TRIAL TALK December/January 2012 Volume 61 Issue 1

Transcription

1 TRIAL TALK December/January 2012 Volume 61 Issue 1 Richard M. Mike Hodges CTLA colorado Trial lawyers association 57 Years on the Side of People

2 Pulkrabek & Goldhamer CIVIL PROCEDURE New Procedural Rules for Business Litigation: Overview & Strategic Considerations By Ross W. Pulkrabek, Esq. and Aaron D. Goldhamer, Esq. Beginning January 1, 2012, a set of Pilot Project Rules ( PPR ) will govern newly-filed business cases in most Denver metro area district courts. 1 The Supreme Court of Colorado implemented the PPR to study whether adopting certain rules regarding the control of the discovery process reduces the expense of civil litigation in certain business actions. 2 The PPR present business litigators with new strategic choices and challenges, and they may well foreshadow broader changes to the Colorado Rules of Civil Procedure. This article provides an overview of the PPR and examines some of the issues raised by these new rules. Applicability and Scope of Pilot Project Rules The PPR apply broadly to business cases filed on or after January 1, 2012, in the district courts for Adams, Arapahoe, Denver, Gilpin and Jefferson counties. 3 The PPR apply regardless of whether the complaint seeks legal or equitable relief and regardless of whether the parties are business entities or individuals. Cases included within the scope of the PPR include the following: Breach of contract actions; Business tort actions, such as those involving allegations of unfair competition, breach of fiduciary duty, fraud or misrepresentation; Actions for statutory or common law violations that arise from business relationships or business dealings, such as sales of assets or securities, corporate restructurings, or minority owner squeeze-outs and freeze-outs; Actions involving transactions governed by the Uniform Commercial Code; Actions involving commercial real property; Derivative actions brought on behalf of business entities; Actions involving business transactions with commercial banks or other financial institutions; Actions involving the internal affairs of business organizations, i.e., corporate governance disputes; Actions involving insurance coverage for business operations, such as D&O insurance, insurance for business interruption, and insurance for environmental matters; Actions for dissolution of business entities, partnerships and joint ventures; Private civil actions for securities fraud under the Colorado Securities Act or common law; Private antitrust actions under the Unfair Practices Act or Colorado Antitrust Act of 1992; Actions involving intellectual property, including state trademark laws; Non-medical professional liability cases; and Products liability actions. The PPR do not apply to the following types of cases: Actions solely for the payment of rent on real property; Proceedings under C.R.C.P. 120, i.e., foreclosures on deeds of trust; Motions for appointment of a receiver, when not part of a complaint stating additional claims; Actions by commercial banks or other financial institutions solely for the collection of a debt; Employment cases, unless the dispute concerns claims of breach of non-compete covenants or theft of trade secrets, i.e., claims brought by the employer against the employee; Actions involving construction defect claims; Actions subject to the Colorado Governmental Immunity Act; Actions alleging negligence causing physical injury to individuals; Actions seeking replevin of property under C.R.C.P. 104; Administrative agency actions and proceedings; Colorado Trial Lawyers Association Trial Talk December/January

3 CIVIL PROCEDURE Pulkrabek & Goldhamer Actions involving a statute or rule that contains specific timeframes for proceedings; and Post-judgment proceedings in aid of satisfaction of a judgment. The PPR undoubtedly will affect venue selection in business cases. The broad provisions of C.R.C.P. 98 as applied to business cases often permit filing in any one of several counties in Colorado. 4 In many cases, plaintiffs will be able to choose whether the PPR apply based on venue selection. Applicability of the PPR also will influence the plaintiff s decision whether to file an eligible case in federal court or, for defendants, to seek removal to federal court. For the same reasons, the PPR are one factor for plaintiffs to consider when deciding whether to allege federal law claims to bring the case within federal jurisdiction, rather than omitting federal law claims to avoid the prospect of removal to federal court. Proportionality Rule PPR 1.3 provides, At all times, the court and the parties shall address the action in ways designed to assure that the process and the costs are proportionate to the needs of the case. 5 Examples of proportionality factors include the amount in controversy and the complexity and importance of the issues at stake. The proportionality rule is fully applicable to all discovery, including the discovery of electronically stored information and shall shape the process of the case in order to achieve a just, timely, efficient and cost effective determination of all actions. 6 The proportionality rule is cause for concern, because it empowers the trial court judge rather than counsel and parties to decide exactly what commitment of resources is proportionate and what issues are important in a particular case. On its face, the proportionality rule applies equally to plaintiffs and defendants; however, plaintiffs bear the burden of proof on their claims. Business tort plaintiffs frequently require significant discovery to meet that burden of proof. Conversely, defendants in business tort cases often oppose production of the very evidence that plaintiffs need most. The rule of proportionality provides defendants with a new basis for resisting discovery. For instance, a plaintiff may decide that it needs an out-of-state preservation deposition to meet its burden of proof. If the trial court disallows the discovery on the grounds that, though relevant, an outof-state deposition is disproportionate to the amount in controversy, the PPR do not provide the plaintiff with any recourse. Moreover, the trial court s disallowance of discovery based on the proportionality rule is likely to be reviewed on appeal for abuse of discretion rather than de novo. Lawyers should anticipate that opposing counsel will add lack of proportionality to the typical list of boilerplate objections to written discovery. To undermine such objections, lawyers should focus discovery and be ready to propose ways to minimize its expense. In addition to limiting discovery, the proportionality rule may support a trial court s decision to strike multiple claims or defenses in a lawsuit on the premise that such claims or defenses overcomplicate the case and are disproportionate to the amount in controversy. Similarly, the proportionality rule could support a trial court s decision to prohibit parties from filing multiple motions to dismiss, multiple motions for summary judgment, or motions for reconsideration where the amount in controversy is relatively modest. Pleading The PPR include new pleading requirements for all parties. The party that bears the burden of proof with respect to any claim or affirmative defense should plead all material facts known to that party that support that claim or affirmative defense and each remedy sought, including any known monetary damages. 7 The PPR do not define the term material fact, and the word fact eludes easy definition. Attorneys are familiar with the different shades of fact, ranging from mixed questions of fact and law, to ultimate facts, to facts that would support a finding of an ultimate fact. Given the demand in PPR 2.2 that counsel must plead all known material facts, counsel should be prepared to defend the omission from pleadings of any known facts, and should consider documenting exactly when facts become known. 8 Time will tell whether and which judges interpret the permissive should in PPR 2.2 as a mandatory shall, resulting in greatly heightened pleading requirements for both plaintiffs and defendants. At least until appellate courts interpret the PPR s new pleading requirements, plaintiffs counsel should plan to amend pleadings frequently as material facts are uncovered through discovery. In responsive pleadings, [a]ny statement of fact that is not denied with specificity is deemed admitted. General denials of any statement of fact are not permitted and a denial that is based on the lack of knowledge or information shall be so pleaded. 9 This rule allows plaintiffs to force defendants to take firm positions on specific facts, as defendants who attempt to hide behind general denials do so at their own peril. Under PPR 2.2, lawyers and judges should anticipate frequent disputes over the sufficiency of factual allegations to support a claim or affirmative defense. For instance, defendants are likely to 32 December/January 2012 Trial Talk Colorado Trial Lawyers Association

4 Pulkrabek & Goldhamer CIVIL PROCEDURE cite this rule to support motions to dismiss for failure to state a claim upon which relief can be granted. Likewise, plaintiffs may use this rule to support motions to strike thinly-pled affirmative defenses. PPR 2.2 gives all parties new arguments for precluding discovery into or excluding evidence of facts not pled with sufficient particularity in the pleadings. Deadline for Answers and Responsive Pleading/Disclosures The PPR alter the timing for filing answers and other responsive pleadings, including replies to counterclaims and answers to cross-claims and third-party complaints. Additionally, as compared to C.R.C.P. 26, the PPR demand earlier and broader automatic disclosures of information. Under PPR 3.1, a party making a claim for relief (whether a claim, counterclaim, cross-claim, or third-party claim) must file (not serve) a statement listing all persons with information related to the claims and a brief description of the information each such individual is believed to possess, whether the information is supportive or harmful. The disclosure statement also must include a certification that the party has available for inspection and copying all reasonably available documents and things related to the claims, along with a description by category and subject area of the documents and things being disclosed, whether they are supportive or harmful. 10 The PPR therefore demand broader disclosures than C.R.C.P. 26(a)(1). 11 Counsel must file the disclosure [n]o later than 21 days after service of a pleading making a claim for relief. 12 Thus, plaintiffs are required to disclose information much earlier in PPR cases than in non-ppr cases. Once a party asserting a claim files its disclosure statement, the party defending against that claim has 21 days to file its answer or other responsive pleading. 13 A defending party then must file its own disclosure statement, identifying individuals and documents related to the claims for relief and the defenses asserted, within 21 days after service of its answer or other responsive pleading. 14 The PPR will necessitate changes to summonses typically used in district court civil litigation. The approved form of summons for non-ppr cases provides that a defendant must file its answer or other response within 21 days of service of the summons and complaint if served within the State of Colorado, or within 35 days of service if served outside the State of Colorado. 15 Under the PPR, however, it makes no difference where the defendant was served with process. Moreover, the PPR prohibit defendants from filing an other response in lieu of an answer. Thus, summonses issued in PPR cases will need to advise defendants that their answer (and not their other response ) is due within 21 days of the plaintiff s filing of its disclosure statement pursuant to PPR 3.1. Moreover, strict application of the PPR could lead to anomalous results. For example, if a plaintiff files its complaint and disclosure statement simultaneously on January 1, the PPR technically require the defendant to file its answer by January 22 to avoid defaulting, regardless of whether the defendant is served with the summons and complaint on January 1, January 21 or even January 23. The PPR s prohibition against stipulated extensions of deadlines and the directive that trial courts must deny motions for continuances or extensions [a]bsent extraordinary circumstances 16 further complicates the answer deadline. If a party withholds documents or other tangible things based on a claim of privilege or other protection, the privilege log must expressly assert the privilege. 17 The privilege log shall be provided (filed, presumably) when the party files its disclosure statement. 18 A party cannot object to the adequacy of another s disclosures until the initial case management conference, 19 which must be held within 49 days after filing of the answer or other responsive pleading. 20 Under the PPR, a party defending against claims cannot suspend its obligation to file an answer by filing a motion to dismiss. 21 Although the PPR are silent on this point, presumably filing a motion to dismiss does not postpone the deadline for a plaintiff to file a reply to counterclaims. The PPR require that the trial court enter one or more enumerated sanctions if a party fails to make timely and complete disclosures, [u]nless the court makes a specific finding that failure to disclose in a timely and complete manner was justified under the circumstances. 22 The available sanctions go beyond those currently authorized by C.R.C.P. 37. For example, the trial court may deny the right to use the information not disclosed for any purpose. 23 Another sanction without parallel in C.R.C.P. 37 is denial of the right to object to the admissibility of the evidence. 24 Thus, under the PPR, harmful but otherwise inadmissible evidence may become admissible if not timely disclosed. The PPR authorize dismissal of all or part of any claim or defense and assessment of attorney fees and costs, both of which also are permitted by C.R.C.P Lastly, the PPR authorize any other sanction the court deems appropriate. 26 Case Management Conference The trial court must hold a case management conference no later than 49 days after filing of the answer and any other responsive pleadings. 27 Parties must submit a detailed joint Colorado Trial Lawyers Association Trial Talk December/January

5 CIVIL PROCEDURE Pulkrabek & Goldhamer report at least seven days before the case management conference. 28 Issues the joint report must address include proposed deadlines for the following: Joinder of additional parties, Amendment of pleadings, Designation of nonparties at fault, Completion of mediation or other ADR, Filing dispositive motions, Commencement and completion of fact discovery, Disclosure of expert reports and rebuttal expert reports, Disclosure of expert files, Disclosure of trial witnesses, and Exchange of trial exhibits and of demonstrative exhibits. 29 The joint report also must address how the proportionality rule of PPR 1.3 applies to the case with special emphasis on discovery matters. 30 In particular, counsel for the parties must address [p]roduction, continued preservation and restoration of electronically stored information, including the form in which electronically stored information is to be produced and other issues relating to electronic information, including the costs. 31 Counsel must represent to the court that they have discussed the cost of proposed discovery with their clients or state why they have not done so. 32 The joint report must address the adequacy of initial disclosures, limitations on the scope of discovery, limitations on the types of discovery, limitations on the number of written discovery requests, limitations on the number or length of depositions, limitations on persons from whom discovery can be sought, limitations on restoration of electronically stored information, and any cost-shifting issues. 33 One particularly novel issue that parties are expected to address in the joint report is limiting the amount of expert witness s fees that may be taxed as costs. 34 To address limitations on expert fees taxable as costs, lawyers will need to retain experts and develop realistic budgets as early as possible. Additionally, lawyers should consider ways to demonstrate to the trial court that a particular dollar limitation on expert fees taxable as costs would be too high or too low, such as showing awards of expert witness fees in similar cases. PPR 8.5 states that [t]he trial date shall be set in the initial case management order, and shall not be changed absent extraordinary circumstances. 35 The PPR expect parties to propose tri al dates in the joint report submitted to the court before the case management conference. Under the PPR, [e]ach party s lead trial counsel shall attend this conference. 36 The PPR do not describe enforcement of this lead trial counsel requirement, its relation to a party s right to hire new counsel or its impact on a lawyer s ability to withdraw as counsel. Discovery The PPR provide that [d]iscovery shall be limited to matters that would enable a party to prove or disprove a claim or defense or to impeach a witness and shall comport with the factors of proportionality in PPR By comparison, under C.R.C.P. 26(b)(1), the scope of discovery encompasses any matter, not privileged, that is relevant to the claim or defense of any party and for good cause may be expanded to any matter relevant to the subject matter involved in the action. 38 Arguably, the PPR may prevent parties from conducting discovery to identify whether there is a basis for asserting a claim or defense that has not yet been pled. The PPR s discovery limitations will likely present challenges for plaintiffs in business torts cases, where one strategy is to limit the claims pled in an initial complaint, then use discovery to determine whether to amend the complaint to allege additional claims such as fraud. By limiting discovery to matters that would prove or disprove claims and defenses actually pled, the PPR may have the unintended consequence of expanding the scope of litigation by forcing plaintiffs to plead all potentially viable claims at the outset of litigation. The PPR s discovery limitations present a similar chicken-and-egg problem in developing a claim for punitive damages. Colorado plaintiffs cannot plead a claim for exemplary damages in an initial pleading and must instead establish prima facie proof of a triable issue in order to amend a complaint to allege a claim for exemplary damages. 39 Accordingly, if punitive damages are a possibility in a particular PPR case, the lawyer should consider preserving the ability to obtain via discovery prima facie proof of a claim for punitive damages by initially pleading claims that require proof of fraudulent or willful and wanton conduct. Such claims might include fraud, willful and wanton breach of contract, intentional infliction of emotional distress, and intentional interference with prospective business advantage. Expert Witnesses Except in extraordinary cases, the PPR limit each side to one expert in any given specialty or with respect to any given issue. 40 Each retained expert, and each party or representative of a party testifying in part as an expert, must provide a written report. 41 The expert must sign the report and initial each paragraph. 34 December/January 2012 Trial Talk Colorado Trial Lawyers Association

6 Pulkrabek & Goldhamer CIVIL PROCEDURE The expert report must contain the following information at a minimum: A specific statement of the opinions by the expert and the facts or other information that form the basis for each opinion, A listing of all material relied upon by the expert, References to literature that the witness may use during testimony, Any then-existing exhibit prepared by or specifically for the expert for use at trial, The witness curriculum vitae including a list of publications over the last 10 years, A list of all trial or deposition testimony given by the witness in the last four years, An accounting of all time spent on the case, and A fee schedule. The report must fully address the substance of the expert s direct testimony, and experts are limited to testifying on direct examination about matters disclosed in reasonable detail. 42 In addition, parties must obtain and voluntarily produce the files of their retained expert witnesses, including s, notes, billing records, time logs, correspondence, and literature that the expert reviewed or upon which the expert relied, and all reports or memoranda describing the expert s opinions. 43 This production is subject to ongoing supplementation. 44 The PPR provide that [t]here shall be no depositions or other discovery of experts. 45 The PPR s blanket prohibition against any discovery of experts arguably lends itself to abuse. For example, a literal reading of the PPR allows a party to block its opponent from deposing witnesses including parties or party representatives by designating those witnesses as experts, even if only as to minor issues in the case. Additionally, the PPR contain no provision for deposing or otherwise discovering opinions held by nonretained experts who are not required to prepare signed reports, such as an outside accountant, engineer or other consultant who was involved in the underlying matter. Lawyers handling PPR cases actively should seek out experts deposition and trial testimony in other cases as an important source of information to cast doubt on the expert s theories or credentials. The CTLA Listserv and fellow CTLA members are valuable resources in this regard. Counsel also may consider filing a Shreck motion and requesting an evidentiary hearing to challenge the expert s qualifications and the reliability of her opinions. 46 If the trial court holds a hearing but denies the motion to exclude the expert s testimony, counsel can use the transcript of the expert s testimony to impeach the expert at trial. Sanctions In addition to the discovery sanctions set forth in PPR 3.7, the court may impose sanctions as appropriate for any failure to timely or completely comply with these PPRs. 47 The threat of sanctions for any violation looms heavily alongside the fact that [c]ontinuances and extensions are strongly disfavored. 48 Lawyers and judges face a steep learning curve with regard to implementing and following the PPR in practice. It remains to be seen whether the potential for sanctions at every turn will have the opposite of the PPR s intended effect by spawning increased litigation over procedural rule compliance and motions for sanctions. Conclusion The PPR significantly change the procedure for business litigation in metro-area district courts. While this article explores some of the issues raised by the PPR, lawyers should carefully consider how the PPR are likely to apply in their cases and monitor the Colorado Court of Appeals treatment of PPR issues. CTLA members are strongly encouraged to share their experiences with the PPR on the CTLA listserver and with the commercial litigation subcommittee. Mr. Pulkrabek is a shareholder at Jones & Keller P.C. Mr. Goldhamer is an associate at Jones & Keller P.C. Their practices focus on business torts, commercial litigation and professional liability. Reach them at , or at rpulkrabek@joneskeller.com and agoldhamer@joneskeller.com. Endnotes 1 See Supreme Court of Colorado, Office of the Chief Justice, Chief Justice Directive (October 2011), available at Courts/Supreme_Court/Directives/CJD% amendedappendixes pdf (last accessed Dec. 21, 2011). 2 ; see also, generally G. Netzorg & A. Frick, Significant Changes for Business Cases Under the Colorado Civil Access Pilot Project, 41 COLO. LAWYER 29 (January 2012) and N. Brown, G. Dickinson, A. Frick & G. Netzorg, Colorado at the Crossroads: Civil Access Pilot Project, 40 COLO. LAWYER 17 (January 2011). 3 Chief Justice Directive 11-02, supra n Venue may be had in the county where any defendant resides at the commencement of the action, in the county were goods were sold or services performed, or in the county where any tort was committed. See C.R.C.P. 98(c). 5 PPR PPR PPR 2.2 (emphasis added). 8 The PPR presumably do not require pleading evidence, as pleading evidence was not even required under the code Colorado Trial Lawyers Association Trial Talk December/January

7 CIVIL PROCEDURE Pulkrabek & Goldhamer pleading rules that preceded the modern Rules of Civil Procedure. See, e.g., W.H. Swanson Theater Co. v. Pueblo Opera Block Inv. Co., 197 P. 762, (Colo. 1921) (stating that a rule that required the pleading of all the substantial facts upon which he relies did not require the pleading of evidence). 9 PPR See PPR 3.1. In contrast, C.R.C.P. 26(a)(1)(B) requires only disclosure of documents and tangible things in the possession, custody, or control of the party that are relevant to disputed facts alleged with particularity in the pleadings. C.R.C.P. 26(a)(1)(B). 11 In contrast to PPR 3.1, C.R.C.P. 26(a)(1)(A) requires only disclosure of individuals likely to have discoverable information relevant to disputed facts alleged with particularity in the pleadings. C.R.C.P. 26(a)(1)(A). 12 PPR PPR PPR See Form 1, Appendix to Chapters 1 to 17A, C.R.C.P.; see also C.R.C.P. 12(a) (effective January 1, 2012). 16 PPR PPR See PPR See PPR See PPR PPR PPR 3.7(a). 24 PPR 3.7(b). 25 PPR 3.7(c)-(d). Compare C.R.C.P. 37(b)(2)(C). 26 PPR 37(e). 27 See PPR See id. 29 See PPR Appendix B. 30 PPR Appendix B, 7, PPR Appendix B, PPR See PPR 7.1 (emphasis added). 37 PPR C.R.C.P. 26(b)(1). 39 C.R.S (1.5). 40 PPR PPR 10.1(a). 42 PPR 10.1(b). 43 PPR 10.1(a); PPR Appendix C. 44 PPR 10.1(c). 45 PPR 10.1(d). 46 See People v. Shreck, 22 P.3d 68 (Colo. 2001). Note that the trial court has discretion whether to grant this hearing. People v. Rector, 248 P.3d 1196, (Colo. 2011). 47 PPR PPR 1.4. From the Executive Director Continued from page 7 us are small matters compared to what lies within us. What lies behind us and what lies before us are small matters compared to what lies within us. And if ever there was someone who lived by Emerson s quote it was Mike Hodges. Mike was always there. If two of the M adjectives stick with me the most they are Mentor and Mensch. As the myriad of s sent to our listserv attest, Mike was there for everyone. He responded by phone, by , in his seminar presentations and in his writings. He had time for those he never met and those he had known for years. Generations of young trial lawyers are better off because of Mike. He attended new lawyer events religiously and even, when many past CTLA presidents would ease up on the time they devoted to CTLA, Mike was always there for us. The CTLA lobbyists are in shock. Mike was their muse, their master and their mentor as he analyzed, negotiated, testified and wrote legislation that would benefit so many of our clients. The M word for our lobbyists is Miserable! They lost our go to person. So this Mike Hodges - could he really be all this? - resoundingly and emphatically the answer is YES. He was the gentleman - calm and cool, respectful with a smile that we will all see in our heads for years to come. And what will Mike s legacy be? It should be to remind all of us to be there for others as he was. To find the time to help the younger attorneys. To mentor them as Mike would. To find the time, oh that precious time. The time that Mike ran out of; that we all have. I challenge each and everyone one of you to make that time. The legacy that Mike leaves is all of you. To those lawyers that he helped in one way or another I ask you to stand. Stand as one and applaud Mike now - as a thanks for all that he has done for us. And in Mike s words United We Stand ***** CTLA has established a scholarship in Mike s name so that he will continue to mentor for years to come. Please consider mailing a check to CTLA payable to the University of Denver Sturm College of Law, with Hodges/CTLA Scholarship in the memo line. 36 December/January 2012 Trial Talk Colorado Trial Lawyers Association