and more expensive to litigate. But that s the goal: make cases more expensive and more disruptive to defendants businesses; keep a cache of cases out of the MDL, and try to ramp up the pressure on defendants to settle. PLAINTIFF GERRYMANDERING The effort would not be successful if plaintiffs did not also extend their gamesmanship to avoid removal of multiplaintiff lawsuits under CAFA. CAFA s mass action provision provides that neutral federal courts may decide any civil action in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs claims involve common questions of law or fact. CAFA s sponsors in Congress made it clear that this provision means any proposal to have any part of a claim determined jointly across 100 or more plaintiffs may be decided in federal court. It does not have to be a trial where 100 or more plaintiffs try all aspects of their case to verdict before a single jury. Plaintiffs lawyers two-step around this requirement by first arbitrarily dividing their claims into buckets of just under 100 and then filing cookiecutter complaints on behalf of each bucket. The result? Often-times several cases will be filed on behalf of hundreds plaintiffs, with each case including a token plaintiff from the defendant s home state. For example, this summer, two local lawyers joined by a Louisiana attorney filed six lawsuits involving nearly 500 plaintiffs in the St. Clair County Circuit Court. The lawsuits, which were brought against GlaxoSmithKline on behalf of individuals who took Avandia, each included about eighty plaintiffs. With this tactic, plaintiffs not only skirt CAFA, but avoid paying what would otherwise be tens or hundreds of thousands of dollars in filing fees for what should rightly be individual lawsuits, depriving budget-strapped state courts of the money necessary to administer the cases. And it has yet another benefit to out-of-state lawyers: by filing six or seven cases rather than individual lawsuits on behalf of 500 or more plaintiffs, they sidestep limits on the number of times that an out-of-state attorney can appear in a local court (known as pro hac vice appearances), which, in some states, would prevent them from shipping their cases, en masse, from their home state to a Judicial Hellhole. But plaintiffs do not end the gamesmanship with mathematical gymnastics. The second part of the plaintiff two-step comes later, after the cases are filed in state court. If the cases are filed in a jurisdiction with more than one judge and assigned across multiple judges dockets, then plaintiffs lawyers file motions to transfer all the cases to a single local judge. If defendants argue that this sort of coordinated or consolidated proceeding is exactly what CAFA calls a mass action, plaintiffs protest that they never used the magic words joint trial. Does CAFA s grant 56 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

20 of federal jurisdiction really depend on a plaintiff incanting the specific words joint trial? Surely Congress s stated intent to restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance cannot be defeated by a plaintiff s choice of words alone. The Seventh Circuit recognized the absurdity of this proposition when it rightly found that a plaintiff s proposal for a joint trial may be implicit in the consolidation motion. In an October 2012 ruling, in In re Abbott Laboratories, the court found plaintiffs had implicitly proposed a joint trial where they moved to consolidate their cases in a single Illinois county based, in part, on their desire to resolve common questions without the risk of inconsistent adjudication. The plaintiffs made no mention of how they wanted the claims tried, but the court noted that in complex litigation, many types of proceedings have some elements of a joint trial. For example, bellwether trials, in which test cases are tried to get a sense of the strength of the parties positions and potential liability, do not a try all plaintiffs cases jointly, but they may influence the resolution of all claims. Similarly, a consolidation proposal allowing the court to determine the ultimate method of trying some or all cases is, implicitly, a proposal for a joint trial. In November 2013, the Eighth Circuit followed Abbott in Atwell v. Boston Scientific Corp. Addressing motions to assign several multi-plaintiff cases to a single trial judge, the court ruled that CAFA mass action jurisdiction applied because plaintiffs sought to place multiple cases in a procedural setting where bellwether trials would be the normal way to efficiently prevent inconsistent judgments. But the Ninth Circuit s September 2013 decision in Romo v. Teva Phamaceuticals turns a blind eye to these realities of complex litigation and, in the process, to CAFA s purpose. In Romo, the court considered whether plaintiffs motion to consolidate proceedings under California s Judicial Council Coordinated Proceeding (JCCP) process amounted to a proposal for joint trial. The consolidation motion asked for a judge to hear all of the actions for all purposes, in order to avoid duplicative and inconsistent rulings, orders, or judgments; further, cases assigned to JCCP proceedings are consolidated for all purposes, including trial. The court decided that this request for comprehensive coordination was not a request for a joint trial, and that, improbably, CAFA removal should be strictly construed. In rehearing proceedings, plaintiffs are pushing this reliance on formalism even further, arguing that the mass action provision should apply only if plaintiffs explicitly propose a joint trial wherein all of 100 or more plaintiffs claims are heard in exactly the same trial proceeding. In modern litigation, this sort of behemoth trial is impossible for a number of reasons, including the court s calendar, the jury s attention span, and the parties pocketbooks. It is rather unimaginable that Congress bothered to legislate jurisdiction over only these unlikely types of joint trials and not the kind of bellwether or similar proceedings that actually take place. COURTS & CONGRESS SHOULD SAY NO TO PLAINTIFF LAWYER MANIPULATION Lower courts need a reminder that magic words do not control CAFA jurisdiction. Fortunately, the Supreme Court just provided one: in its March 2013 decision in Standard Fire Insurance Co. v. Knowles. The case arose in Miller County, Arkansas, where, as reported by Fortune, a handful of local law firms have made almost $400 million in fees over the past seven years, all from class-action settlements that have been procured without a judge s ever having ruled that these cases are even worthy of class treatment, let alone meritorious. Plaintiffs lawyers were able to keep Miller County a class action magnet following CAFA by inserting into each complaint a stipulation that the class members would not seek more than $5 million dollars, the threshold amount needed for federal courts to have jurisdiction under the federal law. Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

21 The Supreme Court held that plaintiffs lawyers cannot avoid CAFA through such manipulation. Writing for the Court, Justice Stephen Breyer held that to find otherwise would exalt form over substance, and run directly counter to CAFA s primary objective: ensuring Federal court consideration of interstate cases of national importance. He went on to observe that allowing the plaintiff to stipulate to damages below the jurisdictional level would have the effect of allowing the subdivision of a $100 million action into 21 just-below-$5-million statecourt actions. This is exactly the type of gerrymandering plaintiffs are engaged in with the 100-plaintiff limit, and courts should put a stop to it. So far, however, the only points of light on the mass action issue are found in the Seventh and Eighth Circuits. The Ninth, as well as the Eleventh, Circuit has ignored the Supreme Court s direction by exalting form over substance and rewarding plaintiffs tactics. Other appellate courts soon to hear cases on this issue have the opportunity to see reason and recognize the cases as mass actions under CAFA. If they fail to do so, lawmakers should ask themselves whether CAFA is being applied as it was intended. As the final referee in disputes about statutory grants of federal court jurisdiction, Congress can make the call to end plaintiffs jurisdictional games: amend CAFA to be sure that courts find federal jurisdiction over identical suits against identical defendants that fairly implicate the claims of more than 100 plaintiffs and seek more than $5 million in damages. Game over. 58 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

22 THE MAKING OF A JUDICIAL HELLHOLE: QUESTION: ANSWER: WHAT MAKES A JURISDICTION A JUDICIAL HELLHOLE? THE JUDGES. Equal Justice Under Law. It is the motto etched on the façade of the Supreme Court of the United States and the reason why few institutions in America are more respected than the judiciary. When Americans learn about their civil justice system, they are taught that justice is blind. Litigation is fair, predictable and won or lost on the facts. Only legitimate cases go forward. Plaintiffs have the burden of proof. The rights of the parties are not compromised. And like referees and umpires in sports, judges are unbiased arbiters who enforce rules, but never determine the outcome of a case. While most judges honor their commitment to be unbiased arbiters in the pursuit of truth and justice, Judicial Hellholes judges do not. Instead, these few jurists may favor local plaintiffs lawyers and their clients over defendant corporations. Some, in remarkable moments of candor, have admitted their biases. More often, judges may, with the best of intentions, make rulings for the sake of expediency or efficiency that have the effect of depriving a party of its right to a proper defense. What Judicial Hellholes have in common is that they systematically fail to adhere to core judicial tenets or principles of the law. They have strayed from the mission of providing legitimate victims a forum in which to seek just compensation from those whose wrongful acts caused their injuries. Weaknesses in evidence are routinely overcome by pretrial and procedural rulings. Judges approve novel legal theories so that even plaintiffs without injuries can win awards for damages. Class actions are certified regardless of the commonality of claims. Defendants are targeted not because they may be culpable, but because they have deep pockets and will likely settle rather than risk greater injustice in the jurisdiction s courts. Local defendants may also be named simply to keep cases out of federal courts. Extraordinary verdicts are upheld, even when they are unsupported by the evidence and may be in violation of constitutional standards. And Hellholes judges often allow cases to proceed even if the plaintiff, defendant, witnesses and events in question have no connection to the jurisdiction. Not surprisingly, personal injury lawyers have a different name for these courts. They call them magic jurisdictions. Personal injury lawyers are drawn like flies to these rotten jurisdictions, looking for any excuse to file lawsuits there. When Madison County, Illinois was first named the worst of the Judicial Hellholes last decade, some personal injury lawyers there were reported as cheering We re number one, we re number one. Rulings in Judicial Hellholes often have national implications because they can: involve parties from across the country, result in excessive awards that wrongfully bankrupt businesses and destroy jobs, and leave a local judge to regulate an entire industry. Judicial Hellholes judges hold considerable influence over the cases that appear before them. Here are some of their tricks-of-the-trade: PRETRIAL RULINGS Forum Shopping. Judicial Hellholes are known for being plaintiff-friendly and thus attract personal injury cases with little or no connection to the jurisdiction. Judges in these jurisdictions often refuse to stop this forum shopping. Liman Workshop Spring 2015 Judicial Hellholes JUDICIAL HELLHOLES

23 Novel Legal Theories. Judges allow suits not supported by existing law to go forward. Instead of dismissing these suits, Hellholes judges adopt new and retroactive legal theories, which often have inappropriate national ramifications. Discovery Abuse. Judges allow unnecessarily broad, invasive and expensive discovery requests to increase the burden of litigation on defendants. Judges also may apply discovery rules in an unbalanced manner, denying defendants their fundamental right to learn about the plaintiff s case. Consolidation & Joinder. Judges join claims together into mass actions that do not have common facts and circumstances. In one notorious example, West Virginia courts consolidated more than 8,000 claims and 250 defendants in a single trial. In situations where there are so many plaintiffs and defendants, individual parties are deprived of their rights to have their cases fully and fairly heard by a jury. Improper Class Action Certification. Judges certify classes without sufficiently common sets of facts or law. These classes can confuse juries and make the cases difficult to defend. In states where class certification cannot be appealed until after a trial, improper class certification can force a company into a large, unfair settlement. Unfair Case Scheduling. Judges schedule cases in ways that are unfair or overly burdensome. For example, judges in Judicial Hellholes sometimes schedule numerous cases against a single defendant to start on the same day or give defendants short notice before a trial begins. DECISIONS DURING TRIAL Uneven Application of Evidentiary Rules. Judges allow plaintiffs greater flexibility in the kinds of evidence they can introduce at trial, while rejecting evidence that might favor defendants. Junk Science. Judges fail to ensure that scientific evidence admitted at trial is credible. Rather, they ll allow a plaintiff s lawyer to introduce expert testimony linking the defendant(s) to alleged injuries, even when the expert has no credibility within the scientific community. Jury Instructions. Giving improper or slanted jury instructions is one of the most controversial, yet underreported, abuses of discretion in Judicial Hellholes. Excessive Damages. Judges facilitate and allow to stand excessive punitive or pain and suffering awards that are influenced by improper evidentiary rulings, tainted by passion or prejudice, or unsupported by the evidence. UNREASONABLE EXPANSIONS OF LIABILITY Private Lawsuits under Loosely-Worded Consumer Protection Statutes. As closely examined in past editions of this report, the vague wording of state consumer protection laws has led some judges to allow plaintiffs to sue even if they can t demonstrate an actual financial loss that resulted from their reliance on allegedly deceptive conduct. Logically-Stretched Public Nuisance Claims. Similarly, the once simple concept of a public nuisance (e.g., an overgrown hedge obscuring a STOP sign or music that is too loud for the neighbors, night after night) has been conflated into an amorphous Super Tort for pinning liability for various societal problems on manufacturers of lawful products. Expansion of Damages. There also has been a concerted effort to expand the scope of damages, which may hurt society as a whole, such as hedonic damages in personal injury claims, loss of companionship damages in animal injury cases, or emotional harm damages in wrongful death suits. JUDICIAL INTEGRITY Alliance Between State Attorneys General and Personal Injury Lawyers. Some state attorneys general routinely work hand-in-hand with personal injury lawyers, hiring them on a contingent-fee basis. Such arrangements introduce a profit motive into government law enforcement, casting a shadow over whether government action is taken for public good or private gain. Cozy Relations. There is often excessive familiarity among jurists, personal injury lawyers, and government officials. 60 JUDICIAL Liman Workshop HELLHOLES Spring Judicial Hellholes

24 JUDICIAL HELLHOLES, LAWSUIT CLIMATES AND BAD SOCIAL SCIENCE: LESSONS FROM WEST VIRGINIA Elizabeth G. Thornburg * I. BACKGROUND: THE CAMPAIGN TO PROMOTE TORT REFORM...4 II. THE HELLHOLE CAMPAIGN AND THE LAWSUIT CLIMATE REPORT...7 III. WEST VIRGINIA...11 A. Background...11 B. Recurring Issues Medical Monitoring Choice of Forum Joining Claims and Parties...24 C. Smoke and Mirrors: The Marketing of Anecdotes Treating Opinions As Facts Giving the Wrong Impression: Former Justice Richard Neely Mis-Stating the Issues: Cocaine and the Company Safety Director Leaving Out the Bad Facts: Defense Stripping and Punitive Damages...32 IV. WEST VIRGINIA BY THE NUMBERS...35 V. CONCLUSION: WHAT S A STATE TO DO?...38 The American Tort Reform Association (ATRA) was founded in 1986 by the American Medical Association and American Council of Engineering Companies, and now has hundreds of corporate members. 1 Every year, ATRA releases a list of Judicial Hellholes court systems alleged to be unfair to * John T. Copenhaver Visiting Chair, West Virginia University College of Law; Professor of Law, SMU Dedman School of Law. As an outsider coming to West Virginia to teach civil procedure, I was somewhat surprised to learn that the entire state of West Virginia had been named by the American Tort Reform Association as a judicial hellhole. It caused me to investigate the hellhole project generally and the treatment of West Virginia in particular. This essay is the result of that research. 1 ATRA at a Glance (2007), see also Sample List of ATRA Members (2007), The American Tort Reform Foundation, established in 1997, publishes the Judicial Hellhole reports. All of the hellhole reports are available on ATRA s website, at They will be cited hereinafter as [year] Hellhole Report. 1 Liman Workshop Spring 2015 Thornburg, Judicial Hellholes Electronic copy available at:

25 2 WEST VIRGINIA LAW REVIEW [Vol. 110 defendants. The name which ATRA has trademarked is definitely catchy: the thought of a judicial hellhole invokes images of Kafka, Satan and the Queen of Hearts. Off with their heads! one imagines those awful court systems saying to corporate defendants. No wonder ATRA s hellhole campaign has embedded itself in media vocabulary. And no wonder state courts and state legislatures bend over backwards to get out from under the hellhole label. Similarly, the U.S. Chamber of Commerce has spawned a spin-off organization the Institute for Legal Reform (ILR) 2 that issues an annual report on each state s lawsuit climate, ranking states from 1 to 50 on their friendliness to business, based on a survey of general counsel of very large businesses and their outside lawyers. 3 Since no state wants to be found near the bottom of the list, the ILR report also creates pressure for legal change. West Virginia has become one of the primary targets of both reports. Beginning as a dishonorable mention in the first hellhole report in 2002, West Virginia worked its way up the hellhole ladder until ranked #1 in 2006, and the state remains firmly on the hellhole list in the most recent (2007) report. 4 The state has also worked its way to the bottom of the ILR lawsuit climate list (starting at 49th but bottoming out in 2007). Yet since both reports began, the West Virginia legislature has enacted a number of significant pro-defendant changes in the law, most notably caps on medical malpractice damages, 5 limits on joint and several liability, 6 restrictions on lawsuits by out-of-state plaintiffs, 7 and 2 The Wall Street Journal reported in 2001 that ILR contributors included General Motors, Toyota North America, Daimler Chrysler, Ford, Wal-Mart, and insurers State Farm and Aegon, USA. See Jim VandeHei, Political Cover: Major Business Lobby Wins Back its Clout by Dispensing Favors, WALL ST. J., Sep. 11, 2001, at A1. Neither the Chamber nor the ILR releases a complete list of members or of contributors to particular projects. 3 The ILR Lawsuit Climate reports (beginning in 2002) are all available on its website. The most recent (2007) is at The hellhole reports and lawsuit climate reports sometimes reinforce each other, as when the 2003 Hellhole Report noted the ILR ranking of West Virginia or when the 2007 Hellhole Report relied on the ILR small business survey. See 2003 Hellhole Report at 9; 2007 Hellhole Report at 41 n Hellhole Report. 5 See W. VA. CODE 55-7B-8 (Supp. 2007) (adopted in 2003 to lower cap on noneconomic losses in medical malpractice cases from $1 million the cap adopted in 1986 to $250,000 per occurrence or $500,000 where the damages for noneconomic losses suffered by the plaintiff were for: (1) wrongful death; (2) permanent and substantial physical deformity, loss of use of a limb or loss of a bodily organ system; or (3) permanent physical or mental functional injury that permanently prevents the injured person from being able to independently care for himself or herself and perform life sustaining activities); see also Robinson v. Charleston Area Med. Ctr., 414 S.E.2d 877 (W. Va. 1991) (finding 1986 cap constitutional). 6 See W. VA. CODE (Supp. 2007) (adopted in 2005). 7 See W. VA. CODE & 1a (Supp. 2007) (adopted in 2005). Defendants preferred an earlier version of this statute, which was invalidated by the state supreme court in Morris v. Crown Equip. Corp., 633 S.E.2d 292 (W. Va. 2006), cert. denied, 127 S. Ct. 833 (2006). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes Electronic copy available at:

26 2008] HELLHOLES 3 elimination of third-party bad faith claims against insurance companies. 8 West Virginians also voted out of office ATRA s most disfavored Justice of the West Virginia Supreme Court of Appeals. 9 Despite these changes, the entire state retains the hellhole label. This should not surprise anyone: the point of the hellhole campaign is not to create an accurate snapshot of reality. The point of the hellhole campaign is to motivate legislators and judges to make law that will favor repeat corporate defendants and their insurers, and to spur voters to vote for those judges and legislators who will do so. As long as ATRA believes that West Virginia politics is vulnerable to this type of pressure, and as long as it seeks additional changes in the law or the judiciary, West Virginia s hellhole stardom will continue. In a recent newsletter to his members, the President of the Defense Trial Counsel of West Virginia asked, why [do] national business leaders believe we are a judicial hellhole? 10 This essay suggests an answer: because ATRA and the ILR and Citizens Against Lawsuit Abuse (CALA) and other related groups have been telling people it s a hellhole for years, and it is in the interest of those groups and their members to keep telling the public that West Virginia is a hellhole, and the very worst state environment for business. And so they do so, year after year. The sheer repetition of the claims then takes on an appearance of truth, in a process known as social production of knowledge if you repeat something often enough, people will come to treat it as general knowledge. 11 Nor is this an isolated or recent event: the judicial hellhole campaign is only the latest chapter in a decades-long effort to convince American voters that the tort law system has gone seriously awry. Business people, many of whom have grown up listening to misleading anecdotes and fabricated data, come preprogrammed to accept the hellhole reports as true and to base their opinions in ILR surveys on this decades-long public media campaign. Part I of this essay briefly traces the evolution of the patient and pervasive efforts to control the public perception of tort law, highlighting some of the ways in which it has played fast and loose with numbers and stories. Part II discusses the ATRA and ILR national campaigns, while Part III focuses on ATRA s treatment of West Virginia s judicial system as a way to demonstrate 8 W. VA. Code a (Supp. 2007) (adopted in 2005). 9 See Carol Morello, W. Va. Supreme Court Justice Defeated in Rancorous Contest, WASH. POST, Nov. 4, 2004, at A15 (commenting on Warren McGraw s defeat by Brent Benjamin). 10 Robert Massie, President s Column: Is West Virginia A Judicial Hellhole?, DEFENSE TRIAL COUNSEL OF WEST VIRGINIA NEWSLETTER 1 (Fall 2007). 11 See Richard A. Brisbin, Jr. & John C. Kilwein, The Future of the West Virginia Judiciary: Problems and Policy Options, W. VA. PUB. AFFAIRS REP. 2, 5 (2007), available at See also William Haltom & Michael McCann, Distorting the Law 1-25 (2004) (describing mechanisms of social production of knowledge). Other scholars refer to this phenomenon as using aggressive marketing to create a pervasive reality that influences the format of ideas covered by U.S. media. See DAVID RICCI, THE TRANSFORMATION OF AMERICAN POLITICS: THE NEW WASHINGTON AND THE RISE OF THINK TANKS (1993). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

27 4 WEST VIRGINIA LAW REVIEW [Vol. 110 the techniques of the hellhole reports. Part IV examines whether the limited amount of empirical data available for West Virginia supports the hellhole thesis, finding that it does not. The essay concludes by suggesting that West Virginia (and other states) begin collecting data about the operation of the court system and the insurance industry, and begin educating the media and the public to ask better questions when confronted with allegations about the judicial system. As public relations ventures, the ATRA and ILR campaigns have been an astounding success. As well-founded, honest commentaries on judicial systems, however, they are a major failure. It s time for state courts and legislatures to seize the empirical high ground and base their lawmaking decisions on fact rather than fable. I. BACKGROUND: THE CAMPAIGN TO PROMOTE TORT REFORM The industry campaign to transform the way Americans think about litigation began in the 1980s. Insurance companies and industry trade groups brilliantly invoked fundamental cultural images and associated them with individual lawsuits against corporate defendants. Thus personal injury claims got blamed for a litigation explosion, involving skyrocketing damage awards by runaway juries. Collectively, these images became a crisis in immediate need of a return to balance. 12 The campaign was bolstered with false or misleading horror stories and fabricated or misleading numerical data (made more effective through eyecatching charts and graphs). 13 The strategists realized that the media and the public sometimes act like magpies lured by shiny objects, in this case horrificsounding anecdotes with catchy details like psychics, day care centers, and McDonald s coffee. 14 The stories came complete with victims and villains. Workers and other plaintiffs were portrayed not as persons trying to enforce the law and deter misbehavior, or even as injured victims of the wrongs of others, but as whiners who failed to take personal responsibility for their own problems. An even better scapegoat were the plaintiffs lawyers portrayed as greedy parasites trying to make an easy buck by scaring companies into settling frivolous claims. 15 The anti-lawsuit rhetorical messages were repeated over and over by business-funded institutes and Fortune 500 companies and are now omnipresent in popular culture. Business executives themselves may believe the hype 12 See, e.g., STEPHEN DANIELS & JOANNE MARTIN, CIVIL JURIES AND THE POLITICS OF REFORM 4-9, (1995) (discussing in detail the rhetorical devices used to sway public opinion). 13 Id. at (describing misuse of statistics). 14 See Michael McCann, William Holtom & Anne Bloom, Java Jive: Genealogy of a Juridical Icon, 56 U. MIAMI L. REV. 113 (2001) (analyzing media treatment of Liebeck v. McDonald s Restaurants and media treatment of lawsuit stories generally). 15 DANIELS & MARTIN, supra note 12, at 38. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

28 2008] HELLHOLES 5 they, too, have been listening to the campaign for almost thirty years. 16 One interesting result is that CEOs are significantly more likely to believe in the existence of litigation risk than are their risk managers the people who deal with the actual risk data on a day to day basis. 17 The rhetoric of crisis proved impervious to correction despite significant evidence to the contrary. 18 Empirical research by neutral scholars consistently shows that the claims are false or exaggerated. Studies of actual reported cases and court statistics including caseloads, trials, awards, and settlements show that: There is no litigation explosion, especially not of product liability and medical malpractice claims. 19 In cases that go to trial, plaintiffs win a moderate number of cases and both mean and median awards are modest. The same is true of settlements made in the shadow of jury awards. 20 Awards of punitive damages are rare, and even when they occur they are often small both in absolute terms and relative to actual damages. 21 Many of the oft-repeated horror stories are merely urban myths, others are distorted through omission of important information, and some are outrageous claims that were immediately dismissed by the trial courts See John Lande, Failing Faith in Litigation? A Survey of Business Lawyers and Executives Opinions, 3 HARV. NEGOT. L. REV. 1 (1998). 17 Marc Galanter, An Oil Strike in Hell: Contemporary Legends About the Civil Justice System, 40 ARIZ. L. REV. 717, (1998) [hereinafter Oil Strike]. 18 Tort reformers claims about West Virginia in particular are addressed in Part IV. 19 Marc Galanter, Real World Torts: An Antidote to Anecdote, 55 MD. L. REV. 1093, (1996). In fact, only a very small percentage of grievances result in litigation. See David M. Trubeck et al., The Costs of Ordinary Litigation, 31 UCLA L. REV. 72, 85 (1983). 20 See, e.g., Theodore Eisenberg et al., Litigation Outcomes in State and Federal Courts: A Statistical Portrait, 19 SEATTLE UNIV. L. R. 433 (1996) (discussing jury verdicts in various types of cases); Frank Cross & Charles Silver, In Texas, Life is Cheap, 59 VAND. L. REV (2006) (insurance payout database reflects generally modest payments in death cases). Results in the courts of appeals are even less friendly to plaintiffs. See Kevin M. Clermont & Theodore Eisenberg, Plaintiphobia in the Appellate Courts: Civil Rights Really Do Differ From Negotiable Instruments, 2002 U. ILL. L. REV. 947 (2002) (analyzing a database of all federal trials and appeals since 1988 and concluding that that a defendants advantage exists, probably because of appellate judges misperceptions that trial level adjudicators are pro-plaintiff). 21 Michael Rustad, In Defense of Punitive Damages in Products Liability: Testing Tort Anecdotes with Empirical Data, 78 IOWA L. REV. 1, (1992); Marc Galanter & David Luban, Poetic Justice: Punitive Damages and Legal Pluralism, 42 AM. U. L. REV. 1393, (1993). 22 Galanter, Oil Strike, supra note 17, at Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

29 6 WEST VIRGINIA LAW REVIEW [Vol. 110 Numbers used to show growth in caseloads or decrease in doctors assume rather than prove causation, and often ignore other important variables. Worse, some are merely fabricated and then repeated until they seem to be factual. 23 More remarkable than creating a crisis mentality was the campaign to convince members of the public that they, personally (and not just corporations and their insurers) were being hurt by litigation. In 1986, the Insurance Information Institute launched its initial public relations effort, We All Pay the Price. A series of vivid print ads included The Lawsuit Crisis is Bad for Babies, The Lawsuit Crisis is Penalizing School Sports, and Even the Clergy Can t Escape the Lawsuit Crisis. 24 Once again a catchy phrase brought home the message: all of us are paying a lawsuit tax, an increase in the price of goods and services that exists only because of the cost of defending and insuring against tort litigation and workers compensation claims. The Council on Competitiveness, chaired by Vice President Dan Quayle, claimed that the cost to the economy of litigation damaged the ability of American companies to compete in the global market. Empirical research again demonstrated that the message of cost to consumers and disappearance of innovative products was fundamentally false the product of dubious anecdotes, questionable research, concocted statistics, factual and legal misstatements, and willful disregard of contradictory evidence. 25 The most recent version of the anti-litigation story focuses on medical malpractice claims, where doctors have from time to time experienced sharp increases in medical malpractice premiums. 26 The campaign in this context blames plaintiffs (and runaway jury awards) for the increased costs of insurance and an alleged exodus of doctors. Research, however, tends to indicate that the increases in medical malpractice insurance premiums were caused at least as much by fluctuations in the stock market and insurance marketing practices as by the cost of paying malpractice claimants. 27 In addition, according to 23 DANIELS & MARTIN, supra note 12, at Id. at 34, 267 n.32. These advertisements were published, for example, in Newsweek (April 28, June 9, and June 30, 1986); and Time (March 31, April 28, and June 9, 1986). Id. at 267 n Kenneth Jost, Tampering with Evidence: The Liability and Competitiveness Myths, 78 A.B.A. J. 44, 45 (1992). 26 For a discussion of the debate concerning West Virginia s medical malpractice legislation in the 1980s, see Franklin D. Cleckley & Govind Hariharan, A Free Market Analysis of Medical Malpractice Damage Cap Statutes: Can We Afford to Live With Inefficient Doctors?, 94 W. VA. L. REV. 11 (1991). 27 See GENERAL ACCOUNTING OFFICE, Medical Malpractice (Excerpts from Medical Malpractice and Access to Health Care (GAO )) (Aug. 2003), available at For the full report, see GENERAL ACCOUNTING OFFICE, Medical Malpractice: Implications of Rising Premiums on Access Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

30 2008] HELLHOLES 7 the American Medical Association s own statistics, the number of doctors is increasing rather than decreasing (except in urban and rural areas that have been plagued by doctor shortages for decades). 28 As Tom Baker, director of the Insurance Law Center at the University of Connecticut, wrote in his recent book, [B]uilt on a foundation of urban legend mixed with the occasional true story, supported by selective references to academic studies, and repeated so often that even the mythmakers forget the exaggeration, half truth, and outright misinformation employed in the service of their greater good, the medical malpractice myth has filled doctors, patients, legislators, and voters with the kind of fear that short circuits critical thinking. 29 As is true in other areas, statistics with regard to medical malpractice and doctor supply are used out of context and, most importantly, simply assume the causation that they purport to prove: a link between the tort reform measures and malpractice premiums, the supply of doctors generally, or the availability of various medical specialties. II. THE HELLHOLE CAMPAIGN AND THE LAWSUIT CLIMATE REPORT ATRA s hellhole campaign began in 2002, and it falls squarely within this tradition of scaring the public, but with a twist this time the explicit goal is to appeal to the public as voters, to scare state politicians into making prodefendant changes in the law in order to make the label go away, and to get rid of judges whose rulings made ATRA members unhappy. Judicial Hellholes are selected in whatever way suits ATRA s political goals. The choice is not based on research into the actual conditions in the courts. Rather, the jurisdictions involved are frequently identified by members of the American Tort Reform Association and other individuals familiar with litigation. 30 The reports use ATRA s collection of anecdotal information and to Health Care (GAO ) (Aug. 2003), available at 28 Id.; see also Neil Vidmar et al., Judicial Hellholes : Medical Malpractice Claims, Verdicts and the Doctor Exodus in Illinois, 59 VAND. L. REV. 1309, (2006) (examining Illinois data in detail). 29 TOM BAKER, THE MEDICAL MALPRACTICE MYTH 1 (2005); see also Michael Saks, Do We Really Know Anything About the Behavior of the Tort Litigation System And Why Not?, 140 U. PA. L. REV. 1147, 1149 (1992); Douglas A. Kysar, Thomas O. McGarity & Karen Sokol, Medical Malpractice Myths and Realities: Why An Insurance Crisis Is Not A Lawsuit Crisis, 39 LOY. L.A. L. REV. 785, 788 (2006) ( The best available empirical evidence suggests that the civil justice system is not inundated with baseless claims, that insurance companies losses in malpractice lawsuits are not driving premium hikes, that doctors are not disappearing, and that there is no surge in defensive medicine contributing to increased healthcare costs. ) Hellhole Report at ii. The first report, in 2002, used a survey of ATRA members as a basis for its ratings Hellhole Report at 3. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

31 8 WEST VIRGINIA LAW REVIEW [Vol. 110 stories reported in the media to justify each state s hellhole status. Once again, empirical research tends to debunk the industry complaints. For example, a study of actual data from top hellholes Madison and St. Clair Counties in Illinois concluded that there was no support for the hellhole label. Similarly, the study found absolutely no support for the claims that the net number of doctors in Illinois has decreased. In fact there has been a slow, sometimes faltering, but steady increase. 31 ATRA s announced purpose is to motivate the hellholes to change their ways. No state wants to be labeled a hellhole. This designation creates enormous pressure from local business to get rid of the laws or lawmakers identified by ATRA, and hellhole-related accusations become fodder for election contests. For example, after West Virginia was named a hellhole Don Blankenship, the Chief Executive of Massey Energy Company, 32 spent more than $3 million of his own money in order to defeat the re-election of one of the Justices of the West Virginia Supreme Court. 33 The West Virginia Chamber of Commerce spent an estimated $648,840 on television ads in the same judicial 31 Vidmar, supra note 28, at 1341; see also Douglas A. Kaysar, et al, Medical Malpractice Myths and Realities: Why an Insurance Crisis is Not a Liability Crisis, 39 LOY. L.A. L. REV. 785 (2006). 32 Blankenship is on the Board of Directors of the U.S. Chamber of Commerce; see U.S. CHAMBER OF COMMERCE, Board of Directors (2008), 33 Since there are only five justices on West Virginia s high court, it takes only a small change to tip the outcome. Blankenship's involvement has already begun to affect the court. In a recent case involving Massey Energy, the court on a 3 to 2 vote initially produced a victory for Massey. See Caperton v. A.T. Massey Coal Co., 2007 W. Va. LEXIS 119, (Nov. 21, 2007). The court, despite commenting that Massey s conduct warranted the type of judgment rendered in this case, threw out a $50 million verdict against Massey by adopting an extremely broad reading of a choice of forum clause and a debatable application of the doctrine of full faith and credit. Later, however, Justice Maynard recused himself after photographs showed him vacationing with Blankenship while the case was pending, and Justice Starcher recused himself based on his public remarks critical of Blankenship s gigantic political contributions. See Adam Liptak, Motion Ties W. Virginia Justice to Coal Executive, N.Y. TIMES, Jan. 15, 2008; Adam Liptak, West Virginia Judge Steps Out of Case Involving a Travel Companion, N.Y. TIMES, Jan. 19, 2008, at 3; Associated Press, Supreme Court to Rehear Massey-Caperton Case, CHARLESTON GAZETTE, Jan. 24, 2008; Paul J. Nyden, Starcher Recuses Himself from Massey Case, CHARLESTON GAZETTE, Feb. 16, Justice Benjamin, the Justice elected with the help of Blankenship's contributions, however, remains on the case and as acting Chief appointed the substitute justices. On rehearing, the court once again held in favor of Massey on a 3-2 vote, with Justice Benjamin in the majority. See Caperton v. A.T. Massey Coal Co., 2008 W. Va. LEXIS (April 3, 2008). Interestingly, Justice Benjamin's law clerk (some time ago) wrote an opinion piece for CALA suggesting that judges who received sizable campaign contributions from people with pending cases should recuse themselves. See Charles McElwee, Contributions to Judicial Candidates, (last visited Feb. 26, 2008). Perhaps ironically, Massey Energy had earlier filed a federal lawsuit seeking improved procedures (including decision by an impartial tribunal) on recusal motions. See Massey Energy Co. v. Supreme Court of Appeals of W. Va., Civil Action No. 2: , 2007 U.S. Dist. LEXIS (N.D. W. Va. Sep. 21, 2007). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

32 2008] HELLHOLES 9 race. 34 This was not an isolated event. A LEXIS search of the News database produces more than 900 articles referring to judicial hellholes from 2002 through March of A large number of these articles reflect political pressure to support a judge who will end the state s hellhole ways, a legislator who will work to create a friendlier environment for business, or a referendum that would enact part of the tort reform agenda. Like ATRA, the ILR is not concerned with basing its lawsuit climate campaign on data that a social scientist would find convincing. Instead, the ILR hires Harris Interactive to poll selected corporate in-house counsel and senior corporate litigators representing companies with annual revenues of at least $100 million. The lawyers are asked to grade states (A-F) on issues like treatment of mass torts, punitive damages, non-economic damages, judges impartiality, and juries predictability and fairness. 36 They are also asked, How likely would you say it is that the litigation environment in a state could affect an important business decision at your company, such as where to locate or do business? Not surprisingly, almost 60% of the corporate respondents answered that they were very likely (24%) or somewhat likely (33%) to consider this factor a not-so-veiled threat to take their business elsewhere. 37 The ILR s message to voters in the low-ranked states: demand your elected officials fix the legal system now. 38 It has backed that message by spending millions on voter education programs and other means of financing judicial candidates who they expect to be pro-business. More recently, it has funded similar campaigns targeting state legislators. Call your state legislators and tell them passing phony reforms won t make West Virginia open for business, said one TV ad CENTER FOR POLITICAL ACCOUNTABILITY, Hidden Rivers: How Trade Associations Conceal Corporate Political Spending, Its Threat to Companies, and What Shareholders Can Do 28 (2006), available at 35 LexisNexis Academic News Search for Judicial Hellholes (may be underinclusive). 36 See Methodology (2007) at 37 See 2007 State Liability System Rankings at 5, Similarly, the ATRA s 2007 Hellhole Report actually contains a graphic in its discussion of Chicago area courts depicting two mock traffic signs. Under the headline Cook County is a Judicial Hellhole, one sign says, DANGER: PERSONAL INJURY LAWYERS AHEAD! while the other reads, DETOUR TO OTHER BUSINESS VENUES Hellhole Report at ILR Advertisement, at see also similar campaigns supported by the National Association of Manufacturers (American Justice Partnership); and the Manhattan Institute (Trial Lawyers Inc.). 39 Jake Stump, U.S. Chamber Renews Attack on Legislators, CHARLESTON DAILY MAIL, April 19, 2007 at 2A; see also Center for Political Accountability, Hidden Rivers 28 (2006), available at Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

33 10 WEST VIRGINIA LAW REVIEW [Vol. 110 In addition, the Chamber of Commerce has acted as a conduit for its members who want to anonymously oppose certain laws or lawmakers. In an important article (whose date September 11, 2001 meant it got little attention), the Wall Street Journal reported: Last summer, Philip Anschutz, chairman of Qwest Communications International Inc., wanted to defeat legislation that could have prevented his company from expanding overseas. But the billionaire investor, who shuns publicity, preferred to keep a low profile. Enter Thomas Donohue, president of the U.S. Chamber of Commerce. Mr. Donohue, who considered Mr. Anschutz a potential $1 million donor to the chamber, eagerly proposed a solution: His organization would step up its efforts to derail the legislation, and it would keep Mr. Anschutz and his associates fully informed. It wasn t the first time Mr. Donohue had helped a corporate chieftain out of a jam.... Internal chamber documents reviewed by The Wall Street Journal show that the organization has created several special accounts to take in money for projects on behalf of individual companies or groups of companies with a common policy goal. In some cases, the money is spent just days after it comes in the door. The chamber, like many nonprofit organizations, isn t required to report the sources of its funding, which makes it an attractive vehicle for those such as Mr. Anschutz who sometimes like to operate under the radar. 40 The same device is available for companies wanting to influence judicial elections. For example, the article reports that in the fall of 2000, Wal-Mart, Daimler Chrysler, Home Depot, and the American Council of Life Insurers each contributed $1 million dollars to the chamber s TV and direct mail advertising campaign to elect business-friendly judges. 41 Although recent legislation called the Honest Leadership and Open Government Act of would require disclosure of contributors of over $5,000, one legal blogger reports that the Chamber hopes to protect the anonymity of the corporate donors: 40 Jim VandeHei, Political Cover: Major Business Lobby Wins Back its Clout by Dispensing Favors, WALL ST. J., Sep. 11, 2001, at A1. 41 Id. ( Many of the targeted judges had rendered verdicts against one or more of the companies contributing to the effort. ) 42 Pub. L. No (2007). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

34 2008] HELLHOLES 11 Under the threat of criminal penalties, the lobbying reform act requires trade groups to disclose members who contribute more than $5,000 in a quarter and who are involved in planning or directing lobbying activities. Not surprisingly, big businesses are not happy about this, particularly the criminal penalty part. The U.S. Chamber of Commerce and the National Association of Manufacturers fired the first shot across the bow yesterday, sending a letter to the Secretary of the Senate and the clerk of the House asking for guidance on how to interpret the new reporting requirements. They re essentially asking to exempt a lot of people who might otherwise be outed by the new law on the grounds that the law is an unconstitutional intrusion into their inner workings. 43 It appears that the Chamber s lobbying efforts, on its own, through the ILR, and on behalf of anonymous members will continue in the foreseeable future. 44 A. Background III. WEST VIRGINIA Even before the hellhole campaign began, ATRA had targeted West Virginia. One part of its website highlighted what it called Horror Stories: Stories That Show A Legal System That s Out of Control. University of Wisconsin Law Professor Marc Galanter examined these anecdotes in 1998, and at that time the following tale was told of West Virginia: West Virginia convenience store worker Cheryl Vanender was awarded an astonishing $2,699,000 in punitive damages after she injured her back when she opened a pickle jar, according to 43 The Tortellini, U.S. Chamber Won t Disclose Donors Without a Fight, Nov. 28, 2007, at The actual letter is available on the chamber s website at qs6g7r22d6bubneisgcxigwpzjcglmhiod5tphds7aqc/071128opengovt.pdf. 44 For a general discussion of the flow of money from corporations to trade associations to judicial campaigns, see CENTER FOR POLITICAL ACCOUNTABILITY, Hidden Rivers (2006), available at The Chamber s effort to build an array of institutions designed to shift public attitudes and beliefs was foreshadowed in a memo written by Lewis F. Powell, Jr. shortly before he became a Supreme Court Justice. In August of 1971, Powell wrote a memo to his friend Eugene B. Sydnor, Jr., Chair of the Education Committee of the U.S. Chamber of Commerce, suggesting an expanded role for the Chamber and for business leaders, including coordinated efforts on college campuses, monitoring of news media, creation of think tanks, the development of conservative law firms, and involvement in political campaigns. See Lewis F. Powell, Jr., Confidential Memorandum: Attack on American Free Enterprise System (Aug. 23, 1971), available at Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

35 12 WEST VIRGINIA LAW REVIEW [Vol. 110 the Charleston Daily Mail. She also received $130,066 in compensation and $170,000 for emotional distress. State Supreme Court Justice Spike Maynard called this award an outrageous sum, stating in his dissenting opinion: I know an excessive punitive damages award when I see one and I see one here. 45 When Galanter investigated this story, however, he found that ATRA had mischaracterized the more complicated events and omitted claims about the defendant s conduct. The court s opinion reflects that Sheetz the plaintiff s employer had misbehaved in a number of ways for a period of nearly five years, including refusing to accommodate plaintiff's work restrictions, refusing to reinstate her after she suffered a compensable workplace injury, discharging her, refusing to rehire her, retaliating against a manager who testified contrary to Sheetz s position, and retaliating against plaintiff upon her negotiated return to work by requiring her to perform work activities that her managers knew she could not perform without risking re-aggravating her injuries or causing new injury. 46 On appeal, the West Virginia court actually rejected the punitive damage awards based on the plaintiff s unlawful termination and failure to rehire claims on the ground that the evidence was insufficient to show that these actions were prompted by malice or involved fraud, trickery or deceit. However, with regard to the retaliation claim, the court upheld the verdict s high ratio because it found the evidence crossed the line from reckless disregard of an individual s rights to willful, mean-spirited acts indicative of an intent to cause physical or emotional harm. 47 The rhetoric of the horror story is very effective it emphasizes the pickle jar but omits the violation of state policy concerning reemployment of injured workers, the retaliation, and defendant s stonewalling of the plaintiff s early offer to settle for $30,000 plus her job back. It also holds up one unusual case, and then treats it as if it were typical of conditions in the state s judicial system. These methods of persuasion were carried forward into the tactics of the hellhole reports. When the hellhole campaign began, then, ATRA was prepared with anecdotes such as this to point a finger at West Virginia. Unlike all the other hellholes, which are individually-identified counties, ATRA labels the entire state a hellhole. Why? Probably because in the case of West Virginia the re- 45 Galanter, Oil Strike, supra note 17, at (quoting ATRA website). This section of the ATRA website is now called Looney Lawsuits and is available at 46 Vandevender v. Sheetz, Inc., 490 S.E.2d 678, 689 (W. Va. 1997). ATRA got the plaintiff s name slightly wrong. The same kind of factual error appears in the hellhole reports as when ATRA labeled Gov. Joe Manchin as Governor Bob Manchin III and Ohio County Circuit Judge Arthur Recht as Arthur Hecht, or when it chastised West Virginia for a non-existent class action against DuPont S.E.2d at 693. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

36 2008] HELLHOLES 13 sults it seeks are changes at the state level: defendant-friendly legislation from the state legislature and a shift in the composition of the West Virginia Supreme Court of Appeals. West Virginia also makes a vulnerable target: almost all of its population centers are on or near the border with neighboring states, making the threat that businesses will choose to locate in other states all the more powerful. B. Recurring Issues Although West Virginia has moved up and down the hellhole rankings, there are a handful of issues that recur from year to year. All grow out of the complex and difficult substantive and legal issues raised by mass torts. The problems arise when a company or industry creates a product or process that has the potential to harm hundreds of thousands of people, whether employees, customers, or just people who breathe the air or drink the water. Reasonable scholars on all sides of the substantive and procedural issues raised have debated and will continue to debate the best ways to handle scientific uncertainty, industry s externalization of environmental costs, deterrence, insurance, proof of causation, procedural efficiency, the role of the courts, and best choice of decision maker. The hellhole reports add nothing to these thoughtful and nuanced debates, but instead merely caricature West Virginia s law in three areas: West Virginia awards damages to pay for the medical monitoring of plaintiffs who have been exposed to hazardous substances; allows suits by plaintiffs who are not West Virginia residents; and allows joinder of numerous plaintiffs and defendants in mass tort claims. This Part of the article addresses these persistent themes. 1. Medical Monitoring Tort law has come a long way from its early English roots when the courts distinguished between trespass (a man throws a log and the log hits another man) and case (a man throws a log that lands in the road where another man trips over it). 48 Those comparatively simple one-on-one disputes are still the mainstay of the tort system, but technological advances have brought about the more complex phenomenon of the toxic tort personal injury caused by exposure to a hazardous substance that may affect large groups of people (but not everyone in the group) and that may have extended latency periods between exposure and disease. Now the log may hurt someone in fact a lot of someones but not because of physical contact and not right away. How will the system handle that? One traditional answer was to make those who were exposed to the hazard wait to see if they developed symptoms before they could bring suit against 48 Leame v. Bray, 3 East 593 (K.B. 1803), reprinted in WALTER WHEELER COOK ET AL., CASES ON PLEADING AT COMMON LAW 9-10 (1923). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

37 14 WEST VIRGINIA LAW REVIEW [Vol. 110 the creator of the hazard. This approach, however, comes with a number of problems, particularly: 1) the plaintiff s claim could be barred by the statute of limitation or a statute of repose before there was a detectable physical manifestation of injury; and 2) over time sources of proof had a tendency to disappear. In addition, the exposure itself (along with any reasonable resulting fears) is itself a harm, albeit not the traditional physical injury or at least not full-blown disease. Courts therefore began to explore alternative ways to deal with toxic exposure cases, and one of those alternatives is called medical monitoring. Sometimes treated as a new cause of action, and sometimes as a new remedy, medical monitoring requires a defendant to pay a plaintiff for the anticipated costs of checkups and procedures aimed at detection and early treatment of any disease that may arise in the future as a result of tortious exposure. 49 The first case to award medical monitoring damages was Friends for All Children, Inc. v. Lockheed Aircraft Corp. 50 A Lockheed plane carrying hundreds of Vietnamese orphans malfunctioned, lost oxygen, and crashed. Although many were killed, 149 of the infants survived and their guardians claimed that they would need regular medical monitoring to determine if the decompression and crash had caused residual brain dysfunction syndrome in the children. The trial court ordered Lockheed to pay for the diagnostic testing, and the D.C. Circuit affirmed based on the two guiding principles of tort law: the deterrence of misconduct and the provision of just compensation to victims of wrongdoing. 51 Medical monitoring awards soon spread to toxic torts. The first such case was Ayers v. Township of Jackson. 52 In Ayers, a city s residents sued their town when toxic pollutants from the town s landfill leached into the water supply. The New Jersey Supreme Court held that the residents were entitled to recover medical monitoring expenses because the plaintiffs exposure to the pollutants gave them an increased risk of future disease. 53 A number of similar cases followed which, though varying in detail, held that courts should provide for medical monitoring relief when a defendant s actions had exposed the plaintiffs to toxins that significantly increased the risk of contracting a serious future illness. 54 Some states still require at least some type of physical injury before finding medical monitoring appropriate, while others do not. Some states only provide for medical monitoring when early detection would enhance survival or 49 Wood v. Wyeth-Ayerst Labs., 82 S.W.3d 849, 856 (Ky. 2002) F.2d 816 (D.C. Cir. 1984). 51 Id. at A.2d 287 (N.J. 1987). 53 See id. 54 Richard Bourne, Medical Monitoring Without Physical Injury: The Least Justice Can Do for Those Industry has Terrorized With Poisonous Products, 58 SMU L. REV. 251, nn (2005) (citing cases). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

38 2008] HELLHOLES 15 treatment options, while some find other justifications for medical surveillance. Some states provide the monitoring remedy in the form of a court-administered fund to pay (or reimburse) for the medical tests, while others award the money to the plaintiffs in the form of damages. But the recognition of the propriety of a medical monitoring remedy of some kind is nearly unanimous. According to a 2006 study, 14 states plus the District of Columbia (including Ohio, Pennsylvania, and West Virginia) allow medical monitoring claims even in the absence of traditional physical injury; 16 states (including Kentucky and Virginia) allow medical monitoring with proof of physical injury; and the remainder (including Maryland) either have not addressed the issue or have not articulated a test. 55 A study by the American Law Institute recommended that in order to provide a vehicle for early litigation over tortious exposure creating substantial risk of long-latency disease, medical monitoring damages [should be awarded] to fund appropriate surveillance and investigation of the path followed by the disease within the exposed population. 56 Where does West Virginia fit in this continuum of medical monitoring relief? Its initial medical monitoring case creates significant proof requirements for the plaintiffs. In Bower v. Westinghouse Electric Corp., the plaintiffs brought a claim in the Circuit Court of Marion County alleging they were exposed to a number of toxic substances because defendants maintained a cullet pile containing debris from the manufacture of light bulbs. 57 After determining that West Virginia law allows the award of damages for future medical monitoring expenses even in the absence of a present physical injury, the court set forth the following six-part test: (1) [a plaintiff]... has... been significantly exposed; (2) to a proven hazardous substance; (3) through the tortious conduct of the defendant; (4) as a proximate result of the exposure, plaintiff has suffered an increased risk of contracting a serious latent disease; (5) the increased risk of disease makes it reasonably necessary for the plaintiff to undergo periodic diagnostic medical examinations different from what would be prescribed in the 55 D. Scott Aberson, Note, A Fifty-State Survey of Medical Monitoring and the Approach the Minnesota Supreme Court Should Take When Confronted with the Issue, 32 WM. MITCHELL L. REV. 1095, (2006). 56 Paul C. Weiler et al., Enterprise Responsibility for Personal Injury, 2 A.L.I. REPORTERS STUDY (1991) S.E.2d 424, 426 (W. Va. 1999). The tests performed on the pile indicated the presence of thirty potentially toxic substances. Id. at 427. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

39 16 WEST VIRGINIA LAW REVIEW [Vol. 110 absence of the exposure; and (6) monitoring procedures exist that make the early detection of a disease possible. 58 West Virginia goes farther than some other states in that it allows recovery of money damages rather than mandating a fund (although more recent cases have adopted a fund approach), 59 and that it supports medical monitoring even when the test results would not change the plaintiff s course of treatment or survival. As to the latter, the court did not want to deprive plaintiffs of information that might be helpful in the future as medical science advances. Bower also noted that allowing monitoring even without the prospect of a cure could allow the plaintiff a chance of getting his financial affairs in order, making lifestyle changes, and even perhaps, making peace with estranged loved ones or with his religion. 60 The hellhole reports, rather than treating West Virginia s handling of medical monitoring as within the mainstream, treats it as an aberration. In the 2002 report, in which West Virginia merely gets dishonorable mention, Bowers (decided three years earlier) is used to explain why West Virginia is viewed as statewide hellhole. 61 The report complains that the court reached the issue even though it was not actually presented to the court. This gives the impression that the Justices reached out of nowhere to create a cause of action for medical monitoring. In fact, the justices when asked to advise the federal district court as to West Virginia law recast the issue. The district court worded the question this way: In a case of negligent infliction of emotional distress absent physical injury, may a party assert a claim for expenses related to future medical monitoring necessitated solely by fear of contracting a disease from exposure to toxic chemicals? The West Virginia Supreme Court of Appeals found it more helpful to word the question like this: Whether, under West Virginia law, a plaintiff who does not allege a present physical injury can assert a claim for the recovery of future medical monitoring costs where such damages are the proximate result of defendant s tortious conduct. 62 The court hardly pulled medical monitoring out of thin air. Second, the 2002 hellhole report argues that the award of damages almost assures that the funds will not be used in a carefully conducted medical 58 Id. at The hellhole reports tend to ignore these requirements when discussing West Virginia s medical monitoring rules, as when the 2006 report (mis)characterized West Virginia law as allowing a claimant to collect cash simply by showing that he was exposed to a potentially dangerous substance, even if he has no sign of injury Hellholes Report at iv. 59 See, e.g., Judge Upholds $196m Award Againsts DuPont, CHARLESTON GAZETTE (Feb. 28, 2008). WVU also settled a claim alleging employee exposure to asbestos by creating an actual monitoring program. See Ken Ward, Jr., West Virginia University Asbestos Testing Approved, CHARLESTON GAZETTE (Dec. 23, 2005 at P1C S.E..2d at 434 (quoting Chief Judge Calogero s concurrence in Bourgeois v. A.P. Green Indus., Inc., 716 So. 2d 355, 363 (La. 1998)); see also Redland Soccer Club v. Dep t of the Army, 696 A.2d 137, 146 n.8 (Pa. 1997) Hellhole Report at Bower, 522 S.E.2d at Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

40 2008] HELLHOLES 17 monitoring program. One wonders whether ATRA would have been mollified by an order creating a multi-million dollar fund and funds may be preferable to individual damage awards, although they come with associated costs of administrating the fund but does that disagreement about the best shape of the remedy make the state a hellhole? By 2003, West Virginia was named as a full-blown hellhole, Bowers was four years old, and ATRA was still upset about West Virginia allowing people to recover damages based on the future consequences of present exposure. The report complained first about a railway labor act case holding that workers who established a reasonable fear of cancer related to proven physical injury from asbestos were entitled to compensation for the fear as a part of damages awardable for pain and suffering. 63 The report states that the U.S. Supreme Court allowed the ruling to stand. 64 In fact, the Supreme Court affirmed the West Virginia court s ruling, noting that [m]any courts in recent years have considered the question presented here whether an asbestosis claimant may be compensated for fear of cancer. Of decisions that address the issue, a clear majority sustain recovery. 65 The 2003 report also complains about a second West Virginia medical monitoring case. In re West Virginia Rezulin Litigation, 66 a case reviewed at the class certification stage, involved a claim that the makers of Rezulin had deliberately overstated the drug s effectiveness in treating diabetes and suppressed information about its tendency to cause liver damage. In discussing class certification, the court notes that the class sought to recover the costs of medical monitoring necessary to determine whether the plaintiffs have sustained, or will develop in the future, any injuries from using Rezulin. West Virginia law allows a cause of action for the recovery of medical monitoring costs, where it can be proven that such expenses are necessary and reasonably certain to be incurred as a proximate result of a defendant s tortious conduct. 67 Rather than quote the case, the hellhole report instead quotes an op-ed piece in the Charleston Daily Mail by Robert Mauk, then-chair of West Virginia CALA but not even by reading endnote 115 can one tell that it was Mauk and not the court who said that the plaintiffs could keep the cash and do not need to be monitored for any medical condition. The 2004 report ups the rhetorical ante on medical monitoring claims this time the sub-head reads: Doling Out Cash Awards to Those Without Injuries. 68 The report claims that in September, Dupont was forced to settle a medical monitoring claim arising out of a chemical known as C8 even though Hellhole Report at Id. at 10. Norfolk & Western Ry. v. Ayers, 538 U.S. 135, 151 (2003). 585 S.E.2d 52 (W. Va. 2003). Id. at 59 (citing Bower, 522 S.E.2d 424) Hellholes Report at Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

41 18 WEST VIRGINIA LAW REVIEW [Vol. 110 the plaintiffs offered no evidence that the substance... is even dangerous or has the potential to cause any ill health effects. 69 Dupont was, of course, not forced to do anything, and the nature of the lawsuit, and concerns about C8 (also known as PFOA), are conveniently omitted. 70 DuPont s Washington Works plant, southwest of Parkersburg, uses C8 in manufacturing Teflon, and the chemical is found in the water supplies in the surrounding areas. A lawsuit was filed on behalf of 70,000 residents of West Virginia and Ohio, and it was settled for funds that will pay for a health study and, only if necessary, medical monitoring. 71 While medical science has not identified a cellular mechanism whereby C8 causes specific harm to humans, the following are true: In 2002, an EPA Science Advisory Board proposal noted, Toxicological studies in rodents and primates have shown that exposure to [C8] can result in a variety of effects, including developmental/reproductive toxicity, liver toxicity and cancer. 72 A document produced in the settled lawsuit showed that Du- Pont had discovered high levels of C8 in the blood of Parkers- 69 Id. at 23. It is also clear that this settlement will include medically helpful information gathering. See C8 Science Panel Website, (last visited Feb. 24, 2008); C8 Health Project, (last visited Feb. 24, 2008). 70 See 2004 Hellholes Report. The 2005 report repeats ATRA s complaints about the DuPont class action settlement, which was approved by the court in February of Hellhole Report at 18. It also quotes a consumer advocate as saying that the C8 suits are a scare campaign. Terence Scanlon, the person identified in the endnote, was in fact a member of the Consumer Product Safety Commission appointed by President Reagan but few would characterize this former employee of the Heritage Foundation as a consumer advocate Hellhole Report at Spencer Hunt, DuPont facing new suit over C8, COLUMBUS DISPATCH, May 31, 2006, at 1E ( DuPont agreed... to pay at least $107 million for a health study for the 70,000 area residents who drank water contaminated with C8. The company agreed to pay an additional $235 million to help monitor residents health if C8 is found to be harmful. ). 72 Ken Ward Jr., EPA gears up to study DuPont chemical: In use since 1951, C8 exposure now alleged to be dangerous, CHARLESTON GAZETTE, Nov. 18, 2002 at 1A. The EPA continues to study the issue of animal and human impacts of PFOAs. See, e.g., OFFICE OF POLLUTION PREVENTION AND TOXICS, Draft Risk Assessment of the Potential Human Health Effects Associated with Exposure to Perfluorooctonoic and its Salts (Jan. 4, 2005), available at Science Advisory Panel Review of EPA s Draft Risk Assessment (May 30, 2006), available at b_06_006.pdf; EPA, Basic Information on PFOA, available at (last updated Aug. 17, 2007). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

42 2008] HELLHOLES 19 burg area residents: levels between 12 and 20 times greater than the concentrations in the general U.S. population. 73 The EPA in 2006 asked the eight major manufacturers of C8 to globally reduce emissions and C8 product content by 95% no later than 2010 and work toward eliminating use of the chemical by In December 2005, DuPont agreed to pay the EPA a record $10.25 million fine to settle claims that it had violated federal environmental laws by repeatedly failing to report substantial risk information about C8 in a timely manner. 75 Researchers at Yale have shown a significant association between C8 levels and high total cholesterol, LDL and VLDL. 76 Exposure to C8 in the womb is statistically associated with lower weight and head circumference at birth, according to an analysis of nearly 300 umbilical cord blood samples led by researchers at the Johns Hopkins Bloomberg School of Public Health. 77 DuPont still denies that C8 causes health problems, and in so doing it has repeatedly misrepresented the conclusions of its own scientific experts. For example, in 2005 the company announced to the employees at Washington Works and the general public that C8 has no known human health effects. 78 But one of the experts, Noah Seixas of the University of Washington, was a bit shocked by DuPont s press statements. 79 Another, David Wegman of the University of Massachusetts at Lowell, was quite uncomfortable with the way the 73 Ken Ward Jr., DuPont found high C8 in blood, study shows, CHARLESTON GAZETTE, Nov. 18, 2004 at 2C. The report, done for DuPont by Exygen Research, is available at (last visited Jan. 8, 2008). 74 Liz Buckley, Annual Progress Reports Show Companies Reducing PFOA Emissions, PESTICIDE & TOXIC CHEMICAL NEWS, Nov. 12, 2007, at 11. See 2010/15 PFOA Stewardship Program, 75 Id. See EPA, E.I. DuPont de Nemours and Company Settlement (Dec. 14, 2005), 76 Data on life sciences discussed by researchers at Yale University, BIOTECH LAW WEEKLY (Dec. 7, 2007). 77 PFOS and PFOA Exposure Associated with Lower Birth Weight and Size, HOSPITAL BUSINESS WEEK, Sep. 9, 2007, at A. 79 Ken Ward Jr., DuPont Distorted C8 Study: Scientists, CHARLESTON GAZETTE, Oct. 14, 2007, Id. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

43 20 WEST VIRGINIA LAW REVIEW [Vol. 110 company described the findings, and four members of the expert team agreed that the company s letter to employees was somewhere between misleading and disingenuous. 80 In October 2006, DuPont held a press conference to release the results of the second phase of its worker study. This time, researchers were looking to see if C8 was linked to any worker deaths at the Wood County plant. 81 Again, the company s press release touted the results as good news. No increased mortality in workers exposed to PFOA, the release said. 82 The company s internal review board again objected to the apparent certainty of the news release, especially since the study showed a small, if not statistically significant, increase in kidney cancer mortality. 83 In light of this extensive concern about C8 and its health effects, the settlement of the West Virginia case funding a study of whether residents are in fact experiencing health problems from the elevated C8 levels in their drinking water also seems more reasonable than hellacious. The 2005 Hellhole Report brought fresh complaints about West Virginia s approach to medical monitoring. Most courts have rejected such claims, says the report, giving the impression that it is medical monitoring itself that is suspect. 84 It also reports that Michigan has recently joined the list of courts that reject West Virginia s approach. 85 The Michigan case, Henry v. Dow Chemical, 86 does affirm the requirement of a physical injury to support a monitoring claim. But in terms of most courts, recall that the states are split almost exactly up the middle. It is on the question of the form of the medical monitoring remedy money damages versus an administered fund that West Virginia s initial approach differs most from other states. Here the hellhole report s authors show their disdain for West Virginia residents, suggesting in endnotes that the plaintiffs are spending their monitoring recoveries on flat screen 80 Id. 81 Id. 82 Id. 83 See id. (quoting s obtained through discovery in a New Jersey case involving C8); see also from Bernard Reilly, DuPont lawyer, to DuPont Lawyers and Scientists (Aug Dec. 2001) available at One states, We learned recently that our analytical technique has very poor recovery, often 25%, so any results we get should be multiplied by a factor of 4 or even 5. However, that has not been practice, so we have been telling the agencies results that surely are low. Not a pretty situation, especially since we have been telling the drinking water folks not to worry, results have been under a level we deem safe of 1 [parts per billion]. We now fear we will get data from a better technique that will exceed the number we have touted as safe. Ugh. Id. (Reilly to his son) Hellhole Report at Id N.W.2d 684 (Mich. 2005). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

44 2008] HELLHOLES 21 televisions rather than medical care. 87 The 2007 report, repeating ATRA s standard characterization of West Virginia law, echoed this accusation: the cash 88 award can be spent on a car or a stereo was also the year that DuPont resurfaced but totally without justification. Suits were filed in fourteen states accusing DuPont of wrongfully exposing consumers to toxic chemicals used to make Teflon. 89 The 2005 hellhole report claimed that one such suit was filed in West Virginia, and, citing it, bumped the state up to #3 hellhole. 90 Given that West Virginia is one of the few states that allow medical monitoring, it is easy to see why plaintiffs lawyers were drawn to the state, the association said. 91 The problem: no such case was filed in West Virginia. 92 When the error was pointed out, ATRA retracted the accusation but did not adjust West Virginia s hellhole ranking. In sum, medical monitoring cases present a wealth of difficult issues 93 worth discussing, but they are not discussed in the hellhole reports. Instead the public is presented with incomplete and misleading information. West Virginia s position on liability is completely mainstream. Its rule allowing recovery of money damages is more unusual, but instead of reasoned debate about the comparative costs and benefits of money damages and equitable relief (such as funds), the report provides name calling and visions of mountaineers lined up to buy flat screen TVs. 2. Choice of Forum Given the ATRA membership s dislike of West Virginia law, it is not surprising that it would advocate limits on potential plaintiffs ability to bring suit in the state. This is another perennial hellhole complaint. The 2002 and Hellhole Report at 55 n.90 (citing Bower v. Westinghouse Elec. Corp., 522 S.E.2d 424 (W. Va. 1999), which of course does not discuss flat screen televisions, and which was by then six years old). The Report also quotes Justice Maynard s view of West Virginians: Originally, I referred to this in my dissent as the pick-up truck fund, but my clerk, a bright young man, suggested we should call it the Myrtle Beach improvement fund, because so many of our folks go to Myrtle Beach when they vacation. At any rate, this windfall of cash will not be spent for medical tests. Id. at Hellhole Report. The Report does note that in 2005 the West Virginia courts actually limited class treatment under West Virginia law to residents of West Virginia or other states with similar laws but that decision did little to offset ATRA s general objection to West Virginia s recognition of medical monitoring claims. W. Va. ex rel. Chemtall, Inc. v. Madden, 607 S.E.2d 772 (W. Va. 2004). 89 Ken Ward Jr., Tort Reform Group Criticizes W. Va. for Fla. Lawsuit: Score Unchanged Despite Admission Error Was Made, CHARLESTON GAZETTE, Dec. 15, 2005, at 14A. 90 Id. 91 Id. 92 Id. 93 Id. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

45 22 WEST VIRGINIA LAW REVIEW [Vol reports raise the issue generally, calling on states to apply the doctrine of forum non conveniens (FNC) to ensure that cases are heard in a jurisdiction that has a logical connection to the claim. 94 FNC is a relatively recent common law doctrine that gives a court the discretion to decline to exercise jurisdiction over a case if it is a seriously inappropriate forum and if a substantially more appropriate forum is available to the plaintiff. 95 FNC may be invoked by the defendant or on the court s own motion. In deciding the motion, the court gives the plaintiff s choice of forum great deference (especially if the plaintiff is a forum resident), but the interests of both the private parties and the public for and against litigating elsewhere are part of the balance. Private factors include the residence of the parties and the relative ease of access to witnesses and evidence. Public factors include which state s law will apply, the relative burdens on the court systems, and the citizenry s comparative interest in deciding the case. If the ground grants a FNC motion the case is dismissed, and the plaintiff must refile it elsewhere. It is important to remember that the doctrine of forum non conveniens is not invoked unless the court in fact has jurisdiction. Before it even considers a forum non conveniens argument, then, the court will already have decided that it has jurisdiction over the type of case, and that each defendant has sufficient contacts with the forum state so that forcing it to defend there does not offend traditional notions of fair play and substantial justice. 96 In finding personal jurisdiction over the defendants, the court will already have considered the same type of factors as are relevant to the FNC decision: the burden on the defendant, the plaintiff s interest in the forum, the forum state s interest in hearing the case, the shared interest of the several states in furthering substantive social policies, and the interstate system s interest in the efficient processing of disputes. 97 FNC operates as a further limit on forum choice, and seeks to achieve a good fit between forum and dispute. West Virginia has long had a very standard doctrine of forum non conveniens. 98 In 2003, however, West Virginia made ATRA happier by adopting a venue provision that replaced the balancing of interests with a per-se rule for out of state plaintiffs: Effective for actions filed after the effective date of this section, a nonresident of the state may not bring an action in a court of this state unless all or a substantial part of the acts or omissions giving rise to the claim asserted occurred in this state: Provided, 94 See generally 2002 Hellhole Report; 2003 Hellhole Report. 95 See, e.g., Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981). 96 Int l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). 97 Burger King Corp. v. Rudzewicz, 471 U.S. 462, (1985). 98 See Cannelton Indus. v. Aetna Casualty & Sur. Co. of Am., 460 S.E.2d 1 (W. Va. 1994) (affirming Circuit Court s FNC dismissal); Norfolk & Western Ry. Co. v. Tsapis, 400 S.E.2d 239 (W. Va. 1990) (adopting doctrine). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

46 2008] HELLHOLES 23 That unless barred by the statute of limitations or otherwise time barred in the state where the action arose, a nonresident of this state may file an action in state court in this state if the nonresident cannot obtain jurisdiction in either federal or state court against the defendant in the state where the action arose. A nonresident bringing such an action in this state shall be required to establish, by filing an affidavit with the complaint for consideration by the court, that such action cannot be maintained in the state where the action arose due to lack of any legal basis to obtain personal jurisdiction over the defendant. In a civil action where more than one plaintiff is joined, each plaintiff must independently establish proper venue. 99 ATRA s happiness was fleeting. In Morris v. Crown Equipment Corp., the West Virginia Supreme Court of Appeals struck down the venue statute as a violation of the privileges and immunities clause of the U.S. Constitution. 100 Whether or not this decision was correct as a matter of constitutional law, the state legislature went to work and passed substitute legislation. 101 The 2007 Hellhole Report characterizes this law as a modest reform that gives judges more discretion to dismiss claims by nonresidents based on a balancing of factors. 102 The statute is, in substance, a codification of the common law of forum non conveniens plain vanilla U.S. law and includes a specific provision regarding non-west Virginia plaintiffs: the plaintiff's choice of a forum is entitled to great deference, but this preference may be diminished when the plaintiff is a nonresident and the cause of action did not arise in this state. That leaves West Virginia in the same place as the other states and the federal courts. 103 Where s the hellhole? 99 W. Va. CODE (c) (Supp. 2003) (amended in 2007 omitting quoted language) (providing an example of Firefighting in Judicial Hellholes ) (emphasis added) S.E.2d 292 (W. Va. 2006), cert. denied, 127 S. Ct. 835 (2006). 101 See W. VA. CODE a (Supp. 2007) Hellhole Report at The 2007 report also complains, a couple from Arizona can waltz right in and file a lawsuit in West Virginia courts naming a mere 77 companies as defendants, citing an article in the West Virginia Record. Id. at 11 (citing Cara Bailey, Arizona couple names 77 companies in asbestos suit, W. VA. REC. (May 9, 2007)). What it does not mention is that the Arizona couple are former West Virginians suing over asbestos exposure that took place largely in West Virginia. According to attorney James Stealey, Those were companies which manufactured asbestosrelated products while he worked here in West Virginia for more than 40 years.... He retired to Arizona, and came back to West Virginia to file the lawsuit. Where does he expect to file his lawsuit, but in the state where he was injured? Todd Baucher, Judicial What -Hole?, WTAP.com (Dec. 18, 2007), Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

47 24 WEST VIRGINIA LAW REVIEW [Vol Joining Claims and Parties A third persistent complaint about West Virginia stems from lawsuits that combine numerous plaintiffs and defendants in the same lawsuit and, in particular, one huge lawsuit arising out of asbestos exposure. 104 Just as substances that can injure hundreds of thousands of people challenge substantive tort law, so do they complicate court procedures. U.S. courts abandoned the one plaintiff/one defendant/one cause of action limits on lawsuit structure long ago, replacing them with functional standards designed to maximize the courts efficiency while avoiding prejudice to litigants. Generally, courts allow the joinder (that is, the joining together in one lawsuit) of claims and parties when they share some common question of law or fact and are connected as part of the same transaction or occurrence, or series of transactions or occurrences. 105 Mass torts raise competing concerns when it comes to joinder. On the one hand, trying every single case separately would be gigantically inefficient. Consider the duplication of effort for the courts and parties that would be involved in separate discovery, separate pretrial motions, separate trials with separate evidence and separate juries, all to decide identical questions such as is asbestos a defective product, does asbestos cause mesothelioma, and the like. It is not surprising that courts would like to find a way to combine claims with substantial legal and factual overlaps and they are right to do so. In a related vein, it is also understandable that courts faced with hundreds or thousands of personal injury claims that fall into quite predictable patterns would like to find a way to combine them, or to try a representative sample in an effort to aid the parties in evaluating and settling their disputes. On the other hand, these same claims also involve factual disputes that do not overlap, and at some point it becomes less rather than more helpful to join them together. The efficiency gains of joinder can be lost, and less culpable defendants can be indirectly tarred by association with more culpable ones. Academic literature again abounds with discussions of the possible ways of dealing with these competing needs, and no one yet has found the magic bullet that will eliminate the need for policy trade-offs See State ex rel. Mobil Corp. v. Gaughan, 563 S.E.2d 419, 421 (W. Va. 2002). 105 See, e.g., Fed. R. Civ. P. 20(a); W. Va. R. Civ. P. 20(a). In addition, A plaintiff or defendant need not be interested in obtaining or defending against all the relief demanded. Id. 106 With regard to asbestos litigation specifically, see Deborah R. Hensler, Asbestos Litigation in the United States: Triumph and Failure of the Civil Justice System, 12 CONN. INS. L.J. 255 ( ); Samuel Issacharoff, Shocked : Mass Torts and Aggregate Asbestos Litigation After Amchem and Ortiz, 80 TEX. L. REV (2002). With regard to mass torts generally, see MARK A. PETERSON & MOLLY SELVIN, INSTITUTE FOR CIVIL JUSTICE, RESOLUTION OF MASS TORTS: TOWARD A FRAMEWORK FOR EVALUATION OF AGGREGATIVE PROCEDURES (1988); American Law Institute, Complex Litigation: Statutory Recommendations and Analysis With Reporter s Study (1994); Edward H. Cooper, The (Cloudy) Future of Class Actions, 40 ARIZ. L. REV. 923 (1998); Symposium on Mass Torts, 31 LOY. L.A. L. REV. 353 (1998) (various articles describing Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

48 2008] HELLHOLES 25 It is in this context that one should approach ATRA s portrayal of West Virginia and other states. One of the mountain state s most daunting cases has been featured since the very first hellhole report. In a group of consolidated cases against Mobil Corporation and others, an extremely large group of plaintiffs (assumed to be in the thousands) sued a fairly large number of defendants for damages caused by asbestos. 107 The trial court, searching for a way to dispose of the cases efficiently but fairly, scheduled mediation and then began to work on a scheduling order that would allow common issues to be tried together and, if necessary, distinct issues to be tried to different juries or handled in other ways. 108 The defendants asked the West Virginia Supreme Court of Appeals to prohibit the trial judge from implementing his Trial Plan. 109 The court rejected Mobil s application as premature: Because the trial court has yet to finalize the specifics regarding identification of the common issues that will be the focus of the initial liability phase of the litigation, Mobil s contention of a denial of Due Process predicated on the lack of commonality of the issues subject to the liability phase is simply premature. We cannot, in advance of any such final determination of these common issues, resolve Mobil s speculative, and possibly unrealized, claims of Due Process violations. Likewise, we cannot substantively address Mobil s concerns regarding the potential use of a matrix, or a punitive damage multiplier, because the trial court has not yet definitively ruled upon the use of either of these mechanisms. 110 The court further indicated that the trial court should adjust its scheduling order to allow the parties more time, and explained that it could not yet review a plan that was still in a state of flux: The trial court deserves to be accorded... the opportunity to reevaluate the trial plan during its operation and to make necessary modifications when it determines that alterations are warranted. 111 Noting only the non-common features of the litigation, the 2002 Hellhole Report stated that the court allowed a mass asbestos trial to proceed and methods for resolving mass tort litigation, including mediation, settlement classes, Chapter 11 bankruptcy, special masters, claims-processing facilities, and arbitration); Richard L. Marcus, Confronting the Consolidation Conundrum, 1995 BYU L. REV. 879 (1995); Joan Steinman, The Effects of Case Consolidation on the Procedural Rights of Litigants: What They Are, What They Might Be, Part II: Non-Jurisdictional Matters, 42 UCLA L. REV. 967 (1995); Deborah R. Hensler, Resolving Mass Toxic Torts: Myths and Realities, 1989 U. ILL. L. REV. 89 (1989). 107 State ex. rel Mobil Corp. v. Gaughan, 563 S.E.2d 419, 421 (W. Va. 2002). 108 Id. at Id. at Id. at Id. at 427. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

49 26 WEST VIRGINIA LAW REVIEW [Vol. 110 anticipated that the U.S. Supreme Court might choose to hear the case. 112 In 2003, the story was repeated, including an allegation that the only commonality of the claims was the word asbestos, and the news that when their stay was denied, many of the defendants chose to settle their claims. In 2005, the suit featured in the report s general description of the state, 113 and it was noted again in the 2006 report. 114 Other than this, the reports provided no evidence of defendants harmed by irrationally-combined claims. 115 C. Smoke and Mirrors: The Marketing of Anecdotes In addition to the persistent themes noted above, the hellhole reports contain fleeting and colorful tidbits, also with a tendency to omit information crucial to a meaningful understanding of the specific events described and the judicial system generally. While it is beyond the scope of this essay to address every allegation from all six hellhole reports, a few examples show the way in which the reports careful editing and truncated accounts tend to obscure rather than clarify the cases discussed. 1. Treating Opinions As Facts The anecdotes described above and below are written for maximum effect, as one would expect of the extremely capable framers of the hellhole reports. In addition, the stories are embedded in a framework of more general statements about West Virginia s legal system statements that are the opinions of the persons quoted but that appear to be statements of fact. The reports do this by using quotations (unattributed in the text, but identified in the endnotes) often from the local leaders of ATRA affiliates 116 characterizing West Virginia s legal system as if they were providing a neutral empirical analysis Hellhole Report at Hellhole Report at Hellhole Report at 43 n.86. The 2007 Hellhole Report remarks in passing that West Virginia has a reputation for massive lawsuits Hellhole Report at iii. 115 The 2006 Hellhole Report does cite a news story about an asbestos case filed in Kanawha County on behalf of sixteen plaintiffs against one hundred forty three defendants Hellhole Report at 43 n For a discussion of the relationship between CALA, ATRA, and other advocates of tort reform, see generally Carl Deal & Joanne Doroshow, The CALA Files: The Secret Campaign by Big Tobacco and Other Major Industries to Take Away Your Rights, (last visited Jan. 3, 2008); see also Terry Carter, New Name, New Strategies, A.B.A.J. (Feb. 2007), available at (noting that documents released as part of the 1999 tobacco settlement show that many of the citizen based, grassroots groups in a number of states, often called Citizens Against Lawsuit Abuse, were started and funded by ATRA or others largely using tobacco money ). 117 Those quoted are often editorial or op-ed writers for the Charleston Daily Mail (or more recently the State Journal and the West Virginia Record), and the writers are often officers of the Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

50 2008] HELLHOLES 27 ATRA is, in effect, quoting itself in order to prove that its views are generally held, and uses the quotations to state or imply that the opinions are factuallybased. For example, in the 2005 and 2006 reports the text states that West Virginia courts are a favorite for wealthy personal injury lawyers. 118 If the reader skips thirty-seven pages to the endnotes, she learns that this quotation is from a piece by Randy Coleman published in the Charleston Daily Mail. 119 If a person has access to Coleman s op-ed piece or does independent research, she can learn that Coleman was affiliated with West Virginia Citizens Against Lawsuit Abuse (WVCALA), a group whose extensive public relations campaign has done much to popularize the perception that the state is a judicial hellhole. The same reports also assert that [p]eople sued in West Virginia often settle rather than take a chance in our unfair and unpredictable courts. The relevant endnote cites another Daily Mail editorial, this one written by Bill Bissett. The footnote does not mention that Bisset was then the executive director of WVCALA. 120 The 2007 Hellhole Report adds an additional level to the use of opinion, this time by indirectly relying on an opinion poll. The text of the report states that businesses large and small continue to fear the unfair litigation climate in the state. 121 The corresponding endnote shows that this statement comes from an article in The Record. 122 The article, in turn, reports on a survey commissioned by the ILR, carried out by Harris Interactive, entitled Small Businesses: How the Threat of Lawsuits Impacts Their Operations: West Virginia Sample. The report, citing the article, which cites the survey, claims that a survey of the state s small business owners found that 85% were concerned and 60% were very or somewhat concerned about the impact of frivolous lawsuits and that many altered business decisions as a result. 123 West Virginia chapter of Citizens Against Lawsuit Abuse. See, e.g., 2003 Hellhole Report at 34-35; 2004 Hellhole Report at 50-51; 2005 Hellhole Report at 55-56; 2006 Hellhole Report at 42-43; 2007 Hellhole Report at Wikipedia notes that the Daily Mail historically had a moderate to conservative viewpoint and described itself as an independent Republican newspaper ; that the West Virginia Record is largely staffed by former employees of the Mail and takes an editorial viewpoint that is generally conservative and favors tort reform ; and that in 2002 the State Journal expanded and began to cover legal and government news and introduce conservative editorial content on subjects other than business. See also Wade Goodwyn, Texas Newspaper Accused of Tort-Reform Bias (May 2, 2007), ryid= (Chamber of Commerce runs West Virginia Record, Madison Record, and Southeast Texas Record); Jeffrey H. Birnbaum, Advocacy Groups Blur Media Lines, WASH. POST, Dec. 6, 2004, at A Hellhole Report at 11; 2005 Hellhole Report at Hellhole Report at 18, 55 n Id. at 55 n Hellhole Report at Id. at 41 n.139 (citing Chris Dickerson, West Virginia Small Business Owners Fear Unfair Lawsuits, Study Finds, THE RECORD, May 27, Hellhole Report at 41 n.139. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

51 28 WEST VIRGINIA LAW REVIEW [Vol. 110 The ILR s Small Business Report deserves a closer look. First, like the lawsuit climate reports it is merely an opinion survey, not information about the actual operation of the court system. Second, the research objectives and design skewed the results from the beginning. The objective: To examine the attitudes and experiences of small business owners and managers in West Virginia who are concerned about frivolous and unfair lawsuits and to learn how the legal environment, specifically the tort system, impacts their businesses. 124 Because of this objective, no one qualified for inclusion in the survey unless they told the interviewer that they were somewhat or very concerned about the liability system in West Virginia. 125 Here s how that impacted the sample: Harris Interactive contacted 1304 small business people. Of those 1304, only 237 qualified. In other words, only 18% of the people contacted (who were identified through Dun & Bradstreet listings) ran businesses of the correct size and were somewhat or very concerned about the liability system in West Virginia. And all of the findings in the report all of the percentages are derived from the 237 concerned respondents. 126 Even given this sample, the results that reflect actual experience are underwhelming. The survey reports that less than 35% of the small businesses had actually been sued in the past ten years. 127 Of the sixty-two small business owners who had been sued, 23% (about 14 cases) were premises slip and fall cases; 9% (about 6 cases) were personal injury claims resulting from an accident with a company vehicle; 7% (about 4 cases) were disputes with employees; 4% (2 cases) were financial claims made by suppliers; and 26% (about 16 cases) were some other type or the respondent was not sure of the type of lawsuit involved. 128 That leaves 19% of the lawsuits against the small businesses (about 12 cases) that were based on customer financial complaints and 13% (8 cases) growing out of personal injuries resulting from the company s product or service. 129 While that means that 45% of the lawsuits can be characterized as personal injury claims, only a tiny number are the kind of product liability claims 124 Harris Interactive, Small Businesses: How the Threat of Lawsuits Impacts Their Operations: West Virginia Sample 3 (May 10, 2007), available at The interviewers asked, How concerned are you that in the next few years your business, or you as a person responsible for the business, might be sued in a frivolous or unfair lawsuit? That is a lawsuit that is brought against you that you believe does not have merit or is baseless and should not be the subject of a lawsuit. Unless the person answered that they were very concerned or somewhat concerned, the interview was terminated. Id. app. at In order to qualify as a small business, the company had to have revenues of $10 million or less and employ at least one person in addition to the owner. Of the West Virginia businesses surveyed, 51% had annual revenues of more than $1 million (22% had more than $5 million) and 53% had more than 15 employees (20% had more than 50 employees). Id. at Id. at 7, 28. For almost all of the categories studied, larger small businesses had significantly greater concern about litigation than did smaller small businesses. 128 Id. at Id. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

52 2008] HELLHOLES 29 about which ATRA is usually concerned. Questions asking about a ten year period elicited stories of only eight personal injury cases related to allegedly defective products. The survey went on to ask those business owners who had been sued about the impact on the company of the lawsuit, suggesting 8 possible responses (only one of which reflected a positive impact on the business). 130 Seventy two percent of the businesses sued responded that they feel more constrained in making business decisions generally although the responses do not tell us whether that means the businesses began to comply more fully with legal requirements or whether they went beyond the requirements of the law. 131 The constraints may in fact be decisions of which the public might approve, such as offering taxi rides to drunken patrons, checking employee driving records, or placing protective matting on grocery store floors. Similarly, sixty three percent reported that the lawsuit had caused them to make a business decision they would not otherwise have made but again that answer fails to reveal whether that business decision was one that we would view as positive. 132 For example, more than half (55%) of the businesses that had been sued reported that they had changed business practices in ways that benefit their customers. 133 Since the survey did not ask what, specifically, the small businesses were doing differently, the information is not very helpful in assessing the nature of the litigation s impact on the welfare of West Virginia businesses or citizens of the state. So what about those numbers from the endnote in the 2007 Hellhole Report, where it claimed that a survey of the state s small business owners found that 85% were concerned and 60% were very or somewhat concerned about the impact of frivolous lawsuits? 134 The 60% number reflects Harris s conversion of its 237 respondents into a percentage of the state s small businesses (not a percentage of the people polled). In discussing its methodology, Harris contends that [a]fter correctly weighting the data, the qualified sample represents 60% of small businesses in West Virginia. 135 Harris does not explain its weighting process, so it is difficult to know the basis for the claims about percentages of small businesses, as opposed to percentages of respondents. 136 In any case, it is not accurate to suggest, as do The Record s article 130 Id. app. at Id. at Id. 133 Id Hellhole Report at 41 n Id. at The report does note that data were weighted using Dun and Bradstreet data to ensure a representative sample. Id. The survey questions appended to the online version of the report show that respondents were asked in what industry they currently worked; it is possible that the weighting compared the distribution of the 237 qualified respondents to the overall industry percentages for West Virginia small businesses. Id. app. at 11. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

53 30 WEST VIRGINIA LAW REVIEW [Vol. 110 and the 2007 Hellhole Report, that 60% of those surveyed were worried about being the subject of a frivolous lawsu 137 it. 2. Giving the Wrong Impression: Former Justice Richard Neely From 2004 through 2007, the Hellhole Reports prominently featured a quote from the Honorable Richard Neely who was, until 1995, a Justice of the West Virginia Supreme Court of Appeals. Here s the quote: As long as I am allowed to redistribute wealth from out-of-state companies to in-state plaintiffs, I shall continue to do so. 138 The implication: it s practically official policy in West Virginia to award judgments against those out-of-state corporations. The quotation, in isolation, is certainly a disturbing one. Closer examination, however, shows that Justice Neely was neither speaking of himself nor endorsing the attitude portrayed in the quotation. The quote comes from Neely s 1998 book, The Product Liability Mess. Writing after he left the bench, Neely was speaking generically about the incentives of elected state judges. 139 Further, the book is anti-product liability and pro-corporate defendant, designed to show how the courts themselves can be used to achieve major product liability reform. 140 Use of the quotation in isolation gives a misleading impression of the attitude of this judge who left the bench seven years before the first hellhole report was issued. Neely is correct in pointing out the political nature of judicial selection (whether elected or appointed) and the potential impact of campaign contributions on judges who depend on such contributions for their election campaigns. ATRA, in turn, has noted that West Virginia judicial officials, notably Attorney General McGraw, have accepted campaign contributions from members of the plaintiff s bar. 141 However, ATRA does not note that campaign contributions come from both directions. As journalist Adam Liptak points out, if judges can be bought with money from the plaintiffs bar, there is no reason to think that businesses cannot compete in that marketplace as well. 142 In addition to 137 The source of the 85% number is less clear as it is never used in the small business report. It appears that the reporter for the Record added Harris s weighted 60% to the weighted 25% who said they were not too concerned, to arrive at 85% who were concerned. The not too concerned group were considered non-qualified and were not included in Harris s results Hellhole Report at 14; 2006 Hellhole Report at i; 2005 Hellhole Report at i; 2004 Hellhole Report at i. 139 RICHARD NEELY, THE PRODUCT LIABILITY MESS 4 (1988). 140 Id. at 10. Neely even recommends a propaganda program to convince lawyers and the public of the need to reform product liability law and to hand control of these issues to the federal courts and federal common law. Id. at See 2005 Hellholes Report at Adam Liptak, The Worst Courts for Business? It s a Matter of Opinion, N.Y. TIMES, Dec. 24, at A10, available at Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

54 2008] HELLHOLES 31 Blankenship s contributions noted above, the Chamber of Commerce and ILR contribute significant amounts to legislative and judicial races. In 2000, for example, the Chamber claimed it spent $6 million on judicial races and took credit for winning 15 out of 17 state supreme court contests. In 2002, the Chamber said it planned to spend $40 million on political campaigns, divided equally between congressional and state-level attorneys general and judicial races. 143 For both campaign contributions and issue advertising, the money flows from all sides Mis-Stating the Issues: Cocaine and the Company Safety Director What a great story: When a local company fired its safety director for on-the-job cocaine use, the state Supreme Court ruled in April 2004 that the company could do no such thing. Apparently, the employee s contract said that he could only be let go for dishonesty. Even though he lied about his drug use... the state Supreme Court said that there was no contractual violation. 145 Sort of true, as far as it goes, except that the Supreme Court did not say that the employee could not be fired and did not find that there was no contract violation. The lawsuit arose out of a dispute between the buyer of a business and his seller s son. That son, who was a management-level employee whose job included safety issues, tested positive for drugs in his system. Testing positive for drugs was a violation of company policy and was cause for termination. After the testing (but before the results were available), the owner asked a group of employees including Benson, the son whether they expected any tests to come back positive. Benson did not lie, but did remain silent in response to this 143 Public Citizen, U.S. Chamber of Commerce Failed to Report Electioneering Spending and Grants (Oct ), available at See generally Terry Carter, Mud and Money: Judicial Elections Turn to Big Bucks and Nasty Tactics, 91 A.B.A. J. 40 (Feb. 2005). Although money related to elections extends beyond actual contributions to a particular candidate s campaign, contribution records for many West Virginia elections are available online through the state Secretary of State s office. See CAMPAIGN FINANCE REPORTS ONLINE, (last visited Feb. 24, 2008) Hellhole Report at 23. The Report again quoted Justice Maynard: This court says that [the company] was wrong to fire a deceitful, coke-head safety director in a plant where tanks of acetylene, oxygen, and other explosives are everywhere! The irony is that if there had been some explosion or other accident which killed or seriously injured another employee, the victim of that accident could have successfully [sued] under our workers compensation deliberate intent statute and obtained a large verdict. Id. at 23-24, citing Justice Maynard s dissent in Benson v. AJR, Inc., 599 S.E.2d 747, 752 (W. Va. 2004) (Maynard, J., dissenting)). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

55 32 WEST VIRGINIA LAW REVIEW [Vol. 110 question. When the company discharged Benson, it cited only drug use, not dishonesty, to explain the termination. The hellhole report leaves the impression that the West Virginia court insisted that Benson be left on the job. That is absolutely untrue. No one argued that Benson could not be fired. The only question before the court was whether Benson was entitled to be paid for the remainder of his contract term; more specifically, the question was whether the trial judge erred in granting summary judgment in favor of the employer. This issue turned on the terms of the contract for sale of the business and a related factual issue: Why was Benson fired? The contract at issue was no ordinary employment contract. As part of his agreement buying AJR, Inc., the new owner entered into a contract promising to pay Benson for a period of eight years unless Benson quit, was convicted of a felony, or was guilty of dishonesty. The contract recited that this deal was made because it was in the best interests of the Company that key management employees, including [Benson], continue to be employed by the Company upon the sale of AJR. 146 While the new owner undoubtedly regretted having made that deal, his buyer s remorse did not change the terms of the contract. The West Virginia court held that the parties dispute involved genuine issues of material fact. Summary judgment was therefore improper, because fact issues need to be determined by juries following a trial on the merits, not by a judge based on a paper record. The court therefore remanded the case to the trial court for a jury to decide whether Benson was fired for dishonesty. 147 Like the pickle jar in ATRA s early West Virginia story, the cocaineusing security director subjecting fellow employees to dangers of disaster makes a catchy, dramatic and seemingly outrageous tale. But it s just not true. 4. Leaving Out the Bad Facts: Defense Stripping and Punitive Damages Also in 2004, the hellhole report accused West Virginia courts of unfairly depriving a company of all defenses and arbitrarily awarding punitive damages against it. The story: In Wetzel County, a jury was told by the trial judge to award a plaintiff punitive damages against Oxford Insurance Company after the judge stripped the company of its defenses and held a damages-only trial. The jury returned a $39 million verdict, including $34 million in punitive damages. While the West Virginia Supreme Court of Appeals said the judge could not require punitive damages, it upheld the judge s decision to strip 146 Benson, 799 S.E.2d at 749 n Id. at The court also affirmed the trial court s grant of summary judgment for the employer on Benson s false light invasion of privacy claim. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

56 2008] HELLHOLES 33 the company of its defenses and remanded the case for a special hearing on punitive damages. 148 It sounds like just the kind of thing that happens in a hellhole: a company deprived of the very opportunity to present a defense. But there is again a larger story behind the sanction imposed on Oxford Insurance Company. Kocher v. Oxford Life Insurance Company 149 arose out of a tragedy for Kocher he was seriously injured in a tractor accident, and one of his legs had to be amputated above the ankle but below the knee. One saving grace came from the credit life and disability policy that Kocher had purchased from Oxford when buying his truck. In the event of the loss of his foot at or above the ankle joint, Oxford would pay off the entire loan balance. At that point, a payment on the policy would have cost only about $12,000. Oxford, however, denied the claim. Eventually, Kocher filed suit against Oxford for breach of contract, unfair claim settlement practices, and breach of the implied covenant of good faith and fair dealing. Whatever the merits of Oxford s denial of the claim, 150 the trial court s sanction came instead from its litigation behavior. The Supreme Court s opinion begins by noting Oxford s pattern of discovery misconduct, including failure to respond to requests, providing false information, and improper deposition conduct. Most important, though, was a dramatic episode of improper behavior involving unethical direct contact with Kocher and repeated lies about the incident. This is the counter-story, missing from the hellhole report: Oxford s Senior Vice President, Larry Goodyear, the company s second-in-command, traveled from the company s office in Arizona to West Virginia... for Mr. Goodyear s deposition.... In connection with that trip, Mr. Goodyear s secretary in Arizona called Mr. Kocher s home and pretended to be a Federal Express employee who was seeking directions to deliver a package to Mr. Kocher. Using this ruse, the secretary obtained driving directions to Mr. Kocher s house, and relayed those directions to Mr. Goodyear, who paid a visit to Mr. Kocher at Mr. Kocher s home.... According to Mr. Kocher, Mr. Goodyear characterized Oxford as a mom-and-pop insurance company, and asked Mr. Kocher, I don t suppose there s anything I can Hellhole Report at S.E.2d 499 (W. Va. 2004). 150 One account of Oxford s actions can be found in Justice McGraw s dissenting opinion. See 602 S.E.2d at (McGraw, J., dissenting). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

57 34 WEST VIRGINIA LAW REVIEW [Vol. 110 do here tonight to resolve this matter, or has it went too far with your attorneys? 151 Unfortunately for Oxford, it was a serious breach of ethics to contact Kocher directly when it knew that Kocher was represented by counsel. Further, at an earlier point in the case Oxford had been specifically reminded to direct any settlement discussions to counsel. As is so often the case, things went from bad to worse when Oxford proceeded to deny its misconduct. At Goodyear s deposition, he denied that anyone at Oxford had called Kocher s home or pretended to be a Federal Express employee. Later, Oxford advised the court that the testimony was false; at trial Goodyear claimed he did not know what the secretary had done (although he was in extended communication with the secretary by cell phone as he drove to Kocher s house). When ordered to produce the secretary to testify, Oxford failed to do so, explaining that the secretary had resigned. As the court notes, The record does not disclose any plausible reason why anyone at Oxford Mr. Goodyear, his secretary, or anyone else would either want or need to lie in order to obtain directions to the Kocher home, except in furtherance of the purpose that Mr. Goodyear would arrive at Mr. Kocher s house without Mr. Kocher s (or his attorney s) prior knowledge. The evidence before the circuit court supports the conclusion that Mr. Goodyear s visit to Mr. Kocher was for the purpose of influencing Mr. Kocher to settle the case without his counsel being present. 152 On the basis of this cumulative record of litigation misconduct, as a sanction for that misconduct, the trial judge struck Oxford s defenses on the merits and required the plaintiff only to prove damages. While such sanctions are not common, the West Virginia procedural rules (as well as the rules of the federal courts and most if not all other states) allow serious sanctions in order to deter willful, bad faith violations of the standards for pretrial conduct. 153 In addition, courts have the inherent authority to sanction litigants for egregious, bad-faith conduct that undermines the judicial process. 154 This case is an example of the kind of calculated behavior that qualifies for death penalty sanctions. Oxford s misconduct was a deliberate effort to subvert and circumvent both the attorney-client relationship and the ordinary rules and procedures of 151 Id. at According to the court, Mr. Goodyear testified that he did not dispute most of what Mr. Kocher said about the meeting. Evidence presented at trial indicated that Oxford has $770 million in assets and is owned by a larger company with $3.1 billion in assets. 152 Id. at 502 n See, e.g., W. Va. R. Civ. P. 37; Fed. R. Civ. P Given v. Field, 484 S.E.2d 647 (W. Va. 1997) (default judgment, jury determination on punitive damages); Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (federal courts). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

58 2008] HELLHOLES 35 litigation. This relationship and these rules and procedures are central to the fair 155 working of our legal system and to the public s confidence in the courts. Despite this well-documented record of purposeful misconduct at the highest levels, the West Virginia court actually ruled in favor of Oxford the trial court had erroneously instructed the jury that it was required to assess punitive damages against Oxford. The appellate court vacated the jury s punitive damage award and remanded to give a jury the chance to exercise its discretion, including the possibility that it might award no punitive damages at all. IV. WEST VIRGINIA BY THE NUMBERS The stories are misleading and de-contextualized. The metaphors are powerful but based on false premises. What about the numbers? Does West Virginia have a lawsuit crisis? Existing statistical information is incomplete and not particularly helpful, but it clearly does not provide support for the ATRA and ILR characterization of West Virginia. A recent article by Brisbin and Kilwein, two WVU political science professors, looks at the data available from the state and through the National Center for State Courts. In terms of the caseload numbers, they found: Circuit Court caseloads have not increased dramatically but, rather, have been stable or diminishing for many years. Plaintiffs filed or reopened 53,730 cases in 1984, but only 48, 535 in In 2005, only four states had a lower number of cases filed per capita. 156 The number of tort cases (those about which ATRA and the ILR are most concerned) has declined, and the decline began before the state enacted the tort reform measures sought by industry advocates (and before the first hellhole and lawsuit climate reports). The numbers: Kocher, 602 S.E.2d at 503 n Brisbin & Kilwein, supra note 11, at 6 (citing state statistics and the National Center for State Courts). 157 Id. (citing National Center for State Courts Court Statistics Project (2006), State Court Caseload Statistic: 2005, available at Court Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

59 36 WEST VIRGINIA LAW REVIEW [Vol. 110 The limited evidence available suggests that the majority of these tort cases involve car wrecks and slip-and-fall cases, not the product liability, medical malpractice, and mass tort cases that most worry tort reform advocates. 158 Available data also tend to disprove a link between supply of doctors or malpractice premiums and state tort law. For example, an investigation by the Charleston Gazette found that even before the imposition of a cap on medical malpractice awards, the number of doctors in the state was increasing by 14.3% at a time when the population was growing by only 0.7%. Further, a Gazette- Mail study of medical malpractice case resolutions found that between 1993 and 2001 the number of claims decreased, and that the average payment was less than or equal to those in neighboring states. 159 Data from the National Practitioner Databank also shows that medical malpractice payouts declined from $49.3 million in 2001 to $34.1 million in 2002 (a 30.8% decrease). The mean payout per claimant decreased 22%, and the number of payouts dropped by %. The number of payouts over $1 million dropped from 8 to 0. Occasionally, advocacy groups put numbers to their claims that personal injury suits hurt the state s economy and drive away business. These numbers, though they give the illusion of neutrality, are as flawed as the anecdotes. First, the numbers do not even attempt to include the benefits of tort litigation: compensation of those who have been injured through the fault of others, and the deterrence of behavior that negligently causes injuries or death. In other words, they treat tort claims as one big transaction cost with no offsetting value (and they ascribe all of the costs to the plaintiffs). Second, the projections are often based on hypothetical data crunched through proprietary formulae and unavailable for review by other social scientists. For example, the Perryman Group (from Texas) did a study of West Virginia, commissioned by the state Chamber of Commerce. As Brisbin & Kilwein point out, this study: provides only an inferential estimate of the economic costs of personal injury litigation by a comparison of West Virginia economic performance in reputed tort-litigation sensitive eco- Caseload Statistics 2005.pdf). This is consistent with national data studied by the National Center for State Courts. Id. 158 Id. This is also consistent with the types of lawsuits reported in the West Virginia small business survey. 159 Morgan Kelly, W. Va. No Longer Judicial Hellhole, Insurer Says, CHARLESTON GAZETTE 6A (Aug. 20, 2005). The 2001 study was based on the records of the state Board of Medicine and the U.S. Census Bureau. See Martha Leonard, State Has Seen Sharp Increase in Number of Doctors, SUNDAY GAZETT 7A (Feb. 25, 2001). 160 Public Citizen, New 2002 Government Data Disputes Malpractice Lawsuit Crisis in West Virginia (July 8, 2003), available at pdf. Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

60 2008] HELLHOLES 37 nomic sectors to national economic performance in those sectors before and after unidentified national tort reforms. However, the study includes no analysis of data on insurance costs or damage awards the direct costs of personal injury claims. 161 Nor is it only West Virginia academics who question Perryman s methodology. The Wall Street Journal noted as early as 1995 that his genius was more for marketing than economics. The article noted cases in which his data had been rejected as unreliable (and his testimony about his billing in the case not credible as he billed clients an average of 21 hours a day for three weeks straight). Most important was the critique of the secrecy behind Perryman s numbers: When I do a study, I lay out assumptions so people can say, I disagree. A lot of times Ray [Perryman] doesn t do that, says Jared Hazleton, director of the Center for Business and Economic Analysis at Texas A&M University. There s not much sex appeal to [the more academic approach]. People don t want to hear that, and Ray gives them what they want. Dr. Perryman says he presents adequate documentation for his studies, but doesn t show the model because it is proprietary. 162 Third, reports claiming to quantify the impact of tort claims tend to use statistics that are ill-suited to prove anything about the link, if any, between tort litigation and the state s economic fortunes. For example, a 2007 study by Hicks, claiming that personal injury litigation in West Virginia leads to high costs, is based on data indicating that the total cost of legal services is growing faster than the state s domestic product. Brisbin & Kilwein point out the flawed empirical basis for this conclusion: Hicks data includes not just personal injury claims but also legal services relating to all the other areas of practice contract, property, family law, administrative law, bankruptcy, trusts and estates, tax, and criminal law. 163 Finally, arguments about a lack of tort reform as the cause of a state s economic woes ignore other more plausible influences on the rate of business 161 Brisbin & Kilwein, supra note 11, at 9 (emphasis in original). 162 Laura Johannes, Economist Ray Perryman Is Hailed As a Genius for Self-Promotion, WALL ST. J. T1 (May 10, 1995) (also discussing allegations of client-friendly but false forecasts involving San Antonio s Alamodome, Austin s environmental efforts, and largely false claims to have predicted the Texas oil bust in the 1980s). 163 Brisbin & Kilwein, supra note 11, at 9 (criticizing Michael J. Hicks, Reduce the Cost of Civil Litigation and Depoliticize the Courts, in RUSSELL S. SOBEL (ED.), UNLEASHING CAPITALISM: WHY PROSPERITY STOPS AT THE WEST VIRGINIA BORDER AND HOW TO FIX IT (2007)). For a more detailed critique of national claims of a tort tax, see Marc Galanter, News from Nowhere: The Debased Debate on Civil Justice, 71 DENV. U. L. REV. 77, (1993). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

61 38 WEST VIRGINIA LAW REVIEW [Vol. 110 growth. ATRA s 2007 Hellhole Report includes lovely charts for each state. West Virginia s compares percentage change in total GDP growth from in the US as a whole (15%) with that of West Virginia (7%) with an inflammatory box noting that this differential is -53%. In the same sidebar, the report compares percentage growth in employment with the U.S. at 3.3% and West Virginia at 2.8%. These factoids not only show that West Virginia has, in fact, experienced growth in both GDP and in employment, they also imply that it is the state s hellhole qualities that explain the difference. It is far more plausible that the numbers are explained by factors identified by earlier economic analyses of West Virginia: [T]he low educational level of the workforce, a small labor pool dispersed across a rural landscape, the lack of usable land for commercial and manufacturing facilities, the lack of a major airport, the lack of a seaport, the lack of a major banking center, an aging population living on limited incomes, and other social and geographical factors contribute significantly to the economic problems of the state. 164 V. CONCLUSION: WHAT S A STATE TO DO? If the stories are misleading, and numbers fail to document abuses, why are the hellhole stories so widely reported and so dominant? In part this reflects how little we really know about the operation of our legal system. The kind of basic information that we demand in discussions of other policy issues like the economy, or employment, or education, simply does not exist. In the absence of real data, there is little to offset the media s selective reporting of seemingly outrageous claims and huge awards. While numbers don t make a sexy story for the evening news caseload statistics are not nearly as much fun as pickle jars and cocaine-snorting safety officers at least data can help lawmakers base their decisions on something other than bizarre fables and slanted opinion polls. At the national level, the federal court system has kept fairly good records for a number of years. For state systems, the National Center for State Courts has initiated a project to help each state record and track data in a more helpful and uniform way. Its Court Statistics Project provides guidance to state courts and also provides useful information about the structure and behavior of all of the state court systems. 165 Unfortunately, a researcher s ability to draw conclusions from this data is only as good as the data itself, and that information is often incomplete. Further, the ability to make comparisons across systems is hampered by differences in categories and record keeping. More detailed in- 164 Brisbin & Kilwein, supra note 11, at 10 (citing ROBERT JAY DILGER & TOM STUART WITT (EDS.), WEST VIRGINIA IN THE 1990S: OPPORTUNITIES FOR ECONOMIC PROGRESS (1994). 165 See National Center for State Courts, Court Statistics Project, Research/csp/CSP_Main_Page.html (last visited Jan. 3, 2008). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

62 2008] HELLHOLES 39 formation is also needed. For example, for questions regarding particular types of litigation such as product liability cases, asbestos cases, mass tort cases, class actions, antitrust claims, securities fraud claims, employment claims, or whatever is in issue the numbers need to be disaggregated. Counts of all civil cases are not helpful for most purposes (and are even less helpful if family law matters are included in the totals). Better data could be tremendously revealing. For example, even the small amounts of data now available have allowed researchers to test certain hypotheses and litigation folklore. One study found little support for the belief that race, poverty, or urban locations correlate with higher damage awards. 166 Another found that, contrary to the image of the runaway jury, in a number of types of cases judges actually award higher damages than do juries. 167 Yet another was able to identify factors that influence the time to disposition for civil cases, an important determinant in the cost of litigation. 168 Fortunately for West Virginia, the state supreme court is about to inaugurate a state-wide system of record keeping, using uniform categories and standardized software. Once in use statewide, state lawmakers should have more detailed information about the nature of the business of the state courts. Information kept in databases can also be grouped and analyzed in a number of ways. If the state chooses to use narrower categories (e.g. product liability rather than civil ) the resulting information will provide a more reliable basis for identifying problems or trends. In addition to information about cases filed and disposed of, it would be helpful to track statewide information about various kinds of pretrial activity such as use of discovery devices, and the making and disposition of Rule 11 motions, class certification motions, motions for summary judgment, motions for judgment as a matter of law, and motions for new trial. Collection of information about jury verdicts, including any amounts awarded as damages, is also extremely important when studying lawsuit trends. As electronic filing becomes more and more a reality, a system like the federal PACER system that puts most lawsuit papers online can allow quite nuanced research and, for a small-ish state like West Virginia, could provide a useful and manageable amount of information. 166 Theodore Eisenberg & Martin T. Wells, Trial Outcomes and Demographics: Is There a Bronx Effect?, 80 TEX. L. REV (2002); see also Michael J. Saks, Trial Outcomes and Demographics: Easy Assumptions Versus Hard Evidence, 80 TEX. L. REV. 1877, 1878 (2002) (discussing lack of data supporting presumption of association). 167 Kevin M. Clermont & Theodore Eisenberg, Trial By Jury or Judge: Transcending Empiricism, 77 CORNELL L. REV (1992); see also Theodore Eisenberg et al., Juries, Judges and Punitive Damages: An Empirical Study, 87 CORNELL L. REV. 743 (2002) (reporting that data covering one year of judge and jury trial outcomes from forty-five large trial courts, comprising nearly nine thousand trials, yield no evidence that judges and juries differ significantly in their rates of awarding punitive damages, or in the relation between the size of punitive and compensatory awards). 168 Michael Heise, Justice Delayed?: An Empirical Analysis of Civil Case Disposition Time, 50 CASE W. RES. L. Rev. 813 (2000). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

63 40 WEST VIRGINIA LAW REVIEW [Vol. 110 The policy issues raised by the hellhole debates require more than just information about the court system. Some of the data required is in the hands of private parties. For example, because the vast majority of lawsuits throughout the country are settled rather than tried, information about payments to plaintiffs is not generally part of the court record. This information is often in the hands of insurance companies, and they have not been anxious to share these numbers with researchers. Some information is available, however, and its uses help demonstrate how much more helpful fuller information would be. For example, the Texas Department of Insurance requires commercial liability insurers to report all closed claims involving bodily injury, and these reports are cumulated in the Texas Closed Claims Database. Although the data does not include many things a researcher would find helpful personal automobile insurance, homeowners insurance, workers compensation, and mass torts it has nonetheless provided the basis for some valuable insights into the tort system. Using the data, Professors Charles Silver and Frank Cross of the University of Texas determined the average payment in death cases, the stage at which the payments were made, and the effect of a number of variables on payments to claimants. 169 Also using this data, Professor Bernard Black and others were able to study medical malpractice claim outcomes, learning that payments had actually been quite stable over a number of years. 170 Unfortunately, statistics will never be able to provide all the information needed to answer all of the questions about the tort system that motivate the ATRA and ILR reports. Most fundamentally, statistics may show a correlation between different factors, but they do not prove causation. This is particularly problematic when potentially relevant information is omitted from a study. Suppose data indicate that a county s number of doctors has gone down at the same time that malpractice premiums have increased. Does that show that it was the premiums that caused the exodus, or that a few aging doctors have retired or that a number of medical students have left town? Suppose data indicate that a county s number of doctors has gone up following a state s adoption of a cap on non-economic losses in medical malpractice cases. Does that show that the cap has attracted new doctors to the area, or that the number of doctors was already increasing for some other reason? Does either example show anything about the cause of the increase or decrease in premiums? Suppose data show that a state s economy is growing more slowly than that of other states, or of the country as a whole. Does that show that the state in question allows too much personal injury litigation, or that its population or geography or economic base put it at a disadvantage? Data, then, can provide a useful counterpoint to outrage stories, but cannot, either emotionally or mathematically, end anyone s campaign to label 169 Frank Cross & Charles Silver, In Texas, Life is Cheap, 59 VAND. L. REV (2006). 170 See Bernard S. Black et al., Stability, Not Crisis: Medical Malpractice Claim Outcomes in Texas, , 2 J. EMPIRICAL LEGAL STUD. 207 (2005). Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

64 2008] HELLHOLES 41 West Virginia a hellhole. In addition to data gathering, West Virginians would be well advised to educate themselves about the information that is available and to demand more and better information when presented with horror stories. Members of the press could learn to ask more probing questions when presented with an ATRA or ILR report, and the result could be a vast improvement on the current system quoting the press release, and then interviewing the local CALA director (who will agree with the report) and the local head of the American Association for Justice (who will disagree), leaving the public remembering only the pickle jar and the coke head. As ATRA so well understands, those members of the public are voters who will choose the judges and legislators who will be making policy decisions that affect the state and its citizens. Neither the tort system nor the civil justice system is perfect. 171 Many legitimate claims are never filed. People with small injuries may be overcompensated, while those with serious injuries are almost certainly undercompensated. Insurance premiums for malpractice coverage and workers compensation insurance can be very high. Health care costs can be overwhelming, and too many people lack health insurance. It can be difficult to determine whether government oversight, private litigation, or the market is the most efficient way to achieve optimum levels of safety in particular contexts. Litigation itself can be slower or more expensive than necessary, and state governments often fail to fund the court system so that it can fairly and expeditiously deal with the cases before it. None of these real issues are helped by misleading and manipulative media campaigns, threatening state lawmakers with loss of their leadership positions and threatening the public with loss of money, jobs, and medical care. Real empirical research is complicated stuff and a different world from opinion polls. Real state legislators deserve real information rather than namecalling and threats as they try to find reasonable and targeted solutions to the problems of making the injured whole, deterring meritless claims, and encouraging businesses to provide safe workplaces and safe products for the benefit of us all. 171 For highlights of some of the real problems raised by the current tort system, see Marc Galanter, Real World, supra note 19, at Liman Workshop Spring 2015 Thornburg, Judicial Hellholes

65 Do Class Actions Benefit Class Members? An Empirical Analysis of Class Actions By Mayer Brown LLP Executive Summary This empirical study of class action litigation one of the few to examine class action resolutions in any rigorous way provides strong evidence that class actions provide far less benefit to individual class members than proponents of class actions assert. The debate thus far has consisted of competing anecdotes. Proponents of class action litigation contend that the class device effectively compensates large numbers of injured individuals. They point to cases in which class members supposedly have obtained benefits. Skeptics respond that individuals obtain little or no compensation and that class actions are most effective at generating large transaction costs in the form of legal fees that benefit both plaintiff and defense lawyers. They point to cases in which class members received little or nothing. Rather than simply relying on anecdotes, this study undertakes an empirical analysis of a neutrallyselected sample set of putative consumer and employee class action lawsuits filed in or removed to federal court in Here s what we learned: In our entire data set, not one of the class actions ended in a final judgment on the merits for the plaintiffs. And none of the class actions went to trial, either before a judge or a jury. The vast majority of cases produced no benefits to most members of the putative class even though in a number of those cases the lawyers who sought to represent the class often enriched themselves in the process (and the lawyers representing the defendants always did). Approximately 14 percent of all class action cases remained pending four years after they were filed, without resolution or even a determination of whether the case could go forward on a class wide basis. In these cases, class members have not yet received any benefits and likely will never receive any, based on the disposition of the other cases we studied. Over one third (35%) of the class actions that have been resolved were dismissed voluntarily by the plaintiff. Many of these cases settled on an individual basis, meaning a payout to the individual named plaintiff and the lawyers who brought the suit even Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 1

66 Do Class Actions Benefit Class Members? though the class members receive nothing. Information about who receives what in such settlements typically isn t publicly available. Just under one third (31%) of the class actions that have been resolved were dismissed by a court on the merits again, meaning that class members received nothing. One third (33%) of resolved cases were settled on a class basis. This settlement rate is half the average for federal court litigation, meaning that a class member is far less likely to have even a chance of obtaining relief than the average party suing individually. For those cases that do settle, there is often little or no benefit for class members. What is more, few class members ever even see those paltry benefits particularly in consumer class actions. Unfortunately, because information regarding the distribution of class action settlements is rarely available, the public almost never learns what percentage of a settlement is actually paid to class members. But of the six cases in our data set for which settlement distribution data was public, five delivered funds to only miniscule percentages of the class: %, 0.33%, 1.5%, 9.66%, and 12%. Those results are consistent with other available information about settlement distribution in consumer class actions. Although some cases provide for automatic distribution of benefits to class members, automatic distribution almost never is used in consumer class actions only one of the 40 settled cases fell into this category. Some class actions are settled without even the potential for a monetary payment to class members, with the settlement agreement providing for payment to a charity or injunctive relief that, in virtually every case, provides no real benefit to class members. The bottom line: The hard evidence shows that class actions do not provide class members with anything close to the benefits claimed by their proponents, although they can (and do) enrich attorneys. Policymakers who are considering the efficacy of class actions cannot simply rest on a theoretical assessment of class actions benefits or on favorable anecdotes to justify the value of class actions. Any decision maker wishing to rest a policy determination on the claimed benefits of class actions would have to engage in significant additional empirical research to conclude contrary to what our study indicates that class actions actually do provide significant benefits to consumers, employees, and other class members. Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 2

67 Do Class Actions Benefit Class Members? Results Overall Outcomes Of the 148 federal court class actions we studied that were initiated in 2009, 127 cases (or nearly 86 percent) had reached a final resolution by September 1, 2013, the date when the study closed. Figure 1: Outcomes in 148 cases Dismissed Arbitration 1% Settlement 28% Dismissed Merits 27% Pending 14% Dismissed Voluntary or Individual Settlement 30% Zero cases resulted in a judgment on the merits. Of the 148 cases in our sample set, not one had gone to trial either before a judge or jury. And, as of the closing date of our study, not one resulted in a judgment for the plaintiffs on the merits. Unlike ordinary (non class) disputed cases, some of which end with a judgment on the merits in favor of the plaintiffs or defendants, class actions end without any determination of the case s merits. The class action claims that make it past the pleadings stage and class certification gateway virtually always settle regardless of the merits of the claims. Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 3

68 Do Class Actions Benefit Class Members? Figure 2: Outcomes in 127 resolved cases Dismissed Arbitration 1% Dismissed Voluntary or Individual Settlement 35% Dismissed Merits 31% Settlement 33% Indeed, Justice Ruth Bader Ginsburg has recognized that [a] court s decision to certify a class * * * places pressure on the defendant to settle even unmeritorious claims. 2 Then Chief Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit explained that certification of a class action, even one lacking in merit, forces defendants to stake their companies on the outcome of a single jury trial, or be forced by fear of the risk of bankruptcy to settle even if they have no legal liability. 3 And Judge Diane Wood of the Seventh Circuit has explained that certification is, in effect, the whole case. 4 That may be why another study of class actions reported that [e]very case in which a motion to certify was granted, unconditionally or for settlement purposes, resulted in a class settlement. 5 Fourteen percent of the class actions filed remain unresolved. Even though our study period encompassed more than 44 months since the filing of the last case in our sample (and 55 months from the filing of the first case), a significant number of cases 21 of the 148 in our sample, or 14% remained pending with no resolution, let alone final judgment on the merits. 6 And there is no reason to believe that these cases are more likely to yield a benefit for class members than the cases that have been resolved thus far. In 15 of these cases either no motion for class certification has been filed or the court has not yet ruled on the motion, and in another 2 the court denied certification. In a significant proportion of these pending cases, it seems likely that class Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 4

69 Do Class Actions Benefit Class Members? certification will be denied or never ruled upon before the case is ultimately dismissed. After all, prior studies indicate that nearly 4 out of every 5 lawsuits pleaded as class actions are not certified. 7 Over one third of the class actions that have been resolved were dismissed voluntarily by the named plaintiff and produced no relief at all for the class. Forty five cases were voluntarily dismissed by the named plaintiff who had sought to serve as a class representative or were otherwise resolved on an individual basis. That means either that the plaintiff (and his or her counsel) simply decided not to pursue the class action lawsuit, or that the case was settled on an individual basis, without any benefit to the rest of the class. These voluntary dismissals represent 30 percent of all cases studied, or 35 percent of cases that reached a resolution by the beginning of September In fourteen of the cases that were voluntarily dismissed approximately one third of all voluntary dismissals in the data set the dismissal papers, other docket entries, or contemporaneous news reports made clear that the parties were settling the claim on an individual basis, although the terms of those settlements were not available. Many of the remaining voluntary dismissals also may have resulted from individual settlements. These settlements often provide that the plaintiff and his or her attorney receive recoveries themselves, even though the rest of the class that they sought to represent receive nothing. When parties settle cases on an individual basis, those settlements often are confidential, and the settlement agreements therefore are not included on the court s public docket. 9 Just under one third of the class actions that have been resolved were dismissed on the merits. In addition to the 45 cases dismissed voluntarily by plaintiffs, 41 cases were dismissed outright by federal courts, through a dismissal on the pleadings or a grant of summary judgment for the defendant. The courts in these cases concluded that the lawsuits were meritless before even considering whether the case should be treated as a class action. These represented 27 percent of all cases studied, and 31 percent of resolved cases. In other words, in over half of all putative class actions studied and nearly two thirds of all resolved cases studied members of the putative class received zero relief. These results are depicted in Figures 1 and 2, which appear below. And these results are broadly consistent with other empirical studies of class actions. If anything, for reasons explained in Appendix C, abusive, illegitimate class actions are probably under represented in our sample, and the sample therefore probably significantly overstates the extent to which class members benefit from the class action. For comparison, another study found that 84% of class actions ended without any benefit to the class. 10 Fewer than thirty percent of the cases filed were settled. All of the remaining class actions that have been concluded were settled on a class wide basis: The parties reached settlements in 40 cases 28% of all cases studied, or 33% of all resolved cases. 11 Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 5

70 Do Class Actions Benefit Class Members? This subset of class actions is the only one in our study in which it is possible that absent class members could possibly receive any benefit at all. As we next discuss, however, the benefits claimed to be associated with such settlements are largely illusory. Class Settlements Class actions have a significantly lower settlement rate than other federal cases. The settlement rate for our sample of cases 33% of resolved cases is much lower than for federal court litigation as a whole. One study of federal litigation estimated that the aggregate settlement rate across case categories for two districts studied was 66.9 percent in Even the least frequently settled case category in that study constitutional litigation had a higher settlement rate (39%) than the 33% for the class action cases we studied. 13 Thus, class actions are significantly less likely to produce settlements, and therefore significantly less likely to produce any benefit to class members, than other forms of litigation. Settlement is the only resolution that produces even the possibility of a benefit to class members, because class actions are virtually never resolved though judgments on the merits, a fact that our study corroborates. And the settlement rate in our sample set is not an outlier: a study of class actions brought in California state court in 2009 reported a similarly low settlement rate of 31.9%. 14 Moreover, the fact that 40 of our sample cases were settled says nothing about the extent of the benefit, if any, that those settlements conferred on class members. Many class settlements and virtually all settlements of consumer class actions produce negligible benefits for class members. It is a notoriously difficult exercise to assess empirically how class members benefit from class action settlements. These settlements fall generally into three basic categories: Claims made settlements, under which class members are bound by a class settlement and thereby release all of their claims but only obtain recoveries if they affirmatively request to do so, usually through use of a claims form. 15 Funds not distributed to claimants are returned to the defendant or, in some cases, distributed to a charity via the cy pres process (which creates significant additional problems, as we discuss below). They are not given to class members. Most settlements fall into this category. Injunctive relief/cy pres settlements, in which the relief provided to settling class members involves only injunctive relief (which may provide little or no benefit to class members) or cy pres distributions (in which money is paid to charitable organizations rather than class members). Automatic distribution settlements, in which each class member s settlement is distributed automatically to class members whose eligibility and alleged damages could be ascertained and calculated such as retirement plan participants in ERISA class actions. Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 6

71 Do Class Actions Benefit Class Members? The parties typically have no meaningful choice among these methods of structuring a settlement. Automatic distribution settlements are feasible only if the parties have the names and current addresses of class members as well as the ability to calculate each class member s alleged damages. But companies typically lack the information needed to settle cases using an automatic distribution mechanism especially in consumer cases, where purchase records may be incomplete or unavailable, and/or class members claimed injuries may vary widely and unpredictably. Thus, consumer class actions are almost always resolved on a claims made basis, and the actual amount of money delivered to class members in such cases almost always is a miniscule percentage of the stated value of the settlement. That is because, in practice, relatively few class members actually make claims in response to class settlements: many class members may not believe it is not worth their while to request the (usually very modest) awards to which they might be entitled under a settlement. And the claim filing process is often burdensome, requiring production of years old bills or other data to corroborate entitlement to recovery. The class members actual benefit from a settlement if any is almost never revealed. Remarkably, the public almost never has access to settlement distribution data. One study found that settlement distribution data were available in fewer than one in five class actions in [the] sample. 16 Companies and their defense lawyers are hesitant to reveal how much a company has been required to pay out to class members, and plaintiffs counsel have strong incentives to conceal the information because requests for attorneys fees based on a settlement s face value will appear overstated when compared to the actual value. Judges are often happy to have the case resolved, and therefore have little to no interest in requiring transparency in the settlement distribution process. While third party claims administrators often possess direct information about claims rates, they are routinely bound by contract to maintain the confidentiality of that information in the absence of party permission, a court order, or other legal authority. 17 This may be a function of the incentive shared by class counsel and defense counsel to avoid facilitating grounds for a class member to object that a settlement was unfair because it provided too little tangible benefit to the class. 18 Indeed, [h]ow many people were actually members of this class, how many of these class members actually submitted a claim form, and how much they were actually paid appear to be closely held secrets between the class counsel and the defendant. 19 In rare cases in which class settlement distribution data was available, few class members received any benefit at all. In our data set, 18 cases were resolved by claims made settlements 44% of the total. We were able to obtain meaningful data regarding the distribution of settlement proceeds in only six of the 18 cases, which is not surprising given the well established and widespread lack of publically available information regarding the extent to which class members actually benefit from settlements. Five of the six cases resulted in minuscule claims rates: %, 0.33%, 1.5%, 9.66%, and 12%. 20 These extremely small claim filing rates are consistent with the few other reports of claim rates in class action settlements that have come to light. Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 7

72 Do Class Actions Benefit Class Members? As one federal court observed, claims made settlements regularly yield response rates of 10 percent or less. 21 In fact, the claims rate frequently is much lower in the single digits. Appendix A contains a list of more than 20 additional cases for which information about distributions is available, all of which involved distributions to less than seven percent of the class and many of which involved distributions to less than one percent of the class. There is thus ample evidence to infer that the extremely small claims rates for cases in our sample is representative of what happens in class actions generally, and particularly in consumer class actions. 22 And although documents filed in the remaining 12 of the 18 claims made settlements lacked information about claims rates, there is every reason to believe that class members made claims at the small rates ordinarily observed in such cases. While some may argue that parties should use automatic distribution mechanisms instead of claims made settlements to resolve class actions, the reality is that automatic distribution is difficult, if not impossible, to achieve in many (perhaps most) consumer class actions. Only one consumer class action settlement was resolved through automatic distribution. Of the remaining 22 settled cases in our sample, 13 involved settlements with automatic distribution of settlement proceeds. Ten of these 13 involved claims by retirement plan participants in ERISA class actions, in which the class members eligibility and alleged damages could be easily ascertained and calculated based on their investment positions. The plans of distribution in these 10 cases generally involved lump sum payments to the plan, which would then be allocated directly to plan members accounts. The other three automatic distribution settlements were reached in consumer and employment class actions. In each case atypical of most class actions the defendant was in a position to ascertain and calculate class members eligibility and alleged damages: In one, an employer settled claims that it conspired with health care providers and insurers to dictate medical treatment provided to about 13,764 employees injured on the job, whose identities were readily known to the defendant employer; employees who were treated by one health care provider received a check for $520, while injured employees treated by another provider received a check for $ In a second settlement, a credit card issuer settled claims that it improperly raised the minimum monthly payment and added new fees in connection with promotional loan offers. The defendant issued class members a flat rate payment of $25, plus (for certain customers) a share of the remaining settlement fund calculated by taking into account the ways the class member had used the promotional loan and had been charged fees. 24 Finally, as we explain in more detail below, a third settlement resolved privacy claims against a mobile phone gaming app developer in exchange for 45 in game points that were automatically distributed to users so they could advance through the game s levels. 25 Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 8

73 Do Class Actions Benefit Class Members? Thus, only two consumer cases involved automatic distributions, and in one the distribution involved game points. Only a single settled consumer class action one of 127 class actions resolved conveyed real benefits to anything more than a small percentage of the class. Cy pres awards and injunctive relief serve primarily to inflate attorney s fee awards and benefit third parties with little or no ties to the putative class. The final group of 9 settled cases largely involved injunctive relief or cy pres distributions. Because these cases involve no monetary compensation to class members, it is difficult for outsiders to assess the claimed benefit. Certainly, in many cases injunctive relief has little or no real world impact on class members, but is used to provide a basis for claiming a benefit to class members justifying an award of attorneys fees to class counsel (as we detail below). The injunctive relief only settlements we reviewed included the following: Plaintiff subscribers of America Online ( AOL ) claimed that it embedded advertisements at the bottom of the subscribers messages without their permission. After an early settlement was vacated on appeal for improper cy pres awards to unrelated charities, the parties again settled the claims, with AOL promising to tell subscribers how to opt out of advertisements if it restarted the challenged practice. 26 In a class action involving claims that a social networking app developer failed to protect properly the personally identifiable information of 32 million customers from a data security breach, the settlement provided that the defendant will undergo two audits of its information security policies with regard to maintenance of consumer records, to be made by an independent third party. The settlement explicitly reserves the rights of the plaintiff class to sue for monetary relief. 27 Plaintiffs brought false advertising claims against Unilever, contending that it had misrepresented the health or nutritional characteristics of I Can t Believe It s Not Butter. As part of the settlement, Unilever was to remove all partially hydrogenated vegetable oils from its soft spreads by December 31, 2011, and from its stick products by December 31, 2012, and keep those ingredients out of those products for 10 years. Although they did not receive monetary compensation, class members released all monetary and equitable claims other than claims for personal injury. 28 Finally, in a class action alleging the violation of consumer protection laws arising out of the marketing of Zicam supplements (sold as a way of combating the common cold), the parties provided for a number of non pecuniary benefits all in the form of labeling changes. These include: (1) indicating that the FDA has not approved the supplements; (2) disclosing that customers with zinc allergies or sensitivities should consult a doctor; (3) informing customers that the products are not intended to be effective for the flu or for allergies; and (4) removing language recommending that customers continue to use the products for 48 hours after cold symptoms subside. If the court approves the settlement and requested attorneys fees, the Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 9

74 Do Class Actions Benefit Class Members? defendant will pay plaintiff s counsel up to $1.75 million in fees in one case, and another $150,000 in a related MDL proceeding. 29 Like injunctive relief settlements, the cy pres doctrine is being used by plaintiffs lawyers to inflate artificially the purported size of the benefit to the class in order to justify higher awards of attorney s fees to the plaintiffs lawyers. In four of the cases we examined, the settlement provided that one or more charitable organizations would receive either all monetary relief, or any remaining monetary relief after claims made were paid out. Courts often assess the propriety of an attorneys fee award in the settlement context by comparing the percentage of the settlement paid to class members or charities with the percentage of the settlement allocated to class counsel. 30 That approach has been endorsed by the Manual for Complex Litigation. 31 If no funds are allocated to the class, or a small portion of the amount ostensibly allocated to the class is actually distributed and the remainder of the funds returned to the defendants, the relative percentages could be disturbing to a court reviewing the fairness of the settlement. But if the amount not collected by class members is contributed to a charity that can be claimed to have some tenuous relationship to the class, then the percentage allocated to attorneys fees may appear more acceptable. The result, as one district court has warned, is that attorney fee awards determined using the percentage of recovery will be exaggerated by cy pres distributions that do not truly benefit the plaintiff class. 32 As Professor Martin Redish has noted, the cy pres form confirms that [t]he real parties in interest in class actions are the plaintiffs lawyers, who are the ones primarily responsible for bringing th[e] proceeding. 33 One district court has noted that when a consumer class action results in a cy pres award that provide[s] those with individual claims no redress, where there are other incentives for bringing individual suits, the class action fails the requirement that the class action be superior to other available methods of dispute resolution. 34 Lawyers (as opposed to class members) were the principal beneficiaries of the remaining settlements in our study. For the cy pres settlements in our data set, and the claims made settlements for which there is no distribution data, publicly available information provides further support for the conclusion that little in the way of benefit flows to class members. Examples from our data set include: Disproportionate allocation of settlement funds to attorneys fees. Plaintiffs brought a class action alleging that the defendants improperly interfered with the medical care of injured employees in violation of Colorado law. 35 Under the settlement agreement, the defendants (who denied wrongdoing) were required to make an $8 million fund available to compensate more than 13,500 class members. But class counsel received over $4.5 million out of the $8 million more than 55 percent of the fund. 36 Named plaintiffs object to the settlement. In a class action against the National Football League, retired players alleged that the league was using their names and likenesses without compensation to promote the league. The NFL and some players settled the class wide claims Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 10

75 Do Class Actions Benefit Class Members? under federal competition law and state right of publicity laws. But the original named plaintiffs who spearheaded the litigation objected to the settlement, arguing that it provided no direct payout to the retired players. 37 Rather, it created an independent organization that would fund charitable initiatives related to the health and welfare of NFL players and would create a licensing organization that would help fund the independent organization. Meanwhile, [p]laintiffs lawyers would receive a total of $7.7 million under the proposed agreement. 38 Low recovery for class members. Plaintiffs alleged in eight consolidated class actions that their employer, a bank, violated the federal Employee Retirement Income Security Act (ERISA) by offering its own stock as a retirement plan investment option while hiding the true extent of the bank s losses in the mortgage crisis. 39 The class settlement established a $2.5 million common fund that was ostensibly designed to compensate the employees for their losses arising from the bank s alleged breach of fiduciary duty. 40 But commentators note that, when all of the allegations in the various complaints were taken into account, plaintiffs had alleged more than $50 million in losses, meaning that class members would recover no more than five cents on the dollar. 41 And according to the plan of allocation, members of the settlement class who were calculated to have suffered damages less than $25 would receive nothing 42 meaning that their claims were released without even the opportunity to receive something in exchange. Meanwhile, the plaintiffs attorneys received a fee award amounting to 26% of the common fund ($645,595.78), plus $104, in expenses. 43 Settlement requires further use of defendant s services. A plaintiff filed a class action alleging that certain mobile phone gaming apps were improperly collecting and disseminating users mobile phone numbers. 44 Under the terms of the settlement agreement, class members were not entitled to any monetary payment. Instead, they were slated to receive 45 in game points (with an approximate cash value of $3.75) per mobile device owned; the points could be used to advance through the gaming apps levels. 45 These points could be redeemed or used only within the defendant s apps. 46 Unsurprisingly, the plaintiffs counsel were not paid in points, but instead were awarded $125,000 in attorneys fees. Attorneys seek fees far exceeding class recovery. Class counsel in a case involving allegedly faulty laptops found their fee request chopped down from $2.5 million to $943, The settlement resulted in a recovery of $889,000 to claimants, plus $500,000 in additional costs for administering the settlement meaning that the attorneys were seeking just under three times the amount that would have gone directly to the class and even after the fees were cut down, they still represented 106 percent of the class s direct recovery. These characteristics are not unique to the sample cases. To the contrary, results are consistent with a significant number of class action settlements that produce minimal benefits for the class members themselves. We summarize additional examples of such settlements taken from outside our data set in Appendix B. Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 11

76 Do Class Actions Benefit Class Members? Other studies of class settlements and attorneys fees confirm that these examples are not outliers: Such settlements commonly produce insignificant benefits to class members and outsize benefits to class counsel. A RAND study of insurance class actions found that attorneys fees amounted to an average of 47% of total class action payouts, taking into account benefits actually claimed and distributed, rather than theoretical benefits measured by the estimated size of the class. In a quarter of these cases, the effective fee and cost percentages were 75 percent or higher and, in 14 percent (five cases), the effective percentages were over 90 percent. 48 In other words, for practical purposes, counsel for plaintiffs (and for defendants) are frequently the only real beneficiaries of the class actions. Conclusion This study confirms that class actions rarely benefit absent class members in whose interest class actions are supposedly initiated. The overwhelming majority of class actions are dismissed or dropped with no recovery for class members. And those recoveries that class settlements achieve are typically minimal and obtained only after long delays. To be sure, not every class action is subject to these criticisms: a few class actions do achieve laudable results. But virtually none of those were consumer class actions. Certainly our analysis demonstrates at a bare minimum that the vast majority of class actions in our sample set cannot be viewed as efficient, effective, or beneficial to class members. Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 12

77 Do Class Actions Benefit Class Members? Appendix A: Additional Examples of Settlements With Payments to a Very Small Percentage of Class Members The Seventh Circuit vacated an order approving a class action settlement so that the district court could evaluate whether the settlement is fair to class members, where (among other problems with the settlement) only a paltry three percent of the quarter million wide proposed class had filed proofs of claim. 49 And the Third Circuit recently noted that consumer claim filing rates rarely exceed seven percent, even with the most extensive notice campaigns. 50 One affidavit analyzed 13 cases for which data had been disclosed (and in which the settlement was approved). The median claims rate was 4.70%. The highest claims rate in those cases was 5.98%, and the lowest non zero claims rate was 0.67%. In two cases, the claims rate was 0% reflecting that not a single class member obtained the agreed on recovery. 51 A class action alleging antitrust claims in connection with compact disc music club marketing settled, with only 2% of the class making claims for vouchers (valued at $4.28) for CDs. 52 Indeed, in many cases, the claims rate may be well under 1 percent. Fair Credit Reporting Act case: court noted that less than one percent of the class chose to participate in the settlement. 53 Case alleging that a software manufacturer sold its customers unnecessary diagnostic tools: court approved settlement despite the fact that only 0.17% of customers made claims for a $10 payment, because the settlement amount is commensurate with the strength of the class claims and their likelihood of success absent the settlement. 54 Case involving product liability claims related to alleged antenna problems with Apple s iphone 4: court approved settlement noting that the number of claims represents somewhere between 0.16% and 0.28% of the total class. 55 Class action alleging fraud in the procurement of credit life insurance: Supreme Court of Alabama noted that only 113 claims had been made in a class of approximately 104,000 or a response rate of 0.1%. 56 Action alleging that restaurant chain had printed credit card expiration dates on customers receipts: approximately 165 class members out of 291,000 or fewer than 0.06% of the class had obtained a voucher for one of four types of menu items worth no more than $ Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 13

78 Do Class Actions Benefit Class Members? Class action alleging that Sears had deceptively marketed automobile wheel alignments: only 337 valid claims were filed out of a possible class of 1,500,000 a take rate of just over 0.02%. 58 Class action alleging that video game manufacturer had improperly included explicit sexual content in the game: one fortieth of one percent of the potential class (2,676 of 10 million) made claims. 59 Class action involving allegations that a Ford Explorer was prone to dangerous rollovers: only 75 out of 1 million class members or less than one hundredth of one percent participated in the class settlement. 60 Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 14

79 Do Class Actions Benefit Class Members? Appendix B: Additional Examples of Settlements Providing Negligible Benefits to Class Members Class members receive extended membership in buying club. In a class action against DirectBuy a club for which customers pay a membership fee to purchase goods at lower prices the plaintiffs alleged that the defendant had misrepresented the nature of the discounts that were available through the club. 61 The settlement afforded class members nothing other than discounts for renewal or extension of their memberships in the very club that was alleged to have tricked them into joining in the first place. Meanwhile, the attorneys for the class could receive between $350,000 and $1 million. 62 $21 million for the lawyers, pennies and coupons for the class members. One Missouri class settlement in a case against a brokerage house alleging breaches of fiduciary duties provided $21 million to class counsel, but only $20.42 to each of the brokerage s former customers and three $8.22 coupons to each current customer. And most of the coupons are unlikely to be redeemed. 63 Class members receive right to request $5 refund, lawyers take (and fail to disclose sufficiently) $1.3 million in fees. Under the settlement of a class action in which the plaintiffs alleged that Kellogg s had misrepresented that Rice Krispies are fortified with antioxidants, class members could request $5 refunds for up to three boxes of cereal purchased between June 1, 2009, and March 1, Class counsel sought $1.3 million in attorneys fees on a claim fund valued at $2.5 million to be paid out to class members. 65 Class receives opportunity to attend future conferences. In a 2009 settlement in the District of Columbia, a court approved a settlement against a conference organizer that failed to deliver promised services to those who had paid to attend. The settlement provides class members with nothing other than coupons to attend future events put on by the same company alleged to have bilked them in the first place; class counsel will take $1.4 million in fees. 66 Class members receive nothing, class counsel take $2.3 million. In a $9.5 million settlement of a class action against Facebook over the disclosure to other Facebook users of personal information about on line purchases through Facebook s Beacon program, the class members received no remedy whatever for the invasions of their privacy and were barred from making future claims for any remedy. Instead, approximately $6.5 million went to create and fund a new organization that would give grants to support projects on internet privacy; a few thousand dollars went to each of the named plaintiffs as incentive payments ; and class counsel received more than $2.3 million. 67 Meanwhile, although Facebook agreed to end the Beacon program which it had actually already ended months before it remained free to reinstitute the program Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 15

80 Do Class Actions Benefit Class Members? as long as it didn t use the name Beacon. 68 As one federal appellate judge put it (in a dissent from a decision upholding the settlement): The majority approves ratification of a class action settlement in which class members get no compensation at all. They do not get one cent. They do not get even an injunction against Facebook doing exactly the same thing to them again. Their purported lawyers get millions of dollars. Facebook gets a bar against any claims any of them might make for breach of their privacy rights. The most we could say... is that in exchange for giving up any claims they may have, the exposed Facebook users get the satisfaction of contributing to a charity to be funded by Facebook, partially controlled by Facebook, and advised by a legal team consisting of Facebook s counsel and their own purported counsel whom they did not hire and have never met. 69 The Supreme Court ultimately declined to review the Ninth Circuit s decision approving the settlement. As Chief Justice Roberts explained in a rare statement addressing the court s denial of certiorari, the objectors had challenged the particular features of the specific cy pres settlement at issue, but in his view had not addressed more fundamental concerns surrounding the use of such remedies and the standards that should govern their use. Such concerns, he pointed out, would have to await a future case. 70 Court reduced attorneys fees because of lack of benefit to class members. The Sixth Circuit upheld a district court s decision to reduce class counsel s requested fees from $5.9 million to $3.2 million in a settlement of a class action involving auto insurance benefits. 71 In affirming the decision, the Sixth Circuit pointed out that the district court did not believe that the class members received an especially good benefit [because] Class Counsel chose to pursue a relatively insignificant claim as opposed to other potential claims, and [they] agreed to a settlement mechanism which yielded a low claims rate[.] 72 Although the court noted that the settlement makes available a common fund of $27,651, less any attorney fee award, costs, and administrative expenses, for individual class member benefits up to a maximum of $199.44, only a small percent of eligible class members have made claims totaling approximately $4 million or 14% of the total common fund available. 73 What is more, class counsel represented in their fee motion that they provided notice to 189,305 class members and received well over 12,000 claims in other words, a claims made rate of just over six percent. 74 Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 16

81 Do Class Actions Benefit Class Members? Appendix C: Study Design and Methodology Identifying the Study Sample The first step in studying putative class actions was to select a suitable pool of cases. Identifying every putative class action filed during 2009 would be impracticable not least without extensive resources and staff support. 75 We instead used two commercial publications the BNA Class Action Litigation Reporter and the Mealey s Litigation Class Action Reporter to identify cases for inclusion in the study. These publications cover a wide array of developments in class action litigation, and therefore provide a diverse sample of filed class action complaints. The publications have an incentive to report comparatively more significant class actions out of all class actions filed, without wasting readers time and attention on minor or obviously meritless suits. If anything, the sample would be skewed in favor of more significant class actions filed by prominent plaintiffs attorneys which should be more meritorious on average than a sample generated randomly from all class actions filed. We reviewed issues of BNA and Mealey s published between December 2008 and February 2010 in order to identify cases filed in The reason for that limitation was the importance of analyzing modern cases that were filed after the passage of the Class Action Fairness Act of 2005, but long enough ago to track how the cases have actually progressed and whether they have been resolved. From those publications, we identified a pool of putative class actions brought by private plaintiffs that were either filed in federal court or were removed to federal court from state court in To begin with, because data about state court cases is much more difficult to obtain, we excluded a number of cases, such as those brought in state court initially (where the BNA or Mealey s report did not mention that the case was removed). We also excluded one case that was removed to federal court and then remanded to state court. This left us with 188 cases. Nineteen of these eventually became part of eleven other consolidated cases that were also part of our data set whether under the multidistrict litigation ( MDL ) procedure, 28 U.S.C. 1407, or otherwise (for example, cases are often consolidated when they are pending in the same federal district court). When multiple putative class actions appearing in our data set were consolidated, we treated the consolidated case as a single action to avoid the risk of overcounting lawsuits. 76 And when a case in our data set was consolidated with other cases not in our data set, we considered activity reflected on the docket of the lead consolidated case that was attributable to the individual case as filed. If after consolidation the case was resolved together with the lead case such that we could not trace outcomes for the individual case separate from the lead case we considered activity attributable to the lead case. This approach dovetails with the practical mechanics of consolidation: After cases are consolidated into an MDL, for example, the judge to whom the MDL proceeding is assigned will resolve pretrial motions presented in all the consolidated cases. And more generally, to the extent that courts treat a number of separately filed cases together as a single unit for purposes of adjudication, we have Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 17

82 Do Class Actions Benefit Class Members? followed the courts lead. 77 Excluding the cases that became part of other consolidated cases in our data set left us with 169 cases. Our next goal was to identify a set of class actions consisting of claims resembling those asserted by consumers because that is the area under study by the CFPB. We therefore excluded three non Rule 23 putative class actions brought by the Equal Employment Opportunity Commission. 78 We also excluded nine Fair Labor Standards Act cases. 79 Finally, we excluded nine securities cases, because the stakes and nature of those claims are very different from the claims asserted in consumer class actions, and because they are litigated in a different manner because of the procedural checks imposed by federal laws governing securities litigation. 80 Excluding these 21 EEOC, securities, and FLSA cases had next to no effect on the statistical results of our study. 81 Accordingly, the statistics about the total number of class actions filed in 2009 are based on a set of 148 putative class actions. Constructing the Data Set We identified and coded a number of variables about each case. Using the federal courts Public Access to Court Electronic Records ( PACER ) system, we evaluated the filings on each case s docket. Where criteria for a case could be coded in more than one way, we scrutinized the underlying filings and rulings to determine whether the criteria better fit one or another category. For administrative purposes, we treated September 1, 2013, as the date on which our study period closed. We did not code filings and events that were entered onto the docket after that date. Among the data collected for each case were: jurisdiction; date filed; plaintiffs firm; assigned judge; cause of action (as reported by PACER); nature of suit (as reported by PACER); whether the case was a lead or related case (if it was in a consolidated action); 82 whether the court granted class certification; whether the case was voluntarily dismissed, 83 settled, settled but on appeal, dismissed, otherwise disposed of, or still pending; the current posture of the case; 84 and the date of the last action on the case. For cases involving settlements, we also collected information about the date of dismissal or final settlement approval; the terms of the settlement agreement; any attorneys fees, expenses, and incentive payments to lead plaintiffs; and the presence of any cy pres provision in the settlement agreement. There are, of course, limitations to the data we collected. First, our conclusions are based on the cases that we reviewed. While there is good reason to believe that generalizations can be made to all class actions, the sample is undoubtedly smaller than the total number of class actions filed in Attempting to estimate that number reliably let alone to examine those cases would have exceeded the scope of our review. On the other hand, the sample includes cases from across the country and is drawn from sources that are likely to report on significant class actions those that are of comparatively Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 18

83 Do Class Actions Benefit Class Members? greater importance or quality than those actions that neither BNA nor Mealey s considered worth reporting. Because the BNA and Mealey s reporters do not present a random sample of all class actions filed in 2009, it would not be useful to calculate a margin of error or otherwise attempt to quantify the extent to which the sample differs randomly from the population of all class actions filed in Endnotes For information about our methodology, see Appendix C. Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 445 n.3 (2010) (Ginsburg, J., dissenting). In re Rhone Poulenc Rorer Inc., 51 F.3d 1293, 1299 (7th Cir. 1995). Hon. Diane Wood, Circuit Judge, Remarks at the FTC Workshop: Protecting Consumer Interests in Class Actions (Sept , 2004), in Panel 2: Tools for Ensuring that Settlements are Fair, Reasonable, and Adequate, 18 Geo. J. Legal Ethics 1197, 1213 (2005). Emery G. Lee III et al., Impact of the Class Action Fairness Act on the Federal Courts: Preliminary Findings from Phase Two s Pre CAFA Sample of Diversity Class Actions at 11 (Federal Judicial Center 2008), ction%20fairness%20study%20%282008%29.pdf (discussing 30 such cases). These results are broadly consistent with other studies of class actions. See, e.g., id. at 6 (noting that 9% of cases remained pending after at least 3.5 years). See Thomas E. Willging & Shannon R. Wheatman, Attorney Choice of Forum in Class Action Litigation: What Difference Does it Make?, 81 Notre Dame L. Rev. 591, , 638 (2006). In one of the cases we studied, the court compelled arbitration of the named plaintiff s claims a determination that almost always precludes class treatment of the case. Unlike class settlements under Federal Rule of Civil Procedure 23, which must be publicly disclosed and approved by the court, individual settlements of lawsuits in federal court need not be disclosed publicly, nor is court approval required. Typically, parties that agree to settle claims on an individual basis in a lawsuit pending in federal court whether or not those claims are part of a class action enter into confidential settlement agreements, a condition of which is that the named plaintiff will voluntarily dismiss his or her individual claims with prejudice; remaining claims that were purported to have been brought on behalf of a class may be dismissed without prejudice with respect to other class members, who may or may not assert the claim in subsequent litigation. See, e.g., Lee et al., supra note 5, at 6 (noting that in cases not remanded, 55% of cases were voluntarily dismissed without class certification or class settlement, and another 29% were dismissed by the court). This category includes one case in which the parties have announced a class settlement and sought preliminary approval; five cases in which the court has granted preliminary approval (but has not yet finally approved it); one case that resulted in a settlement to fewer than all plaintiff class members; and two cases in which appeals are pending. Theodore Eisenberg and Charlotte Lanvers, What is the Settlement Rate and Why Should We Care?, 6 J. Empir. Leg. Stud. 111, 115 (2009). Id. at 133. Hilary Hehman, Class Certification in California: Second Interim Report from the Study of California Class Action Litigation, Judicial Council of California: Administrative Office of the Courts, at Tables D1 D2 (Feb. 2010), certification.pdf (observing that 410 of 1294 resolved cases were settled); see also Patricia Hatamyar Moore, Confronting the Myth of State Court Class Action Abuses Through an Understanding of Heuristics and a Plea for More Statistics, 82 UMKC L. Rev. 133, at 165 & n.192 (2013). Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 19

84 Do Class Actions Benefit Class Members? See 4 Newberg on Class Actions 12:35 (4th ed. 2013) ( [A] common formula in class actions for damages is to distribute the net settlement fund after payment of counsel fees and expenses, ratably among class claimants according to the amount of their recognized transactions during the relevant time period. A typical requirement is for recognized loss to be established by the filing of proofs of claim.... ). Nicholas M. Pace & William B. Rubenstein, How Transparent are Class Action Outcomes? Empirical Research on the Availability of Class Action Claims Data at 3, RAND Institute for Civil Justice Working Paper (July 2008), billrubenstein.com/downloads/rand%20working%20paper.pdf. Id. at (explaining that in a survey of class action participants, only 25% of chief executive officers at settlement administrators responded to the survey, and even those only did so solely to inform [the researchers] that the information that they held was proprietary to their clients, namely the attorneys that had hired them to oversee the class action claiming process ); cf. Deborah R. Hensler, et al., Class Action Dilemmas: Pursuing Public Goals for Private Gain (2000) (noting difficulty in obtaining information about the claiming process and distribution from a settlement administrator, who declined to share distribution figures, suggesting that we talk to the attorneys involved with the case, and noting further that the plaintiffs and defense attorneys had agreed between themselves not to discuss or divulge matters related to... the actual distribution to the class ). See Christopher R. Leslie, The Significance of Silence: Collective Action Problems and Class Action Settlements, 59 Fla. L. Rev. 71, 93 (2007) (explaining that when a notice do[es] not estimate the size of the class,... class members are unable to calculate their own individual recoveries and therefore lack sufficient bases for objecting to the proposed settlement ); see also Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, (7th Cir. 2008) (Posner, J.) ( The defendants in class actions are interested in minimizing the sum of the damages they pay the class and the fees they pay the class counsel, and so they are willing to trade small damages for high attorneys fees.... The result of these incentives is to forge a community of interest between class counsel, who control the plaintiff's side of the case, and the defendants.... The judge... is charged with responsibility for preventing the class lawyers from selling out the class, but it is a responsibility difficult to discharge when the judge confronts a phalanx of colluding counsel. ) (citations omitted). Hensler, supra note 17, at 165. The lone outlier a case with a 98.72% claims rate involved the settlement of an ERISA case involving claims about the Bernie Madoff Ponzi scheme for which potentially enormous claims could be made. The math explains why an astonishing 98.72% of the 470 members of the damages class filed claims in this $ billion settlement. Final Order at 11, In re Beacon Assoc. Litig., No. 09 cv 777 (S.D.N.Y. May 9, 2013), PACER No Because each class member s individual claim was worth, on average, over $2.5 million, it is unsurprising that over 460 of the class members decided to submit a claim. Needless to say, virtually no consumer or employment class actions settle for anything approaching such a large amount per class member. Sylvester v. CIGNA Corp., 369 F. Supp. 2d 34, 52 (D. Me. 2005). Some earlier studies purported to assess the benefits received by class members, but they examined only what defendants agreed to pay in settlements, rather than the amounts that defendants actually paid after the claims administration process concluded. Brian Fitzpatrick, An Empirical Study of Class Action Settlements and Their Fee Awards, 7 J. Empirical Legal Stud. 811, 826 (2010) (emphasis added); see also Theodore Eisenberg & Geoffrey Miller, Attorney s Fees and Expenses in Class Action Settlements: , 7 J. Empirical Legal Stud. 248, (2010) (using same approach). Moreover, because Fitzpatrick studied only settlements (see 7 J. Empircial Legal Stud. at 812), his study failed to take into account that most putative class actions are dismissed or otherwise terminated without any benefits for class members. And Eisenberg and Miller ignored settlements that promised only nonpecuniary relief (such as coupons or injunctive relief) to class members. An earlier version of their study which laid the methodological groundwork for the later expanded study in 2010 (see id. at 252) appears to have counted cases involving such soft relief only when it was included along with pecuniary relief. Theodore Eisenberg & Geoffrey Miller, Attorney Fees in Class Action Settlements: An Empirical Study, 1 J. Empirical Legal Stud. 27, 40 (2004). Plaintiffs Unopposed Motion for Order Preliminarily Approving Class Action Settlement at 8, Gianzero v. Wal Mart Stores, Inc., No. 09 cv (D. Colo. Nov. 21, 2011), PACER No. 464 ( Gianzero Preliminary Approval Motion ). Plaintiffs Motion for Preliminary Approval of Class Settlement at 5 7, In re Chase Bank USA, N.A. Check Loan Contract Litigation, No. 09 md 2032 (N.D. Cal. July 23, 2012), PACER No See notes and accompanying text. 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85 Do Class Actions Benefit Class Members? Revised Class Action Settlement Agreement 20 22, Bronster v. AOL, LLC, No. 09 cv 3568 (C.D. Cal. July 31, 2013), PACER No The settlement also proposes a cy pres award to a more related charitable organization. Id. 23. Settlement Agreement and Release at 4, Claridge v. RockYou, Inc., No. 09 cv 6032 (N.D. Cal. Dec. 15, 2011), PACER No Notice of Joint Motion for Final Approval of Class Settlement and Memorandum of Points and Authorities in Support Thereof at 4, Red v. Unilever United States, Inc., No. 10 cv 387 (N.D. Cal. June 6, 2011), PACER No Plaintiffs Memorandum in Support of Motion for Final Approval of Class Action Settlement at 4 5, Hohman v. Matrixx Initiatives, Inc., No. 09 cv 3693 (N.D. Ill. May 26, 2011), PACER No. 81. See, e.g., Strong v. BellSouth Telecommunications, Inc., 137 F.3d 844, 851 (5th Cir. 1998) (affirming the district court s decision to compare the actual distribution of class benefits against the potential recovery, and adjusting the requested fees to account for the fact that a drastically small 2.7 percent of the fund was distributed); see also Int l Precious Metals Corp. v. Waters, 530 U.S. 1223, 1223 (2000) (O Connor, J., respecting the denial of certiorari) (noting that fee awards disconnected from actual recovery decouple class counsel s financial incentives from those of the class, and encourage the filing of needless lawsuits where, because the value of each class member s individual claim is small compared to the transaction costs in obtaining recovery, the actual distribution to the class will inevitably be small ). See Federal Judicial Center, Manual for Complex Litigation (Fourth) (2004). SEC v. Bear Stearns & Co., 626 F. Supp. 2d 402, 415 (S.D.N.Y. 2009). Testimony of Martin H. Redish at 7, U.S. House of Representatives, Committee on the Judiciary, Subcommittee on the Constitution, Hearing: Class Actions Seven Years After the Class Action Fairness Act (June 1, 2012), available at Hoffer v. Landmark Chevrolet Ltd., 245 F.R.D. 588, (S.D. Tex. 2007) (Rosenthal, J.). In one of the cases in our sample, the same district judge cautioned that cy pres awards violat[e] the ideal that litigation is meant to compensate individuals who were harmed, but ultimately approved the award because prior court precedents had authorized the use of cy pres. In re Heartland Payment Sys., Inc. Customer Data Sec. Breach Litig., 851 F. Supp. 2d 1040, 1076 (S.D. Tex. 2012) (Rosenthal, J.). Gianzero Preliminary Approval Motion at 4. Id. at 10. The Dryer Plaintiffs Opposition to Preliminary Approval of the Proposed Settlement Class, Dryer v. Nat l Football League, No. 09 cv 2182 (D. Minn. Mar. 20, 2013), PACER No Alison Frankel, Retired NFL stars reject settlement of their own licensing class action, REUTERS (Mar. 25, 2013), available at frankel/2013/03/25/retired nfl stars reject settlement of their own licensing class action/. Class Action Complaint at 2, 24 25, In re Colonial Bancgroup, Inc. ERISA Litig., No. 2:09 cv 792 (M.D. Ala. Aug. 20, 2009), PACER No. 1. See, e.g., Final Judgment at 2 3, In re Colonial Bancgroup, Inc. ERISA Litig., No. 2:09 cv 792 (M.D. Ala. Oct. 12, 2012), PACER No. 207 ( Colonial Bancgroup Final Judgment ). Bill Donahue, Colonial Bank Execs Pay $2.5m to Dodge ERISA Claims, Law360 (June 18, 2012), available at Plan of Allocation at 3, In re Colonial Bancgroup, Inc. ERISA Litig., No. 2:09 cv 792 (M.D. Ala. Sept. 14, 2012), PACER No Colonial Bancgroup Final Judgment at 8. First Amended Complaint at 2, Turner v. Storm8, LLC, No. 4:09 cv (N.D. Cal. June 22, 2010), PACER No. 27. Motion for Final Approval of Class Action Settlement Agreement at 3, Turner v. Storm8, LLC, No. 4:09 cv (N.D. Cal. Nov. 11, 2010), PACER No. 32. Settlement Agreement at 8, Turner v. Storm8, LLC, No. 4:09 cv (N.D. Cal. June 22, 2010), PACER No Attorney s Fees Slashed in Faulty Laptop Class Action, BNA Class Action Litigation Report, 14 Class 1497 (Oct. 25, 2013), available at This case was among the ones we studied, but the court s decision awarding a reduced amount of attorneys fees was issued after the closing date of our study. Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 21

86 Do Class Actions Benefit Class Members? Nicholas M. Pace et al., Insurance Class Actions in the United States, Rand Inst. for Civil Just., xxiv (2007), pubs/monographs/mg587 1.html. Another RAND study similarly found that in three of ten class actions, class counsel received more than the class. See Deborah R. Hensler et al., Class Action Dilemmas: Pursuing Public Goals for Private Gain (Executive Summary), Rand Inst. for Civil Just., 21 (1999), Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 648, 650 (7th Cir. 2006) (emphasis added). Sullivan v. DB Investments, Inc., 667 F.3d 273, 329 n. 60 (3d Cir. 2011) (en banc) (emphasis added; quotation marks omitted). Declaration of Kevin Ranlett in Support of Defendants Amended Motion to Compel Arbitration at 8, Coneff v. AT&T Corp., No. 2:06 cv (W.D. Wash. May 27, 2009), PACER No Mr. Ranlett is a Mayer Brown lawyer. In re Compact Disc Minimum Advertised Price Antitrust Litig., 370 F. Supp. 2d 320, 321 (D. Me. 2005). Yeagley v. Wells Fargo & Co., 2008 WL , at *2 (N.D. Cal. Jan. 18, 2008), rev d, 365 F. App x 886 (9th Cir. 2010). LaGarde v. Support.com, Inc., 2013 WL , at *6 (N.D. Cal. Mar. 26, 2013). The court approved a proposed modified settlement under which the class members who made a claim after having been offered a $10 cash payment * * * will now receive a $25 cash payment, rather than $10. Id. at *4. In re Apple iphone 4 Prods. Liab. Litig., 2012 WL , at *1 (N.D. Cal. Aug. 10, 2012). Union Fid. Life Ins. Co. v. McCurdy, 781 So. 2d 186, 188 (Ala. 2000). Palamara v. Kings Family Rests., 2008 WL , at *2 (W.D. Pa. Apr. 22, 2008). Moody v. Sears, Roebuck & Co., 2007 WL , at *5 (N.C. Super. Ct. May 7, 2007), rev d, 664 S.E.2d 569 (N.C. Ct. App. 2008). In re Grand Theft Auto Video Game Consumer Litig., 251 F.R.D. 139 (S.D.N.Y. 2008). Cheryl Miller, Ford Explorer Settlement Called a Flop, The Recorder (July 13, 2009), Michelle Singletary, Class action Coupon Settlements are a No Win for Consumers, Wash. Post, Apr. 28, 2011 at A14. Id. See Stipulation of Settlement of Class Action, Bachman v. A.G. Edwards, Inc., No (Mo. Cir. Ct. St. Louis Feb. 18, 2010), see also Daniel Fisher, Lawyer Appeals Judge s Award of $21 Million in Fees, $8 Coupons for Clients, FORBES.COM (Jan. 10, 2011), danielfisher/2011/01/10/lawyer appeals judges award of 21 million in fees 8 coupons for clients ( The judge didn t even see fit to inquire into the lawyers valuation of the coupon portion of the settlement, despite strong evidence that less than 10% of coupons in such cases are ever redeemed ). Stipulation of Settlement at 2 8, Weeks v. Kellogg, No. 2:09 cv 8102 (C.D. Cal. Jan. 10, 2011), PACER No Memorandum of Law in Support of Plaintiffs Motion for Award of Attorneys Fees, Expenses, and Plaintiff Service Awards at 4, Weeks v. Kellogg, No. 2:09 cv 8102 (C.D. Cal. July 18, 2011), PACER No See Memorandum Opinion at 3 5, 8, Radosti v. Envision EMI, LLC, No. 1:09 cv 887 (D.D.C. June 8, 2010), PACER No. 40; Order at 1 2, Radosti v. Envision EMI, LLC, No. 1:09 cv 887 (D.D.C. Jan. 19, 2011), PACER No. 45. Lane v. Facebook, Inc., 696 F.3d 811 (9th Cir.), reh g en banc den. 709 F.3d 791 (9th Cir. 2013), cert. denied, 134 S. Ct. 8 (2013). Petition for Certiorari at 11 13, Marek v. Lane, No (filed July 26, 2013), 2013 WL Lane, 696 F.3d at 835 (Kleinfeld, J., dissenting) (emphasis added). Marek, 134 S. Ct. at 9 (Roberts, C.J., respecting the denial of certiorari). Van Horn v. Nationwide Prop. & Cas. Ins. Co., 436 F. App x 496 (6th Cir. Aug. 26, 2011). Id. at 500. Opinion and Order at 10 11, Van Horn v. Nationwide Prop. & Cas. Ins. Co., No. 1:08 cv 605 (N.D. Ohio, Apr. 30, 2010), PACER No Class Counsel s Supplemental Memorandum in Support of Class Counsel s Motion for Award of Attorney s Fees and Reimbursement of Litigation Expenses at 3 4, 7, Van Horn v. Nationwide Prop. & Cas. Ins. Co., No. 1:08 cv 605 (N.D. Ohio Mar. 19, 2010), PACER No. 296 Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 22

87 Do Class Actions Benefit Class Members? See, e.g., Deborah Hensler, et al., Class Action Dilemmas: Pursuing Public Goals for Private Gain 4.60 (RAND Institute for Civil Justice, Monograph MR 969/1 ICJ) (1999) ( Enormous methodological obstacles confront anyone conducting research on class action litigation. The first obstacle is a dearth of statistical information. No national register of lawsuits filed with class action claims exists. Until recently, data on the number of federal class actions were substantially incomplete, and data on the number and types of state class actions are still virtually nonexistent. Consequently, no one can reliably estimate how much class action litigation exists or how the number of lawsuits has changed over time. Incomplete reporting of cases also means that it is impossible to select a random sample of all class action lawsuits for quantitative analysis. ). By way of example, four cases Sansom v. Heartland Payment Sys., Inc. No. 09 cv 335 (D.N.J.); Lone Summit Bank v. Heartland Payment Sys., Inc. No. 09 cv 581 (D.N.J.); Tricentury Bank v. Heartland Payment Sys., Inc. No. 09 cv 697 (D.N.J.), and Kaissi v. Heartland Payment Sys., Inc. No. 09 cv 540 (D.N.J.) eventually were consolidated into In re: Heartland Payment Sys., Inc., Customer Data Security Breach Litigation, No. 4:09 md (S.D. Tex.). The decision to treat these consolidated cases along with the lead case had little effect on our data. A comparison of statistics on outcomes reveals that, if anything, treating consolidated class actions as a single action rather than separately tended to overstate the benefits of class actions. In our full 188 case sample set (including the consolidated cases), 99 cases (54%) were dismissed, whether on the merits by the court, by the plaintiff voluntarily, or as an inferred settlement on an individual basis; 31 cases (16%) remain pending; 55 cases (29%) were settled on a class wide basis; and 3 cases (2%) were dismissed after the court granted a motion to compel arbitration. By comparison, in the 169 case sample set (excluding the consolidated cases), 99 cases (57%) were dismissed, whether on the merits by the court, by the plaintiff voluntarily, or as an inferred settlement on an individual basis; 23 cases (14%) remained pending; 47 cases (28%) were settled on a class wide basis; and 1 (1%) was dismissed after the court granted a motion to compel arbitration. Similarly, this methodology ensures that me too actions cases filed by other attorneys after a complaint in a different case, raising materially identical claims that are routinely dismissed after consolidation without any award or settlement will instead be treated as sharing in any benefits to class members that were actually obtained. The Supreme Court has held that the EEOC may pursue enforcement actions under Title VII 706 without being certified as a class representative under Federal Rule of Civil Procedure 23. See Gen. Tel. Co. of Nw., Inc. v. EEOC, 446 US. 318 (1980). The Supreme Court s reasoning would appear to apply equally outside the context of Title VII. Because the EEOC does not need to pursue a Rule 23 class, the dynamics of EEOC class wide enforcement actions differ markedly from those in Rule 23 actions. Class actions under the FLSA are certified conditionally as opt in classes. Section 216(b) of the FLSA permits a right of action against an employer by an employee on behalf of other employees similarly situated, who must have opted in by providing and filing with the court consent in writing to become a plaintiff. 29 U.S.C. 216(b). These cases present different incentives for plaintiffs counsel than consumer class actions, because they typically involve statutory attorneys fees to prevailing plaintiffs and may involve large backpay and overtime pay awards. As one academic study explained, securities class actions are managed under a set of class action rules distinct from those used for other Rule 23(b)(3) classes and the plaintiffs with the largest losses have a significant role in the litigation (including choosing class counsel and defining the terms of the settlement) and can hardly be thought of [as] an absent class member. Pace & Rubenstein, supra note 16, at 20; see, e.g., Private Securities Litigation Reform Act of 1995, Pub. L. No , 109 Stat. 737 (1995); Securities Litigation Uniform Standards Act of 1998, Pub. L. No , 112 Stat (1998). Recall that our 169 case sample set, which included these cases, resulted in 57% of cases dismissed, 14% pending, 28% settled on a class wide basis, and 1% dismissed after an order compelling arbitration. See supra note 77. After excluding them, our 148 case sample set resulted in 57% of cases dismissed, 14% pending, 28% settled on a class wide basis, and 1% dismissed after an order compelling arbitration. See Figure 1. If a case was a related case in a consolidated action, we collected information based on what happened in the lead case. If a case was voluntarily dismissed, we attempted to discern from filings (and from sources external to the docket) whether the dismissal should be attributed to a settlement on an individual basis such as when the filings refer to a settlement, or when the named plaintiff sought to dismiss her own claims with prejudice but without prejudice to absent members of the putative class. On one hand, this is likely to understate the rate at which individual plaintiffs settle their claims individually, which in any event results in no recovery to other absent members of the putative class unless another lawsuit moves forward. On the other hand, we were often not able to discern whether the claims in a lawsuit dismissed voluntarily would continue to be litigated (or settled) by another named plaintiff under a different case caption. Thus our decision to select a readily accessible Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 23

88 Do Class Actions Benefit Class Members? 84 sample of class actions may understate the extent to which members of a putative class may have their claims dismissed on the merits, or alternatively settled, in a class action under a different docket. The data set includes two certified class actions in which motions for summary judgment are pending. The data set also includes an additional certified class action in which the court granted summary judgment to the plaintiffs on their claim for injunctive relief, and granted summary judgment to the defendants on all remaining claims. At the time our study closed, on September 1, 2013, the parties proposed text for an injunctive order that would resolve the parties remaining claims on a class wide basis. Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the Mayer Brown Practices ). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC ); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. Mayer Brown and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions. Liman Workshop Spring 2015 Mayer Brown LLP, Do Class Actions Benefit Class Members? Mayer Brown 24

89 JUNK JUSTICE: A STATISTICAL ANALYSIS OF 4,400 LAWSUITS FILED BY DEBT BUYERS Peter A. Holland Abstract: Debt buyers have flooded courts nationwide with collection lawsuits against consumers. This article reports the findings from the broadest in-depth study of debt buyer litigation outcomes yet undertaken. The study demonstrates that in debt buyer cases, (1) the vast majority of consumers lose the vast majority of cases by default the vast majority of the time; (2) consumers had no lawyer in ninety-eight percent of the cases; and (3) those who filed a notice that they intended to defend themselves without an attorney fared poorly, both in court and in out of court settlements. This study challenges the notion that there is an adversary system within the context of debt buyer lawsuits. The findings suggest that no such adversary system exists for most defendants in consumer debt cases. Instead, these cases exist in a shadow system with little judicial oversight, which results in mass produced default judgments. The procedural and substantive due process problems which are endemic in debt buyer cases call for heightened awareness and remedial action by the bench, the bar, and the academy. As lawyers who are public citizens, with a special responsibility Director and Clinical Instructor, University of Maryland Francis King Carey School of Law s Consumer Protection Clinic. I am indebted to Max Brauer for his assistance in developing this study s protocol, and to Emanwel Turnbull for his tremendous assistance in analyzing and presenting the data. I am also very grateful to Jeanne Charn, Mary Spector and Dalié Jiménez, for their helpful comments on earlier drafts of this paper. Thanks also to the members of the joint University of Maryland/University of Baltimore Law Schools Junior Faculty Workshop. Liman Workshop Spring 2015 Holland, Junk Justice

90 for the quality of justice, 1 the profession can do better. This article proposes suggestions for further study, and several common sense reforms. 1 MODEL RULES OF PROF L CONDUCT pmbl. 1 (2011). Liman Workshop Spring 2015 Holland, Junk Justice

91 CONTENTS Introduction I. The Debt Industry and Previous Studies A. Debt Collectors B. Debt Buying D. The Maryland Experience E. Existing Studies of Debt Buyer Activity II. The Study A. Methodology B. Results C. Follow-Up III. Analysis A. The Importance of Representation B. Comparison with Other Studies IV. Recommendations A. Acknowledge That We Have a Shadow System for Collections B. Restore the Rules of Evidence to Ensure Due Process C. Revisit the Model Rules of Professional Conduct D. Revisit the Model Code of Judicial Conduct E. Revisit the Law School Curriculum F. Adopt Simple, Common Sense Reforms Ban as is sales contracts and require full documentation Require full disclosure of un-redacted forward flow agreements Adopt statutes mandating reciprocal fee shifting in consumer contract cases Provide same day lawyers in the courthouse Conclusion APPENDIX A: FULL PROTOCOL OF STUDY Liman Workshop Spring 2015 Holland, Junk Justice

92 T We re watching a fight between two players, one a skilled repeat gladiator, and one who s thrown into the ring for the first time and gets clubbed over the head before they even get a sense of what the rules are. - Elizabeth Warren, INTRODUCTION his paper examines the litigation outcomes achieved by a specific type of plaintiff: entities that purchase defaulted consumer debt from banks for pennies on the dollar, and then file lawsuits against millions of consumers for the full face value of the debt. Banks sell this junk debt after they charge it off pursuant to Treasury Regulations, and then take the full face value of the debt as a loss for tax purposes. 3 Junk debt arises primarily from credit cards and other unsecured debt. 4 It is called junk not only because of its low price, but also because it is often sold pursuant to as is contracts with broad disclaimers of warranty, with little or no documentation other than an Excel spreadsheet listing of accounts. 5 2 Michael Rezendes & Francie Latour, No Mercy for Consumers, BOSTON GLOBE, July 30, 2006, (quoting Elizabeth Warren). 3 This loss is comprised not only of principal loaned, but also of all accrued interest, late fees, over-limit fees, and whatever other discretionary fees may have been added, all of which serve to increase the amount of the loss for tax purposes. The Uniform Retail Credit Classification and Account Management Policy requires the bank to charge-off an account 180 days after delinquency. Uniform Retail Credit Classification and Account Management Policy, 65 Fed. Reg (June 12, 2000), available at See also Internal Revenue Code, Bad Debts, 26 U.S.C. 166 (2012) (providing deduction for worthless debt); 26 C.F.R (d) (2012) (evidence of worthlessness of debt as applied to banks); Rev. Rul , 4 Increasingly banks are starting to sell, and junk debt investors are starting to purchase deficiencies from secured consumer debt, such as car loans, and foreclosure deficiencies. See infra note 46 and accompanying text. 5 According to a January, 2013 study by the Federal Trade Commission of over 5,000 portfolios of sale, four cents on the dollar is the national average, spanning the time frame between March and August of U.S. FEDERAL TRADE COMM N, THE STRUCTURE AND PRACTICES OF THE DEBT BUYING INDUSTRY ii (2013) [hereinafter STRUCTURE & PRACTICES], available at Structure & Practices is the first major study of the inner workings of the debt buying industry, however it provides no data on the litigation behavior or success of debt buyers, a Liman Workshop Spring 2015 Holland, Junk Justice

93 Lawsuits filed by junk debt buyers expose a business model that is, literally, the buying and selling of claims to be utilized in litigation for profit. 6 Short of voluntary payment, the primary goal of debt-buyer lawsuits is to turn unsecured debt into court judgments, fully secured and fully collectable through garnishment and other enforcement proceedings. As is pointed out in the Federal Trade Commission s 2009 report titled Broken System and elsewhere, in their rush to secure judgment, debt buyers often mislead consumers and courts. 7 There is a widespread belief that in our broken system, small claims courts have become an extension of the debt collection industry. There are anecdotal reports that more than 95% of all collection cases end in a judgment in favor of the collector. 8 At subject which is left to this and other studies. 6 Assume the following scenario which, for the sake of simplicity of illustration, will use simple, rather than compound interest: on December 31, a consumer owes $1,000 on her credit card, all of which is principal and does not include any interest, late fees or other fees. She fails to pay her credit card bill, and never makes another payment. What happens? On February 1, she will receive a bill for the $1,000, plus 29.99% interest based on the annual percentage rate, plus a late fee for $39. She will continue to receive these charges for the next 5 months (for a total of 6 months, or 180 days until the creditor will charge off the account for tax purposes). By this time, the bill will be approximately $1,394, or almost 40% higher than it was on the day that she defaulted. This $1,000 loan, which now includes an extra $400 tacked on since the day the consumer stopped paying, will be sold for $56 (assuming a sales price of 4 cents on the dollar), and the consumer will then be sued by a debt buyer for $1,400, plus attorneys fees of 15%, or $210. (This assumes they will not also be seeking prejudgment interest of 29.99%). For the consumer, the price of defaulting has suddenly become 161% of the principal of the amount loaned. For the debt buyer who invested $56, the potential return on investment is 2,800%; $56 invested and $1,610 returned. 7 Regulate Junk Debt, FREDERICK NEWS-POST, Dec 18, 2011, faafbcf30d9b.html ( Part of the confusion arising from this shady practice among consumers is whether the calls they receive are to collect legitimate debt, or whether they are being taken for a ride... A frightening angle to this is that junk debt purchasers can sue the alleged debtor based on little but a supporting affidavit. ). 8 See U.S. FED. TRADE COMM N, REPAIRING A BROKEN SYSTEM: PROTECTING CONSUMERS IN LITIGATION AND ARBITRATION 7, n. 18 (2010) [hereinafter BROKEN SYSTEM], available at Jessica Silver- Greenberg, Lender Drops Pursuit of Debt, WALL ST. J., June 24, 2011, at C1 ( Roughly 94% of collection cases filed against borrowers result in default judgment in favor of the lender, according to industry estimates. ). Liman Workshop Spring 2015 Holland, Junk Justice

94 least one judge who handles debt buyer and collections cases reports that in over 90% of all such collection cases filed, the creditor lacks the requisite proof to prevail. 9 Instead of proof, arguably creditors rely on a de facto system of default judgment justice wherein the creditors know that very few defendants will ever challenge the lawsuit, and overwhelmed courts and judges will simply enter default judgments in order to keep the flood of paperwork from bringing the workflow to a halt. There is a developing literature which examines the multitude of doctrinal and due process concerns that arise from this system of default judgment justice. 10 The Federal Trade Commission, the Consumer Financial Protection Bureau ( CFPB ), the National Consumer Law Center, and many others have published important studies, 11 and academics have demonstrated relatively recent but growing interest. 12 In separate studies of Texas and Indiana, Mary Spector and Judith Fox have done groundbreaking small-scale empirical 9 Jessica Silver-Greenberg, Problems Riddle Moves to Collect Credit Card Debt, N.Y. TIMES, Aug. 13, 2012, at A1 ( I would say that roughly 90 percent of the credit card lawsuits are flawed and can t prove the person owes the debt said Noach Dear, a civil court judge in Brooklyn.... ). See also William Glaberson, In New York, Some Judges Now Skeptical About Debt Collectors Claims, N.Y. TIMES, May 7, 2010, at A See, e.g., RICK JURGENS & ROBERT J. HOBBS, NAT L CONSUMER LAW CTR., THE DEBT MACHINE: HOW THE COLLECTION INDUSTRY HOUNDS CONSUMERS AND OVERWHELMS COURTS 1 (2010), available at ( In pursuit of judgments, creditors and collectors have swamped small claims and other state courts with a torrent of lawsuits. ); BROKEN SYSTEM, supra note 8; STRUCTURE & PRACTICES, supra note See sources cited supra note See, e.g., Judith Fox, Do We Have a Debt Collection Crisis? Some Cautionary Tales of Debt Collection in Indiana, 24 LOY. CONSUMER L. REV. 355 (2011); Elizabeth Warren, Unsafe at Any Rate, 2007 DEM. J. 8, 10 (2007) ( Anxiety and shame have become constant companions for Americans struggling with debt. Since 2000, families have filed nearly 10 million petitions for bankruptcy. Today about one in every seven families in America is dealing with a debt collector. ); Elizabeth Warren & Oren Bar-Gill, Making Credit Safer, 175 U. PA. L. REV. 101, 160 (2008) (noting the widespread negative effects of consumer debts and that [n]ot even death will insulate families from the sting of aggressive debt collectors. Sears, for example, had a special team to collect from bereaved families when a customer died still owing a credit balance even though the family had no legal obligation to pay these debts. ); Young Walgenkim, Killing Zombie Debt Through Clarity and Consistency in the Fair Debt Collection Practices Act, 24 LOY. CONSUMER L. REV. 65 (2011). Liman Workshop Spring 2015 Holland, Junk Justice

95 quantitative and qualitative analyses of state court filings in these cases. 13 The National Center for State Courts has done a rough categorization of contract cases filed, most of which are collection cases. 14 Important new analyses, notably by Dalié Jiménez, are emerging of the as is sales and purchase contracts which exist between original creditors and debt buyers, and between initial and subsequent purchasers. 15 Regulatory actions, notably by the Office of the Comptroller of the Currency ( OCC ), have resulted in settlements, including one where JP Morgan Chase neither admits nor denies that in its collection litigation it filed false affidavits, filed false documents that resulted in financial errors in favor of the bank, and failed to have in place processes and systems to ensure the accuracy and integrity of accounts sold to debt buyers. 16 In light of the flood of lawsuits, the anecdotal reports regarding the high rates of default, and the findings of the regulators regarding widespread abuse, it is appropriate to do a broad scale statistical analysis of court filings and litigation outcomes. This paper analyzes 4,400 cases filed in Maryland collection courts by eleven separate debt buyers, each of whom filed more than 1,000 cases per year during the two year sample period. 17 The subject debt buyers were selected because 13 See discussion infra Part I.E. 14 See ROBERT C. LAFOUNTAIN ET AL., NATIONAL CENTER FOR STATE COURTS, EXAMINING THE WORK OF STATE COURTS: AN ANALYSIS OF 2010 STATE COURT CASELOADS 11 (2012), available at The author has spoken with a researcher at NCSC to confirm this. 15 Dalié Jiménez, Illegality in the Sale and Collection of Consumer Debts, (December 5, 2013), available at 16 Consent Order at Art. I, 2, Art. IV, 1(p), JPMorgan Chase Bank, N.A., No (Office of the Comptroller of the Currency, U.S. Dep t of the Treasury Sept. 18, 2013), available at 17 The debt buyers were: Legal Name Name Used in Case Search Pasadena Receivables, Inc. Pasadena Midland Funding LLC aka Midland Midland Credit Management Arrow Financial Services, LLC Arrow LVNV Funding, LLC LVNV Asset Acceptance, LLC Asset Liman Workshop Spring 2015 Holland, Junk Justice

96 they filed a large number of cases and, at the time they were selected, they comprised a representative sample of large publicly traded national corporate plaintiffs as well as small closely held regional and local corporate plaintiffs. 18 In order to capture the largest percentage of cases that had reached a judgment, dismissal or other final disposition as of the cutoff date for gathering the data, 19 the data sample is comprised of cases that were filed by the subject debt buyers between January 1, 2009 and December 31, This study uses a larger statistical sample with more metrics and more analysis than is available in prior studies. In contrast to the two principal recent statistical studies of debt buyers, 21 this study is not confined to a single court or county forum. Rather, the cases in this study s sample were drawn from a pool of all 26 District Court jurisdictions in the state. 22 The empirical findings of this study confirm the widespread belief that in litigation, debt buyers employ a high volume default judgment business model, and that their legal pleadings, evidence and tactics are rarely exposed to the adversary process. Principal findings of this study include: (1) about 1 in 4 cases filed were dismissed by the court because the summons was never served on the defendant; (2) less than 2 in 10 defendants who were served with a summons filed a response (known in Maryland as a Notice of Intention to Defend ); (3) in almost 7 out of 10 cases, debt buyers obtained judgments against defendants in Portfolio Recovery Associates Cavalry Portfolio Services LLC Fradkin & Weber, PA Advantage Assets II, INC North Star Capital Acquisition Atlantic Credit & Finance, INC Portfolio Cavalry Fradkin Advantage North Star Atlantic 18 There has since been some consolidation in the industry. See infra note Cutoff date was March 31, Of the 4,400 cases sampled, as of the March 31, 2012 cutoff date, all but 381 cases (8.65%) had reached final disposition through a money judgment, bankruptcy, dismissal or settlement. 21 See discussion of Spector and Fox studies infra Part I.E. 22 Maryland has 26 counties. The District Court has exclusive original jurisdiction over small claims ($5,000 or less), and concurrent jurisdiction with the Circuit Court on claims over $5,000 up to $30,000. MD. CODE ANN., CTS. & JUD. PROC , (West 2011). Liman Workshop Spring 2015 Holland, Junk Justice

97 an average amount of more than $3,000; (4) the vast majority of cases do not result in a voluntary settlement; (5) more than 99% of the judgments against defendants were obtained without a trial; (6) fewer than 2% of defendants were represented by a lawyer, and those who did have a lawyer achieved far better outcomes than those who did not have a lawyer; and (7) based on the 2010 census data, there appears to be a disparate impact on racial minorities. The data and analysis of this study has important implications for advocates, judges, litigants, legislators, regulators, policy makers and academics. This paper is divided into four parts. Part I describes the nature of the debt buying and debt collection industry, and surveys the existing literature on lawsuits filed by debt buyers. Part II describes the methodology of the study and reports its results. Part III contains my analysis and draws conclusions. Part IV contains my recommendations for further study and action. I. THE DEBT INDUSTRY AND PREVIOUS STUDIES A. Debt Collectors Debt collection cases have concerned scholars and policy makers for decades. In 1974, David Caplovitz published Consumers in Trouble, which constituted the first broad empirical study of consumers facing debt collection in the United States. 23 In his Foreword to the Caplovitz study, United States Senator William Proxmire concluded that when it comes to collection of consumer debt, [o]ur legal system benefits the unscrupulous and penalizes the weak. 24 Many of Caplovitz s findings from more than forty years ago still apply to today s consumers in trouble. Caplovitz found that consumers who default on financial obligations are rarely the deadbeats of popular myth, a fact which remains true today, and which even the collection industry ad- 23 DAVID CAPLOVITZ, CONSUMERS IN TROUBLE: A STUDY OF DEBTORS IN DEFAULT xii (1974). Caplovitz wrote about law suits filed by original creditors; not the debt buyers of this study, because debt buyers did not exist in His study was comprised largely of in-person interviews of debtors. He found that in many cases, these consumers had valid defenses to the lawsuits. 24 Id. Liman Workshop Spring 2015 Holland, Junk Justice

98 mits. 25 He also found that the people most likely to be in trouble were the poor, 26 and that consumers usually get into trouble due to circumstances beyond their control. 27 Caplovitz concluded that when they do get into trouble, consumers face a debt collection court system that is unfair to them. 28 It is notable that the Caplovitz study was published in 1974, three years before the passage of the Fair Debt Collection Practices Act, which was designed to correct collection abuses. 29 When it comes to the perceived fundamental unfairness of the debt collection system, little has changed in the intervening years. In 2010, the Federal Trade Commission concluded that in today s collection system, neither litigation nor arbitration currently provides adequate protection for consumers. The system for resolving disputes about consumer debts is broken. 30 Some of the hallmarks of this broken system include lack of data integrity, lack of proof, inadequate documentation, robo-signing and other unfair and deceptive acts and practices. 31 Judges, advocates, academics, federal regulators, 32 state regulators, 33 Congress, 34 and the 25 CAPLOVITZ, supra note 23, at x (Foreword by William Proxmire); Mike Bevel, You re Doing it Wrong: Misrepresenting the Collection Industry, INSIDEARM, April 29, 2011, ( At no point would a reputable collection agency doing its job correctly ever refer to a consumer as a deadbeat. ). 26 CAPLOVITZ, supra note 23, at % of consumers were in trouble because of a loss of income and 11% due to unexpected increases in their expenses, such as medical bills. Id. at 53. Only 5% were what Caplovitz regarded as the stereotype of deadbeat debtors. Id. at Id. at Sen. Proxmire, who wrote the foreword to Consumers in Trouble, was also chair of the Senate Banking Committee during the passage of the FDCPA. 30 BROKEN SYSTEM, supra note 8, at i. 31 Robo-signing can include signing affidavits which falsely claim to be based on personal knowledge, and having third parties sign affidavits in the name of the alleged affiant. The later practice was recently condemned by Maryland s Court of Appeals. Atty. Griev. Comm n. v. Dore, 73 A.3d 161, 178 (Md. 2013). 32 CONSUMER FIN. PROT. BUREAU, FAIR DEBT COLLECTION PRACTICES ACT ANNUAL REPORT (2013). The FTC and CFPB jointly held a roundtable on debt collection in mid See Life of a Debt: Data Integrity in Debt Collection, FED. TRADE COMM N (June 6, 2013) [hereinafter Life of a Debt], Since the passage of the Fair Debt Collection Practices Act, the Federal Trade Commission has been responsible for consumer pro- Liman Workshop Spring 2015 Holland, Junk Justice

99 tection in debt collection. The Dodd-Frank Act shifted much of that responsibility from the FTC to the newly created Consumer Financial Protection Bureau. The CFPB now shares overall enforcement responsibility with the FTC and other agencies including the Office of the Comptroller of the Currency and the Federal Communications Commission. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L , 1089, 124 Stat. 1376, (2010) (amending the Fair Debt Collection Practices Act, 15 U.S.C et seq.). The CFPB can prescribe rules regarding debt collection, issue guidance, collect data, undertake research and conduct educational campaigns. In particular, the CFPB has the power to regulate large non-bank actors on consumer financial services including debt collection, and has recently begun to use that authority. It is anticipated that the CFPB will promulgate new rules on debt buying in the near future. 33 Maryland has been a particularly active regulator in this field. For example, the following enforcement actions were undertaken in the last few years, contributing to the staying or dismissal of tens of thousands of debt buyer lawsuits: Summary Order to Cease and Desist, Portfolio Recovery Group, No. CFR-FY (Md. State Collection Agency Licensing Bd. Apr. 9, 2013), available at Settlement Agreement and Consent Order at 5-6, Credit Service, LLC, No. CFR- FY (Md. State Collection Agency Licensing Bd. Oct. 14, 2011), available at f ( Filing actions... intended to obtain judgment on affidavit... but which contained affidavits that were based... on the affiant s knowledge, information and belief, a standard insufficient to obtain such judgments... [c]laiming and receiving unauthorized attorney s fees... [c]laiming and receiving prejudgment interest that included compound interest and misrepresenting the correct amount of principal and interest in the documents filed... [f]iling complaints alleging ownership of particular consumer claims but which complaints contained invalid or deficient assignment documents... filing complaints beyond the 3-year statute of limitations... [m]ailing collection letters to consumers threatening to file lawsuits based on consumer claims that were already beyond the 3-year statute of limitations ); Settlement Agreement and Consent Order at 4-5, Sunshine Financial Group, LLC, Nos. CFR-FY & CFR-FY (Md. State Collection Agency Licensing Bd. Sept. 9, 2011), available at Settlement Agreement at 4, Worldwide Asset Management et al., No. DFR- FY (Md. State Collection Agency Licensing Bd. Aug. 10, 2010), available at ( [A] debt collector... may not [c]laim, attempt, or threaten to enforce a right with knowledge that the right does not exist.... [t]he Agency has reasonable grounds to believe that respondents engaged in unlicensed collection agency activities and that all Respondents engaged in other violations... referenced above. ). See also Press Release, Office of Commc ns & Pub. Affairs, Md. Judiciary, Thousands of District Court of Maryland Cases Dismissed (Mar. 17, 2011), available at Liman Workshop Spring 2015 Holland, Junk Justice

100 media have broadly exposed these and other problems unique to debt collection (announcing the dismissal of 10,168 Midland Funding cases filed between January January 15, 2010 and noting also that 27,000 Mann Bracken cases were dismissed in 2010); Press Release, Office of Commc ns & Pub. Affairs, Md. Judiciary, District Court of Maryland Dismisses Sunshine Financial Group Debt Collection Cases (Sept. 21, 2011), available at (announcing that 314 cases were dismissed and 323 reduced to remove atty s fees.); Press Release, Office of Commc ns & Pub. Affairs, Md. Judiciary, District Court of Maryland Dismisses Thousands More Debt Collection Cases (Oct. 11, 2012), available at 34 Press Release, Sen. Sherrod Brown, Following Call to Rein in Debt Collection Industry, Brown Holds Hearing on Efforts to End Consumer Abuses (July 17, 2013), available at ( Former bank employees have reported that they were instructed to [g]o ahead and sign affidavits verifying consumer debts, even when they didn t have documentation... [w]hen debt buyers purchase these loans from the biggest banks, they sign as is contracts, giving banks cover to offload debts for collection that may be inaccurate, incomplete, or legally uncollectable. (quoting Sen. Sherrod Brown)). 35 See, e.g., Jim Dwyer, In Civil Court, Reckoning Awaits Those Who Got Seduced by Plastic, N.Y. TIMES, Oct. 11, 2008, at A19; Jeff Horwitz, It s Robo Redux: Card Lawsuits Stalk Banks, AM. BANKER, Jan. 31, 2012, at 1. The Boston Globe published a very important series of articles in 2006, which paved the way for other reporters. See Rezendes & Latour, supra note 2 (mentioning the activities of the Goldstone brothers Mass. Debt buyer) ( [A]lmost unnoticed by policy-makers, many millions of Americans have slid, or been pushed, into a debtor s hell[.] ) (Quoting Elizabeth Warren, We re watching a fight between two players, one a skilled repeat gladiator, and one who s thrown into the ring for the first time and gets clubbed over the head before they even get a sense of what the rules are. ); Beth Healy, Dignity Faces a Steamroller, BOSTON GLOBE, July 31, 2006, ( The people s court has become the collectors court... [i]t is a de facto arm of a fast-growing and aggressive industry that has swamped court dockets with lawsuits[.] ) (recounting the case of a Judge Barrett, who ordered a defendant to surrender her jewelry or be imprisoned) ( Often, debtors are treated with less courtesy than the accused felons in the criminal court across the hall, and their rights are less respected. ); Walter V. Robinson & Michael Rezendes, Enforcers Might Goes Unchecked, BOSTON GLOBE, Aug. 1, 2006, (describing the abuses of Boston Constables publicly appointed collectors); Walter V. Robinson & Beth Healy, Regulators, Policy Makers Seldom Intervene, BOSTON GLOBE, Aug. 2, 2006, (quoting Donald Friedman of debt buyer Liberty Point Corp. [debt buying] is one of Liman Workshop Spring 2015 Holland, Junk Justice

101 Nowhere is the breakdown in the collections system more evident than in the context of lawsuits filed by junk debt buyers. Junk debt buyers are even further removed from personal relationships with consumers than the commercial lenders in the Caplovitz study. It is therefore unsurprising that these investors in junk debt would resort to bureaucratic procedures to collect debts, a trend that has made debt collection the most complained about business under the Federal Trade Commission s jurisdiction. 36 B. Debt Buying 37 The highly successful debt buyer business model is simple to describe. First, buy debts for pennies on the dollar; 38 second, clog the courts with small claims lawsuits; third, rely on the fact that defendants are not likely to contest the cases or show up in courts; and finally, bank on the fact that small claims court judges often do not enforce basic rules of evidence or procedure in uncontested cases. Over the past two decades, the seemingly easy money to be made from investing in and pursuing junk debt has caused the the sexiest, one of the most financially lucrative businesses you can get into. ) ( [I]n spite of all this, there is an eerie silence among regulators, policy makers, and legislators. ). 36 STRUCTURE & PRACTICES, supra note 5, at i. 37 This section contains a brief overview of the junk debt buyer industry. For a more detailed overview, see CLAUDIA WILNER & NASOAN SHEFTEL- GOMES, LEGAL AID SOC Y ET AL., DEBT DECEPTION: HOW DEBT BUYERS ABUSE THE LEGAL SYSTEM TO PREY ON LOWER-INCOME NEW YORKERS (2010), available at WEB.pdf; RACHEL TERP & LAUREN BOWNE, EAST BAY CMTY. LAW CTR. & CONSUMERS UNION OF UNITED STATES, PAST DUE: WHY DEBT COLLECTION PRACTICES AND THE DEBT BUYING INDUSTRY NEED REFORM NOW (2001), available at JURGENS & HOBBS, supra note 10; Peter A. Holland, The One Hundred Billion Dollar Problem in Small Claims Court: Robo-Signing and Lack of Proof in Debt Buyer Cases, 6 J. BUS. & TECH. L. 259 (2011). 38 The FTC found that the range for non-mortgage debt examined in their study was between 1.5 and 6.6 cents on the dollar for charged-off portfolios. STRUCTURE & PRACTICES, supra note 5, at D-6. The average across all debt buyer activity was about 4 cents on the dollar. Id. at ii. In fact, some debt sells for less than one penny on the dollar. Liman Workshop Spring 2015 Holland, Junk Justice

102 industry to explode 39 to the point where today the face value of purchased credit card debt exceeds $100 billion annually. 40 The explosive growth of this industry has created an array of challenges to the courts, to the consumer defendants, and to notions of constitutional due process. One of the most basic challenges is the fact that consumers do not recognize the name of the debt buyer plaintiff, or the amount being sued on. This adds to the exceedingly high rate of default judgments. 41 The confusion that results from the buying and selling of legal claims was observed by Lord Coke almost 500 years ago when he described: [T]he great wisdom and policy of the sages and founders of our law, who have provided, that no possibility, right, title, nor thing in action, shall be granted or assigned to strangers, for that would be the occasion of multiplying of contentions and suits, of great oppression of the people. 42 Lord Coke s observation foreshadowed what Caplovitz eventually concluded: [T]he breakdown in credit transactions that results in lawsuits is... very much a product of the anonymity of consumer transactions in urban America. It is this lack 39 Modern day debt buying is often said to have originated with the sale of debts by the FDIC and the Resolution Trust Corporation in the wake of the savings and loan crisis. Robert M. Hunt, Collecting Consumer Debt in America, BUS. REV., Q2 2007, at 11, available at STRUCTURE & PRACTICES, supra note 5 at 17. The debt buying market is now dominated by large participants. Id. at i (the nine largest debt buyers held over 75% of debts sold in 2008); Defining Larger Participants of the Consumer Debt Collection Market, 77 Fed. Reg. 65,775 (Oct. 31, 2012) (amending 12 C.F.R. pt to define larger participants in the consumer debt collection industry, including debt buyers). 40 Jessica Silver-Greenberg, Boom in Debt Buying Fuels Another Boom In Lawsuits, WALL ST. J., Nov. 29, 2010, at A1 ( More than 450 debt buyers scooped up an estimated $100 billion in distressed loans last year, according to the latest estimates by Kaulkin Ginsburg, a debt-collection industry adviser. ); The FTC s report utilized data on debt portfolios worth $143 billion, bought by the 9 largest debt buyers. STRUCTURE & PRACTICES, supra note 5, at See Life of A Debt, supra note Lampet s Case, (1612) 77 Eng. Rep. 994 (K.B.) 997 (emphasis added). Liman Workshop Spring 2015 Holland, Junk Justice

103 of knowledge of each other by the parties to these transactions that contributes to mistrust, misinterpretations of the reasons for the default, and the employment of harsh, bureaucratic procedures to collect debts. In this respect we are dealing... with an urban problem in which trust, based on personal relationships, is absent. 43 Today s debt buyer lawsuits involve the purchase, sale, and suing upon old, unreliable, inaccurate documentation of abandoned consumer credit accounts, consisting primarily of lending products such as subprime credit cards with (what used to be) usurious interest rates, 44 accumulated late fees, over limit fees, and monthly usage fees. Debt buyers pay pennies on the dollar for accounts abandoned by the original creditor, sold as is with little or no documentation, and lots of disclaimers of warranty. 45 Junk debt investors purchase consumer debt from large financial institutions in portfolios, containing thousands of individual debts. Although the cases in this study are comprised primarily of credit card debt, it is important to note that all kinds of consumer debt is being bought and sold today, including mortgage foreclosure deficiencies. 46 Scholars have documented some 43 CAPLOVITZ, supra note 23, at In 1978, the U.S. Supreme Court held that a national bank may export the home state s interest rate, regardless of state usury caps. Marquette National Bank of Minneapolis v. First of Omaha Service Corporation, 439 U.S. 299, 308, n.24 (1978). 45 Typical disclaimers of warranty include that the account may already be satisfied, that the debtor may have prevailed at trial, that the debtor was the victim of identity theft, that the debtor declared bankruptcy, that the account is beyond the statute of limitations, that the debtor is dead, that the amount of the alleged debt is only approximate, and that documentation may not exist. See, e.g., Loan Sale Agreement By and Among FIA Card Services, N.A. and CACH, LLC (Apr. 14, 2010) [hereinafter Loan Sale Agreement], available at See also Jiménez, supra note Debt buyer interest in foreclosure deficiency judgments has been known since at least Jessica Silver-Greenberg, The House Is Gone But The Debt Lives On, WALL ST. J., Oct 1, 2011, ( The increase in deficiency judgments has sparked a growing secondary market. Sophisticated investors are ravenous for this debt and ramping up their purchases[.] ). See also Douglas French, The New Deficiency Market, MISES ECON. BLOG, (Oct 4, 2011), Liman Workshop Spring 2015 Holland, Junk Justice

104 of the problems inherent in this business model. 47 More recently, regulators and mainstream media have expressed concern regarding the as is terms, without representations or warranties, on which these debts are purchased. The FTC and the OCC in particular have questioned the adequacy of the information debt buyers receive with purchased debts. 48 The FTC s Structure and Practices study revealed that debt sale and purchase agreements between the creditor and the debt buyers generally limit the availability of key documents, such as account statements and credit agreements. 49 Further, the debt sale agreements often disclaim the accuracy of the information provided and explicitly disclaim warranties of title, validity, enforceability, collectability, and accuracy. 50 In 2009, the FTC found that information provided to debt buyers was so deficient that collectors [sought] paydeficiency-market/. This trend only seems likely to increase, as suits on deficiency judgments generally rise. See Kimbriell Kelly, Lenders Seek Court Actions Against Homeowners Years After Foreclosure, WASH. POST, June 15, 2013, actions-against-homeowners-years-after-foreclosure/2013/06/15/3c6a04ce-96fc- 11e2-b68f-dc5c4b47e519_story.html. 47 Lauren Goldberg, Dealing in Debt: The High-Stakes World of Debt Collection After FDCPA, 79 S. CAL. L. REV. 711 (2005) (an early report on abusive collection by debt buyers); Holland, supra note 37 (reporting abuses in the small claims jurisdiction in Maryland); Sam Glover, Has the Flood of Debt Collection Lawsuits Swept Away Minnesotans Due Process Rights, 35 WM. MITCHELL L. REV (2008) (reporting the flood of collection suits and consequent abuses in Minnesota); Neil L. Sobol, Protecting Consumer From Zombie-Debt Collectors, NEW MEXICO L. REV. (forthcoming 2014), available at An additional important aspect of the problem, not treated in this article, is the negative impact on the creditworthiness of debtors who fall victim to abusive collection practices. See Mary Spector, Where the FCRA Meets the FDCPA: The Impact of Unfair Collection Practices on the Credit Report, 20 GEO. J. ON POVERTY L. & POL Y 479 (2013). 48 STRUCTURE & PRACTICES, supra note 5, at Id. 50 Jiménez, supra note 15, at 4. Note however that representatives of the debt collection industry deny that this is current practice. See Life of a Debt, supra note 32; Shining a Light on the Consumer Debt Industry: Hearing Before the Subcomm. on Financial Institutions and Consumer Protection of the S. Comm. on Banking, Housing, and Urban Affairs, 113th Cong. (July 17, 2013) [hereinafter Statement of Corey Stone], available at estore_id=293a7183-c6c a6-a44c859dc093 (testimony of Corey Stone, Assistant Director, Office of Deposits, Cash, Collections, and Reporting Markets of the Consumer Financial Protection Bureau). These denials are difficult to verify, because debt buyers usually refuse to produce the contracts. Liman Workshop Spring 2015 Holland, Junk Justice

105 ment from the wrong consumer or demand[ed] the wrong amount. 51 The lack of proof, disclaimers of warranty and unreliable record keeping have led to significant criticism and threats of regulatory action to strengthen supervision of the debt buying business. 52 This criticism and the threat of regulatory intervention have already led one major bank to cease its sale of defaulted consumer debt altogether. 53 Despite these problems, the debt buying industry remains strong and has even begun to expand internationally, with industry leader Encore Capital recently acquiring the English debt buyer Cabot Financial. 54 C. Debt Buyer Collection Litigation The debt buying business model has been to flood the courts across the country, resulting in hundreds of millions of dollars of default judgments entered against consumers. Maryland provides a good example of how this business model has affected some courts. In two of Maryland s largest jurisdictions, consumers sued by debt buyers for only a few hundred or a few thousand dollars are summoned to appear in a courtroom in order to engage in resolutions conferences with sophisticated plaintiffs lawyers. 55 These meetings occur inside of 51 FED. TRADE COMM N, COLLECTION CONSUMER DEBTS: THE CHALLENGE OF CHANGE 22 (2009). 52 See infra notes and accompanying text. 53 Maria Aspan & Jeff Horwitz, Chase Halts Card Debt Sales Ahead of Crackdown, AM. BANKER, Jul 1, 2013, 54 Saabira Chaudhuri, Encore Capital Buys Majority Stake in Cabot Credit For $192 Million, WALL ST. J., May 30, 2013, 55 Maria Aspan, Courthouse Rocket Dockets Give Debt Collectors Edge Over Debtors, AM. BANKER, Feb. 11, 2013, (describing the resolution conferences ). It is notable that the American Banker article comes more than four years after Baltimore Sun editorial called for an end to these rocket dockets, noting that The docket has offered few or no safeguards for defendants and carried the imprimatur of the judicial system.... Editorial, Reform Rocket Docket, BALTIMORE SUN, Jan. 27, 2009, Liman Workshop Spring 2015 Holland, Junk Justice

106 courtrooms in which no judge is present to oversee the proceedings. 56 If the consumer fails to appear, the file goes to a judge for consideration of entry of an uncontested affidavit judgment. On the other hand, if the consumer does appear and demands a trial, there is no guarantee that a trial will be held on that date. Despite the fact that there is no judge present, the continued existence of these proceedings is premised on the notion that these conferences are a type of pretrial conference contemplated under the Maryland Rules. 57 Like any other judgment creditor, once a debt buyer has secured a judgment, it has access to a panoply of enforcement methods. 58 The most powerful of these is a supplementary proceeding to force the judgment debtor to appear in court in order to provide information about the debtor s assets. 59 The debtor is summoned to court to answer questions about their assets and income, to enable the creditor to locate assets to seize, accounts and employers to garnish and real property on which liens can be placed. If debtors do not appear in court, they risk being found in contempt and arrested, a phenomenon which Lea Shepard called Creditor s Contempt. 60 In many arrest warrant cases, judges will order that the bond which the defendant paid be released to the judgment creditor. 61 As both Shepard and Caplovitz ob- 56 Aspan, supra note 55 ( What s missing is a judge or other neutral moderator. ). 57 Id. (noting that the judges of the Maryland District Court defend the practice and claim that it is voluntary). Although the Maryland Rules allow pretrial conferences to be ordered sua sponte in the District Court, the specific Rule at issue appears to contemplate a proceeding at which a judge is present. MD. R (a) ( The court... may direct all parties to appear before it ); MD. R (b-c)(listing administrative matters to be raised at the hearing such as witnesses to be relied upon and amendment of pleadings, and for the court to enter an order on such matters). In contrast, in 2008, here is how the Baltimore Sun described the proceedings, which have changed little since then: Lawyers call up debtors one at a time to work out payment plans in rapid, onthe-spot settlements. Other days, lawyers haggle with debtors in the courthouse hallways. When cases go to judges, hospitals typically win after hearings that last a few minutes or less. Fred Schulte & James Drew, Their Day In Court, BALTIMORE SUN, Dec. 22, 2008, 58 MD. R Known in Maryland as Discovery in Aid of Enforcement. MD. R Lea K. Shepard, Creditor s Contempt, 2011 BYU L. REV (2011). 61 Id. at Liman Workshop Spring 2015 Holland, Junk Justice

107 served, creditor s contempt has the effect of extending the longbanned practice of imprisonment for debt into the twenty-first century. 62 Imprisonment for contempt arising out of small consumer debt has attracted local and national media attention. 63 Policy makers have begun to respond, expressing concern and launching investigations into the practice. 64 Encore Capital disavowed arrest as a debt collection device due to negative publicity, 65 and others have criticized the tactic in the debt collection industry. 66 However, the problem continues to cause concern around the country. 67 D. The Maryland Experience Maryland has been a leader is combating the unique problems created by debt buyer litigation, as evidenced by effective 62 Id. at ; CAPLOVITZ, supra note Jessica Silver-Greenberg, Welcome to Debtors Prison, 2011 Edition, WALL ST. J., Mar. 17, 2011 [hereinafter Debtor s Prison, 2011 Edition], (noting that more than a third of states allow arrest for debt and that over 5,000 warrants had been issued since 2010); Alain Sherter, Jailed for $280: The Return of Debtors Prisons, CBS NEWS (Apr. 20, 2012, 1:04 PM), (noting the problem and discussing the case of a woman imprisoned for $280 alleged debt, which she did not owe, and quoting Illinois Att y Gen. Lisa Madigan Too many people have been thrown in jail simply because they re too poor to pay their debts. ); Susie An, Unpaid Bills Land Some Debtors Behind Bars, NAT L PUB. RADIO (Dec. 12, 2011, 12:01 AM), 64 Welcome to Debtors Prison, 2011 Edition, supra note 63 (noting the state of Illinois and the FTC had launched investigations into the practice). 65 Id. 66 Mike Bevel, Debt Collectors (Don t) Want to Send Debtors to Prison, INSIDEARM.COM, (Nov. 23, 2011, 11:48 AM), (criticizing Silver-Greenberg and other articles reporting on the same issue, apparently on the grounds that such arrests are not directly because of debt, without denying that such arrests are requested by collectors). 67 See, e.g., Martha C. White, Lenders Use a New Dirty Trick to Jail You for Small Debts, TIME, Aug. 28, 2012, Liman Workshop Spring 2015 Holland, Junk Justice

108 private class action litigation, 68 aggressive enforcement actions by the state Department of Labor, Licensing and Regulation, 69 and measures taken by the Chief Judge of the District Court of Maryland, who has dismissed more than 20,000 debt buyer cases since Most notably, effective as of January 1, 2012, Maryland adopted comprehensive amendments to its procedural court rules for obtaining default judgments, also known as affidavit judgment, in uncontested cases in the small claims division of its District Court. 71 Despite these efforts, Maryland courts remain flooded with debt buyer lawsuits, and neither the basic business model nor the ultimate outcome of these cases massive default judgments have been altered. E. Existing Studies of Debt Buyer Activity One of the first reports on perceived litigation abuse by debt buyers came in a series of Boston Globe articles in The Globe reported on threats of imprisonment, 73 gross inequality in the courtroom, 74 and shoddy evidence. 75 Although these abuses were recognized early, they have persisted. Since 2006, debt buy- 68 See Bradshaw v. Hilco Receivables, LLC, 765 F. Supp. 2d 719 (D. Md. 2011) (holding that Hilco violated the [FDCPA] in filing lawsuits without a license in violation of the Maryland Collection Agency Licensing Act ); Hauk v. LVNV Funding, LLC, 749 F. Supp. 2d 358 (D. Md. 2010) (same); Finch v. LVNV Funding, LLC, 71 A.3d 193 (Md. Ct. Spec. App. 2013) (holding that judgments obtained when the plaintiff was not a licensed debt collector are void) cert. denied 77 A.3d 1084 (Md. 2013). 69 See, supra Note Id. 71 MD. R For text and commentary on the extensive changes, see NOTICE OF PROPOSED RULE CHANGES: 171 st REPORT, STANDING COMMITTEE ON RULES OF PRACTICE & PROCEDURE, MD. CT. OF APPEALS (2011). 72 Rezendes & Latour, supra note 2; Healy, supra note 35; Robinson & Rezendes, supra note 35; Robinson & Healy, supra note Healy, supra note 35 ( [S]uch threats are a common tool, both in smallclaims court and in the district court civil sessions. ). 74 See id.; Rezendes & Latour, supra note 2 (quoting Professor (now Senator) Elizabeth Warren, We re watching a fight between two players, one a skilled repeat gladiator, and one who s thrown into the ring for the first time and gets clubbed over the head before they even get a sense of what the rules are. ) 75 Rezendes & Latour, supra note 2 (recounting the case of a disabled veteran sued for debt while deployed; an affidavit filed by the plaintiff falsely claimed he was not in the military.). Liman Workshop Spring 2015 Holland, Junk Justice

109 ers have attracted increasing attention from advocates, regulators, and scholars. 76 In 2009, a legal support program for municipal employees published Where s the Proof? which is arguably the first study devoted solely to the perceived abuses of debt buyers. 77 The report provided some of the earliest hard statistics on debt buyer behavior, finding that less than six percent of debt buyers were willing or able to demonstrate proper chain of title of the debt being pursued. 78 As of mid-2014, debt buyers have begun to receive serious regulatory scrutiny, with the CFPB s adoption of a rule to extend its regulatory supervision to larger participants in the debt collection industry, 79 and the Office of the Comptroller of the Currency s publication of its suggested best practices in debt sales. 80 Congress is also taking up the question of debt collection reform Supra notes 33, 47 and ROBERT MARTIN ET AL., DIST. COUNCIL 37 MUN. EMPS. LEGAL SERVS., WHERE S THE PROOF? (2009), available at 78 Id. at 3 (noting that debt buyers responded to requests for the substantiation of debts in only 5.5% of cases). 79 Defining Larger Participants of Certain Consumer Financial Product and Service Markets, 12 C.F.R (2012). See also Press Release, Consumer Fin. Prot. Bureau, Consumer Financial Protection Bureau to Oversee Debt Collectors (Oct. 24, 2012), available at 80 Shining a Light on the Consumer Debt Industry: Hearing Before the Subcomm. on Fin. Inst. and Consumer Protection of the S. Comm. on Banking, Housing, and Urban Affairs, 113th Cong. (July 17, 2013) (statement of the Office of the Comptroller of the Currency, Appendix 1). 81 A hearing led by Sen. Sherrod Brown was held on the question in a Senate subcommittee. Press Release, Sen. Sherrod Brown, Following Call to Rein In Debt Collection Industry, Brown Holds Hearing on Efforts to End Consumer Abuses (July 17, 2013), available at ( Former bank employees have reported that they were instructed to [g]o ahead and sign affidavits verifying consumer debts, even when they didn t have documentation... [w]hen debt buyers purchase these loans from the biggest banks, they sign as is contracts, giving banks cover to offload debts for collection that may be inaccurate, incomplete, or legally uncollectable... Today I hope to hear from the FTC... and the CFPB about how we can modernize debt collection oversight to better serve consumers. ). Testimony at the hearing favored improvements in the provision of information involved in debt collection. Statement of Corey Stone, supra note 50, at 3 Liman Workshop Spring 2015 Holland, Junk Justice

110 In 2010, a coalition of legal aid and community development organizations in New York City carried out one of the first studies of debt-buyer cases, titled Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers. 82 The Debt Deception study used a sample of 365 court cases, of which 336 had reached a final judgment. 83 The study found that 81% of the cases resulted in a default judgment, and 94% of cases overall resulted in judgment for the debt buyer. 84 Not a single consumer in this study was represented by an attorney, and not a single case in this study went to trial. 85 The cases were filed against people who lived overwhelmingly in poor and minority neighborhoods. 86 The study also noted that out of court settlements in court cases tended to be unsustainable payment plans, and that in the event of default, the debt buyer would be entitled to judgment in the full amount of the alleged debt. 87 The report recommended increased regulation, increased judicial scrutiny, and increased legal representation. 88 A subsequent New York study published in 2013, Debt Collection Racket, provides insight into developments since the Debt Deception study. 89 Using statistics from New York state courts and the U.S. Census, Debt Collection Racket suggests that while the overall rate of default judgments in New York state ( [T]here is a surprising amount of consensus across all market participants from debt collectors, creditors, and collection attorneys, to consumer advocates, legal services providers and state attorneys general that we must develop clear standards for data integrity and record keeping in the debt collection market. ). See also Shining a Light on the Consumer Debt Industry: Hearing Before the Subcomm. on Fin. Inst. and Consumer Protection of the S. Comm. on Banking, Housing, and Urban Affairs, 113th Cong. (July 17, 2013) (statement of Reilly Dolan, Acting Associate Director for the Division of Financial Practices at the Federal Trade Commission). 82 WILNER & SHEFTEL-GOMES, supra note Id. at Id. 85 Id. 86 Id. at Id. at Id. at SUSAN SHIN & CLAUDIA WILNER, NEW ECONOMY PROJECT, THE DEBT COLLECTION RACKET: HOW THE INDUSTRY VIOLATES DUE PROCESS AND PERPETUATES ECONOMIC INEQUALITY (Sarah Ludwig & Josh Zinner eds. 2013), available at Liman Workshop Spring 2015 Holland, Junk Justice

111 may have fallen (by somewhere between 38% and 62% depending on location) between 2010 and 2013, the number of consumers represented by an attorney remains negligible at only 2%. 90 Through empirical analysis, the study also demonstrated racial and economic disparate impact. 91 The areas most affected are clustered in predominantly middle-income black communities. 92 Mary Spector s 2011 study reported on a detailed analysis of 507 cases filed in Dallas, Texas. 93 The cases were drawn from the Dallas Court-at-Law, which is one of three courts with concurrent jurisdiction over such cases in Dallas. 94 The Texas Study examined several of the same metrics which were examined in Debt Deception and which are examined in this study. Some of the findings from Texas differed from the findings of the Debt Deception study. Whereas Debt Deception showed a default rate of 81% in New York, 95 In the Texas sample, only about 40% of cases resulted in default judgment. 96 Further, the Texas study found that 50% were dismissed without prejudice. 97 Finally, the Texas study showed that in 12% of cases, debt buyers were unable to serve the defendant; 98 in nearly 23% of served cases the defendants appeared; 99 and that defendants were represented by a lawyer in almost 10% of served cases. 100 Judith Fox s 2012 study analyzed the activity of debt buyers in Indiana through a sample of 645 cases. 101 In Indiana, debt buyers often chose to avoid filing in small claims courts, even though they were well within the jurisdictional limit. 102 Indiana, like Maryland, changed its rules to increase the documentary requirements upon debt buyers filing collection cases, and this ap- 90 Id. at 5, Id. at Id. 93 Mary Spector, Debts, Defaults and Details: Exploring the Impact of Debt Collection Litigation on Consumers and the Courts, 6 VA. L. & BUS. REV. 257, (2011). 94 Id. at WILNER & SHEFTEL-GOMES, supra note 37, at Spector, supra note 93, at Id. at Id. at Id. at Id. at See Fox, supra note Id. at Liman Workshop Spring 2015 Holland, Junk Justice

112 peared to have temporarily suppressed filings. 103 Indiana also had high rates of non-appearance, with 83% of defendants failing to respond and only 2.5% not served. 104 Of those who responded to the complaint, most did not do so in the form required by court rules. 105 Debt buyers obtained default judgment in 73% of cases. 106 As in the Debt Deception, none of the cases examined resulted in a trial. 107 One other study, somewhat different from the others, is important to the discussion. In her 1992 study of Baltimore City s rent court, 108 Barbara Bezdek observed many of the same phenomena as were observed in this study: special accommodation of plaintiff s representatives, 109 high rates of default, 110 and a general lack of evidentiary proof. 111 Unlike previous studies, this study examines a large number of online court dockets from a statewide sample in a unified system comprised of twenty-six different counties. Maryland has a unified online trial court docket, and a search for any given party or attorney on the state courts official Maryland Judiciary Case Search website returns results for all trial courts in the state, regardless of geography or jurisdictional amount. 112 Maryland Judiciary Case Search includes for each case the names of the parties, city, state, case number, trial date, and disposition Id. at Id. at 377. Note however that it was assumed that service was perfected unless the file reflects otherwise. Id. 105 Id. 106 Id. at Note that a small number of cases went to trial in Spector s study: Spector, supra note 93, at 297, tbl.14 (discussing one case which resulted in a trial with judgment for the defendant, and showing the breakdown of outcomes generally). 108 Barbara L. Bezdek, Silence in Court: Participation and Subordination of Poor Tenants Voices in Legal Process, 20 HOFSTRA L. REV. 533 (1992). For a more recent examination of the plight of tenants, and continuing flaws in substantive and procedural law, see Mary Spector, Tenant Stories: Obstacles and Challenges Facing Tenants Today, 40 JOHN MARSHALL L. REV. 407 (2007). 109 Id. at Nearly 70% of cases resulted in complete success for the plaintiff landlord. Id. at Id. at See Maryland Judiciary Case Search, MARYLAND COURTS, Id. Liman Workshop Spring 2015 Holland, Junk Justice

113 This study was limited to cases filed in the District Court, which has exclusive original jurisdiction for cases under $5,000, and concurrent jurisdiction with the Circuit Court for cases between $5,000 and $30,000. All cases studied also included the names of any attorneys and law firms, the amount sought in the complaint, and the amount of any judgment, plus separate itemizations for any fees, costs or interest added to the judgment. Unlike the federal PACER system or other state systems, the Maryland website does not provide access to actual case documents. Those have to be retrieved from the courthouse in which they were filed, with the exception of older cases outside the scope of this study, which are sent to a central repository in the state s capital. II. THE STUDY A. Methodology With the aid of two teaching assistants and the students enrolled in the Consumer Protection Clinic at the University of Maryland Francis King Carey School of Law, we did a random sampling of 200 cases filed in 2009 and 200 cases filed in 2010 (400 cases total), filed by each of 11 debt buyer plaintiffs, resulting in a total sample size of 4, The specific 11 debt buyers were selected because they constituted the highest volume filers in the state of Maryland The debt buyers selected were: Pasadena Receivables, Inc.; Midland Funding LLC (also known as Midland Credit Management); Arrow Financial Services, LLC; LVNV Funding, LLC; Asset Acceptance, LLC; Portfolio Recovery Associates; Cavalry Portfolio Services, LLC; Advantage Assets II, INC; North Star Capital Acquisition; Fradkin & Weber, PA; Atlantic Credit & Finance, INC. A twelfth debt buyer, Equable Ascent Financial, LLC, also known as Hilco Receivables, was originally included in the list, but proved to have too few filings in All had filed over 1,000 cases in the period. This proved to be a practical approach to identifying significant debt buyers: the highest volume filer for the subject time period was Pasadena Receivables, Inc. which filed 24,435 cases during During the years , consolidation occurred in the industry. In 2012 the largest volume filers in Maryland were Pasadena Receivables (and its new alter-ego, Maryland Portfolios), Midland Funding, and Portfolio Recovery Associates. Pasadena is local and privately held, while Midland Funding and Portfolio Recovery are publicly traded and national, Figures from the first half of 2013 suggest that Pasadena will behind Asset Acceptance this year. Liman Workshop Spring 2015 Holland, Junk Justice

114 The years 2009 and 2010 were selected because they were the most recent years that had a high percentage of case outcomes that had reached a final disposition of judgment or dismissal. In contrast, many cases filed during 2011 had not yet reached an outcome at the time the data were gathered. 116 Finally, all cases studied were subject to the Maryland Affidavit Judgment Rules that existed prior to the implementation of new Rules on January 1, While a companion study for cases filed after January 1, 2012 might yield insight into the efficacy of the new rules, such a comprehensive analysis is beyond the scope of this article. 118 The data on each pre-selected debt buyer were gathered from Maryland Judiciary Case Search, pursuant to a protocol that insured that the cases were selected at random. 119 Maryland Judiciary Case Search provides free access to a limited amount of information on cases filed in Maryland courts, including the district courts which have exclusive original jurisdiction over small claims cases of under $5, (typically credit card or medical debt), and which consequently deal with almost all debt buyer cases in Maryland. 120 The study data included information on filing and judgment dates, types of judgments, the amount of money sought and awarded, and a breakdown of amounts awarded in addition to the initial claim (i.e., costs, interest, and attorneys fees). Most importantly, the data also included information about 116 Examination of the data gathered has since shown that it takes a year or more from filing for some types of outcome to be reached. Had more recent cases been used, the results would have showed a distorted picture of the outcomes, with a disproportionately high number of affidavit judgments: affidavit judgments took an average of less than 150 days, while default judgments took almost 340 days on average and dismissals for lack of prosecution under MD. R took over 400 days. 117 MD. R We did analyze a small sample of 100 cases filed after January 1, 2012, and those results are reported in Section II.C. Based on this smaller sample, there does not appear to be any significant change in rates of default judgments since the rules changes. 119 See Maryland Judiciary Case Search, supra note But see sources cited supra note 47, which suggest that the sale and enforcement of mortgage deficiency judgments is on the rise in Maryland and elsewhere. Case collection was limited to the District Courts because the Circuit Courts did not experience the same high volume of case filings. None of the 11 selected debt buyers filed more than 100 cases in the Circuit Court between 2009 and The volume of cases in Circuit Court was therefore insufficient for a large-scale study of the kind possible using District Court cases. Liman Workshop Spring 2015 Holland, Junk Justice

115 service of process, representation of the parties and the filing of defenses. 121 In addition, the data from this study were compared to the more limited data reported in the Maryland District Court s internal statistics used for tracking purposes, 122 as well as the official Maryland Judiciary Annual Statistics Report. 123 B. Results 1. Amount Claimed in the Lawsuits Filed The amount claimed in a lawsuit is a significant metric, because it can determine jurisdictional questions, whether pretrial discovery will be allowed, whether a jury trial will be allowed, and whether all of the formal rules of evidence will apply at trial. In Maryland, lawsuits in which the principal amount sought is $5,000 or less (exclusive of costs, interest and attorneys fees) are treated as small claims, with less formality and fewer procedural safeguards. More broadly, the amount claimed is a significant metric because it reflects the financial impact of debt collection suits on communities and on the economy. In the data sample of all 4,400 cases, 83% of the lawsuits claimed a principal amount of less than $5,000.00, thus qualifying them as small claims. This is significant because in practice, these less than $5,000 cases get treated as small claims in which few or no rules of evidence are applied and in which few if any procedural safeguards are observed. Put another way, in only 17% of the cases could a defendant even potentially have the right to the benefit of pretrial discovery, or of all the rules of evidence. Further, to be eligible to demand and obtain a jury trial, the principal amount claimed in the lawsuit must be more than $15,000. The average amount of principal claimed was $2,993.73, according to the following distribution: 27% sought less than $1,000; 56% sought between $1,000 and $5,000, and 17% sought more than $5,000. The 17% of cases over the small claims limit 121 The complete protocol is contained in Appendix A, infra. 122 District Court of Maryland Statistics, MARYLAND COURTS, The official annual report is less useful than the internal statistics. See Annual Reports, MARYLAND COURTS, Liman Workshop Spring 2015 Holland, Junk Justice

116 were distributed in a narrowing tail, up to $30,000, as shown in Figure 1, below. Notably, the 17% of cases in which the amount claimed was over $5,000, thus entitling the defendant to pretrial discovery and the full range of the rules of evidence, did not experience significantly different outcomes from the cases below $5,000 in which the defendant was not entitled to these added protections. This is not surprising when one considers that few consumers know their legal rights, let alone how to assert them. Figure 1 - Amounts Demanded The average principal amount sought in the total data sample of 4,400 cases was $2, Of the 2,006 cases that resulted in judgment, the average amount sought in principal was $2, In these 2,006 cases where judgment was entered, debt buyers were awarded 94.7% of the principal claimed in the lawsuit ($2, out of $2,967.58). Although the average amount of the judgment principal was $2,811.66, the average total amount awarded (including any pre-judgment interest, costs and attorneys fees) was $3, In other words, assuming that the consumer actually borrowed the full $2, as principal (i.e. assuming it did not include any late fees, over limit fees or interest, which is almost never the Liman Workshop Spring 2015 Holland, Junk Justice

117 case), the data show that consumers got an average of $ (18.2%) tacked onto the judgment. The bulk of this amount was interest and attorneys fees. Costs (which presumably include a private process server s fee) averaged only 11.6% ($59.75) of the additional $ In terms of dollar value, prejudgment interest was the single largest amount added to a judgment. Prejudgment interest was added in 67% of the cases (1,347 out of 2,006) in which judgment was entered in favor of the debt buyer plaintiff. The average amount of prejudgment interest added in these 67% of cases won by the plaintiff was $476. This is a significant figure, in that it amounts to almost 10% of the jurisdictional amount of $5,000, when 83% of all cases were for an amount claimed of less than $5,000. Finally, in 561 cases an average of $474 was awarded for attorneys fees. The bottom line is that debt buyers obtained judgment that was almost one fifth (18.2%) greater than the principal amount of the debt that they purchased for pennies on the dollar. Pre-judgment interest and attorneys fees are particularly significant because they should usually require proof greater than that required to prove a simple debt. If a plaintiff claims attorneys fees or pre-judgment interest at a contractual rate, the plaintiff must prove that such amounts are provided for in the underlying contract. 124 Further, under the American Rule, attorneys fees may be awarded only pursuant to a statute or contract, and they should not be awarded to law firms which are themselves debt buyers, or are owned by debt-buyers, because Maryland prohibits attorneys who act in their own interests from charging attorneys fees MD. R (d)(1). 125 See, e.g., Weiner v. Swales, 141 A.2d 749 (Md. 1958). The Financial Services division of the Attorney General s office has successfully pursued at least one debt buyer for violation of this rule. Settlement Agreement & Consent Order at 11(b), Sunshine Financial Group, LLC, Nos. CFR-FY & CFR-FY (Md. Collection Agency Licensing Bd. Sept 9, 2011), available at (finding that Sunshine violated Maryland and Federal debt collection law by claiming attorney s fees not permitted in law). Since the Sunshine case, other firms in similar positions have stopped seeking attorneys fees. Moreover, one of the compromises in the revised Rules was that, starting on January 1, 2012, a debt buyer who was seeking affidavit judgment at the time of filing the lawsuit need not produce the underlying contract if (1) it was not seeking pre- Liman Workshop Spring 2015 Holland, Junk Justice

118 2. How Consumers Respond to Debt Buyer Lawsuits Previous studies have found that the overwhelming majority of consumers do not formally defend collection suits against them. 126 This study confirms that finding. Even when the figures were adjusted to remove those defendants who were not served with a complaint, 127 eighty-five percent of all consumers failed to file a defense in writing (known in Maryland as a Notice of Intention to Defend ). The lack of consumer engagement in debt collection cases is an ongoing problem that escapes resolution. At the June 2013 joint Federal Trade Commission/Consumer Financial Protection Bureau workshop titled The Life of a Debt much was made of this problem, but no solutions were offered. 128 Figure 2 demonstrates that: (1) 85% of the 2,947 consumers served with a complaint did not file a written response; (2) 13% filed a response by themselves; and (3) 2% had a lawyer at the time of or after a response was filed. Figure 2 How Consumers Respond to Suits Everyone People Who were Served N % N % Represented by Lawyer 52 1% 52 2% Responded Pro Se 397 9% % Did Not Respond % % Total % % The finding that only 2% of the people had a lawyer is consistent with the findings of other studies. 129 On closer examijudgment interest in excess of 6%; and (2) it was not seeking attorneys fees. The practical result has been that since January 1, 2012, debt buyers in Maryland always seek 6% prejudgment interest, and they never seek attorneys fees and they do not attach the underlying contract. See MD. R See supra Part I.E. 127 Because the study relied on electronic court records, it was not possible to determine if actual service took place in all of these cases. Defective or sewer service may still be depressing the response rate of consumer defendants. 128 See Life of a Debt, supra note See supra Part I.E. Liman Workshop Spring 2015 Holland, Junk Justice

119 nation, the number of consumers actually defended in the lawsuit by a lawyer is likely to be even smaller: in 5 of the 52 cases where the defendant had a lawyer, the defendant declared bankruptcy. The attorney whose name appears on the record may therefore simply have been acting in relation to the bankruptcy, rather than actively defending the case. A Notice of Intention to Defend was filed in only one of these five cases, and in a different case the attorney appears to have assisted the defendant in challenging a post-judgment garnishment, but the lawyer did not defend the underlying lawsuit. 3. Bankruptcies Figure 3 shows bankruptcies filed by defendants and the amounts sought in the complaint. Defendants declared bankruptcy in 261of 4,400 cases. 130 An attorney appearance was filed in only 5 of these 261 cases. Consumers filed for bankruptcy even though no money judgment was entered in about 56% of the cases, and in the remaining 44%, when a money judgment had been entered. 131 With an average amount claimed of $4,450, bankruptcy cases were significantly larger (almost 50% higher) than the average of $2, claimed overall. 132 Figure 3 Bankruptcies Observed Total Complaints Average Complaint Bankruptcies N % Notice Filed Pre Judgment % $ 680, $ 4, Notice Filed Post Judgment % $ 480, $ 4, Total % $ 1,161, $ 4, Case Search records Bankruptcy as a case status rather than as a case outcome therefore bankruptcies out of the total sample, rather than cases with a final outcome. 131 The distinction of presence vs. absence of a money judgment was made because the actual dates of the bankruptcy filing were not a part of the data which gathered pursuant to the protocol. 132 See infra Figure 3. Liman Workshop Spring 2015 Holland, Junk Justice

120 4. Unrepresented Consumers Fare Poorly As a preliminary matter, it is important to note that 925 of the 4,400 cases sampled were dismissed when the defendant was never served. In 702 of these cases, the court record reflects that the dismissal was due to lack of prosecution or lack of jurisdiction. In other words, according to the data sample, 24% of all cases filed were never served. While no firm conclusions can be drawn from the fact that 24% of cases were never served, three possibilities seem likely: (1) a large number of defendants settled prior to the law suit getting served, which obviated the need for service; (2) debt buyer documentation is so stale that they cannot obtain accurate current location information on defendants; or (3) the debt buyer business model is structured such that it is not profitable to invest resources into locating current addresses for defendants. Of the 2,947 cases that were served and reached final outcome, 2,498 people (85% of the total) did not file a response; 397 people (13%) filed a pro se response; and 52 people (2%) had a lawyer who entered an appearance in the case. Of the 2,947 cases that were served and reached final outcome, 2,006 (68%) resulted in a money judgment against the defendant, in an average amount of $3, Yet, only 9 (0.4%) of the judgments were the result of a trial. Outcomes varied depending on whether the person (1) filed no response; (2) filed a response; or (3) had a lawyer who entered an appearance in the case. Defendants who filed no response had the worst outcomes. Of the 85% of people who did not file a response, debt buyers obtained a judgment by affidavit, consent, default, or trial 73% of the time, and recovered 82% of the amount sought in the complaints. Defendants who filed a response had better outcomes than those who did not file a response, but the outcomes were poor overall. Of the 13% of defendants who proceeded pro se (by filing a response called a Notice of Intention to Defend), debt buyers obtained judgment by affidavit, consent, default, or trial 47% of the time, and recovered 62% of the amount sought in the complaints. Defendants who had a lawyer fared best. Of the 2% of de- Liman Workshop Spring 2015 Holland, Junk Justice

121 fendants who had a lawyer enter an appearance in the case, debt buyers obtained an affidavit, consent, or default judgment only 15% of the time, and recovered only 21% of the principal amount sought in the complaints. 133 However defendants were represented by a lawyer in only 52 cases, and it is clear that different lawyers provided different levels of service, rendering this data not statistically significant enough to be a reliable measurement. Nevertheless, data from outside of this study confirms what is widely believed: lawyers make a difference. A 2013 unpublished study of the Maryland s Pro Bono Resource Committee s Consumer Protection Project found that of 80 cases in which pro bono attorneys represented defendants in collection suits by debt buyers, debt buyers obtained final money judgments in only 12 cases (15%). Overwhelmingly, defendants with an attorney succeeded in having the case dismissed. 134 Figure 4 - Outcomes by Representation No Notice to Defend Filed Notice Filed Attorney Outcome n % n % n % Money Judgment % % 8 15% % of Total Complaint Amounts awarded 82% 62% 21% 133 The fact that there were affidavit and default judgments when there was an attorney of record suggests that the attorney involvement commenced only after judgment was entered, but the data is not conclusive. 134 Study on file with the author. Liman Workshop Spring 2015 Holland, Junk Justice

122 Figure 5 Detailed Outcomes by Representation Status No Notice to Defend Filed Notice Filed Attorney Total Outcome n % n % n % n % Affidavit Judgment % 96 24% 6 12% % Consent Judgment for P % 61 15% 2 4% % Default Judgment for P % 22 6% 0 0% 83 3% Dismissed by Court 149 6% 66 17% 11 21% 226 8% Rule Dismissal % 69 17% 17 33% % 135 See MD. R To seek affidavit judgment the plaintiff must demand it and file an affidavit to support it at the time of filing the complaint. MD. R (b). If the defendant fails to file a Notice of Intention to Defend ( NOID ), the court may grant judgment without a trial, provided the affidavit is sufficient. MD. R (e)(2)(A). When the defendant files a NOID, but fails to appear at trial, it appears that some clerks record the resulting judgment as an affidavit judgment, hence the presence of 96 affidavit judgments among defendants who filed NOIDs. 136 A consent judgment may be entered at any time. MD. R However, consent judgments may represent enforcement of the terms of settlements, allowed by Rule 3-506(b). 137 A default judgment may be entered in two situations: where affidavit judgment is denied, but on the trial date the defendant fails to appear; where a NOID is filed but the defendant fails to appear. MD. R One anomalous default judgment was entered where the plaintiff failed to appear at a hearing. 138 A form of voluntary dismissal where the plaintiff can dismiss without the court s permission provided no counterclaim has been made, and notice is given to the parties and the court. MD. R (a). The analysis of the specific reason or reasons that cases were dismissed is limited, because the data in Case Search often does not specify whether the dismissal was due to a voluntary settlement (pursuant to Rule 3-506(b)) or to any other of several factors listed in Rule 3-506, or even factors which are not listed in Rule One such factor may be that debt buyers have been known to settle or dismiss as soon as they become aware that a case might be contested. Similarly, collection phone calls and letters do not stop just because a lawsuit was filed. In fact, it seems axiomatic that people who are served with a lawsuit are more likely to make a settlement than those who have not. This is another area that warrants study, but Liman Workshop Spring 2015 Holland, Junk Justice

123 Rule 3-506(B) Dismissal upon stipulated terms % 58 15% 7 13% 229 8% Rule Dismissal % 14 4% 2 4% 94 3% Trial Judgment for P 2 0% 7 2% 0 0% 9 0% Trial Judgment for D 2 0% 3 1% 7 13% 12 0% Default Judgment for D 0 0% 1 0% 0 0% 1 0% Total % % % % 5. Settlement Settlements between debt buyers and unrepresented defendants 141 are fairly common. Of the 2,498 people who were served and did not file a Notice of Intention to Defend, 395 (16%) settled. Some of these settlements (164, 42%) were recorded as Rule 3-506(b) dismissals, so their terms are unknown. The remaining 231 (58%) were consent judgments, the terms of which are known. Most of consent judgments (183, or 79%) were for the amount demanded in the complaint. The forty-eight defendants (21%) who settled for a reduced amount achieved an average reduction of 19%. However, outcomes were not evenly distributed: which is beyond the scope of this article. 139 A dismissal based upon a settlement. The case may be reinstated in order to enforce the stipulated terms. MD. R (b). A dismissal on stipulated terms may therefore become a consent judgment if the terms are not kept. 140 A lawsuit is subject to dismissal by the court if the complaint has not been served for more than a year, or if there have been no docket entries for one year. MD. R In this context, unrepresented is used to designate those people who did not have a lawyer, and who did not file a Notice of Intention to Defend. Self-represented is used to designate people who did not have a lawyer, but who did file a Notice of Intent to Defend. Liman Workshop Spring 2015 Holland, Junk Justice

124 twenty-two (10%) achieved a reduction of less than 10%, while four achieved reductions of over 50%. These results suggest that even the few defendants who do settle their cases with plaintiffs do not usually benefit much from the resulting settlement. A very small group was successful in achieving a significant reduction in the alleged debt, but most are no better off than if they had simply waited for affidavit judgment. Self-represented defendants (i.e. those who filed a Notice of Intent to Defend) fared little better. More of them settled: 119 out of 397 (30%) as opposed to 16% of the unrepresented. Of these settlements, sixty-one (51%) were consent judgments. Most of these consent judgments (forty-three, 69%) were for the same amount as the complaint. Where the judgment was for less than the amount in the complaint, it was reduced by an average of 23%. Again, however, only a small number of defendants benefitted the most, as shown in Figure 6, below. Figure 6 - Consent Judgments Trends in Debt buyer Activity In addition to the cases from 2009 and 2010 which are studied above in detail, the total number of lawsuits filed in Maryland by the subject debt buyers was calculated for the period 142 Here, No NOID denotes people who were unrepresented (i.e. the people who did not have a lawyer and who did not file a Notice of Intent to Defend). NOID represents people who did not have a lawyer, but who did file a Notice of Intent to Defend. Liman Workshop Spring 2015 Holland, Junk Justice

125 from January 1, 2011 through December 31, In Maryland, debt buyers filed more than 37,000 cases in 2011, more than 22,000 cases in 2012, and more than 24,000 cases in Thus, as calculated in Figure 7, the total number of filings in Maryland by the subject debt buyers during each year from 2009 through 2013 was as follows: 40,796 in 2009; 43,581 in 2010; 37,202 in 2011; 22,566 in 2012; and 24,317 in It is clear that filings hit their peak in 2010, their low point in 2012, and perhaps began to rebound in It is unclear and worthy of further study to determine - whether the dramatic decline in filings is due to market forces, to regulatory action, to the 2012 changes to the Maryland Rules, or some other factor or combination of factors. It is also unclear whether the pattern in Maryland is reflected in other states. 143 There is an additional group of debt buyers who were either nonexistent or not as active in as they were after that time frame. Adding the gross number of filings of this new group raises the total filings in 2011 to 37,202; in 2012 to 22,566; and in 2013 to 24,317. This new group consists of the following entities: Credit Acceptance, Osiris Holdings, Unifund CCR, Razor Capital, and Maryland Portfolios. Liman Workshop Spring 2015 Holland, Junk Justice

126 Figure 7 Number of Cases & Market Share of Debt Buyers, Debt Buyer Years 2009 % 2010 % 2011 % 2012 % 2013 % Totals Advantage Assets, II, INC 462 1% % 144 0% 0 0% 1 0% 2291 Arrow Financial Services, LLC % % 75 0% 1 0% 1 0% 7773 Asset Acceptance, LLC % % % 492 2% % 8394 Atlantic Credit & Finance, INC % 979 2% 97 0% 2 0% 14 0% 2790 CACH % % 817 2% 210 1% % 5874 Cavalry Portfolio Services, LLC 990 2% % % 354 2% % 4358 Commercion 0 0% 0 0% 0 0% 45 0% 1 0% 45 Credit Acceptance 824 2% % % % % 6470 Equable Ascent 50 0% % % 250 1% 145 1% 5451 Fortis Capital 57 0% 38 0% 31 0% 0 0% 0 0% 126 Fradkin & Weber, PA 249 1% % 102 0% 20 0% 3 0% 4119 LVNV Funding, LLC % % % 0 0% 5 0% Midland Funding, LLC % % % % % North Star Capital Acquisition % 540 1% 64 0% 1 0% 1 0% 1760 Osiris Holdings 0 0% 84 0% 404 1% 31 0% 208 1% 519 Palisades Collection LLC 345 1% 520 1% 101 0% 21 0% 9 0% 987 Pasadena Receivables, INC % % % % % Portfolio Recovery Associates % % % % % Razor 0 0% 128 0% 40 0% 314 1% 103 0% 482 Sherman 20 0% 0 0% 0 0% 4 0% 0 0% 24 Sunshine Financial Group, LLC 36 0% 822 2% 231 1% 4 0% 0 0% 1093 Unifund 361 1% 152 0% 54 0% 182 1% 80 0% 749 TOTALS ,462 MONTHLY AVERAGE Liman Workshop Spring 2015 Holland, Junk Justice

127 Figure 8 - Total Debt Buyer Filings in Maryland District Courts, Jan. 1, 2009 to December 31, 2013 Polls by InsideARM, a debt-collection trade publication, show that despite the overall trend that Figure 8 appears to show, the purchase and sale of junk debt is a continuing feature of the debt collection industry. 144 Given the number of private class actions and public enforcement actions by the state of Maryland against prominent debt buyers in Maryland, the decline in the volume of lawsuits may also reflect a decision to increase collections through non-litigation means such as letters and phone calls. 145 There are, however, no signs that the debt buying industry is disappearing or that the problems identified by the Rules Committee have been solved. The filing of tens of thousands of debt buyer lawsuits continues to be a significant load on Maryland s courts and consumers. 144 In Summer 2011, the last period for which InsideARM has published figures, 37.2% of original creditors were increasing their use of debt collection agencies or debt buyers while 22.9% were maintaining the same level of usage. The ARM Barometer: Creditor Results, INSIDEARM.COM, (Summer 2011), Most debt buyers reported an increase in activity in the same period: 42.9% moderate, 14.3% large. The ARM Barometer: Debt Buyer Results, InsideARM.com, (Summer 2011), While the shift from litigation to non-litigation based collection would be an interesting subject for further study, it is a difficult area to research empirically, because non-litigation based collection does not leave the same type of broad paper trail in the public records. Liman Workshop Spring 2015 Holland, Junk Justice

128 While some debt buyers have stopped filing collection cases in Maryland, others have increased their filings. Encore Capital Group (parent of Midland Funding, LLC) purchased Asset Acceptance, Inc. in mid-2013, leaving only three major players in Maryland, where there were once more than ten Geographic Concentration of Cases Debt buyers sued disproportionately in jurisdictions with larger concentrations of poor people and racial minorities. For example, Prince George s County has only 15% of the Maryland s population, yet 23% of all debt buyer complaints were filed against Prince George s County residents. 147 A disparity also exists in Baltimore City, as illustrated in the Figure 9 below. Figure 9 Cases and Population in Top Six Jurisdiction As Figure 9 shows, based on filing rates and population estimates for 2010, 148 Prince George s County and Baltimore City have a greater proportion of debt buyer cases than that of the general population. In contrast, Baltimore, Montgomery and Anne Arundel Coun- 146 See supra Figure 7, showing the market share of various debt buyers in Maryland. 147 See infra Figure Population figures from the 2010 United States Census, complied by the Maryland Department of Planning. MD. DEPT. PLANNING, INTERCENSAL ESTIMATES BY GENDER, RACE & ORIGIN (2012) [hereinafter INTERCENSAL ESTIMATES], available at yrace&origin.xls. Liman Workshop Spring 2015 Holland, Junk Justice

129 ties have fewer cases based on population, while Harford seems to be evenly balanced. The differences between these areas can be better shown by comparing some of their basic demographics. As Figure 10 shows, there is no straightforward connection between either median income or race, and disparities in the filing rate in these jurisdictions. Baltimore City households have nearly half the median income of Maryland, and Baltimore City is a majorityminority jurisdiction, but its case-to-population disparity is only 2% (i.e. Baltimore City s share of cases was 2% more than its share of Maryland s population). Prince George s County has a nonwhite population 5% higher than Baltimore City, and slightly above average income, but its case-to-population disparity is 8%. Baltimore County, with a slightly lower than median income and a slightly higher nonwhite population fared similarly to Anne Arundel County, which has significantly higher income and lower nonwhite population. Liman Workshop Spring 2015 Holland, Junk Justice

130 Figure 10 Comparison of High Filing Jurisdictions Median Income 149 Race 150 Population Difference from State Non- Difference from State County Income Median White % People 151 Cases Disparity 152 Prince George s County $72,178 1% 74% 35% % Baltimore County $64,814-9% 34% -5% % Baltimore City $39,561-45% 69% 30% % Montgomery County $94,358 32% 36% -3% % Anne Arundel County $84,409 18% 22% -16% % Harford County $78,648 10% 18% -21% % Maryland $71,294 39% However, the general trends in this comparison suggest that race and wealth make a difference: the counties with the fewest proportionate share of lawsuits are richer and less diverse 149 Median Income figures are from the American Communities Survey (ACS), 3 year estimates for MD. DEPT. PLANNING, MEDIAN HOUSEHOLD INCOME IN MARYLAND S JURISDICTIONS (THREE YEAR ACS DATA) , available at _Income_2011.xls. Disparity figures are the percentage deviation from the median income for Maryland. 150 From the 2010 United States Census, complied by the Maryland Department of Planning. INTERCENSAL ESTIMATES, supra note Id. 152 Disparity represents the difference between each jurisdiction s proportion of Maryland s population and that jurisdiction s proportion of the sampled cases. For example, Prince George s County has 15% of the Maryland s population but had 23% of the sampled cases, so the disparity between cases and population is 8%: Prince George s County had 8% more cases than the size of its population indicates it should. Liman Workshop Spring 2015 Holland, Junk Justice

131 than Maryland as a whole. An analysis based on zip codes or census tracts would enable a more detailed comparison of case data with census data. Alternatively, further study specifically dedicated to the disparate impact of debt collection suits would go a long way towards determining whether debt-buyer suits disproportionately affect particular groups. C. Follow-Up As noted above, the rules governing affidavit judgments in Maryland changed on January 1, In order to explore the immediate effects of these changes, a sample size of 100 cases filed after January 1, 2012, was analyzed using the same protocol as for the original study. 154 Of the 100 follow-up cases gathered, 83 resulted in a final outcome, of which 55 (66%) were judgments against the Defendant. Analysis of this limited sample suggests limited changes following the introduction of the new rules. First, the new sample had a larger dollar value on average, while the amount of the judgment was smaller on average. Specifically, while the original sample had an average complaint amount of $2,993, in the follow-up it was $3,248. In the original sample, the average total judgment was $3,323, but in the followup it was $2,594. Part of this change may be accounted for by a substantial drop in awards of interest and attorneys fees, which is a direct result of the new Rule Pre-judgment interest was awarded in 67% of judgments in the original sample, but only 25% in the follow up sample, while awards of attorneys fees dropped from 28% in the original sample to 13% in the follow-up sample. Second, the follow-up shows an increase in the proportion of affidavit judgments, from 55% of served cases with outcomes from the original sample, to 63% of similar cases in the follow up 153 See supra note 71 and accompanying text. 154 Due to the consolidation that has occurred in the industry, only 5 of the original debt buyers had sufficient numerous filings to sample in 2012: Pasadena Receivables, Midland Funding, Cavalry Portfolio, Asset Acceptance and Portfolio Recovery Associates. The cutoff date for gathering data for this sample was November 15, Liman Workshop Spring 2015 Holland, Junk Justice

132 sample. 155 This is somewhat puzzling, given the increased requirements of the new rules. It is possible that the result is an artifact of other changes and not a real increase in the frequency of default judgments. Likewise, it could mean that the cases filed under the new rules are of a better quality. The increase corresponded with a drop in Rule dismissals. The proportion of cases active was also higher in the follow-up than in the original sample. This suggests that some cases in the follow-up will be dismissed eventually. At the time of sampling, there were simply too many possible influences on the affidavit judgments to draw firm conclusions regarding the impact of the new rules. Third, more defendants defended themselves in the follow-up: 24% of defendants who were served filed a Notice of Intention to Defend in the follow-up, compared with only 15% in the original sample. It is, however, difficult to relate this development to the new affidavit judgment rule. The increased filings of Notices of Intent to Defend may be a result of generally increased awareness about the flaws of debt buyer lawsuits, or the fact that there is now a formal pro bono legal assistance program in effect to defend debt buyer lawsuits, or due to other factors. Finally, several metrics showed no significant change in the follow-up: the rate of service, geographical distribution of cases, attorney representation 156 and proportion of bankruptcy filings. 155 The proportion of cases served was the same in both samples: 76%. 156 Because representation is so rare, as shown by the original sample, a larger follow-up would be required to state with any certainty that attorney representation was unchanged. In addition to the nascent emergence of a formal pro bono representation program in debt buyer cases, the District Court in partnership with the Maryland Legal Aid Bureau has also created and rapidly expanded a Self-Help Center that has provided assistance to literally tens of thousands of pro se litigants, many of whom are defending debt buyer lawsuits. A 2012 University of Maryland study of the Self-Help Center concluded that There was also evidence, drawn from analyses of case event data obtained from the Judiciary s management information system, suggesting that cases involving clients of the Center, when compared with cases involving selfrepresented litigants who did not receive Center services, showed greater understanding and engagement of litigants about the case, and improved chances for judgments being based on merits and rights, rather than default. Evaluation of the Glen Burnie District Court Self-Help Center, UNIV. OF MD. INST. FOR GOVERNMENTAL SERV. AND RESEARCH, (last updated Feb. 18, 2014). Liman Workshop Spring 2015 Holland, Junk Justice

133 III. ANALYSIS The following three sections contain an analysis of the findings described in Part II. Section A describes the implications for providing legal assistance or representation to consumers sued by debt buyers. Section B compares the findings of this study with those of four other studies. A. The Importance of Representation Figure 5 shows that consumers sued by a debt buyer have the worst outcomes when they do nothing and the best outcomes when they are represented by an attorney. When consumers did nothing, the cases against them were dismissed about 20% of the time. In contrast, the less than 2% of defendants who had a lawyer achieved a dismissal rate of about 70%. Although Maryland has over 30,000 lawyers (22,500 of whom are in private practice), 157 in , only thirty-eight attorneys represented consumers in a total of fifty-two of the 4,400 cases sampled. Extensive state funding for the representation of such defendants is unlikely under current budgetary conditions. Avenues for improving representation and access to justice have been explored by the Maryland Access to Justice Commission including fee shifting, 158 the implementation of a right to counsel in civil cases, 159 and unbundled legal assistance for self-represented litigants. 160 A recent study by James Greiner and Cassandra Patta- 157 The ABA estimates 23,000 lawyers were practicing in Maryland as of 2013, and about 75% of these were in private practice. MKT. RESEARCH DEP T, AM. BAR ASS N, NATIONAL LAWYER POPULATION BY STATE (2013), available at cdocuments/2013_natl_lawyer_by_state.authcheckdam.pdf. 158 Md. Access to Justice Comm n, Fee Shifting to Promote the Public Interest in Maryland, 42 U. BALT. L.F. 38 (2011). The Commission s proposals focused on one-way fee shifting to support plaintiffs in civil rights and similar cases, however, the resulting bill was unsuccessful in the legislature. MD. ACCESS TO JUSTICE COMM N, ANNUAL REPORT 2012, 9-10 (2012) [hereinafter MD. ACCESS TO JUSTICE REPORT], available at MD. ACCESS TO JUSTICE REPORT, supra note 158, at Id. at 1-4. Liman Workshop Spring 2015 Holland, Junk Justice

134 nayak examines the impact of representing people pro bono. 161 Although it was not the main purpose of this study to explore this question, some of the results of this study are relevant to that debate. The proceedings of the District Courts of Maryland are very different from the subject-specific proceedings that the Greiner study examined, and as the authors noted, the nature of both the subject matter and the forum may mean that their results are not generally applicable. 162 Reflecting on that study, Jeff Selbin and several colleagues have suggested that more attention should be paid to where and at what point in the process limited legal assistance resources should be tapped. 163 The instant study clearly shows that consumer defendants had better outcomes when a lawyer appeared in their case. However, the primary purpose of this study is not to demonstrate the value of representation, but rather to demonstrate what occurs in its absence. As noted in Part II.B.5 above, the data regarding settlements suggests that in many cases, defendants who settle are as badly off as those who are subjected to judgments. The problem of settlements arose at the FTC/CFPB roundtable on The Life Cycle Of A Debt. Thomas Lawrie, a Maryland Assistant Attorney General made the point that contact between debt-collecting attorneys and unrepresented defendants provides collecting attorneys with an opportunity to push defendants to settle on terms they do not understand and cannot afford. 164 Unsustainable set- 161 D. James Greiner & Cassandra Wolos Pattanayak, Randomized Evaluation in Legal Assistance: What Difference Does Representation (Offer and Actual Use) Make?, 121 YALE L.J (2012). 162 Greiner and Pattanayak used the Harvard Legal Aid Bureau s work in unemployment insurance cases. In explaining their results, the authors thought that self-representation may have been easier in this particular type of case, and that the administrative law judges hearing the cases may have compensated for the disadvantages of self-representation. Id. at Jeffrey Selbin, Jeanne Charn, Anthony Alfieri & Stephen Wizner, Service Delivery, Resource Allocation, and Access to Justice: Greiner and Pattanayak and the Research Imperative, 122 YALE L.J. ONLINE 45 (2012), A study addressing this question is currently under way led by Dalié Jiménez and James Greiner. Dalié Jiménez, D. James Greiner, Lois R. Lupica & Rebecca L. Sandefur, Improving the Lives of Individuals in Financial Distress Using a Randomized Control Trial: A Research and Clinical Approach, 20 GEO. J. ON POVERTY L. & POL Y 449 (2013). 164 Patrick Lunsford, ARM Data Exchange Standards Focus of FTC/CFPB Collection Roundtable, INSIDEARM.COM, (June 7, 2013), Liman Workshop Spring 2015 Holland, Junk Justice

135 tlements are likely to merely delay, rather than prevent, judgments. Further study would be required to determine exactly what terms defendants in these cases generally receive, whether they understand the terms of their settlements, and whether they are in fact able to fulfill those terms. One obvious solution would be to have a standard form settlement agreement that is realistic and fair, and which provides that an alleged breach of the agreement should be met with a motion to enforce the terms of the settlement, rather than a default judgment in the full amount sued for. B. Comparison with Other Studies Figure 11, below, sets out three key metrics gathered in this and previous studies of debt buyer cases: (1) the percentage of defendants who did not respond to the debt collection complaint; (2) the percentage of defendants who were represented; and (3) the percentage of cases which resulted in judgments against defendants, together with the sample size and years in which the data were gathered. The results show some clear trends, but also large disparities. Some of these disparities can be explained by methodological differences between the studies. However, some disparities can only be explained as real differences in the lawsuits studied. These differences might arise because of the circumstances at the time of each study, differences between the geographical areas studied, or the impact of differing law and procedure in the jurisdictions studied. Liman Workshop Spring 2015 Holland, Junk Justice

136 Figure 11 Comparison of Key Results Defendant failed to respond Defendant represented Judgments Overall Sample Size Year Studied This Study 85% < 2% 73% Spector Study % 10% 44% Fox Study % 4% 81% Debt Deception Study 170 0% 94% Debt Collection Racket Study %-82% 2% 38-62% , Consumers in Trouble % 11-30% 91-92% Bezdek Study % 0.18%-2.8% This number is the sum of affidavit, default, consent and trial judgments,. See supra Figure As mentioned earlier, out of the 4,400 case sample, only 2,947 (76%) involved cases where the complaint was served on the defendant, and the case reached final disposition. 167 Spector, supra note 93, at , Fox, supra note 12, at 377, 381. Fox s figures do not account for defendants who were not served, so the true rate of default is higher. In addition, Fox s figure of 83% for non-response is that for total non-response. Many of the responses were technically inadequate and may have been rejected by the Court. 169 This figure is the aggregate of default, summary and consent judgments. Id. at WILNER & SHEFTEL-GOMES, supra note 37, at 8. The study did not provide a figure for failure to respond complaints and observed no represented defendants. 171 SHIN & WILNER, supra note 89, at 5-6. Note that these statistics varied by jurisdiction. The sample included basic information from all civil collection suits filed in New York. Id. 172 These figures represent the range of default judgment percentage across New York jurisdictions. No figure is available in this study for nondefault judgments. 173 CAPLOVITZ, supra note 23, at 215, The ranges given are the ranges observed as between the cities in which court actions were studied: New York, Detroit and Chicago. Liman Workshop Spring 2015 Holland, Junk Justice

137 The clearest trend, repeatedly highlighted in the literature, is that defendants often do not respond to collection suits. 175 This has been recognized by industry and consumer advocacy at least since the FTC s roundtable discussions, leading to its Broken System report. 176 The evidence suggests that the rate of default is approximately 80-90%. 177 Comparison with the Baltimore rent court study shows that failure to appear extends beyond consumer credit collection cases to rent cases. More recent figures from elsewhere in the country suggest that tenant defendants fail to appear just as often as the debt buyer defendants in this study. 178 This is significant because of the high stakes involved in rent cases, in which tenants stand to lose, literally, the roof over their heads. Despite the increased stakes, it appears that rent court defendants are no more likely to defend themselves in court than the people who are sued by debt buyers. This suggests that coercing defendants to attend and participate in court by raising the stakes (for example, through the creditor s contempt discussed by Shepard) is not effective. 174 Bezdek, supra note 108. This study is unlike the others because it concerns actions based on rent and some of the figures are not directly comparable. The range given for representation represents two figures 0.18% is the representation rate based on court files and 2.8% the rate at which defendants reported receiving legal advice. Id. at 556, n A lack of debtor participation came to be a central theme of the Life of A Debt roundtable held by CFPB and FTC in June Lunsford, supra note BROKEN SYSTEM, supra note 8, at 7, n.18 ( There was a broad consensus among roundtable panelists that relatively few consumers who are sued for alleged unpaid debts actually participate in the lawsuits panelists from throughout the country estimated that sixty percent to ninety five percent of consumers debt collection lawsuits result in defaults, with most panelists indicating that the rate in their jurisdiction was close to 90%. ). 177 See supra Figure See, e.g., WILLIAM E. MORRIS INST. FOR JUSTICE, INJUSTICE IN NO TIME: THE EXPERIENCE OF TENANTS IN MARICOPA COUNTY JUSTICE COURTS 2 (2005), available at P pdf (less than 20% of defendant-tenants appeared); KAREN DORAN, JOHN GUZZARDO, KEVIN HILL, NEAL KITTERLIN, WENGFENG LI & RYAN LIEBL, LAWYERS COMM. FOR BETTER HOUS., NO TIME FOR JUSTICE: A STUDY OF CHICAGO S EVICTION COURT 4 (2003) (56% of defendant tenants appeared), available at That these rates differ widely suggests that just because the case is high stakes for the individual they are not necessarily more likely to participate in the case than in lower stakes cases. Liman Workshop Spring 2015 Holland, Junk Justice

138 Lack of legal representation is another clear trend. Rates of attorney representation of defendants in debt buyer cases vary from 0% to 10%. Although representation rates are uniformly low, the variation between studies is extremely high: the Spector study suggests that five times as many defendants are represented in these cases in Texas as compared to Maryland or New York. 179 Again, Spector s figures may represent a difference in forum or economic conditions. While the rate at which consumers do not respond to the lawsuit is uniformly high, actual rates of default judgment varied widely, from 38% to 81%, across all jurisdictions and studies. The New York studies accounted for both the highest and the lowest rate, depending on jurisdiction and date. 180 Various results across jurisdictions may reflect socioeconomic differences. As both New York studies observe, and as has been true at least since the 1970s, debt collection is concentrated in poor areas, and falls disproportionately on minorities. 181 Figure 12 Default Judgment Rates by County Cases Served Affidavit Judgments Rate of Default Judgment (All cases) Rate of Default Judgment (Served cases) County Cases Prince George s % 59% Montgomery % 63% Baltimore County % 59% Baltimore City % 39% 179 See supra Figure Compare WILNER & SHEFTEL-GOMES, supra note 37, at 8 (highest) with SHIN & WILNER, supra note 89, at 6 (default judgment rate for New York City Civil Courts, lowest). 181 See supra note 114 and accompanying text. Collectors have also been accused of intentionally targeting the poor, an allegation which they deny. Suein Hwang, Once-Ignored Consumer Debts Are Focus of Booming Industry, WALL ST. J., Oct. 25, 2004, Liman Workshop Spring 2015 Holland, Junk Justice

139 Figure shows the rate of affidavit judgments in the four Maryland counties for which the most claims were recorded. Montgomery County and Baltimore County are more affluent areas, 183 while Prince George s County and Baltimore City are less affluent with higher minority populations. Yet Baltimore City has the lowest rate of default judgment and Montgomery the highest. Baltimore City defendants appeared less frequently than those in Montgomery and Prince George s and as frequently as those in Baltimore County. The difference in rates cannot be explained as a result of case loads, affluence or the willingness of defendants to defend themselves. The likely explanation is that there are differences in judicial attitude. While some judges might believe that a failure to respond weighs heavily in favor of entry of a default judgment, the rules for granting affidavit judgment suggest otherwise. The law requires that before a judge may enter affidavit judgment, the debt buyer, like any other plaintiff, must present supporting documentation, plus an affidavit that affirmatively shows that the affiant is competent to testify to the matters asserted, that the affiant has personal knowledge of those matters, and that the affidavit is based on admissible evidence. 184 One surprising finding is that between the time of the Caplovitz Consumers in Trouble study and the today, rates of defendant participation and representation appear to have dropped, while at the same time courts have become progressively less willing to grant default judgments. This may reflect a difference in methodology: Caplovitz s rates were based on interviews with defendants, and he counted those who received advice from a lawyer, 185 while this and other modern studies detect only cases in which a lawyer has actually entered an appearance on behalf of the defendant in the court records. The reason for the failures to appear remain a mystery that will no doubt attract future study. In debt buyer cases, one of the most common problems is that defendants do not recognize 182 Using the sample data gathered in this study. 183 For readers unfamiliar with Maryland geography, Baltimore County and Baltimore City are distinct jurisdictions. The Baltimore City jurisdiction occupies a roughly square area of 92 square miles centered on downtown Baltimore. Baltimore County surrounds Baltimore City and stretches north to the Pennsylvania border, occupying 682 square miles. 184 MD. R Id. at For Caplovitz s methodology, see id. at Liman Workshop Spring 2015 Holland, Junk Justice

140 the name of the plaintiff or the amount for which they are being sued. 186 Further, most of the debts involved are unsecured credit card debts, which are not associated with any particular object. This disconnection, combined with the general lack of personal involvement in modern consumer credit already noted above, may be a significant cause of defendant default. This suggestion may seem at odds with the results of Bezdek s 1992 rent court study. As noted, defendants failed to appear just as often 20 years ago in Baltimore City rent court as they do in the contemporary collection courts studied in this article. 187 Surely being subjected to eviction from one s home is more serious than being sued on a credit card. This may be so in some respects, but Bezdek found that, at least by the time the tenants reached rent court, the rental relationship was impersonal: there were a few instances of mom-and-pop landlords bringing legitimate claims.... These actions were few and far between. The primary operators in the rent court are a class of business agents Bezdek noted the contrast between the deference accorded to landlords agents in rent court and the impatience the court generally showed towards tenants. 189 Censorious attitudes toward debtors were also reported in 2006 by the Boston Globe, including routine threats of imprisonment. 190 The Globe concluded that [o]ften, debtors are treated with less courtesy than the accused felons in the criminal court across the hall, and their rights are less respected Debt Buyers, OFFICE OF THE MINN. ATTORNEY GENERAL, (last visited Sept. 4, 2013) ( Some people who are sued by debt buyers do not recognize the name of the party who is suing them and ignore the lawsuit. ); WILNER & SHEFTEL-GOMES, supra note 37, at 7 ( People sued by [a debt buyer] are often faced with lawsuits that allege unfamiliar debts, filed by debt buyers whose names they do not recognize. ); Clinton Rooney, Defense of Assigned Consumer Debts, 43 CLEARINGHOUSE REV. 542, 545 (2010) ( [W]hen a debt buyer unknown to the consumer sends a letter claiming to be owed a debt... [t]he consumer likely does not even recognize the name on the envelope. ). 187 See supra Figure Bezdek, supra note 108, at Id. at (noting that landlords and their agents were given some control over the timing of their cases within the rent docket while tenants were forced to wait with no indication when their cases would be called). 190 Healy, supra note Id. Liman Workshop Spring 2015 Holland, Junk Justice

141 Behavior of this kind undermines procedural fairness and damages public trust in the judiciary. 192 Neutrality and respectful treatment are among the key elements of the procedural fairness that our society expects. 193 Too often, courts fall short of this standard in collection cases. When, as the Boston Globe put it, dignity faces a steamroller in the courts, 194 it is perhaps unsurprising that the public lacks confidence in the judicial process and so fails to engage with the courts by filing defenses. Whatever the real reason for default by defendants, and despite the decline in defendant participation and representation, the comparison to Caplovitz s day is in one respect hopeful. Then, the defendant almost invariably suffered a default judgment. 195 Today, a default judgment is no longer a foregone conclusion. Again this change may owe something to the subject matter of these disputes. Back then, most plaintiffs were original creditors suing on installment-type credit agreements, not debt buyers suing upon on open-ended credit card accounts. The difference may simply represent the generally poor quality of debt buyer suits. However, the growing evidence is that the lawsuits filed by original creditors are just as shoddy and poorly documented as those filed by debt buyers. 196 However, it seems more likely that procedural changes 192 The importance of procedural fairness in public confidence in the judiciary was noted in a white paper of the American Judges Association in Kevin Burke & Steve Leben, Procedural Fairness: A Key Ingredient in Public Satisfaction, 44 COURT REV. 5 (2007). 193 Id. at Healy, supra note In over 90% of cases, a default judgment was entered for the Plaintiff. See supra Figure See, e.g., Complaint for Permanent Injunction, Civil Penalties, Restitution, and Other Equitable Relief, People v. JPMorgan Chase & Co., No. BC508466, 2013 WL (L.A. Cnty., Cal. Super. Ct. May 9, 2013) (alleging various debt collection abuses); Consent Order, Order for Restitution, and Order to Pay Civil Money Penalty, In re American Express Bank, FSB, No CFPB-0003 (Consumer Fin. Prot. Bureau Oct. 1, 2012), available at FSB-Consent-Order.pdf (Consent Order between CFPB and American Express for deceptive debt collection practices"); Consent Order, In re JPMorgan Chase Bank, N.A., No , (Office of the Comptroller of the Currency, U.S. Dep t of the Treasury Sept. 18, 2013), available at (settling regulatory action by OCC for abusive debt collection); Mississippi v. JPMorgan Chase & Co., No. 3:2014cv00054 (S.D. Miss. Jan. 22, 2014). Liman Workshop Spring 2015 Holland, Junk Justice

142 since then are largely responsible. When Caplovitz examined his cases, confession of judgment was still possible in consumer cases. In fact, Philadelphia cases were excluded from Caplovitz s analysis of outcomes in court because those cases were all confessions of judgment. 197 Default judgments were entered as a matter of course and without judicial oversight when defendants failed to appear or answer. 198 Today, entry of a default judgment is no longer supposed to be a rubber-stamping exercise which occurs in all cases of default. While data about representation can be found in most of the studies in Figure 11, only Bezdek discusses the impact of representation. She finds representation an unconvincing explanation for the disparity between the success of landlords and tenants. 199 The comparison is somewhat complicated because landlords can be represented by non-lawyers, and these landlords agents are in fact professional representatives. 200 Only a handful of tenants in Bezdek s sample were assisted, three by lawyers, six by friends or relatives. 201 All of them managed to avoid an entirely negative outcome. 202 Bezdek sees this as a sign that it may not be representation per se which improves the tenant s outcome. 203 Unfortunately, informal assistance by nonlawyers was beyond the reach of this study, 204 so the importance of brief advice and assistance compared to full legal representation remains fertile ground for further research. 197 CAPLOVITZ, supra note 23, at Id. at Bezdek, supra note 108, at MD. CODE ANN., BUS. OCC. & PROF (b) (West 2011) (providing that a person... representing a landlord need not be admitted to the Bar; the same exception is conferred to those representing a tenant if the person is a law student or employee of an organization funded by the Maryland Legal Services Corporation). 201 Bezdek, supra note 108, at Id. 203 See id. at 563 ( The fact that the tenants who were assisted by nonlawyer friends or relatives achieved more success than the average tenant invites the speculation that qualities other than legal representation may account for some tenants persistence in court. Qualities such as encouragement... and assistance in presenting [the matter] oneself may account for a more successful hearing.... Perhaps the significance of assistance to tenants... is chiefly the breaking of [the rent court s] rhythm [of landlord-plaintiff claims]. ) 204 Such assistance could only be discovered by interviewing defendants, and perhaps by observing hearings. Liman Workshop Spring 2015 Holland, Junk Justice

143 IV. RECOMMENDATIONS A. Acknowledge That We Have a Shadow System for Collections An adversarial process overseen by a neutral judge is the supposed hallmark of the American justice system. Each side has a lawyer who is a zealous advocate, and a judge presides while a judge or jury determines the facts, applies the law and decides an outcome. Any cracks in the system are supposed to be filled by public defenders, legal aid lawyers, court appointed lawyers, or lawyers who are providing pro bono representation. The reality is quite different. For consumer defendants in collection cases, there is a shadow system which is characterized by a lack of public awareness, a lack of formal rules, a lack of understanding on the part of defendants, and a lack of legal representation. In short, our broken debt collection system is scarcely recognizable to the uninitiated. Before we can move forward, we need to fully accept the fact of just how far the system falls short of traditional notions of due process. B. Restore the Rules of Evidence to Ensure Due Process. Due process concerns are implicated when courts do not require that claims be proved by admissible evidence authenticated by someone with relevant personal knowledge about the evidence being proffered. Debt buyer lawsuits have proliferated because courts have not insisted on this, preferring to wield the rubber stamp rather than engage in the more demanding job of acting as guardians at the gates. Too often, debt buyers do not have admissible evidence to prove that a consumer was ever liable to a bank or that the debt buyer has standing to sue, and do not have reliable evidence to prove damages. Debt buyers often do not have the proof because the banks either did not have it or chose not to transfer it at the time the portfolios of debt were sold. 205 The percentage of default judgments obtained by debt buyers exists because judges have allowed relaxed and informal 205 Holland, supra note 37, at 272; Peter A. Holland, Defending Junk Debt Buyer Lawsuits, 46 CLEARINGHOUSE REV. 12, 14 (2012). Liman Workshop Spring 2015 Holland, Junk Justice

144 procedures originally intended to streamline small-stakes cases brought by self-represented litigants to be used by some of America s most powerful financial services corporations, fully lawyered up, against the very lawyer-less litigants whom small claims procedures were supposed to protect. C. Revisit the Model Rules of Professional Conduct The study of collections lawsuits is largely a study of what happens in the absence of an adversarial system. Because civil litigants do not currently have a right to counsel, the question for the profession becomes whether we are doing the right thing even when nobody is looking. In light of the abundant documentation of litigation abuses, and the knowing sale of junk debt by banks, the legal profession as a whole needs to step up and fix the problems. The Preamble to the Model Rules of Professional Conduct states that lawyers have a special responsibility for the quality of justice. 206 This special duty is partially spelled out in the Model Rules. One such rule is Model Rule 3.3, which prohibits lawyers from knowingly making false statements of fact to a tribunal or failing to correct false statements of fact to a tribunal. 207 The Rule 3.3 problem arises because lawyers for debt buyers refuse or fail to advise the tribunal about the contents of the Purchase and Sale Agreement between the bank and the debt buyer, which often specifically disclaims any warranties (including warranties of title), and which in some cases state that the account balances are only approximate. 208 It is difficult not to conclude that lawyers who represent to a tribunal that there is a precise balance owing, when in fact the balance is only approximate, are engaging in a misrepresentation of material fact or a 206 MODEL RULES OF PROF L CONDUCT pmbl. 1 (2011). 207 Id. at R See supra notes 15, 78 and accompanying text. See also Jeff Horwitz, Bank of America Sold Card Debts to Collectors Despite Faulty Records, AM. BANKER, March 29, 2013, (explaining that the sales contracts between banks and debt buyers often disclaim any representations, warranties, promises, covenants, agreements, or guarantees of any kind or character whatsoever about the accuracy or completeness of the debts records resulting in the sale of claims for balances which are only approximate, that may have already been paid in full or discharged in bankruptcy). Liman Workshop Spring 2015 Holland, Junk Justice

145 failure to correct a previous misstatement of material fact. Comment 2 of Rule 3.3 states that the purpose of the Rule is to avoid conduct that undermines the integrity of the adjudicative process. 209 Comment 7 to the Rule states that in general in a civil case, if necessary to rectify the situation, an advocate must disclose the existence of the client s deception to the court or to the other party. 210 Comment 7 goes on to state that if the Rule were otherwise, the client could in effect coerce the lawyer into being a party to a fraud on the court. 211 Comment 13 to Rule 3.3 states that the advocate must disclose cases of actual perjury by a client regarding a material fact. 212 It is difficult to discern how robosigned affidavits containing forged signatures, or which falsely claim to be based on personal knowledge, do not constitute actual perjury by a client, which are the subject of mandatory disclosure by the client s advocate. Based on this author s anecdotal experience, many debt buyer attorneys report that they don t receive the Purchase and Sales Agreement as part of their file. This is not satisfactory, because to be competent, a lawyer must always investigate the relevant facts and law prior to filing a lawsuit. 213 As stated by one court, in a collection case where an attorney commences suit in so uninformed a manner that he is ignorant even as to what law governs his suit, it cannot be said that he has undertaken a level of review sufficient to satisfy even the most general requirements of attorney conduct It is understandable that as more and more secret Purchase and Sale Agreements become public, the faith of the courts and the public continues to be shaken. In the context of robosigning directed by a foreclosure lawyer, Maryland s highest court recently stated that even the slightest accommodation of deceit or lack of candor in any material respect quickly erodes the validity of the process. 215 Once the procedural validity starts to 209 MODEL RULES OF PROF L CONDUCT R 3.3 cmt. 2 (2011). 210 Id. at cmt Id. 212 Id. at cmt Id. at R Miller v. Upton, Cohen & Slamowitz, 687 F. Supp. 2d 86, 98 (E.D.N.Y. 2009). 215 Attorney Grievance Comm n of Md. v. Dore, 73 A.3d 161, 178 (Md. 2013) (quoting United States v. Shaffer Equipment Co., 11 F.3d 450, 457 (4th Liman Workshop Spring 2015 Holland, Junk Justice

146 erode, the people are then justified in abandoning support for the system in favor of one where honesty is preeminent. 216 It is up to the profession, in an act of self-governance, to restore a system in small claims courts where honesty is preeminent. Debt buyers profit by filing vast numbers of suits that are at best unsubstantiated and at worst fraudulent. They do so with the cooperation of lawyers, who also profit from this behavior. The attitude that all of the known problems of proof in debt buyer cases can be ignored unless a defense is mounted is no longer acceptable. D. Revisit the Model Code of Judicial Conduct The Model Code of Judicial Conduct needs to be updated to reflect the modern reality of self-representation and of sophisticated lawyers running roughshod over self-represented litigants. The Model Code requires impartiality and fairness in general but does not specifically refer to self-represented litigants. 217 The Maryland Code of Judicial Conduct more clearly establishes the power of judges to make reasonable accommodations to ensure that self-represented litigants have the the opportunity to have their matters fairly heard. 218 Comment 2 to Rule 2.6 in Maryland talks about ensuring that self-represented litigants have the right to be heard. 219 These rules assume that there is a self-represented litigant who is participating and wants to be heard. But the problem with debt buyer lawsuits and with small claims in general is that the vast majority of defendants do not show up and ask to be heard. The Rules need to be updated to give judges guidance for appropriate conduct dealing with unrepresented parties in the vast majority of cases where they do not appear in court. One test of our system is what happens when both sides have excellent lawyers who are zealous advocates. But an equal test, which impacts a far greater number of people, is what happens when one side consistently does not have a lawyer (or does not even show Cir. 1993)). 216 Id. 217 MODEL CODE OF JUDICIAL CONDUCT R. 2.2 (2011). 218 MD. CODE OF JUDICIAL CONDUCT R.2.2 cmt. 4 (2010). 219 Id. at R.2.6 cmt. 2. Note, however, that no such comment exists in the ABA Model Code. See MODEL CODE OF JUDICIAL CONDUCT R. 2.6 (2011). Liman Workshop Spring 2015 Holland, Junk Justice

147 up), while the other does. How do we ensure a level playing field amidst so great an imbalance of power? Judges need further guidance in this area to ensure that our system can pass both tests. To that end, the Model Code needs updating. E. Revisit the Law School Curriculum. When they first observe the shadow system, students and practicing lawyers are surprised to discover that there are sometimes court rooms with no judges in them, trials with no witnesses, and hallways filled with lawyers presenting defendants with settlements which are doomed to fail. The surprise comes not only from due process and equal protection concerns, but also from the fact that nobody ever told me about this either in law school or in law practice. The fact that it is unknown and not discussed is precisely what makes it a shadow system. While the philosophical debate over the proper balance between theory and practice in law schools continues, access to a lawyer becomes less and less obtainable for the majority of Americans in the majority of cases. 220 While lack of access to lawyers has many causes, one cause is that students, professors, and even most lawyers are totally unaware of the shadow system. Law students should be exposed to the shadow system early in their law school career. This requires only a few hours of direct courtroom observation, which would not interfere with existing course demands. There would be several immediate benefits to the student, to the academy and to the profession. First, it would break the myth of the adversary system that is assumed throughout law school. Second, it would immediately infuse first year classes with real world issues of legal profession and procedure. Third, it might serve as a deterrent to judicial rubber-stamping and restore some balance to proceedings when judges know that students are watching and reporting back. Fourth, it would inspire more future lawyers to think creatively about how to im- 220 See e.g., Thomas D. Morgan, Foreword: Training Law Students for the Future: On Train Wrecks, Leadership & Choices, 6 U. ST. THOMAS L.J. 297 (2009) (foreword to a symposium issue on the train wrecks that legal education may soon experience ); BRIAN Z. TAMANAHA, FAILING LAW SCHOOLS (2012); I. Richard Gershon, In Ten Years All New Law Schools, 44 U. TOLEDO L. REV. 335 (2013) (suggesting that the creation and destruction of new law schools will drive innovation). Liman Workshop Spring 2015 Holland, Junk Justice

148 prove delivery of legal services to underrepresented client populations, either through pro bono, low bono, fee shifting, counterclaims, or class actions. One of the reasons that appellate cases are valuable as teaching tools is because the lawyers did such a great job in developing the facts and exploring the law. The fact that most people in this country today do not have and cannot afford a lawyer is relevant to our understanding of how the law develops. For example, very few pro se plaintiffs can survive a Motion to Dismiss in this post-iqbal world we now live in. 221 And even if they could, it is impossible for most consumers to bring their disputes to court, because of the Supreme Court s recent jurisprudence about forced arbitration. 222 Early exposure to the shadow system would demonstrate to students that the life of the law is neither logic nor experience; it is both, and the constant struggle to establish the proper balance should begin with students gaining early exposure to the law as it exists for the vast majority of our citizens in the vast majority of cases. F. Adopt Simple, Common Sense Reforms Just as Lord Coke predicted, the sale of causes of action has created confusion and a multiplication in the number of lawsuits. 223 One of the goals of this paper is to spark debate on these and other proposals for reform. Below is a partial list of some common sense reforms. 221 Ashcroft v. Iqbal, 556 U.S. 662 (2009); Patricia W. Hatamyar, The Tao of Pleading: Do Twombly and Iqbal Matter Empirically?, 59 AM. U. L. REV. 553, 629 (2010) (noting that 85% of motions to dismiss on pleading grounds in pro se cases were granted following Iqbal); c.f. Raymond H. Brescia, The Iqbal Effect: The Impact of New Pleading Standards in Employment and Housing Discrimination, 100 KY. L.J. 235 (2011). 222 Jean R. Sternlight, Mandatory Binding Arbitration Clauses Prevent Consumers from Presenting Procedurally Difficult Claims, 42 SW. U. L. REV. 87 (2012) (explaining the hurdles established by Supreme Court arbitration jurisprudence); Beth Davis, Mandatory Arbitration Agreements in Long-Term Care Contracts: How to Protect the Rights of Seniors in Washington, 35 SEATTLE U. L. REV. 213 (2011) (reporting how claims of elder abuse are suppressed by the use of arbitration clauses in long-term care facility contracts in Washington state). 223 See supra note 42 and accompanying text. Liman Workshop Spring 2015 Holland, Junk Justice

149 1. Ban as is sales contracts and require full documentation. If banks do not have the requisite proof to pursue the claims in their own name, they should not be allowed to sell off accounts with full knowledge that the purchaser will use the courts to extract default judgments, despite the fact that there is no adequate data to prove the debt. Arguably, if improvident lending or irresponsible consumer behavior ultimately results in default, then any discretionary lawsuit should be pursued by the bank that was allegedly harmed, not by some unknown investor in claims. But if debts are to be sold, they should be sold whole: complete with all of the information that the bank would need if it were suing in its own name. This requires proof of liability for breach of contract and proof of contract damages. Such proof would include the underlying contract, a running balance on the account, and a breakdown of the principal amount of money borrowed, plus a separate itemization of all interest, all late fees, all over limit fees, all add-on products, all maintenance fees, and any other fees that were added to the principal amount. It is notable that recovery of any fees or interest are limited to those bargained for in the underlying contract, which is missing in almost every debt buyer case. Another option would be to limit any recovery to the amount of the principal amount of the original extension of credit, and to specifically exclude from recovery all finance charges such as interest, late fees and over-limit fees which cannot be proved by a written contract. 2. Require full disclosure of un-redacted forward flow agreements The Purchase and Sale Contracts (also known as Forward Flow Agreements ) between banks and debt buyers must no longer remain secret. For all the cases that are currently in litigation in which the bundle of debt was sold as is with all faults, and with explicit disclaimers of warranty, this fact needs to be widely publicized to the defendants and to the courts. All debt buyer lawsuits should contain a copy either the original Forward Flow Agreement (at forty or more pages this may prove inconvenient) or a link to a website that hosts the specific forward flow agreement which goes with each account. An easy example is the Liman Workshop Spring 2015 Holland, Junk Justice

150 agreement between FIA Card Services, Inc. and CACH, LLC which was highlighted by the American Banker for its explicit disclaimers of warranty, including that the debt may not be owed, may have been discharged in bankruptcy, may be the result of fraud, may not be supported by documentation, and that the balance amount is only approximate. 224 Can lawyers, in their role as public citizens having a special obligation to ensure the quality of justice think of any possible justification for hiding from the tribunal the fact that the bank disclosed at the time of sale that the consumer may not be liable, and that even if liable, that the stated amount of liability is only approximate? 3. Adopt statutes mandating reciprocal fee shifting in consumer contract cases Most consumer contracts for goods or services state that if the creditor files a lawsuit, the consumer must pay all collections costs and all of the creditor s reasonable attorneys fees. Legislatures could adopt a statute that states simply that in a consumer contract, if there is a provision for attorneys fees in the event that the creditor prevails, the provision is reciprocal as a matter of law. Many states have such a statute already. 225 Such a statute incentivizes the private bar to step forth and provide a defense, when a meritorious defense exists. This should have a deterrent effect on the filing of cases that cannot be proven. 4. Provide same day lawyers in the courthouse If the adversarial presentation of evidence and arguments is to survive, 226 we must ensure that legal help is available to those who need it. Persuading defendants to represent themselves will always be difficult if they are forced to navigate a strange and hostile system without sufficient advice or assistance 224 Horwitz, supra note 208; Loan Sale Agreement, supra note Jeffrey C. Bright, Unilateral Attorney s Fees Clauses: A Proposal to Shift to the Golden Rule, 61 DRAKE L. REV. 86, (2012) (noting the different approaches taken by state statutes which require fee-shifting reciprocity). 226 The strength of the adversarial tradition is such that our entire dispute resolution system depends on the integrity of the participants, who seek the truth through an adversarial presentation of evidence and arguments. Attorney Grievance Comm n of Md. v. Dore, 73 A.3d 161, 178 (Md. 2013). Liman Workshop Spring 2015 Holland, Junk Justice

151 from the legal profession. Even if defendants can be convinced to participate in the lawsuits, they will not receive justice without legal help. The defendants in this study who did file a response to the lawsuit (presumably the most committed defendants) fared much worse than those who had a lawyer. At a minimum, consumers sued in collection courts should be able to get some legal advice before they enter what has become the lion s den. To this end, courthouse projects staffed by volunteer or legal services attorneys have proven highly successful in delivering limited unbundled legal advice. 227 While this half a loaf approach is not ideal, it does provide limited ammunition to the astute few selfrepresented litigants who aspire to a fair fight in court. Further, because the evidence in debt buyer cases is inherently shoddy (as evidenced in the as is Forward Flow Agreements) these trials should be easy for a self-represented litigant to win, with a little bit of help and coaching from a lawyer. CONCLUSION This article has provided a window into the opaque world of consumer defaults in debt buyer law suits. Forty years ago, David Caplovitz described the economic condition of consumers who defaulted on their debts to the businesses that had extended them credit. Much of what he observed applies equally to today s defendants in debt buyer lawsuits. Like their counterparts from forty years ago, today s defendants lack adequate health insurance, 228 lack a safety net sufficiently broad to prevent the traumatic financial consequences of sickness or unemployment, 229 and lack the tools to avoid financial scams Maria Aspan, supra note 55 (noting the work of the ProBono Resource Center of Maryland). 228 TERESA A. SULLIVAN, ELIZABETH WARREN & JAY LAWRENCE WESTBROOK, THE FRAGILE MIDDLE CLASS: AMERICANS IN DEBT (2001); Melissa B. Jacoby, Teresa A. Sullivan & Elizabeth Warren, Rethinking the Debates over Health Care Financing: Evidence from the Bankruptcy Courts, 76 N.Y.U. L. REV. 375 (2001). 229 Robert J. Landry, III & Amy K. Yarbrough, Global Lessons from Consumer Bankruptcy and Healthcare Reforms in the United States: A Struggling Social Safety Net, 16 MICH. ST. J. INT L L. 343 (2007). 230 Contemporary concern focuses on payday loans. See, e.g., Marcie Geffner, Payday loans unaffordable, BANKRATE.COM BANKING BLOG (Feb. 22, 2013, 3:00 PM), Liman Workshop Spring 2015 Holland, Junk Justice

152 The bench, the bar and the academy each have a role to play in shining the light onto the shadow system, thereby paving the way to much needed reforms. unaffordable/ (reporting the findings of the Pew Charitable Trust); PEW CHARITABLE TRUSTS, HOW BORROWERS CHOOSE AND REPAY PAYDAY LOANS (2013), available at ll_dollar_loans/pew_choosing_borrowing_payday_feb2013.pdf; Gretchen Morgenson, Find the Loan Behind the Loans, N.Y. TIMES, Sept. 7, 2013, (noting recent pressure by state regulators on online, payday lenders). Liman Workshop Spring 2015 Holland, Junk Justice

153 ARTICLE LITIGATION REFORM: AN INSTITUTIONAL APPROACH STEPHEN B. BURBANK & SEAN FARHANG INTRODUCTION I. THE RISE OF THE LITIGATION STATE II. THE LEGISLATIVE PROJECT OF LITIGATION REFORM A. The Reagan Administration B. Litigation Reform Proposals in Congress C. The Failure of the Legislative Project of Litigation Reform D. The Alternative Pathway of Courts III. THE SUPREME COURT S RESPONSE A. The Existing Literature B. The Justices Votes in Private Enforcement Cases C. Why the Court Succeeded Where Republicans in the Political Branches Failed IV. THE ROLE OF PROCEDURE IN THE MOBILIZATION OR DEMOBILIZATION OF CIVIL LITIGATION A. The Federal Rules, : Opening the Courthouse Door B. Procedure, Litigation, and Litigation Reform: Retrenchment by Rulemaking: A Brief Experiment Changes in the Process of Making Procedural Law by Federal Rule: Lessons in Control Strategy C. Bad Habits Die Hard: D. Procedure and Litigation Reform: Rulemaking as Democratic Legislation: The Stickiness of the Status Quo The New Undemocratic Legislation: Making Procedural Law the Old-Fashioned Way a. The Cases b. The Justices Votes in Federal Rules Private Enforcement Cases (1543) Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform Electronic copy available at:

154 1544 University of Pennsylvania Law Review [Vol. 162: 1543 CONCLUSION APPENDIX A. Models of Support for Litigation Reform Bills in Part II B. Models of Justice Votes in Supreme Court Opinions in Parts III and IV INTRODUCTION This Article is part of an ongoing study of the behavior of American political institutions, including courts, with respect to federal civil litigation. 1 We are particularly interested in litigation that involves statutory private enforcement regimes and other legal provisions that predictably affect incentives and opportunities for access to federal court to enforce federal rights. We believe that, in order to understand the modern history of federal law that affects private enforcement and access to court with respect to federal rights (collectively, private enforcement ), it is necessary to view the salient events in their institutional context, recognizing that the institutions involved are competing to regulate social and economic life in the United States. As part of our inquiry into how interactions and competition among institutions have produced the contemporary state of federal civil litigation and in recognition of the seventy-fifth anniversary of the Federal Rules of Civil Procedure we consider ways in which the federal judiciary has affected private enforcement through control of procedure. In Part I, we briefly discuss previously published evidence showing that, beginning in the late 1960s, when Democrats controlled Congress, there was a change toward greater reliance on private lawsuits to implement federal regulatory law. We highlight evidence that this transformation was rooted in conflict between Congress and the President over control of the bureaucracy, an alternative or supplementary venue to implement regulatory policy. Stephen B. Burbank & Sean Farhang David Berger Professor for the Administration of Justice, University of Pennsylvania Law School. Associate Professor of Political Science and Public Policy, University of California, Berkeley. Omar Madhany, University of Pennsylvania Law School Class of 2014, and Gregory Manas, University of Pennsylvania Law School Class of 2015, provided excellent research assistance. We received helpful comments on a draft from Andrew Bradt, Cornell Clayton, Barry Friedman, Jonah Gelbach, Deborah Hensler, Robert Kagan, Herbert Kritzer, David Marcus, Richard Marcus, Joy Milligan, Alan Morrison, David Shapiro, and Tobias Wolff. 1 We use the phrase litigation reform to denote efforts to reduce opportunities and incentives for private lawsuits. Because our concern is the private enforcement of federal rights, tort reform the most frequent subject of academic attention to litigation reform is outside the scope of this Article. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform Electronic copy available at:

155 2014 Litigation Reform: An Institutional Approach 1545 In Part II, we show that this program of regulation through private litigation soon met opposition primarily from the Republican Party. During President Reagan s first year in office, the administration pressed an ambitious litigation reform proposal that would have restricted attorneys fees available to private parties seeking to enforce over one hundred federal statutes. Although this Reagan administration proposal failed, it signaled the emergence of a movement. Using an original data set of litigation reform bills spanning from 1973 to 2010, we show that the ninety-seventh Congress ( ) occasioned the emergence of litigation reform as a Republican issue in Congress. This campaign for litigation reform among congressional Republicans, like the Reagan proposal, largely failed. So long as Democrats controlled at least one chamber of Congress, Republicans litigation reform proposals had little chance of success. Even when Republicans secured control of both chambers (and for a time concurrently held the presidency), their litigation reform successes were modest and clustered in a few discrete policy areas. Congress proved inhospitable institutional terrain for the Republicans litigation reform agenda. In Part III, we show that the Supreme Court had greater success in the enterprise of litigation reform than did Republicans in the political branches. With an original data set of Supreme Court decisions on private rights of action, standing, attorneys fees, and arbitration, we map the Court s behavior on private enforcement issues from 1970 to The data tell a story of transformation: once highly supportive of private enforcement, the Supreme Court, increasingly influenced by ideology and increasingly conservative, has become antagonistic. We argue that retrenchment through the judiciary achieved important success while failing in Congress because (1) as contrasted with the institutional fragmentation of the legislative process, the Court is governed by a more streamlined decisional process that allows bare majorities to prevail on contentious issues; (2) as contrasted with legislators and Presidents need to pay attention to democratic accountability through elections, federal judges are insulated from both; and (3) as contrasted with the powerful interest group mobilization that is triggered by the stark alternatives that major legislative reform proposals present, the case-by-case, less visible, more evolutionary process of legal change via court decision is far less likely to activate massive group mobilization seeking to block policy change. In Part IV, we turn to the impact of procedure on federal civil litigation reform. This is a lawmaking arena in which the judiciary has long been ceded considerable freedom and power exercised primarily through the Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform Electronic copy available at:

156 1546 University of Pennsylvania Law Review [Vol. 162: 1543 promulgation of prospective, legislation-like rules of court. Starting in 1938 and at least until the 1970s, court rulemaking was a potent means to affect private enforcement, and prior to the 1980s the Federal Rules of Civil Procedure ( Federal Rules ) were litigation-friendly, and hence private enforcement friendly. Federal court rulemaking started to engender serious controversy in the 1970s with the proposed Federal Rules of Evidence, and the controversy spread to the criminal and civil rules. We show that members of Congress, urged on by individuals and groups with different grievances (some of which had ideological and partisan valence), were concerned (1) that the rulemaking process was insufficiently inclusive and transparent; (2) that the rulemakers were paying inadequate attention to the Rules Enabling Act s prohibition against abridging, enlarging, or modifying substantive rights; and (3) that as a result, Congress was devoting too much time to rulemaking controversies. Chiefly through oversight hearings, these members of Congress pressured the federal judiciary to open up the process, and some of the process reforms, including a requirement of open meetings, were codified in They have made it more difficult to use the rulemaking process for major civil litigation reform. Hence, just as the Supreme Court has been more successful in constricting private enforcement through decisions than Congress has been through legislation, so too, we argue, has the Court s power to make procedural law constraining private enforcement through decisions specifically its power to interpret Federal Rules been more consequential than its power to promulgate Federal Rules. Two of the most striking examples of this phenomenon, where the turn to decisional law seems clearly linked to the constrained state of rulemaking, are the Court s 2007 and 2009 pleading decisions. Finally, just as ideology has had an increasing influence on the Justices votes and the Court s decisions on private rights of action, attorneys fees, standing, and arbitration, so has it had an increasing influence on cases involving the Federal Rules. Ideology played a comparatively modest (although statistically significant and substantively important) role in the Justices voting behavior prior to Now, however, it appears to have a stronger influence on the Justices in Federal Rules cases supposedly the heartland of procedure than it has in cases presenting issues more obviously connected to substantive law. 2 2 See infra text accompanying notes Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

157 2014 Litigation Reform: An Institutional Approach 1547 I. THE RISE OF THE LITIGATION STATE In 2013, private parties filed about 170,000 federal lawsuits to enforce federal statutes, spanning the waterfront of federal regulation. 3 Although Congress has relied on private litigation to enforce federal statutes since the rise of the federal regulatory state in the late 1880s, the frequency with which it has done so exploded in the late 1960s. From a rate of 3 lawsuits per 100,000 population in 1967 a rate that had been stable for a quarter century it increased by about 1000% over the following three decades (reaching 13 by 1976, 21 by 1986, and 29 by 1996). 4 Despite much vitriolic rhetoric (typically focused on tort litigation), serious empirical scholars have not established that there was a litigation explosion across American court systems as a whole during this period. 5 There was, however, an unmistakable explosion of private lawsuits to enforce federal statutes. 6 We emphasize two things about this phenomenon: First, it has resulted substantially from self-conscious choices of statutory design by members of Congress seeking to mobilize private enforcers. Second, among the multiple factors that led to these choices, 7 Congress s growing distrust of bureaucracy under leadership that it regarded as increasingly hostile to its policy goals was particularly important. It is a legislative choice to rely on private litigation in statutory implementation. In Title VII of the Civil Rights Act of 1964, for example, Congress decided to make the prohibition against job discrimination enforceable in court by including an express private right of action. When Congress chooses to rely on private enforcement, it faces a series of additional statutory design choices that together have profound consequences for how much or little private enforcement litigation is actually mobilized. These choices include who has standing to sue, which parties will bear the costs of litigation, what remedies will be available to prevailing plaintiffs, and whether a judge or jury will make factual determinations and assess damages. 3 See ADMIN. OFFICE OF THE U.S. COURTS, FEDERAL JUDICIAL CASELOAD STATISTICS: MARCH 31, 2013 tbl.c-2 (2013), available at Statistics/FederalJudicialCaseloadStatistics/2013/tables/C02Mar13.pdf. 4 See SEAN FARHANG, THE LITIGATION STATE: PUBLIC REGULATION AND PRIVATE LAWSUITS IN THE U.S. 15 (2010). 5 See, e.g., Marc Galanter, Reading the Landscape of Disputes: What We Know and Don t Know (and Think We Know) About Our Allegedly Contentious and Litigious Society, 31 UCLA L. REV. 4, (1983); Marc Galanter, Real World Torts: An Antidote to Anecdote, 55 MD. L. REV. 1093, 1103 (1996). 6 See, e.g., FARHANG, supra note 4, at The literature addressing other factors is discussed in Stephen B. Burbank, Sean Farhang & Herbert M. Kritzer, Private Enforcement, 17 LEWIS & CLARK L. REV. 637, 645 (2013). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

158 1548 University of Pennsylvania Law Review [Vol. 162: 1543 We refer to this system of rules as a statute s private enforcement regime. 8 In Title VII, as amended in 1991, Congress sought to ensure active use of the private right of action by supplementing attorneys fee awards with, in certain cases, compensatory and punitive damages and the right to trial by jury. By design, Title VII is among the most litigated statutory provisions in federal court. 9 Figure 1: Private Enforcement Regimes, , and Private Statutory Litigation Rates, Figure 1 supports our claim that the growth in private litigation enforcing federal statues is a function of statutory design. The solid line reflects the cumulative number of fee-shifting provisions and damages enhancements (double, triple, or punitive) attached to private rights of action existing in federal statutory law in each year from 1933 to The line reflects the structural environment of private enforcement regimes in existence annually. The dashed line is the annual rate, per 100,000 population, of private federal statutory enforcement litigation (it is only possible to distinguish privately 8 See FARHANG, supra note 4, at See id. at , Id. at 66. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

159 2014 Litigation Reform: An Institutional Approach 1549 from governmentally filed actions beginning in 1942). The strikingly close association between these two variables, and particularly the coincident sharp upward shift in both at the end of the 1960s, reinforces the significance of legislatively designed private enforcement regimes in mobilizing private litigants and creating the modern litigation state. 11 Congress s choice of whether and how much to rely on private enforcement of statutory mandates must be understood in an institutional context. The primary alternative is to empower and fund administrative authorities to perform that enforcement function. 12 Conflict between Congress and the President over control of the bureaucracy is a perennial feature of the American state, and this creates incentives for Congress, seeking an alternative or supplement to bureaucracy, to provide for enforcement via private litigation. This incentive increases with the degree to which Congress distrusts the President to use the bureaucracy to carry out statutory mandates. 13 Private enforcement is thus a form of insurance against the President s failure to use the bureaucracy to carry out Congress s will. This reason to choose private enforcement has become much more significant to American public policy since the late 1960s, when divided party control of the legislative and executive branches became the norm and relations between Congress and the President became more antagonistic. In the first sixty-eight years of the twentieth century, the parties divided control of the legislative and executive branches 21% of the time. In the subsequent thirty-two years (from Richard Nixon through George W. Bush), the figure was 81%. Growing ideological polarization between the parties exacerbated the institutional antagonism arising from divided government. 14 Both quantitative and qualitative empirical scholarship have demonstrated that these political institutional conditions were critically 11 For a discussion of the data underlying Figure 1, see id. at 3-18, See generally Morris P. Fiorina, Legislative Choice of Regulatory Forms: Legal Process or Administrative Process?, 39 PUB. CHOICE 33 (1982); Margaret H. Lemos, The Consequences of Congress s Choice of Delegate: Judicial and Agency Interpretations of Title VII, 63 VAND. L. REV. 363 (2010); Matthew C. Stephenson, Legislative Allocation of Delegated Power: Uncertainty, Risk, and the Choice Between Agencies and Courts, 119 HARV. L. REV (2006). 13 See FARHANG, supra note 4, at 36-37; see also THOMAS F. BURKE, LAWYERS, LAWSUITS, AND LEGAL RIGHTS: THE BATTLE OVER LITIGATION IN AMERICAN SOCIETY (2002); ROBERT A. KAGAN, ADVERSARIAL LEGALISM: THE AMERICAN WAY OF LAW (2001); R. SHEP MELNICK, BETWEEN THE LINES: INTERPRETING WELFARE RIGHTS 49 (1994); R. Shep Melnick, From Tax and Spend to Mandate and Sue: Liberalism After the Great Society, in THE GREAT SOCIETY AND THE HIGH TIDE OF LIBERALISM 387, (Sidney M. Milkis & Jerome M. Mileur eds., 2005). 14 See NOLAN MCCARTY, KEITH T. POOLE & HOWARD ROSENTHAL, POLARIZED AMERICA: THE DANCE OF IDEOLOGY AND UNEQUAL RICHES 194 (2006); Gary C. Jacobson, Partisan Polarization in Presidential Support: The Electoral Connection, 30 CONGRESS & PRESIDENCY 1, 3-4 (2003). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

160 1550 University of Pennsylvania Law Review [Vol. 162: 1543 important in causing the greater congressional reliance on private litigation to enforce federal statutes that is reflected in Figure Moreover, it is important to the story we tell that the chief configuration was Democratic Congresses facing Republican Presidents in the years of divided government from Richard Nixon s assumption of office through the end of George W. Bush s presidency. Thus, the Democratic Party, with its stronger propensity to undertake social and economic regulation 16 and with liberal public interest groups occupying a critical position in the party coalition, predominately controlled Congress. 17 This legislative coalition largely faced an executive branch in the hands of the Republican Party, a party more likely to oppose social and economic regulation and for which business groups are a core constituency. 18 If antagonism between Congress and the President encourages private enforcement regimes, this will be especially consequential when the more regulation-prone Democratic Party controls Congress and the less regulation-prone Republican Party controls the presidency. The bulk of the foundation for the litigation state was laid under this configuration of divided government. 19 Although the genesis and growth of the litigation state have received extensive attention in recent years, we take up the little-studied responses that they have elicited from partisan and ideological adversaries and those seeking to serve different institutional interests. Especially little attention has been paid to the phenomenon that is central in the second half of this Article: how the trans-substantive Federal Rules of Civil Procedure have become a site of struggle and contest by interest groups, legislators, rulemakers, and judges who seek to control the procedural playing field on which private enforcement proceeds, thereby influencing its volume and effects See generally FARHANG, supra note 4; Sean Farhang, Legislative-Executive Conflict and Private Statutory Litigation in the United States: Evidence from Labor, Civil Rights, and Environmental Law, 37 LAW & SOC. INQUIRY 657 (2012). 16 See generally KEITH T. POOLE & HOWARD ROSENTHAL, CONGRESS: A POLITICAL-ECONOMIC HISTORY OF ROLL CALL VOTING (1997). 17 See MARTIN SHEFTER, POLITICAL PARTIES AND THE STATE: THE AMERICAN HISTORICAL EXPERIENCE (1994); DAVID VOGEL, FLUCTUATING FORTUNES: THE POLITICAL POWER OF BUSINESS IN AMERICA (1989) [hereinafter VOGEL, FLUCTUATING FORTUNES]; David Vogel, The New Social Regulation in Historical and Comparative Perspective, in REGULATION IN PERSPECTIVE: HISTORICAL ESSAYS 155, (Thomas K. McCraw ed., 1981). 18 See, e.g., VOGEL, FLUCTUATING FORTUNES, supra note 17, at See generally Sean Farhang, Regulation, Litigation, and Reform, in THE POLITICS OF MAJOR POLICY REFORM IN POSTWAR AMERICA (Jeffrey A. Jenkins & Sidney M. Milkis eds.) (forthcoming 2014), available at 20 An exception is Sarah Staszak, Institutions, Rulemaking, and the Politics of Judicial Retrenchment, 24 STUD. AM. POL. DEV. 168 (2010), which considers rulemaking among litigation reform responses to the growth of the litigation state. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

161 2014 Litigation Reform: An Institutional Approach 1551 Surveying these responses requires that we traverse multiple institutional sites of conflict over the scope and trajectory of the litigation state. II. THE LEGISLATIVE PROJECT OF LITIGATION REFORM A. The Reagan Administration By the late 1970s and early 1980s, a deregulatory movement was afoot, primarily catalyzed by businesses, trade associations, state and local officials, and newly emergent conservative public interest groups. President Reagan came to power on the wave of this movement. It was clear that regulatory reform was high on the policy agenda from the outset of his administration. 21 Leaders of the Reagan administration well understood that private enforcement of federal regulatory statutes had been growing steeply, and they saw it as an obstacle to their regulatory reform agenda. Statutory provisions that forced business and government to pay the attorneys fees of plaintiffs who launched invasive, disruptive, and costly lawsuits were a particular target of criticism. Conservative activists and leading business associations also believed that liberal public interest groups used litigation and courts to shape the substantive meaning of the new social regulatory statutes to their liking, thereby making regulatory policy that was injurious to the interests of business and government. 22 Conservative activists and business associations mobilized and collaborated in forming a number of public interest law groups to pursue an agenda focused, in part, on limiting the new social regulation. 23 Reagan s close associates, including high-ranking members of his California gubernatorial administration who followed him to the White House, were instrumental in founding this movement. 24 Indeed, litigation by liberal public interest groups against the Reagan gubernatorial administration provoked members of his administration to establish the first conservative public interest law 21 See Thomas O. McGarity, Regulatory Reform in the Reagan Era, 45 MD. L. REV. 253, 261 (1986); see also Karen O Connor & Lee Epstein, Rebalancing the Scales of Justice: Assessment of Public Interest Law, 7 HARV. J.L. & PUB. POL Y 483, (1984). See generally Jefferson Decker, Lawyers for Reagan: The Conservative Litigation Movement and American Government, (2009) (unpublished Ph.D. dissertation, Columbia University), available at docview/ ?accountid= See STEVEN M. TELES, THE RISE OF THE CONSERVATIVE LEGAL MOVEMENT: THE BATTLE FOR CONTROL OF THE LAW (2008); Michael S. Greve, Why Defunding the Left Failed, PUB. INT., Fall 1987, at 91, 91; O Connor & Epstein, supra note 21, at ; Decker, supra note 21, at See supra note See TELES, supra note 22, at 60-61; O Connor & Epstein, supra note 21, at 495; Decker, supra note 21, at Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

162 1552 University of Pennsylvania Law Review [Vol. 162: 1543 group in Sacramento the Pacific Legal Foundation which then served as a model for many others. 25 Reagan himself was openly hostile to liberal public interest lawyers, characterizing them in the early to mid-1970s as a bunch of ideological ambulance chasers doing their own thing at the expense of the... poor who actually need help 26 and as working for left-wing special interest groups at the expense of the public. 27 Moreover, he appointed numerous leaders and activists from the emergent conservative public interest law movement to important positions in the federal bureaucracy. 28 These individuals had witnessed the rate of private enforcement lawsuits under federal statutes increase by 352% between Nixon s assumption of office in 1969 and Reagan s in Once in power, they sought to retrench private enforcement, in part, through a legislative project of litigation reform. 30 Attention to litigation reform in the first years of the Reagan administration focused squarely on federal rights, not torts. A 1981 bill capping fees in all federal actions against the government cut across virtually all fields of federal statutory regulation. 31 Also in Reagan s first term, the Justice Department s Office of Legal Policy drafted a proposal that would have, among other things, curtailed fee awards for actions under section 1983, which provides for damages suits against state officials for violating federal rights. 32 Discussion of the proposal elicited further suggestions to eliminate punitive damages and introduce a good faith defense. 33 Tort law was not an issue on the Reagan administration s agenda until 1985, when it made tort reform a policy priority by forming the Tort Policy Working Group. In 1986, the Working Group issued a report calling for a series of 25 See TELES, supra note 22, at 61-62; O Connor & Epstein, supra note 21, at 495; Ronald A. Zumbrun, Life, Liberty, and Property Rights, in BRINGING JUSTICE TO THE PEOPLE: THE STORY OF THE FREEDOM-BASED PUBLIC INTEREST LAW MOVEMENT 41, (Lee Edwards ed., 2004); Decker, supra note 21, at Ronald J. Ostrow, Legal Services Agency Battles Reagan Attempt to Cut Off Its Funding, L.A. TIMES, Apr. 12, 1981, at B1. 27 Decker, supra note 21, at See id. at 155, 238, , 250, See supra Figure In characterizing anti-litigation reform as retrenchment, we follow Sarah Staszak. Although Staszak focused broadly on retrenchment of judicial power and autonomy, we focus narrowly on retrenchment of private enforcement of federal rights. These are different issues. For Staszak, diminution of judicial power over rulemaking would be retrenchment of judicial power even if its effect was to preserve or enlarge the enforcement of rights. See Staszak, supra note 20, at 169, 173. Our concepts of retrenchment are overlapping but distinct. 31 See infra notes and accompanying text U.S.C (2006); see Decker, supra note 21, at Decker, supra note 21, at Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

163 2014 Litigation Reform: An Institutional Approach 1553 reforms, including limits on fees and caps on damages. 34 Litigation reform with respect to federal rights came first for the Reagan administration, and tort reform followed. According to Michael Greve, a conservative legal activist and founder of the Center for Individual Rights, the Reagan administration saw federal statutory private rights of action with attorneys fee awards as an obstacle to deregulation. Conservative activists pursued proposals to curtail fee awards under federal regulatory statutes and to reduce sources of funding for liberal public interest groups as part of a strategy to defund the Left. 35 Private enforcement litigation was a primary obstacle to Reagan s deregulatory agenda because, with little prospect of actually being able to repeal or modify legislative mandates, his principal strategy for effectuating the agenda was to demobilize the administrative regulatory enforcement apparatus. 36 The value of withdrawing administrative enforcement would be weakened if extensive private enforcement continued. Based upon archival research, Jefferson Decker finds that some important members of the Reagan bureaucracy were deeply concerned that private rights of action, coupled with fee shifting in the new social regulatory statutes, were producing a state-sponsored, private governing apparatus that was beyond the control of the elected branches. 37 Advocates of retrenching private enforcement recognized that the proliferation of fee-shifting provisions in the 1970s had produced a private enforcement infrastructure not just among liberal public interest groups, but also, more significantly, among the for-profit American bar. Our own archival research reveals that this trend became an important concern among advocates of retrenching private enforcement, articulated repeatedly in support of an administration legislative proposal to cap fee awards. Michael Horowtiz, general counsel of the Office of Management and Budget (OMB), played a leading role in developing the fee-cap proposal. In 34 John J. Farley, III, Robin Hood Jurisprudence: The Triumph of Equity in American Tort Law, 65 ST. JOHN S L. REV. 997, (1991); Paul Taylor, The Federalist Papers, The Commerce Clause, and Federal Tort Reform, 45 SUFFOLK U. L. REV. 357, 358 n.5 (2012). Professor Yeazell notes that President Carter proposed civil litigation reform in 1978, advocating alternative dispute resolution, no-fault auto insurance and divorce regimes all rational, government-sponsored alternatives, but that [n]othing happened, and no subsequent Democrat has taken up that banner. Stephen C. Yeazell, Unspoken Truths and Maligned Interests: Political Parties and the Two Cultures of Civil Litigation, 60 UCLA L. REV. 1752, (2013). 35 See generally Greve, supra note See FARHANG, supra note 4, at ; ROBERT E. LITAN & WILLIAM D. NORDHAUS, REFORMING FEDERAL REGULATION (1983); VOGEL, FLUCTUATING FORTUNES, supra note 17, at ; Farhang, supra note 19; Greve, supra note 22, at ; McGarity, supra note 21, at See Decker, supra note 21, at 181. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

164 1554 University of Pennsylvania Law Review [Vol. 162: 1543 a 1983 memo discussing the problem that the proposal sought to address, Horowitz explained, Not only the public interest movement but, more alarmingly, the entire legal profession is becoming increasingly dependent on fees generated by an open-ended private Attorney General role that is authorized under more than 100 statutes, a large portion of which were enacted in the 1970s. 38 Writing to OMB Director David Stockman, Horowitz characterized the fee-cap bill as designed in part to bar fee awards to entrepreneurial attorneys who now engage in contingency litigation under federal statutes. A literal industry of public interest law firms has developed, he continued, as a result of the legal fee awards with such groups regarding attorney s fees as a permanent financing mechanism, and one central to their commercial viability and business model. 39 John Roberts, then working for the Reagan Justice Department, was another active participant in deliberations over the fee-cap bill. 40 Notwithstanding differences of opinion within the administration about the political wisdom of pursuing the bill, Roberts joined those advocating for it. In explaining why, he stated, This legislation will, of course, be opposed by the self-styled public interest bar, but the abuses that have arisen in the award of attorney s fees against the government clearly demand remedial action. 41 Antonin Scalia also endorsed the fee bill. Writing as a University of Chicago law professor and editor of the conservative Regulation magazine (just months before his appointment to the D.C. Circuit), he argued that recent D.C. Circuit pro-fee award decisions were a bad dream in need of the administration s legislative remedy and that the bill would surely be opposed by the private attorney general industry. 42 As we shall see, Roberts and Scalia would become among the most anti private enforcement Justices on the modern Supreme Court. 38 Memorandum from Mike Horowitz to Dick Hauser & Bob Kabel (June 16, 1983) (on file with the Ronald Reagan Presidential Library). 39 Memorandum from Michael J. Horowitz to David A. Stockman & Edwin Harper (July 22, 1982) (on file with the Ronald Reagan Presidential Library). 40 See generally John G. Roberts, Jr. Papers, Box 5, Folders 1-3 (Attorneys Fees); Box 31, Folders 1-3 (Legal Fees Reform Act) (on file with the Ronald Reagan Presidential Library). Reagan Library logs indicating that memoranda written by Roberts are withheld from public view under the deliberative-process privilege further reflect Roberts substantive participation in debates over the bill. 41 Memorandum from John G. Roberts to Fred F. Fielding (Sept. 19, 1983) (on file with the Ronald Reagan Presidential Library); see also Memorandum from John G. Roberts to Fred F. Fielding (Nov. 17, 1983) (on file with the Ronald Reagan Presidential Library). 42 See The Private Attorney General Industry: Doing Well by Doing Good, REG., May/June 1982, at 5, 5-7; Memorandum from Michael J. Horowitz to David A. Stockman & Edwin Harper, supra note 39; id. at exhibit H. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

165 2014 Litigation Reform: An Institutional Approach 1555 Reagan administration advocates of retrenching private enforcement were surely right. For-profit counsel, not interest groups, prosecute the vast majority of federal statutory private suits. 43 Thus, to the extent that Reagan s sought-after regulatory relief involved less aggressive and stringent enforcement of existing statutory mandates, the for-profit bar s response to market incentives was part of the problem. OMB s fee-cap bill focused on suits against federal and state government defendants. Initially titled The Limitation of Legal Fees Awards Act of 1981, the bill proposed amending over one hundred federal statutes allowing recovery of attorneys fees in successful suits against the government. The bill went through a number of permutations from 1981 to Some core attributes of the early versions were (1) a fee cap of $53 per hour for private attorneys representing paying clients; (2) a bar on fee awards for public interest organizations with staff attorneys, legal services organizations receiving federal funds, or for-profit attorneys representing plaintiffs on a pro bono basis; and (3) a reduction of the $53 per hour fee award by 25% of any money judgment or to the extent that it was disproportionate to the plaintiff s actual damages. 44 Although this proposal s restrictions on fee awards were quite extreme as applied to suits against the government, it did not attempt to restrict fees in suits against the private (business) sector. It appears that key actors in the Reagan administration also wanted a more expansive retrenchment extending to the private sector. 45 If the proposal summarized above had been enacted, it likely would have been the thin end of the retrenchment wedge. This was not to be. B. Litigation Reform Proposals in Congress In order to map the legislative movement for litigation reform and its partisan configuration, we identified all bills that sought to amend federal law so as to (1) reduce the availability of attorneys fees to plaintiffs or increase plaintiffs liability for defendants fees, (2) reduce the monetary damages that plaintiffs can recover, (3) reduce opportunities and incentives for class actions, (4) strengthen the operation of sanctions against counsel, and (5) strengthen the operation of offer of judgment rules. These 43 See FARHANG, supra note 4, at See Robert V. Percival & Geoffrey P. Miller, The Role of Attorney Fee Shifting in Public Interest Litigation, 47 LAW & CONTEMP. PROBS. 233, (1984); Fred Barbash,... And Uncle Sam Wants to Save on His Legal Fees, WASH. POST, Feb. 10, 1982, at A25; Memorandum from Michael J. Horowitz to David A. Stockman & Edwin Harper, supra note 39, at exhibits B, C. 45 See Greve, supra note 22, at 92-93; Decker, supra note 21, at Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

166 1556 University of Pennsylvania Law Review [Vol. 162: 1543 provisions fall into two groups. The fees and damages provisions seek to reduce directly the economic recovery available to successful private enforcers. The class action, sanctions, and offer of judgment provisions seek to modify the Federal Rules in ways that disadvantage private enforcers. 46 Our search captured 503 bills from 1973 (when the Library of Congress bill database starts) to Thirty percent of these bills contained more than one litigation reform item, with an average of 1.4 items per bill. The bills had an average of 11 cosponsors, yielding a total of 6063 episodes of legislators sponsoring or cosponsoring a bill with a litigation reform item in it. There were 3620 episodes of legislators supporting a bill with a provision limiting damages, 2835 with an attorneys fee provision, and 2257 with procedural provisions. Fifty-nine percent of the members of Congress who served from 1973 to 2010 supported one of our litigation reform provisions at least once. In order to analyze the relationship between legislators ideology and the likelihood that they would support anti-litigation proposals, we constructed the following data set. Separately for each of our items and for each legislator who served in Congress from 1973 to 2010, we calculated the total number of episodes of sponsorship or cosponsorship per Congress. That is, the unit of analysis is a Congress-legislator count of the total number of times that each legislator in each Congress sponsored or cosponsored one of our five items. 47 Figure 2 fits a locally weighted scatterplot smoothing (LOWESS) curve to the count, per Congress, of the total number of episodes of legislator support for anti-litigation provisions; the aggregation of proposals to reduce damages and fees (monetary recoveries); and the aggregation of proposals to change class action, sanctions, and offer of judgment rules (procedural rules) We excluded bills that sought to affect incentives for asserting rights in administrative proceedings or for judicial review of administrative action. Our focus is on private lawsuits to enforce federal rights against the objects of statutory regulation. 47 We include both sponsors and cosponsors because we are interested in the degree of legislative support for litigation reform proposals. To neglect cosponsors would be to treat a bill that a legislator introduces only for herself as equivalent to one that dozens of other members of Congress wish to support. 48 We use 80% bandwidth to estimate all LOWESS curves in this Article. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

167 2014 Litigation Reform: An Institutional Approach 1557 Figure 2: Legislator Support for Anti-Litigation Provisions Two things stand out in these data. First, support for anti-litigation bills grew strongly in the Reagan years. Because the curve smooths over year-to-year fluctuations, it does not reveal sharp breaks in the data, and thus the raw underlying data are instructive. During the Carter presidency, there was an average of 70 episodes per Congress of legislative support for one of our anti-litigation items. In Reagan s first term, the figure rose to 257 per Congress, and in his second term it rose to 463 per Congress a 561% increase over the Carter years. This growth continued and peaked at 1038 in the 104th Congress ( ), when Republicans took control. It has since declined considerably, continuing its downward slope to the present. Second, in the first half of the 1980s, episodes of support for procedural proposals were negligible in number and flat, while fees and damages proposals exploded. Procedural proposals, however, grew significantly starting in the early 1990s. The raw Congress-level counts again tell the story. In Ronald Reagan s second term, there were only 18 episodes per Congress of support for anti-litigation procedural proposals. In George H.W. Bush s term in office, the number rose to 62 per Congress, and in Bill Clinton s first term the figure grew to 360, more than a 1900% increase over Reagan s second term. It peaked at 582 in the 105th Congress ( ) and subsequently declined, a trend continuing to the present. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

168 1558 University of Pennsylvania Law Review [Vol. 162: 1543 Figure 3: Legislator Support for Anti-Litigation Provisions, by Party Finally, Figure 3 provides an initial sense of the significance of ideology and party affiliation by presenting separate regression curves for the number of Democratic and Republican sponsors and cosponsors. There was little difference between Democratic and Republican support until the early 1980s, when Reagan took office. The raw data reveal that, in the four Congresses from 1973 to 1980, the number of Democratic supporters actually exceeded the number of Republican supporters, but only marginally. The ninety-seventh Congress ( ) is the first in our data set in which Republican support for anti-litigation measures exceeds Democratic support. From rough parity when Reagan took office, there emerged a partisan gap which grew until it peaked in the 105th Congress ( ), with Republicans supporting anti-litigation proposals at a level about 563% above Democrats. As the level of Republican proposals declined after the 105th Congress, so too did the gap between the two parties Note that Figure 3 is based on raw figures of support and does not attempt to make adjustments for the share of seats controlled by each party. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

169 2014 Litigation Reform: An Institutional Approach 1559 As with the Reagan administration s litigation reform proposals, our bill database shows that proposals in the field of federal rights led the way and tort reform followed. We collected bills containing the same set of five litigation reform items applying to state tort law. From 1973 through 1984 (the end of Reagan s first term), episodes of sponsorship and cosponsorship of bill provisions targeting federal statutory rights outnumbered those targeting tort by a margin of more than three to one. Only in the ninety-ninth Congress ( ), corresponding exactly to Reagan s embrace of tort reform, did episodes of support for tort reform surge in Congress to levels rivaling, and sometimes surpassing, proposals targeting federal rights. In order to test systematically the relationship between legislator party and legislator support for anti private enforcement proposals, we use negative binomial count models. We code 0 for Democrats and 1 for Republicans. We employ Congress fixed effects to address the possibility of potential confounding factors, including the political and public salience of the private enforcement issue, the lobbying priorities of business and state governments that may wish to reduce private enforcement pressures, and election cycles. This approach leverages only variation in the relationship between legislators party and their votes within Congresses to estimate the effects of party. We suggest in Section II.A that the Reagan administration s fee bill appeared to mark an important juncture in the Republican Party s anti private enforcement campaign. The congressional session corresponding to Reagan s first two years in office was the first session of Congress in our data set in which Republican support for anti-litigation proposals exceeded Democratic support. In our statistical models, we subset the data by time periods in order to assess the effect of party before and after Reagan s assumption of office. We estimate separate negative binomial count models for (1) the pooled number of episodes of support for all five types of anti-litigation provisions; (2) the aggregation of proposals to reduce damages and fees (monetary recoveries); and (3) the aggregation of proposals to change class action, sanctions, and offer of judgment rules (procedural rules). We discuss modeling specifications and choices in the Appendix. In Table 1, we estimate the effects of legislator party on support for anti private enforcement provisions for the period from 1973 to We find no statistically significant party effect in either the model for pooled episodes or the model for monetary recoveries. We do, however, find a statistically significant effect with respect to procedural provisions. Yet the sign on the Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

170 1560 University of Pennsylvania Law Review [Vol. 162: 1543 coefficient reflects that Democrats were more likely to support such bills. We do not make much of this result because only about 4% of members per Congress sponsored such a bill during this period procedure had not yet emerged as a locus of significant bill activity. The key point is that prior to Reagan, litigation reform was an area of scarce legislative activity, and to the extent that it was an issue, it was not a Republican issue. Table 1: Negative Binomial Model of Legislator Support for Anti Private Enforcement Provisions with Congress Fixed Effects, All Bills Monetary Recoveries Procedure Coef. Marginal Coef. Marginal Coef. Marginal Party % % -1.43** -318% (.117) (.176) (.528) (Congress fixed effects not displayed) N= Adj. Dev. R 2 = **.01; *<.05 Standard errors in parentheses, clustered on legislator In Table 2, we estimate the same model for the period. Things change greatly. The party variable is statistically significant in the expected direction in all three models: all types of provisions pooled, those reducing monetary recoveries only, and those affecting procedural issues only. In the All Bills model, moving from Democratic to Republican is associated with an increase in legislators predicted count by 222%. The figure is 216% in the Monetary Recoveries model and 274% in the Procedure model. Interestingly, the effect of party on the level of support is highest among the procedural provisions. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

171 2014 Litigation Reform: An Institutional Approach 1561 Table 2: Negative Binomial Model of Legislator Support for Anti Private Enforcement Provisions with Congress Fixed Effects, All Bills Monetary Recoveries Procedure Coef. Marginal Coef. Marginal Coef. Marginal Party 1.17** 222% 1.15** 216% 1.32** 274% (.051) (.051) (.073) (Congress fixed effects not displayed) N= Adj. Dev. R 2 = **.01; *<.05 Standard errors in parentheses, clustered on legislator Our negative binomial models pool data over about thirty years, raising two obvious questions: First, is the party effect present throughout this period? Second, has its magnitude changed over time? In order to answer these questions, we summarize the results from a series of models over time in Table 3. We aggregated the two Congresses associated with each presidential term from 1981 to 2008 (Ronald Reagan s first term to George W. Bush s second term). 50 The marginal effects column reflects the percent increase in legislators predicted count moving from Democratic to Republican. Table 3 shows that, with respect to the fees and damages bills, the party effects are significant within each of the seven presidential terms. The magnitude of the party effect grew over the Reagan-Bush years and peaked in Bill Clinton s first term; it has since declined, though it remains large. In contrast, the effect of party on legislators support for anti-litigation procedural items took slightly longer to emerge. There was no statistically significant effect with respect to the procedural items in Reagan s first term. By his second term, however, the party effect emerged as durably statistically significant, and by the 2000s, it was actually larger than the effect for monetary recoveries. 50 Our data do not yet extend through President Obama s first administration. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

172 1562 University of Pennsylvania Law Review [Vol. 162: 1543 Table 3: Negative Binomial Coefficients for Legislator Party in Models of Legislator Support for Anti Private Enforcement Provisions, with Congress Fixed Effects, by Presidential Administration All Bills Monetary Recoveries Procedure Coef. Marginal Coef. Marginal Coef. Marginal Reagan I ( ).450** 57%.478** 61% % Reagan II ( ).806** 124%.799** 122%.982* 167% H.W. Bush ( ).912** 149% 1.04** 183%.445* 56% Clinton I ( ) 1.77** 487% 2.0** 639% 1.44** 322% Clinton II ( ) 1.21** 235% 1.21** 235% 1.22** 239% W. Bush I ( ) 1.05** 186%.821** 127% 1.72** 458% W. Bush II ( ) 1.60** 395% 1.50** 348% 2.0** 639% **.01; *<.05 C. The Failure of the Legislative Project of Litigation Reform The legislative project of litigation reform mounted by the Republican Party was largely a failure. Reagan s fee bill was unable to gain traction, even in the Republican-controlled Senate. Numerous proposals by congressional Republicans fared little better in the ensuing years, even when Republicans controlled both chambers of Congress. Some were trans-substantive bills that would have cut across the whole landscape of the litigation state, including bills requiring federal courts to award attorneys fees to prevailing defendants in all civil actions 51 or to impose a general loser-pays fee-shifting rule. 52 Another trans-substantive proposal would have capped punitive damages in all civil actions in federal court against small businesses, while increasing the burden of proof for establishing entitlement to such damages See, e.g., Frivolous Suit Reduction Act of 1995, H.R. 64, 104th Cong. (1995); Frivolous Suit Reduction Act of 1994, H.R. 5189, 103d Cong. (1994). 52 See, e.g., Loser Pays Legal Fee Fairness Act, H.R. 3497, 109th Cong. (2005); Loser Pays Act of 1993, H.R. 2880, 103d Cong. (1993). 53 See, e.g., Small Business Lawsuit Abuse Protection Act of 1998, H.R. 3382, 105th Cong. (1998); see also Small Business Liability Reform Act of 2001, S. 865, 107th Cong. (2001). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

173 2014 Litigation Reform: An Institutional Approach 1563 Many other Republican proposals targeted particularly active areas of federal civil litigation and sought to reduce economic incentives to bring cases: A 1981 bill proposed full immunity from civil damages suits for police officers who conducted illegal searches and seizures in violation of the Fourth Amendment. 54 A 1982 bill proposed to repeal the attorneys fee shifting provision in the Civil Rights Attorney s Fees Awards Act of A 1987 bill proposed to amend the Clayton Act to reduce the amount recoverable in many private antitrust actions from treble to actual damages. 56 A 1992 bill proposed to eliminate class actions under the Truth in Lending Act. 57 Although a substantial majority of the Republicans procedural proposals would have amended specific statutes, some were trans-substantive. Of 25 trans-substantive procedural bills in our data, 14 were proposals to bolster sanctions under Rule 11, and a substantial majority of these sought to reverse the 1993 amendments to Rule 11 by making sanctions mandatory rather than discretionary. 58 The remaining 11 bills targeted Rule 23, and a substantial majority of those were precursors to the Class Action Fairness Act of Republican successes were few in number. Three are well known: the Private Securities Litigation Reform Act of 1995, 60 the Prison Litigation Reform Act of 1996, 61 and the Class Action Fairness Act of 2005 (CAFA). 62 We do not diminish the significance of these laws. However, excluding the jurisdictional provisions of CAFA, which themselves do not directly affect federal rights, 63 the three are narrowly focused. 54 H.R proposed to amend titles 18 and 28 of the United States Code to eliminate, and provide an alternative to, the exclusionary rule in Federal criminal proceedings. H.R. 4259, 97th Cong. (1981). 55 Judicial Reform Act of 1982, S. 3018, 97th Cong. (1982). 56 Trade, Employment, and Productivity Act of 1987, H.R. 1155, 100th Cong. (1987). 57 Community Bank Regulatory Relief Act of 1992, S. 2794, 102d Cong. (1992). 58 See, e.g., Small Business Growth Act of 2007, H.R. 1012, 110th Cong. (2007); Civil Justice Fairness Act of 1995, S. 672, 104th Cong. (1995). 59 See, e.g., Class Action Fairness Act of 2004, S. 2062, 108th Cong. (2004); Class Action Fairness Act of 2000, S. 353, 106th Cong. (2000). 60 Pub. L. No , 109 Stat. 737 (codified as amended in scattered sections of 15 U.S.C.). 61 Pub. L. No , 110 Stat (codified as amended in scattered sections of 11, 18, 28, and 42 U.S.C.). 62 Pub. L. No , 119 Stat. 4 (codified as amended in scattered sections of 28 U.S.C.). 63 CAFA significantly increased the number of state law class actions that were governed by a trans-substantive and ever-more-conservative federal class action jurisprudence. It therefore may have encouraged anti private enforcement class action jurisprudence that also governs enforcement of federal rights. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

174 1564 University of Pennsylvania Law Review [Vol. 162: 1543 Beyond these major laws, only eight more Republican-proposed litigation reform bills in our database passed. More telling than their number is how limited the bills were in substantive scope. They included three antitrust bills limiting multiple damages: one in 1982 applying only to actions by foreign governments, 64 one in 1984 applying only to narrowly defined joint research and development venture[s], 65 and one in 2004 applying only to antitrust violators who report their own cartel activity to the Justice Department and cooperate in its ensuing investigation. 66 They also included three bills limiting fee awards to disabled students or their families suing schools: two of these capped only fee awards paid from monies appropriated for the District of Columbia in each of two years, without permanent limits, 67 and the third limited fee recovery by (or imposed some fee liability on) plaintiffs counsel for frivolous or unreasonable litigation behavior. 68 In 1995, a Republican-proposed bill passed, imposing a five-month moratorium on certain consumer class actions, again with no permanent effects. 69 In 1996, a Republican proposal passed, foreclosing fee awards in section 1983 actions against judges for actions taken while acting in a judicial capacity. 70 In sum, Republican litigation reform successes across the issues in our database, over the three decades from the emergence of the issue on the Republican agenda in 1981 until 2010, nibbled around the edges of the litigation state. They did not challenge it. To understand the substantial failure of the legislative project of litigation reform, it is useful to observe a couple of institutional factors that make retrenchment of rights difficult. An institutionally fragmented American separation of powers system empowers many actors to block legislative reform, making legislative change difficult 64 Act of December 29, 1982, Pub. L. No , 96 Stat (codified at 15 U.S.C. 15 (2012)). 65 National Cooperative Research Act of 1984, Pub. L. No , 2(a)(6), 98 Stat. 1815, 1815 (codified as amended at 15 U.S.C (2012)). 66 Standards Development Organization Advancement Act of 2004, Pub. L. No , , 118 Stat. 661, (codified at 15 U.S.C (2012)). 67 Transportation, Treasury, Housing and Urban Development, the Judiciary, the District of Columbia, and Independent Agencies Appropriations Act, 2006, Pub. L. No , 119 Stat (2005); District of Columbia Appropriations Act, 2005, Pub. L. No , 118 Stat (2004). 68 Individuals with Disabilities Education Improvement Act of 2004, Pub. L. No , 615(i)(3), 118 Stat. 2647, (codified at 20 U.S.C (2012)). 69 Truth in Lending Class Action Relief Act of 1995, Pub. L. No , 2, 109 Stat. 161, 161 (codified as amended at 15 U.S.C (2012)). 70 Federal Courts Improvement Act of 1996, Pub. L. No , 309(c), 110 Stat. 3847, 3853 (codified as amended at 28 U.S.C (2012)). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

175 2014 Litigation Reform: An Institutional Approach 1565 on contentious issues and leading to the stickiness of the status quo. 71 This is especially true when the legal change sought involves divesting groups of existing rights, and even more so when those rights enjoy a broad base of support in the polity. 72 The phenomenon of negativity bias (or an endowment effect ) means that people are substantially more likely to mobilize to avoid losses of existing rights and interests, as compared to securing new ones. It also leads voters to be more likely to punish politicians who have impaired their interests than to reward politicians who have benefited them, making retrenchment electorally hazardous. Politicians well understand this dynamic. 73 These forces make a private enforcement status quo, once constructed, extremely difficult to retrench. A number of high-ranking members of the Reagan administration regarded the political costs of the move to retrench private enforcement as much too high. They foresaw opponents successfully turning the battle into one over the preservation of substantive rights protected by the statutes to be amended rights to be free of racial and gender discrimination, to be shielded from predatory business practices, to drink clean water, and to breathe clean air. The same forces frustrated the administration s efforts to build a coalition behind a retrenchment bill. Attorney General William French Smith observed that striking too severely at attorneys fee awards risked excessive controversy. 74 He emphasized that in the public-relations battle, the Administration would be cast as anti rights, citing as examples attacks by civil rights and environmental groups. 75 Opponents of the proposal would be able to beat it back with the rhetoric of rights and Justice, as one supporter put it. 76 Smith also observed that the timing of the bill seemed particularly bad with an election on the horizon. 77 When the bill was sent to be cleared in 71 See, e.g., Terry M. Moe, Political Institutions: The Neglected Side of the Story, 6 J.L. ECON. & ORG. 213, (1990); Terry M. Moe, The Politics of Bureaucratic Structure, in CAN THE GOVERNMENT GOVERN? (John E. Chubb & Paul E. Peterson eds., 1989). 72 See PAUL PIERSON, DISMANTLING THE WELFARE STATE? REAGAN, THATCHER, AND THE POLITICS OF RETRENCHMENT (1994); William N. Eskridge, Jr. & John Ferejohn, Virtual Logrolling: How the Court, Congress, and the States Multiply Rights, 68 S. CAL. L. REV. 1545, 1560 (1995). See generally Jacob Hacker, Privatizing Risk Without Privatizing the Welfare State: The Hidden Politics of Social Policy Retrenchment in the United States, 98 AM. POL. SCI. REV. 243 (2004). 73 PIERSON, supra note 72, at 39-46; Eskridge & Ferejohn, supra note 72, at See generally Hacker, supra note Memorandum from William French Smith, Att y Gen., to The Cabinet Council on Legal Policy 5 (June 15, 1983) (on file with the Ronald Reagan Presidential Library). 75 Id. at Greve, supra note 22, at See Memorandum from William French Smith to The Cabinet Council on Legal Policy, supra note 74, at 2. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

176 1566 University of Pennsylvania Law Review [Vol. 162: 1543 December 1983, Fred Fielding, Counsel to the President, echoed Attorney General Smith s skepticism and stated that he was deeply concerned that it would open another front in the ongoing battle over our record concerning the rights of minorities, the poor, and the aged. 78 The political difficulty of retrenching existing rights was also evident in the failure of the administration s strategy for building a coalition around the bill. Although the administration naturally anticipated opposition from public interest groups and plaintiffs lawyers, it expected support from both states and business. With respect to states, it anticipated support because the bill would preserve state and city tax resources against fee awards and reduce incentives for suits against states and cities. However, two of the three groups representing state and city officials, whose support the administration sought, either declined to support the bill or threatened to oppose it publicly. To at least some officials, given the broad popularity of the rights that the fee bill would reach, the prospect of avoiding some of the costs of litigation was not sufficient to warrant the political hazards of supporting it. 79 Perhaps more surprising, the fee proposal threatened, as one administration strategy memo put it, to provoke the wrath of the small business community, which is an important part of the Republican coalition. 80 Ironically, small businesses had themselves developed an interest in fee awards under the Equal Access to Justice Act of 1980, a law spearheaded by both Republicans and business that provides fee awards for small businesses (among others) that prevail against the federal government in proceedings in which they challenge the legitimacy of federal regulatory actions. 81 When the fee-cap 78 Memorandum from Fred F. Fielding, Counsel to the President, to Richard G. Darman, Assistant to the President (Dec. 16, 1983) (on file with the Ronald Reagan Presidential Library). For additional expressions of this concern, see Memorandum from Fred F. Fielding, Counsel to the President, to Richard G. Darman, Assistant to the President & Deputy to the Chief of Staff (Sept. 21, 1983) (on file with the Ronald Reagan Presidential Library). 79 Farhang, supra note 19, at 26-29; Memorandum from Jonathan C. Rose, Assistant Att y Gen., Office of Legal Policy, to Edward C. Schmults, Deputy Att y Gen. (Oct. 27, 1983) (on file with the Ronald Reagan Presidential Library); see, e.g., Memorandum from Mike Horowtiz to Lee Verstandig & Rick Neal (Oct. 19, 1983) (on file with the Ronald Reagan Presidential Library); Memorandum from Mike Horowitz to Dick Hauser & Bob Kabel, supra note Memorandum from Jonathan C. Rose to Edward C. Schmults, supra note 79; see also Memorandum from Michael J. Horowitz to David A. Stockman & Edwin Harper, supra note 39; Memorandum from William French Smith to The Cabinet Council on Legal Policy, supra note Susan Gluck Mezey and Susan M. Olson, Fee Shifting and Public Policy: The Equal Access to Justice Act, 77 JUDICATURE 13, (1993); Arlene S. Ragozin, The Waiver of Immunity in the Equal Access to Justice Act: Clarifying Opaque Language, 61 WASH. L. REV. 217, (1986); Gregory C. Sisk, The Essentials of the Equal Access to Justice Act: Court Awards of Attorney s Fees for Unreasonable Government Conduct (pt. 1), 55 LA. L. REV. 217, , 280 n.396 (1994). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

177 2014 Litigation Reform: An Institutional Approach 1567 bill became public, small business groups came out strenuously against it, accusing the administration of break[ing] faith with the small business community. 82 In light of the overall political calculus surrounding retrenchment of existing rights, it is not surprising that the fee-capping bill was ultimately unable to attract the support of moderates in Congress, including moderate Republicans. 83 Even if they were inclined to join the administration s attack on the private enforcement infrastructure, the political and electoral calculus was against it. After the bill s initial failure, the administration developed a compromise version in an effort to enlarge support. In 1984, a Republican-controlled Senate committee held hearings on the bill. The committee chairman, Republican Senator Orrin Hatch of Utah, described statutory fee-shifting rules as creating exorbitant windfalls for lawyers, leading to an explosion of litigation that had clogged the courts. 84 Hatch, however, was unable to muster support from even his own Republican-controlled committee, where the bill died. D. The Alternative Pathway of Courts Many scholars have observed that the Reagan administration s law reform objectives were profoundly inhibited by Democratic control of one or both chambers of Congress. 85 One particular strand of work is relevant to the long-run inter-institutional story of litigation reform we tell in this Article. That strand argues, we believe persuasively, that the Reagan administration saw the federal judiciary as an important alternative avenue to effect legal change that could not be accomplished through Congress. As Professor Graber put it, [t]he Reagan administration sought to achieve its social agenda primarily by staffing the Justice department and judiciary with movement conservatives. 86 It sought thereby to lay the foundation for law 82 Small-Business Groups Protest Reagan s Veto of Bill for Legal Fees, WALL ST. J., Nov. 12, 1984, at See Decker, supra note 21, at 184; Memorandum from Jonathan C. Rose to Edward C. Schmults, supra note 79; Memorandum from Edward C. Schmults, Deputy Att y Gen., to Edwin Meese III, Counselor to the President (Oct. 31, 1983) (on file with the Ronald Reagan Presidential Library). 84 The Legal Fee Equity Act: Hearing on S Before the Subcomm. on the Constitution of the S. Comm. on the Judiciary, 98th Cong. 1-3 (1984) (statement of Sen. Orrin Hatch, Chairman, Subcomm. on the Constitution of the S. Comm. on the Judiciary). 85 See supra note Mark A. Graber, The Nonmajoritarian Difficulty: Legislative Deference to the Judiciary, 7 STUD. AM. POL. DEV. 35, 63 (1993); see also SHELDON GOLDMAN, PICKING FEDERAL JUDGES: LOWER COURT SELECTION FROM ROOSEVELT THROUGH REAGAN (1997); KEITH E. WHITTINGTON, POLITICAL FOUNDATIONS OF JUDICIAL SUPREMACY: THE PRESIDENCY, THE SUPREME COURT, AND CONSTITUTIONAL LEADERSHIP IN U.S. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

178 1568 University of Pennsylvania Law Review [Vol. 162: 1543 reform through federal litigation and federal judges without the aid of legislators. Although this claim has generally focused on the administration s constitutional commitments, we argue that the strategy played out on the issue of litigation reform as well. Writing to then-counselor to the President Edwin Meese, Deputy Attorney General Edward Schmults expressed both his skepticism that Congress could achieve litigation reform via statutory amendment, and his optimism that the Supreme Court could achieve the underlying goals via statutory interpretation. About the Reagan fee bill, he wrote: From a political standpoint,... it is probable that a serious fee reform bill would sharply divide Congress... [and] like other controversial legislation, it is unlikely that the bill would be enacted into law.... As in the past, real progress in curtailing abuses in the award of attorneys fees is likely to be gained through the Supreme Court, where we have enjoyed considerable success in recent years.... An administration fee reform bill will bring to the public eye many of the policies we have been espousing before the courts. 87 Schmults went on to detail successful efforts by the Justice Department to curtail statutory fee awards in civil rights, employment, and environmental litigation in federal courts, including the Supreme Court. In the next Part, we show that Schmults was correct. III. THE SUPREME COURT S RESPONSE A. The Existing Literature The Supreme Court s jurisprudence affecting private litigation has been a frequent topic of attention by scholars, particularly over the last decade. Although some of the literature has focused on civil rights and other areas in which Congress has sought to promote private enforcement of federal law, 88 other articles have broadened the field of inquiry to include court HISTORY (2007); Walter F. Murphy, Reagan's Judicial Strategy, in LOOKING BACK ON THE REAGAN PRESIDENCY 207, (Larry Berman ed., 1990); David M. O Brien, The Reagan Judges: His Most Enduring Legacy?, in THE REAGAN LEGACY: PROMISE AND PERFORMANCE 60, (Charles O. Jones ed., 1988); J. Mitchell Pickerill & Cornell W. Clayton, The Rehnquist Court and the Political Dynamics of Federalism, 2 PERSP. POL. 233, (2004). 87 Memorandum from Edward C. Schmults to Edwin Meese III, supra note 83, at See, e.g., Pamela S. Karlan, Disarming the Private Attorney General, 2003 U. ILL. L. REV. 183, 185. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

179 2014 Litigation Reform: An Institutional Approach 1569 access more generally. 89 This literature has usually focused on the recent past, particularly the Rehnquist Court. Much of it asserts or assumes that the phenomenon in question is a manifestation of the ideological preferences of an increasingly conservative Supreme Court. 90 With a few notable exceptions, there has been little attention to other possible influences on the results. 91 None of the work of which we are aware deploys statistical analysis of systematic data. 92 Perhaps the most comprehensive contribution to this literature is Professor Andrew Siegel s interesting article arguing that hostility to litigation best explains the jurisprudence of the Rehnquist Court. 93 The author starts by surveying various scholarly attempts to capture the distinctive attributes of the Rehnquist Court (or Courts, as some scholars see two, and a few three, distinct periods during Rehnquist s tenure as Chief Justice), including federalism, advancement of conservative social and political values, judicial supremacy, and others. 94 He argues that some of those accounts are under-theorized 95 and that all of them miss one unifying theme in the Court s jurisprudence in the Rehnquist years, namely, hostility to litigation 96 a theme that helps to explain some otherwise inconsistent results. 97 Although Professor Siegel is generally careful not to exclude the operation of other influences, 98 he does not deal seriously with institutional considerations, such as the role of precedent and attention to the state of the docket of the lower federal courts. Moreover, his references to the 89 See, e.g., Erwin Chemerinsky, Closing the Courthouse Doors, 90 DENV. U. L. REV. 317, 318 (2012); Andrew M. Siegel, The Court Against the Courts: Hostility to Litigation as an Organizing Theme in the Rehnquist Court s Jurisprudence, 84 TEX. L. REV 1097, (2006). 90 See, e.g., Erwin Chemerinsky, Closing the Courthouse Door to Civil Rights Litigants, 5 U. PA. J. CONST. L. 537, 540, 556 (2003). But see Lee Epstein, William A. Landes & Richard A. Posner, How Business Fares in the Supreme Court, 97 MINN. L. REV. 1431, 1433 (2013) ( [T]here is no uniform conservative or uniform liberal ideology. Instead there are multiple imperfectly overlapping ideologies. ). 91 But see Margaret H. Lemos, Special Incentives to Sue, 95 MINN. L. REV. 782, (2011) (exploring a phenomenon the author calls judicial backlash and arguing that judicial concerns about overcrowded dockets and inadequate resources may cause the judiciary to seek to thwart congressional private-enforcement regimes through statutory interpretation and judicial control of procedure, particularly if the claims involved are otherwise disfavored); Siegel, supra note 89, at But cf. Epstein et al., supra note 90, at (reporting the authors analysis of data to test various claims about the business friendliness of the Roberts Court). 93 See generally Siegel, supra note See generally id. 95 Id. at See id. at See id. at See id. at Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

180 1570 University of Pennsylvania Law Review [Vol. 162: 1543 pointillist 99 approach he takes signal realization that his data are not systematic, at least as presented. Indeed, for some of the areas he discusses, the selection seems designed to make his points. 100 We are particularly interested in Professor Siegel s empirical claims about the role that liberal Justices have played in the phenomenon he describes. Refusing to assume that possible connections between the Court s hostility to litigation and the Justices instinctual distaste for the modern plaintiffs bar... stem directly or even principally from partisan politics, the author adduces the frequent participation and occasional leadership of the Court s more liberal members in shaping a Court fundamentally hostile to litigation as evidence of the need for a more nuanced explanation. 101 He argues that any prior ideological commitments underlying the Court s hostility to litigation are just as likely to stem from the Justices class position or professional and educational experiences as from their partisan political allegiance. 102 We agree that the Justices ideological preferences need not stem from partisan political allegiance, although they may do so. 103 But such a strong claim about liberal Justices role in shaping a hostile Court cries out for systematic evidence. In that regard, we note the author s conclusion that the political valence of the Court s decisions seems sufficiently correlated to the results of the case to demand careful historical consideration. 104 B. The Justices Votes in Private Enforcement Cases We endeavored to collect systematic data with which to evaluate the voting behavior of Justices concerning private enforcement (defined to include access to court). We identified issues that have been commonly associated with private enforcement, including in the literature discussed above. For the period from 1970 to 2013, 105 we identified all Supreme Court decisions requiring Justices to vote on (1) the existence or scope of a private right of action, either express or implied; (2) whether a party has standing to sue, under either Article III or prudential analysis; (3) the availability of 99 Id. at 1097, 1149, See id. at 1118, Id. at Id. at See Yeazell, supra note 34, at 1788 ( The recently concluded 2012 presidential campaign was the first in decades in which the topic of civil litigation appeared neither in party platforms nor in the candidates stump speeches. ). 104 Siegel, supra note 89, at The data collection occurred before all 2013 cases had become available, and thus our cases for that year only are incomplete. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

181 2014 Litigation Reform: An Institutional Approach 1571 attorneys fees to a prevailing plaintiff; and (4) whether an arbitration agreement forecloses access to court to enforce a federal right. We regard this body of cases, when pooled, as a strong measure of Justices more general treatment of private enforcement. 106 Having identified this set of cases, we coded the votes of each Justice as pro private enforcement (=1), anti private enforcement (=0), or missing if the Justice did not address the private enforcement issue. We treated votes as pro private enforcement if they favored recognition of an express or implied private right of action, found that standing requirements were satisfied, took an approach favorable to plaintiffs fee awards relative to other options presented by the case, or concluded that a plaintiff should have access to enforce federal rights in court rather than being restricted to arbitration. We treated votes in the opposite direction as anti private enforcement. At least one of the authors read each majority, concurring, and dissenting opinion in order to assign codes to Justices votes. Our search yielded 241 cases: 80 presented a private right of action issue, 95 a standing issue, 56 a fee issue, and 15 an arbitration issue. Some cases contained multiple discrete private enforcement issues across and within our issue areas. The unit of analysis in our statistical models is the Justice s vote on the private enforcement issue. The 241 total cases captured by our search contained 266 issues. This rendered a total of 2298 Justice votes on private enforcement issues. Our primary interest was to model the relationship between Justices ideological preferences and their votes on private enforcement issues. For our measure of Justice ideology, we rely upon Martin Quinn scores. These ideal point scores for the Justices are based on the voting behavior and alignments of Justices in non-unanimous decisions. 107 They are fluid, changing from one term to the next in accordance with changes in Justices voting behavior over time. Higher values are associated with more conservative Justices. Use of these scores allows us to assess empirically whether private enforcement belongs in the family of issues associated with the left right divide, such as civil rights and economic regulation. In an ancillary analysis reported in the Appendix, we obtain substantially similar results to those presented below (in Table 5) when substituting Segal Cover scores for Martin Quinn scores. Segal Cover scores are based on 106 We included such cases in our data only to the extent that they involved suits directly against the objects of legal regulation, and thus we excluded judicial review of administrative action. We also excluded cases in which the Court s analysis applied equally to public and private enforcers. 107 See generally Andrew D. Martin & Kevin M. Quinn, Dynamic Ideal Point Estimation via Markov Chain Monte Carlo for the U.S. Supreme Court, , 10 POL. ANALYSIS 134 (2002). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

182 1572 University of Pennsylvania Law Review [Vol. 162: 1543 pre-confirmation newspaper editorials on the nominations, and thus are independent of Justices voting behavior. 108 Table 4: Percent Pro Private Enforcement Votes in Private Right of Action, Standing, Attorneys Fees, and Arbitration Cases Justice Pro Private Enforcement Votes (%) Number of Issues Conservative Average Martin Quinn Score Thomas Alito Roberts Scalia Rehnquist Kennedy O Connor Burger Powell White Stewart Souter Breyer Ginsburg Sotomayor Blackmun Stevens Kagan Marshall Brennan Douglas Table 4 lists the raw proportion of pro private enforcement votes, relative to total votes, for each Justice who voted in more than five cases in our data. Two things stand out: First, the distribution from lowest to highest pro private enforcement votes appears straightforwardly to track 108 See generally Jeffrey A. Segal & Albert D. Cover, Ideological Values and the Votes of U.S. Supreme Court Justices, 83 AM. POL. SCI. REV. 557 (1989). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

183 2014 Litigation Reform: An Institutional Approach 1573 the conservative liberal dimension. The four most anti private enforcement scores are those of Thomas, Alito, Roberts, and Scalia. We note that of the 21 Justices listed, two of the four most anti private enforcement Justices (Roberts and Scalia) were advocates of the unsuccessful Reagan fee bill. The four most pro private enforcement scores are those of Stevens, Marshall, Brennan, and Douglas. White and Stewart are in the center of the Court. The table also indicates whether a Justice is conservative (=1) or liberal (=0), dividing them according to whether they are above or below the median of the average annual Martin Quinn score for Justices in our data. Justices above (more conservative than) the median are Stewart, Harlan, White, Powell, Kennedy, O Connor, Burger, Roberts, Alito, Scalia, Rehnquist, and Thomas. Justices below (more liberal than) the median are Douglas, Marshall, Brennan, Stevens, Ginsburg, Souter, Breyer, Blackmun, Sotomayor, and Kagan. This simple division of the Justices above and below the Martin Quinn median maps to Republican and Democratic appointments, with the exception of Justices widely regarded as having departed from expectations: White is classified as a conservative in this division, and Brennan, Souter, Blackmun, and Stevens are classified as liberals. Any dichotomous ideology variable is surely a blunt instrument, and we use more granular measures in our statistical models. However, looking at a simple and plausible dichotomous ideology measure is a good first reality check on both the underlying continuous measure and on our data. The Martin Quinn median divides the Justices into two categories that do an extremely good job of predicting whether a Justice is above or below the median ratio of pro private enforcement votes. The conservative liberal dichotomy yielded by the Martin Quinn scores perfectly divides our ratio of pro private enforcement votes in the following sense: every conservative has a lower pro private enforcement voting rate than every liberal. A second notable feature of the table is the large disparity between conservative and liberal Justices voting ratios. The scale ranges from Thomas voting in favor of private enforcement 24% of the time, to Douglas voting in favor of private enforcement 91% of the time, and there is a roughly continuous distribution of Justices between the two poles. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

184 1574 University of Pennsylvania Law Review [Vol. 162: 1543 Figure 4: Case Outcomes and Justice Votes in Private Enforcement Cases Figure 4 plots a LOWESS line estimating the probability of an outcome in favor of private enforcement, and the separate probabilities of conservative and liberal Justices votes in favor of private enforcement. The figure reflects that the estimated probability of a pro private enforcement outcome has undergone a long decline, from 68% in 1970 to 18% in This decline has been substantially driven by the votes of conservative Justices, whose estimated probability of a pro private enforcement vote declined from 65% to 18% over this period. The probability of a pro private enforcement vote declined for liberal Justices by a much smaller degree, falling from an estimated 83% in 1970 to 66% in the late 1990s, when it turned back up and grew to 71% by Thus, over the full period, the conservative decline of 47 percentage points was about quadruple the liberal decline of 12 percentage points. Conservative Justices achieved a five-justice majority in 1972 and have held it since, with the exception of a six-justice majority from 1991 to By 2013, the Court s private enforcement outcomes converge with the votes of conservative Justices. Further, the difference, or the ideological distance, between liberal and conservative Justices voting in private enforcement cases grew over the period we examine, widening from 18 percentage points in 1970 to 33 Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

185 2014 Litigation Reform: An Institutional Approach 1575 percentage points in the early 1980s. That difference remained stable until around 2000, when it began growing again until reaching a 53 percentage point difference by It is informative to contrast the patterns displayed in Figure 4 with the same patterns occurring in the full body of the Court s civil actions asserting federal rights. To do so, we draw upon the Spaeth Supreme Court Database. 109 Figure 5: Case Outcomes and Justice Votes in All Civil Federal Rights Cases Figure 5 depicts the estimated probability of a liberal case outcome in civil actions asserting federal rights, as well as the estimated probability of a liberal vote separately for liberal and conservative Justices. Although there was a long-run 11 percentage point decline in the probability of a liberal outcome from 1970 to 2013, it was markedly smaller than the 50 percentage point decline in the probability of a pro private enforcement vote over the same period. Further, although the difference between liberal and conservative Justices voting in federal rights cases gradually widened from 15 to 20 percentage points over the course of the 1970s, it has since grown 109 In the Spaeth data, available at we used cases with the law type variable coded as federal statutory or constitutional, and excluded cases with the issue area variable coded criminal. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

186 1576 University of Pennsylvania Law Review [Vol. 162: 1543 only an additional 3 percentage points. As compared to this 8 percentage point growth in the difference between liberal and conservative voting in all federal rights cases over the full period, there was a 35 percentage point growth in private enforcement cases. In our private enforcement cases, as compared to all civil cases asserting federal rights, the difference in voting between liberal and conservative Justices started out at similar levels in 1970, but then grew markedly larger in private enforcement cases by the early 1980s, where it stabilized until the end of the 1990s. It then accelerated sharply, with liberal and conservative Justices voting separated by 53 percentage points by 2013 more than double the difference of 23 percentage points we observe in all civil actions asserting federal rights. Thus, the sharp decline in pro private enforcement outcomes, and the polarization we observe on these issues between liberal and conservative Justices in recent years, do not track rulings in civil litigation of federal rights more generally. These effects are distinctive in private enforcement cases. Below we suggest an explanation for this notable disparity. Figure 6: Private Enforcement Cases per Term, and Proportion with Dissents Figure 6 reflects LOWESS estimates of the number of private enforcement cases in our data that were decided each year, and the proportion of them in Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

187 2014 Litigation Reform: An Institutional Approach 1577 which there was a dissent. The estimated number of such cases on the Court s docket grew from the early 1970s and peaked in the 1980s; it then declined until the early 2000s and plateaued until the present time. The percentage of cases with dissents has been relatively stable over the whole period, with predicted values ranging between 58% and 65%. The declining number of private enforcement cases on the docket and the relatively stable dissent rate are notable for purposes of comparison with cases interpreting the Federal Rules of Civil Procedure, which are discussed in Part IV. We next construct a model using the votes of Justices on the private enforcement issues as our dependent variable and the Justices ideology scores as our key independent variable. In addition to the direct incorporation of the ideology measure into our model, we also assess whether ideology had a greater effect on Justices votes on private enforcement issues after We do so for several reasons. First, Republicans took Congress in the 1994 elections and have held at least one chamber almost continuously since, materially reducing the probability of legislative override. The logic of this theory is that Justices votes may be constrained by the perceived threat of legislative override, and the diminution of that threat after 1994 may have widened their perceived range of policymaking discretion. 110 Certainly, shortly prior to 1994 and in response to many of its civil rights decisions bearing on private enforcement, the Court had experienced a vigorously negative congressional response in the form of the Civil Rights Act of In addition, there is a plausible case to be made that civil litigation reform grew to be a more salient issue in the Republican party, and the locus of more partisan conflict, at about the same time, playing a notable role in Gingrich s Contract with America in the 1994 campaign, and in the Republican legislative program in Finally, simply looking at Figure 4 reveals growing distance between liberal and conservative Justices beginning not long after 1995, suggesting the need to address this temporal dimension of the data in our empirical models. We therefore create a variable that takes the value of 0 from 1970 to 1994, and 1 after 1994, and interact it with the Martin Quinn ideology 110 See Anna Harvey & Barry Friedman, Pulling Punches: Congressional Constraints on the Supreme Court s Constitutional Rulings, , 31 LEGIS. STUD. Q. 533, 548 (2006). 111 See FARHANG, supra note 4, at See, e.g., Louis Kaplow & Steven Shavell, Fairness Versus Welfare, 114 HARV. L. REV. 961, 1185 & n.533 (2001); Carl Tobias, Reforming Common Sense Legal Reforms, 30 CONN. L. REV. 537 (1998). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

188 1578 University of Pennsylvania Law Review [Vol. 162: 1543 score. This interaction term tests whether ideology had a different effect on Justices votes on private enforcement issues after We use case fixed effects to address the possibility of potential confounding factors ranging from case facts, to the clarity or indeterminacy of precedent, to changing institutional and political conditions. This approach leverages only variation in the relationship between Justices ideology and their votes within cases to estimate the effects of ideology. Although this approach allows us to estimate the effect of ideology most effectively, it comes at the cost that we cannot estimate the effects of variables that take the same value for each vote in the case. Still, the case fixed effects approach absorbs and holds constant any such influence, and in that sense, our estimates of the effects of ideology are net of any case-level or institutional variables that would take the same value for each Justice in a case. Another limitation of case fixed effects is that it uses only information from cases with variation across Justices votes, meaning that it can be used only for cases with a dissent. There are dissents in 60% of our cases, and thus dissents on private enforcement issues are the norm rather than the exception and our fixed effect models use most of our data. Nevertheless, the statistical models we use to estimate the effect of ideology on Justices votes are analyzing only cases in which there was at least one dissenter. That said, we emphasize that the LOWESS plots in Figure 4, depicting trends in private enforcement case outcomes and liberal versus conservative Justices votes, are based on all of our cases, not just those containing dissents. Table 5: Logit Model of Justice Votes in Private Enforcement Cases, with Case Fixed Effects Coefficient Marginal Effect Ideology (Martin Quinn) -.66** -.09 (.09) Ideology*Post-1994 Dummy -.51* -.07 (.21) N= 1739 Pseudo R 2 =.39 **<.01; *<.05 Standard errors in parentheses, clustered on Justice Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

189 2014 Litigation Reform: An Institutional Approach 1579 Table 5 reports a logit model with case fixed effects. Further details of modeling specifications and choices are provided in the Appendix. The main effect of the ideology variable is significant. Because of the inclusion of the interaction, this variable reflects the effect of ideology only in the period from 1970 to The marginal effect for the coefficient is -.09, which means that for each unit increase in a Justice s Martin Quinn score (which becomes more conservative as it increases), there is a corresponding reduction of 9% in the probability of a pro private enforcement vote. To put this in substantive perspective, the distance between the mean ideology scores of conservative and liberal Justices (as defined above) is approximately An increase of this magnitude in the ideology score moving in the conservative direction is associated with a 32% reduction in the probability of a pro private enforcement vote. The effect of ideology in the 1995 to 2013 period is given by summing the marginal effects of ideology (-.09) and its interaction with the post-1994 dummy variable (-.07), rendering a net marginal effect of In the period from 1995 to 2013, the reduction in the probability of a pro private enforcement vote associated with moving from a liberal to a conservative Justice is 57%. Relative to the average effect of ideology on Justices votes from 1970 to 1994, it is 78% larger in the 1995 to 2013 period. It is evident that the effect of ideology on private enforcement votes became increasingly powerful over the last two decades. We discuss alternative specifications with the Segal Cover scores substituted for the Martin Quinn scores in the Appendix, where we observe similar results. To attribute the Court s decisions in these areas exclusively to the ideological preferences of the Justices, however, would neglect the messiness of lived experience, 113 which teaches that judges even judges on a court that has the final word on matters of constitutional law make decisions based on a number of considerations, including the law as they understand it. The many unanimous decisions that the Supreme Court issues every year likely reflect the influence of law, including precedent, 114 and the Justices belief in rule of law values, including stability and predictability Stephen B. Burbank, On the Study of Judicial Behaviors: Of Law, Politics, Science, and Humility, in WHAT S LAW GOT TO DO WITH IT?: WHAT JUDGES DO, WHY THEY DO IT, AND WHAT S AT STAKE 41, 53 (Charles Gardner Geyh ed., 2011) [hereinafter Burbank, Judicial Behaviors]. 114 See id. at 47; Frank B. Cross, Law Is Politics, in id. at 92, See Burbank, Judicial Behaviors, supra note 113, at 56; Herbert M. Kritzer & Mark J. Richards, The Influence of Law in the Supreme Court s Search-and-Seizure Jurisprudence, 33 AM. POL. RES. 33, 35 (2005). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

190 1580 University of Pennsylvania Law Review [Vol. 162: 1543 In cases implicating the volume and mix of litigation, institutional self-interest is another consideration or influence that may affect a Justice s vote. Supreme Court Justices are surely aware of the supposed workload of the lower federal courts, some determinants of which are canvassed each year in the Chief Justice s Year-End Report. 116 Finding a suitable proxy for what we have termed the supposed workload of the lower federal courts, however, is difficult. 117 This helps to explain our choice of a statistical approach that allows us to control for all variables that take the same value for each Justice in the case (such as caseload in the federal courts), but that permits analysis only of cases in which there is a division of the Justices. C. Why the Court Succeeded Where Republicans in the Political Branches Failed The Supreme Court, which became increasingly conservative as a result of appointments by Republican Presidents over the period we study, had greater success in the enterprise of litigation reform than did Republicans in the political branches. Although gauging the actual effects of the Court s decisions on litigation is complex, difficult, and beyond the scope of this Article, it is clear that the Court was more successful than Republican legislative reformers in shaping law in the direction of litigation reform. The Court s posture toward private enforcement underwent a transformation from highly supportive in the early 1970s to antagonistic today. Why did the Court succeed where Republican reformers in the other branches failed? We believe that four institutional considerations are especially important. First, as contrasted with the institutional fragmentation of the legislative process, the Court is governed by a more streamlined decisional process and simple voting rules, making a slim majority comparatively more capable of unilateral action on controversial issues. 118 Four Justices suffice to put an issue on the Court s agenda, and bare majorities routinely win in decided cases, while they rarely do to enact legislation. 119 This allows the Court to succeed in achieving policy objectives that are derailed in Congress. 116 There is a summary of annual case filing statistics in all such reports for the years 2000 through 2013, which is available online at year-endreports.aspx. 117 For the complexities of determining federal judicial workload, particularly given the institutional judiciary s goal of attracting more resources from Congress, see Stephen B. Burbank, S. Jay Plager & Gregory Ablavsky, Leaving the Bench, : The Choices Federal Judges Make, What Influences Those Choices, and Their Consequences, 161 U. PA. L. REV. 1, (2012). 118 See WHITTINGTON, supra note 86, at See generally McNollgast, The Political Origins of the Administrative Procedure Act, 15 J.L. ECON. & ORG. 180 (1999); Moe, supra note 71. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

191 2014 Litigation Reform: An Institutional Approach 1581 Second, in contrast to legislators and Presidents who need to pay attention to democratic accountability through elections, federal judges are insulated from both, again allowing the Court to act more decisively on divisive issues. 120 In Part II, we suggest that some Reagan administration leaders and congressional Republicans saw potentially threatening electoral repercussions associated with litigation reform and the attendant charges of retrenching popular rights. Justices are institutionally positioned to weather such charges without threat to their continuation in office. The Court s electoral insulation and streamlined decisional and voting rules are especially advantageous when advancing a policy agenda as to which elements of a potential legislative coalition are internally divided, 121 such as when Republican proponents of the fee bill were unable to marshal the support of moderate Republicans, small business, and state interests. Third, although significant legislative reform proposals often present stark alternatives that trigger powerful interest group mobilization, the case-by-case, less visible, more evolutionary process of legal change via court decision is far less likely to trigger group mobilization than a major legislative intervention. 122 It is therefore less likely to be obstructed. 123 A large transformation in private enforcement resulted from a succession of individual Court decisions, none of which may have appeared monumental in isolation. The last two points are linked in an important way. The claim that the Court is less responsive to democratic pressures does not mean that it is not conscious of them at all. Many scholars have suggested that the Court recognizes that its public standing and legitimacy are important to its 120 See Howard Gillman, How Political Parties Can Use Courts to Advance Their Agendas: Federal Courts in the United States, , 96 AM. POL. SCI. REV. 511, 521 (2002); Graber, supra note 86, at See Graber, supra note 86, at See id. See generally JEB BARNES & THOMAS F. BURKE, HOW POLICY SHAPES POLITICS: RIGHTS, COURTS, LITIGATION, AND THE STRUGGLE OVER INJURY COMPENSATION (forthcoming 2015). 123 Scholars have suggested a number of indirect pathways through which interest group mobilization might be pertinent to federal judicial decisionmaking, ranging from Justices desire to please elite audiences, see LAWRENCE BAUM, JUDGES AND THEIR AUDIENCES: A PERSPECTIVE ON JUDICIAL BEHAVIOR (2006), to stimulating legislative attacks on the Court, see Gerald N. Rosenberg, Judicial Independence and the Reality of Political Power, 54 REV. POL. 369, (1992), to affecting the Court s perception of its public legitimacy, see generally BARRY FRIEDMAN, THE WILL OF THE PEOPLE: HOW PUBLIC OPINION HAS INFLUENCED THE SUPREME COURT AND SHAPED THE MEANING OF THE CONSTITUTION (2009). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

192 1582 University of Pennsylvania Law Review [Vol. 162: 1543 institutional power. 124 Thus, relatively broad public support for many regulatory rights, combined with the phenomenon of negativity bias, likely places some limits on the Court s perceived discretion to scale back substantive statutory rights by attacking them directly. From the standpoint of public legitimacy, the strategy of focusing on seemingly technical and legalistic issues, such as fee awards, standing, arbitration, and procedural rules, would seem a far better approach. When the Court is engaged in apparently procedural and legalistic decisionmaking, the public perceives it as more objective, neutral, and legitimate. 125 Indeed, the public is less likely to notice such decisions at all. This may explain the great disparity between the Court s overall decisions on federal rights and its decisions concerning private enforcement of federal rights, with the dramatically harder turn to the right in the latter set of cases. Focusing on welfare state retrenchment, Jacob Hacker has noted that, because of obstacles to overtly retrenching rights and programs with a substantial base of support, developments toward retrenchment in the welfare state have taken the form of strategically chosen subterranean, covert, and hidden processes that often involve lower-visibility decisions of bureaucrats in the course of administering a statute without formally changing it. 126 Similarly, Paul Pierson suggests the possibility that a process of retrenchment may be invisible at the surface while producing long-term erosion like termites working on a foundation. 127 The Court s treatment of opportunities and incentives for access to court to enforce rights over the past four decades has this quality. 124 See generally, e.g., TOM CLARK, THE LIMITS OF JUDICIAL INDEPENDENCE (2011); FRIEDMAN, supra note 123; Matthew C. Stephenson, Court of Public Opinion: Government Accountability and Judicial Independence, 20 J.L. ECON. & ORG. 379 (2004). 125 See TOM GINSBURG, JUDICIAL REVIEW IN NEW DEMOCRACIES: CONSTITUTIONAL COURTS IN ASIAN CASES 32 (2003); Ran Hirschl, The Political Origins of Judicial Empowerment Through Constitutionalization: Lessons from Four Constitutional Revolutions, 25 LAW & SOC. INQUIRY 91, 104 (2000). See generally John M. Scheb II & William Lyons, The Myth of Legality and Public Evaluation of the Supreme Court, 81 SOC. SCI. Q. 928 (2000). 126 See generally Jacob S. Hacker, Privatizing Risk Without Privatizing the Welfare State: The Hidden Politics of Social Policy Retrenchment in the United States, 98 AM. POL. SCI. REV. 243 (2004). We thank Sarah Staszak for suggesting this point to us. 127 Paul Pierson, The Rise and Reconfiguration of Activist Government, in THE TRANSFORMATION OF AMERICAN POLITICS: ACTIVIST GOVERNMENT AND THE RISE OF CONSERVATISM 19, 33 (Paul Pierson & Theda Skocpol eds., 2007). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

193 2014 Litigation Reform: An Institutional Approach 1583 IV. THE ROLE OF PROCEDURE IN THE MOBILIZATION OR DEMOBILIZATION OF CIVIL LITIGATION A. The Federal Rules, : Opening the Courthouse Door The systematic evidence that we present in Part III supports and refines qualitative accounts of the Court s hostility to private enforcement over the last three decades, and it supports the view that the Court s decisions have had an increasingly ideological dimension. 128 Much of the data on which our analysis is based, however, are drawn from cases interpreting federal statutes. If one is interested in the federal judiciary s ability to influence private enforcement, it would be foolish to neglect the legal domain over which it has long been ceded the first, and for many decades essentially the final, word: federal procedural law. 129 The original Federal Rules of Civil Procedure became effective four years after the successful conclusion of a decades-long campaign to give the Court power to make prospective, legislation-like rules for the conduct of civil actions at law in the lower federal courts, akin to the rulemaking power it had long exercised under statutory delegation for suits in equity. 130 Promulgated under the Rules Enabling Act of 1934, 131 following more than two years of work by an Advisory Committee appointed by the Court, the Federal Rules merged law and equity procedure, and equity emerged very much the senior partner. 132 The 1938 Federal Rules were litigation-friendly. To some extent, this was due to the influence of equity procedure, with the circumstances creating equity jurisdiction requiring (or the lack of a jury permitting) tolerance of claim and party joinder and of factual and legal ambiguity. 133 One of those circumstances made discovery, albeit limited in scope, essential, namely, the effect of common law rules categorically excluding relevant evidence on a 128 See supra Part III. 129 Here, as is usually the case when one posits dichotomies involving procedure, numerous qualifications are in order. Some may view one of the case categories in the database for Part III standing as procedural, and Professor Lemos even treats decisions interpreting statutory attorneys fees provisions under that rubric. See Lemos, supra note 91, at 828. Indeed, it was partly to reduce room for argument on that score that we consider in this Part only the Federal Rules of Civil Procedure and cases interpreting them. 130 See Stephen B. Burbank, The Rules Enabling Act of 1934, 130 U. PA. L. REV. 1015, (1982) [hereinafter Burbank, Rules Enabling Act]. 131 Pub. L. No , 48 Stat (codified as amended at 28 U.S.C (2012)). 132 See Stephen N. Subrin, How Equity Conquered Common Law: The Federal Rules of Civil Procedure in Historical Perspective, 135 U. PA. L. REV. 909, (1987). 133 See id. at 922. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

194 1584 University of Pennsylvania Law Review [Vol. 162: 1543 party s ability to prove a claim or defense at trial. 134 In addition, equity s appetite for ambiguity and complexity served a hunger for justice, something that could hardly be said of the common law system of pleading. It would be a mistake, however, to attribute the capacity of the 1938 Federal Rules to open the courthouse door primarily to the influence of equity procedure. In that respect, they are better seen as embodying the jurisprudential and social commitments of the individuals who were responsible for drafting them. 135 In rejecting common law pleading, with its obsessive quest to reach a single issue regardless of the facts, and code pleading, with its insistence on pleading all facts necessary to constitute a cause of action, the drafters of the 1938 Federal Rules embraced the insights of legal realism. 136 Pleadings are an inferior method to find out what actually happened (and if, as in common law procedure, they are often an exercise in fiction, they are useless for that purpose). Of course, implementing the view that pleading should play but a minor role in litigation required other means to ascertain facts that did not share the inefficiencies of the common law trial. For that, the architects of the 1938 Federal Rules wrote rules that afforded much broader discovery than had been available in equity or in any of the merged systems in the states. 137 Such broad discovery appealed to the empirical commitments of the Legal Realists. But it also appealed to the commitments of the Progressive movement in American law, of which the chief architect of the Federal Rules on discovery had long been a proponent. 138 The Progressives gained prominence in the early twentieth century, reacting to the excesses of the 134 See ROBERT WYNESS MILLAR, CIVIL PROCEDURE OF THE TRIAL COURT IN HISTORICAL PERSPECTIVE 204, 207 (1952). 135 The most important members for this purpose were Charles E. Clark, the Reporter and Dean of Yale Law School, and Edson R. Sunderland, a professor at the University of Michigan Law School. On Clark, see Subrin, supra note 132, at On Sunderland, see Stephen B. Burbank, Vanishing Trials and Summary Judgment in Federal Civil Cases: Drifting Toward Bethlehem or Gomorrah?, 1 J. EMPIRICAL LEGAL STUD. 591, (2004) [hereinafter Burbank, Vanishing Trials]. For an interesting article arguing that there is a strong connection between the rise of Legal Realism and the prominence of legal procedure in America, see Paul MacMahon, Proceduralism, Civil Justice, and American Legal Thought, 34 U. PA. J. INT L L. 545, 584 (2013). 136 Clark was impressed with the [realists ] observation that one could not define what was a fact, evidence, or ultimate fact in a scientific way, and that such terms were best seen as a continuum, without logical cutoff points. Subrin, supra note 132, at See Burbank, Vanishing Trials, supra note 135, at ; Edson R. Sunderland, An Appraisal of English Procedure, 24 MICH. L. REV. 109, (1925) [hereinafter Sunderland, Appraisal]; Edson R. Sunderland, Discovery Before Trial under the New Federal Rules, 15 TENN. L. REV. 737, (1939). 138 See Sunderland, Appraisal, supra note 137, at 116 ( The spirit of the times calls for disclosure, not concealment, in every field.... ); id. at 136 ( The legal profession alone halts and hesitates. If it is to retain the esteem and confidence of a progressive age it must itself become progressive. ); see also Burbank, Vanishing Trials, supra note 135, at n.20. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

195 2014 Litigation Reform: An Institutional Approach 1585 Industrial Revolution through a campaign for what they called legibility we would say transparency. They contended that effective regulation was impossible without access to the facts concerning the regulated enterprise. 139 The system of broad discovery ushered in by the 1938 Federal Rules conferred on private litigants and their attorneys the functional equivalent of administrative subpoena power. 140 Thus, the architects of the 1938 Federal Rules constructed a broad highway for litigation that was free of some imposing obstacles characteristic of many other systems. 141 The highway effect was not, however, evident for many years. More precisely, a small federal judiciary managed to dispose of a relatively small caseload without evident strain for more than twenty years after the Federal Rules went into effect. 142 A fruitful way to home in on what changed and what may explain the crowded federal litigation highway is to consider conventional accounts of the so-called American litigation explosion. 139 See Ken I. Kersch, The Reconstruction of Constitutional Privacy Rights and the New American State, 16 STUD. AM. POL. DEV. 61, (2002). 140 See Paul D. Carrington, Renovating Discovery, 49 ALA. L. REV. 51, 54 (1997); Patrick Higginbotham, Foreword, 49 ALA. L. REV. 1, 4-5 (1997). 141 Of course, those who drafted the original Federal Rules were not free agents. On the non-academic members of the original Advisory Committee, see Stephen B. Burbank, Procedure, Politics and Power: The Role of Congress, 79 NOTRE DAME L. REV. 1677, 1718 & n.184 (2004) [hereinafter Burbank, Role of Congress]. 142 Annual Reports of the Director of the Administrative Office of the United States Courts yield the following case data for civil and criminal cases filed in district courts and for cases in the courts of appeals: Selected Civil and Criminal Case Statistics, with Authorized Judgeships District Courts Courts of Appeals Year Civil Cases Criminal Cases Authorized Judgeships Total Cases Authorized Judgeships ,200 33, , 2T ,568 37, (28,359 OPA cases) ,622 33, ,521 28, ,321 38, , 1T 11, ADMIN. OFFICE OF U.S. COURTS, AUTHORIZED JUDGESHIPS - FROM 1789 TO PRESENT, available at JudgesJudgeships/docs/all-judgeships.pdf. For the hazards of using case filing data to determine workload, see supra note 117. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

196 1586 University of Pennsylvania Law Review [Vol. 162: 1543 According to those accounts, the tremendous increase in civil cases in the 1970s 143 was the product of a litigious population, an imperial judiciary, and an entrepreneurial bar. 144 Whatever one thinks of the empirical basis for such accounts, 145 within them lies an important clue to the willingness and ability of more and more American individuals and firms to sue in federal court. The American bar did not wake up in 1970 and decide to become more entrepreneurial. Contingent fee arrangements have a long history in the United States. 146 Court decisions in the 1970s did disassemble some restrictive and anti-competitive rules of a self-regulating profession. 147 Much more important, however, was the fact that Congress provided incentives that made certain types of litigation which had not been financially feasible or, if feasible, not sufficiently rewarding even on a contingent fee basis promising opportunities for the investment of lawyers time and money. 148 Financial incentives, intended to encourage lawyers to represent those Congress endowed with a host of new statutory social and economic rights, were cabined by the substantive reach of the statutes providing them. In 1966, however, the rulemaking process produced amendments to Rule 23 that substantially expanded the scope of a trans-substantive financial incentive. That is because the 1966 amendments enlarged, potentially enormously, the domain of damages class actions, and such actions are subject to a judicially developed exception to the American Rule on fee shifting that permits one who has created a common fund to be reimbursed out of the fund See supra text accompanying notes See FARHANG, supra note 4, at 13-14, Notwithstanding a decades-long organized campaign by American business to demonize lawyers and litigation, there is robust empirical evidence supporting [Professor Robert] Kagan s observation that [m]any, perhaps most, Americans are reluctant to sue.... Burbank et al., supra note 7, at 646 (quoting KAGAN, supra note 13, at 34). 146 See Herbert M. Kritzer, Seven Dogged Myths Concerning Contingency Fees, 80 WASH. U. L.Q. 739, 744 (2002). 147 See, e.g., Bates v. State Bar of Ariz., 433 U.S. 350, 382, 384 (1977) (striking down Arizona s ban on lawyer advertising); Burbank et al., supra note 7, at See supra text accompanying notes For an interesting and valuable account of the development of the plaintiffs bar as a business and the rhetorical challenges thereby posed for its champions in responding to anti-lawyer attacks, see Yeazell, supra note 34, at Professor Yeazell largely neglects, however, the role that statutory private enforcement regimes played in the evolution of the plaintiffs bar. 149 See Burbank et al., supra note 7, at Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

197 2014 Litigation Reform: An Institutional Approach 1587 B. Procedure, Litigation, and Litigation Reform: As we have seen, once the power of statutory private enforcement regimes and of the revised class action rule to stimulate litigation on the broad highway created by the 1938 Federal Rules became apparent, the Reagan administration advocated, and legislative opponents introduced, bills to dismantle or undermine private enforcement regimes. But, the stickiness of the legislative status quo, coupled with negativity bias or an endowment effect, makes repealing or consequentially amending legislation that confers popular rights more difficult than enacting it in the first place. 150 The judiciary is not similarly constrained although, of course, courts are subject to other constraints 151 which helps to explain why, as we demonstrate in Part III, an increasingly conservative Supreme Court had greater success in retrenching private enforcement. Moreover, the judiciary need not wait for cases requiring the interpretation of federal statutes to affect the volume or mix of litigation. Effective control of procedure ensures that means are available for a judiciary that is ideologically distant or driven by institutional self-interest to frustrate legislative preferences by constricting access to court. 1. Retrenchment by Rulemaking: A Brief Experiment The perception that the institutional interests of the judiciary in particular, the interest in active judicial management of a burgeoning docket were no longer in sync with the interests of practicing lawyers, coupled with the desire to control the agenda of litigation reform, likely played an important role in the decision by the Chief Justice of the United States, who appoints all members of rulemaking committees, to change the balance of power on the key committees. 152 The original 1930s Advisory Committee did not include even one sitting judge. 153 Representation of practitioners declined over time, but even in the 1960s, there were never 150 See supra text accompanying notes See supra note See Burbank, Role of Congress, supra note 141, at , The risk of a rupture between federal judges and the bar was realized when, in response to a perceived crisis of expense and delay, judges pursued rulemaking strategies that either empowered them at the expense of lawyers and their clients (sanctions and active case management) or that simply disempowered lawyers (discovery reform). Id. at For attempts by the federal judiciary to distance itself from the bar in this period, see Dana A. Remus, The Institutional Politics of Federal Judicial Conduct Regulation, 31 YALE L. & POL Y REV. 33, 47 n.71 (2012). 153 See Burbank, Role of Congress, supra note 141, at 1714 & n.167. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

198 1588 University of Pennsylvania Law Review [Vol. 162: 1543 more than three judges, nor less than seven practitioners, on the Advisory Committee. 154 Under Chief Justice Burger, the key committees came to be dominated by judges, who are presumably more likely than lawyers or academics to protect institutional interests, as well as more susceptible to direction from on high. 155 Moreover, Burger s appointments of judges to the Advisory Committee markedly favored judges appointed by Republican Presidents, reinforcing our judgment that he sought to use appointments to influence the development of civil rules. 156 Burger made no secret of his antipathy toward the litigation explosion of the 1970s, a phrase that some credit him with coining. 157 One commentator observed that in the 1970s, Chief Justice Burger frequently spoke out against what he and many others perceived as excessive litigation, and that [s]cholars have characterized the Burger-organized Pound Conference in 1976 as the most important event in the counteroffensive against notice pleading and broad discovery. 158 In 1971, two months before he was nominated to the Supreme Court, Lewis Powell wrote a confidential memorandum to the chair of the Education Committee of the Chamber of Commerce, describing a broad attack on the American economic system and the steps that he recommended in response. 159 Powell observed that American business and the enterprise system have been affected as much by the courts as by the executive and legislative branches of government and argued that especially with an 154 These data are drawn from a database of the Advisory Committee s composition from 1960 to the present that we have compiled in connection with our next paper in the ongoing project. During the entire decade, judges constituted on average 18.15% of the Advisory Committee, while practitioners constituted 55.10%. The remaining members were academics (23.16%) and representatives from government serving ex officio (3.59%). 155 See Burbank, Role of Congress, supra note 141, at ; Stephen C. Yeazell, Judging Rules, Ruling Judges, LAW & CONTEMP. PROBS., Summer 1998, at 229, For evidence of Chief Justice Burger s influence on the agenda and the rulemakers, see infra text accompanying note See generally Stephen B. Burbank & Sean Farhang, Federal Court Rulemaking: An Institutional Approach, 15 NEV. L.J. (forthcoming 2014). 157 Kenneth F. Dunham, The Future of Court-Annexed Dispute Resolution Is Mediation, 5 JONES L. REV. 35, 36 (2001). Although Burger clearly had major concerns with workload pressures, his critique of litigiousness also had a normative valence, reflected in his public statement that mass neurosis... leads people to think courts were created to solve all the problems of society. Chief Justice Urges Greater Use of Arbitration, N.Y. TIMES, Aug. 22, 1985, at A Mike Tonsing, Symposium on Proposed Changes to FRCP: An Introduction, FED. LAW., Sept. 2004, at 22, 25; see also Jeffrey W. Stempel, Ulysses Tied to the Generic Whipping Post: The Continuing Odyssey of Discovery Reform, LAW & CONTEMP. PROBS., Spring/Summer 2001, at 197, 207; Carl Tobias, A Civil Discovery Dilemma for the Arizona Supreme Court, 34 ARIZ. ST. L.J. 615, 620 (2002). 159 Confidential Memorandum from Lewis F. Powell, Jr. to Eugene B. Sydnor, Jr., Chairman, Educ. Comm., U.S. Chamber of Commerce, Attack on American Free Enterprise System 1 (Aug. 23, 1971), available at PowellMemorandumTypescript.pdf. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

199 2014 Litigation Reform: An Institutional Approach 1589 activist-minded Supreme Court, the judiciary may be the most important instrument for social, economic and political change. 160 He further contended that [o]ther organizations and groups, recognizing this, have been far more astute in exploiting judicial action than American business, singling out the American Civil Liberties Union (ACLU) and noting that [l]abor unions, civil rights groups and now the public interest law firms are extremely active in the judicial arena and that [t]heir success, often at business expense, has not been inconsequential. 161 Powell concluded that [t]his is a vast area of opportunity for the Chamber. 162 In 1980, Justice Powell, joined by two colleagues, dissented from the promulgation of proposed amendments to the Federal Rules on discovery that were designed to address the perceived problems of expense and delay in federal civil litigation, deriding the amendments as tinkering changes that would delay for years the adoption of genuinely effective reforms. 163 Thus goaded to propose stronger measures, the rulemakers sought to establish litigation sanctions and case management as the prime weapons with which to attack cost, delay, and perceived excessive litigation. The sanctions proposals, in particular the proposed amendments to Rule 11, lacked empirical or jurisprudential foundation, which helps to explain why they were controversial and elicited widespread opposition from the bar. 164 Indeed, the opposition to the Rule 11 proposals was so strong that opponents almost succeeded in blocking the 1983 proposed amendments in Congress. 165 The Democratic-controlled House passed a bill to prevent the proposed amendments from taking effect. In the Republican-controlled Senate, however, although a bill to delay their effectiveness was sitting in the well of the Senate on the appropriate morning[,]... no one hauled it out Id. at Id. at Id. at Order Amending the Federal Rules of Civil Procedure, 446 U.S. 997, 1000 (1980) (dissenting statement of Powell, J., joined by Stewart & Rehnquist, JJ.). 164 See RULE 11 IN TRANSITION: THE REPORT OF THE THIRD CIRCUIT TASK FORCE ON FEDERAL RULE OF CIVIL PROCEDURE 11, at 3 (Stephen B. Burbank reporter, 1989) [hereinafter RULE 11 IN TRANSITION]; Burbank, Role of Congress, supra note 141, at Since blocking proposed amendments requires legislation, opponents must navigate the separation of powers and checks and balances gauntlet previously discussed. See supra text accompanying notes ARTHUR R. MILLER, THE AUGUST 1983 AMENDMENTS TO THE FEDERAL RULES OF CIVIL PROCEDURE: PROMOTING EFFECTIVE CASE MANAGEMENT AND LAWYER RESPONSIBILITY 1 (1984). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

200 1590 University of Pennsylvania Law Review [Vol. 162: 1543 From sanctions and case management, the Civil Rules Committee turned its attention to Rule 68 on offers of judgment, which seeks to promote settlements through financial incentives that are keyed to a comparison of a rejected offer and a subsequent judgment. 167 In 1983, the rulemakers proposed amendments that were ostensibly designed to enhance the Rule s effectiveness, the most controversial of which was to add the opponent s attorneys fees to costs as the price of guessing wrong about whether a judgment would exceed the offer. 168 One of the problems with amended Rule 11 was that it could be, and indeed was, used by some lower federal courts effectively to reverse the American Rule by employing attorneys fees as the sanction for complaints found to violate the Rule. 169 The 1983 proposal to amend Rule 68 put at risk both the trans-substantive American Rule and one-way statutory fee-shifting provisions, notably those applicable to civil rights legislation. 170 It is suggestive of the Chief Justice s influence on federal court rulemaking in the early 1980s that the Advisory Committee, all appointed by Burger, elected to forge ahead. It had barely survived the Rule 11 override effort and had been forcefully and repeatedly alerted to serious problems with its 1983 proposal to amend Rule 68, including by Robert Kastenmeier, the Democratic chair of the subcommittee of the House Judiciary Committee with jurisdiction over the federal judiciary. 171 Encouraged by the Chief Justice, 172 the Committee substituted a 1984 proposal that sought to obscure 167 See FED. R. CIV. P See Preliminary Draft of Proposed Amendments to the Federal Rules of Civil Procedure, 98 F.R.D. 339, (1983). 169 See RULE 11 IN TRANSITION, supra note 164, at 10, 13, 37; Stephen B. Burbank, The Transformation of American Civil Procedure: The Example of Rule 11, 137 U. PA. L. REV. 1925, 1947 (1989) [hereinafter Burbank, Transformation]. 170 See Stephen B. Burbank, Proposals to Amend Rule 68 Time to Abandon Ship, 19 U. MICH. J.L. REFORM 425, 428 (1986) [hereinafter Burbank, Proposals to Amend]. 171 In floor remarks on October 1, 1984, Representative Robert W. Kastenmeier argued that the 1983 proposal would have crossed the line from procedural to substantive [under the Enabling Act], and that Congress conferred a substantive right by enacting the Civil Rights Attorney Fee Award Act. 130 CONG. REC. E4104, E4105 n.3 (daily ed. Oct. 1, 1984) (statement of Rep. Kastenmeier). 172 See WARREN E. BURGER, 1985 YEAR-END REPORT ON THE JUDICIARY 12 (1985). The Chief Justice has nevertheless continued, both publicly and privately, to urge the adoption of [the 1984 Rule 68 proposal and a proposal to amend Habeas Rule 9]. Letter from Nan Aron, Laura Macklin, Judith Resnik, Dennis E. Curtis & William Genego to Hon. Robert W. Kastenmeier, Chairman, H. Subcomm. on Courts, Civil Liberties, and the Admin. of Justice 2 (June 5, 1985) [hereinafter Aron Letter], reprinted in Rules Enabling Act of 1985: Hearing Before the Subcomm. on Courts, Civil Liberties and the Admin. of Justice of the H. Comm. on the Judiciary, 99th Cong. 190, 191 (1985) [hereinafter 1985 House Hearing]. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

201 2014 Litigation Reform: An Institutional Approach 1591 the problems by switching from fee shifting to sanctions and from mandatory to discretionary consequences for failing to beat an offer of judgment. 173 Opposition persisted, including from Kastenmeier, who ultimately wrote a letter to the new Chair of the Advisory Committee giving notice that he was very concerned about the proposals. 174 Indeed, as we discuss below, over the course of three hearings in the House from 1983 to 1985, proposals to amend Rule 68 came to occupy center stage in the discussion of changes in the Enabling Act process Changes in the Process of Making Procedural Law by Federal Rule: Lessons in Control Strategy The controversies over Rule 11 and Rule 68 in the early 1980s came on the heels of a decade in which Congress for the first time blocked proposed Federal Rules the proposed Federal Rules of Evidence from becoming effective, and thereafter blocked a number of other proposed amendments, albeit mostly proposed amendments to the Federal Rules of Criminal Procedure. 176 The 1970s was, moreover, a decade in which a number of thoughtful proposals for rulemaking reform appeared in the academic and professional literature, and in which a number of bills designed to implement reforms were introduced in Congress. 177 In addition, the rule-specific controversies of the early 1980s came at about the time when (1) the Federal Judicial Center published a study, undertaken at the request of Chief Justice Burger, that comprehensively reviewed the arguments for and against changes in the Enabling Act process, 178 and (2) the American Bar Association approved a policy that advocated substantial changes in that process. 179 Both the controversy concerning the Enabling Act process and controversies arising from specific rulemaking proposals led to a series of oversight hearings in the Democratic-controlled House of Representatives one each in 1983, 1984, and The hearings were convened at the 173 See Burbank, Proposals to Amend, supra note 170, at For the text of the 1984 proposal, see id. at n Letter from Hon. Robert W. Kastenmeier to Hon. Frank M. Johnson, Jr. (July 31, 1985), quoted in Burbank, Proposals to Amend, supra note 170, at 440 n.81. Ultimately, however, the rulemakers did abandon ship. See Burbank, Proposals to Amend, supra note 170, at See infra text accompanying notes , See Burbank, Rules Enabling Act, supra note 130, at & n See id. at See WINIFRED R. BROWN, FEDERAL RULEMAKING: PROBLEMS AND POSSIBILITIES (1981); see also Burbank, Rules Enabling Act, supra note 130, at See American Bar Association Policy on the Rules Enabling Act (1982), reprinted in Rules Enabling Act: Hearings Before the Subcomm. on Courts, Civil Liberties, and the Admin. of Justice of the H. Comm. on the Judiciary, 98th Cong. 46 (1985) [hereinafter 1983 and 1984 House Hearings]. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

202 1592 University of Pennsylvania Law Review [Vol. 162: 1543 instance of Representative Robert Kastenmeier who, as previously noted, was the Democratic chair of the subcommittee of the House Judiciary Committee with jurisdiction over the federal judiciary. The first hearing focused on general issues in particular, on arguments that the Enabling Act process was insufficiently inclusive and insufficiently transparent. Much of the testimony at subsequent hearings addressed proposed legislation to implement comprehensive reforms that Kastenmeier had introduced. 180 Yet attention at those subsequent hearings increasingly turned to the question whether the rulemakers had acted, or were proposing to act, beyond the limits of the Enabling Act, thereby subverting congressional preferences. The proposals to amend Rule 68 assumed greater prominence in the 1984 and 1985 hearings, as did arguments that those proposals put at risk private enforcement regimes that Congress had carefully constructed to vindicate substantive civil rights law. Although some of the testimony and discussion at the House hearings lacked obvious ideological or partisan valence, it is difficult to so describe most of the testimony and discussion concerning Rule A submission by the Alliance for Justice an umbrella organization representing a wide range of liberal public interest groups about the 1983 and 1984 proposals specifically linked them to unsuccessful partisan attempts in Congress on behalf of the Reagan administration to curb fee shifting. 182 There was substantial overlap between the liberal public interest organizations (and their individual representatives) opposing anti private enforcement moves in the legislative and the rulemaking processes. 183 There was also substantial overlap between the organizations opposing the Rule 68 proposals, who sought to protect statutory private enforcement regimes, and the groups singled out by Powell in his 1971 memorandum as extremely active in the 180 See generally 1983 and 1984 House Hearings, supra note Professor Staszak emphasizes the ideological and partisan motivation in the post-1994 rule reform activity of Republican legislators and business lobbyists interested in retrenching tort and public interest litigation, primarily through class action reform. Staszak, supra note 20, at 173; see also id. at 188. We agree, and we stress that there also existed ideological and partisan motivation among some who opposed the Rule 68 proposals and advocated rulemaking reform in the 1980s. Although it grew more intense in the mid-1990s, partisan and ideological conflict over the Federal Rules of Civil Procedure emerged in Congress in the early to mid-1980s. 182 See Testimony of the Alliance for Justice on the 1984 Proposal to Amend Rule 68 Before the Judicial Conference Advisory Committee on Civil Rules (Jan. 28, 1985), reprinted in 1985 House Hearing, supra note 172, at 113, 144 (referring to the fee bill discussed in Part II, supra). 183 Both the ACLU and the Alliance for Justice had publicly attacked the Reagan fee bill. See Barbash, supra note 44, at A25; Mary Thornton, Plaintiffs Legal Fess Attacked by OMB, WASH. POST, Aug. 12, 1982, at A21; see also Memorandum from Jonathan C. Rose to Edward C. Schmults, supra note 79. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

203 2014 Litigation Reform: An Institutional Approach 1593 judicial arena. 184 Burt Neuborne, then the National Legal Director of the ACLU, described the story told by the traditional rhetoric of procedure as a myth and intimated his willingness to acquiesce in exempt[ing]... procedural rules from the traditional democratic process only because (and so long as) the rulemakers produced good rules from his perspective. 185 Like others testifying at the hearings most prominently Alan Morrison of Ralph Nader s Public Citizen Litigation Group 186 Neuborne had in mind specific communities, in particular the civil rights community, whose views the Enabling Act process with unrepresentative committees that did not actively seek a broad base of information had tended to exclude. 187 These hearings culminated in amendments to the Enabling Act in the 100th Congress ( ), which was the first in which Democrats controlled both chambers since the emergence of the civil rules controversies in the early 1980s. Scholars have disagreed about the extent to which the changes in the Enabling Act process that occurred during the 1980s and the changes that were formally prescribed by statute in 1988 should be attributed to the judiciary or to Congress. 188 The dichotomy is misleading. A dynamic of institutional dialogue in the shadow of possible legislation yielded different results different winners and losers on a range of matters that were important to those seeking reform. Spurred by the rulemaking controversies of the 1970s and by the Chief Justice s apparent willingness to consider reform, the judiciary had experimented with some changes prior to the congressional hearings convened by Representative Kastenmeier, 189 but it was not institutionally committed to any of them until, avowedly in response to those hearings, the rulemakers finally made public a set of rulemaking procedures to which they could be held accountable (to the extent that a failure to follow internally generated procedures would have consequences). 190 Moreover, the judiciary sought to maintain as much power and autonomy as possible. Its representative, Judge Gignoux, thus 184 See Confidential Memorandum from Lewis F. Powell, Jr. to Eugene B. Sydnor, Jr., supra note 159, at 26-27; see also supra text accompanying note and 1984 House Hearings, supra note 179, at 150 (statement of Burt Neuborne, Legal Director, Am. Civil Liberties Union (ACLU)). 186 See id. at 28, 29-30, 35 (statement of Alan Morrison, Director, Pub. Citizens Litig. Grp.); see also id. at 272 (statement of Burt Neuborne). 187 See id. at (statement of Burt Neuborne). 188 See Burbank, Role of Congress, supra note 141, at 1724 n.206 (discussing differing views of Professors Bone and Geyh). 189 See, e.g., 1983 and 1984 House Hearings, supra note 179, at 4-5, 10 (statement of Hon. Edward Thaxter Gignoux, Chairman, Standing Comm. on Rules of Practice and Procedure, Judicial Conference of the United States). 190 See id. at 90 (statement of Judge Gignoux). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

204 1594 University of Pennsylvania Law Review [Vol. 162: 1543 continued to resist legislatively prescribed rulemaking procedures, arguing that legislation would lack adequate flexibility and was largely unnecessary given the action taken by the judiciary. 191 He also continued to resist a requirement of open meetings. 192 The rulemaking changes urged upon, and in some cases statutorily required of, the federal judiciary were similar to changes that Congress had imposed on executive branch advisory committees and administrative agencies in the 1970s. 193 In both domains, concern about abuse of delegated lawmaking power was attended by skepticism about the expertise of those exercising such power or the effective monopoly that deference to the claim of expertise conferred. In the 1988 legislation, Congress required rulemaking committees to hold open meetings preceded by sufficient notice to enable all interested persons to attend, to keep and make available to the public minutes of such meetings, and to provide an explanatory note with any proposed rule, as well as a report including any minority or other separate views. 194 It also lengthened the minimum period before proposed Federal Rules promulgated by the Court can become effective from three to seven months. 195 With these amendments, Congress ensured that interest groups with a perceived stake in the subject of proposed rulemaking could both provide pertinent information to the rulemakers and serve as whistleblowers in the event they thought something was seriously wrong. Congress also effectively increased the evidentiary burden on the Advisory Committee when seeking to change the status quo and increased the window of time for vetoing attempted rule changes. The goal was not to control the rulemaking function by taking it over. 196 On the contrary, numerous participants in the lawmaking process 191 See, e.g., id. at 90, 100, 103 (statement of Judge Gignoux). 192 See, e.g., 1985 House Hearing, supra note 172, at 239, 249 (Statement of Hon. Edward T. Gignoux, Chairman, Standing Comm. on Rules of Practice and Procedure, Judicial Conference of the United States); 1983 and 1984 House Hearings, supra note 179, at 11, (statement of Judge Gignoux). 193 See 1983 and 1984 House Hearings, supra note 179, at 33, 35 (statement of Alan Morrison, Director, Pub. Citizen Litig. Grp.); Burbank, Role of Congress, supra note 141, at See Judicial Improvements and Access to Justice Act, Pub. L. No , 401, 102 Stat. 4642, 4649 (1988) (codified as amended at 28 U.S.C. 2073(c)(2), (d) (2012)) [hereinafter 1988 Act]. 195 See id. 196 Professor Staszak argues that by the 1990s rulemaking authority had thoroughly shifted... to legislative dominance of the rulemaking process. Staszak, supra note 20, at 183. In contrast, we emphasize that an oft-stated goal of 1980s reformers was to extricate Congress from routine ex post monitoring. In our view, the primary brake on rulemaking since the reforms of the 1980s has not been Congress itself, where blocking a proposed Federal Rule is difficult, but the stickiness of the rulemaking status quo for which the reforms were in part responsible. Cf. Mathew D. McCubbins, Roger G. Noll & Barry R. Weingast, Administrative Procedures as Instruments of Political Control, 3 J.L. ECON. & ORG. 243, (1987) (arguing that notice-and-comment Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

205 2014 Litigation Reform: An Institutional Approach 1595 leading to the 1988 reforms lauded them for reducing the need for congressional action at the end of the process. 197 Reform was a control strategy designed, at the least, to free Congress from regular active involvement, easing the legislative costs of monitoring the rulemakers ex post. Such a strategy has no intrinsic ideological or partisan valence. However, the convergence of attacks by liberal public interest groups and Democratic members of Congress on specific products of one rulemaking process undertaken by a committee appointed by a Republican Chief Justice, and concurrent advocacy of changes to that process, reflect a more ambitious partisan or ideological agenda than is evident by considering either element in isolation. A study of the political origins of the Administrative Procedure Act (APA) supports the hypothesis that New Deal Democrats changed their position on the APA in 1946 because they feared losing control of Congress and the presidency, and they were comfortable giving federal judges most of whom had been appointed by President Roosevelt the power to check the agencies they feared would come under Republican control. The New Deal Democrats support represented, in part, a strategic use of statutory process to increase the cost and political difficulty for administrative agencies to change the status quo, in particular the laws and regulations enacted by a series of Democratic Congresses and agencies in the New Deal period. 198 This legislative strategy deployed formal administrative process in order to, among other things, empower and mobilize interest group monitoring of agency actions, and impose burdens of evidence and justification upon agencies seeking to change the status quo, thereby lessening the necessity of active oversight by Congress. 199 The changes to the rulemaking process advocated and promoted by interest groups and members of Congress in the 1980s served similar strategic goals. ACLU National Legal Director Burt Neuborne s testimony at the 1984 House hearing suggested a goal of using process changes to preserve good rules as the civil rights and civil liberties community would requirements overcome informational inequalities and, together with a requirement of written justification based on evidence, can empower groups to oppose administrative action and increase the costs of administrators to implement policies that are opposed); id. at 254 ( [A]n important function of administrative procedures is to provide a means of inducing bureaucratic compliance that does not require the time, effort, and resources of political actors. ). 197 See, e.g., 1983 and 1984 House Hearings, supra note 179, at 33, 38 (statement of Alan Morrison); id. at (introductory remarks of Hon. Robert W. Kastenmeier); Letter from Stephen B. Burbank to Hon. Robert Kastenmeier (Jan. 13, 1984), reprinted in id., at 204, See McNollgast, supra note 119, at See id. at See Generally Mathew D. McCubbins & Thomas Schwartz, Congressional Oversight Overlooked: Police Patrols Versus Fire Alarms, 28 AM. J. POL. SCI. 165 (1984). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

206 1596 University of Pennsylvania Law Review [Vol. 162: 1543 define them. 200 Under the 1980s reforms, the trans-substantive reach of Federal Rules assures monitoring by a broad swath of interest groups. Such monitoring should make it more difficult for the rulemakers to exceed their charter by providing a credible threat of whistleblowing if the rulemakers proceed with proposals deemed to be ultra vires, unsupported by evidence, or otherwise seriously objectionable. Unlike the situation under the APA, the courts are not realistically available to preserve the status quo by policing the Federal Rules compliance with the terms of the statutory delegation. The inadequacy of the Court s jurisprudence interpreting the Enabling Act s limitations was a source of complaint during the House hearings. 201 Yet, even though a goal of the Enabling Act process reforms was to lessen legislative monitoring costs, a second bite at the apple is available to organized interests that seek to preserve the status quo through the provision requiring proposed Federal Rules to lie before Congress before becoming effective. 202 After 1988, as before, it is difficult to muster the forces needed to pass legislation that blocks a Federal Rule promulgated by the Supreme Court. Moreover, securing such legislation may be especially difficult because a vote against a proposed trans-substantive Federal Rule may help some constituents or interests while harming others. 203 It is rather the 1980s process changes, combined with other influences promoting institutional self-restraint, that make bold reforms difficult to achieve. 204 Although Holmes famously observed that [i]gnorance is the best of law reformers, 205 he did not mean that it produces the best law reforms. Traditionally, Federal Rules were more often based on limited anecdotal 200 See supra note 180 and accompanying text. 201 See, e.g., Aron Letter, supra note 172, at ; Letter from Stephen B. Burbank to Hon. Robert Kastenmeier, supra note 197, at Indeed, as we discuss below, the courts have become the major venue for those who seek to change the status quo. 202 McNollgast, supra note 119, at 181. Perhaps, however, describing the phenomenon as one of redundancy is tendentious. In the absence of effective judicial review of court rules, (the potential for) congressional review becomes the only feasible alternative. Burbank, Role of Congress, supra note 141, at For the current version of the report-and-wait provision, which gives Congress seven months to block a proposed Federal Rule or amendment, see 28 U.S.C. 2074(a) (2012). 203 Cf. William M. Landes & Richard A. Posner, The Independent Judiciary in an Interest-Group Perspective, 18 J.L. & ECON. 875, 885 (1975) (discussing the problem of congressional actions that impose costs on all who use the courts, including various politically effective groups and indeed the beneficiaries of whatever legislation the current legislature has enacted ). 204 See Burbank, Role of Congress, supra note 141, at OLIVER WENDELL HOLMES, THE COMMON LAW 64 (Mark DeWolfe Howe ed., 1963). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

207 2014 Litigation Reform: An Institutional Approach 1597 evidence than on systematic empirical data. 206 To some extent, no doubt, their epistemic shallowness reflected the time and money necessary for empirical work. But it also well served a commitment not to let facts get in the way of reforms desired by the rulemakers and those who influenced them, and the rulemakers wish to be perceived as neutral, making choices behind a veil of ignorance. 207 Empirical study is a threat to ignorance and thus to claims of neutrality. C. Bad Habits Die Hard: The 1993 amendments to Rule 11 demonstrated the power of systematic empirical data to discipline improvident rulemaking, albeit ex post, confirming the existence of an empirical vacuum underlying the version of Rule 11 the rulemakers replaced. Unfortunately, however, they were paired with amendments on required disclosures under Rule 26 that reflected the rulemakers determination to regain institutional leadership an impulse that overwhelmed calls to wait for the fruits of experience. 208 The fact that the disclosure proposals elicited a vigorous dissent from Supreme Court Justices 209 and, as with Rule 11 in 1983, only barely escaped legislative override 210 should have encouraged a return to empiricism, as recommended in the judiciary s 1995 self-study of rulemaking. 211 But bad habits die hard, particularly when they serve institutional or ideological interests. 206 See Stephen B. Burbank, Ignorance and Procedural Law Reform: A Call for a Moratorium, 59 BROOK. L. REV. 841, 841 (1993) [hereinafter Burbank, Ignorance and Procedural Law Reform]; supra text accompanying note Paul D. Carrington, Making Rules to Dispose of Manifestly Unfounded Assertions: An Exorcism of the Bogy of Non-Trans-Substantive Rules of Civil Procedure, 137 U. PA. L. REV. 2067, 2079 (1989). But see Burbank, Transformation, supra note 169, at ( A veil of ignorance may be an apt metaphor to describe federal rulemaking to date. It is not, I contend, an appropriate normative posture for the rulemakers of the future. ). 208 See Burbank, Ignorance and Procedural Law Reform, supra note 206, at See AMENDMENTS TO THE FEDERAL RULES OF CIVIL PROCEDURE AND FORMS: COMMUNICATION FROM THE CHIEF JUSTICE OF THE UNITED STATES, H.R. DOC. NO , at 104 (1993) [hereinafter H.R. DOC. NO ] (dissenting statement of Scalia, J., joined by Thomas, J. and, as to the disclosure rules, Souter, J.). 210 See 140 CONG. REC. S7149 (daily ed. June 20, 1994) (statement of Sen. Heflin) ( Both the House and Senate relevant committees concluded that the bar protests should be honored and that the rules should be changed; however, tangles in our own procedures prevented the more objectionable proposals from being deleted and all of the proposed changes went into effect on December 1, ). 211 See A Self-Study of Federal Judicial Rulemaking: A Report from the Subcomm. on Long Range Planning to the Comm. on Rules of Practice, Procedure & Evidence of the Judicial Conference of the United States, 168 F.R.D. 679, 699 (1995). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

208 1598 University of Pennsylvania Law Review [Vol. 162: 1543 Much of the Advisory Committee s work during the 1990s was devoted to class action reform and to attempts to reach out to and reflect the concerns of the practicing bar. The latter were largely unsuccessful, as proposed amendments on jury size, which were supported by extensive social science research, and voir dire were squelched by the Judicial Conference and Standing Committee respectively, 212 and the Chair of the Advisory Committee was not reappointed to a second term. 213 Under new leadership and with Congress under Republican control, the Advisory Committee relied on persistent calls from the organized bar and business community to calibrate discovery by restricting its scope, eliminating the right to subject matter discovery and making it available only upon a showing of good cause. One might draw the inferences from the Advisory Committee s 2000 note on the scope change that (1) some interest groups count more than others, and (2) those interest groups also count more than empirical evidence, at least if they are persistent. 214 Methodologically sound empirical data concerning discovery have been remarkably consistent in debunking claims of ubiquitous abuse or excess made by bar organizations and the business community over the last forty 212 See Stephen B. Burbank, Implementing Procedural Change: Who, How, Why, and When?, 49 ALA. L. REV. 221, (1997). 213 In the last year of his three-year term, shortly before the Advisory Committee returned to discovery, Judge Higginbotham observed: Congress has elected to use the private suit, private attorneys-general as an enforcing mechanism for the anti-trust laws, the securities laws, environmental laws, civil rights and more. In the main, the plaintiff in these suits must discover his evidence from the defendant. Calibration of discovery is calibration of the level of enforcement of the social policy set by Congress. Higginbotham, supra note 140, at See FED. R. CIV. P. 26(b)(1) advisory committee s note to the 2000 amendments; Paul V. Niemeyer, Here We Go Again: Are the Federal Discovery Rules Really in Need of Amendment?, 39 B.C. L. REV. 517, 520 (1998) (observing that it is the persistence of complaints and questions about the merit of broad discovery and its expense that, at bottom, has caused the Committee to take another look ). Those inferences also find support in the breathless memorandum that Robert Campbell, the Chair of the American College of Trial Lawyers Committee on Federal Civil Procedure, sent to his fellow members in September 1999 to report the extremely good news that the Judicial Conference had approved by a close vote the College proposal (substantially adopted by the Advisory Committee) to amend Rule 26(b)(1) changing the primary scope of discovery from subject matter to claims and defenses. Memorandum from Robert S. Campbell, Jr., Comm. Chair, to Members, Fed. Civil Procedure Comm., American College of Trial Lawyers 1 (Sept. 16, 1999) (on file with authors). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

209 2014 Litigation Reform: An Institutional Approach 1599 years. 215 From the perspective of putative abuse, in other words, the discovery landscape did not appear meaningfully different in the run-up to the 2000 amendments than it had in 1980, when Justice Powell dissented from the promulgation of tinkering changes. 216 Nor, alas, did the claims of those seeking to curtail discovery. An abiding lack of reliable empirical evidence did not cause them to change their tune, a strategy of blinkered persistence that finally paid off (with a different group of rulemakers). D. Procedure and Litigation Reform: Rulemaking as Democratic Legislation: The Stickiness of the Status Quo A commitment to reliable empirical data was critical to the abandonment of flawed rulemaking proposals in the decade after 2000, and prominent rulemakers cited that phenomenon as proof that the Enabling Act process works well. 217 The deeper epistemic foundation that results from an open process and from greater commitment to empirical study also helps to explain why rulemaking largely escaped controversy in that decade. Another important contributing factor was the rulemakers commitment to take the Enabling Act s limitations seriously, whether prompted by the Rule 68 controversies, the Chief Justice s inaccurate assurance in 1988 that they had always done so, 218 or scholarly literature demonstrating fundamental errors in the 215 See, e.g., EMERY G. LEE III & THOMAS E. WILLGING, FED. JUDICIAL CTR., FEDERAL JUDICIAL CENTER NATIONAL, CASE-BASED CIVIL RULES SURVEY: PRELIMINARY REPORT TO THE JUDICIAL CONFERENCE ADVISORY COMMITTEE ON CIVIL RULES (2009), available at Danya Shocair Reda, The Cost-and-Delay Narrative in Civil Justice Reform: Its Fallacies and Functions, 90 OR. L. REV. 1085, (2012) (discussing the 2009 FJC study); id. at ( Nearly every effort to quantify litigation costs and to understand discovery practice over the last four decades has reached results similar to the 2009 FJC study. ). 216 See supra text accompanying note See Mark R. Kravitz, David F. Levi, Lee H. Rosenthal & Anthony J. Scirica, They Were Meant for Each Other: Professor Edward Cooper and The Rules Enabling Act, 46 U. MICH. J.L. REFORM 495, (2013); cf. Richard Marcus, Shoes That Did Not Drop, 46 U. MICH. J.L. REFORM 637, 637 (2013) ( [W]hat the Advisory Committee on Civil Rules does not do is, in some ways, as important as what it does. ). The phenomenon is not confined to court rulemaking. See Daniel Freeman Engstrom, Harnessing the Private Attorney General: Evidence from Qui Tam Litigation, 112 COLUM. L. REV. 1244, (2012) ( One reason litigation politics have become so dysfunctional in recent decades is a lack of empirical data that can inform public debate. ). 218 Chief Justice Rehnquist wrote a letter as part of a successful effort to persuade the House not to insist on eliminating the Enabling Act s supersession clause, pursuant to which valid Federal Rules supersede previously enacted statutes with which they are inconsistent. Inflating the rulemakers restraint, the Chief Justice asserted that the rulemakers have always been keenly aware of the special responsibility they have in the rules process and the duty incumbent upon Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

210 1600 University of Pennsylvania Law Review [Vol. 162: 1543 Supreme Court s interpretations of those limitations and documenting the effort to change them in the 1988 legislation. 219 This additional source of self-restraint also influenced the abandonment of rulemaking proposals and furnished additional evidence for those celebrating the Enabling Act process. 220 Opening the process to diverse sources of information, anecdotal and empirical, may have triggered institutional dynamics that were less likely to operate when rulemaking committees were dominated by non-judges and when rulemaking was the product of a relatively cloistered culture. 221 Smart people operating as part of a group may be perfectly willing to make decisions on the basis of their pooled reflections. Particularly if they can claim expertise or are confident about their power, they may also be willing to recommend bold action that they deem normatively desirable without worrying about empirical support and without any rigorous attempt to assess costs and benefits. However, when those people are judges, and when reason must be exercised on an evidentiary record more complete than judicial experience and common sense, 222 they may be reluctant to become involved in controversies in which their decisions can be tarred with a political label. This is especially true when the decisionmakers monopoly of expertise is in question, in part because the effect of potential policy choices on substantive rights is plain for all to see. The rulemakers are not courts, and rulemaking under the Enabling Act is not an exercise of judicial power them not to overreach their charter, and he further advised the House leadership that [t]he advisory committees should undertake to be circumspect in superseding procedural statutes. Letter from Hon. William H. Rehnquist, Chief Justice of the United States, to Rep. Peter W. Rodino, Jr., Chairman, H. Comm. on the Judiciary (Oct. 19, 1988), reprinted in 134 CONG. REC. H10,441 (daily ed. Oct. 19, 1988). 219 See, e.g., Burbank, Rules Enabling Act, supra note 130, at 1023; see also Stephen B. Burbank, Hold the Corks: A Comment on Paul Carrington s Substance and Procedure in the Rules Enabling Act, 1989 DUKE L.J. 1012, The latter article discussed the legislative history of the 1988 statutory reforms, which clearly signaled congressional unhappiness with the way in which the Supreme Court had interpreted the Enabling Act s limitations. We have, then, a situation in which the body responsible for developing amendments to legislation sought through detailed legislative history to guard against the assumption that similar statutory language should be given the same meaning by the courts, while the expectations of the other body in that regard remain unclear. Id. at See Burbank, Role of Congress, supra note 141, at 1737 (discussing abandonment of proposals to address in Federal Rules problems stemming from duplicative or overlapping class actions ); Kravitz et al., supra note 217, at (same). 221 Patrick E. Higginbotham, Iron Man of the Rules, 46 U. MICH. J.L. REFORM 627, 628 (2013). 222 Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

211 2014 Litigation Reform: An Institutional Approach 1601 under Article III. It is essentially a legislative activity, not a judicial activity, and federal judges are understandably reluctant to be seen as active participants in a political process. Although Chief Justice Burger did not succeed in extricating the Supreme Court from the Enabling Act process in the 1980s, 223 Justices have been at pains to distance the Court from responsibility for the content of Federal Rules. 224 Finally (and relatedly), we believe that the influence of these institutional dynamics may depend on the qualities of those who lead the rulemaking committees. In that regard, during most of the period since 2000, perhaps the three most influential rulemakers for these purposes all had close ties to academia, which houses an audience likely to notice and reprove rulemaking proposals that lack empirical foundation, test the limits of the Enabling Act, or disproportionately burden identifiable groups of litigants. 225 Thus, the 1988 reforms assimilated the formal characteristics of the rulemaking process to those of the administrative process, and brought the landscape of rulemaking closer to that of the legislative process more generally. In combination with other influences promoting institutional self-restraint, their effect was to entrench the status quo and to render consequential reform by Federal Rule more difficult than it had been in the era of undemocratic legislation The controversies of the 1970s and early 1980s were a threat to the prestige and influence of the Court itself. Burbank, Role of Congress, supra note 141, at For the Court s initial acquiescence in the elimination of its role in the process and subsequent change of position, compare Letter from Hon. Warren E. Burger, Chief Justice of the United States, to Rep. Robert W. Kastenmeier, Chairman, Subcomm. on Courts, Civil Liberties and the Admin. of Justice of the H. Comm. on the Judiciary (May 12, 1983), reprinted in 1983 and 1984 House Hearings, supra note 179, at 195, with Letter from Hon. Warren E. Burger, Chief Justice of the United States, to Rep. Robert W. Kastenmeier, Chairman, Subcomm. on Courts, Civil Liberties and the Admin. of Justice of the H. Comm. on the Judiciary (June 25, 1984), reprinted in 1983 and 1984 House Hearings, supra note 179, at See Letter from Hon. William H. Rehnquist, Chief Justice of the United States, to Hon. Thomas S. Foley, Speaker, U.S. House of Representatives (Apr. 22, 1993), reprinted in H.R. DOC. NO , supra note 209, at 1; see also Burbank, Ignorance and Procedural Law Reform, supra note 206, at See generally BAUM, supra note 123. The three individuals are Judge Anthony Scirica, Judge Lee Rosenthal, and former Judge (now Dean) David Levi. New leaders are now in place; the rulemakers are again considering proposed amendments to the discovery rules that are intensely controversial, and it is too soon to tell whether recent restraint will endure or was an interlude in an ongoing struggle for power. For comments on the current proposed amendments an astonishing number of them, exceeding 2350 and transcripts of the public hearings, see Proposed Amendments Published for Public Comment, U.S. COURTS, RulesAndPolicies/rules/proposed-amendments.aspx (last visited May 12, 2014). 226 See generally Geoffrey C. Hazard, Jr., Undemocratic Legislation, 87 YALE L.J (1978) (book review). Professor Freer recently criticized the rulemakers for hyperactivity, most of which in his opinion is aimed at trivia. He attributed the dearth of substantial rulemaking to a combination of four influences: uncertainty about the Enabling Act s limitations, congressional intermeddling, Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

212 1602 University of Pennsylvania Law Review [Vol. 162: 1543 As one example, the rulemakers have recurrently flirted with proposals to tighten up the pleading rules in the years after the Supreme Court s resounding 1957 defense of notice pleading in Conley v. Gibson. 227 Even after two subsequent Supreme Court decisions that could be viewed as inviting rulemaking on the subject, 228 however, they concluded that the game was not worth the candle, probably because any such proposal would generate significant controversy with inescapable political overtones. 229 As another example, starting in 2006, the rulemakers considered whether they should pursue potentially significant changes to Rule 56 on summary judgment. Conscious of potential Enabling Act objections and assured political controversy, 230 however, they focused on proposals ostensibly designed to improve the process for ruling on summary judgment motions. They abandoned the most prominent of those proposals when testimony and written comments from numerous witnesses, including trial court judges, and empirical data demonstrated that it might not yield the benefits sought and could have a statistically significant adverse effect on plaintiffs in civil rights and employment discrimination litigation. 231 Although cited by rulemakers as an example of the Enabling Act process working, 232 the experience contributed to Gregory Joseph s description of the rulemakers as having an instinct for the capillary. 233 politicization of the rulemaking process, and inconsistent signals from the Supreme Court. Richard D. Freer, The Continuing Gloom About Federal Judicial Rulemaking, 107 NW. U. L. REV. 447, 450 (2013). We regard this account as historically tone deaf and institutionally naïve. For instance, it ignores the controversies and rulemaking excesses that led to the process reforms of the 1980s, and the Chief Justice s 1988 letter to Congress. The report-and-wait provision in the Enabling Act has always permitted Congress to look over the [rulemakers ] shoulder, id. at 473, and a major goal animating the 1988 reforms was to enable Congress to disengage. In addition, the account s seeming celebration of closed-door rulemaking is both historically inaccurate and, in 2013, puzzling U.S. 41 (1957). 228 See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 515 (2002); Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168 (1993); Freer, supra note 226, at See Burbank, Transformation, supra note 169, at ; Marcus, supra note 217, at 646; see also Stephen B. Burbank, Pleading and the Dilemmas of Modern American Procedure, 93 JUDICATURE 109, 117 (2009) [hereinafter Burbank, Pleading and Dilemmas] ( [O]nce entrenched... [notice pleading] became part of the status quo and thus was highly resistant to change through the lawmaking process that brought it forth.... ). 230 See, e.g., Memorandum from Steve Burbank to Michael M. Baylson & Lee H. Rosenthal 3 (Jan. 20, 2007) (on file with authors). 231 See Kravitz et al., supra note 217, at ; Letter from Stephen B. Burbank to Peter G. McCabe, Sec., Comm. on Rules of Practice & Procedure (Jan. 28, 2009) (on file with authors). 232 See Kravitz et al., supra note 217, at 524 (concluding that the rulemaking episode resulted from the robust, transparent, and highly effective process under the Rules Enabling Act ). 233 Gregory P. Joseph, An Instinct for the Capillary, LITIG., Summer/Fall 2012, at 9, 9. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

213 2014 Litigation Reform: An Institutional Approach 1603 Finally, by way of example, the rulemakers studied possible class action reforms for more than a decade, supported by the empirical research of the Federal Judicial Center. The changes they recommended, which went into effect in 1998 and 2003, avoided the core elements of the rule and were far more restrained than class action opponents advocated. 234 One of those changes, however, is of special interest for present purposes because it enabled and highlighted another path to civil litigation reform. 2. The New Undemocratic Legislation: Making Procedural Law the Old-Fashioned Way a. The Cases A 1998 amendment to Rule 23, which permits courts of appeals in their discretion to entertain immediate appeals from class certification decisions, 235 substantially expanded the opportunities for federal appellate courts, including the Supreme Court, to control the course of class action jurisprudence. And control it they have, to the point that the legal mechanism Congress chose to deal with abuses resulting from state courts certifying national classes was to enable most such cases to be brought in or removed to federal courts, where class action opponents had reason to hope that most of them would simply disappear. 236 It was, again, a procedural mechanism, this time involving the subject matter jurisdiction of the federal courts. Most of this jurisprudence was first developed by the courts of appeals, 237 but in recent years the Supreme Court has focused on class actions. A majority of the Court has appeared to bless court of appeals decisions that made class certification more difficult by assimilating the governing procedures to trial procedures through the imposition of evidentiary requirements and burdens, 238 thereby further ensuring that in most cases, no matter what the certification decision, there would be no trial. Although most of the changes in class action jurisprudence thus effected can plausibly be grounded in the interpretation of Rule 23, particularly as 234 See Kravitz et al., supra note 217, at See FED. R. CIV. P. 23( f). 236 See Class Action Fairness Act of 2005, Pub. L. No , 119 Stat. 4 (codified as amended in scattered sections of 28 U.S.C.); Stephen B. Burbank, Aggregation on the Couch: The Strategic Uses of Ambiguity and Hypocrisy, 106 COLUM. L. REV. 1924, (2006). 237 See Stephen B. Burbank, The Class Action Fairness Act of 2005 in Historical Context: A Preliminary View, 156 U. PA. L. REV. 1439, (2008). 238 See, e.g., Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1433 (2013); Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, (2011); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 321 (3d Cir. 2008). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

214 1604 University of Pennsylvania Law Review [Vol. 162: 1543 amended in 2003, 239 some Justices in the Court s conservative majority have made little effort to conceal their hostility to class actions and the lawyers who bring them. 240 It is thus no surprise that the concept of interpretation has been stretched to the breaking point, as it was on the question of commonality under Rule 23(a)(2) in Wal-Mart Stores, Inc. v. Dukes. 241 Examples from the domain of pleading provide the most vivid demonstration of both the power of the Supreme Court to reform litigation through supposed interpretation of Federal Rules, and the importance of historical, institutional, and political perspectives on litigation reform. We have seen that the framers of the 1938 Federal Rules rejected both common law and code pleading, criticizing attempts to identify facts as opposed to conclusions, and preferring discovery to pleading as the means to ascertain what happened. 242 The Court embraced this approach in dictum in Hickman v. Taylor, 243 and it embraced it squarely in its 1957 Conley decision, which can be seen as approval of the Advisory Committee s previous rejection of calls for a return to fact pleading through rulemaking. 244 Thereafter, in two cases decided over the ten year period from 1993 to 2002, the Court twice reversed lower court decisions that sought to impose heightened pleading requirements in particular substantive contexts, reasserting the traditional interpretation of the pleading rules and observing that change would have to come from the rulemaking process or from Congress See, e.g., In re Hydrogen Peroxide Antitrust Litig., 552 F.3d at 320 (relying on 2003 amendments to Rule 23 for the conclusion that a trial court must consider carefully all relevant evidence and make a definitive determination that the requirements of Rule 23 have been met before certifying a class"). 240 See Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2320 (2013) (Kagan, J., dissenting) ( To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled. ). 241 See 131 S. Ct. at 2562, (Ginsburg, J., dissenting); John C. Coffee, Jr. & Alexandra D. Lahav, The New Class Action Landscape: Trends and Developments in Class Certification and Related Topics 12-13, (Columbia Law Sch. Ctr. for Law & Econ. Studies, Working Paper No. 435, 2012), available at For a more nuanced reading of Wal-Mart, under which it is less vulnerable to criticism on this ground, see Tobias Barrington Wolff, Managerial Judging and Substantive Law, 90 WASH. U. L. REV. 1027, (2013) (arguing that the Court s Rule 23(a)(2) holding was driven in part by Title VII). 242 See supra text accompanying notes U.S. 495, 501 (1947). 244 See Has the Supreme Court Limited Americans Access to Courts?: Hearing Before the S. Comm. on the Judiciary, 111th Cong. 90 (2009) [hereinafter Has the Supreme Court Limited Americans Access to Courts?](statement of Stephen B. Burbank, David Berger Professor for the Admin. of Justice, Univ. of Pa.). 245 See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 515 (2002); Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168 (1993); see also Crawford-El v. Britton, 523 U.S. 574, 595 (1998); supra text accompanying note 220. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

215 2014 Litigation Reform: An Institutional Approach 1605 Yet, as we have also seen, the status quo is difficult to change through legislation and, with respect to important procedural issues since the reforms of the 1980s, the rulemaking process. Indeed, inaction in the face of resurgent calls to move to fact pleading was one of the examples we gave of the stickiness of the status quo in contemporary federal court rulemaking. The Chief Justice not only appoints all members of the rulemaking committees; he meets regularly with the chairs of the key rulemaking committees. It is thus inconceivable that the current Chief Justice was unaware of the Advisory Committee s decision not to pursue pleading reform. More generally, particularly because Chief Justice Roberts participated in the unsuccessful campaign for a broad fee bill as a member of the Reagan Justice Department, 246 it is unlikely that he was unaware of the reality that consequential reform, if it were to occur, would have to come from the courts in the guise of interpreting existing Federal Rules. Nor can the decisions avoid the charge of judicial lawmaking (here, judicial amendment) by the insight that judicial interpretation and judicial lawmaking shade into each other. The Court itself has provided an objective standard for distinguishing the two when a Federal Rule promulgated under the Enabling Act is in question. Thus, in order to protect the Enabling Act process, that statute s limitations on rulemaking, and the power it accords Congress to review and, if necessary to block, prospective procedural policy choices, the Court has foreclosed from treatment as mere interpretation (or reinterpretation) the practice of giving meaning to a Federal Rule that is different from the meaning the Court understood upon its adoption. 247 The Court s recent pleading decisions were certainly bold. Particularly when one considers that an effort to overrule them in a Congress controlled by Democrats failed rather miserably, they demonstrate the importance of institutions and institutional dynamics to litigation reform. 248 On the basis of information provided in one case, a one-judge majority of the Supreme Court whose members are unelected, serve for life, and are insulated from individual if not institutional reprisal can bring about momentous civil litigation reform that would be impossible to secure from the legislature or its delegated procedural lawmaking bodies See supra notes and accompanying text. 247 Ortiz v. Fibreboard Corp., 527 U.S. 815, 861 (1999); see also Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997). 248 See generally Has the Supreme Court Limited Americans Access to Courts?, supra note We agree with Professor Staszak that such decisions are a good example of retrenchment through conversion once barriers for authoritative change [through amendments to the Federal Rules] rose.... Staszak, supra note 20, at 188. As previously noted, however, we believe that the Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

216 1606 University of Pennsylvania Law Review [Vol. 162: 1543 Wal-Mart, Twombly, and Iqbal are a few recent examples of the Court using its Article III judicial power to achieve results that would have been very difficult or impossible to achieve through the exercise of delegated legislative lawmaking power under the Enabling Act. In addition, in our view, all of the decisions strained any principled distinction between judicial interpretation and judicial amendment. Finally, all of them involved interpretations that are inimical to private enforcement, and in most there was a clear divide in the votes of Justices generally thought to be conservative and those generally thought to be liberal. Having expressed concern in Part III that such accounts of litigation involving private rights of action, standing, attorneys fees, and arbitration may not reflect an unbiased (in the statistical sense) view of the Court s decisions on those issues, 250 we acknowledge the possibility of similar concern as to cases involving the interpretation of the Federal Rules of Civil Procedure. We therefore turn here, as we did there, to statistical analysis of comprehensive data. b. The Justices Votes in Federal Rules Private Enforcement Cases We identified all cases from 1970 to 2013 in which the Supreme Court decided an issue that turned on interpretation of a Federal Rule of Civil Procedure, where the result would either widen or narrow opportunities or incentives for private enforcement. The search yielded 50 cases, 251 containing 51 issues and 445 Justice votes. 252 At least one of the authors read each majority, concurring, and dissenting opinion in order to assign codes to primary source of these obstacles is the stickiness of the rulemaking status quo effectuated through the reforms we have traced. See supra note See supra text accompanying note The Federal Rules most frequently interpreted in these cases, in descending order of frequency, were: Rule 23 (class actions) (12 cases), Rule 8 (pleading) (6 cases), Rule 11 (sanctions) (5 cases), Rule 56 (summary judgment) (5 cases), Rule 15(c) (relation back) (3 cases), Rule 50 (judgment as a matter of law) (3 cases), Rule 68 (offers of judgment) (3 cases), Rule 3 (commencement) (2 cases) Rule 23.1 (derivative actions) (2 cases), and Rule 24 (intervention) (2 cases). Rules 4, 16, 19, 37, 54, 59 and 65 were at issue in 1 case each. 252 We excluded from the data set cases that merely cited a Federal Rule, cases in which the decision of an issue did not turn on an interpretation of a Federal Rule, habeas cases, cases not implicating private enforcement, and cases in which the interpretation of a Federal Rule could not fairly be characterized as either pro or anti private enforcement. We acknowledge that, as a result, the data on which to base empirical analysis are limited. On the other hand, this is the full universe of cases that actually turn on interpretation of the Federal Rules and that bear directly on private enforcement. Moreover, the trans-substantive nature of the Federal Rules means that such decisions are often considerably more far-reaching than decisions interpreting the private enforcement provisions of individual statutes. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

217 2014 Litigation Reform: An Institutional Approach 1607 each Justice s position: anti private enforcement (=0), pro private enforcement (=1), and missing if the Justice did not take a position on the issue. Table 6: Percent Pro Private Enforcement Votes in Federal Rules Cases Justice Pro Private Enforcement Votes (%) Number of Issues Conservative Average Martin Quinn Score Powell Thomas Scalia Roberts Stewart Rehnquist Kennedy Alito Souter Burger O Connor White Marshall Ginsburg Blackmun Stevens Breyer Brennan Sotomayor Kagan Table 6 lists the raw proportion of pro private enforcement votes, relative to total votes, for each Justice who voted in more than five cases in our data, along with their conservative versus liberal designation according to the Martin Quinn median and their Martin Quinn score. 253 Although the specific ordering changes as compared to our non-federal Rules private enforcement cases (displayed in Table 4), the distribution from the lowest to highest ratio of pro private enforcement votes is very similar. Dividing the 253 See supra Section III.B. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

218 1608 University of Pennsylvania Law Review [Vol. 162: 1543 Justices into conservatives and liberals in Table 6 demonstrates that it again effectively predicts whether a Justice is above or below the median ratio of pro private enforcement votes in Federal Rules cases. Only Justice Souter defies expectations. Excluding this one Justice out of twenty, every conservative has a lower pro private enforcement voting rate in the Federal Rules cases than every liberal. Figure 7: Case Outcomes and Justice Votes in Federal Rules Private Enforcement Cases Figure 7 plots a LOWESS curve estimating the probability of an outcome in favor of private enforcement in the Federal Rules cases over time, and the probability of votes in favor of private enforcement separately for conservative and liberal Justices. The figure reflects that the estimated probability of a pro private enforcement Federal Rules outcome declined from 78% in 1970 to 34% in This decline occurred first with a 35 percentage point drop in probability from 1970 to the late 1980s; a plateau for roughly two decades; and then an additional 9 percentage point decline in about the past five years. As with the non-federal Rules private enforcement votes, the decline has been substantially driven by the votes of conservative Justices in the majority, whose estimated probability of a pro private enforcement vote declined from 60% to 29% over this period. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

219 2014 Litigation Reform: An Institutional Approach 1609 The estimated probability of a pro private enforcement vote by liberal Justices declined for the first decade of the series, plateaued from about 1980 to 2000, and then increased significantly after about On net, liberal pro private enforcement votes actually increased from 82% to 92% over the full period. What is perhaps most notable about this graph is that from 1970 to the end of the 1990s, the liberal and conservative probabilities of a pro private enforcement Federal Rules vote moved in rough parallel, with liberals consistently about 20 percentage points more pro private enforcement on average. After about 2000, however, the distance between the two groups of Justices widened considerably, ending the series separated by 63 percentage points in the estimated probability of a pro private enforcement vote. By 2013, as was true of the other private enforcement issues we analyze, outcomes on Federal Rules issues approximately converge with the votes of conservative Justices. 254 Figure 8: FRCP Private Enforcement Cases per Term, and Proportion with Dissents 254 As noted in Part III, we acknowledge that there may be variation over time in the frequency of highly salient, large-impact cases. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

220 1610 University of Pennsylvania Law Review [Vol. 162: 1543 Figure 8 reflects LOWESS estimates of the number of Federal Rules cases decided each year, and the proportion of them in which there was a dissent. The number of such cases on the Court s docket grew from the early 1970s into the early 1980s, plateaued for two decades, and then spiked over the past ten years. The likelihood of a dissent follows a similar pattern: it grows from the early 1970s to the early 1980s, plateaus for two decades, and then spikes in the last decade, rising from an estimated 52% likelihood of a dissent in 2001 to an 84% likelihood in Although the percentage of dissents in the other private enforcement cases we analyzed increased during the same period, the growth was by only 4 (as opposed to 32) percentage points. Thus, our limited Federal Rules cases suggest significant changes over the past decade. The Court has devoted more attention to these issues on its docket; the decisions are more likely to produce dissents, and liberals and conservatives appear to be increasingly polarized in their voting behavior. 255 By contrast, with respect to the non-federal Rules cases we analyzed, both the number of cases and the dissent rate have been relatively flat during this period, and although conservative and liberal Justices have continued to drift further apart in their voting behavior, the growth in polarization is notably less stark. 255 Scholars have made similar findings concerning the Court s business decisions, and a similar phenomenon may explain both of these trends: the increasing conservatism of the Court resulted in the Court s taking cases in which the conservative position was weaker than previously, leading to more opposition by liberal Justices and hence to a higher percentage of liberal votes by those Justices in business cases. Epstein et al., supra note 90, at An alternative explanation is that it took time for some of the Court s liberals to realize what was going on. See Burbank, Pleading and Dilemmas, supra note 229, at 114 (describing failure of Justices Souter and Breyer to realize that Twombly could fundamentally alter the role of litigation in American society as understandable but, at least in retrospect, naïve ). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

221 2014 Litigation Reform: An Institutional Approach 1611 Table 7: Logit Model of Justice Votes in Private Enforcement Federal Rules Cases, with Case Fixed Effects Coefficient Marginal Effect Ideology (Martin Quinn) -.30* (.12) Ideology*Post-1994 Dummy -.80** (.25) N= 257 Pseudo R 2 =.30 ***<.001; **<.01; *<.05 Standard errors in parentheses, clustered on Justice Table 7 reports logit models with case fixed effects. The models are parallel to those presented in Table 5 for non-federal Rules private enforcement cases. 256 The main effect of the ideology variable is significant. Because the interaction is included, this variable reflects the effects of ideology only in the period from 1970 to The marginal effect for the coefficient is -.048, which means that for each unit increase in a Justice s Martin Quinn score, there is a corresponding reduction of about 5% in the probability of a pro private enforcement vote. Moving from the mean ideology score of a liberal Justice to a conservative Justice (as defined in Part III) is associated with a 17% reduction in the probability of a pro private enforcement vote. It is notable that the magnitude of the effect, although substantively significant, is only about half of that observed in the models that pooled our other private enforcement issues. Thus, although there is clearly ideological voting on Federal Rules issues in the period from 1970 to 1994, the cases are characterized by a notably smaller degree of it relative to our other private enforcement cases. Procedure in that period looks different. In the period, the net effect of the difference between a liberal and a conservative grew to 62%. Relative to the effect of ideology in the period (a 17% difference), it grew by 167% in the period. Thus, the rate of growth in the effect of ideology for Federal Rules cases was much larger than we observed in the other private enforcement 256 For our previous discussion of the details of the model specifications, see supra Section III.B. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

222 1612 University of Pennsylvania Law Review [Vol. 162: 1543 cases. The effect of ideology in Federal Rules cases went from about half the effect in other private enforcement cases in the period, to about the same in the period. Indeed, as we discuss in the Appendix, after 2000 ideology had a materially larger effect in the Federal Rules cases. If procedure had once been less ideological, times changed. 257 Finally, we again acknowledge the many influences in addition to ideology that may have influenced the Justices votes in Federal Rules cases. 258 As previously discussed, use of case fixed effects analysis requires some division among the Justices, with the result that unanimous decisions, where we would expect the influence of law and rule of law values to be greatest, cannot be included. Another influence that this approach does not permit us to measure is what we have called institutional self-interest. One of the Court s Federal Rules decisions where that influence in the form of an attempt to mitigate the difficulties and costs of seating larger juries, particularly in rural districts may have played a major role is Colgrove v. Battin, a 1973 civil case in which a five Justice majority upheld a district court rule providing for six-person juries against challenges under the Seventh Amendment, the Rules Enabling Act, and federal law requiring local rules to be consistent with the Federal Rules. 259 Yet case fixed effects analysis does permit us to measure with confidence the influence of ideology in divided Federal Rules cases implicating private enforcement. The results show just how far we have come from the traditional conception of, and rhetoric about, procedure as technical details or adjective law. 257 As with our other private enforcement cases, we observe similar growth in the effect of ideology by running regressions on subsets of the data for 1970 to 1994, and 1995 to See supra text accompanying notes U.S. 149, 160 (1973). We agree with those dissenting Justices who argued that the Court distorted the meaning of Federal Rule 48 in order to find no conflict. See id. at 165 (Douglas, J., joined by Powell, J., dissenting); id. at (Marshall, J., joined by Stewart, J., dissenting). Because, however, we do not believe the result can reasonably be deemed either pro- or anti private enforcement, we did not include Colgrove in our data set. In the 1990s, the institutional interests vindicated in Colgrove were joined by the institutional interest against disrupting courthouse construction plans that assumed smaller juries, and the combination sufficed to defeat an Advisory Committee proposal to return to a norm of twelve-person civil juries. See supra text accompanying note 212. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

223 2014 Litigation Reform: An Institutional Approach 1613 CONCLUSION Viewing the modern history of federal law that affects private enforcement in institutional context enables us to see that, in the long campaign for retrenchment that began in the Reagan administration, consequential reform has proved even more difficult to accomplish by statute than have other proposed changes to the status quo, particularly because the object of reform conferred rights with a substantial base of support in American politics. Recognizing that, as Lewis Powell had written in 1971, the courts were fertile and unploughed territory for such a campaign, those seeking to retrench private enforcement turned to that institution and were well rewarded. Litigation seeking to narrow private rights of action, attorneys fee awards, and standing, and to expand arbitration, achieved growing rates of voting support from an increasingly conservative Supreme Court, particularly over the past two decades. An institutional perspective that recognizes interactions and competition for power also enables us to see how the judiciary s control of procedure can be, and has been, central to the campaign to retrench private enforcement, particularly in the last decade. Once a major element of the infrastructure of progressive private enforcement, the Federal Rules of Civil Procedure became for a brief time the lawmaking territory in which a newly assertive institutional judiciary, intent through its leadership to dictate and control the reform agenda, sought to forge instruments of retrenchment. The ensuing controversies quickly animated interest groups and members of Congress protective of the procedural status quo to press successfully for changes in the Enabling Act process and in the rulemakers fidelity to the limits of the statutory delegation. Those changes a product of institutional bargaining in the shadow of proposed legislation and of a promise to Congress by the Chief Justice moved rulemaking closer to the administrative and legislative processes both formally and functionally, rendering bold reforms of the sort we associate with the era of undemocratic legislation in rulemaking difficult to achieve. Rulemaking is not, however, the only way that an ideologically distant or institutionally self-interested judiciary can frustrate congressional preferences concerning private enforcement. Because Federal Rules are trans-substantive, many of them are written at a relatively high level of indeterminacy and leave substantial interpretative discretion to the federal courts. Even when they are not so indeterminate, however, Federal Rules can be reinterpreted, at least by the Supreme Court, which is at no greater risk of override in doing so than it is when construing a statute. To the Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

224 1614 University of Pennsylvania Law Review [Vol. 162: 1543 extent that such decisions effectively amend the Federal Rules outside the Enabling Act process, they are today s undemocratic legislation. Whatever one s view about cases in which judicial interpretation seems indistinguishable from judicial amendment, data from all of the Court s Federal Rules decisions confirm that, in this domain as well, the campaign to retrench private enforcement has had its greatest success in the courts. Indeed, it may be that the success experienced in the Supreme Court affected both the content and the zeal of the legislative campaign for civil litigation reform. Thus, although the issue of litigation reform in general and procedure as a tool of litigation reform in particular has been declining in Congress since the mid-1990s, it is now more prominent than ever for the Court. APPENDIX A. Models of Support for Litigation Reform Bills in Part II In our bill data models in Part II, the dependent variables are counts of the number of legislators sponsoring or cosponsoring litigation reform bills. Because the distribution of event counts is discrete, not continuous, and is limited to nonnegative values, it is best modeled assuming that the errors follow a Poisson rather than a normal distribution. A negative binomial count model is appropriate for data with this structure in the presence of overdispersion of the dependent variable, which is the case with the data analyzed here. Overdispersion is present where the variance exceeds the mean, violating an assumption of a standard Poisson model. 260 We cluster standard errors on legislator because standard regression models (without clustering) treat each legislator s support for a bill as independent from her support for other bills, but episodes of bill support by the same legislator are not independent from one another. Non-independent observations add less information to regression estimates than independent observations. Clustering standard errors on legislator adjusts standard errors to account for this and thereby avoids standard errors that are too small. 261 For the models of the ninety-third to ninety-sixth Congresses (Table 1), and the ninety-seventh to the 111th Congresses (Table 2), we ran alternative 260 A. COLIN CAMERON & PRAVIN K. TRIVEDI, REGRESSION ANALYSIS OF COURT DATA 4 (2d ed. 2013). 261 See JEFFREY M. WOOLDRIDGE, INTRODUCTORY ECONOMETRICS: A MODERN APPROACH (5th ed. 2012). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

225 2014 Litigation Reform: An Institutional Approach 1615 specifications substituting common space NOMINATE scores for party. These scores are continuous measures of legislator ideology based on a spatial model of roll call voting behavior, and thus they are a granular ideology measure as compared to the dichotomous party variable. 262 With this ideology measure substituted for party, we obtained results parallel to those reported in Tables 1 and 2 in terms of statistical significance, direction of effect, and rough magnitude. In the models of the ninety-third to ninety-sixth Congresses (Table 1), we had in excess of 90% zeros in our dependent variables, suggesting the potential need for zero-inflated models. 263 We replicated the models in Table 1 with zero-inflated negative binomial count models and obtained very similar results: statistical insignificance in the All Bills and Monetary Recovery models, and a significant negative coefficient of comparable size in the Procedure model. 264 The coefficients of a count model are not directly interpretable. In order to transform them into interpretable from, an x-unit increase in an independent variable translates into a factor change in the rate of the dependent variable given by exp(xβ). For example, for a coefficient.655, the factor change in the expected count for a one-unit change in the associated independent variable is given by exponentiating ((1)(.655)), which equals This means that when the independent variable is increased by one unit, holding other variables constant, the expected count increases by a factor This is the equivalent of saying that the expected count increases by 93%. This is how the marginal effects in Tables 1 to 3 were computed. B. Models of Justice Votes in Supreme Court Opinions in Parts III and IV Because the dependent variable in these models is dichotomous, we use logistic regression, which is designed for dichotomous dependent variables. 265 We cluster standard errors on Justice for the same reason that we did so on legislator in the bill support models. We computed marginal effects for these models with Stata s margins, dydx(*) command. In the models presented in Tables 5 and 7, we included an interaction with a dummy variable that took the value 0 for the period , and 1 for the period We explained in the text that this dividing line 262 KEITH T. POOLE & HOWARD ROSENTHAL, CONGRESS: A POLITICAL-ECONOMIC HISTORY OF ROLL CALL VOTING (1997). 263 CAMERON & TRIVEDI, supra note 260, These models were run using Stata s zinb command. 265 FRED C. PAMPEL, LOGISTIC REGRESSION (2000). Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

226 1616 University of Pennsylvania Law Review [Vol. 162: 1543 was selected based upon theory and evidence suggesting that the Court had greater insulation from legislative override, and that litigation reform became more salient, in the latter period. Considering the distance between liberal and conservative voting on private enforcement issues in Figures 4 and 7 as a measure of politicization of these issues among Justices, the distance appears to have begun to widen noticeably in about 2000, after a period of stability. In alternative specifications, we moved the dividing line for the dummy variable from 1995 to The main effects of ideology remain significant in both models. The marginal effects associated with moving from a liberal to a conservative Justice for the period were essentially the same as for the period (reported in Tables 5 and 7). However, the marginal effects of ideology for the period were somewhat larger than for period (reported in Tables 5 and 7). The distance between the mean liberal and conservative Justice is associated with 62 percentage points in the general private enforcement model, and 92 percentage points in the Federal Rules private enforcement model. Thus, when we isolate the most recent period we observe a materially larger ideological effect in the Federal Rules cases as compared to the other private enforcement cases. We ran the general private enforcement model (replicating the model in Table 4), and Federal Rules private enforcement model (replicating the model in Table 7), substituting Segal Cover scores for Martin Quinn scores. Segal Cover scores are based upon pre-confirmation media coverage of Justices nominations, and therefore are based upon information independent of Justices voting behavior. Martin Quinn scores are derived from Justices aggregate voting behavior in non-unanimous cases, and thus are susceptible to the concern of circularity in that we are using Justice votes to predict Justice votes. We note in this regard that our 317 private enforcement issues (combining both the models presented in Tables 4 and 7) comprise a very small fraction of the total non-unanimous votes used to estimate the Martin Quinn scores. Moreover, a key part of what we wish to understand is whether the Court s private enforcement votes map to the more general left right axis on the Court that we associate with the substantive policy positions that divide it. Still, Segal Cover scores provide a useful robustness check. In Segal Cover scores higher values are more liberal, but we inverted their direction to render them consistent with the Martin Quinn scores. The results are presented in Table 1-A. Both the main effect and the interaction are significant in the general private enforcement model (Model 1). For the main effect, which is the influence of ideology on Justices votes in the Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

227 2014 Litigation Reform: An Institutional Approach period, the marginal effect is The distance between the mean Segal Cover ideology score of Justices designated conservative and liberal is about.36. An increase of this magnitude (in the conservative direction) renders a 15% reduction in the probability of a pro private enforcement vote. Summing the marginal effects of the main effect and the interaction indicates that in the period, there was a 39% reduction in the probability of a pro private enforcement vote moving from liberal to conservative. Both the main effect and the interaction are also significant in the Federal Rules private enforcement model (Model 2). In the period, the marginal effect is -.25, rendering a 9% reduction in the probability of a pro-private enforcement vote moving from liberal to conservative. In the period, there was a 37% reduction. The overall structure of the results is the same as with the Martin Quinn scores. There was an ideology effect in both models in the period, and it increased sharply in the period. Ideology played a notably smaller role in Federal Rules cases as compared to other private enforcement cases in the period, but then experienced more growth in the period, elevating the role of ideology in Federal Rules cases to about the same level as in our other private enforcement cases. The magnitude of the effects with the Segal Cover scores is less than in models using the Martin Quinn scores. This is probably explained largely by the fact that, because the Segal Cover scores are based upon perceptions at the time of appointment but before confirmation, they effectively classify Brennan, Stevens, Blackmun, and Souter as moderate conservatives. Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

228 1618 University of Pennsylvania Law Review [Vol. 162: 1543 Table A-1: Logit Model of Justice Votes in Private Enforcement and Federal Rules Cases, with Case Fixed Effects Coefficient Marginal Effect Model 1 (Private Enforcement) Ideology (Segal Cover) -2.49** -.42 (.75) Ideology*Post-1994 Dummy -3.98** -.67 (1.47) N= 1739 Pseudo R 2 =.28 Model 2 (FRCP) Ideology (Segal Cover) -1.35* -.25 (.69) Ideology*Post-1994 Dummy -4.24** -.77 (1.47) N= 257 Pseudo R 2 =.22 **<.01; *<.05 Standard errors in parentheses, clustered on Justice Liman Workshop Spring 2015 Burbank, Ferhand Litigation Reform

229 LAWYERS FOR CIVIL JUSTICE COMMENT to the ADVISORY COMMITTEE ON CIVIL RULES and its RULE 23 SUBCOMMITTEE REPAIRING THE DISCONNECT BETWEEN CLASS ACTIONS AND CLASS MEMBERS: WHY RULES GOVERNING NO INJURY CASES, CERTIFICATION STANDARDS FOR ISSUE CLASSES AND NOTICE NEED REFORM August 13, 2014 Lawyers for Civil Justice ( LCJ ) 1 respectfully submits this Comment to the Advisory Committee on Civil Rules ( Advisory Committee or Committee ) and its Rule 23 Subcommittee (the Subcommittee ) to supplement LCJ s August 9, 2013, Comment To Restore a Relationship Between Classes and Their Actions: A Call for Meaningful Reform of Rule I. Introduction and Summary LCJ s previous Comment highlighted how the relationship between class members and their cases has changed since 1966 and urged the Subcommittee to take much-needed action to reform four key areas of class actions: prohibit or restrict cy pres payments to non-class members; provide a right to interlocutory appeal on class certification decisions; adopt an opt-in rule for Rule 23(b)(3) actions; and clarify that judicial estoppel does not apply to class action settlement negotiations. 1 Lawyers for Civil Justice ( LCJ ) is a national coalition of defense trial lawyer organizations, law firms, and corporations that promotes excellence and fairness in the civil justice system to secure the just, speedy and inexpensive determination of civil cases. For over 25 years, LCJ has advocated for reform of the federal civil rules in order to: (1) promote balance and fairness in the civil justice system; (2) reduce costs and burdens associated with litigation; and (3) advance predictability and efficiency in litigation. 2 LAWYERS FOR CIVIL JUSTICE, TO RESTORE A RELATIONSHIP BETWEEN CLASSES AND THEIR ACTIONS: A CALL FOR MEANINGFUL REFORM OF RULE 23 (Aug. 9, 2013), available at Liman Workshop Spring 2015 Repairing the Disconnect Between Class Actions