Editor's Note: Many general counsel and their CEOs are not aware of the total costs of litigation because typically defense costs are expensed annually by the legal department while liability costs are expensed by the business unit at the time a payment is made to the plaintiff. eLawForum estimates that in 2006 for all Fortune 500 companies the total cost of litigation ($210B) was equivalent to about a third of their after-tax profit ($610B).
eLawForum on the basis of an analysis of 20,000 cases found that only 1.8% of the cases brought against Fortune 500 companies actually proceeded to final judgment with 97% being resolved before trial and 1.2% being settled during trial.
DRI is marshalling its membership of 22,500 defense counsel as well as that of other national and local defense counsel organizations and LCJ in support of judicial independence and its current President, John Martin, will be putting great emphasis on this issue during his term in office. The DRI Task Force Report on Judicial Independence "Without Fear of Favor" (see link to the Report in the version of this article on our website www.metrocorpcoun-sel.com) suggests needed reforms which would be supportive of judicial independence, including addressing such issues as poorly funded courts.
Editor: Is the fact that so few cases are resolved in court indicative of uncertainty as to the outcome if the matter is taken to court?
Villarreal : That's true. One element is lack of faith in the judgment of juries. Another is that unfortunately as a defense lawyer you have very little confidence that you have a court system that has the time, the patience and the resources to exercise the screening role they are supposed to be playing. You end up filing summary judgment motions your local counsel tells you will never even be read, much less given serious consideration.
You end up filing Daubert motions that again will never be read or given serious consideration because the default position in so many courts in this country is to let it go to the jury. This, of course, means that at some point the corporation is going to feel pressure to make a rational business decision under the circumstances to resolve the case, probably for more than it is objectively worth. But, when you factor in a lack of confidence in juries and the failure of courts to exercise their screening function, you are putting the corporation's assets at risk if you fail to settle.
One of the great mega-trends in business is globalization and the creation of corporations that are doing business across the globe. Yet here in America we don't have a single, national legal system. We have to evaluate a business dispute with an eye toward the peculiarities of West Virginia or Mississippi or New York. My European colleagues are always puzzled at how totally localized and regional our system is and the great variations there are in the assessment of a case depending on the venue.
Editor: In many U.S. jurisdictions, courtroom facilities are limited and the judges carry too large a case load. Does this increase the cost of litigation and adversely affect the ability to obtain a fair hearing?
Villarreal : No question about it. One of the things that I have discovered in my 20 years of practice is that one of the key cost factors is the length of time it takes to resolve a case (the cycle time of the case). Many states cannot provide you with a trial for four, five or six years. In Cook County, Illinois, you are talking about five or six years for the litigants to be generating fees. Justice delayed significantly increases its cost.
When our outside counsel do early case assessments of our cases, one of the categories - one of the buckets - they are supposed to look at is the quality of the venue. What does the judge look like? What does the jurisdiction look like? What is the time to trial? All those are things that have to go into your evaluation of the outcome and pricing of a case.
Editor: Many state courts do not provide the judge with an adequate staff. How does this affect costs and outcomes?
Villarreal : When people talk about differences between federal and state courts, in many cases it boils down to the fact that in a federal trial court judges may have as many as three clerks. And, judges in the appellate courts have even more help. These are bright young people who generally graduated at the top of their law school classes. That is a huge institutional advantage for the federal courts. Although the clerks lack experience, they are smart and know how to do research. When you are in federal court, you know they have people who are going to look at your briefs and read your case and at least give the judge some intelligent advice about what the underlying legal principles are. I get the sense from my conversations with state court judges that many of them are just staying afloat - that they just don't have time to read the kinds of briefs that are generated in big commercial cases. They just don't have the resources to analyze a complex dispute. As a consequence, the quality of justice suffers and the expense of settlement rises.
Editor: What about merit selection?
Villarreal : I am definitely in favor of merit selection. I think it is crazy to have a system where judges have to run for office the way politicians do. It encourages a system where prominent trial lawyers who make contributions get more attention than others. That just invites unfairness in the system. I am all in favor of merit selection across the board. I think most company chief litigators would agree with me.
Editor: Issues being presented to courts are becoming more complex and make greater demands on the judiciary, both in terms of time and intellectual challenge. Are courts generally in a position to respond to this challenge?
Villarreal : In the pharmaceutical area, you have complex scientific issues. They are difficult to explain to a jury. Often the science is on the side of the defendants, but the plaintiffs can hire people with minimal credentials, with a Ph.D. behind their names, and that gets them before juries despite the fact that they don't really meet the standards of Daubert or state equivalents of that standard. Although most of the state courts have recognized principles similar to Daubert, they are still not applied because doing a Daubert determination involves a sort of mini-trial prior to a jury trial. In an overworked system judges will frequently say "I'm not going to do a trial on Daubert and then a jury trial. Why should I impose this extra burden on the court since the case is probably going to be settled anyway?"
You do find exceptions at a state court level to this mindset, which demonstrates what can happen if judges were not so handicapped by the pressures we have discussed. We had a case in Connecticut where we were assigned to the commercial court system. The judge asked for a summary judgment briefing, conducted an almost all-day hearing on summary judgment issues, and clearly from his comments during oral argument understood the issues incredibly well - the way a really good lawyer would. He asked penetrating questions of both sides. He took it under advisement, and before he could rule the parties settled. The parties understood that they had a judge who might actually grant summary judgment because he had spent the time to familiarize himself with the issues. On balance we'd get better results as a nation if other judges had the time to do what the judge did in that case.
Throughout America, corporations are hiring e-discovery lawyers. Ten years ago that would have been absurd. But most law departments are moving toward a system where you have specialists both on the IT side and even on the legal side dedicated to e-discovery.
Here again, although perceived noncompliance may affect the outcome of a case, most courts do not have the ability to attract judges with the expertise needed to understand this complex computer game - they lack the financial wherewithal and may not even be able to target judicial candidates with the required skills if merit is not considered in the selection process.
Editor: Do you see a trend toward having fewer judges who have experience in private practice, particularly corporate practice?
Villarreal : There is no question that this is happening. I know enough judges and judge-wannabes to know that this is the case. I know a lot of people in the private bar who have been approached and who have turned down requests to consider going on the bench at the state or federal level.
The fact is that it is human nature and not at all surprising that people tend to build a lifestyle commensurate with their income. You can't expect a person who is making $500,000 or $1 million to take a $100,000 job or $165,000 job. That's a huge burden to ask someone to bear, particularly if they have children coming into college age.
There is nothing wrong with prosecutors becoming judges - this is part of a long tradition with some of the finest jurists coming from that source. But when that is all that you get, and you are not getting people from the private bar or in-house bar, then it does begin to affect the kind of judge that you get. You are getting a judge who is probably much more comfortable with the government's side of a case. You are just drawing on a narrower pool of talent than you would be if salaries were not such an important factor.
You have smart judges sitting on multi-billion-dollar cases, hearing arguments by the best lawyers in the country, who are making less money than the lowest paid lawyer on the litigating parties' teams. To me that is another example of how we are starving the public arena of resources.
Not only are there fewer new judges with private sector experience, but seasoned judges are leaving. Some leave to go into private practice. Many become arbitrators. Good arbitrators pull down significant amounts of money and have more control over the cases that they take. You also are seeing people become judges with the notion that they aren't going to stay there 20 years and develop the experience that creates our best judges. They stay for four or five years and then go back to private practice because they need the money.
So many of the people who can afford to go on the bench or remain there are people who are not making a lot of money already and don't see the prospect of doing so.
Judges are being treated like we treat our teachers. Let's pay them as little as we can get away with. That's not going to work in the long run. It hasn't worked in our educational system, I don't know why we think it is going to work in our judicial system.
Editor: Do you see the factors we have discussed affecting the enthusiasm with which judges approach their jobs?
Villarreal : Most judges try to do a good job. I do think it is harder to get motivated. I used to know a federal judge in Chicago years ago who famously used to go to the opera and bring his work with him. But it is harder and harder to feel that same sense of commitment - to say to yourself that I am going to work weekends on this case when you know that you are not being nearly as well compensated as your peers in private practice. It comes out in small ways. Often it comes out in the humorous comments you hear from the bench. It's funny, but you know there is an underlying bite to it.
Editor: Do plaintiff's counsel use the media to attack a defendant or the judge in order to forward their cause?
Villarreal : The plaintiff's bar is adept at using the media, before, during and after trial. They understand that corporate defendants are very sensitive to their public image. Companies spend billions of dollars building their brands and their corporate image because that ultimately translates into consumer trust and sales. They know that planting a story in the media that damages that brand is one of the most effective things they can do to hurt their opponent and one of the levers they have toward forcing early settlement. They don't have the limitations that a corporation does. A corporation can't just go to the press and say anything it wants. There are institutional and legal constraints on that - any statement made by a company is subject to SEC review or review by auditors. So there are a lot more constraints on a defendant's ability to use the media.
The more sophisticated plaintiff's bar has grown more adept at using the media to manipulate defendants and courts. In the Average Wholesale Price trials in Boston conducted in 2007, the plaintiff's bar was talking to the press all the time. When the verdict came out, they had a statement on the wire within an hour. Sometimes I think they spend more time writing their press statements than they do on their briefs. And they seem to operate with complete impunity. They get their message and their spin about a decision out quickly. They make direct attacks on the defendants, which they are probably within their First Amendment rights in doing. They also attack judges. And no one ever calls them into account for it. The interest of the press is simply in a good story.
Editor: Is the estimate that total litigation costs for Fortune 500 companies average approximately one-third of profits realistic?
Villarreal : It strikes me as generally realistic. I think we have a lower percentage.
Editor: How would your CEO react if you were to point out the true cost of litigation and suggest that your company could reduce litigation costs if your government relations department working with the defense bar and with other companies and industry trade associations advocated legislation that would remedy the concerns about our courts that you mentioned in the course of this interview?
Villarreal : Our CEO, Fred Hassan, is a veteran of the pharmaceutical industry, which means that he is very familiar with our litigation costs. He has always been supportive of initiatives that would reduce those costs. My boss, Tom Sabatino, is a strong supporter of civil justice reform. If there were a legislative initiative geared specifically toward addressing the kinds of issues we discussed in this interview, I believe that it would get broad-based corporate support. I know that my peers in other companies feel as I do about the current condition of the courts and the consequences. I don't think it would be a hard sell - it would be a pretty easy sell.