Arbitration, Bench Trial, or Jury Trial?

Transcription

STATE BAR LITIGATION SECTION REPORT
the
ADVOCATE
Commercial Law
Developments
and Doctrine
✯
VOLUME 56
FALL
2011
the
ADVOCATE
COUNCIL MEMBERS
EDITORS
Editor in C hief
P rofessor L onny Hoffman
University of Houston Law Center
100 Law Center
Houston, TX 77204-6060
lhoffman@central.uh.edu
Editor Emeritus
J. Patrick H azel
Edward C. Dawson
Yetter & Warden, LLP.
221 West 6th Street, Suite 750
Austin, Texas 78701
Russell H all
Russell W. Hall, P.C.
Attorney at Law
6750 West Loop So. Ste. 500
Bellaire TX 77401-4117
University of Texas School of Law
A llyson N. Ho
A ssistant Editors
Jeffrey M. Benton
Morgan, Lewis & Bockius LLP
1000 Louisiana Street, Suite 4200
Houston, TX 77002
Locke Lord Bissell & Liddell LLP
Cory C arlyle
Law Office of Cory L. Carlyle
Graphic Designer
Janie A lderman
janiealderman@aol.com
EDITORIAL BOARD
Sofia A drogue’, P.C., LRM, P.C.
Looper Reed & McGraw, P.C.
1300 Post Oak Boulevard, Suite 2000
Houston, Texas 77056
Jennifer Parker A insworth
Wilson Law Firm
909 ESE Loop 323, Suite 400
Tyler, Texas 75701
W. Stephen Benesh
Bracewell & Giuliani LLP
111 Congress Avenue, Suite 2300
Austin, Texas 78701-4061
Hon. Jane B oyle
United States District Court,
Northern District of Texas
1100 Commerce Street
Room 1376
Dallas, Texas 75242-1003
Hon. Jeff Brown
Fourteenth Court of Appeals
1307 San Jacinto, 11th Floor
C raig D. C herry
Haley and Olson
510 N. Valley Mills Drive, Suite 600
Waco, Texas 76710
Hon. Tracy C hristopher
Fourteenth Court of Appeals
1307 San Jacinto, 11th Floor
Thomas B. Cowart
Wasoff & Cowart, PLLC
1440 One Lincoln Centre
5400 LBJ Freeway
Dallas, Texas 75240
A listair Dawson
Beck Redden & Secrest
1221 McKinney, Ste. 4500
Houston, TX 77010
Roger Wade Hughes
Adams & Graham, L.L.P.
PO Box 1429
222 E. Van Buren, West Tower
Harlingen, TX 78550
A shley Johnson
Gibson Dunn
Associate Attorney
2100 McKinney Avenue
Dallas Texas 75201-6912
K aren Gren Johnson
Jones Day
2727 North Harwood Street
Erika K ane
Assistant Attorney General
General Litigation Division
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711
Thomas Kurth
Haynes and Boone, LLP
2323 Victory Avenue, Suite 700
Dallas Texas 75219-7673
Hon. A nn McC lure
Eighth Court of Appeals
500 E San Antonio Ave # 500
El Paso, TX 79901
K ennon P eterson
Scott, Douglass & McConnico
Austin, TX 78701-3234
A lan Waldrop
2011-2012 LITIGATION
SECTION OFFICERS
TERMS EXPIRE IN 2012
L inda S.McDonald, C hair
Austin
Langley & Banack Inc.
Trinity Plaza II
745 E. Mulberry, Ste. 900
San Antonio, TX 78212-3166
M ichael C. Smith , C hair-elect
Siebman, Reynolds, Burg,
Phillips & Smith, LLP - Marshall
113 East Austin Avenue
Marshall, Texas 75670
Cory L. C arlyle
Law Office of Cory L. Carlyle
P.O. Box 66093
Washington, DC 20035
Dallas
Nina P erales
San Antonio
Hon. Rose G. R eyna
Edinburg
Enid A. Wade
Temple
Bain & Barkley
550 Fannin, Suite 1330
Beaumont, Texas 77701
Pat L ong W eaver , Treasurer
Texarkana
Stubbeman, McRae, Sealy,
Laughlin & Browder, Inc.
Two Fasken Center, Suite 800
550 West Texas Avenue
Midland, TX 79701
Paul a H inton, Secretary
Vinson & Elkins, LLP
1001 Fannin Street, Suite 2500
Walker Friedman,
Immediate Past C hair
Jennifer H altom D oan
V iol a G. G arza
Pharr
Federico “Fred” H inojosa
McAllen
Hon. X avier R odriguez
San Antonio
Hon. K en W ise
Houston
Friedman, Suder & Cooke
604 East 4th Street, Suite 200
Fort Worth, Texas 76102
CHAIR EMERITUS MEMBERS
C arlos Eduardo C ardenas
A listair Dawson
Beck Redden & Secrest LLP
1221 McKinney, Ste. 4500
Houston, TX 77010
C ade W. Browning
Abilene
El Paso
Wes Christian
Houston
Steve H ayes
Elizabeth E. M ack
Fort Worth
2200 Ross Ave., Suite 2200
George P. Young
Fred B owers
LIAISONS/ADVISORS
Bowers Law Office
1401 Texas Avenue
Lubbock, Texas 79408-0327
Paul W. Green
Fort Worth
Supreme Court Liaison
Austin
Jeff Chandler
Texas Young Lawyers
Association Liaison
San Angelo
Assistant editors and members,
ex officio:
2200 Ross Avenue
Suite 2200
Dallas, Texas 75201
K aren Gren Johnson
C hristy A muny, V ice- chair
Locke Lord Bissell & Liddell
Austin, Texas 78701
Jeffrey M. Benton
C raig T. Enoch
Yvette Ostolaza
✯
VOLUME 56
FALL
2011
Board Advisor
Dallas
Jo A nn Merica
Alternate Advisor
Austin
Tracy Nuckols
State Bar of Texas
Austin
Click on the topic to jump to the applicable article
the
ADVOCATE
T a bl e of C ontent s
FA L L 2 0 11, VO LU M E 5 6
E ditor ’ s C omments by L onny S. H offm an ............................................................. 3
C h air ’ s R eport by Linda S. McDonald...................................................................... 4
S ustaining M ember s of the L itigation S ection of the State B ar of Tex as ............ 6
SYMPOSIUM: COMMERCIAL L AW DE VELOPMENTS AND DOC TRINE
PART I. DE VELOPMENTS IN THE FIELD
L itigation in the 21 st C entury: The J ury Tri al , The Tr aining & The E xperts –
M usings & Te achings from Dav id J. B eck , L isa B lue , M el anie G r ay &
Stephen D. S usm an
authored and edited by Sofia Adrogué & Hon. Caroline Baker.................................. 8
A lternativ e F ee A rr angements: Partnering with C lients Through L egal
R isk S h aring
by Trey Cox................................................................................................... 20
R oundtable : A lternativ e F ee A rr angements in L itigation
panel: Ramon M. Cantu, Laura W. Doerre & Mark C. Schroeder.. .......................... 22
P reservation U ncertaint y R ev isited: A ddressing S poli ation by R ulem aking
by Thomas Y. Allman...................................................................................... 25
A rbitr ation, B ench Tri al , or J ury Tri al ? A F unctional G uide for I n -H ouse
C ounsel
by David K. Bissinger & Trent T. McKenna.. ........................................................ 32
L itigator s N eeded to A dv ise Tr ansaction L aw y er s on L itigation P renups
by Donald R. Philbin, Jr................................................................................... 36
PA R T I I . R E C E N T, L E A D I N G D O C T R I N A L D E V E L O P M E N T S
D ev elopments in Dam ages L aw A pplic able to C ommerci al C ases
by Gregory D. Smith........................................................................................ 54
P rivac y R ights of E mploy ees in an E lectronic World
by Michael Kelsheimer & Travis Crabtree........................................................... 60
C h anges in the 2010 Pattern J ury C h arges
by J. Brett Busby............................................................................................. 68
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C o n t e n t s , C o n t in ue d
ADDITIONAL CONTRIBUTIONS
E v idence & P rocedure U pdates by Luther H. Soules III & Robinson C. Ramsey.. ........ 76
F rom M y S ide O f The B ench by Judge Randy Wilson................................................ 84
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Editor’s Comments
O
Lonny S. Hoffman
UR FOCUS IN THIS ISSUE IS ON COMMERCIAL LAW LITIGATION. We’ve divided
the symposium into two main parts. The first looks at developments in
the field, such as fees/billing trends in commercial litigation and options
for alternative fee arrangements; what’s going on with commercial litigation trial
work, and especially with training of young lawyers, in the era of the vanishing jury
trial; and what developments are taking place with regard to the use and selection
of experts in the second decade after Daubert. Two different articles collect a wide
range of perspectives. General counsels and heads of litigation at several different
companies share their inside views, while some of the leading commercial law trial
lawyers provide their perspectives. Also included in this first part of the symposium
on commercial law developments are additional articles on the important discovery
issues relating to preservation of information/litigation hold/records retention, and we
have several excellent papers that look at current trends in commercial law arbitration.
The second part of the symposium then turns to leading recent commercial/business law cases, which
are discussed in a series of three articles. We could not cover everything, of course, so the goal was
to address thoughtfully some of the most current and challenging questions that have arisen. We are
very fortunate to have so many talented and thoughtful people providing their analysis.
As usual, we include another installment of the procedure and evidence update from Rob Ramsey
and Luke Soules, and of “From My Side of the Bench” by the Hon. Randy Wilson.
As always, I welcome your comments or questions about The A dvocate and this issue, in particular.
My email address is lhoffman@central.uh.edu.
Regards,
Lonny Hoffman
Editor in Chief
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Chair’s R eport
“Equal justice under law is not merely a caption on the
façade of the Supreme Court building, it is perhaps the
most inspiring ideal of our society. It is one of the ends for
which our entire legal system exists…it is fundamental
that justice should be the same, in substance and availability, without regard to economic status.”
– Lewis Powell, Jr., U.S. Supreme Court Justice
L inda S. McDonald
I
N ADDITION TO OUR MANY OTHER MEMBER SERVICES, the Litigation Council has thought
long and hard on how the Litigation Section can help improve equal access to justice
throughout the State of Texas. Over the past years, we have given thousands of dollars in
grants to groups providing legal services to the poor; however, we wondered how we could
“get more boots on the ground” in this endeavor and, beginning in 2007, we began funding
summer internships for law students with Legal Service providers throughout Texas. We now
fund six to eight such internships a year and the response by both the interns and the Legal
Service provider has been overwhelmingly positive. I quote from one intern’s recent letter,
which warms my heart and lets me know that we are on the right track:
Cheranda Robertson, Summer 2011 Intern, Lone Star Legal Aid
My SBOT Litigation Section internship at Lone Star Legal Aid (LSLA) in
the Housing and Consumer Units far exceeded my initial expectations. I
not only learned an enormous amount about public interest law, real estate
law, and bankruptcy law, but also learned several life lessons that cannot
be taught in a classroom.
Elizabeth Lockett, my supervising attorney for the internship, told me in
the beginning of the summer that law school teaches students much about
the law, but it does not necessarily teach students “how to be lawyers.”
She was right. There were so many things that I learned while actually
working on cases, attending court, and meeting with clients face-to-face.
It was during these times that I learned first-hand about interacting with
attorneys, colleagues, judges, and court personnel; relating to clients
in both a professional and empathetic manner; and working in a team
environment to get tasks accomplished and meet important deadlines. I
know these skills will prove to be extremely valuable for years to come.
As I leave LSLA to return to law school for my second year, it is a bittersweet transition. The summer passed with an uncanny speed, yet I
have learned and experienced so much it seems as though I was here for
a far longer period of time. I am so grateful for the opportunity to have
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participated in the public interest forum (and to have received a stipend from
the Litigation Section). My time at LSLA has only further fueled my passion
for returning to this field and helping people (who would not otherwise be
able to afford such legal representation) achieve justice and equality. Knowing
that I helped Ms. Lockett save homes and change lives this summer is one of
the most rewarding experiences of my life thus far, and I believe this summer
was just the start to a hopefully very long road ahead that is devoted to helping
people achieve justice.
I am truly awed by the dedication and hard work of all the Council members, both past and present,
as well as those who work tirelessly with the Council, such as Lonny Hoffman and his Board of
Editors. I am honored to be Chair of the Litigation Section. We welcome feedback if anyone has
an idea they wish to share; or if anyone would like to participate in any of our projects, please
feel free to contact me at lmcdonald@langleybanack.com or contact any of our Council members.
Linda S. McDonald
Chair, Litigation Section
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S ustaining M embers of the L itigation S ection of the S tate B ar of T exas
(As of September 2011)
Mr. Gilbert Adams Jr.
Mr. Brock C. Akers
Ms. Christy Amuny
Mr. Paul E. Anderson Jr.
Ms. Vanessa Patrice Bailey
Mr. Charles Lee Barrera
Mr. Chad Baruch
Ms. Misti Lachelle Beanland
Mr. Christopher R. Benson
Mr. Daniel W. Bishop
Mr. Jeff Blackburn
Mr. Paul Talmage Boston Jr.
Mr. Fred Bowers II
Mr. Jerry G. Bradford
Mr. Turner Williamson Branch
Mr. D. Clinton Brasher
Mr. Russell Scott Briggs
Mr. Dennis P. Bujnoch
Mr. Craig Caesar
Mr. Carlos Eduardo Cardenas
Mr. Edgar Leon Carter
Ms. Sheryl Scott Chandler
Mr. James Christian
Mr. Lester Davis Cochran
Mr. Wayne Donald Collins
Mr. Philip D. Collins
Mr. William Joseph Collins, III
Mr. Paul J. Coselli
Mr. Scott Wagner Cowan
Mr. Thomas B. Cowart
Mr. John T. Cox, III
Mr. Jack R. Crews
Mr. Jeffrey Stewart Davis
Ms. Sara Renu De Groot
Mr. Jacob De Leon
Judge John J. Donovan
Mr. Fredrick D. Dreiling
Ms. Patricia Kay Dube
Ms. Pamela R. Dunlop
Ms. Carmen E. Eiker
Mr. David Evans
Ms. Jennifer Lynn Ferratt
Mr. Walker C. Friedman
Mr. Brian T. Gaddy
Ms. Laura Benitez Geisler
Mr. John Ralph Gilbert
Ms. Beverly Bell Godbey
Mr. Paul Nicholas Gold
Mr. Rinaldo J. Gonzalez
Mr. Ronald Brad Goodwin
Mr. Andrew M. Greenwell
Mr. Richard Alan Grigg
Mr. William Davis Guidry
Mr. Edmund Lee Haag, III
Mr. Stephen M. Hackerman
Mr. Douglas D. Haloftis
Mr. Khalid Y. Hamideh
Ms. Kelly Harvey
Mr. Michael S. Hays
Mr. James Martin Heidelberg, Jr
Ms. Claire Henry
Justice Federico G. Hinojosa, Jr.
Mr. Floyd Honea, II
Mr. R. W. Hope, Jr.
Mr. William Craft Hughes
Ms. Mary Ann Joerres
Hon. Karen Gren Johnson
Mr. Scott Jones
Mr. Michael Andrew Josephson
Mr. David E. Keltner
Ms. Angelle Marie Kergosien
Judge Patricia J. Kerrigan
Ms. Gayle Klein
Mr. Allen Haber Kline, Jr.
Ms. Susan K. Knoll
Mr. Michael Robin Krawzsenek
Mr. J. Albert Kroemer
Mr. Walter James Kronzer, III
Mr. Thomas E. Kurth
Mr. James Morris Lassiter, III
Mr. James Russell Leahy
Mr. Stephen T. Leas
Mr. Jared Gregory Leblanc
Mr. David Kenneth Line
Mr. Victor Longo
Mr. Jose Antonio Lopez
Mr. Gregory Phillip Love
Mr. Jeffrey Thomas Lucky
Mr. Jeffrey Scott Lynch
Ms. Elizabeth E. Mack
Mr. Francis Majorie
Mr. D. Nevill Manning
Mr. Christopher Martin
Ms. Linda S. McDonald
Ms. Tahira Khan Merritt
Mr. Richard W. Mithoff, Jr.
Mr. Gregory Moore
Mr. Marion Mitchell Moss
Mr. James C. Mosser
Ms. Susan Nelson
Mr. John F. Nichols
Mr. Nick C. Nichols
Mr. William David Noel
Mr. Rand Patrick Nolen
Mr. Patrick Gregory O’Brien
Justice Harriet O’Neill
Mr. Rene Ordonez
Mr. Dominic John Ovella
Mr. Pete T. Patterson
Mr. Andrew Payne
Ms. Nina Perales
Mr. Michael W. Perrin
Mr. John W. Proctor
Mr. William Kelly Puls
Mr. John V. Rabel
Mr. Kristopher Rabie
Mr. Donato David Ramos
Mr. Thomas E. Reddin
Mr. Matthew Richard Rodgers
Mr. Eduardo Rodriguez
Mr. Michael R. Ross
Mr. Jimmy Robert Ross
Mr. Scott Jay Ryskoski
Mr. David A. Schlueter
Mr. Leonard Wayne Scott
Mr. Randall Jack Shafer
Mr. George Thomas Shipley
Justice Rebecca Simmons
Mr. John E. Simpson, III
Ms. Clarissa Renee Skinner
Ms. Michele Yennie Smith
Mr. Richard A. Solomon
Mr. Frank R. Southers
Judge John J. Specia, Jr.
Mr. Broadus A. Spivey
Mr. Raymond Lyn Stevens
Mr. Stephen L. Tatum
Mr. Eric J. Taube
Mr. Jack George Ternan
Mr. Richard N. Thompson
Mr. Andy Wade Tindel
Mr. James Tracy, Jr.
Mr. Dale L. Trimble
Ms. Mary A. Van Kerrebrook
Ms. Liza Michelle Vasquez
Ms. Ruth Vernier
Mr. Gabe Vick, III
Mr. Wesley Ward
Mr. Scott Ryan Wiehle
Mr. Kirk Willis
Ms. Terri Gaines Wilson
Mr. William D. Wood
Mr. Luis Guillermo Zambrano
Mr. Richard Stephen Zembek
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STATE
STATE BAR
BAR LITIGATION
LITIGATION SECTION
SECTION REPORT
REPORT
the
A DVOCATE
PART I.
DEVELOPMENTS
IN THE
FIELD
Commercial Law
Developments and Doctrine
✯
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Litigation in the 21st C entury: The Jury Trial ,
The Training & The Experts
M usings & Teachings from D avid J. Beck , Lisa Blue ,
M elanie Gray & S tephen D. Susman
AUTHORED AND EDITED BY SOFIA ADROGUÉ & HON. CAROLINE BAKER
L
ITIGATION IN THE 21ST CENTURY HAS BEEN THE SUBJECT
of vigorous substantive debate and commensurate
study. Opinions are pointed and varied as to the state
of litigation and whether systemic reform is truly needed.
Commentators question whether the civil justice system is
broken or simply “is in serious need of repair.”1 With institutions seeking a “roadmap for reform” in our 21st century
civil justice system, issues of costs and length of time for
resolution of matters are at the forefront of the debate.2 This
paper will address three topics worthy of additional scrutiny
and conversation: (i) commercial litigation trial work in the
21st century—the aftermath of the “vanishing trial”;3 (ii)
lawyer training in this era where opportunities are scarce,
“the price of justice is high,” and arguably “access is being
compromised”4; and (iii) the use and selection of experts in
the second decade after Daubert.5
I. Commercial Litigation in the 21st Century—the
Aftermath of the “Vanishing Trial”
Undoubtedly, “[j]ury trials have become the road less traveled.”6 Whether we are witnessing “the most profound change
in our jurisprudence in the history of the Republic,” 7 as one
respected U.S. District Judge has articulated, the decades-long
decline in jury trials (both at the state and federal levels, civil
and criminal) is documented and seemingly permanent.
Members of the judiciary, academia and the bar have identified many causes for this decline—high costs of litigation
in this information age, inundated dockets, escalation of
alternative dispute resolution methods such as arbitration
and mediation, unnecessary delays, and the unpredictability
and arbitrary nature of the court system.8
Predicated with the inquiry “where have all the juries gone,”9
the statistics are startling and exemplify the “vanishing trial”
mantra.10 Indeed, to many it appears that trial courts “are
losing their business.”11 In the thirty-year period from 1970
through 1999, the total number of civil cases filed in federal
courts increased by 152%. During that same period, the
number of cases tried decreased by 20%.12 While traditionally
only a de minimus percentage of cases are tried, the decline
in the relative number of cases tried has changed from 12%
in 1970 to 1.8% in 2002.13 While data on the status of state
court trials is “more limited, harder to collect, and difficult
to compare,” according to one study, “state courts appear to
be experiencing a trend similar to what is occurring in the
federal courts.”14 In Texas, in 2005 (excluding family cases)
0.46% of the civil law cases in Texas’s civil district courts
were tried by jury. This number dropped to 0.36% by 2009.15
Morbidly stated by a prominent jurist, “[t]he American jury
system is dying. It is dying faster in the federal courts than
in the state courts. It is dying faster on the civil side than
on the criminal side, but it is dying.”16
Commentators have coined the aftermath as the “ripples
caused by the near cessation of trials.”17
Scholars ask,
“Litigators in name only?” 18 Accordingly, some argue that a
more apt definition of the 21st century litigator might be “‘one
who uses the court system only as a last resort if a dispute
cannot be resolved outside its bounds.’”19
II. Training Young Lawyers in an Era of Fewer Jury Trials
A predictable consequence of the “vanishing trial” phenomenon is the conundrum of lawyer training in this 21st
century reality. In these times of fewer jury trials and clients’
heightened sense that the stakes are too high in those cases
that actually are tried, it is a challenge for young lawyers to get
practical hands-on training. To address this gap in training,
law schools and law firms have become creative in their
training methods. Many law schools now have strong trial
advocacy programs that include competitions in, among other
things, client counseling, mediation, moot court, and mock
trial. Several law schools also work with the local judges,
allowing their students to attend mock summary judgment
hearings so that the students get experience arguing a case
in a real courthouse and in front of a real judge, albeit in a
“pretend” case. Many firms now have their own “universi-
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ties” where associates are instructed on all aspects of a trial
and then participate in a mock trial with extensive critique.
Other firms have looked for opportunities outside the firm,
such as with the District Attorney’s offices in Harris County
(and other counties), for their associates to try misdemeanor
cases so that they get some real time in front of a jury.
Judges also contribute to young lawyer training by judging
mock trials and mock hearings (as mentioned above), and
by providing internships for law students so that they have
an opportunity to get a bird’s eye view of the trial process.
In essence, law firms and other institutions must explore
innovative approaches to ensure that when their lawyers do
appear in a trial, they are “trial ready.”
III. The Use and Selection of Experts and the Effect of
Daubert on Trial Work in the 21st Century
Over a century ago, Judge Learned Hand astutely observed
that “[n]o one will deny that the law should in some way
effectively use expert knowledge wherever it will aid in
settling disputes. The only question is as to how it can do
so best.”20 The genesis of the dialogue about experts and
ultimately of Daubert and its progeny has been the need and
desire to find an efficient and effective methodology for the
use of experts. Unfortunately, “[e]xperience has shown that
opposite opinions of persons professing to be experts may
be obtained to any amount…wasting the time and wearying
the patience of both court and jury, and perplexing, instead
of elucidating, the questions involved in the issue.”21
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stakes are high because expert opinions are important to
almost every type of litigation and the exclusion of expert
testimony can become outcome-determinative. 27
Today, extensive pretrial Daubert hearings are now almost de
rigueur, with each side seeking to strike the other’s expert(s)
in all types of cases. While legitimate challenges exist in
many cases, occasionally such hearings do not resemble the
challenge contemplated by the Daubert and Robinson28 courts,
and more closely resemble a case of “my expert is better than
your expert; therefore, your expert should be excluded.”
IV. Musings and Teachings
Four legendary trial lawyers share their insights about litigation, training and experts in the 21st century. As expected,
the conversation is thoughtful, candid and proffers innovative
suggestions and solutions.
DAVID J. BECK
The Court’s landmark 1993 ruling articulated standards
for trial judges to assess whether expert testimony should
be admitted, including determining whether the reasoning
upon which the testimony is based is scientifically sound and
whether the reasoning and methodology are relevant to the
facts of a particular case.25
Commercial Litigation in the 21st Century—
the Aftermath of the “Vanishing Trial”
Much has been written about the “vanishing” jury trial, and
rightfully so.29 There has been an overall decline in the
number of cases tried to a jury both in state court and in federal court. The decline in Texas has been drastic—civil jury
trials dropped 60% from 1986 to 2008.30 Even the number
of non-jury trials has plummeted in both state and federal
court. Today, less than 2% of federal cases are resolved by
trial. In 2009, in Texas state courts, only 0.4% of civil cases
were resolved by a jury or directed verdict.31 This “withering
away”32 of the jury trial may be blamed on several things:
increased use of mandatory arbitration clauses, tort reform,
heightened pleading standards, heightened expert witness
standards and the costs associated with expert testimony,
and the increased granting of summary judgment, just to
name a few. However, in my view, the escalating cost of
discovery is one of the most significant factors in reducing
the number of cases that proceed to trial. Matters of relatively
low dollar amounts in dispute can generate substantial costs
in depositions and even in discovering and producing only
documentary evidence. Plainly, the potential enormous cost
of litigation has contributed to the number of disputes that
are resolved in some manner other than trial.
In the decades since Daubert, the expert testimony jurisprudence has permanently impacted how lawyers and experts
approach litigation. It is clear that “Daubert has changed
the way many courts view technical evidence, because of
the greater pretrial scrutiny that is required.” 26 Further, the
But regardless of the cause of the drastic reduction in
trials—and especially jury trials, its inexorable result has
serious long-range consequences. Indeed, it would be easy
enough to dismiss the warning calls about the vanishing jury
trial as just the lamentations of self-interested trial lawyers
The inquiry propounded by Judge Hand was squarely
addressed 92 years later by the U.S. Supreme Court in Daubert
v. Merrell Dow Pharmaceuticals, Inc., which spawned a new
generation of expert examination —the “Daubert challenge.”22
Plagued with concerns that “[a]n expert can be found to testify
to the truth of almost any theory, no matter how frivolous,”23
the U.S. Supreme Court proclaimed in Daubert the debut of
a new era in judicial gatekeeping.24
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looking to preserve their way of life. More importantly,
however, this pattern of dwindling trials threatens one of the
fundamental underpinnings of our society: a strong, vibrant,
and independent judicial system.
✯ Fall 2011
motion practice. Many lawyers begin working on a case with
the intent, or certainly the belief, that it will never get to trial,
and they act accordingly. Two commentators have recently
argued that because “clients of all types assume that litigators
are trial lawyers and that trial experience is important,” the
“lack of trial experience must be disclosed to prospective
clients,” and that a failure to make such a disclosure should
be actionable conduct against the lawyer.34
What are the practical consequences of the eroding away
of the jury trial? Among other things, there are fewer jury
verdicts upon which an attorney can form a solid basis for
predicting the outcome of a particular dispute in the community, thereby making it exceedingly more difficult for an
Training Young Lawyers in an Era of Fewer Jury Trials
attorney to evaluate a case and to properly advise his or her
The “vanishing trial” phenomenon certainly has had a huge
client. Without a measurable number of jury (or judges’)
impact on training new lawyers. Today, young lawyers face
decisions on a similar dispute or type of claim, it will be
a tougher time getting trial experience than did those of
almost impossible to form a reasonable basis for predicting
us who began our careers many years ago. Adding to the
the outcome of a particular case or determining its value. The
problem is the fact that today many of the cases that go to
lack of development of the common law is another serious
trial are high stakes, bet-the-company type of cases. These
consequence. Fewer cases going to trial means that fewer
are not the kind of cases on which young lawyers can develop
jury verdicts are appealed to higher
their skills and techniques in the
courts. This, in turn, means that
courtroom. Although every case is
Distrust and skepticism about the
there are fewer appellate decisions,
important to the client, smaller matfairness of the judicial process, and
the opinions that form the contours
ters and lower-dollar disputes are
of our common law. The inexorable
the prime opportunities for young
ignorance about its value, will serve
by-product is uncertainty in the law,
lawyers to gain the experience
only to weaken the institution and
unpredictability, and inconsistency
needed to become an accomplished
result in waning support for the
in case outcomes.
trial lawyer. Unfortunately, those
judicial independence so necessary for opportunities are not as numerous
our democratic form of government.
Perhaps most significantly, the
as they once were.
diminishing number of jury trials
means a decline in the public’s participation in our justice
What can be done to provide the necessary training for our
system. Most people who serve on a jury walk away believing
young lawyers? Advocacy training and trial technique clinics
strongly in the fairness of our system and the importance of
are good ways for young attorneys to develop the skills they
the jury in resolving disputes. Fewer members of the public
will need when they do enter the courtroom. Our firm
having the opportunity to perform their civic duty and serve
utilizes in-house training classes as well as trial academies
on a jury may result in a diminished trust in our judicial
such as the one offered by the International Association of
system. Distrust and skepticism about the fairness of the
Defense Counsel. These classes and seminars offer our young
judicial process, and ignorance about its value, will serve
attorneys valuable trial skill training. Also, the lawyers in
only to weaken the institution and result in waning support
our firm actively participate in the bar’s pro bono initiative.
for the judicial independence so necessary for our democratic
One of the real benefits from our pro bono efforts—aside from
form of government.
the pride we feel in performing a valuable service to those
in need—is that our young lawyers have the chance to get
Finally, another unfortunate consequence is the lack of
into the courtroom and develop their skills, and in return
opportunity for attorneys to ply their trade and to hone
the client receives great assistance and representation that
their skills so that they are better prepared to represent the
he or she would otherwise not be able to afford. One of our
next client. No one becomes a great—or even good—trial
first year associates, for example, recently accepted a pro
advocate without having tried a significant number of cases.
bono custody matter and tried the case to a successful jury
Unfortunately, in this day those opportunities are difficult to
verdict. The client received the relief she sought, the young
come by. Indeed, we have seen a shift from the days of the
attorney won because he gained valuable trial experience and
“trial lawyer” to the days of the “litigator.” 33 With so many
helped someone who would otherwise have gone without
of today’s disputes terminating in a manner other than by
representation. Our firm also benefited because we now
a trial, the focus has turned to extensive pretrial work and
have a first year lawyer who has some jury trial experience.
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Training today’s young lawyers is also different in other
ways. To the extent the focus of litigation has moved
from trial work to motion practice and discovery issues,
young lawyers today are steeped in these issues early on.
And although learning to navigate a courtroom, examine
a witness, cross-examine an expert, or deliver a powerful
closing argument is certainly important—indeed, it is
essential—the complexity of today’s commercial litigation
is such that a young attorney also must be an expert in
the intricacies of document review, discovery and motion
practice beyond that necessary so many years ago. Today’s
complex commercial cases more than provide the facility
for that experience.
The Use and Selection of Experts and the Effect of
Daubert on Trial Work in the 21st Century
Expert testimony is now critical to almost every case.
Daubert 35 and its Texas counterpart have had a significant
impact on commercial litigation. Judges now have more control over expert evidence than they ever did before Daubert.
Although according to the Advisory Committee Notes to
Rule 702, “rejection of expert testimony is the exception
rather than the rule,” there is no doubt that challenges
to experts have increased significantly since the Court
expanded Daubert’s reach to all types of experts in Kumho
Tire v. Carmichael.36 Indeed, a recent study conducted by
PricewaterhouseCoopers on the effect of Daubert and financial experts demonstrates that while challenges to experts
have drastically increased, the success rate has remained
relatively steady.37 Challenges to all types of experts rose
over 340% from 2000 to 2009, but the percentage of all
experts excluded in whole or in part has remained relatively
consistent at around 45%, ranging from the highest of 50%
in 2003 to the lowest of 41% in 2002.38 Interestingly, at
least for challenges to financial experts, the Fifth Circuit
heard the second most number of challenges of all federal
circuits, behind only the Second Circuit.39
The study also showed that generally plaintiff’s experts are
challenged more frequently—70% of the challenges are to
financial experts—but that defendant’s experts are more
frequently excluded.40 These numbers, of course, are not
surprising given that the exclusion of expert testimony
obviously affects plaintiffs more than it does defendants
because in most cases if a plaintiff has no expert testimony
he will be unable to prove a prima facie case.41 And a
plaintiff is not likely to make a Daubert challenge of a
defendant’s expert until he knows for sure that his case is
going forward.42 Some argue that because of this, Daubert
has made it more difficult for plaintiffs to successfully
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litigate their cases.43 But, given that the exclusion rates
have remained about the same since Kumho, it is difficult
to say that is true.
To be sure, Daubert and its exacting standards have had an
effect on the costs of litigation, which in turn has probably
contributed to the diminishing number of cases going to
trial.44 If a plaintiff’s lawyer must hire multiple experts
and fend off a Daubert challenge to avoid the experts’
testimony being stricken, he or she is likely to only take
on cases with certain high-value potential. Consequently,
lower value cases are left unprosecuted.45
Another likely effect of Daubert in many states has been to
persuade plaintiffs—to the extent that they have a choice to
file in state or federal court—to prefer state court, a forum
in which they may believe they stand a better chance of
surviving a challenge to their expert.46 While this is not
of as much concern in states like Texas that have adopted
or incorporated the Daubert elements into their expert
evaluation standards, it is particularly true in states like
North Carolina that have rejected Daubert.47
Courts have taken very seriously their Daubert “gatekeeper”
role. Yet, there remains a debate about whether the Daubert
elements that were intended to be flexible guidelines
are, or can be, consistently applied by judges with little
understanding of scientific methods or an unsophisticated
view of complex scientific subjects.48 Nevertheless, I
believe Daubert has at least provided us with an adequate
framework with which to measure experts—for both the
plaintiff and the defense—and the value of their opinions.
Given that the factors are generally being applied by nonscientifically trained judges, it stands to reason that there
will always be times when an otherwise qualified expert
is excluded or where an expert opinion based on an obviously flawed scientific method is allowed. But all things
considered, Daubert and its application, in my view, have
significantly improved the way expert testimony is used
in today’s litigation.
The primary reason for exclusion of expert testimony is
lack of reliability—the misuse of accepted methods, rather
than the introduction or use of untested approaches, more
often leads to exclusion.49 From a practical standpoint,
this means that trial counsel must retain and use an
expert who is well versed in the proper methodology or
scientific approach that underlies his or her theory. In a
case involving a battle of experts, the battle is often won
by the party who secures the best expert in the field.
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LISA BLUE
Commercial Litigation in the 21st Century—the Aftermath
of the “Vanishing Trial”
“Justice denied anywhere diminishes justice everywhere.”50
The steep decline in the number of cases tried by juries
has a substantial effect on the work of all litigators in the
21st century. Any hope of lessening this decline depends on
investigating the cause of the trend. From my observation,
the demise of the jury trial and the resulting difficulties that
attorneys and their clients face can be linked to one main
culprit: tort reform. Specifically, tort reform and the decline
of the jury trial add a layer of difficulty that inhibits attorneys’
ability to advocate for clients in need of legal assistance. In the
end, compromising the right to trial by jury—which is the
cornerstone of justice—creates instability in the structure of
our legal system. The effects of this decline may be disastrous
for litigators and parties alike.
Attorneys will be the first to experience the tremors created
by the fall of the jury trial. These effects range from where an
attorney practices law to how the attorney approaches a case.
For example, case selection becomes more stringent when
individual states and the federal government place a cap on
pain and suffering and economic damages. Attorneys are
unable to accept clients who may have strong claims but are
barred from recovery due to limits imposed by tort reform.
These difficulties force lawyers, especially those in Texas,
to either switch areas of practice or go outside of that state
to practice law. In the end, the client is deprived of a legal
remedy and the purpose of our legal system is defeated. For
these reasons, the right to trial by jury, what John Adams
described as the “heart and lungs of liberty,” is in need of
resuscitation.
The uneven balance of bargaining power in favor of big
business intensifies the difficulties created by tort reform.
One way in which corporations are able to manipulate the
process in which individuals receive justice is by incorporating
mandatory arbitration clauses into form contracts. Thus,
assuming the individual is aware of the clause, the remaining
choice is accept to the contract “as is” or forfeit needed
services. This poses a significant disadvantage to private
individuals since businesses have more time and resources to
devote to drafting these clauses. The jury waiver is another
tool used against individuals by large corporations. Businesses
seek to justify these one-sided agreements by claiming that
individuals will still have their “day in court” with a judge
✯ Fall 2011
deciding the case. When businesses coerce individuals to
give up fundamental rights, this is an inappropriate use of
corporate power. Furthermore, these agreements interfere
with the freedom of the individual to have the case heard
by a jury and place a burden on the attorney to remedy
the consequences and to ensure that individual rights are
maintained. It is essential that the doors to the courthouse,
specifically the jury room, remain open so justice may be
preserved.
Furthermore, proponents of tort reform often use their
resources to prejudice the public before the case is ever
heard in court. These tort reform groups attack the public
perception of trial work by circulating rumors of a litigation
crisis and implicating that people are becoming “sue crazy.”
Despite the inaccuracy of the rumors,51 these assertions
make it more difficult for trial attorneys to present their
case to an unbiased jury. Because jurors are exposed to the
tort reform publicity onslaught, they become more skeptical
about the judicial system. Damage to the public perception
is exacerbated by the fact that there are fewer opportunities
to try cases in front of a jury. This leads to a more frustrating
trial process since attorneys have less experience in preparing
for and advocating during a jury trial.
Corporations also seek to increase the difficulty in bringing
class action lawsuits as another tool to strong-arm individual
litigants. For example, although aimed at reducing class
action lawsuit abuse, the Class Action Fairness Act of 2005
harms individuals with legitimate claims due to the increased
difficulty in bringing class action lawsuits.52 This act makes
it too difficult and expensive for a consumer to bring a class
action lawsuit; thus, it is more difficult to hold the corporate
giant in check. Class action suits are invaluable because
they afford consumers the opportunity to bring collective
claims against large corporations that would otherwise be
too small to bring separately. Absent the deterrent effect of
class action litigation, corporations can profit at the expense
of vulnerable consumers.
The perceived “advantages” of resolving disputes outside of
the courtroom do not justify compromising the fairness of the
process by forfeiting the right to trial by jury. The significant
disadvantages imposed upon those who need legal assistance
and the added layer of complication to trial work outweigh
the time and money saved, if any, through these alternative
processes. An attorney should put forth the same evidence,
call the same witnesses, and spend the same amount of time
preparing a case regardless of where the case is heard. For this
reason, my approach to jury work remains the same regardless
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of where the case is being heard. The goal is to extract as
much information about those who will render the verdict,
including their belief system and life experiences. Although
this does not remedy all the negative effects of tort reform,
it ensures that the attorney will fulfill his or her obligations
to the client and act as an effective advocate.
the young lawyers’ experience level or who may be unable to
afford a more experienced attorney. Similarly, a mentoring
program where law students are paired with older attorneys
would be a practical benefit for both the young lawyer and
the mentor since firms could utilize the training and skills
of the student.
There is no better experience for young attorneys than to
practice in front of a jury. As a young litigator at the District
Attorney’s Office, I tried over 125 cases. Each of those trials
was an invaluable contribution to my development as an
advocate. From those experiences, I have learned there is
something very important about having twelve jurors decide
whether the plaintiff deserves relief, as opposed to three
arbitrators determining the result of the case. This is central
to our system of justice, and the fairness provided through a
jury trial forms the core foundation on which our county was
built. Being in front of a jury is a profound experience, one
I would desire for every young lawyer. It is my sincere regret
that so few young attorneys will be able to take advantage of
this critical educational opportunity.
The Use and Selection of Experts and the Effect of Daubert
on Trial Work in the 21st Century
The Daubert decision has had a chilling effect on all civil
litigation by requiring judges to encroach on the role of the
jury and complicating the job of trial lawyers.53 Essentially,
Daubert allows a judge to determine the credibility of scientific
evidence and expert witnesses. Judges are becoming triers of
fact and, thus, usurping a role that was traditionally reserved
for the jury. The result is an increased and unbalanced burden
of proof by requiring that the plaintiffs win twice: once in
the Daubert proceeding and again at trial.54 This decision
ultimately produces the following effects: (1) increases the cost
of litigation for the plaintiff; (2) lowers the probability that a
case will ever be filed in the first place; and (3) increases the
chance that the judge will terminate the case. Daubert gives
an enormous amount of power to judges, whose rulings in
these motions can make or break a case. These effects hit
especially hard in toxic tort law where science is the essential
aspect of this type of litigation.
For these reasons, it is important to train young lawyers to
oppose arbitration and fight for the right of trial by jury. The
first step in this process is to teach young lawyers how the
system works. Through this understanding, I am confident
that young attorneys will become engaged in the art of
advocacy and work hard to protect their clients’ rights. In
conducting this training there are a few words of advice that I
would pass to every young lawyer. First, young lawyers should
get a specialty. If attorneys choose the general practice of law,
nothing will stand out about that person and he or she will
blend into the backdrop of every other attorney looking for
a job. Second, new attorneys should take as many bar exams
as possible, especially those of states in which that attorney
might want to practice. Being licensed in multiple states looks
very desirable to employers. Taking this approach minimizes
the negative effects of young lawyers’ limited opportunity to
try cases before a jury.
Law schools should also have an increased incentive to
better prepare students before entering the workforce. I
believe that the medical community sets a great example by
requiring young professionals to complete an internship or
residency before practicing on patients without supervision.
In the same way, I would propose that law schools require
internships so that young lawyers are prepared for practice
from the moment they enter a firm. This reduces the risk of
inadequate legal representation of a client who may not know
The Daubert standard has affected my experience as a litigator
by making case selection more difficult and adding a layer of
complication to trial work. Cases that I would have taken ten
years ago, I am unable to look at now because it is too difficult
to get past the science. The standard set out in Daubert can be
insurmountable and leaves many legitimate claims without
a proper remedy. These concerns shift the focus of attorneys
from what is important—like how bad the disease is or how
negligent the defendant acted—to whether the case can get
past Daubert standard. Furthermore, although Daubert sets
out general criteria to guide a judge’s decision making, it
leaves a lot of room for judicial discretion in applying the
criteria. The result of this flexibility is that litigators face a
lack of uniformity among different courts.55 For instance, in
trying a Daubert case, I always look into how the particular
judge has applied the standard in the past. Few wise lawyers
will take a case if it cannot get past Daubert and, as a result,
many people in need of a legal remedy will not receive a fair
chance at trial.
Assuming that the case gets through the heightened
selection process, I then look at how the experts in the case
will withstand the Daubert standard in both the trial and
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appellate courts. Under Daubert, the selection of experts
becomes indispensable. The job of the attorney at this phase
is to make sure that the expert passes all parts of Daubert.
However, finding experts who will testify in trial becomes
more difficult because those experts do not want to risk the
stigma of being struck as an expert by a judge who may
have no scientific background. Furthermore, fears of having
a witness struck are exacerbated by concerns that opposing
counsel will use a former Daubert ruling to discredit the
expert in subsequent trials. The jury should be able to judge
the credibility of experts and we should trust the system that
was created for that purpose.
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advocacy skills. What is the difference between oral advocacy
at trial and a blistering cross or a strategic direct examination of a witness in a deposition, a masterful argument at a
Daubert hearing, or a compelling presentation of the strengths
of your case to a mediator using the masterful storytelling
techniques possessed by every great trial lawyer? In my
view, two key differences are that a trial usually garners a
larger audience (which strokes our egos) and we know that
one side will win and the other will lose (which satisfies our
competitive nature). Given our professional responsibilities,
we should not want to go to trial to have our egos stroked or
our competitive spirits sated.
In the end, Daubert motions are overused, impose an unfair
That said, if there are fewer trials today, will the future genexpense on plaintiffs, and give too much power to trial
erations of lawyers be devoid of the legendary trial lawyers
judges by putting them in the role of jury. The judge, as a
of days gone by? First, let’s not kid ourselves—while there
neutral decision-maker, wears a
are many, many very good trial
robe, which represents a separating
lawyers, there have never been
Good lawyers can become much
veil between him and the litigants.
that many great trial lawyers. For
better the more they practice and
This veil is torn and neutrality
those who are extraordinary, I do
experiment with their oral advocacy
compromised when a judge is asked
not think they are extraordinary
skills, which is why it is so important
to step in and interpret the facts.
because they have done it over and
The justice system was designed so
over (although, I admit, experience
to nurture the next generation with
that the community interprets the
doesn’t hurt), but because they are
training and opportunity.
facts and the judge applies the law
wired a certain way that sets them
to the facts in order to resolve the
apart the very first time they step
dispute. The jury represents the standard of fairness required
into a courtroom. Nonetheless, good lawyers can become
by this system, and justice cannot be served if the access to
much better the more they practice and experiment with
justice is denied. Sadly, fewer people will receive much needed
their oral advocacy skills, which is why it is so important to
assistance as a result of this insurmountable standard.
nurture the next generation with training and opportunity.
MELANIE GRAY
Commercial trial lawyers often bemoan the fact that so few
cases go to trial. I have practiced for over thirty years, and
throughout that time, most large, complex commercial cases
settled before trial, as well they should. Settlement often
is in the client’s best interest because the client has more
control over the outcome. At trial, either before a judge or
a jury, the results are unpredictable and often affected by
factors having little or nothing to do with the merits of the
case. My recommendation to young lawyers who want to
try cases: your best bet is to refocus your practice on the few
areas where cases still go to trial or instead find fulfillment
in all the other aspects of oral advocacy.
Commercial litigation, whether in a court, an arbitration,
or a mediation, is replete with opportunities to use our oral
When commercial cases do go to trial, it is the sine qua non
of what we do. As I noted before, it is critical that we invest
ourselves in teaching our younger colleagues key advocacy
skills and then open the doors of opportunity to them. Many
firms have sophisticated training programs based upon the
learning-by-doing technique. I find these programs the
most effective, but only when the gifted, senior trial lawyers
commit themselves to participating actively in them. Young
lawyers that do not have access to in-house training programs can take advantage of the numerous advocacy CLEs
sponsored by local bar associations or the State Bar of Texas.
In addition, they can participate in advanced trial advocacy
programs sponsored by local law schools or attend one of
the national trial training programs, like those sponsored
by the National Institute of Trial Attorneys. While these
programs may carry hefty registration fees and a significant
time commitment, the benefit to a young lawyer’s career is
worth that investment now.
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However, no matter how good the training, if it cannot be put
to use because opportunities are not provided, the learned
skills can atrophy just like muscles that are not regularly
exercised. This is where clients, judges, law firms, and
senior attorneys can become more engaged. First, clients
should insist that depositions, court appearances, and other
presentations be assigned to the most junior level appropriate
given the stakes involved. Unfortunately, when business is
slow and those opportunities more scarce, senior attorneys
seem less willing to share them - because they may then
have less to do or because they may be less willing to take
any risks with the client. As a profession, we do ourselves a
disservice if we do not step aside and allow attorneys in their
early years of practice to meaningfully experience each stage
of a case leading up to, and including, trial.
Second, judges can be more active in encouraging law firms to
give their associates courtroom experience. I recently heard
about a pilot program under consideration in which a court
may require firms to send their junior lawyers to argue routine
pretrial motions. Further, judges should actively encourage
firms that accept habeas and other matters to allow the more
junior attorneys to handle as much of the representation as
possible (with appropriate supervision, of course).
Third, just as clients should request that depositions, hearings, and presentations be assigned to more junior attorneys,
law firms should not be shy about discussing the merits
of involving junior attorneys with clients. By its nature,
commercial litigation is, in large part, driven by businesses
that hope to be around for a long time and they should be
willing to provide as many opportunities as possible to
the next generation of lawyers who may be called upon to
represent them in the future. Law firms also should invest
in pro bono matters that will provide trial experience. Not
only is it the right thing to do, but also a very effective way
for young lawyers to get “on their feet” experience. Finally,
law firm management should hold senior lawyers accountable
for providing opportunities to junior lawyers by requiring
periodic reporting by the senior lawyers and by including
such “training” as a factor in their compensation.
With the proliferation of “experts” and the expert/consulting
industry, Daubert hearings have become more prevalent.
In the years since Daubert was decided, I believe less junk
science has been presented to the fact-finder. Further, clients
are becoming more vigilant in understanding whether the
proposed expert or expert testimony will be subject to chal-
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lenge and are increasingly resistant to spending the time and
money on such an expert if it is a close call. While judges
are more comfortable striking experts and their testimony,
I believe more can be done. I am surprised by lawyers and
clients who search for experts on just about every aspect of
the case, believing that if there is an “expert” who testifies
on each issue, their chances of winning increase. I often
question this approach, as the very essence of a trial lawyer’s
skill is translating complex issues (except those requiring clear
technical or scientific expertise) into ordinary concepts by
telling stories, drawing analogies, and relying on common
sense. The more lawyers rely on experts to explain the case,
the less they learn how to master their oral advocacy skills.
Finally, as litigation continues to evolve, with judges either
being pushed or mandated to dispose of cases earlier and
earlier, I believe hearings that eliminate claims or limit the
evidence will increase. These are also important opportunities
to advance a trial lawyer’s skills.
STEPHEN D. SUSMAN
Most Americans, including lawyers and appellate judges,
think that a jury trial in a civil case is something to be
avoided because the result is too unpredictable and the
pretrial discovery expense necessary to make it less so, is
too burdensome. Judicial doctrines like Twombal,56 Daubert
and Matsushita,57as well as expansive application of preemption and compulsory arbitration, are all reflections of
an explicit distrust of jury verdicts. What can be done to
make Americans regard the Seventh Amendment as at least
as important as the Second Amendment? Simply put, we
must reduce discovery expense and improve the perception
of juror comprehension.
In the mid-1990s, I served as the Chair of the Texas Supreme
Court’s discovery rules committee. While Texas was one of
the first states to expressly address e-discovery and deposition
abuses, I found the rule-making process slow and frustrating
for several reasons. First, the rules normally must accommodate all kinds of cases and all kinds of lawyers. Second,
because they remain in place for a long time, everyone is
fearful of experimentation. As an alternative, I began thinking
about the possibility of persuading opposing counsel to agree
to a set of rules that would govern a particular case and that
would not require the court’s permission to adopt. Because
I was blessed by being involved only in complex commercial
cases and with good opposing counsel, I was able to develop
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a set of Pretrial Agreements that my firm has been proposing
to opposing counsel for over a decade. Some of these agreed
rules already have been largely embodied in the federal rules,
such as the inability to discover communications between
counsel and expert witnesses or prior drafts of expert reports.
Other suggested rules, such as the limitation of depositions
to three hours and the elimination of expert depositions
entirely, are “hot off the press.”
The key to the efficacy of such a Pretrial Agreement has always
been to attempt to reach agreement on as many of these items
as possible before discovery begins. Once you are in the heat
of battle, what appears to be good for one side is often deemed
to be bad for the other; therefore, it is hard to reach agreement
at that point. Some of my proposed pretrial agreements are
always accepted and some are more controversial. To assist
trial lawyers in this process, I have established a working
website called TrialByAgreement58 where these agreements
discussed above, as well as other suggested agreements, can
be found and debated among trial lawyers.
Because my Pretrial Agreements have worked so well, I have
taken the concept a step further and have created a list of
possible Trial Agreements, largely intended to improve juror
comprehension. The start of discovery is not too early to
begin discussing and trying to reach agreement on simple
things like using a jury questionnaire, a juror notebook and
pattern jury charges where they exist. These items seem like
good ideas at the start of a case, but may not appear so benign
on the eve of trial. I truly believe that Trial Agreements are
worthy of full discussion among experienced trial lawyers
and judges well in advance of pretrial. My attitude is to take
whatever agreements I can get—the idea being that any
such agreements advance the ball and make pretrial and
trial more professional and efficient, not to mention making
trial more understandable to the jury. Trial by Agreement
is a way of reducing expense, stress and the uncertainty
of pretrial rulings and a jury trial. In my experience, most
judges welcome it and I speak at many continuing education
programs to encourage them to urge lawyers to consider these
type of agreements.
I also am creating a website called WeThePeople, WeTheJury
as a place where those who have served on state or federal
juries can go to discuss their experiences, anonymously and
without mentioning proper names. Nothing like this exists
and I believe that jurors who go to such a website are likely
to express satisfaction with the experience. I also believe that
trial lawyers and judges can use these comments to improve
how they conduct jury trials.
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If trial lawyers are willing to cooperate, there is no inherent
reason that JAMS or AAA should be winning the dispute
resolution competition. Businesses can incorporate into their
contracts agreements for arbitration-like discovery rules to
govern preparation for a trial. Alternatively, good trial lawyers
can agree to their own streamlined rules. Trials have other
advantages over arbitration—no need to pay judges by the
hour and the availability of appellate review of legal issues,
to name a few.
If a lawyer is paid by the hour, there is little incentive to reduce
the time spent on pretrial discovery. Other than preaching
the virtues of alternative fees that reward lawyers for results
and not for effort, there is little we can do to get rid of this
impediment to efficiency. However, we should reconsider the
ethical ban on compensating testifying experts on a contingent fee basis. Expert expenses, along with the expense of
reviewing electronic documents before they are produced, are
probably the largest part of the cost of any trial or arbitration.
Most jurors find that overall the experts cancel each other
out and are not outcome determinative. If that is true, we
should be asking ourselves why are we spending hundreds
of thousands of dollars to hire them. Can we not trust the
fact-finder, if fully informed of an expert’s compensation, to
give the appropriate weight to his testimony?
In this time of “vanishing” trials, I feel like an old dinosaur
hunter. There is no need to teach those skills to youngsters
if there are no dinosaurs around. That said, I do think there
are many opportunities for young lawyers to practice their
litigation skills by participating in mock trials. We also have
a rule at our firm that any lawyer that works on a case is
entitled to stand-up time at the trial. We can only teach by
sharing the limited trial experiences that we have. Jurors love
to see a young lawyer get opportunities to question witnesses.
Trial lawyers tend to overuse experts because we find it a
helpful way of getting non-expert evidence before the jury.
I have heard many lawyers say that it is the best way to get
the other side’s bad documents before the jury. I think we
need to change the rules to allow for a more direct approach,
e.g., for counsel to just display documents and use interim
arguments to explain what they mean. But in a time-limited
trial, getting the facts before the jury with some explanation
by using an expert is just fine. I also find that Daubert
motions are abused. They get filed in every case and greatly
increase the cost of litigation. I believe that courts tolerate
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this because many do not trust juries. If we trusted juries,
then what is the need for a gatekeeper? In my view, juries
are fully capable of distinguishing the wheat from the chaff
and I would only allow Daubert motions in those cases where
the scientific theory is obviously voodoo.
V. Final Observations
A spirited debate about the cause(s) of the “vanishing trial”
continues. However, there is no doubt that trials have
decreased significantly and that the rising costs of discovery,
among a litany of other considerations, are clearly a contributing factor. With the decline in jury trials, it is now, more
than ever, a challenge for young lawyers to be able to “cut their
teeth” in real trials. It requires creativity and a willingness
on the part of the lawyers, clients and judges to give young
lawyers opportunities to develop and hone their oral advocacy
skills, whether in mediation, arbitration, hearings, or trials. There also seems to be consensus that the number of Daubert
hearings has escalated with a wider range of experts being
subjected to a challenge. As a result, such hearings are now
costly and time consuming for all involved. Some litigators
question putting the judge into a gatekeeping function to
such an extent that the judge effectively becomes the jury,
rather than proceeding with fewer experts; having the lawyer
present the key documents to the jury; and trusting the jury
to “make the call.” One thing is certain: trial lawyers, clients
and judges alike should be invested in preserving the right to
trial by jury and making the pretrial and trial process open,
fair, and cost efficient to all.
Sofia Adrogué, P.C. is a Partner in the Houston office of Looper,
Reed & McGraw, P.C. She is a frequent CLE speaker (over 100
speeches to date) and publisher (over 70 articles to date) and has
been locally and nationally recognized for her public service.
Caroline Baker has served the citizens of Harris County as a state
district judge for 13 years. Prior to the bench, she was a partner
in the litigation firm of McFall, Sherwood & Sheehy. She has been
elected to the American Board of Trial Advocates.
David J. Beck, a Founding Partner of Beck, Redden & Secrest,
L.L.P., is a Past President of the American College of Trial Lawyers
as well as the Past President of the State Bar of Texas; he currently
serves as Chair of the Center for American and International Law.
Lisa Blue, Ph.D., J.D., with Baron and Blue in Dallas, Texas, is a
nationally renowed trial lawyer whose accomplishments include
being named one of the Top 50 Women Litigators in the U.S. by
the National L aw Journal, Trial Lawyer of the Year by the
Texas Chapter of the American Board of Trial Advocates and by
✯ Fall 2011
17
the Dallas Bar Association. Ms. Blue wishes to thank Courtney
Boothe, Candidate for Juris Doctor, May 2013, SMU Dedman
School of Law, for her assistance.
Melanie Gray, a partner at Weil, Gotshal & Manges LLP, specializes in commercial and bankruptcy litigation. She served on the
board of the Houston Bar Foundation and is a Founding Member
of the Center on Women in Law at the University of Texas School
of Law.
Stephen D. Susman is the founding partner of Susman Godfrey,
a 90-attorney commercial trial boutique with offices in Houston,
Dallas, LA, Seattle and New York. O
1
Summary Comparison of Bar Association Submissions to the
Duke Conference Regarding the Federal Rules of Civil Procedure
(April 26, 2010) at iii available at
http://civilconference.uscourts.gov/LotusQuickr/dcc/Main.nsf/$defa
ultview/0F0CC2092ECAAEE2852577130049EBDD/$File/ABA%20
Section%20of%20Litigation,%20Comparison%20of%20Duke%20
Conference%20Recommendations.pdf?OpenElement.
2
See generally A m. Coll. of Trial L awyers Task Force on
Discovery & Civil Justice & Inst. for the A dvancement of the
A m. L egal Sys., 21st Century Civil Justice System A Roadmap
for R eform, P ilot P roject Rules (2009) available at
http:// www.du.edu/legalinstitute /pubs/pilot _ project _ rules.
pdf.
3
See generally Marc Galanter, The Vanishing Trial: An Examination
of Trials and Related Matters in Federal and State Courts, 3 J. Empirical
L egal Stud. 459 (2004).
4
See A m. Coll. of Trial L awyers Task Force on Discovery
& Civil Justice, supra note 2, at 1.
5
See Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993).
6
Tracy Walters McCormack & Christopher John Bodnar, Honesty
is the Best Policy: It’s Time to Disclose Lack of Jury Trial Experience,
23 Geo. J. L egal Ethics 155, 200 (2010).
7
Hon. William G. Young, An Open Letter to U.S. District Judges,
The Federal L awyer 30 , 30 (July 2003); Hon. William G. Young,
Vanishing Trials, Vanishing Juries, Vanishing Constitution, 40 Suffolk
U.L. R ev. 67, 92 (2006) (“The future, of course, is unpredictable.
But this much I know is true: history will not deal kindly with that
generation of jurists that allowed the American jury to fall into
desuetude. Lincoln said it best: ‘we cannot escape history….[It] will
light us down, in honor or dishonor, to the latest generation.’ How
will history ‘light us’? I know not how the institutional judiciary
will respond.”) (footnotes omitted).
8
Hon. Patrick E. Higginbotham, So Why Do We Call Them Trial
Courts?, 55 SMU L. R ev. 1405, 1405-20 (2002); Sam Sparks & George
Butts, Disappearing Juries and Jury Verdicts, 39 Tex. Tech L. R ev.
289, 295-97 (2007); A m. Coll.of Trial L awyers, The “Vanishing
Trial:” The College, The P rofession, The Civil Justice
18
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System 5 (2004), available at http://www.actl.com/AM/Template.
cfm?Section=All_Publications& Template=/CM/ContentDisplay.
cfm&ContentFileID=57.
9
See Sparks & Butts, supra note 8 at 295; see also Walters
McCormack & Bodnar, supra note 6.
10 See generally Galanter, supra note 3.
11 See Higginbotham, supra note 8 at 1420.
12 Id. at 1408.
13 A m. Coll.of Trial L awyers, The “Vanishing Trial:” The College, The P rofession, The Civil Justice System 5 (2004), available
at http://www.actl.com/AM/Template.cfm?Section=All_Publications& Template=/CM/ContentDisplay.cfm&ContentFileID=57; see
also Higginbotham, supra note 8 at 1405-18.
14 Hon. Nathan L. Hecht, The Vanishing Civil Jury Trial: Trends in
Texas Courts and an Uncertain Future, 47 S. Tex. L. R ev. 163, 164
(2005) (footnote omitted).
15
See David J. Beck, The Consequences of the Vanishing Trial: Does
Anyone Really Care?, 1 HLRe 29, 41 (2010) available at http://www.
houstonlawreview.org/archive/downloads/hlre/1_1/(3)Beck.pdf
(citing Office of Court A dmin., A nnual R eport for the Texas
Judiciary: Fiscal Year 2009, at 45 (2009), available at http://
www.courts.state.tx.us/pubs/ar2009/AR09.pdf ).
16 Hon. Joseph F. Anderson, Jr., Where Have You Gone, Spot Mozingo?
A Trial Judge’s Lament over the Demise of the Civil Jury Trial, 4 Fed.
Cts. L. R ev. 99, 99 (2010) (citing William G. Young, U.S. District
Judge for the District of Mass., Address at the Florida Bar’s Annual
Convention (June 28, 2007) at http://www.floridabar.org/DIVCOM/
JN/jnnews01.nsf/8c9f13012b96736985256aa900624829/5d3d1e6
1610d7e5c852573150051920d?OpenDocument).
17 Walters McCormack & Bodnar, supra note 6 at 200.
18 Id. at 161.
19 Id. at 163.
20 Learned Hand, Historical and Practical Considerations Regarding
Expert Testimony, 15 H arv. L. R ev. 40, 40 (1901). See generally
Sofia Adrogué & Alan Ratliff, Still Room for Improvement: Assisting
the Trier-of-Fact in the Second Decade of Daubert, 1 HLRe 5 (2010),
available at http://www.houstonlawreview.org/archive/downloads/
hlre/1_1/(2)Adrogue.pdf.;
Sofia Adrogué & Alan Ratliff, The Care & Feeding of Experts: Accountants, Lawyers, Investment Bankers, and Other Non-Scientific Experts,
47 S. Tex. L. R ev. 881 (2006); Sofia Adrogué & Alan Ratliff, The
Independent Expert Evolution: From the “Path of Least Resistance” to the
“Road Less Traveled?”, 34 Tex. Tech L. R ev. 843 (2003); Sofia Adrogué
& Alan Ratliff, Kicking the Tires After Kumho: The Bottom Line on
Admitting Financial Expert Testimony, 37 Hous. L. R ev. 431 (2000).
21
Winans v. N.Y. & Erie R.R. Co., 62 U.S. (21 How.) 88, 101
(1858).
22
See Daubert v. Merrell Dow Pharmaceuticals., Inc., 509 U.S. 579
(1993).
23 Hon. Jack B. Weinstein, Improving Expert Testimony, 20 U. R ich.
L. R ev. 473, 482 (1986).
24 See Sofia Adrogué & Alan Ratliff, Still Room for Improvement:
Assisting the Trier-of-Fact in the Second Decade of Daubert, 1 HLRe
5, 7 (2010), available at http://www.houstonlawreview.org/archive/
✯ Fall 2011
downloads/hlre/1_1/(2)Adrogue.pdf.
25 Daubert, 509 U.S. at 592-94.
26
Katerina M. Eftimoff, The Decade After Daubert Proves Tough
on Expert Witnesses, Litig. News, July 2002, at 1, 1 (quoting U.S.
District Judge Nancy Friedman Atlas, Houston, Co-Director of the
Section of Litigation’s Division I –Administration); see also RAND
Inst. for Civil Justice, RB-9037: Changes in the Standards for
A dmitting Expert Evidence (2002), available at http://rand.org/
pubs/research_briefs/RB/RB9037/index1.html.
27 See, e.g., Weisgram v. Marley Co., 528 U.S. 440, 443, 456 (2000)
(expert testimony found unreliable and therefore, inadmissible;
judgment for plaintiff reversed and final take-nothing judgment
rendered for defendant on appeal without new trial).
28
E.I. du Pont de Nemours and Co., Inc. v. Robinson, 923 S.W.2d
549 (Tex. 1995).
29 See, e.g., David J. Beck, The Consequences of the Vanishing Trial:
Does Anyone Really Care?, 1 HLRe 29 (2010).
30
Office of Court A dmin., A nnual Statistical R eport for
the Texas Judiciary: Fiscal year 2008, at 38 (2008), available at
http://courts.state.tx.us/pubs/ar2008/AR08.pdf.
31
Fiscal Year, ending August 31, 2009. Office of Court
A dmin., A nnual R eport for the Texas Judiciary: Fiscal Year
2009, at 41 (2009), available at http://www.courts.state.tx.us/pubs/
ar2009/AR09.pdf.
32
Hon. William G. Young, An Open Letter to U.S. District Court
Judges, The Federal L awyer 30, 31 (July 2003).
33
See Tracy Walters McCormack & Christopher John Bodnar,
Honesty is the Best Policy: It’s Time to Disclose Lack of Jury Trial
Experience, 23 Geo. J. L egal Ethics 155, 200 (2010) (“We are just
beginning to assess the ripples caused by the near cessation of trials.
Most litigators, especially those practicing less than ten years, have
little or no trial experience.”).
34 Id. at 200.
35
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993).
36 Kumho Tire Co. v. Carmichael, 526 U.S. 137, 150 (1999).
37
Daubert Challenges to Financial Experts: A Ten-Year Study
of Trends and Outcomes 2000–2009, PriceWatershouseCoopers
(2010), available at http://www.pwc.com/us/en/forensic-services/
assets/2009-daubert-study.pdf
38 Id.
39 Id.
40 Id.
41 See Margaret A. Berger, What Has a Decade of Daubert Wrought?,
95 A m. J. P ub. Health S59, S64 (2005).
42 Id.
43 See id.
44 Id.
45 Id. at S65 (“The number of product liability cases filed in federal
court has dropped precipitously. Daubert may be stifling access to
the courts at the same time it is fueling demands for tort reform by
escalating awards.”).
46 Id.
47
See Howerton v. Arai Helmet, Ltd., 597 S.E.2d 674, 693 (N.C.
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2004) (“North Carolina is not, nor has it ever been, a Daubert
jurisdiction.”).
48 See, e.g., Lucinda Finley, Guarding the Gates to the Courthouse:
How Trial Judges Are Using Their Evidentiary Screening Role to Remake
Tort Causation Rules, 49 DePaul L. R ev. 335, 341 (1999); David
Crump, The Trouble with Daubert-Kumho: Reconsidering the Supreme
Court’s Philosophy of Science, 68 Mo. L. R ev. 1, 40 (2003).
49
Daubert Challenges to Financial Experts: A Ten-Year Study
of Trends and Outcomes 2000–2009, PriceWatershouseCoopers
(2010), available at http://www.pwc.com/us/en/forensic-services/
assets/2009-daubert-study.pdf.
50 Martin Luther King, Jr.
51
See Carmel Sileo & David Ratcliff, The Myth of the Litigation
Crisis, Trial, July 2006, available at
http://www.justice.org/cps/rde/xchg/justice/hs.xsl/4757.htm.
52 AP-CLASS-LH 1, 2005 WL 2652584 (A.&P.L.H.).
53
Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579
(1993).
54
See George Lakoff, A Cognitive Scientist Looks at Daubert, 95
A m. J. P ub. Health S114 (2005).
55
Reliable Evaluation of Expert Testimony, 116 H arv. L. R ev. 2142
(2003).
56
Bell A. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v.
Iqbal, 129 S. Ct. 1937 (2009).
57
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
574 (1986).
58 See generally http://trialbyagreement.com.
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A lternative F ee A rrangements :
P artnering with C lients Through Legal Risk Sharing
BY TREY COX
F
OR SEVERAL YEARS NOW, LAW FIRMS OF ALL SIZES have
been entering into legal risk-sharing arrangements with
their clients. In the wake of the country’s recession,
clients are increasingly looking for avenues to reduce costs
across the board, giving rise to a growing interest in these
types of arrangements designed to accommodate clients
interested in a fee structures other
than standard hourly billing.
Why Do Clients Seek Alternative Fee Arrangements?
Clients now recognize the inherent benefits in shifting some
or all of the legal fee risk to law firms. First and foremost,
shifting the fee risk to the law firm aligns the law firm’s
incentives with the client’s, and reduces the risk to the client.
In addition, clients who lack the financial resources to pursue
important but expensive litigation are
provided the opportunity to pursue
Alternative or special fee
such matters by having their law firm
arrangements are agreements
invest in the case alongside the client.
In the absence of AFAs, such matters
between a law firm and a client to
might never be pursued.
provide compensation based on a
In return for investing some or all of
standard fees in the client’s matter, or
for taking on unusual fee or collection risk, clients and their attorneys
structure other
can come to an agreed upon fee
based on a set of specified criteria,
with both parties sharing in legal fee and legal outcome risk.
Such arrangements, commonly called alternative fee arrangements or AFAs, are maintained in strict confidence, except
when there is a disclosure requirement as a prerequisite to
recovering attorneys’ fees as an element of damages.
What are Alternative Fee Arrangements?
Alternative or special fee arrangements are agreements
between a law firm and a client to provide compensation
based on a structure other than hourly billing. Such structures can take the form of contingency fees, fixed fees, value
or success-based fees or other alternatives to hourly fees
appropriate under the circumstances of a specific matter.
Special fee arrangements can be hybrids in which the firm
receives a percentage of its hourly rate, with the remainder
contingent on the outcome of the matter. If there is an
unfavorable result, no further fees are paid. If there is a
positive outcome, the firm might receive a multiple of the
fees it has at risk.
In addition, special fee arrangements can span more than
one case. Many firms are willing to negotiate special fee
arrangements that provide a fixed contingency across a
group of cases, or to handle a group of defense cases at a
discount, in exchange for a contingency on plaintiffs’ cases
that a client may have.
than hourly billing.
Clients also value AFAs because they
can provide predictable cash flow and
budgeting. An AFA with a fixed monthly fee or flat fee as an
element is a prime example of a structure that guarantees
certainty in legal expenditures. In surveying our clients, we
have found that more and more clients are utilizing alternative fee arrangements and are looking to firms that regularly
provide such arrangements.
What Type of Clients Choose Risk-Sharing Arrangements?
In today’s economic climate, a broad array of clients now
prefer to negotiate AFAs instead of utilizing traditional hourly
billing. Some of these clients lack the financial resources to
pursue a particular case or matter, as is often the case in
intellectual property litigation matters or litigation matters
for smaller growth companies. Other clients favor the further alignment of interests inherent in certain risk-sharing
arrangements where firms are only paid when a “win” has
been secured for the client, such as contingent fee litigation
matters. Still others prefer AFAs for their cash flow benefits
or to bring certainty to budgeting. Whatever the motivation,
many clients appreciate the flexibility and cooperation
inherent with fair and appropriate AFA structures.
What Structuring Options Are Available For Alternative
Fee Arrangements?
AFAs can be structured in a variety of scenarios that will
best benefit the client as well as the firm. Typical structures
can include pure contingent fee and partial contingent fee
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litigation matters, fixed fees, “hold backs” or any combination
of risk/reward structures negotiated on a case-by-case basis
with the client.
With the changing needs of clients, firms must be prepared to
discuss and pursue any reasonable risk-sharing fee structure
that balances the relative investment and risk taken on by
the firm with the client’s objectives for success in the matter.
Specific examples of AFAs include:
• Pure Contingency Fee. A pure contingency fee arrangement is the most traditional alternative fee arrangement. In
this scenario, a firm receives a fixed or scaled percentage of
any recoveries in a lawsuit brought on behalf of the client
as a plaintiff. Typically, the contingency is approximately
33%, with the client covering litigation expenses; however,
firms can also share part or all of the expense risk with
clients. Pure contingency fees, which are usually negotiated
at approximately 40%, can be useful structures in cases
where the plaintiff is seeking monetary or monetizable damages. They are also often appropriate when the client is an
individual, start up, or corporation with limited resources to
finance its litigation. Even large clients, however, appreciate
the budget certainty and risk-sharing inherent in a contingent
fee arrangement.
• Partial Contingency Fee. In a partial contingency fee
arrangement, a firm receives a portion of its hourly rate
plus a smaller percentage of any recoveries in the lawsuit. A
common partial contingency fee is 60% of a normal hourly
rates plus a 20% contingency. Partial contingency fees reduce
the out of pocket cost of litigation to the client, while still
aligning the firm’s incentives with the client and sharing the
fee risk between law firm and client. Partial contingency fees
are also most common in plaintiff cases seeking monetary or
monetizable damages. Defense cases can also be structured
as partial contingency fees with success contingent on agreed
upon results or milestones being achieved.
• Fixed Fee. Fixed fee or flat fee arrangements are typically
arrangements whereby a firm agrees to handle a matter or
group of matters for a sum certain or for a certain burn rate
per month. Fixed fees can be subject to an overall cap paid up
front, or they can be for a fixed amount per month without
a cap. The specific nature of any fixed fee arrangement can
be tailored to the nature of any given matter. Clients who
desire budgeting certainty often find fixed fee arrangements
attractive.
•
Holdback/Success Fee. A holdback/success fee arrange-
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21
ment is similar to a partial contingency fee, in that a firm is
paid a portion of its fees up front, but has a portion withheld contingent upon success in the matter. If the matter is
concluded successfully, the firm receives a multiple of the
holdback or an agreed upon success fee. This structure is often
used in defense cases or when the result sought in the matter
is not monetary. The holdback/success fee arrangement can be
particularly beneficial in corporate transactions where success
is the completion of an acquisition, sale or other transaction.
It also lends itself well to patent cases where the outcome
sought is a finding of validity or invalidity of a patent, or in
litigation defense cases where the result sought is summary
judgment or limiting damages below a certain quantum.
• Multiple Matters. AFAs need not be limited to a single
case or corporate matter. They can also be structured to
involve clients that pool groups of plaintiffs’ cases on a
contingent fee basis, as well as groups of defense cases on
a fixed or flat fee basis. In addition, firms can handle a
fixed pool of defense cases on a reduced hourly fee basis, in
exchange for handling a group of plaintiff contingent fee cases
for the client, or for receiving right of first refusal to handle
all plaintiff contingent fee cases for the client for a period of
time.
• Appeals. Appellate matters are also well suited to AFAs,
as they can be handled on a flat fee basis. Other appellate
matters that are appropriate for these alternative fee structures
involve cases where compensation rests, in whole or in part,
on the success of the appeal.
Conclusion
The trend of alternative fee arrangements between law firms
and clients will continue to gain momentum as the business
world continues to evolve. All firms must be prepared to
be increasingly flexible and willing to work with clients to
structure these kinds of arrangements that can prove to be
incredibly beneficial for firms looking to gain client loyalty
and satisfaction.
Trey Cox is a Partner at Lynn Tillotson Pinker & Cox, LLP. O
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Roundtable:
A lternative F ee A rrangements in Litigation
PANEL: RAMON M. CANTU, LAURA W. DOERRE & MARK C. SCHROEDER
C
LIENTS AND LAWYERS ARE INCREASINGLY EXPLORING
alternatives to hourly billing as a way to decrease costs
and improve efficiency in the delivery of legal services,
as the billable hour has come in for substantial criticism. In
this article, three high-ranking in-house lawyers from large
Texas-based companies discuss their companies’ experience
with alternative fees in litigation, their opinions about the
advantages and drawbacks of alternative fee approaches, and
their views about whether the market for legal services is
experiencing an meaningful transition from the billable-hour
system towards alternative-fee approaches.
Mick Cantu: A yearly retainer may be something we would
consider for routine EEOC or medical malpractice work.
These arrangements can be hard to quantify for both the
client and the lawyers.
Laura W. Doerre: Flat fees (for work such as SEC filings &
acquisitions); contingency fees in defense matters.
Mark C. Schroeder: I’d like to explore contingent fees
and performance-based fees for defense matters, e.g., quick
resolution results in lump sum bonus, damages below “X
dollars” results in bonus.
QUESTION: What types of alternative fee arrangements has
your company used for outside counsel (e.g., pure contingency,
flat fee, hourly plus success bonus, yearly retainer)? Were
these used in cases in which your company was a plaintiff,
or in the position of a defendant?
QUESTION: How much of your company’s legal work
is covered by alternative fee arrangements (whether by
number or percentage of hours, revenue, cases, or some
other metric)?
Mick Cantu: We have used flat fees and flat fees with a
contingency based on outcomes. We consider discounted
hourly arrangements as fees at applicable billable rates rather
than alternative fee arrangements.
Mick Cantu: Less than 20%. We tend to use a very limited
number of Firms for litigation so we have close working relationships. This may be causing us not to explore alternative
fee agreements very aggressively.
Laura W. Doerre: We have used both pure contingency
and blended contingency (1/2 hourly, 1/2 contingency) for
plaintiff’s-side cases.
Laura W. Doerre: A very small amount. One or two matters
at any given time.
Mark C. Schroeder: We have used pure contingency
(plaintiff), yearly retainers (a routinized part of our legal
work, such as regulatory compliance), flat fees (e.g., all SEC
filings), and hourly plus success bonus (plaintiff), blended
rates (e.g., partner at full rate, associates at half rate, in
return for receiving all of certain type of litigation docket)
(defending), and unit rates (e.g., labor arbitrations for a given
year, number indeterminate, each billed at a flat rate). We do
not consider hourly discounts to be a form of an “alternative
fee arrangement”.
QUESTION: Are there other types of alternative fee arrangements that you have not used but would consider using?
Mark C. Schroeder: For my subsidiary, 75%. For CenterPoint
Energy, Inc., overall, I believe our General Counsel, Scott
Rozzell, has said it is probably in excess of 50%, maybe
more nearly 60%.
QUESTION: Are there particular types of cases (either by
substantive area, or size) that are particularly well or ill-suited
to alternative fee arrangements?
Mick Cantu: Either high-dollar cases, which gives outside
counsel incentive to take risk, or work that is predictable –
EEOC work, for example.
Laura W. Doerre: Small, non-recurring matters are best
left to the hourly rate. The time and energy spent to figure
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out an appropriate balancing of risk/reward is not justified
by the insignificance of the matter. Recurring “dockets”
within companies are particularly conducive to alternative
fee arrangements. Lump sums are well-suited for predictable
corporate work.
Mark C. Schroeder: I agree that small, non-recurring
matters are best suited for the hourly rate, because they
do not justify the effort to balance the risk and reward.
Recurring “dockets” within companies, e.g., property
claims, right-of-way encroachments, are particularly
conducive to alternative fee arrangements. Lump sums for
litigation are difficult, so we are trying to break litigation,
in some cases, down to certain constituent parts, with
alternative arrangements firmed up as we move to each
new phase of the case.
QUESTION: Do you require firms doing work for you under
alternative fee arrangements to track
and report their hours?
Mick Cantu: Only if the hours are
imputed in fee.
✯ Fall 2011
less incentive to bill hours and instead achievable particular
results. To be clear, I am not saying these two things are
mutually exclusive.
Laura W. Doerre: I think the quality of work is unchanged,
although I do believe it becomes more efficient under an
alternative arrangement. I do think incentives are better
aligned, although there is still (in some cases significant)
divergence of interests when nonmonetary issues are interjected. Cost reduction, predictability and ease of management
are certainly enhanced.
Mark C. Schroeder: First, and foremost, quality of work
never suffers. That is non-negotiable. Incentives are aligned
better, and in some cases, a matter which is important to
the business client, fees get paid when results are achieved,
a “matching” of costs with revenues, rather than years of
litigation invoices, based on hourly rates, and a large, lumpy
revenue stream when a litigation “win”
is finally, finalized.
Although alternative fees
are helpful in disincentivizing
additional work and incentivizing
efficient settlement of cases, the
most significant pitfall is that the
pendulum can swing too far in
the other direction.
– Laura W. Doerre
Laura W. Doerre: Yes, to assess the
effectiveness of using this type of
arrangement, although I do believe an
alternative fee arrangement changes
(mostly for the better) the way in
which a firm approaches a case, so
the comparison is only partially effective.
Mark C. Schroeder: No. In fact, we try to avoid ever referring back to how either we, or our firms, “might” have done
if we’d billed by the hour. We try, instead, to ask, “did we
get value for what we paid”, or “do we think we paid a fair
price for what service we received?” We want our firms to
ask themselves, “am I satisfied that this arrangement was
profitable for my firm?”, and such “profits” may include,
e.g., associate training, stabilized cash flows, balancing of
risks and rewards.
QUESTION: What advantages have you experienced that
alternative fee arrangements offer over traditional billablehour engagements (e.g., in terms of quality of work, better
alignment of incentives, cost reduction, cost predictability,
or ease of management)?
Mick Cantu: Better alignment of incentives. Firms have
23
QUESTION: What pitfalls (if any)
have you experienced or are you
careful to try to avoid with alternative
fee arrangements (e.g., underallocation of lawyer resources, difficulty
with defining “success,” misaligned
incentives)?
Mick Cantu: We have had experiences when assumptions or expectations were incorrect on
the front end (with client or firm) and then we have to adjust
later. Generally this has worked out fine but it takes a good
relationship between client and firm (and an expectation of
additional work on part of the firm).
Laura W. Doerre: Although alternative fees are helpful in
disincentivizing additional work and incentivizing efficient
settlement of cases, the most significant pitfall is that the
pendulum can swing too far in the other direction. The law
firm can become incentivized to settle a case too quickly or
for too much of a discount/premium because the cost/benefit
break point is different for them than for the client. Again,
there is almost an over-correction in some cases.
Mark C. Schroeder: No firm that maintains high professional standards, or that would hope to keep our work, would
underallocate resources due to an alternative fee arrangement.
What both parties need to have a clear understanding on, is,
how do we describe expectations upfront, so that if actual
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experience changes during the course of the agreement, we
can fix our arrangements. Our alternative fee arrangements
are not designed to “punish” a law firm if there is a significant
or material change in the parties expectations about what
work was to be covered, nor should the client find that a
matter was appreciably less work than expected, and pay
orders of magnitude more for that work then they might
have expected.
QUESTION: What are your thoughts about the future of
the billable hour system? How much do you anticipate using
lawyers on a billable hour basis in the future? Are there
aspects of the system that are inherently unsustainable? Do
you think the “death of the billable hour” is at hand any
time soon? Or is it more a case that the long talked about
demise of the billable hour is “the wave of the future, and it
always will be”?
Mick Cantu: It is not so much the hourly fee arrangement
as the fees that are the issue. Clients are under increasing
pressure to reduce costs. Outside legal fees do not get a free
pass in this regard. Firms will be pressed more and more to
justify their fees (or rates). Alternative fee agreements may
be one way to address both sides getting a fair return for
their money and time.
Mark C. Schroeder: It will remain for some matters, but it
is on the wane. 10% of my legal budget by 2013. Charging
$300/hour for first-year associates is unsustainable for most
work. The value is simply not there, and the figure alone
is unpalatable to clients. If nothing else, alternative fee
arrangements at least provide firms a way to make their
high junior associate rates opaque, and leave it to the law
firm to figure out how they will train young associates,
and maintain a high average hourly margin. It is here and
now for CenterPoint. The big firms were less nimble and
slower to come around to alternative fee arrangements,
but now that they have figured out how to recognize their
partners through their compensation systems for alternative fee arrangements, I think the last barrier to alternative
fee arrangements’ penetration into the marketplace has
evaporated.
Laura W. Doerre: There is definitely a trend against the
billable hour. Even outside lawyers are saying they see a
return to the old days of value billing. I think that would be
a mistake because in those days the amount was arrived at
after the fact and had more potential for creating conflict, as
opposed to today’s approach of making those decisions jointly
and at the inception of the representation. We are looking
✯ Fall 2011
at ways to significantly decrease it. Picking up on Mark’s
comment about junior-associate rates, equally as problematic
is the $1000/hour partner. Again, that value is rarely there.
We are looking at an approach that forces the firm’s hands
into increasing efficiencies. This may not mean clients will
be going completely to alternative fees, but I’d say the death
of the billable hour as we know it is imminent.
Ramon M. Cantu is Chief Legal Officer for The Methodist Hospital
System.
Laura W. Doerre is Vice President and General Counsel for
Nabors Industries.
Mark C. Schroeder is Senior Vice President, General Counsel
& Chief Compliance Officer (FERC) for the Pipelines & Field
Services Division of CenterPoint Energy. O
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25
P reservation U ncertainty Revisited :
A ddressing Spoliation by Rulemaking
BY THOMAS Y. ALLMAN
I. Introduction
As a result of considerable angst about compliance with the
duty to preserve, particularly prior to the onset of litigation,1
the Civil Rules Advisory Committee of the United States
Judicial Conference (the “Rules Committee”) is evaluating
the efficacy of replacing the current system by rules which
address preservation and spoliation.
This paper evaluates the rule exemplars2 developed by the
Committee to evaluate the “real-life dynamics” involved.3
If a decision is reached to proceed with rulemaking, the
Committee hopes to develop a final proposal by the time of
its April 2012 Committee Meeting.
A key issue, of course, is whether any rules can, in fact, provide
improved predictability for litigants (and still retain sufficient
flexibility for courts) as opposed to current approach. This
involves practical concerns about the scope and fairness of
the methods selected to achieve the certainty sought.
II. The Problem
Many preservation decisions must be made - by both plaintiffs
and defendants - long before formal discovery commences and
often before litigation begins. This can be a daunting task.
Wrong guesses can have serious consequences.
In many federal Circuits, including the Fifth Circuit, there
must be a showing of “bad faith” for serious spoliation sanctions, because “mere negligence is not enough, for it does not
sustain an inference of consciousness of a weak case.”4 In
other Circuits, however, “negligent destruction of evidence
[suffices for sanctions] because each party should bear the
risk of its own negligence.”5
When spoliation motions are filed, they can involve “wasteful
and time-consuming satellite litigation.”6 There has been a
dramatic upsurge in sanction requests. Over 485 written
sanction opinions involving e-discovery alone – the vast
majority from District Judges and Magistrate Judges – were
identified in a 2010 study.7
Thus, parties often find they must choose between conforming
preparations to the most demanding requirements among
the reported decisions or risk sanctions.8 Advocacy groups
contend that the net result of this dilemma is that some
litigants have, as a result, spent “millions of dollars to address
an unquantifiable risk.”9
III. Background
In May, 2010, the Rules Committee convened a Conference
on Civil Litigation at the Duke Law School (the “Duke
Conference”) to address concerns about discovery costs and
the impact of the 2006 E-Discovery Amendments (the “2006
Amendments”). An E-Discovery Panel composed of jurists
and counsel,10 reported their unanimous consensus that “a
rule addressing preservation (spoliation) would be a valuable
addition to the Federal Rules.” The Panel listed “elements”
for consideration in such an effort, including a suggestion
that compliance with any rule should “insulate” a responding
party from sanctions for failure to preserve.11
The Duke Panel was not writing on a clean slate. In 2001,
the author identified an “urgent need” for the Rules Committee
to adopt uniform standards limiting sanctions for failure to
preserve, with evidence of undertaking reasonable steps to
preserve constituting prima facie evidence of compliance.12
In early 2004, the Rules Committee presented rule exemplars
for discussion at a Conference of jurists and practitioners at
Fordham law school.13
Ultimately, the Rules Committee concluded that “the difficulties in drafting a good rule would be so great” that it mooted
the issue of whether it was an “authorized or wise exercise of
Enabling Act Authority.”14 Instead, the 2006 Amendments
placed preservation on the agenda for early discussion in
order to encourage party agreements and added a limited
preservation ‘safe harbor’ as Fed.R.Civ.P 37(f) [now Rule
37(e)]. The latter provision is confined to sanctions for losses
of electronically stored information (“ESI”) from “routine,
good faith” operations.15
Variants of Rule 37(e) have been adopted by most of states16
which have modeled their e-discovery rules on the 2006
Amendments.17 Texas did not include a safe harbor provision
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in its more limited approach to e-discovery enacted as part
of its 1999 discovery reform.18
IV. The Proposals
The task of developing possible rules was assigned to the
Discovery Subcommittee of the Rules Committee shortly
after the Duke Conference. Since then, the Subcommittee
has identified two distinct categories of rules for purposes
of discussion in its Report incorporated into the April 2011
Committee Report to the Standing Committee.19
The
primary difference is that one group - Categories One and
Two - involve “front end” preservation rules while the other Category 3 - involves a “back end solution” dealing primarily
with sanctions.
Thus, Category 1 and 2 proposals specify conditions for
the trigger and implementation of preservation in new Rule
26.1 and authorize use of existing Rule 37 sanctions.20
The subcommittee anticipates that this approach would
eliminate the need for use of inherent sanctioning power.21
The Category 3 proposal, on the other hand, provides Rule
37(g) which deals with sanctions,22 impacting preservation,
if at all, only by virtue of its “backwards shadow.”23 It is
also expected to “make reliance on inherent authority [to
sanction] unimportant.”24
V. Authority to Act
The rulemaking authority of the Supreme Court is limited, by
the Rules Enabling Act,25 “to making rules governing conduct
within the four walls of the courthouse.”26 Fed.R.Civ. P. 1,
for example, provides that the rules govern civil actions and
proceedings “in the United States Courts.” (emphasis added).
The preservation rule considered during the 2006 Amendment
cycle applied only after commencement of litigation,27 thus
avoiding direct regulation of pre-litigation conduct.28 That is
not the case with respect to the current proposals, as to which
the Subcommittee sees a “significant rulemaking challenge.”29
The Subcommittee addresses the issue by limiting Rule 26.1 to
persons who are or reasonably expect to be a party to an action
cognizable in a United States court.30 This arguably makes
the rule sufficiently related to the litigation process, as is the
case with Fed.R.Civ. P. 27.31 The Supreme Court has already
upheld Rule 11, which imposes a duty of “reasonable inquiry”
prior to instituting litigation.32 A challenge to authority can
only succeed, after all, only “if the Advisory Committee,
[the Supreme Court], and Congress [err] in their prima facie
judgment” of appropriateness during rule-making.33
✯ Fall 2011
The sanction proposals do not present the same difficulties.34
They apply only during the litigation process, and by that
time “there is no big problem with the authority of a federal
court to address the problem.”35 Commentators support
that rules governing sanctions for pre-litigation conduct 36
by analogy to the current use of inherent sanctioning power
to accomplish that task.37
The author is concerned, however, about the intrusive nature
of some of the Subcommittee alternatives, such as the proposal
to trigger a duty to preserve once “the person’s own retention program” is implicated.38 Rules purporting to impose
excessive preservation requirements, unrelated to pending
litigation, surely run afoul of statutory and constitutional
limits.39
VI. Evaluation
We evaluate the current Proposals in terms of the three
primary elements on the table—the onset or “trigger” of the
duty, its content and the sanctions or other remedies which
may follow from any deficiencies.
Trigger
Under the common law,40 preservation obligations arise
when a party is reasonably charged with knowledge that
evidence in its possession or control is potentially subject to
discovery. In the pre-litigation context, the litigation must
be “reasonably foreseeable.”
The problem with this was dramatically illustrated in the
Rambus litigation, however, where two lower courts reached
different conclusions about foreseeability based on the same
evidence of record. It took many years and a set of strained
appellate opinions to ultimately bring closure to the issue—at
untoward expense and disruption.41
The Subcommittee seeks to address this issue in Rule 26.1 by
including a series of benchmarks to indicate when a reasonable person would expect to become a party to litigation in
federal court.42 This includes service of a pleading asserting a
claim, receipt of a notice of claim or communication indicating
an intent to serve a claim; or, in the case of a third party,
service of a subpoena or similar demand for information.
When the shoe is on the other foot—i.e., when a party may
initiate litigation or assert a counterclaim—other exclusive
benchmarks apply, such as evidence of retention of counsel,
retention of an expert witness, testing of materials, discussions of compromises of claims or taking other actions in
anticipation of litigation.
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27
These benchmarks largely reflect “plain vanilla” case law.
They ignore the ambiguous cases basing trigger on imputed
knowledge about employee dissatisfaction; on what others
in an industry “know” about problems years before suits are
filed or whether mere discussions about the possibility of
litigation trigger obligations.
authored by the former Chair of the Standing Committee,
emphasizes that “[w]hether preservation or discovery conduct
is acceptable in a case depends on what is reasonable, and
that in turn depends on whether what was done - or not
done - was proportional to that case and consistent with clearly
established applicable standards.” (emphasis in original).53
It would appear that this ambiguity was identified by the
Subcommittee. The Subcommittee proposes, as an alternative
(supplement), a “catch-all” trigger obligation when a party
becomes aware of “circumstances which “would make a reasonable person aware of the need to preserve information.”43
Such a rule dissipates the limiting impact of any specific
benchmark and restores the existing uncertainty.44 Thus,
while the benchmarks in Rule 26.1 may serve to educate, they
will not reduce the uncertainty in planning or adjudication,
which will still be governed by the common law.45
Accordingly, proposed Rule 26.1(c)(Scope of the Duty to
Preserve) provides that:
A person whose duty to preserve discoverable
information has been triggered under Rule 26.1(b)
must take actions that are reasonable under the
circumstances to preserve discoverable information in regard to the potential claim of which the
person is or should be aware taking into account
the proportionality criteria of Rule 26(b)(2)(C).54
Professor Martin Redish once suggested that the only way to
A rule like the above is needed to offset the rigid adherence to
establish certainty would be to pick a fixed point unrelated
mere process adopted by some courts.55 The author has made
46
to subjective intent, such as the onset of discovery requests.
a similar suggestion.56 There is also support in the Seventh
The author’s observation is that parties rarely plan for preCircuit Pilot project guidelines,57 Sedona Principle 5,58 the
litigation preservation until they are
New York City Bar proposals for the
forced to do by the onset of litigation
State of New York59 and suggestions
Under
the
common
law
view,
or explicit preservation demands.
by the American College at the time
a party must preserve “what
However, as vividly demonstrated
of the 2006 Amendment process.60
by Texas v. City of Frisco, there is no
it knows, or reasonably should
option to seek early court guidance
Rule 26.1 also requires that inforknow” to be relevant to
when disputes arise.47
mation be “routinely accessed in
potential discovery in current or
the usual course of business” and
foreseeable litigation.
Professor Spencer, in his insightful
presumptively exempts some forms of
paper on pre-litigation preservation,
ephemeral ESI from the scope. This
takes that observation one step further and suggests enactis augmented by limitations on the number of key custodians
ment of a formal ex parte pre-litigation judicial process.48 This
whose information must be preserved and by limits on the
suggestion has obvious drawbacks and can be enormously
time frames and ongoing nature of the duty.61
disruptive, as the author can personally testify from experience as a General Counsel in the early e-discovery era.
Collectively, these specifics can provide useful guideposts
for well-funded large organizations with sufficient amounts
Duty & Scope
of repetitive litigation to justify adopting formal systems and
Under the common law view, a party must preserve “what it
advance planning. Unfortunately, pre-litigation issues often
knows, or reasonably should know” to be relevant to potential
involve parties lacking those elements.
discovery in current or foreseeable litigation.49 Parties must
make tough calls as to the scope of the effort to preserve,
Another value of specific benchmarks is for parties able to
which can be time-consuming and expensive.
engage in meaningful early discussions about preservation.
This is a more difficult task in states without mandatory
Emerging case law has coalesced, however, around prinprocesses or, if in federal court, in the case of smaller entities
cipled doctrines. Much of the evolution has been due to the
and individuals or those unable to commit the resources
increased understanding of the role that “proportionality”
to the process. In those cases, lonely decisions, applying
plays in preservation.50 While there are dissenters,51 the
proportionality by necessity and bearing some risk, are far
landmark decision in Rimkus Consulting v. Cammarata,52
more typical.
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However, specificity about technology in rules can be problematic. The author’s 2003 suggestion for a limited safe harbor
for disaster recovery backup tapes62 serves as a cautionary
tale. The distinctions between “disaster recovery” and other
forms of ESI storage have long since blurred, but the need
for a viable safe harbor remains. Moreover, other simplistic
proposals of that era – such as requiring that once litigation
commences, a party need retain a “full set of inaccessible
materials that it stores for disaster recovery” but “need not
preserve [other] materials”63 – are equally outdated.
Sanctions
Under current case law, courts impose spoliation sanctions
in reliance on their inherent powers, buoyed by Chambers v.
NASCO, where the Supreme Court spoke approvingly of the
inherent power “to fashion an appropriate sanction for conduct
which abuses the judicial process.”64 Fed. R.Civ. P. 37(e),
originally intended to reassure parties that inadvertent or
merely negligent conduct would not be severely sanctioned,
has been rendered “toothless.”65 As the Subcommittee
noted, “the standard for severe sanctions is unpredictable
and inconsistent across the nation.”66
The Subcommittee has floated two distinctly different
approaches to sanctions. First, if a preservation rule is
adopted, a revised Rule 37(e) would require that the court take
into account the “harm caused” and the “level of culpability,”
with the goal of choosing the least severe sanction appropriate.
An alternative approach would bar sanctions completely if
“good faith” conduct was involved.67 Yet another alternative
would require the party seeking sanctions to show that the
party to be sanctioned acted with a specified culpability.68
The second approach - the “back end” approach in Rule
37(g)69 - would provide “that absent extraordinary circumstances [irreparable prejudice], a court may not impose any of
the sanctions listed in [the Rules] or give an adverse inference
jury instruction unless the failure to preserve discoverable
information was willful or in bad faith and caused [substantial] prejudice in the litigation.”70 It would also authorize
remedial measures.71
The author has attempted to “match up” both proposals
against the fact patterns of recent spoliation cases.
By
and large, with notable exception of those instances where
varying culpability standards among the circuits impact the
results, the outcomes under the proposals do not vary much
from those under the common law. Unfortunately, as the
Subcommittee concedes, some courts may simply interpret
the sanction provisions “in keeping with the existing (and
✯ Fall 2011
seemingly inconsistent) precedents” now in existence.72
Unless clearly excluded, courts may feel empowered to utilize
their inherent sanctioning powers.73
There is reason to be skeptical. In Chambers,74 while the
Supreme Court noted that “the exercise of the inherent
power of lower federal courts can be limited by statute and
rule,”75 it went out of its way to describe a sanction rule
adopted “to obviate dependence upon inherent power”76 as
merely providing “an additional tool,” not indicating intent
to “displace the inherent power” to act.77
Accordingly, the real issue, it would seem, is whether the
rules would actually reduce the anxiety—and the costly
excess—even if courts might still resort to use of inherent
sanctioning power under some circumstances. This is a
question that, hopefully, will be at the center of the September
Mini-Conference.
VII. Conclusion
Hopefully, input from practitioners, commentators, advocacy groups and interested groups such as the Sedona
Conference® will help the Rules Committee assess the
difficult and complex series of questions about rulemaking
raised by the Subcommittee.78
Without prejudging the outcome of this further input,
the ncorporation of a general standard of care for meeting
preservation obligations, tempered by considerations of
proportionality, seems advisable, especially if coupled with
a carefully drawn “back end” sanctions limitation acknowledging the role of a lack of culpability.79 Over time, this
could help reduce the inter-Circuit conflicts and dissuade
lower courts bent on applying rigid process oriented case law
and encourage parties seeking to plan compliance.
Thomas Y. Allman is the former General Counsel, Chair Emeritus
of Sedona Conference® Working Group One and one of the Editors
of the PLI Electronic Discovery Deskbook. O
1
Gregory P. Joseph, Sanctions: The Federal L aw of LitigaA buse, 1-9 Sanc. Supp. To §59 (2010)(“[p]rospective litigants
are at serious risk of committing spoliation - passively, actively,
[or] unintentionally – before litigation commences (if it ever does)
because they have no codified benchmarks to which to conform
their behavior”).
2
See Memorandum, “Information Items: A. Discovery: Preservation and Spoliation,” included in Report of the Civil Rules Advisory
Committee, May 2, 2011, at 188-273 (internal pages 25-51),
(hereinafter “Rules Comm. Memo, ___”), copy at http://www.lfcj.
tion
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digidoq.com/BLAP/Federal%20Rules%20of%20Civil%20Procedure/
Tab%205%20A-F,%20June%202011.pdf.
3
Rules Comm. Memo, 26 (“the reasons for the huge [preservation] expenses, and the components of them, are less clear, as are
the nature of measures that would relieve these pressures”).
4
Vick v. Texas Employment Comm., 514 F.2d 734, 737 (5th Cir.
1975)(quoting McCormick, Evidence § 273 at 660-61 (1972)).
5
Residential Funding Corp. v. DeGeorge Financial Corp., 306 F.
3d 99, 107, 108-109 (2nd Cir. 2002)(culpable state of mind includes
negligent destruction of information). Under Zubulake v. UBS
Warburg, 220 F.R.D. 212, 220 (S.D. N.Y. Oct. 22, 2003)(Zubulake
IV), “once a duty to preserve attaches, any destruction of documents
is, as a minimum, negligent” ); but compare Douglas L. Rogers, A
Search for Balance In the Discovery of ESI Since December 1, 2006,
14 Rich. J. Law & Tech. 1, 8 at ¶9 (Spring 2008)(“it is simply not
fair to assume that a loss of ESI necessarily equates to intent to
destroy evidence”).
6
A. Benjamin Spencer, The Preservation Obligation: Regulating
and Sanctioning Pre-Litigation Spoliation in Federal Court, 79
Fordham L. Rev. 2005, 2019 (2011)( hereinafter “Spencer, PreLitigation Spoliation in Federal Court”).
7
Dan H. Willougby, Jr., et al, Sanctions for E-Discovery Violations
By the Numbers, 60 Duke L. J. 789, 796 (2010).
8
Victor Stanley v. Creative Pipe, 269 F.R.D. 497, 523 (D. Md.
Sept. 9, 2010)(“the only ‘safe’ way to [design a national approach
to preservation] is to design one that complies with the most
demanding requirements of the toughest court to have spoken on
the issue”).
9
Lawyers for Civil Justice, Preservation - Moving the Paradigm
to Rule Text (April 1, 2011)(“LCJ Comment on Preservation (2001),
__”), 2, copy at http://lfcj.digidoq.com/BLAP/E%20Discovery/E%20
Discovery%20Official%20Comments/FRCP%20Preservation%20
Rule%20Comment%20Corrected%20040311%20_2_.pdf.
10
The Panel consisted of two Federal Judges (the Hon. Shira
Sheindlin and the Hon. John Facciola), plaintiff and defense counsel
(Mssrs. D. Willoughby, J. Barkett and J. Garrison), the author and,
as moderator, Greg Joseph, then the President Elect of the American
College of Trial Lawyers.
11 Element of a Preservation Rule, ¶7(c)(2010), copy reproduced
at http://civilconference.uscourts.gov/ (Scroll to Papers, then to
E-discovery Panel).
12 Thomas Y. Allman, The Need for Federal Standards Regarding
Electronic Discovery, 68 Def. Counsel. J. 206 (2001)(also suggesting
modeling discovery limitations involving ESI on Texas Civil Rule
196.4).
13
See Fordham Conference Materials, at 35 -37, available at
http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/EDiscovery_Conf_Agenda_Materials.pdf.
14 Minutes, Civil Rules Advisory Committee Mtg, April 14-15,
2005, lns 1685-1687, copy at http://www.uscourts.gov/uscourts/
RulesAndPolicies/rules/Minutes/CRAC0405.pdf. See also R eport
of Rules Committee, May 17, 2010, 12 (the suggestions were “put
aside, apart from the protection against sanctions included in Rule
37(e),” even though “[m]any requests were made for an express
✯ Fall 2011
29
preservation rule.”), copy at http://www.uscourts.gov/uscourts/
RulesAndPolicies/rules/Reports/CV05-2010.pdf.
15
Fed.R.Civ.P. 37(e)(Failure to Provide Electronically Stored
Information)(“Absent exceptional circumstances, a court may not
impose sanctions under these rules on a party for failing to provide
electronically stored information lost as a result of the routine,
good-faith operation of an electronic information system”).
16
Of the thirty-two states (including the District of Columbia)
which have passed or are considering passage of the 2006 Amendments, only Nebraska, New Hampshire, New Mexico and Virginia
did not include a counterpart to Rule 37(e).
17 The twenty-eight states that have already adopted variants of
the 2006 Amendments include Alabama, Alaska, Arizona, Arkansas,
California, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland,
Michigan, Minnesota, Montana, Nebraska, New Hampshire, New
Jersey, New Mexico, North Dakota, Ohio, Oklahoma, South Carolina, Tennessee, Utah, Vermont, Virginia, Wisconsin and Wyoming.
Connecticut, Massachusetts and North Carolina are at various stages
of enactment, as is the District of Columbus. See Thomas Y. Allman,
An Update on State Rulemaking (2011), copy downloadable at http://
www.fiosinc.com/lp/whitepaper/state-rulemaking/newsletter.aspx
18 See Tex. R.Civ. P. 196.4 (Electronic or Magnetic Data)(specifying
process for requesting data or information not reasonably available
to a party in its ordinary course of business). See generally, Nathan
L. Hecht and Robert H. Pemberton, A Guide to the 1999 Texas
Discovery Rule Revisions (Nov. 1998), copy at http://www.adrr.
com/law1/rules.htm.
19 Rules Comm. M emo, supra.
20 Rules Comm. M emo, 30-32. The distinction between the two
proposed forms of Rule 26.1 is merely one of quantity of detail; the
sanction provisions in proposed Rule 37(e) are identical in Category
1 and 2. The Lawyers for Civil proposal closely tracks the Category
1 formulation. See LCJ Comment on Preservation (2011), supra.
21
Rules Comm. Memo, 40 at n. 38 (suggesting that in light of
the detail provided, there “should no longer be occasion for courts
to rely on inherent authority to support sanctions”).
22 Rules Comm. M emo, 50-51. Existing Rule 37(e) deals with a
“failure to provide” ESI as the “result” of the operation of a system,
not a “failure to preserve.” The unspoken implication of adding
Rule 37(g) is, to the author, at least, that existing Fed.R.Civ. P. 37(e)
may survive “as is” if the “back end” approach is taken.
23 Rules Comm. Memo, 51 (listing factors that a court is authorized
to consider in determining if the prerequisites of the preservation
rule has been met).
24 Rules Comm. M emo, 49.
25 28 U.S.C. § 2072 (a-b)(The Supreme court shall have the power
to prescribe “general rules of practice and procedure” provided they
do not modify “substantive” rights).
26 Howard M. Wasserman, Jurisdiction, Merits, and Procedure:
Thoughts on Dodson’s Trichotomy, 102 Nw. U. L. R ev. 215, 224
(2008).
27 See Fordham Conference Materials, supra, 35-37 (“Upon [notice
of] commencement of an action, all parties must preserve documents
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and tangible things that may be required to be produced pursuant
to Rule [26]”).
28 Id., at 35 (“This approach does not address preservation obligations that may arise before the beginning of a civil action, because
the Civil Rules only address pending actions.”).
29
Rules Comm. Memo, 26. The Memo is vague, citing only
concerns about intruding “too far into pre-litigation preservation
decisions” and describing the topic as “somewhat uncertain.” Id.
30 Rules Comm. M emo, 30 & 45.
31
Fed.R.Civ.P. 27 provides for perpetuation of testimony prior
to trial by filing a petition by a person who expects be named a
party “but cannot presently bring it or cause it to be brought.”
32
Business Guides, Inc. v. Chromatic Communications Enterprises, 498 U.S. 533 (1991).
33 Id., 552.
34 Rules Comm. M emo, 26 (referring specifically to the “back
end” approach).
35 Rules Comm. M emo, 39 at n. 35.
36 See Proposed Rule 37(e) at Spencer, supra, Pre-Litigation Spoliation in Federal Courts, 79 Fordham L. Rev. 2005, 2023 (a court may
order sanctions for a failure to produce where the failure is due to
spoliation at a time when the party had notice of commencement
of the action or could reasonably anticipate the action and the court
may impose reasonable expenses, inform the jury of the failure or
any other sanctions including those listed in Rule 37(b)(2)(A)).
37 Id., 2031 – 2033.
38 Rules Comm. M emo, 32, 46 and ns. 13 & 55 (suggesting that
preservation duties apply to all items contained in internal corporate
records retention schedules).
39
See generally Larsen, Evaluating the Proposed Changes to
Federal Rule of Civil Procedure 37: Spoliation, Routine Operation
and the Rules Enabling Act, 4 Nw. J. Tech. & Intell. Prop. 212, at
*24 - 47 (2006)(criticizing rules relating to configuration of information systems as “not related to the fair and efficient administration
of the courtroom”); see also Martino v. Wal-Mart Stores, 908 So.
2d 342, 347-350 (S.C. Fla. 2005)(citing “very serious constitutional
and practical concerns” about pre-litigation preservation doctrines
with excessive requirements)( Concurring Opinion).
40
See Fed.R.Civ. P. 37(f) Committee Note 2006)(preservation
obligation “may arise from many sources, including common law,
statutes, regulations or a court order in the case”).
41 See Micron Technology, Inc., v. Rambus Inc., _ F.3d _, 2011
WL 1815975, at *6 (C.A. Fed. (Del.) May 13, 2011) and Hynix
Semiconductor Inc. v. Rambus Inc., _ F.3d _, 2011 WL 1815978,
at *17, n 1 (C.A. Fed. (Cal.) May 13, 2011)(conforming results in
two appeals over objection that the divergent outcomes below “may
have been based on equally reasonable resolutions of doubt as to
the probative strength of the evidence”).
42
Rule 26.1(b), Rules Comm. Memo, 30-32 (Category 1)(“The
duty . . . arises only [if a person becomes aware] of one of the following facts or circumstances”)(emphasis added); cf. Rule 26.1, id.
at 45-46 (Category 2)(omitting exclusivity language in alternative
2); but see LCJ Comment on Preservation (2011), supra, at 4-5 (the
duty should apply only if the facts and circumstances “create the
✯ Fall 2011
reasonable expectation of the certainty of litigation”).
43
The proposal applies only to Category 1, not category 2. Cf.
Rules Comm. Memo, at 32 with the equivalent paragraph at 46
(omitting the proposed language).
44 Something like it serves as the sole “trigger” mechanism for
use in a proposed preservation rule for the State of New York. See
Report, New York City Bar Ass. (2009)(“circumstances which would
lead a reasonable person to believe future litigation is likely”), 12 ;
copy at
http://www.abcny.org/pdf/report/uploads/20071732-ExplosionofElectronicDiscovery.pdf
45
Rule 37(g), casting its light on trigger by its “backwards
shadow” suggests that courts should consider the extent of notice
of litigation and the treatment of any requests for preservation.
Rules Comm. Memo, 50-51 (“whether the party received a request
that information be preserved, the clarity and reasonableness of
the request, and – if a request was made – whether the person who
made the request or the party [in receipt of it] offered to engage in
good-faith consultation regarding the scope of preservation”).
46
Martin H. Redish, 51 Duke L.J. 561, 623-624 (2001)(“For
purposes of determining when the duty to preserve is triggered,
the question should turn on whether the responding party chooses
to object to a particular discovery request” since “an absolute strict
liability retention standard, triggered by the mere potential of suit,
would severely threaten attainment” of values such as efficiency,
the preservation of the procedural-substantive balance and “the
need to provide predictable standards of primary behavior”).
47 2008 WL 828055, at *8 (E.D. Tex. March 27, 2008)(refusing to
adjudicate preservation dispute involving State of Texas after blanket
demand by City of Frisco for preservation of highway planning
materials). The judicial “hands-off” often continues even after suits
are filed. See, e.g., Kemper Mortgage v. Russell, 2006 WL 2319858,
at *2 (S.D. Ohio April 18, 2006)(denying request “for instructions
on [scope of] a litigation hold” due to lack of authority); cf. Rules
Comm. Memo, 51 at n. 61 (“Do we need anything more than a
Committee Note to recognize that it is difficult to seek guidance
from a court before there is a pending action?”).
48
Spencer, supra, Pre-Litigation Spoliation in Federal Court,
79 Fordham L. Rev. at 2023-2024 (proposing a revised Rule 37(e)
which would provide for “Pre-Action Preservation Orders” of limited
duration upon petition of party who expects to bring an action in
a United States court).
49 Wm T. Thompson Co. v. GNC, 593 F. Supp. 1443 (C.D. Cal.
Sept. 28, 1984).
50
See Guideline 1 and discussion, Sedona Conference® Commentary on Proportionality in Electronic Discovery, 11 Sedona Conf.
J. 289 (2010)(“The burdens and costs of preservation of potentially
relevant information should be weighed against the potential
value and uniqueness of the information when determining the
appropriate scope of preservation.”).
51
Orbit One Communications v. Numerex Corp., 271 F.R.D
429, 436 at n. 10 (S.D.N.Y. Oct. 26, 2010)(cautioning that it “seems
unlikely” that a court would excuse destruction of evidence “merely
because the monetary value of anticipated litigation was low”).
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2010 WL 645353 (S.D. Tex. Feb. 19, 2010).
Id., at *6.
54 Rules Comm. M emo, at 32-33 (Category 1) and 46 (Category
2). An alternative approach would include proportionality elements
in the rule itself.
55
In Merck Eprova AG v. Gnosis S.P.A., 2010 WL 1631519, at
*4 (S.D. N.Y. April 20, 2010), for example, a court issued a fine of
$25,000 “to deter future misconduct” solely because of a failure to
issue a written litigation hold, despite the fact that no prejudice was
established.
56
Thomas Y. Allman, Preservation Rulemaking After the 2010
Litigation Conference, 11 Sedona Conf. J. 217, 225 (2010)(“Parties
with actual or constructive knowledge of the likelihood that relevant
and discoverable evidence will be sought in discovery shall undertake
reasonable and proportionate efforts to preserve any such evidence
within its possession, custody or control subject to the considerations
of Rule 26(b)(2)(C) and Rule 37(e).”).
57 Principle 2.04 (Scope of Preservation), 7th Cir. P ilot P rogram,
14, copy at http://www.7thcircuitbar.org/associations/1507/files/
Statement%20-%20Phase%20One.pdf (requiring “reasonable and
proportionate steps to preserve”).
58
Sedona Conference® Principles, Principle 5 (2nd Ed. 2007)
(requiring “ reasonable and good faith efforts”).
59 Report, New York City Bar Association (2009)(requiring “reasonable and good faith efforts” based on the nature of the issues, and
other factors), 17; copy at
http://www.abcny.org/pdf/report/uploads/20071732-ExplosionofElectronicDiscovery.pdf
60 Letter, Robert L. Byman, Chairman, ACTL, to Peter G. McCabe,
Secretary, January 25, 2005, 3 (the Rules should “state a standard
of care for production and preservation - which we think should
be reasonableness.”), copy available at http://www.uscourts.gov/
uscourts/RulesAndPolicies/rules/e-discovery/04-CV-109.pdf; accord
Dale A. Oesterle, A Private Litigants Remedies For An Opponent’s
Inappropriate Destruction of Relevant Documents, 61 Tex. L. Rev.
1185, 1239 (1983)(advocating rule requiring “exercise due care in
preserving documents and other tangible things”). See also Rules
Comm. Memo, 50-51(listing factors in Proposed Rule 37(g) such as
proportionality and reasonableness).
61 See generally Rules Comm. M emo, 35-39.
62
See Thomas Y. Allman, The Need For Federal Standards
Regarding Electronic Discovery, 70 Def. Counsel J. 417, 423 (2003)
(suggesting a safe harbor limited to barring sanctions for failure to
retain “electronic backup or other disaster recovery or document
retention systems”).
63 See Noyes, supra, Is E-Discovery So Different That It Requires
New Discovery Rules? 71 Tenn. L. Rev. 585, 650-651 (Summer,
2004).
64 501 U.S. 32, 44-45 (1991).
65
Panel Discussion, Sanctions in Electronic Discovery Cases:
Views from the Judges, 78 Fordham L. R ev.1, 30-31 (October, 2009)
(“what this toothless thing [Rule 37(e) really tells you is the flip side
of a safe harbor. It says if you don’t put in a litigation hold when
53
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31
you should there’s going to be no excuse if you lose information.”)
(Comment by Scheindlin, J).
67 See Rule 37(e)(2)[Alternative 2],Rules Comm. M emo, 44 & 48
(“the court must not impose a sanction if the party to be sanctioned
establishes that it acted in good faith in relation to the violation of
Rule 26.1).
68 See Rule 37(e)(2)[Alternative 1],Rules Comm. M emo, 43-44 &
47-48 (no sanctions unless the party seeking sanctions establishes
that the party to be sanctioned violated Rule 26.1 [negligently] {due
to gross negligence}[willfully] {in bad faith} [intending to prevent
use of the lost information as evidence]). The Memorandum raises
the issue of discussing the “significance of a litigation hold” in this
alternative or in a committee Note. Id., 44 at n. 45.
69 See Rule 37(g), Rules Comm. M emo, 49-51.
71 It would also provide that in determining “whether the failure
was willful or in bad faith,” the court could consider “all relevant
factors,” listing some examples. See Rules Comm. Memo, 50-51.
73 Spencer, supra, Pre-Litigation Spoliation, 79 Fordham at 2025,
n. 95 (“courts will always be free, to some extent, to go beyond these
constraints if they impose sanctions not under the rule but under
their inherent authority [unless] “the exclusivity of the proposed
rule” is such that the rule “is interpreted as precluding any other
bases” for acting).
74 Chambers v. NASCO, 501 U. S. 32 (1991).
75 Id., at 48.
76 Rule 16, Committee Note, Subdivision (f)(1983)(dealing with
sanctions for failure to comply with Rule 16).
77 Id. at 49, n. 13.
78 See, e.g, Rules Comm. M emo, footnotes 55 through 61, covering
issues of intent, detail about trigger, scope of search, including
custodians, clarity versus reasonableness of efforts, proof of sophistications as reflected in preservation standards, shared obligations
to preserve, the need for pre-ligation guidance.
79
Exceptions for adjustments due to extreme prejudice – an
“extraordinary circumstances” exception - could help, as would
acknowledgement of the role of remedial remedies short of sanctions
for instances of lesser culpability.
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A rbitration , B ench Trial , or Jury Trial ?
A F unctional Guide for In-H ouse C ounsel
BY DAVID K. BISSINGER & TRENT T. MCKENNA
1. Introduction
Over two decades ago, the then-president of the American
Arbitration Association touted arbitration as “an idea whose
time has come” because, according to him, arbitration gave
parties “speedy and inexpensive justice” that was otherwise
“hard to come by in American courts.”1 The U.S. Supreme
Court reflected this view in decisions like Shearson/American
Express v. McMahon, 2 which abandoned the “mistrust” that
the Court had expressed in earlier decisions such as Wilko
v. Swan.3
arbitration or choose one type of arbitration over another. We
also remind the reader that the choice of dispute resolution,
while important, cannot replace the core consideration of
whether the transaction makes sense in the first place.
2. What Are the Choices?
Parties to a commercial contract have at least three broad
choices as to dispute resolution: (a) jury trial (the default
option); (b) bench trial; (c) arbitration under the American
Arbitration Association or other arbitral entity, as well as ad
hoc arbitration and “baseball” style arbitration.
Today, lawyers representing both plaintiffs and defendants
a. Jury Trial: The Default Option
have begun to question the suitability of arbitration for
Corporations shy away from jury trials. Many corporate
many disputes. As leading arbitration scholar Gary Born
lawyers share the view of Dean Erwin Griswold of Harvard,
has observed, lawyers often criticize arbitration as “both
who observed that “[t]he jury
slow and expensive” because of
trial is the apotheosis of the
expensive administration costs,
Many
corporate
lawyers
and
executives
amateur. Why should anyone
arbitrator fees, and difficulties in
4
give
little
weight
to
the
large
number
of
think that 12 persons brought
scheduling, among other things.
mediocre verdicts, let alone the large
in from the street, selected in
various ways, for their lack of
The 1980s trend toward arbitranumber of trial-court cases that result in
general ability, should have any
tion reflected a faith that arbitradefense verdicts or settle confidentially
special capacity for deciding
tion would help reduce not only
(for reasonable, not dramatic, sums)
controversies between persons?”6
costs, but also uncertainty in
before
a
jury
decides
them.
dispute resolution. That faith
Another source of corporate
failed to account for the inherent
anxiety
about
jurors
comes
from the media. Because large
flaws in any process for dispute resolution. As Judge Jerome
verdicts
receive
the
majority
of media attention, corporate
Frank observes in his book Courts on Trial, any process
executives,
like
most
other
people, often overestimate
for resolving disputes “is, and always will be, human, and
the
proportion
of
large
verdicts.
The problem of sotherefore fallible. It can never be a completely scientific
5
called
“silent
evidence”
skews
our
perception
of the trial
investigation for the discovery of the true facts.”
process by consistently underreporting the vast majority
of verdicts and judgments that award far less dramatic
In truth, the value of arbitration versus court litigation depends
sums than the mainstream media suggests. Indeed,
on the case, the facts, and the parties. Moreover, parties typijournalists are “industrial producers” of the distortion.7
cally must decide to arbitrate at a contract’s inception, when
Courthouses abound with the silent evidence of juries that
the parties generally expect that their deal will succeed, not
award small awards or nothing at all. Many corporate
fail. Indeed, the parties preparing the contract predominately
lawyers and executives give little weight to the large
use transactional lawyers, not litigators. As a result, the
number of mediocre verdicts, let alone the large number
parties and the lawyers documenting the deal may lack trial
of trial-court cases that result in defense verdicts or settle
experience that could help make an informed decision. In
confidentially (for reasonable, not dramatic, sums) before
this article, we provide an overview of different instances in
a jury decides them.
which parties entering into a contract may decide to forgo
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33
Consider the example of Fred Bartlit’s defense of Dun &
Bradstreet against an antitrust claim brought by a competitor,
National Business Lists. In defending the case, Bartlit contended not only that Dun & Brandstreet never violated the
antitrust laws, he counterclaimed against NBL for copyright
infringement because NBL for decades had used D&B’s
books for NBL’s own competing products. Bartlit relied on
D&B executives to testify, whom he had discovered were not
arrogant high-flyers, but rather modest and approachable. In
the end, Bartlit and D&B prevailed, defeating NBL’s antitrust
claim and obtaining a $7.7 million verdict on D&B’s copyright
counterclaim. Summing up the experience, Bartlit observed
that “[a]s usual, the jury was more interested in these three
or four main points and in the ‘bad guy-good guy’ material
than in the nuances. . . . Simplicity w[ins] the day.”8
experience in his classic My Life in Court:
Some corporate counsel might take Bartlit’s observation and
insist on arbitration on the grounds that arbitrators are more
nuanced and less prone to emotional appeals than a jury. That
belief may exaggerate the differences between arbitrators and
jurors. More than a century ago, Francis Wellman, in his
classic The Art of Cross Examination, noted the sophistication
of juries that applies equally to arbitrators: “Present day juries,
especially in large cities, are composed of practical business
men accustomed to think for themselves, experienced in the
ways of life, capable of forming estimates and making nice
distinctions, unmoved by the passions and prejudices to
which court oratory is nearly always directed.”9
Corporate lawyers should bear Nizer’s advice in mind: no
method of dispute resolution can insulate itself from human
nature and the morality play that underlies any case.
Although juror composition has changed in the past century,
Wellman’s perspective is not much different than Bartlit’s:
civil juries tend to come to far more practical and commonsense results than many observers give them credit for.
Runaway verdicts are the exception, not the rule.
b. Bench Trials
Many commercial parties include jury trial waivers in their
contracts and assign the fact-finding function to a sitting
judge. Again, corporate lawyers may overestimate the difference in outcomes between jury trials and bench trials.
As one study showed, reviewing four thousand civil trials,
in 47% of all cases both judge and jury found in favor of the
plaintiff and in 31% they found in favor of the defendant.
When there was disagreement, 10% of the time the judge
favored the plaintiff and 12% of the time the judge believed
the defendant should have won although the jury chose for
the plaintiff.10
The anecdotal evidence also indicates little difference in
outcomes. Famed trial lawyer Louis Nizer explained his
Although jurors are extraordinarily right in their
conclusion, it is usually based upon common sense
‘instincts’ about right and wrong, and not on sophisticated evaluations of complicated testimony. On the
other hand, a judge, trying a case without a jury,
may believe that his decision is based on weighing of
the evidence; but . . . he, too, has an over-all, almost
compulsive ‘feeling’ about who is right and who is
wrong and then supports this conclusion with legal
technology. Because judges, sometimes, consciously
reject this layman’s approach of who is right or wrong
and restrict themselves to the precise legal weights,
they come out wrong more often than the juries.11
c. Arbitration
As the reader may suspect by now, the authors are skeptical
that arbitration provides a panacea from the imperfections in
the trial process. Within the general category of arbitration,
commercial parties generally choose among (i) traditional
arbitration before the American Arbitration Association or
other arbitration authority; (ii) ad hoc arbitration that the parties organize outside of arbitration; including (iii) expedited
“baseball” style arbitration. Each has its merits and its flaws.
(i) Traditional Arbitration
Despite the prediction that AAA arbitration would give parties
“speedy and inexpensive justice,”12 many trial lawyers – for
both plaintiffs and defendants – have lost faith in full-scale
AAA-sponsored arbitration.
The most common criticism of AAA-sponsored arbitration is
the cost. Good arbitrators charge fees comparable to the fees
that large-firm lawyers charge. The AAA requires, in most
cases, that the parties to the arbitration make a deposit for
arbitrator fees that will compensate the arbitrators through
the final hearing (trial). This figure often exceeds $30,000.13
Take, for example, the Second Circuit’s decision in Blue Tee
Corp. v. Koehring Co. 14 That case involved a dispute over
a garden-variety asset-purchase agreement. But because
the transaction involved two separate contracts containing
different arbitration provisions, the parties’ dispute became
mired not only in the commercial issues, but also in the
threshold procedural questions of which arbitration provision
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governed. That question then led to further disputes about
whether the court or the arbitrators had the power to decide
these threshold issues. Without question, the presence of
arbitration provisions complicated, rather than simplified,
the case. As the Second Circuit observed, “[t]his appeal . . .
makes one wonder about the alleged speed and economy of
arbitration in resolving commercial disputes.”15 The Second
Circuit observed in another case almost seventy years ago:
“The more enthusiastic of [its] sponsors have thought of
arbitration as a universal panacea. We doubt whether it will
cure corns or bring general beatitude. Few panaceas work
as well as advertised.”16
Yet for many disputes, arbitration probably is the lesser of
many evils. This includes international arbitration, construction arbitration, and other complex cases.
(ii) Ad hoc Arbitration
Many parties choose to opt out of AAA arbitration and instead
employ arbitrators outside of the AAA structure. This reduces
administrative fees, which can be considerable, and in the
experience of many lawyers, the AAA adds little to the process
besides access to its roster of neutrals. Further, the AAA has
no online filing database comparable to the PACER or statecourt equivalents, and combined with inherent scheduling
complexities, sometimes inefficient administration, and all
parties, including the fact-finders, billing by the hour, can
quickly become too expensive.
✯ Fall 2011
transactions that have reasonably predictable outcomes. A
common example arises in mergers or acquisitions in which
the final closing price remains subject to adjustments or in an
agreement requiring a future appraisal of value. There, the
final closing price may depend on the target’s performance
or the future appraisal of value, which in turn depend on
macroeconomic factors.
In situations like this, baseball arbitration for certain provisions within the contract increases the predictability of the
range of outcomes should a dispute arise. If both sides are
generally sophisticated and reasonable parties, including
baseball arbitration forces them to enter into the dispute with
a reasonable position and keeps them from the temptation of
swinging for the fences.
3. Concluding Thoughts: Tailor the Choice to the Type
of Contract
As Yogi Berra reportedly said, it’s hard to make predictions,
especially about the future. Choosing among jury trial, bench
trial, or type of arbitration requires a case-by-case judgment.
No one-size-fits-all solution exists for corporate counsel.
Another way corporate counsel might consider the decision
about whether to contract out of a jury trial would include
consideration about whether to do the deal at all. Warren
Buffett observes: “We’ve never succeeded in making a
good deal with a bad person.”20 In
the authors’ collective experience,
If both sides are generally
Buffett’s advice is sound. But
(iii)“Baseball” style-arbitration
sophisticated and reasonable parties,
Buffett also reminds us why we
Baseball arbitration may take several
including baseball arbitration forces
or our clients want to do deals,
forms. Most commonly, the parties
sometimes bad deals, in the first
restrict the arbitrator’s choices to
them to enter into the dispute
place: “Dealmaking beats working.
one of two proposed awards: one
with a reasonable position and
Dealmaking is exciting and fun,
from the claimant or plaintiff, and
keeps them from the temptation of
and working is grubby. . . . That’s
the other from the respondent or
swinging for the fences.
why you have deals that make no
defendant. The arbitrator has no
sense.”21
other choices, even if the arbitrator
believes another choice would produce a fairer or more just
In short, although the type of dispute resolution provision that
outcome. “The arbitrator, in other words may not ‘split the
the parties put into a contract may have a significant impact
baby.’”17 “Night baseball arbitration” provides another version
on a potential case, corporate counsel and other executives
under which the arbitrator never learns the parties’ final offers.
involved in the dealmaking process should keep in mind that
The arbitrator enters a decision and the party that has made
the differences among types of dispute resolution procedures
its (undisclosed) offer closer to the arbitrator’s final award
may not be as great as they think. From our experience in
wins and that parties’ offer becomes the award.18
seeing such matters fall into dispute, the dealmakers should
put the merits of the deal first, and then, after considering the
Baseball arbitration, at least according to theory, encourlikely type of outcomes possible, tailor the dispute resolution
ages parties to adopt compromise positions and, perhaps,
provision accordingly. Most importantly, no dealmaker or
simply to settle their disputes.19 In commercial transactions,
advisor should ever depend on a dispute resolution clause, no
baseball arbitration works well in single-event or one-time
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matter how expertly crafted, to protect against an otherwise
bad deal.
David K. Bissinger is a partner at Siegmyer, Oshman & Bissinger
LLP in Houston. He is a graduate of Vanderbilt Law School. Mr.
Bissinger’s practice focuses on commercial litigation, securities
litigation, and intellectual property litigation.
Trent T. McKenna is the Vice President, General Counsel, and
Secretary of Comfort Systems USA, Inc. He is a graduate of Duke
University School of Law. Prior to joining Comfort Systems, Mr.
McKenna was focused on complex commercial litigation at Akin
Gump Strauss Hauer & Feld, LLP. O
1
“Arbitration Offers Speedy Alternative to Costly Litigation,”
Deseret News, Jan. 21, 1990.
2
Shearson/American Express v. McMahon, 482 U.S. 220 (1987).
3
Wilko v. Swan, 346 U.S. 427 (1953).
4
Gary Born, International Commercial Arbitration: Commentary
and Materials 9-10 (2d ed. 2001).
5
Jerome Frank, Courts on Trial, quoted in Ephraim London,
The Law as Literature 731, 750 (1960)
6
Erwin Griswold, Harvard Law School’s Dean’s Report (1963).
7
Nassim Nicholas Taleb, The Black Swan 102 (2007).
8
Emily Couric, The Trial Lawyers 38 (1988)
9
Francis Wellman, The Art of Cross Examination 21 (1903)
10
H. Kalven, The Dignity of the Civil Jury, 50 Virginia Law
Review 1055-1075 (1964), cited in Valerie Hans & Neil Vidmar,
Judging the Jury 117 (1986).
11 Louis Nizer, My Life in Court 359 (1978)
12
“Arbitration Offers Speedy Alternative to Costly Litigation,”
Deseret News, Jan. 21, 1990.
13
Kerr, International Arbitration v. Litigation, 1980 J. Bus. L.
164, 164-65 175-78 (“Arbitral tribunals have to be paid, whereas
court fees are often negligible. In important cases, three arbitrators,
or two and an umpire, are usually preferred to a single arbitrator,
and greatly adds to the costs and complexities. If the arbitrators
are busy men, as they usually are, arbitration can be much more
protracted than litigation….”), quoted in Born, supra note 4, at 10.
14 Blue Tee Corp. v. Koehring Co., 999 F.2d 633 (2d Cir. 1993).
15 Id.
16 Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d
978, 987 n.32 (2d Cir. 1942).
17
Abraham J. Gafni, “Baseball Arbitration” and the Trial of
Socrates, The Legal Intelligencer, Feb. 28, 2011, reprinted in Texas
Lawyer, Feb. 28, 2011.
18 Id.
19 See id.
20 Warren E. Buffett, The Essays of Warren Buffett: Lessons for
Corporate America 99 (1st rev. ed. 2001).
21 Id. at 164.
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Litigators Needed to A dvise Transaction Lawyers
on L itigation P renups
BY DONALD R. PHILBIN, JR.
E
VEN BEFORE THE U.S. AND TEXAS SUPREME COURTS
handed down AT&T v. Concepcion1 and NAFTA Traders,
Inc. v. Quinn,2 dispute resolution options needed to be
thin-sliced to effectuate the ends of a deal. What began with
Chief Justice Warren Burger’s call to the National Conference
on the Causes of Popular Dissatisfaction with the Administration of
Justice and Professor Frank Sander’s “multi-door courthouse”3
keynote in 1976 (“Pound Conference”) has developed into
a wide range of dispute resolution options,4 each with
strengths and weaknesses. Deal lawyers would benefit from
the nuanced advice of trial lawyers as they tailor litigation
prenups to specific transactions.
Conference that may help inform the choices embedded in
such clauses.
Arbitration: A Short History
Commercial arbitration dates back to at least the thirteenth
century and predated the American Revolution in New
York and several other colonies.9 George Washington
included an arbitration provision in his will10 and the Texas
Constitution of 1845 recognized it.11 By 1927, the American
Arbitration Association’s (“AAA”) Yearbook of Commercial
Arbitration listed over 1,000 trade associations that had
systems of arbitration.12 Arbitration is the preferred dispute
resolution mechanism in international disputes primarily
because non-resident parties distrust the legal systems of
foreign countries and the New York Convention actually
makes arbitration awards more enforceable than the judgments of domestic courts across
national borders.13
In AT&T v. Concepcion, the U.S. Supreme Court held that
California state contract law, which deems class-action
waivers in arbitration agreements unenforceable when certain criteria are met, is preempted
by the Federal Arbitration Act
After Concepcion, commentators
(“FAA”) because the law stands as
began to wonder aloud if attorneys
an obstacle to the accomplishment
But not all states took the same view
and execution of the full purposes
of arbitration. “Historically, Anglowould be committing malpractice
and objectives of Congress.5 After
American courts refused to enforce
not to advise business clients to
Concepcion, commentators began
arbitration agreements, jealously
include class action arbitration
to wonder aloud if attorneys would
guarding their dispute resolution
waivers in all consumer contracts.
be committing malpractice not to
monopoly.”14 Merchants and lawyers
advise business clients to include
were successful, particularly in New
class action arbitration waivers in all consumer contracts.6
York, in enacting legislation requiring courts to defer to
The Texas Supreme Court may have addressed the most
arbitration. Parallel efforts established New York not only
frequent complaint about arbitration – the lack of meanas a financial center, but as the preferred source of comingful judicial review after the U.S. Supreme Court’s Hall
mercial law. According to Cornell Law Professor Theodore
Street Associates v. Mattel, Inc.7 case – by going a different
Eisenberg, who has done empirical work around litigation,15
direction under the Texas Arbitration Act (“TAA”) in NAFTA
arbitration,16 and choice of law17 for at least a decade, “New
Traders, Inc. v. Quinn. Particularly in bet-the-company
York has openly sought to be an adjudication center for
cases, “[p]reserving the right to appeal was the only factor
substantial business arrangements” and recent receptivity to
cited by a majority of [general counsel] as discouraging
forum selections has only advanced that effort.18 In response
arbitration (63%).8
to “widespread judicial hostility to arbitration agreements,”19
Congress resolved inconsistent treatment of arbitration proviWhile these cases highlight the need to periodically audit
sions across state lines in 1925 by adopting the New York
dispute resolution procedures, there are a number of factors
approach in the FAA. The FAA supplies the substantive rules
impacting how these clauses are designed. The focus of
for deciding whether to uphold an arbitration agreement, stay
this article is on empirical data collected since the Pound
judicial proceedings, compel arbitration, and confirm, vacate
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or alter the award.20 “The ‘principal purpose’ of the FAA is
to ‘ensur[e] that private arbitration agreements are enforced
according to their terms.’”21
By 1984, the U.S. Supreme Court had formally announced a
“new arbitrability regime.”22 Though the Court had already
required fraudulent inducement allegations to be directed
to the arbitrator unless those allegations solely attacked the
arbitration clause, rather than the larger contract containing
it (Prima Paint “separability doctrine”), it wasn’t until 1984
that the Court finished what Congress had started by preempting inconsistent state substantive law23 with what many
had thought to be a procedural statute.24 The Court further
held that Congress invoked the full preemptive power of
the Commerce Clause,25 stated a “national policy favoring
arbitration,”26 and resolved “any doubts concerning the scope
of arbitrable issues” in favor of arbitration.27 This national
policy favoring arbitration later extended into statutory
claims, including Truth in Lending,28 Age Discrimination
in Employment Act,29 securities,30 and anti-trust.31 It has
also been held to cover fraudulent inducement,32 tortious
interference and intentional infliction of emotional distress,33
defamation and the Texas Deceptive Trade Practices Act,34
breach of fiduciary duty and conversion,35 personal injury/
wrongful death,36 and wrongful discharge (Sabine Pilot).37
“Employment arbitration grew dramatically in the wake of the
Court’s 1991 Gilmer 38 decision.”39 In fact, one commentator
estimates that the number of workers covered by nonunion
arbitration procedures now exceeds those covered by union
representation.40
So, “in a few short decades we have gone from a ‘suspicion of
arbitration as a method of weakening the protections afforded
in the substantive law’ to a ‘strong endorsement of the federal
statutes favoring this method of resolving disputes.’”41 The
result has been a “massive shift from in-court adjudication to
arbitration” during a period that roughly parallels various critiques of discovery related costs.42 For instance, in 1989 Judge
Frank Easterbrook suggested “abandoning notice pleading”
in order to put “some preliminary assessment of the merits
ahead of the decision about discovery” in his Discovery As
Abuse article.43 The Supreme Court cited that article in raising
the pleading bar in Bell Atlantic Corp. v. Twombly44 in 2007.
Other recent efforts to address civil justice issues in litigation
and arbitration have been convened under high sounding
titles: The Future of Civil Litigation at the Sedona Conference,45
American Justice as a Crossroads: A Public and Private Crisis at
Pepperdine Law,46 and the 2010 Civil Litigation Conference
convened by the Judicial Conference Advisory Committee on
Civil Rules at Duke Law (“Duke Symposium”).47 A number
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37
of studies were prepared in the run up to these conferences
by the American Bar Association Litigation Section (ABA
Litigation),48 the Federal Judicial Center (FJC),49 the RAND
Institute for Civil Justice,50 Lawyers for Civil Justice (LJC),51
the National Employment Lawyers Association (NELA), the
American College of Trial Lawyers (ACTL) and the Institute
for the Advancement of the American Legal System (IAALS).52
With the exception of mediation, which has benefited from
dissatisfaction with both litigation and arbitration, no method
of resolving disputes escaped criticism.
So arbitration is included in a wider variety of contracts than
at any time, and, yet, it has “never been subject to wider criticism.”53 By the twenty-first century, arbitration had become
a “wide-ranging surrogate for trial in a public courtroom”
and “arbitration procedures [had] become more and more
like the civil procedures they were designed to supplant,
including pre-hearing discovery and motion practice.”54 The
fair-haired child of the post-Pound era had “grown into a
troubled teenager.”55 In fact, long-time arbitration guru Tom
Stipanowich notes that “criticism of American arbitration is
at a crescendo.”56 That criticism comes from several quarters,
but our focus here is on the commercial context. “Much of
this criticism stems from standard arbitration procedures
that have taken on the trappings of litigation – extensive
discovery and motion practice, highly contentious advocacy,
long cycle time and high cost.”57 As one general counsel explained:
“[I]f you simply provide for arbitration under [standard rules]
without specifying in more detail . . . how discovery will
be handled . . . you will end up with a proceeding similar
to litigation.”58 Professor Stipanowich notes that the latest
edition of the American Institute of Architects construction
forms eliminates binding arbitration as the default procedure,
as have other form contracts.59 Parties now have to opt-in to
arbitration with a check-box rather than it appearing as the
default. And Stipanowich and others note that “‘e-discovery’
looms as the ultimate test for arbitration as an alternative to
court.”60 Of course, e-discovery hovers over litigation to such
an extent that one distinguished Federal District Judge, Royal
Furgeson, observed after Twombly and Ashcroft v. Iqbal61 that
“Discovery has become such an over-riding issue with federal
judges that it is having a spillover effect on the rest of the
civil justice system, and especially on pleading. Both Twombly
and Iqbal illustrate this. If trial lawyers and magistrate and
district judges do not deal better with discovery, I predict
that the appellate courts will eventually become so concerned
that they will dictate additional changes to the civil justice
system, perhaps even more problematic than Twombly and
Iqbal. The time to act is now.”62
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Modern Transformations
The RAND survey of general counsel found that “arbitration
is becoming increasingly like litigation.”63 In the international context, this is often called the Americanization of
arbitration, allegedly importing “brass knuckle” techniques
“that are so alarmingly familiar in American courts.”64 That
metamorphosis imbued arbitration with the “style, technique,
and training” of these lawyers,65 who often made tactical use
of discovery, choice of law, venue, and other variables. One
commentator has tied American influence on international
arbitration to the “meteoric rise of the American law firm in
the global market place.”66 Whatever its cause, this view was
prominent enough by 2003 that Ohio State Law convened
a symposium on The Americanization of International Dispute
Resolution.67
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and Seeber found that most respondents believed that businesses used arbitration clauses to save both time (68.5%)
and money (68.6%).74 Indeed, the U.S. Supreme Court found
that arbitration is cheaper than litigation75 by turning to
Congressional declarations in the Patent and Trademark Office
appropriations bill of 1982: “The advantages of arbitration are
many: it is usually cheaper and faster than litigation; it can
have simpler procedural and evidentiary rules; it normally
minimizes hostility and is less disruptive of ongoing and
future business dealings among the parties; it is often more
flexible in regard to scheduling of times and places of hearings
and discovery devices; and, arbitrators are frequently better
versed than judges and juries in the area of trade customs
and the technologies involved in these disputes.”76 These
observations may be showing their age given the changes in
arbitration practice.
Concepcion was decided in the consumer class action context
where at least one third of major consumer transactions are
In their employment case study, Eisenberg and Hill found
covered by arbitration clauses.68 And while companies have
that the time to final hearing was about three times faster
in the past inserted unconscionable arbitration provisions into
in arbitration than in court.77 Lower pay employees average
form contracts, they now seem to be rushing to make them
time to award on civil rights claims (262 days) was faster
fair in an effort to withstand scrutiny.
than higher pay employees (383 days)
Pace Professor Jill Gross has asked her
and both were significantly faster than
While companies have in the
ADR class to bring their consumer or
time to trial in state (818 days) and
past inserted unconscionable
employment agreements to class to
federal (709 days) court.78 Non-civil
arbitration
provisions
into
form
discuss the provisions. Historically,
rights cases were also disposed of
they had no problem locating unfair,
three times more quickly in arbitracontracts, they now seem to be
unreasonable, or arguably uncontion with lower pay employees (233
rushing to make them fair in an
scionable provisions in at least one
days) and higher pay employees (271
effort to withstand scrutiny.
of the agreements. “This year, for the
days) than they were in the state court
first time,” she reported, “no student
basket of cases (723 days).79 Colvin’s
in my class (31) could identify an arguably unconscionable
more recent study found that arbitration was only twice as
provision in a pre-dispute arbitration clause.”69 The clauses
fast as litigation, because the mean time to disposition had
“contained 30 day opt-out provisions, references to due
increased to 361.5 days, but 59.1% settled pre-hearing at the
process protocols, mechanisms to choose consumer-friendly
284.4 day mark.80 The RAND survey of general counsel with
venues for arbitration hearings, and remedy-preserving
significant litigation experience and less arbitration experience
terms.”70 Nebraska Professor Kristen Blankley reports similar
(25% had never attended an arbitration) found that arbitration
findings, with the exception of a rise in class action waivers
is somewhat better than litigation in the business-to-business
within the arbitration clause. The AT&T clause at issue in
context (52%), saves money relative to litigation (60%), and
Concepcion provided for procedures to keep costs very low
saves time compared to litigation (59%).81
and even guaranteed claimants a $7,500 minimum recovery
if the arbitrator’s award was greater than AT&T’s last written
Interestingly, the removal of an arbitration clause never (51%)
settlement offer. Gross attributes these changes to “judicial
or rarely (39%) affected the price charged to a customer.82
71
policing of the one-sided arbitration clause.”
And, though changes to an arbitration clause could be mate��
rial under Section 2-207 of the Uniform Commercial Code,
Faster, Simpler, and Cheaper?
the Second Circuit held that “the inclusion of an arbitration
Proponents have long claimed that arbitration is faster (74%),
provision in a contract did not constitute a material alterasimpler (63%), and cheaper (51%) than litigation.72 Only eight
tion.”83 If arbitration is in fact cheaper than litigation, one
percent reported that arbitration was more expensive than
would expect the removal of such a clause to be material and
litigation in the Harris survey.73 In a 1998 survey, Lipsky
result in a price adjustment.84 All of which led Eisenberg
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to conclude that corporate defendants are “less concerned
about, and in need of less protection from, litigation than
the Supreme Court’s Twombly and Iqbal decisions suggest.”85
RAND also identified a perception that arbitration is a
more just process.86 Harris also found that arbitration
participants were satisfied with the fairness of the process
(75%) and outcome (72%).87 Lipsky and Seeber found
that 60% believed arbitration provided a more satisfactory
process than litigation.88 But there are persistent questions
about whether corporate users really buy into these broad
perceptions. Eisenberg found much higher use of mandatory
arbitration clauses in consumer contracts (76.9%) than in
“material” contracts disclosed to the Securities and Exchange
Commission (6.1%).89 And while mandatory arbitration was
the dispute resolution mechanism of choice in employment
matters generally (79-92.9%),90 arbitration clauses were
less prevalent in individually negotiated CEO employment
contracts (42%).91
Eisenberg has repeatedly shown that corporations inject
arbitration clauses into their contracts with consumers and
lower pay employees much more frequently than they do
with their executives and other sophisticated businesses.
For employees who earn less than $60,000 per year, “arbitration, not litigation, is their only realistic dispute resolution
option” due to employer imposed clauses.92 But that could
be a benefit, if arbitration were in fact procedurally less
daunting than litigation, because lower pay employees may
not have access to counsel according to the ACTL and ABA
Litigation studies finding an economic floor for litigation
generally at $100,000. Eisenberg and Hill’s findings are
consistent: “[l]ower pay employees may be unable to attract
the counsel necessary for meaningful access to court.”93
But if that were the case, employees would elect arbitration
post-dispute and there would be no need for take-it-or-leave-it
clauses pre-dispute. Eisenberg contends that the “systematic
eschewing of arbitration clauses in business-to-business
contracts also casts doubt on the corporations’ asserted
beliefs in the superior fairness and efficiency of arbitration
clauses.”94 A commentator at the Duke Symposium argued
that the Supreme Court has used procedural law to “weaken
the ability of citizens to enforce [substantive] laws enacted to
protect them from business misconduct.”95 There are moves
in Congress to reverse many of those decisions, and the
new Consumer Financial Protection Bureau may attempt to
ameliorate others.96
Several studies have compared win rates and damage awards
in arbitration and litigation. Since we can’t run the same
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39
case through both the litigation and arbitration systems,
these studies inherently compare apples with oranges and
the relatively small data samples add wrinkles. Some studies
suggest that employee win rates are higher in arbitration.
Maltby reported that “employees prevailed in 63% of arbitrations compared to 14.9% of court cases.”97 Using 1,430 federal
court, 160 state court, and 297 AAA arbitration matters
alleging employment discrimination, Eisenberg and Hill found
“little evidence that arbitrated outcomes materially differ from
trial outcomes for higher paid employees.98 But the data is
not uniform and the results are not as strong for lower pay
employees who were more likely to assert discrimination or
other statutory causes of action rather than the breach of
contract claims arising out of the executives’ individually
negotiated agreements. In civil rights claims, Eisenberg and
Hill found higher pay employees prevailed in arbitration more
(40%) than lower pay employees (24.3%).99 Considering the
sample size, those figures may be within the margin of error
compared to composite employee success rates in state (43.8%)
and federal (36.4%) discrimination litigation.100 In non-civil
rights claims, where the sample size was more statistically
relevant, the lower pay employee win rate (39.9%) was at the
state and federal discrimination win rate, while the higher pay
employees bested those rates in arbitration (64.9%).101 In a
2011 published study of 3,945 AAA administered employment
cases, Colvin found an employee win rate of 21.4%, which
is below the earlier court win rate.102 And the court win rate
probably falls when motions to dismiss and for summary
judgment are factored into the results.103
The dollar amount of the awards also reflected the pay and
claim type differentials. Higher paid employees received
higher arbitration awards on their non-civil rights claims
($211,720), presumably breach of contract, and lower paid
employees obtained higher arbitration awards on their civil
rights claims ($259,795).104 Average civil rights arbitration
awards for lower ($259,795) and higher ($32,500) pay
workers were lower than the basket of state ($478,488)
and federal ($336,291) claim judgments the authors used
for comparison.105 Non-civil rights claims inverted. Higher
pay employees did better ($211,720) in this category than
lower pay employees ($30,782), but both did worse than
the state court basket ($462,307).106 Colvin later found the
mean employment arbitration award to be $109,858, below
the federal and California averages in his study.107As with
Eisenberg’s studies, Colvin found that higher pay workers
won higher awards ($165,671) more often (42.9%) than lower
pay workers (22.7% and $19,069, respectively).108 Workers in
Colvin’s middle band ($100K - $250K), fell in between (31.4%
and $64,895, respectively).109 Delikat and Kleiner’s study of
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securities industry employment outcomes showed that the
median arbitration award ($100,000) was roughly comparable to the mean federal court trial judgments ($95,554).110
Outside of the employment context, there were no differences
in awards between arbitration and litigation. Eisenberg
and Hill concluded that “[a]rbitrator-juror comparisons in
non-employment contexts provide no empirical evidence of
systematic juror-arbitrator differences.”111
Anecdotally, we can easily recall cases that deviate from
statistics showing similar results in arbitration and litigation.
For instance, in Perry Homes v. Cull,112 the owner of a $242,759
home was awarded $800,000 in arbitration over serious
structural and drainage issues.113 Indignant that an arbitrator
could award more than three times the purchase price of the
home, Perry Homes sought and obtained vacatur from the
Texas Supreme Court on a waiver theory. A Tarrant County
jury then awarded the homeowner $58 million.114 On the
other hand, after Senator Al Franken passed an anti-arbitration
amendment to the Department of Defense Appropriations Act
of 2009 in honor of Jamie Leigh Jones and the Fifth Circuit
exempted certain claims from the arbitration provision in her
employment contract,115 Ms. Jones lost a Houston jury trial.116
The statistical and anecdotal results highlight one reason
general counsel tend to favor arbitration with its flaws – tighter
standard deviations. The state court basket of cases and the
lower pay employee civil rights recoveries had very high
standard deviations – exactly what the general counsel in
the RAND survey aimed to limit with the use of arbitration.
According to RAND, “corporate counsel may essentially be
weighing the benefits of confidentiality and experienced
decisionmakers against the costs of a potentially smaller
award – even if that cost is not real.”117
Whether in litigation or arbitration, there is a concern that
repeat players not gain advantage relative to one-shot participants. These concerns are heightened in the employment
context because employers are systematically more likely to be
repeat players – individuals have few employers but employers
have many employees.118 Lisa Bingham began to identify a
repeat player effect in a series of studies in the 1990s. Using
relatively small AAA samples, she found some evidence that
employers participating in multiple arbitrations either got good
at it or arbitrators tried to curry favor with the repeat players
through their awards.119 Other commentators criticized those
studies noting that there were several reasons repeat play
improves performance – other than arbitrator bias. They
divide into two groups. The practice-makes-perfect group
that includes more resources, greater expertise, better policies
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informed by lots of experience, and the adoption of internal
grievance procedures to address claims before they escalate
to filed matters. The other group suggests that arbitrators are
either biased because they hope to be selected in future cases
or that employers know more about the arbitrators through
repeat play than do the one shot players.120 These concerns
are often ameliorated by strict disclosure requirements.
Colvin sliced and diced the data several different ways, and
others will take issue with his assumptions, to show that the
employee win rate with repeat employers (16.9% and 12.0%)
was roughly half what it was with single shot employers
(31.6% and 23.4%).121 He further found that average damage
awards dropped from $27,039 to $7,451 in cases with repeat
play employers.122
With dismissals and summary judgments trending up in
federal practice, some wonder if there is a structural impediment to similar results in arbitration. The RAND survey noted
that “arbitrators have low incentive to control the amount
of discovery or time spent on pre-hearing disputes because
they are paid by the hour.”123 Other interviewees thought the
parties might be “extending the process because arbitration
awards generally cannot be appealed.”124
The tension, of course, is with due process and vacatur. As
Stipanowich puts it, “since arbitrators are subject to vacatur
for refusal to admit relevant and material evidence,125 some
may draw the inference – not established by law – that a
failure to grant court-like discovery is an inherent ground for
vacatur.”126 Though the FAA controls in most instances, the
“finality” of arbitration awards varies “considerably among
jurisdictions.”127 During a 2004 survey of federal and state
vacatur opinions, Mills found that federal courts granted
only six of sixty-one motions, but the courts of California,
New York, and Connecticut vacated awards about one-third
of the time. Texas, on the other hand, was in a group of nine
states that granted only one vacatur during the nine months
sampled.128 The most common successful ground for vacatur
was “exceeded powers” (20.8%), and only two of 52 (3.8%)
were granted for manifest disregard, which some now suggest
is a subset of “exceeding powers” after Hall Street.129 Of course,
counsel can agree upon a discovery plan – often with general
counsel making cost / benefit tradeoffs.
There is a persistent perception that arbitrators tend to “split
the baby,” trying to “give each side a partial victory (and
therefore partial defeat),” rather than make a strong ruling for
fear of alienating one of the parties.130 Seventy-one percent
of the general counsel recently surveyed by RAND held this
view, though respondents who used arbitration clauses most
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frequently disagreed.131 And this may well be a case where
cognitive shortcuts highlight the most memorable cases even
if empirical research shows a different trend in larger data
sets. Keer and Naimark did find the mean arbitration award
to be 50.53% of the amount demanded, but it was because
the results were bimodal – the largest percentage of awards
clustered at the ends (barbell graph) because most arbitrators
either granted or denied the requested relief in total.132 The
AAA analyzed 111 of its awards in 2009 to see if it could
confirm this broadly held perception. It found that:
•
•
•
7% awarded approximately half (41 – 60%)
of what was claimed
41% awarded more than 80% of the claimed
amount
19% denied the claims completely133
One of the biggest reasons general counsel favored contractual
arbitration in the RAND survey was confidentiality (59%).134
Not only does confidentiality reduce publicity over the dispute
and its outcome, it reduces the risk of divulging trade secrets
or other commercially sensitive information. 135 Of course,
parties desiring confidentiality must contract for it.136 One
RAND respondent went so far as to say that “they accept
the risk of spending potentially larger amounts of money on
arbitrators and outside counsel to keep the details of a commercial dispute secret.”137 There are statutory and practical
exceptions to confidentiality, however. California state law,
for instance, requires organizations that provide arbitration
services to report “the name of the employer; the name of
the arbitrator; filing and disposition dates; amounts of claims;
amounts awarded; and fees charged” for cases nationally.138
Colvin and others argue that more data ought to be available
to help researchers and policy makers.139 Even with confidentiality clauses, however, the record of individual arbitrations
have been laid bare in vacatur attempts in court. Limiting
bad publicity ties back into general counsels’ concerns about
predictability, and most view arbitration as more predictable
– even if they unevenly seek that predictability. RAND notes
that “predictability is an overarching concern of business – in
terms of both the dispute’s outcome and the indirect effects
of potentially bad publicity.”140
Confidentiality comes with social costs – a loss of transparency and a reduction of common law precedent. University of
Houston Law Professor Richard Alderman notes that courts
have developed doctrines like the warranty of good and
workmanlike performance.141 Today’s mobile home contract,
he observes, would contain an arbitration clause. Some
arbitrator would apply existing law, perhaps in secret. But
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41
new doctrine would not be court pronounced like it was in
Melody Home Manufacturing Co. v. Barnes.142 Indeed, arbitrators
might exceed their powers by relying on arbitral common
law unless the contract permits them to do so.143 But the vast
majority of arbitration matters, like their court counterparts,
would probably not contribute to common law development
anyway. The most recent Fifth Circuit statistics show that
only 400 of 3,210 opinions in 2010 were published (12%).144
And that’s the tip of the iceberg since so few trial court cases
are appealed: “In 2006 the [federal] trial courts terminated
198,646 cases, but parties commenced only 32,201” appeals,
of which 12,338 were decided on the merits (6.2%).145 As
the writers put it, “notwithstanding the tremendous mass of
litigation oozing up from below, the courts of appeal reversed
or remanded a mere 1,891 cases.”146 If 1,891 of 198,646 (1%)
district court terminations are reversed or remanded, and
only three percent of all district court orders were found to be
fully reasoned,147 a number that would be lower in state trial
courts where publication rates vary, one might fairly argue
that common law is already being developed by exception
rather than statistical pool. And a much smaller percentage
of the publishable opinions garner publicity. In fact, few of
the U.S. Supreme Court’s 80 or so opinions each term are
widely reported, and two-thirds are decided by a 7-2 margin
or better.148 Of course, the main concern is that egregious
cases will be shielded from public view and that several of
the one-percent or fewer matters that could set precedent are
being quietly determined in a conference room.
Perhaps the biggest objection to arbitration is the lack of
judicial review of awards. In the RAND survey, “[p]reserving
the right to appeal was the only factor cited by a majority of
respondents as discouraging arbitration (63%).149 Professor
Rau attributes the use of expanded review provisions to a
“desire to ensure predictability in the application of legal
standards, a desire to guard against a ‘rogue tribunal,’ or
against the distortions of judgment that can often result from
the dynamics of tripartite arbitration.”150 This is of particular
concern in “bet-the-company” cases.151 Until recently, the
Fifth Circuit recognized manifest disregard as a non-statutory
ground for vacatur.152 In Hall Street Associates v. Mattel, Inc.,
the U.S. Supreme Court held that parties cannot by contract
expand the grounds for review under the FAA.153 But Hall
Street did not foreclose the possibility that parties may be able
to utilize other means of obtaining expanded review (arbitral
panels)154 or that state statutes or judicial decisions could
not provide safe harbors for such activities.155 While other
circuits have since held that manifest disregard of the law
is subsumed within §10(a)(4) of the FAA (vacatur available
where arbitrators exceed their powers), a panel of the Fifth
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Circuit went the other way by holding that since manifest
disregard of the law had been defined as a non-statutory
ground in the Fifth Circuit it could not survive Hall Street.156
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competing interests at play. One contract formation theory
suggests that drafting is a simple matter of economics –
“the more time the parties spend negotiating and drafting
the contract, the lower the probability that a dispute over
The Texas Supreme Court, however, recently joined three
meaning will arise, because more of the possible contingencies
other states (California, Connecticut, and New Jersey)
will be covered by explicit contractual language.”166 While
in interpreting state arbitration
elegant theory, perhaps necessity
acts (the TAA157 is based on the
is more often the cause: “Whether
Assuming there is no panacea but a
Uniform Arbitration Act) differa dispute arises depends largely
variety of options with strengths and
ently than the Supreme Court
on whether one or both parties
interpreted the FAA, even though
weaknesses, the challenge becomes
becomes unhappy in a relationship,
the provisions are similar. In
which often turns on the world
how to advise dealmakers when they
NAFTA Traders, Inc. v. Quinn,158 the
changing in the way the parties
are drafting litigation prenups in the
Court acknowledged that while it
did not expressly anticipate.”167 So
rush
to
consummate
a
deal.
must follow Hall Street in applying
the idea that parties agree on what
the FAA, it was free to reach its
they can at contract formation and
own judgment with regard to the TAA.159 In doing so, it
imperfect dispute resolution alternatives force them to work
noted that arbitration is first a creature of contract. And if
out later disputes seems logical: “Deliberate ambiguity may
the parties contracted for judicial review for reversible error,
be a necessary condition of making the contract; the parties
that could not be inconsistent with the TAA. In Quinn, the
may be unable to agree on certain points yet be content to take
arbitrator had applied federal law to sex discrimination claims
their chances on being able to resolve them, with or without
brought solely under the Texas Commission on Human
judicial intervention, should the need arise.”168
160
Rights Act. Noting that the Supreme Court did not discuss
FAA §10(a)(4), which like TAA § 171.088(a)(3)(A) provides
Forum Selection
for vacatur “where the arbitrators exceed their powers,” the
Forum is the best determinant of claim value. “Forum is
Texas Supreme Court held that when the parties agree that
worth fighting over because outcome often turns on forum,”
the arbitrator should not reach a decision based on reversible
according to Clermont and Eisenberg.169 The plaintiff obvi161
error, the arbitrator exceeds her powers by doing so. So it
ously gets the first crack at forum selection. If that choice is
reversed a decision based on the TAA where the arbitration
upset by removal, however, plaintiff win rates are “very low,
agreement clearly involved interstate commerce and held that
compared to state court cases and cases originating in federal
its decision was not preempted because the “lesson of Volt is
court.”170 Win rates in original diversity cases (71%) were
that the FAA does not preempt all state-law impediments to
double win rates in removed diversity cases (34%).171 The
arbitration; it preempts state-law impediments to arbitration
effect is more pronounced in venue transfer cases. “Plaintiff’s
agreements.”162
win rate in all federal civil cases drops from 58%, calculated
for cases in which there is no transfer, to 29% in transferred
So the biggest complaint about arbitration may have been
cases.”172 Empiricists prove what litigators instinctively
cured in Texas when “an agreement specifically states that
know – forum matters.
it is to be governed by the” TAA.163 Of course, there are
potential downsides to such a provision,164 and it may be
Venue in Texas is often tied to the place of performance or
preempted. Several arbitration providers have also responded
designated in “Major Transactions.”173 As David Harrell notes,
to this criticism by establishing appellate procedures and
“if the arbitration is to occur in a particular county, there needs
appellate tribunals for those seeking review.165 With such
to be some other performance in that county.”174 He goes on
appellate procedures, parties trade some speed and finality
to note that this does not “restrict parties’ ability to employ a
for the protection of a second-look.
forum selection clause to agree to the jurisdiction and venue
of another state.”175 According to another commentator, “U.S.
Drafting Considerations
courts have typically indicated that contracts of adhesion with
Assuming there is no panacea but a variety of options with
consumers are not automatically unenforceable but will be
strengths and weaknesses, the challenge becomes how to
scrutinized for compliance with existing contract law and
advise dealmakers when they are drafting litigation prenups
with notions of fundamental fairness and reasonableness.”176
in the rush to consummate a deal. And, of course, there are
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Choice of Law
Choice of law also matters to empiricists. There are states
who have distinguished themselves in certain substantive
areas – New York in financial transactions, Delaware in
corporate governance, etc. But the practitioner knows how
difficult it is to the get the forum state court to apply the
law of another state – and that might lead some to include
an arbitration provision. It turns out that choice of law is
inversely correlated with the decision to incorporate an
arbitration clause. Eisenberg and Miller suggest that if the
parties believe a particular “state’s law is highly efficient,
that might be viewed as reducing the costs of litigation and
providing a reason not to include an arbitration clause.”177
Among the material contracts they studied, New York (47%),
Delaware (14%), and California (7%) had the highest choice
of law concentrations.178 Not surprisingly, “New York law
was overwhelmingly favored for financing contracts, but also
preferred for most other types of contracts.” New York law
(45.69%) was chosen thirteen times more often than Texas
law (3.35%). And forum tended to follow choice of law, with
New York (41%) and Delaware (11%) chosen as the forum in
the 39% of those material contracts specifying a litigation
forum.179 Since Texas Supreme Court has held that a general
choice-of-law provision does not preclude application of the
FAA,180 it would be better practice to designate whether the
FAA or TAA is the governing arbitration law, even though
parties may not generally confer jurisdiction by agreement.181
If state law is perceived to be highly efficient, arbitration
clause usage falls. Only 4% of the contracts that chose New
York law also chose arbitration, while 24% of those selecting
California law did the same.182 When the company had a
Texas place of business, arbitration clauses were used in
employment contracts (57.1%) and merger agreements (26.1%)
at higher rates than when the same types of contracts involved
a California place of business.183 Contract subject matter also
correlates with choice of law. Where arbitration clause usage
is higher (settlements, employment contracts, and licensing
agreements), choice of law concentrations were found to be
low.184 Arbitration usage also correlates with the “supposed
unpredictability and unfairness of adjudication.”185 Eisenberg
and Miller plot the Chamber of Commerce rank of each state
against arbitration clause usage.186 Low numerical ratings by
the Chamber corresponded to favorably-ranked state liability
systems. At the time of the study (2002 data), Texas had the
second highest Chamber score (behind Louisiana and only
slightly worse than California). Arbitration clause usage was
lower than Louisiana, but also lower than California, which
had a slightly better Chamber score.187 Of course, other factors
could impact these results. Crowded dockets, for instance,
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43
may result in higher arbitration utilization.
States and countries compete to attract business with their
laws, including their arbitration statutes. The New York
precursor of the FAA was part of a concerted effort to make
New York a financial center. “New York’s highest court has
held that awarding punitive damages in an arbitration proceeding violated public policy,” but California and most other
jurisdictions went the other way even before the Supreme
Court held that the New York position was preempted by
the FAA.188 The English Arbitration Act of 1979 was overtly
designed to make the U.K. a friendly forum to arbitration.
During its parliamentary debate, Lord Cullen asserted, “that
a new arbitration law might attract to England as much as
₤500 million per year of ‘invisible exports,’ in the form of fees
for arbitrators, barristers, solicitors, and expert witnesses.’”189
Many have fretted that the Arbitration Fairness Act, recently
reintroduced by Senator Al Franken, would have the opposite
effect in the United States.190
�
Subject Specific
Not only does arbitration clause usage vary based on forum
and law choices, it varies by dispute. Drahozol’s review of
arbitration literature led him to identify “several types of
disputes for which parties might well prefer litigation to
arbitration: high stakes (“bet-the-company”) disputes, in
which the parties may fear an aberrational arbitration award
subject only to limited judicial review; disputes in which the
parties anticipate needing emergency relief, which arbitration
is ill-suited to provide; and disputes in areas with clear and
well developed law and contract terms, because the industry
expertise of arbitrators is of less value and the limited judicial
review in arbitration is more problematic.”191 Although arbitration providers have made provisions for emergency relief, it
is often carved out of arbitration agreements.192
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Jury and Class Waiver
Arbitration “super” clauses are often critiqued as nothing more
than jury waivers shrouded in federal preemption. Particularly
in national contracts, drafters will opt for the single standard
of the FAA rather than perform a state-by-state jury waiver
analysis.193 As a result, pre-dispute arbitration clauses have
become common in consumer contracts, especially in the
telecommunications and financial services industries.194
Jury trials are also more frequently waived in consumer and
employment disputes than in material business-to-business
(“B2B”) contracts.195 This is consistent with RAND’s finding
that the risk of “excessive or emotionally driven jury awards
encourages including arbitration clauses in B2B contracts
(75%).196 Yet, by constitutional dictate, juries decide the
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most complex cases – whether someone shall live or die in
a capital case.197
Perhaps class waivers are even more important to contract
drafters. Even before Concepcion, Sherwin noted that “[e]very
consumer contract with a mandatory arbitration clause also
included a waiver of the right to participate in class-wide
arbitration, and 60 percent of consumer contracts with
mandatory arbitration clauses provided that in the event
of class arbitration, the arbitration clause would no longer
be effective.”198 So the drafters only wanted arbitration if it
precluded class relief. This data, according to the authors,
lent “support to the argument that a significant motive for
mandatory arbitration clauses in consumer contracts is to
prevent aggregation of consumers’ claims.”199 As Eisenberg
concluded from another study, “Our data suggests that the
frequent use of arbitration clauses in the same firms’ consumer
contracts may be an effort to preclude aggregate consumer
action rather than, as often claimed, an effort to promote fair
and efficient dispute resolution.”200 Since arbitration “superclauses” are protected by a strong federal policy, these waiver
clauses seemed like calculated bets that paid off in Concepcion.
In AT&T Mobility LLC v. Concepcion, the Concepcions
entered into a contract for the sale and servicing of cellular
telephones with AT&T. That contract “provided for arbitration of all disputes between the parties, but required that
claims be brought in the parties’ ‘individual capacity, and
not as a plaintiff or class member in any purported class or
representative proceeding.” 201 The Concepcions later filed
a complaint in the Northern District of California alleging
false advertising and fraud because AT&T charged sales
tax on a “free” phone. That action was consolidated into a
putative class action. AT&T moved to compel arbitration.
Relying on California’s Discover Bank rule, the trial court
found that “the arbitration provision was unconscionable
because AT&T had not shown that bilateral arbitration
adequately substituted for the deterrent effects of class
actions.” 202 The Ninth Circuit also found the class waiver
in the arbitration provision to be unconscionable under
Discover Bank. Finding, again, that the FAA was “designed
to promote arbitration,” embodied a “national policy
favoring arbitration,” and a “liberal federal policy favoring
arbitration agreements,” 203 the Supreme Court found that
Discover Bank interfered with the FAA. So the Court held
that the FAA preempted it. In doing so, the Court found
that “the times in which consumer contracts were anything
but adhesion are long past.” 204 The dissent argued that
Discover Bank “‘applies equally to class action litigation
waivers in contracts without arbitration agreements as
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it does to class arbitration waivers’” and, therefore, does
not discriminate against arbitration or offend the FAA.205
�
Subject Matter Complexity
Subject matter complexity in B2B contracts encourages general counsel to use arbitration (59%).206 But while Eisenberg
and Miller found that the subject matter of the contract does
correlate with ex ante use of arbitration clauses, that decision did not turn on contract complexity.207 Employment
(37%) and licensing (33%) bested even international
contract (20%) usage and use in settlement agreements
(17%), and merger agreements (19%) topped the average
(11%) in the material contracts they studied.208 In another
study, almost 90% of international joint venture contracts
included arbitration clauses.209 “[O]ver three-quarters of
consumer agreements provided for mandatory arbitration
but less than 10% of the firms’ material non-consumer,
non-employment contracts included arbitration clauses,”
in another Eisenberg study.210
�
Rise of Specialized (Often Business) Courts
Some states are developing specialized courts that deal with
complex matters. Federal courts are also trying specialized
courts, like H.R. 628 that allowed the Administrative Office
to approve referral of patent disputes to certain judges in the
Northern and Eastern Districts of Texas.211 As arbitration has
become arbigation, “business courts illustrate the opposite
trend – they provide an example of litigation become more
like arbitration, what might be called the “arbitralization”
of litigation.”212 Business courts are typically divisions of
larger courts, “presided over by only a few specialist judges,”
with an “emphasis on aggressive case management and the
use of alternative dispute resolution.”213 In 1997, an ad hoc
committee of the ABA recommended that all states consider
adopting some form of business court: “the movement toward
specialized business courts” is “gaining strength,” and “that
there appears thus far to be no criticisms in jurisdictions
where business courts have been established.”214 The number
of states with business or complex litigation courts went from
one in 1992 to 19 in 2008.215 Studies of those courts have
found that “creation of a business court tends to reduce how
long it takes to resolve disputes.”216 Drahozol concludes that
the “future of arbitration depends not only on arbitration but
also on its competitors – the public courts, including business
courts.”217 While he would expect business courts to make
litigation more attractive, the empirical evidence available
at the time did not “show any significant move away from
arbitration to business courts.”218 New York has created a
commercial division to compete with Delaware Chancery
Courts. “Chief Judge Judith Kaye explained that the purpose
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of the commercial division is to give the New York business
community a level of judicial service ‘commensurate with its
status as the world financial capital.’”219
a matter.”226 Striking a familiar cord, Stipanowich claims that
the most notable “trial-like approach in arbitration involves
discovery.”227
Gap Between Arbitration Expectations and Experience
Markers favoring arbitration create high expectations, which
are tough to meet. Professor Stipanowich has studied the criticisms of arbitration and authored the College of Commercial
Arbitrators’s Protocols for dealing with them. In two award
winning articles, he explores what arbitration providers and
users can do to bring arbitration back from the precipice.220
Several of the reasons he finds for the separation between
expectations and experience can be closed with nuanced
advice from litigators during deal formation. Stipanowich
observes that most companies are reactive and ad hoc in
dealing with conflict and, therefore, miss the opportunity
to manage it before the contract is negotiated and drafted.
He further notes that “many transaction lawyers have little
experience in mediation, arbitration, or other forms of
dispute resolution” and that may factor into the drafting
effort.221 Harrell observes that “parties rarely give sufficient
consideration to how that arbitration will work. Their image
of arbitration as a non-litigation panacea that will save time
and money in the event of future disputes is often shattered
when they realize that they put too little thought into how
to shape resolution of those future disputes. That lack of
planning often causes arbitration to cost more than, and take
longer than, the default litigation would have required.”222
The antidote then is to seek nuanced advice – often from
litigators – that fits the forum to the fuss. Stipanowich calls
it moving beyond “one-size-fits-all arbitration” to “fit the
process to priorities”: “no single set of commercial arbitration
procedures can effectuate all of the goals that are important to
business users in different kinds of cases.”228 With increased
frequency, a component of that advice is the inclusion of
mediation in a step-clause (negotiation, mediation, and
then binding arbitration).229 Stipanowich offers a number of
successful examples in his lengthy articles.
Of course, it’s always hard to focus on how a divorce would
be conducted in the middle of courtship. So “parties intent
on sealing a deal are reluctant to dwell on the subject of
relational conflict.”223 The easy answer, then, is plugging
the standard clauses of various arbitration providers into
the contract, which unsurprisingly adopt their procedural
rules, and reduces the likelihood of friction with the other
side during negotiation – but not later. “But while drafters
seeking guidance from the websites of institutions sponsoring
arbitration have a seemingly wide variety of choices, few
readily available and reliable guideposts exist that dependably
link specific process alternatives to the varying goals and
expectations parties may bring to arbitration.”224 Stipanowich
notes that in light of concerns about discovery and finality,
providers are offering clauses for expedited case handling and
appellate tribunal review.225 The problem is often magnified
when a dispute arises under general clauses. According to the
general counsel of FMC Technologies, “Arbitration is often
unsatisfactory because litigators have been given the keys .
. . and they run it exactly like a piece of litigation. It’s the
corporate counsel’s fault [for] simply turning over the keys to
Choice of Arbitration Provider
All arbitration providers are sensitive to these criticisms and
are repeatedly holding training sessions for their arbitrators.
They are also modifying rules and adding commentaries, like
this one in the CPR Rules:
Arbitration is not for the litigator who will ‘leave no
stone unturned.’ Unlimited discovery is incompatible with the goals of efficiency and economy. The
Federal Rules of Civil Procedure are not applicable.
Discovery should be limited to those items [for]
which a party has a substantial, demonstrable
need.230
It matters whether an arbitration is administered by a provider
or self-administered by arbitrators selected from a panel. Both
models include fees for the arbitrators. Administered cases also
include administrative fees for the arbitral institution, which
often scale based on the amount of the claim.231 Other models
do not include up-front filing fees, but charge arbitrators a
percentage of their hourly fee.232 The fees charged by some
providers and arbitrators are a frequent source of criticism,
especially relative to subsidized courts.233 Colvin found the
average fee resulting from AAA administered employment
cases to be $11,070, though AAA shifts the bulk of those
costs to employers using its services.234 Administrative fees
in construction cases can run high and have been repeatedly
tested by homeowners.235 And Drahozol found “dissatisfaction
with the rules and costs of the AAA” among franchisors.236
Therefore, it matters which, if any, provider is selected and,
like litigation, the individual arbitrators form the process.237
�
Control Arbitrator Qualifications
A super-majority of RAND “respondents indicated that the
ability to control the arbitrator’s qualifications encouraged the
use of contractual arbitration (69%).238 While that is consis-
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tent with the history of arbitration in the merchant context,
some of the interviewees threaded this marker back through
the jury waiver component: “companies do not want juries to
try to interpret complex contracts in the course of reaching
a verdict, so arbitrators with experience in contract law are
better equipped to rule correctly.”239 Some interviewees said
that “industry knowledge is a more important qualification
because of the technical nature of disputes.”240Another
study of FINRA arbitrations concludes that “arbitrators who
represent brokerage firms or brokers in other arbitrations
award significantly less compensation to investor-claimants
than do other arbitrators.”241 Yet, they found “no significant
effect for attorney-arbitrators who represent investors or both
investors and brokerage firms.”242
�
Active Management of Cases
In response to the criticisms above, arbitration providers are
encouraging more comprehensive early status conferences
with party representatives in attendance. There, if not before
by agreement, choices are made between more process, and
its expense, or more carefully tailored proceedings. As Harrell
notes, “discovery is the area in arbitration where parties can
exercise the greatest cost savings.”243 He goes on to offer
some specific items that parties can limit or define in their
arbitration agreements, or after the fact in status conference
agreements, that are adapted here:
1. Mediation. Some providers will incorporate
mediation into the process. Parties also write
mediation into Step-Clauses that require that step
prior to filing an arbitration demand.
2. Disclosure. Federal-type disclosures (parties,
persons with knowledge, documents, damages).
3. Documents. Documents to be exchanged and
timing for exchange. In some instances, parties
must provide documents upon making a demand
for arbitration and in responding to that demand.
4. Depositions. The number and length of
depositions, types of depositions (individuals,
third-parties, or corporate representatives), and
the total time for depositions.
5. Written Discovery. Other forms of written
discovery, such as interrogatories or requests for
admissions.
6. Experts. The use of experts, including the time for
designation and number of experts.
7. Timing. Specific deadlines to respond to the
claimant’s demand, engage in discovery, select
a neutral or panel, file motions and have them
heard, and hold hearings and issue awards.
8. Evidence. Since arbitration awards can be vacated
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for failure to hear evidence, its often futile to
attempt to restrict or define the types of evidence
admitted at an arbitration hearing.
9. Remedies. Is the arbitrator prohibited from
issuing injunctive relief or allowed to make
such an award? Does seeking injunctive relief
in court waive arbitration? What about punitive
damage and trebling awards? Would limiting
the remedies otherwise available in court tip the
unconscionability scales? What quality and level
of evidence would be required? Can the panel
award attorneys’ fees?
10. Award Type. What type of award do the parties
want? A simple award would resemble a final
judgment while a reasoned award would require
findings and conclusions.
11. Appellate Review. What, if any, appellate remedies
are available? Judicial review under the TAA to
the full extent of the court’s power? Abuse of
discretion? Appellate arbitral panel?
Providers are training arbitrators to streamline cases, much
as the federal courts have done through the case management
changes. Surveys show support for increased case management from an early stage.244
Bench Trials
Several commentators have wondered why parties do not
just waive a jury and proceed with a bench trial in lieu of
litigating arbitration and then arbitrating or not. Harrell notes
the advantages of selecting a forum and waiving a jury: it
preserves an appeal, reduces costs, fixes venue, minimizes
pre-dispute litigation, and preserves ancillary relief.245
CPR, a New York-based ADR think-tank that maintains a
roster of neutrals but does not administer arbitrations, has
published “The Model Civil Litigation Prenup” in an effort to
allow streamlined bench trials.246 The Economical Litigation
Agreement provides a nice list of drafting considerations,
including discovery that scales with the size of the dispute,
for any dispute resolution clause.
��
Mediation
Mediation has benefited from dissatisfaction with arbitration
and litigation. Mediation provides a high degree of control to
the parties and counsel over process and product, and that
control translates into creative solutions that a court might
not even be able to fashion as a remedy. Stipanowich calls
“mediation the equivalent of a multi-functional Swiss-Army
knife” among dispute resolution options.247 One general
counsel, when asked why her company had turned from
arbitration to mediation, responded: “Speed, cost, and
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control.”248 Lament about the public and private dispute
resolutions systems has translated into an “explosion of
mediation.”249 Survey “respondents strongly believed that
mediation lowered cost and time to resolution, and either
increased the likelihood of a fair outcome or made no
difference as to fairness.”250 Lipsky and Seeber found that
companies use mediation because it saves time (80.1%),
money (89.1%), and preserves good relationships (58.7%).251
And Professor Gross’s class found that companies had
required or strongly incentivized mediation prior to arbitration or litigation.252 As a result, many arbitration providers
are enhancing their mediation panels and encouraging
mediation during the pre-hearing conference.
�
Settlement Counsel
It’s often tough to be the zealous advocate and be tasked
with settlement. In fact, peace is rarely negotiated among
the generals conducting the war. Some have advocated
similarly separating duties in litigation or arbitration.253 By
separating the functions, much like solicitors and barristers
in the United Kingdom, one corporate representative noted
that perhaps we “would reach a wiser decision if we had
one lawyer develop the case for litigation and a different
lawyer press on us the case for settlement.”254
Conclusion – Dispute Resolution is About Choice
Not that long ago, we had one choice in telephones – black
– and one choice in service providers. The same was true
of dispute resolution in the same era. Now there are lots
of choices and users can thin-slice their options. Choosing
arbitration is no longer the end of the inquiry. There are
a variety of different providers, rules, panels, and options.
Just as litigation has venue and law selection, jury waivers,
and motions for summary adjudication, parties can tailor
procedures to business goals and priorities – almost like
choosing lunch items off of a menu. Contract drafters now
have the option of how much discovery they want, how
many arbitrators will hear the matter in the first instance,
and how many, if any, will review that award and by what
standard. Some of us prefer flip phones and others need
smart phones. But then there’s platform and apps. So, too,
with dispute resolution system design. Why wouldn’t the
lawyers drafting the deals that might become tomorrow’s
disputes seek the advice of the pros who do that every day
as they put their deals together?
Don Philbin, J.D., M.B.A., LL.M., is an AV-rated attorneymediator, arbitrator, negotiation consultant, and software
publisher. He is an adjunct professor at Pepperdine Law’s
Straus Institute for Dispute Resolution and an elected Fellow
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of the A merican Academy of Civil Trial Mediators, the
International Academy of M ediators, and the National
Academy of Distinguished Neutrals. O
1
AT&T v. Concepcion, 131 S.Ct. 1740 (Apr. 27, 2011).
NAFTA Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex., May 13,
2011).
3 Harvard Professor Frank A.E. Sander proposed a “multi-door
courthouse” where disputants would not all have to stand in the
same line for litigation, but would be offered a range of alternatives
from mediation to arbitration (binding or non-binding) to case
evaluations or summary jury and mini-trials. Frank A.E. Sander,
Varieties of Dispute Processing, 70 F.R.D. 111 (1976).
4 For a figure depicting dispute resolution options, see Donald
R. Philbin, Jr., The One Minute Manager Prepares for Mediation:
A Multidisciplinary Approach to Negotiation Preparation, 13 H arv.
Negot. L. R ev. 249, 308 (2008), updated at Donald R. Philbin, Jr.,
ADR Decision Tree: Fit The Forum to the Specific Fuss, http://www.
adrtoolbox.com/decision-resources/adr-decision-tree/ (last visited
on Jul. 17, 2011).
5
SCOTUS blog (Apr. 27, 2011), http://www.scotusblog.com/
case-files/cases/att-mobility-v-concepcion/ (last visited on July 17,
2011).
6 Paul Krigis, Supreme Court Allows Companies to Opt Out of Class
Actions, http://www.indisputably.org/?p=2313 (last visited on Jul. 17,
2011); Sarah Cole, Continuing the Discussion of the AT&T v. Concepcion
Decision: Implications for the future, http://www.indisputably.
org/?p=2312 (last visited on Jul. 17, 2011). For a nuanced discussion
of drafting tips following these cases, see State Bar of Texas CLE,
Arbitration Clause Drafting and Practice in the Wake of AT&T Mobility
v. Concepcion (webcast), available at http://www.texasbarcle.com/
CLE/AALEGALSPANTRANSFER.ASP?lEventID=10677&Semina
rID=10677&lContactID=116062&sStatus=OOO%20Title=. (last
visited on Jul. 17, 2011).
7 Hall Street Associates v. Mattel, Inc., 552 U.S. 576 (2008).
8 Douglas Shontz, Fred Kipperman & Vanessa Soma, Businessto-Business Arbitration in the United States, RAND (2011),
available at http://www.rand.org/content/dam/rand/pubs/technical_reports/2011/RAND_TR781.pdf, at 20.
9
S.B. Goldberg, F.E.A. Sander & N.H. Rogers, A rbitration,
Dispute R esolution: Negotiation, Mediation, and Other
P rocesses 233 (3rd ed. 1991).
10 Donald R. Philbin, Jr., Trends in Litigating Arbitration: Using Motions
to Compel Arbitration and Motions to Vacate Arbitration Awards, 76
Def. Couns. J. 338, 338 (2009).
11 Tex. Const. of 1845, art. VII, § 15 (“It shall be the duty of the
Legislature, to pass such laws as may be necessary and proper, to
decide differences by arbitration, when the parties shall elect that
method of trial.”).
12 Alternative Dispute Resolution Section of the State Bar of Texas,
White Paper on Arbitration 1, available at http://www.texasadr.org/
pdf/white_paper_arbitration_adr_sectin.pdf (2008).
13 Theodore Eisenberg & Geoffrey P. Miller, The Flight from Arbitration: An Empirical Study of Ex Ante Arbitration Clauses in the Contracts
2
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of Publicly Held Companies, 56 DePaul L. R ev. 335, 341-42 (2007).
14
Jeffrey W. Stemple, A Better Approach to Arbitrability, 65 Tul.
L. R ev. 1377, 1380 (1991).
15
Kevin M. Clermont & Theodore Eisenberg, Litigation Realities,
88 Cornell L. R ev. 119 (2003); Kevin M. Clermont, Litigation Realities Redux, 84 Notre Dame L. R ev. 1919 (2009). It’s worth noting
that the highly respected Journal of Empirical L egal Studies is
housed at Cornell, where Eisenberg serves as its editor.
16
Theodore Eisenberg & Elizabeth T. Hill, Employment Arbitration
and Litigation: An Empirical Comparison (NYU Law School, Public Law
Research Paper No. 65, 2003; Cornell Law School Working Paper,
2003), available at http://ssrn.com/abstract=389780 or DOI: 10.2139/
ssrn.389780 (2003); Eisenberg & Miller, supra note 14; Theodore
Eisenberg, Geoffrey P. Miller & Emily Sherwin, Mandatory Arbitration
for Customers But Not Peers: A Study of Arbitration Clauses in Consumer
and Non-Consumer Contracts, 92 Judicature 118 (2009); Theodore
Eisenberg, Geoffrey P. Miller & Emily Sherwin, Arbitration’s Summer
Soldiers: An Empirical Study of Arbitration Clauses in Consumer and
Nonconsumer Contracts, 41 U. Mich. J.L. R eform 871 (2008).
17
Theodore Eisenberg & Geoffrey P. Miller, The Flight to New York:
An Empirical Study of Choice of Law and Choice of Forum Clauses in
Publicly-Held Companies’ Contracts, 30 C ardozo L. R ev. 1475 (2009).
18
Id. at 1482-83.
19
AT&T v. Concepcion, 131 S.Ct. 1740, 1745 (Apr. 27, 2011).
20
Stemple, supra note 15, at 1381.
21
Concepcion, 131 S.Ct. at 1748, quoting Volt Info. Scis. v. Bd. of
Trs., 489 U.S. 468, 478 (1989).
22
Jeffrey W. Stemple, Arbitration, Unconscionability, and Equilibrium: The Return of Unconscionability Analysis as a Counterweight
to Arbitration Formalism, 19 Ohio St. J. Disp. R esol. 757, 760
(2004).
23
Southland v. Keating 465 U.S. 1 (1984). Roger P. Alford, The
American Influence on International Arbitration, 19 Ohio St. J. Disp.
R esol. 69, 85 (2004).
24
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1,
24 (1983); Justice O’Connor dissented in Southland (the legislative
history of the FAA “establishes conclusively that the 1925 Congress
viewed the FAA as a procedural statute”, Southland, 465 U.S. at 25)
and Justices Scalia and Thomas dissenting in Allied-Bruce Terminix
Co., Inc. v. Dobson, 513 U.S. 265, 286 (1995) (“Whether an agreement
for arbitration shall be enforced or not is a question of procedure .
. . and not one of substantive law”).
25
Southland, 465 U.S. at 12; Allied-Bruce, 513 U.S. at 272 & 277;
Preston v. Ferrer, 552 U.S. 346, 349 (2008); see also Philbin, supra
note 11, at 338-39.
26
Southland, 465 U.S. at 10.
27
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.
614, 626 (1985).
28
Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 88-92 (2000).
29
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 29 (1991).
30
Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477,
479-86 (1989) and Shearson Am. Express, Inc. v. McMahon, 482 U.S.
220, 227-40 (1987).
31
Mitsubishi Motors, 473 U.S. at 628-40.
✯ Fall 2011
32
Prima Paint Corp. v. Flood and Conklin Mfg. Co., 388 U.S. 395,
398 (1967).
33
American Employers Ins. Co. v. Aiken, 942 S.W.2d 156 (Tex.
App. – Fort Worth 1997, no writ).
34
Prudential Securities, Inc. v. Marshall, 909 S.W.2d 896 (Tex.
1995).
35
In re Sun Communications, Inc., 86 S.W.3d 313 (Tex. App. –
Austin 2002, orig. proceeding).
36
In re Labatt Food Serv., L.P., 279 S.W.3d 640 (Tex. 2009)
(agreement contained within employee benefits plan); In re Jindal
Saw Ltd., 289 S.W.3d 827 (Tex. 2009).
37
In re NEXT Financial Group, 271 S.W.3d 263, 270 (Tex. 2008).
38
Gilmer v. Interstate/Johnson Lane, 500 U.S. 20 (1991).
39
Alexander J.S. Colvin, An Empirical Study of Employment
Arbitration: Case Outcomes and Processes, 8 J. Empir. L egal Stud. 1
(2011).
40
Id.
41
Alford, supra note 24, at 86.
42
Eisenberg & Hill, Employment Arbitration and Litigation, supra
note 17, at 1.
43
Frank H. Easterbrook, Discovery As Abuse, 69 B.U. L. R ev.
635, 645 (1989).
44
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
45
The Sedona Conference, Complex Litigation XII – The Future
of Civil Litigation: Legislative and Behavioral Changes, http://www.
thesedonaconference.org/conferences/20100408 (last visited May
5, 2011).
46
Proceedings reported in the Special Symposium Issue:
American Justice as a Crossroads: A Public and Private Crisis, 11 P epp.
Disp. R esol. L.J. 1 (2010).
47
United States Courts, May Conference to Be First of Its Kind
to Look at Civil Litigation in Federal Courts, http://www.uscourts.
gov/news/NewsView/10-04-12/May_Conference_to_Be_First_of_
Its_Kind_to_Look_at_Civil_Litigation_in_Federal_Courts.aspx
(last visited on May 2, 2011), proceedings reported in the Special
Symposium Issue: 2010 Civil Litigation Review Conference, Volume
60, Number 3 of the Duke L.J. (2010).
48
American Bar Association Litigation Section, ABA Section of
Litigation Member Survey on Civil Practice: Detailed Report, 159 (2009),
http://www.abanet.org/litigation/survey/docs/detail-aba-report.pdf.
49
EMERY G. LEE III & THOMAS E. WILLGING, FED.
JUDICIAL CTR., NATIONAL, CASEBASED CIVIL RULES SURVEY:
PRELIMINARY REPORT TO THE JUDICIAL CONFERENCE
ADVISORY COMMITTEE ON CIVIL RULES (2009), available at
http://www.fjc.gov/public/pdf.nsf/lookup/dissurv1.pdf/$file/dissurv1.pdf (last visited on May 3, 2011); see also EMERY G. LEE III
& THOMAS E. WILLGING, FED. JUDICIAL CTR.,
LITIGATION COSTS IN CIVIL CASES: MULTIVARIATE ANALYSIS:
REPORT TO THE JUDICIAL CONFERENCE ADVISORY
COMMITTEE ON CIVIL RULES 2–4 (2010)], available at http://
www.fjc.gov/public/pdf.nsf/lookup/costciv1.pdf/$file/costciv1.pdf
(last visited on May 3, 2011); THOMAS E. WILLGING & EMERY
G. LEE III, FED. JUDICIAL CTR., IN THEIR WORDS: ATTORNEY
VIEWS ABOUT COSTS AND PROCEDURES IN FEDERAL CIVIL
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LITIGATION 1–2 (2010), available at http://www.fjc.gov/public/
pdf.nsf/lookup/costciv3.pdf/$file/costciv3.pdf (last visited on May
3, 2011).
50
JAMES N. DERTOUZOS, NICHOLAS M. PACE & ROBERT
H. ANDERSON, RAND INST. FOR CIVIL JUSTICE, THE LEGAL
AND ECONOMIC IMPLICATIONS OF ELECTRONIC DISCOVERY:
OPTIONS FOR FUTURE RESEARCH 3 (2008), available at http://
www.rand.org/content/dam/rand/pubs/occasional_papers/2008/
RAND_OP183.pdf.
51
LAWYERS FOR CIVIL JUSTICE, CIVIL JUSTICE REFORM
GRP. & U.S. CHAMBER INST. FOR LEGAL REFORM, LITIGATION
COST
SURVEY OF MAJOR COMPANIES 6–7 (2010), available at http://
civilconference.uscourts.gov/LotusQuickr/dcc/Main.nsf/$defaultvi
ew/33A2682A2D4EF700852577190060E4B5/$File/Litigation%20
Cost%20Survey%20of%20Major%20Companies.pdf.
52
See AM. COLL. OF TRIAL LAWYERS & INST. FOR THE
ADVANCEMENT OF THE AM. LEGAL SYS., FINAL REPORT
ON THE JOINT PROJECT OF THE AMERICAN COLLEGE OF
TRIAL LAWYERS TASK FORCE ON DISCOVERY AND THE
INSTITUTE FOR THE ADVANCEMENT OF THE AMERICAN
LEGAL SYSTEM 9–10 (2009), available at http://www.actl.com/
AM/Template.cfm?Section=Home&template=/CM/ContentDisplay.
cfm&ContentID=4008 (last visited on May 3, 2011).
53
Thomas J. Stipanowich, Arbitration: The “New Litigation”, 2010
U. Ill. L. R ev. 1, 1 (2009).
54
Id.
55
Christopher R. Drahozal & Quintin R. Wittrock, Is There a
Flight From Arbitration?, 37 Hofstra L. R ev. 71, 71 (2009).
56
Thomas J. Stipanowich, Arbitration and Choice: Taking Charge
of the “New Litigation,” 7 DePaul Bus. & Comm. L.J. 383 (2009).
57
Id. at 384-85.
58
Stipanowich, supra note 54, at 1.
59
Id. at 4.
60
Id. at 1.
61
129 S.Ct. 1937 (2009).
62
The Honorable Royal Furgeson, email to author, dated May
1, 2011.
63
Douglas Shontz et al., supra note 9, at 25.
64
Alford, supra note 24, at 8.
65
Id. at 70 .
66
Id.
67
Proceedings reported at 19 Ohio St. J. Disp. R esol. 1 (2003).
68
Alternative Dispute Resolution Section of the State Bar of Texas,
White Paper on Arbitration, available at http://www.texasadr.org/
pdf/white_paper_arbitration_adr_sectin.pdf, at p. 17 (2008).
69
Jill Gross, The decline of unconscionable arbitration provisions?,
Indisputably, available at http://www.indisputably.org/?p=1900
(Dec. 8, 2010).
70
Id.
71
Id.
72
Harris Interactive Inc., A rbitration: Simpler, Cheaper, and
Faster Than Litigation, A H arris Interactive Survey, conducted
for the U.S. Chamber Institute for Legal Reform, April 2005 at p.
✯ Fall 2011
49
5; Thomas J. Stipanowich, Rethinking American Arbitration, 63 Ind.
L.J. 425, 429 (1988).
73
Harris Interactive Inc., supra note 72, at 21.
74
David B. Lipsky and Ronald L. Seeber, The Appropriate
Resolution of Corporate Disputes: A Report on the Growing Use of
ADR by U.S. Corporations, http://digitalcommons.ilr.cornell.edu/
cgi/viewcontent.cgi?article=1003&context=icrpubs at 17.
75
Allied-Bruce Terminix Co., Inc. v. Dobson, 513 U.S. 265, 280
(1995); Gilmer v. Interstate/Johnson Lane, 500 U.S. 20, 31 (1991).
76
Allied-Bruce, 513 U.S. at 280, quoting H.R.R ep. No. 97-542, p.
13 (1982).
77
Theodore Eisenberg & Elizabeth Hill, Arbitration and Litigation
of Employment Claims: An Empirical Comparison, Disp. R esol. J., Nov.
2003-Jan. 2004, at 51.
78
note 17, at 20.
79
Id.
80
Colvin, supra note 40, at 8.
81
Douglas Shontz et al., supra note 9, at 7-10; see also Sarah R. Cole
& Kristen M. Blankley, Empirical Research on Consumer Arbitration:
What the Data Reveals, 113 P enn. St. L. R ev. 1051 (2009).
82
Nancy S. Kim & Chii-Dean Lin, Arbitration’s Summer Soldiers
Marching Into Fall: Another Look at Eisenberg, Miller, and Sherwin’s
Empirical Study of Arbitration Clauses in Consumer and Nonconsumer
Contracts, 34 Vt. L. R ev. 597, 611 (2010).
83
Id. at 612.
84
Claire A. Hill, Bargaining in the Shadow of the Lawsuit, A Social
Norms Theory of Incomplete Contracts, 34 Del. J. Corp. L. 191, 207
(2009).
85
Miller [Duke] at 13, fn 41, citing Has the Supreme Court Limited
Americans’ Access to Courts?: Hearing Before the S. Comm. on the
Judiciary, 111th Cong. 158-59 (2009) (statement of Theodore
Eisenberg, Henry Allen Mark Professor of Law and Adjunct Professor
of Statistical Sciences, Cornell University).
86
Douglas Shontz et al., supra note 9.
87
Harris Interactive Inc., supra note 72, at 24.
88
Lipsky & Seeber, supra note 75, at 17.
89
Theodore Eisenberg et al., Mandatory Arbitration for Customers
But Not Peers, supra note 17, at 120.
90
Randall Thomas, Erin O’Hara, and Kenneth Martin, Arbitration Clauses in CEO Employment Contracts: An Empirical and
Theoretical Analysis, 63 Vand. L. Rev. 959, 968 (2010) (79%);
Theodore Eisenberg et al., Mandatory Arbitration for Customers But
Not Peers, supra note 17, at 120 (92.9%).
91
Id. at 968.
92
Sarah Rudolph Cole, Let The Grand Experiment Begin: Pyett
Authorizes Arbitration of Unionized Employees’ Statutory Discrimination
Claims, 14 L ewis & Clark L. R ev. 861, 894 (2010).
93
note 17, at 24.
94
Eisenberg at al., Arbitration’s Summer Soldiers, supra note 17,
at 876.
95
Paul D. Carrington, Politics and Civil Procedure Rulemaking:
Reflections on Experience, 60 Duke L.J. 597, 597 & 568 (2010) (“The
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Supreme Court’s decisions rewriting the Federal Rules of Civil
Procedure – in disregard of the role of other branches of government
and to protect business interests from the costs associated with
effective private enforcement of public law – should not be viewed
in isolation. While the Court was rewriting Rule 56 and then Rule
8 (texts that it had promulgated in 1938) to ease the concerns of
business interests, it was pursuing the same political objective in
its rewriting of the Federal Arbitration Act of 1925 (FAA).”).
96
Line of Communications, Fighting on Two Fronts, 46-APR Trial
38 (2010) (“The affirmative agenda centers on access-to-justice issues
like forced arbitration, and the U.S. Supreme Court decisions in
Riegel v. Medtronic and Iqbal/Twombly.”); The Pop Tort.com, Concepcion
v. AT&T – Here’s the Good News, http://www.thepoptort.com/2011/04/
concepcion-v-att-heres-the-good-news.html (last visited on Apr. 29,
2011).
97
note 17, at 3-4, citing Lewis L. Maltby, Private Justice: Employment
Arbitration and Civil Rights, 30 Colum. Hum. Rts. L. R ev. 29, 31
(1998).
98
note 17.
99
Id. at 14.
100 Id.
101 Id.
102 Colvin, supra note 40, at 6.
103 Alternative Dispute Resolution Section of the State Bar of Texas,
White Paper on Arbitration, available at http://www.texasadr.org/
pdf/white_paper_arbitration_adr_sectin.pdf, at p. 15 (2008).
104 Eisenberg & Hill, Employment Arbitration and Litigation, supra
note 17, at 18.
105 Id.
106 Id.
108 Id. at 11.
109 Id.
110 Id. at 6.
note 17, at 4.
112 Perry Homes v. Cull , 258 S.W.3d 580 (Tex. 2007).
113 Id. at 585.
114
Sandra Baker, Jury Awards $58 million to Mansfield couple in
home builder lawsuit, Fort Worth Star Telegram (Mar. 3, 2010),
available at http://www.star-telegram.com/2010/03/02/2009758/
jury-awards-58-million-to-mansfield.html.
115 Al Franken, Jamie Leigh Jones Amendment, U.S. Senate, available
at http://franken.senate.gov/?p=issue&id=211 (last visited Jul. 17,
2011).
116 Michael Graczyk, Texas woman loses Iraq rape case against KBR,
AP (Jul. 8, 2011), available at http://www.google.com/hostednews/
ap/article/ALeqM5iSQK-HiUKlfcp84B7pOOtXjiBE8w?docId=4d4
7787e929444ef8e39b0412b5d0dc1; see also Jones v. Halliburton Co,
583 F.3d 228 (5th Cir. 2009).
117 Douglas Shontz et al., supra note 9, at 26.
✯ Fall 2011
119
Id.
Id. at 12.
121 Id. at 13-14.
122 Id. at 14.
124 Id.
125 9 U.S.C. § 10(a).
126 Stipanowich, supra note 57, at 433.
128
Lawrence R. Mills, et al., Vacating Arbitration Awards, Disp.
R es. M ag., Summer 2005, at 23.
129 Id. at 26.
130
Richard A. Posner, Judicial Behavior and Performance: An
Economic Approach, 32 Fla. St. U. L. R ev. 1260-61 (2005).
132
Christopher R. Drahozal, Busting Arbitration Myths, 56 U.
K an. L. R ev. 663, 675-76 (graphs) 2008), citing Stephanie E. Keer
& Richard W. Naimark, Arbitrators Do Not “Split the Baby”: Empirical
Evidence from International Business Arbitrations, 18 J. Int’l A rb. 573
(2001).
134 Id. at 18-19.
135 Id. at 19; AT&T v. Concepcion, 131 S.Ct. 1740, 1749 (Apr. 27,
2011).
140 Douglas Shontz et al., supra note 9, at x.
141
Richard M. Alderman, The Future of Consumer Law in the
United States – Hello Arbitration, Bye-Bye Courts, So-Long Consumer
Protection, in The Yearbook of Consumer L aw (Deborah Parry
et al. eds., 2009), available at http://papers.ssrn.com/sol3/papers.
cfm?abstract_id=1015517.
142 Manufacturing Co. v. Barnes, 741 S.W.2d 349 (Tex. 1987).
143
Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S.Ct. 1758
(2010).
144
United States Court of Appeals for the Fifth Circuit, Judicial
Workload Statistics (2009-10), available at http://www.ca5.
uscourts.gov/clerk/docs/arstats.pdf at 9-10.
145 David A. Hoffman, Alan J. Izenman, and Jeffrey R. Lidicker,
Docketology, District Courts, and Doctrine, 85 Wash. U. L. R ev. 681,
702 (2007-2008);
146 Id. at 702.
147
Id. at 682; see also Allan D. Vestal, Reported Opinions of the
Federal District Courts: Analysis and Suggestions, 52 Iowa L. R ev.
379 (1966); Allan D. Vestal, Reported Federal District Court Opinions:
Fiscal 1962, 4 Hous. L. R ev. 185 (1966); Allan D. Vestal, A Survey of
Federal District Court Opinions: West Publishing Company Reports, 20
Sw. L.J. 63 (1966); Allan D. Vestal, Publishing District Court Opinions
in the 1970s, 17 Loy. L. R ev. 673 (1970).
148
SCOTUSblog Stat Pack, October Term 2010, at 3 (Jun.
28, 2011), available at http://sblog.s3.amazonaws.com/wp-content/
uploads/2011/06/SB_OT10_stat_pack_final.pdf.
120
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Douglas Shontz et al., supra note 9, at 20.
Alan Scott Rau, Contracting Out of the Arbitration Act, 8 A m.
R ev. Int’l A rb. 225, 245 (1997).
151 Drahozal & Wittrock, supra note 56, at 79-80.
152 Gateway Technologies, Inc. v. MCI Telecommunications Corp., 64
F.3d 993, 996 (5th Cir. 1995).
153 Hall Street Associates v. Mattel, Inc., 128 S. Ct. 1396 (2008).
154 Id. at 1405-08.
156 Citigroup Global Markets, Inc. v. Bacon, 562 F.3d 349, 355 (5th
Cir. 2009).
157 Tex. Civ. P rac. & R em. Code §§ 171.001-.098.
158 NAFTA Traders, Inc. v. Quinn, 339 S.W.3d 84 (Tex., May 13,
2011).
159 Id. at 9.
160 Id. at 2.
161 Id. at10-11.
162 Id. at 19-22.
163
Olshan Foundation at 899 (“When an agreement specifically
states that it is to be governed by the Texas General Arbitration Act,
we hold that it will be governed by the Act . . . .).
164 Tex. Civ. P rac. & R em. Code § 171.002(a)(2).
165
Douglas Shontz et al., supra note 9, at 20-21; Stipanowich,
supra note 57; see also CPR Arbitration Appeal Procedure and
Commentary, http://www.cpradr.org/Resources/ALLCPRArticles/
tabid/265/ArticleType/ArticleView/ArticleID/604/Default.aspx; JAMS
Optional Arbitration Appeal Procedure, http://www.jamsadr.com/
rules-optional-appeal-procedure/, AAA Appeal, http://www.adr.
org/si.asp?id=4125.
166 Richard A. Posner, The Law and Economics of Contract Interpretation, 83 Tex. L. R ev. 1581, 1608 (2005).
167 Hill, supra note 85, at 217.
168 Posner, supra note 167, at 1583.
169 Clermont & Eisenberg, supra note 16, at 121.
170 Id. at 122 (2002-2003), citing Kevin M. Clermont & Theodore
Eisenberg, Do Case Outcomes Really Reveal Anything About the Legal
System? Win Rates and Removal Jurisdiction, 83 Cornell L. R ev. 581
(1998).
171 Clermont & Eisenberg, supra note 16, at 123.
172 Clermont, supra note 16, at 1927.
173 David E. Harrell, Jr., Developing Alternative Dispute Resolution
Programs, State Bar of Texas A dvanced Business L aw Seminar
at 10 (Jul. 14, 2011), citing Tex. Civ. P rac. & R em. Code A nn. §
15.020(b).
174
Id.
175 Id.
176 Lucille M. Ponte, Boosting Confidence in E-Business: Recommendations for Establishing Fair and Effective Dispute Resolution Programs for
B2C Online Transactions, 12 A lb. L.J. Sci. & Tech. 441, 450 (2002).
177 Eisenberg & Miller, supra note 14, at 358.
178 Id. at 354.
179 Eisenberg & Miller, supra note 18, at 1475-76.
180 In re L & L Kempwood Associates, L.P., 9 S.W.3d 125, 127-28
(Tex. 1999).
150
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181
51
Harrell, supra note 174, at 10, citing J.M. Davidson, Inc. v. Webster,
49 S.W.3d 507, 515 (Tex. App. – Corpus Christi 2011).
182 Eisenberg & Miller, supra note 14, at 358-59.
183 Id. at 362.
184 Id. at 355.
185 Id. at 369.
186 Id. at 370-71.
187 Id.
188 Id. at 344; Mastrobuono v. Shearson Lehman Hutton, Inc., 514
U.S. 52, 63-64 (1995).
189 Drahozal, supra note 133, at 667.
190
Edna Sussman, The Unintended Consequences of the Proposed
Arbitration Fairness Act, 56-M ay Fed. L aw. 48, 57 (2009); see also
Jeffrey Adams, The Assault of Jamie Leigh Jones: How One Woman’s
Horror Story is Changing Arbitration in America, 11 P epp. Disp. R esol.
L.J. 253 (2011).
191 Christopher R. Drahozal & Stephen J. Ware, Why Do Businesses
Use (or Not Use) Arbitration Clauses?, 25 Ohio St. J. Disp. R esol. 433,
436 (2010).
192
For the rare case in which invoking the judicial process
amounts to waiver of arbitration, see Perry Homes v. Cull, 258 S.W.3d
580 (Tex. 2008).
193
See, e.g., In re Bank of America, N.A., 278 S.W.3d 342 (Tex.
2009).
195 Theodore Eisenberg et al., Mandatory Arbitration for Customers
note 17, at 1.
198 Theodore Eisenberg et al., Mandatory Arbitration for Customers
199 Id. at 122.
200 Eisenberg at al., Arbitration’s Summer Soldiers, supra note 17,
at 871.
201 AT&T v. Concepcion, 131 S.Ct. 1740, 1744 (Apr. 27, 2011).
202 Id. at 1745.
203 Id. at 1749.
204 Id. at 1750.
205 Id. at 1757.
208 Id. at 350-51.
209 Christopher R. Drahozal & Richard W. Naimark, Towards
A Science of International A rbitration: Collected Empirical
R esearch 59 (2005).
210
Eisenberg at al., Arbitration’s Summer Soldiers, supra note 17,
at 871 & 876.
211
http://w w w.law.com /jsp/t x / P ubA r ticleT X.jsp?hu
b t y p e =Tx C a s e A l e r t & i d =1 2024 9 6 6 81762 & s r c= E MC Email&et=editorial&bu=Texas%20Law yer&pt=Texas%20
Daily%20Case%20Alert&cn=Daily%20News%20and%20Case%20Alert%2C%20June%209%2C%202011&kw=Eastern%20
and%20Northern%20Districts%20of%20Texas%20to%20Par-
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ticipate%20in%20Patent%20Suit%20Pilot%20Program&slreturn=1&hbxlogin=1
212
Christopher R. Drahozal, Business Courts and the Future of
Arbitration, 10 Cardozo J. Conflict Resol. 491, 492 (2008-2009).
213 Id. at 494.
214 Benjamin F. Tennille, Lee Applebaum & Anne Tucker Nees,
Getting to Yes in Specialized Courts: The Unique Role of ADR in
Business Court Cases, 11 P epp. Disp. R esol. L.J. 35, 38 n.10 (2010).
215 Drahozal, supra note 213, at 495.
216 Id. at 498.
217 Id. at 507.
218 Id.
220 Stipanowich, supra note 57, at 406-11.
221 Id. at 407.
222 Harrell, supra note 174, at 1.
224 Id. at 409.
225 Id.
226 Id.
227 Id.
228 Stipanowich, supra note 57, at 418-19.
231 George R. Jurch III, Mark I. Wallach & Molly A. Drake, The
Alternative to Alternative Dispute Resolution, ACC Docket (Jul./Aug.
2010).
232 For instance, Conflict Solutions of Texas charges “no filing or
administrative fees; compensation for case management activities
are provided through the panel member’s hourly rate, which are
known to clients prior to the selection process.” Welcome to a faster,
lighter brand of resolution, http://www.csoftx.com/different.php
(last visited Jul. 17, 2011).
233 Jurch et al., supra note 232.
235 See, In re Olshan Foundation Repair Co., LLC, 328 S.W.3d 883
(Tex. 2010).
236 Drahozal & Wittrock, supra note 56, at 75, citing Lynne Marek,
As Franchises Take Off, So Do Lawsuits, Nat’l L.J., Aug. 13, 2007, at
8, 9, and Edward Wood Dunham & Michael J. Lockerby, Shall We
Arbitrate? The Pros and Cons of Arbitrating Franchise Disputes (Oct.
19-21, 2005) at 12.
239 Id. at 17.
240 Id.
241 Stephen J. Choi, Jill E. Fisch, and A.C. Prichard, Attorneys as
Arbitrators, 39 J. Legal Stud. 109, 109 (January 2010).
242 Id. at 109.
244 Rebecca Love Kourlis, Keynote Address, American Justice at
a Crossroads, 11 P epp. Disp. R esol. L.J. 3, 16 (2010).
246 International Institute for Conflict Prevention & Resolution,
✯ Fall 2011
I ntroduction: Economical L itigation Agreement (2010
ed.), available at http://cpradr.org/Resources/ADRTools/
EconomicalLitigationAgreement.aspx.
248 Id.
249 Id. at 8.
250 Id. at 32.
251 Lipsky & Seeber, supra note 75, at 17.
252 Gross, supra note 70.
253 William F. Coyne, Jr., Using Settlement Counsel for Early Dispute
Resolution, 15 Negot. J. 11 (1999).
254 Roger Fisher, He Who Pays The Piper, H arv. Bus. R ev., M ar.A pr. 1985, at 150, 154.
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DEVELOPMENTS
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D evelopments in D amages Law A pplicable
to C ommercial C ases
BY GREGORY D. SMITH
T
EXAS LAW OF DAMAGES HAS SEEN TWO RECENT developments material to commercial cases. One such development broadens the availability of equitable forfeiture,
while the other explores the constitutional and statutory ratio
“caps” that govern punitive-damage awards.
fee forfeiture, to the consideration received for the sale of a
business interest.5 The combination of ERI and prior law
appears to be two-fold: Disgorgement or forfeiture may be
ordered to remedy a breach of fiduciary duty, in appropriate
circumstances and subject to certain limitations, even though
no actual damages have been sustained. And the amounts
forfeited may encompass not only fees but contractual
consideration.
I. Equitable Forfeiture in Fiduciary-Duty Cases –
Revisited and Broadened
Because the fiduciary duty is an exacting one, it is not surAfter noting that “courts may disgorge all ill-gotten profits
prising that a variety of remedies would be available to the
from a fiduciary when a fiduciary agent usurps an opportunity
plaintiff who proves a breach of fiduciary duty. The standard
properly belonging to a principal, or competes with a prinremedies – actual damages, lost profits, incidental and consecipal,” the ERI court found forfeiture of the consideration paid
quential damages – are of course available. But these standard
to Swinnea potentially available.6 Yet the court was careful
measures may not always be adequate to the circumstances.
to cabin its holding to those situations “where willful actions
In such cases, the courts have sometimes invoked additional,
constituting breach of fiduciary duty also amount to frauduequitable remedies – such as constructive trusts, forfeiture,
lent inducement.”7 And the court
and disgorgement – to rectify
further limited the availability and
the breach, make the beneficiary
To
establish
a
cause
of
action
for
extent of such forfeiture according
whole, and deter future breaches.
breach of fiduciary duty, the claimant
to “certain limiting principles.”8
generally
must
show
not
only
the
To establish a cause of action
For ten years, Swinnea and Larry
for breach of fiduciary duty, the
existence and breach of a fiduciary
Snodgrass each owned one half
claimant generally must show not
duty but must also prove either injury
of the stock in ERI, an environonly the existence and breach of a
to the beneficiary or an unjust, illicit
mental engineering and confiduciary duty but must also prove
benefit
to
the
defendant.
sulting company. They likewise
either injury to the beneficiary
shared ownership in a limited
or an unjust, illicit benefit to the
1
partnership
(Malmeba)
that
owned and leased to ERI the
defendant. Thus, even absent actual damages, the benefibuilding
that
housed
ERI’s
corporate
office facility. Swinnea
ciary may be able to invoke equitable remedies to recover a
2
sold
his
interest
in
the
engineering
company
to Snodgrass,
defendant’s “ill-gotten gains.”
receiving a sum of cash and the other owner’s interest in
Malmeba. Swinnea remained at the engineering company as
Ever since the decision in Burrow v. Arce, a breaching fiduciary
an employee under a six-year employment contract including
has been subject to potentially forfeiting some or all of any
3
a noncompetition agreement. ERI signed a six-year lease on
fee earned in serving the beneficiary. The circumstances
Malmeba’s building.9
in which a fiduciary breach will justify a forfeiture remedy
recently have expanded.
Meanwhile, a month before the buyout closed, Swinnea’s
wife and the wife of another ERI employee formed AQA, an
Forfeiture of contractual consideration: the decision in
environmental remediation contractor. The ownership of this
ERI Consulting Engineers
4
new company was not disclosed to ERI. AQA began to bid
In ERI Consulting Engineers, Inc. v. Swinnea, the Texas Supreme
as a contractor on ERI-administered remediation projects.
Court concluded that equitable forfeiture can apply beyond
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Although not an employee of AQA, Swinnea was named
to its board of directors. This new company began bidding
to obtain ERI-administered contracts, and eventually one
of ERI’s best customers (to whom the new contractor was
now a competitor) discovered the wives’ ownership of AQA,
reported it to Snodgrass, refusing to continue bidding on
ERI projects unless ERI excluded AQA from the bidding.
A short time later, Mrs. Swinnea sold her interest in AQA;
her husband continued to work for ERI. Eventually – three
years after the buyout – Snodgrass fired Swinnea and sued
him for breach of fiduciary duty, fraud, and fraud in a stock
transaction. At trial, Snodgrass contended that following the
buyout Swinnea’s productivity had dropped substantially.10
The district court, after a bench trial, found against Swinnea
on all theories, determining that Swinnea had committed
fraud, had breached the noncompetition agreement, and had
breached fiduciary duties both to his co-owner and to ERI.
Among the remedies, the district court ordered Swinnea to
forfeit the bulk of the proceeds received in the sale of his
business interest, plus all monies paid by ERI to Malmeba
for lease of its office facility. The court apparently did not
attempt to discern how the terms of the sale were affected
by Swinnea’s conduct, if at all, or how Swinnea benefitted
from the conduct, if at all.11
The court of appeals reversed and rendered judgment holding
that equitable forfeiture was not available in the circumstances
of the case, in part because there was no fee paid to Swinnea
to be forfeited and in part because ERI failed to prove that
Swinnea obtained any ill-gotten gains subject to disgorgement. The court of appeals further held that no evidence
supported the trial court’s actual damages award and that
ERI and Snodgrass failed to prove that Swinnea had obtained
any ill-gotten gains that would be subject to disgorgement.
The supreme court principally addressed the question whether
forfeiture of contractual consideration might be an available
remedy against Swinnea, albeit the court did not determine
whether any contractual consideration would actually be
forfeited in this particular case or, if so, in what amount. The
holding was simply that where willful actions constituting
breach of fiduciary duty also amount to fraudulent inducement, contractual consideration received by the fiduciary
can be subject to forfeiture. But whether it is forfeited
should depend upon further equitable factors, presumably
including the extent to which the consideration actually can
be characterized as ill-gotten gain. Indeed, it is important
to distinguish between the holding that ERI need not have
sustained actual damages in order to support forfeiture and
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55
the much different matter of whether and to what extent the
consideration received by Swinnea – paid for his half interest
in a prosperous business that he had nurtured for ten years
previous – might constitute ill-gotten gain that could or
should be forfeited.
No doubt aware of the remedy’s clear potential for misuse, the
court opined that it must be tailored to fit the circumstances
and in this regard commended the Burrow fee-forfeiture
factors, which include:
•
•
•
•
•
the gravity and timing of the breach,
the level of intent or fault,
the benefit, if any, the transaction may have conferred
on the fiduciary’s principal,
the centrality of the breach to the particular fiduciary
relationship, and
any harm to the principal, whether threatened or
actual.12
In addition, the court discussed other, overlapping factors
bearing upon the decision whether to award forfeiture and in
what amount, including some borrowed from the Restatement
of the Law Governing Lawyers, such as (1) whether the
fiduciary acted in good faith; (2) whether the breach of trust
was intentional, negligent, or without fault; (3) whether the
breach related to the management of the whole trust or related
only to a part of the trust property; (4) whether the breach
of trust occasioned any loss; and (5) whether the trustee’s
services were of value to the trust.13
Because the district court failed to apply these equitable
criteria, the forfeiture award was reversed and the cause
remanded for further proceedings in the district court. The
court remanded for a trial-court determination as to whether,
in light of such principles, the remedy of forfeiture would
further the goal of protecting relationships of trust in the
particular scenario.
II. The Statutory and Constitutional Excessiveness of
Punitive Damages: Principally a Matter of Ratios
The Required Constitutional Analysis
In Bennett v. Reynolds, a case addressing cattle theft, the
Court considered whether exemplary damages of $1,250,000
could be constitutionally justified when the actual damages
were only about $5,000.14 Bennett holds that a constitutional
ratio analysis is required even where the statutory scheme in
Chapter 41 of the Texas Civil Practice and Remedies Code
would allow a larger award owing to the criminality of the
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defendant’s conduct. (The statutory cap is lifted when the
conduct at issue constitutes a violation of certain enumerated
criminal offenses.15) Until Bennett, at least some appellate
courts had concluded that compliance with Chapter 41
sufficed to avoid further scrutiny of the punitive-damage
amount – statutory or constitutional. That is what the court
of appeals in Bennett had concluded.16
Bennett was the president of co-defendant James B. Bonham
Corporation. Bonham’s cattle ranch sat on one bank of the
Colorado River, across from the rival Reynolds ranch. When
the river ran low in a drought, some of Reynolds’s cattle
found their way onto the Bonham property. Bennett directed
Bonham’s ranch hands to round up the strays and sell them
at a local livestock auction – even though those same ranch
hands had told Bennett the cattle were Reynolds’ livestock. In
all, thirteen head of Reynolds’s cattle were sold, with Bennett
pocketing the proceeds (a little over $5,000).17
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Reprehensibility Analysis. Applying U.S. Supreme Court
precedent, the Bennett court reiterated that a grossly excessive punitive-damage award offends due process, principally
because it “constitutes an arbitrary deprivation of property.”20
Then, it endorsed the three-part framework reflected in the U.
S. Supreme Court’s State Farm opinion, under which the court
looks to: (1) the reprehensibility of the defendant’s conduct,
(2) the disparity between actual or potential harm and the
punitive-damages award, and (3) the difference between the
punitive damages award and the potential civil penalties
available in similar cases.21 Further, the court concluded, this
analysis required consideration of the nonexclusive factors
set out in BMW v. Gore: (1) whether the harm was physical
or economic, (2) whether the defendant’s conduct reflected
indifference to or reckless disregard for others’ health or safety,
(3) whether the victim was financially vulnerable, (4) whether
the defendant’s conduct involved repeated actions, and (5)
whether the harm resulted from malice, trickery or deceit.22
Meanwhile, one of Bonham’s ranch hands had photographed
Observing that evidence of only one such factor may be sufthe cattle showing that they were
ficient to sustain punitive damages,
branded with Reynolds’ brand.
the court found the first four Gore
As important leavening, the court
When Bennett discovered the
factors to be “essentially absent.”23
noted that punitive damages
photos, he encouraged the ranch
In focusing on the fifth factor, the
hand to lie, and even tried to
court determined that it could
are intended to address the
bribe him with a better job. When
venture beyond the tort itself to take
reprehensibility of the act at
that failed, Bennett had another
account of surrounding conduct
issue as opposed to the possible
employee threaten to hurt the ranch
and circumstances that relate to
reprehensibility of the person
hand. Bennett in a further attempt
the wrongdoing and exacerbate the
committing it.
at intimidation even sued the ranch
resulting harm. Bennett’s attempts at
hand for slander. And there was
witness intimidation and evidence
testimony that Bennett sought to tamper with the photos.18
tampering satisfied both criteria. Thus those facts would
“properly inform the reprehensibility analysis.”24 As important
Reynolds sued Bennett and Bonham for conversion. In
leavening, the court noted that punitive damages are intended
the course of the lawsuit, Bennett was accused of witness
to address the reprehensibility of the act at issue as opposed
tampering and perjury. The jury returned a verdict for
to the possible reprehensibility of the person committing it.
Reynolds, finding conversion, assessing actual damages in
the amount of the livestock auction proceeds, and assessing
The Ratio Analysis. The Bennett court seems to have quite
far greater exemplary damages – $1,000,000 against Bonham
correctly concluded that the courts’ gatekeeper function
and $250,000 against Bennett, individually. On appeal,
in the punitive-damages context at bottom implies a ratio
Bennett and Bonham argued that the exemplary damage
analysis. As for the ratio of punitive damages to actual damamounts were unconstitutionally excessive.19 Bonham also
ages, the court adopted the analysis that the U. S. Supreme
contended that no exemplary damages should be imputed to
Court applied in State Farm, which the court held had to be
the corporation. The court of appeals affirmed the uncapped
“assiduously followed,” especially given that only one of Gore’s
awards. On further appeal, the supreme court affirmed
five reprehensibility factors was present.25 As in its prior
the determination to award exemplary damages – against
jurisprudence, the court “stressed State Farm’s admonition that
both Bennett and the corporation. But because it found the
any ratio above 4:1 ‘may be close to the line of constitutional
exemplary-damage amounts to be constitutionally excessive,
impropriety.’”26
the court remanded for a proper ratio analysis.
Like the U. S. Supreme court, the Bennett court noted
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the “necessarily unscientific” nature of the constitutional
constraints upon punitive damages. To this end, the court
conceded, ratios exceeding 4:1 might comport with due
process when “a particularly egregious act has resulted in
only a small amount of economic damages.” But any such
exception is to be invoked sparingly, because “a freewheeling
reprehensibility exception would subvert the constraining
power of the ratio guidepost.”27
In Bennett, of course, the guidepost ratio was well exceeded;
in fact, the jury’s punitive-damage awards when taken
together stood at 235 times the actual damages.28 Not only
was this case not an appropriate one for the egregious-act/
small-damages exception, but even a 4:1 ratio in this case –
with no physical injury – would be a stretch, and should be
avoided for prudential reasons.
[O]n this record, even 4:1 seems a stretch: ‘Pushing
exemplary damages to the absolute constitutional
limit in a case like this leaves no room for greater
punishment in cases involving death, grievous
physical injury, financial ruin, or actions that
endanger a large segment of the public.29
The result is that, with truly rare exceptions, the greatest
conceivable punitive-damage recovery even in the most
egregious case ordinarily will lie be somewhere around four
times actual damages. Those punitive-damage awards that
are subject to a statutory cap will be limited to the lower of
the statutory cap or a roughly 4:1 constitutional ratio.
The interplay of statutory and de facto constitutional caps
The statutory cap on punitive damages stated in Civil Practice
and Remedies Code Section 41.008 (two times economic
damages plus an amount equaling non-economic actual damages), when it governs, would seem to place statutorily-capped
awards within constitutional muster.30 And this is so when
the statute in fact sets punitive damages as a ratio of actual
damages. But Section 41.008 does not always impose a ratio.
Rather, the legislature in Section 41.008 afforded an alternative
cap governing cases of small actual-damage awards. Indeed,
any time that the sum of two times economic damages plus
noneconomic damages is under $200,000, the statute would
allow a punitive-damage award of $200,000.31 Hence, under
Section 41.008, if actual damages were $5,000, the statutorily
permissible maximum punitive-damage award would be
$200,000. The approximate constitutional ratio (about 4:1)
would appear to supersede the $200,000 statutory cap. That
is the result implied in Bennett.
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57
Section 41.008 appears also to be superseded by constitutional
analysis in any case in which Section 41.008 would result
in no statutory cap being applied. This includes all cases
governed by Subsections 41.008(c), which effectively waives
the statutory cap in cases involving conduct described as
a felony in certain enumerated Penal Code sections.32 In
this circumstance, the constitution, not chapter 41, sets the
controlling level of scrutiny afforded such punitive-damage
awards.33
Corporate liability for punitive damages bootstrapped
Bennett not only was the one whose conduct was being
punished, but it was Bennett’s conduct, as president of
Bonham, that justified imputing punitive damage liability
to the corporation.
The jury had imposed punitive damages based on a jury
charge tracking Section 41.005 of the Civil Practice and
Remedies Code. Specifically, he jury charge advised the jurors
that “In an action arising out of a criminal act committed by
an employee, the employer may be liable for punitive damages
but only if: (1) the principal authorized the doing and the
manner of the act; . . .”.34 The supreme court decided the
evidence was legally sufficient to uphold punitive damages
under this provision because Bennett was a vice-principal,
and the acts of a vice principal are deemed to be the acts of
the corporation. Relying on prior case law, the court reaffirmed that a vice-principal includes anyone falling within
four classes of agents:
•
•
•
•
corporate officers;
those who have authority to hire, direct, and fire
workers;
those engaged in the principal’s nondelegable or
absolute duties; and
those to whom the principal has confided the
management of a department or business division.35
Here, Bennett was such a vice principal, based on the facts
that: he was Bonham’s highest corporate officer, who exercised
complete de facto control of Bonham’s ranching activities.36
The corporate charter, bylaws, and a shareholder resolution
afforded him broad authority. He directed Bonham’s operations generally. In committing the cattle theft, he directed
corporate employees, on company time and using company
equipment, to sell the cattle. And while Bennett personally
received the proceeds of the cattle sale, this was facilitated
by his cattle lease on the corporation’s land, which was his
compensation for serving as corporate president. In all, the
court determined, Bennett was acting in a corporate capacity
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in converting the cattle precisely because he used corporate
authority over corporate employees, corporate equipment,
and corporate land. Thus, the court held, the corporation –
through Bennett himself as a vice-principal – had “authorized
the doing and the manner of the act” from the get go.37
Mandatory re-application of punitive-damage caps on
remand
A punitive-damage award that is constitutionally and statutorily compliant in comparison with initially awarded actual
damages may cease to be such when actual damages are
reduced as a consequence of an appeal. When an appellate
court’s decision results in a reduced actual-damage award,
it is now clear that the reduction requires the lower court to
make any reduction in punitive damages that the statutory
cap in Section 41.008 would command. The punitive-damage
amount must comply with the statutory cap as the latter
applies to the reduced compensatory-damage amount.38 This
is so even though the appellate court’s opinion and judgment
omit to discuss the matter, as the decision in In re Columbia
Medical Center of Las Colinas makes plain.
There, in the underlying case, the Texas Supreme Court
had reduced the compensatory damage amount but had
not addressed the amount of punitive damages.39 After
an appeal had resulted in a reduced actual-damage award
against it, Columbia Medical Center made a tender of
payment seeking to discharge its judgment liability.40 To
compute the tender amount, the medical center subtracted
not only the amount of the compensatory damages that
had been reversed, but it also proportionately reduced the
amount of tendered punitive damages, by applying the
formula of Section 41.008.41 When the plaintiffs rejected
the reduced tender, the medical center asked the trial
court to enter a modified final judgment that not only
would reduce the compensatory damages per the appellate
mandate but also would proportionally reduce the punitivedamage amount.42 When the trial court refused to do so,
the medical center sought mandamus relief.
In a per curiam opinion, the supreme court concluded
that the trial court could give full effect to the supreme
court’s earlier judgment (vacating in part the compensatory
damages) only by reducing punitive damages commensurately, in accord with the statutory cap.43 Further, this was
required even if no appellate court opinion happened to
address the revision of punitive damages, because a trial
court always “must give effect to statutory caps on damages
when the parties raise the issue.”44
✯ Fall 2011
Presumably, the equally mandatory constitutional ratio
analysis also would apply to the reduced compensatorydamage amount on remand.
Gregory D. Smith is a shareholder at Ramey & Flock, P.C., where
his practice focuses on civil appeals. He is board certified in civil
appellate law. O
1
See Navigant Consulting, Inc. v. Wilkinson, 508 F.3d 277, 283
(5th Cir. 2007).
2
Id.
3
Burrow v. Arce, 997 S.W.2d 229, 241-44 (Tex. 1999).
4
318 S.W.3d 867 (Tex. 2010).
5
Id. at 870.
6
Id. at 873.
7
Id.
8
Id.
9
Id. at 871.
10
Id.
11
Id. at 871-72.
12
Burrow v. Arce, 997 S.W.2d 229 (Tex. 1999).
13
Id. at 874-75.
14
Bennett v. Reynolds, 315 S.W.3d 867, 869 (Tex. 2010).
15
Tex. Civ. P rac. & R em. Code A nn. §41.008 (Vernon 2003);
see Signal Peak of Enterprises, Inc. v. Bettina Inv., Inc., 138 S.W.3d 915,
927 (Tex. App.—Dallas 2004).
16
Bennett v. Reynolds, 242 S.W.3d 866, 901-05 (Tex. App.—Austin
2007, reversed) (concluding that the jury’s million dollar punitive
damages award against the corporate defendant did not violate due
process because the jury found felony theft, which under Section
41.008(c)(13) avoids the statutory cap, notwithstanding that the
actual damages (a little over $5,000) were minuscule in comparison).
17
315 S.W.3d at 869-71.
18
Id. at 876-77.
19
Id. at 873.
20
Id.
21
See State Farm Mutual Automobile Insurance Company v. Campbell,
538 U.S. 408 (2003).
22
315 S.W.3d at 874.
23
Id. at 877.
24
Id. at 875.
25
Id. at 877.
26
Id. at 876, citing Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d
299 (Tex. 2006).
27
Id. at 880.
28
Id. at 869.
29
Id. at 878.
30
Tex. Civ. P rac. & R em. Code A nn. §41.008(b).
31
Id. (stating that “exemplary damages awarded against a
defendant may not exceed an amount equal to the greater of: (1)(A)
two times the amount of economic damages; plus (B) an amount
equal to any noneconomic damages found by the jury, not to exceed
$750,000; or (2) $200,000.”).
32
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Tex. Civ. P rac. & R em. Code A nn. §41.008(c).
See Harris v. Archer, 134 S.W.3d 411 (Tex. App.—Amarillo
2004, pet. denied) (compiling factors to be considered according
to the U.S. Supreme Court’s opinions in BMW North America, Inc. v.
Gore, 517 U.S. 559 (1996), Cooper Ind., Inc. v. Leatherman Tool Grp.,
532 U.S. 424 (2001), and State Farm Mut. Auto. Ins. Co. v. Campbell,
538 U.S. 408 (2003)).
34
Bennett, 315. S.W.3d at 883.
35
Id. at 884.
36
Id.
37
Id.
38
In re Columbia Med. Ctr. of Las Colinas, 306 S.W.3d 246, 247
(Tex. 2010) (orig. proceeding, per curiam).
39
Id.
40
Id. at 247.
41
Id.
42
Id.
43
Id. at 248.
44
Id.
33
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P rivacy Rights of Employees in an Electronic World
BY MICHAEL KELSHEIMER & TRAVIS CRABTREE
I. History of Privacy in the Workplace
Privacy has come a long way since the U.S. Supreme Court
outlined its penumbrae in Griswold v. Connecticut. Citizens
have been wrapped in a cloak of protection from government
intrusion into their private lives. While this cloak follows
public sector employees into the workplace, private sector
employees must disrobe at the door to the office, and, in
some cases, before entering the parking lot of their employer.
What sparse protections private sector employees receive
arise from common law privacy protections accepted by
the Texas Supreme Court. But these protections, too, are
essentially surrendered in the workplace where the desire
to remain employed causes employees to relinquish what
few privacy protections they have. Only where employers
permit an expectation of privacy to exist, do employees have
any chance of preventing an employer from examining their
private property at work.
Privacy Act (“ECPA”) and Stored Communications Act
(“SCA”) discussed in much detail below. In 1988, the U.S.
legislature passed the Employee Polygraph Protection Act
of 1988 which prevents employers from using polygraph
examinations except in certain limited circumstances.5
Subsequently, in 1996, Congress again acted by passing the
Health Insurance Portability and Accountability Act which
provides protections from dissemination of employee health
information.6 Finally, in 2003, the Texas legislature passed
a law prohibiting employers from transmitting an employee’s
social security number by mail.7
Fortunately, or unfortunately, depending on your perspective,
employee attempts to drag these common law rights through
their employer’s door have been universally rejected by Texas
courts. With the exception of term contract employees
whose rights are governed by written agreement, “at-will”
employment remains a unilateral contract modifiable on a
going forward basis by either party.3 If an employee dislikes
a proposed change to the relationship, such as adding a
drug testing policy, that employee can mark their dissent
by quitting.4 Courts have instead deferred to the U.S. and
Texas legislatures to protect employees. The legislatures, in
turn, have taken only few notable steps. In 1986, the U.S.
legislature passed tandem the Electronic Communications
Since the Trotti decision, employers have commonly included
provisions in their employee handbooks indicating that all
locations within the workplace are subject to search, required
employees to consent to searches of all property at the time of
employment, and maintained separate access to any private
space designated to an employee such as a locked drawer
or locker. Following these simple requisites, employers are
generally free of the concerns presented by Trotti.
While acting with these few constraints, employers are
generally free to infringe upon the claimed privacy of their
employee; however, employers must be vigilant to avoid
inadvertently creating an expectation of privacy among
their employees. In K-Mart Corp. Store No. 7441 v. Trotti,
an employee’s work locker was opened
by her employer in a search for stolen
Three privacy causes of action exist in
If an employee dislikes a
merchandise which the employee did not
Texas for a private citizen. They include
proposed change to the
have.8 Employer representatives rifled
claims for unreasonable intrusions upon
relationship,
such
as
adding
through the employee’s purse and other
the seclusion or private affairs of another;
a drug testing policy, that
property.9 A jury awarded damages to the
unreasonable publicity given to an aspect
employee for an invasion of privacy claim
employee can mark their
of a person’s private life in which the
and K-Mart appealed.10 On appeal, the
public has no legitimate concern; and
dissent by quitting.
Houston Court held there was sufficient
unwarranted appropriation of one’s name
evidence to support a jury finding that
or likeness.1 These protections, however,
K-Mart created an expectation of privacy in the locker because
have been eroded over time. Communication of even embarthe employee was permitted to provide her own lock, to which
rassing, intimate facts is permitted if the publication is of
K-Mart did not have a key.11
legitimate public concern.2
Technology presents the new wrinkle in employee privacy
considerations in the workplace. Office phones, cell phones,
email and, more recently, social media may blur the distinctions so easily discerned with employee physical property.
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II. Office Phones
An employer who wants to monitor calls on an office phone
is subject to the privacy right considerations discussed above
for physical property, but layered over them is the protection
of the federal ECPA and Chapter 123 of the Tex. Civ. Prac.
& R em Code (“Chapter 123”).
The ECPA is a modified version of the former Omnibus
Crime Control and Safe Streets Act of 1968, which applied
only to telephone communications. It extends the prohibition against intercepting communications to other forms of
electronic communication including emails and voicemail.12
While the ECPA sounds formidable, two exceptions limit its
effectiveness on employers. Acting as a backstop, Chapter
123 then removes one of the two ECPA exceptions in Texas.
Both laws permit interception with consent. The ECPA consent exception permits interception of communications where
“one of the parties to the communication has given prior consent.”13 Under the ECPA, consent may be implied, but courts
have been reluctant to do so, suggesting implied consent may
not be casually inferred.14 Determining implied consent is
case specific, but generally requires language or acts that
tend to show a party knows of and assents to encroachment
upon call privacy.15 Following the ECPA, simply knowing
that your employer is capable of monitoring employees is
also insufficient.16 Under Chapter 123, intercepting communication is a violation if made “without the consent of
a party to the communication . . .”17 Unfortunately, there
are few cases interpreting Chapter 123 and while implied
consent may someday be upheld, Texas courts follow their
federal brethren in holding that knowledge someone might
be intercepting your communication is insufficient.18
The “business use” exception under the ECPA excludes from
coverage “any telephone . . . instrument, equipment, or facility
furnished to the subscriber or user . . . in the ordinary course
of its business and being used by the subscriber or user in
the ordinary course of its business.”19, 20 Divided into two
elements, the exception requires that: (1) the telephone
company provide the telephone or device which intercepted
the communication for use in the ordinary course of business,
and (2) that the device was used in the ordinary course of
business.21
With respect to the first element, courts agree about interception of live calls, but there does appear to be a divergence
regarding the use of a recorder to tape calls.22 For the second
element, the key question is the business nature of the call.
Courts seem to agree that a purely personal call is not within
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the ordinary course of business regardless of an employer’s
attempted justification.23 To avoid liability under the ECPA,
employers may listen to the beginning of a call to determine
its purpose and must terminate the surveillance if the call
is personal.24
Because the business use exception is not available in Texas
due to the greater limitation imposed by Chapter 123,
employers here must obtain written consents from their staff
with reference to each of these laws.
III. Cell Phones
Available for almost forty years, cell phones really came into
their own in the 1990s. Since then, they have become a musthave business tool with the added benefit of internet connections and texting capability. While voicemails, call histories,
and text messages are each different, the different mediums
do not affect the analysis regarding privacy. Ownership of the
device is the key. Cell phones are sometimes provided and
paid for by the employer, but in other instances employers
reimburse employees a portion of their cell phone bill, or the
employee receives no reimbursement but only occasionally
uses their private phone for work. These different levels of
interconnectivity between work and private use do potentially
affect the employee’s privacy rights in the information stored.
The ECPA does not play a significant role in protecting privacy
with respect to cell phones. This is because it applies only
to contemporaneous interception of communication and it
is virtually impossible for an employer to intercept a live cell
phone call. 25 Rather, its sister statute the SCA, which governs
access of stored communications, occupies the field.26
The SCA protects against direct access of protected communication. Specifically, it prevents an employer from
intentionally accessing a facility or cell phone through which
electronic communication service is provided, without consent.27, 28 Where employers might then think of accessing
the information directly from the cell service provider, they
will again run into a wall – even for phones they provide to
employees for their use.29
Worse still, the SCA does not incorporate the business use
exception granted by the ECPA. Employers are left with
only the option to obtain consent from the employee to
gain access to stored communications.30, 31 Employers may,
however, obtain “customer records” regarding a phone it
provides to the extent providing the information is “incident
to the rendition of the services by the provider.”32 Customer
records may include transactional records, account logs,
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usage, email addresses, visited internet sites, addresses, and
phone numbers called, but it is unclear how much of this
information an employer can obtain from the service provider
without consent.33 Courts have not explained what more than
a billing statement the subscriber, or employer, is entitled to
without consent of the employee. Conversely, for accounts
which are maintained by the employee and reimbursed by
the employer, no information is available without consent
under the SCA because the employer does not even stand in
the place of subscriber.
Court interpretation of Chapter 123’s language and meaning
is woefully behind the SCA and inadequate in consideration
of today’s cell phone usage. By definition, Chapter 123
applies only to the “aural acquisition” of content, presumably
rendering it ineffective against review of text messages and
raising the question whether it applies to voicemails which
were not originally intercepted aurally, or “live.”34 Other
questions arise about Chapter 123’s application to “content”
of communication.35 Will this term be interpreted in the
same manner it is under the SCA or will it include what the
SCA defines as “customer records” relating to information
about the content? If it is broadly construed, Chapter 123
will strip away even the limited information an employer
may obtain regarding “customer records” under the SCA.
Until these issues are resolved, the only safe maneuver for
employers is to obtain clear consent with respect to both the
federal and state laws.
Because the SCA prevents employers from obtaining almost
all information regarding employee cell phone use, the only
area in which common law privacy expectation may come
into play relates to video and photographs taken by the
employee that reside on a cell phone. If the image or video
was received by the employee, the SCA applies and prevents
access, but the SCA does not have jurisdiction over video
and images which an employee has made.36 Regardless of
whether the employee has sent the images to another person,
they originated on that employee’s phone.
The recently decided U.S. Supreme Court case of City of
Ontario v. Quon provides insight on this point.37 In Quon,
the city police department issued alphanumeric text pagers to
members of its SWAT team for police business only.38 Team
members were required to sign a written policy making it
clear that the city reserved the right to monitor and log text
messages sent on the pagers.39 When Quon and other team
members started incurring large overages against their allotted
messages, their supervisor threatened to audit the messages
to determine if the pagers were being used for personal
✯ Fall 2011
purposes.40 The supervisor then offered not to audit the
accounts if Quon and others would pay any overages.41 After
months of continued overages, Quon’s supervisor decided
to audit accounts to determine if the department should
purchase more messaging time.42 Quon’s messages for two
months were pulled and reviewed.43 The messages revealed
that the vast majority of his communications were personal,
sexually explicit, and directed toward another department
officer with whom he was having a relationship.44 The
records were turned over to internal affairs and Quon was
investigated for possible disciplinary action.45
Quon filed suit against the wireless provider for violations of
the SCA and against the department for violating his Fourth
Amendment rights as a public sector employee.46 When the
matter reached the Supreme Court, it reasoned that Quon
had an expectation of privacy in the messages despite the
explicit department directive because his supervisor had
created an expectation of privacy by altering the policy to
allow Quon to pay for overages.47 While the case does not
have direct application in the private sector, it does reiterate
the message of Trotti. Creating an expectation of privacy can
lead the employer down a precarious path. In both cases,
the creation was unintentional. K-Mart ran out of company
issued locks and allowed Trotti to purchase her own lock
for which the company did not maintain access.48 The City
of Ontario committed to a position distinct from its written
requirement by allowing Quon to pay for overages.
An employee would not likely have an expectation of privacy in a company phone. For that reason, the employer
should be permitted to examine pictures and video taken
by the employee without hesitation. That said, it is easy to
compromise the employer’s right without even realizing the
consequence. Employers should institute written policies
regarding ownership of all company property and the right to
examine every nook and cranny of the company’s facilities at
any time. Additionally, employers should institute a consent
to be searched and for the company to have access to all
records on company cell phones under Titles I and II of the
ECPA and Chapter 123 of the Tex. Civ. Prac. & R em. Code.
IV. Email
The development of email has eased corporate communications but also presented a bevy of privacy issues as it relates
to employees. Most companies have policies in place making
it clear that emails received and sent on the company account
are subject to review, belong to the company and there is
therefore no expectation of privacy. The more difficult issue
arises from personal web-based email systems accessed by
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employees on company accounts and other non-work related
behaviors.
A. The ECPA and SCA
As noted above, ECPA49 and SCA 50 are equally important
sister statutes. Generally speaking, the ECPA, often called the
Wiretap Act, applies to electronic communications51 in transit
and the SCA applies to communications stored on servers.
While most of the cases deal with stored communications,
the ECPA still creeps into the workplace when dealing with
emails. For example, the Seventh Circuit was forced to
examine whether auto-forwarding emails in the workplace
violated the Wiretap Act. In U.S. v. Szymuszkiewicz,52 an IRS
revenue officer secretly adjusted his boss’s Outlook program
to forward all emails.
The subordinate was convicted of a federal crime and
appealed to the Seventh Circuit. On appeal, the court
denied the subordinate’s argument that the interception had
to be “contemporaneous” with the “transmission” under the
Wiretap Act. In other words, under the traditional phone
tap, the interception is made while the call is being conducted
and the voice transmission is in route. Once the email hits
the Outlook account, it is technically completed and only
then did the program forward it to the defendant’s account.
Upholding the conviction, the court determined the interception of the message was “contemporaneous by any standard.”
Getting into the technological details, the court claimed the
evidence showed the Outlook rules operated on the server
and to auto-forward, a copy needed to be immediately made
at the server at the time of delivery and then forwarded to
the defendant.
A plaintiff under the Wiretap Act can recover a minimum
award of $10,000 or $100 per day of violation—whichever
is greater, or, actual damages, plus punitive damages, attorneys’ fees and costs.53 To avoid any confusion, employers
should include the right to review and monitor emails and
all electronic communications at any time in any form in
their standard computer use policies. After all, auto-forward
is a standard operating procedure to use when a departed
employee leaves so the company can address customer
concerns emailed to that employee. Obtaining consent at
the time of hire is much easier than asking if the leaving
employee minds as he walks out the door.
The SCA meanwhile, makes it illegal for anyone to “intentionally access[] without authorization a facility through which
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63
an electronic communication service is provided or . . .
intentionally exceeds an authorization to access that facility;
and thereby obtains, alters, or prevents authorize access to
a wire or electronic communication while it is in electronic
storage in such system.”54 In plain English, it is illegal to
access someone’s Hotmail account without their authorization
and read their emails because those emails are stored on
Hotmail’s servers and not the company’s. The main litigated
issues are, therefore, whether a communication is covered by
the SCA and consent.
The SCA covers “electronic communication services” which is
defined as “…any service which provides to users thereof the
ability to send or receive wire or electronic communications.”55
When employees access web-based email accounts, for
example, a company’s server or computer may store passwords
and certain communications. When employees leave for a
competitor, companies are tempted to not only search the
work-issued emails stored on the servers, but also check
what duplicitous communications may be gathered through
the departed employees’ personal accounts. That is where
the SCA and other laws come in to play.
One court has specifically ruled that personal emails that
are stored on a company laptop are not protected by the
SCA. In Thompson v. Ross,56 a Pennsylvania district court
was forced to determine whether messages from AOL and
Yahoo accounts already saved on a laptop computer were in
“electronic storage” as defined by the SCA. In the Thompson
case, the plaintiff’s ex-girlfriend kept the plaintiff’s laptop after
a break-up.57 The ex-girlfriend let two of her co-workers see
the email messages stored on the existing computer.
Under the SCA, electronic storage is defined as “any storage of
such communication by an electronic communication service
for purposes of backup protection of such communication.”58
The messages on the laptop were not stored by AOL or Yahoo,
but were saved to the laptop. The court rejected the notion
that saving the messages to the laptop constituted “backup
storage” because the court determined the statute was not
supposed to be interpreted that broadly.
While not absolutely failsafe given the lack of mature
developed law, the general rule of thumb is that if someone’s
personal email is, for whatever reason, saved to the company’s
server or saved to a company laptop, the company can generally review and use it assuming there is a broad computer
use policy. Accessing additional emails on their personal
account because you happen to have access to the password
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or through other means without the employee’s knowing
consent, however, raises serious concerns under the SCA.
B. The Computer Fraud and Abuse Act
In addition to the ECPA, employers need to consider the
Computer Fraud and Abuse Act (the “CFAA”).59 The CFAA
makes it illegal to access a data base without proper authority
or to exceed one’s authority.60 The primary focus of the law
is on hackers, but it is becoming the add-on violation of
choice for trade secret and noncompetition fights between
companies and former employees.
The most common application comes when an employee
leaves to go to a competitor and downloads trade secrets from
her former employee’s database. A perfect example comes
from Andritz, Inc. v. Southern Maintenance Contractor, LLC.61
Defendants Pettit and Harper left plaintiff Andritz, Inc., after
they allegedly accessed proprietary information from their
company-issued laptops and gave it to their new employer.
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When the employee accessing the data violates a fiduciary
duty by doing so, the result may be different. In U.S. v.
Nosal,64 a former employer sued the former employee claiming
the latter accessed proprietary information and destroyed
important data prior to his departure.
Trying to dismiss the claim, the defendant argued the complaint failed to establish that access to the work computer
was without authorization because defendant’s access, while
employed, was never restricted. Creatively, the plaintiff
claimed the defendant’s access violated the fiduciary duty
the employee owed the employer. That claim was enough
at the pleading stage to show the defendant exceeded his
authorization to access the company computer. Because
the employee destroyed the actual data, the company also
pleaded the necessary loss.
V. Social Media
As if web-based email was not enough to muddy the waters,
social media only complicates matters further. While it is
clear companies have the right to
restrict the use of social media
While it is clear companies have the
at the worksite, the law is still
right to restrict the use of social
wrestling with the rights of both
media at the worksite, the law is
employees and employers when
still wrestling with the rights of both
it comes to social media activities
of employees on their own time.
employees and employers when it
Although the plaintiff company may
have been able to show improper
access to the database, the court
dismissed the claim because the
plaintiff failed to show the type of
“loss” or “damage” required by the
statute.62 The plaintiff claimed it
lost the prerequisite amount because
comes to social media activities of
A. Taking Action for Employee’s
defendants accessed information to
employees on their own time.
Social Media Conduct
poach customers which caused a
A manager of a Houston’s restauloss. The CFAA, however, requires
rant
discovered
his
employees
created a closed MySpace forum
there be an impairment of the computer system or data
65 The manager allegedly
complaining
about
the
restaurant.
accessed. Because the plaintiff “still had access to the data
coerced
the
hostess
to
give
him
the
password to her account.
just as it had before [d]efendants’ actions,” there was no
After
reviewing
the
site,
he
fired
two
of the employees who
violation of the CFAA.
created the group. The two employees sued the restaurant.
In the case of ShareLee v. PMSI, Inc.,63 the outcome was the
The jury’s verdict that the restaurant violated the SCA was
same although the roles were reversed. In ShareLee, the
upheld by the federal district judge in New Jersey. The court
former employee started the litigation with a pregnancy disalso upheld the jury’s verdict that Houston’s acted maliciously
crimination allegation. The company, counterclaimed under
authorizing exemplary damages.
the CFAA claiming the former employee used the company
resources to access Facebook and check her personal email.
The MySpace group, called “Spec-Tator” was maintained
The company claimed they lost the necessary amount because
by one of the employees during non-work hours. It
of the loss of productivity.
was a closed group meaning an invitation from the two
plaintiffs and a password was needed before any of the
The court dismissed the claim because there was no damage
messages could be seen. The group was labeled as private
to the company’s computer system. Moreover, the employee
and described as a forum where employees could vent
only accessed her own data on Facebook and the web-based
on “crap/drama/and gossip” related to their workplace.
email account and not the data of the company.
Management was not invited. The plaintiffs claimed
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no one accessed the site during work hours or on work
computers.
There was disputed evidence as to whether one of the group
members who worked as a hostess voluntarily provided
management with her password to allow management to
access the site or whether she was coerced into doing so.
Nevertheless, two managers accessed the site using someone
else’s password several times and terminated the employees
who managed the chat group.
On a motion for new trial, the federal district court found
there was sufficient evidence the company “knowingly,
intentionally, or purposefully,” accessed an otherwise private
chat room without authorization in violation of the SCA. Had
management simply been provided the password to view the
chat room without putting any pressure on the hostess, the
outcome may have been different because there would have
likely been the necessary consent.
Interestingly, the jury determined the company did not violate
the employees’ common law right to privacy and that part of
the ruling was therefore not part of the district court’s opinion.
B. The National Labor Relations Board
Not only do employers need to be concerned about lawsuits
from employees, the National Labor Relations Board has
recently taken action against employees who crack down on
employees engaged in social media. On October 27, 2010, the
NLRB issued a complaint against American Medical Response
of Connecticut, Inc.66 The company fired the employee when
it discovered negative comments on Facebook. Under the
National Labor Relations Act, employees may discuss the
terms and conditions of their employment with co-workers
and others as a protected activity—even if it is on Facebook.
The NLRB claimed the company had an overly restrictive policy about employee blogging and Internet posting
infringing on their rights to discuss working conditions with
each other. Probably even more problematic, the company
denied union representation to the employee during an
investigatory interview shortly before the employee posted
the negative comments on Facebook.
The NLRB settled with the company in February 2011.67 As
part of the settlement, the company agreed to broaden its
policies to allow employees to discuss their working conditions
with each other. The company also promised that employee
requests for union representation would not be denied and
that no adverse actions would be taken against employees who
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65
make such a request. The settlement between the employee
and the company was separate from the NLRB’s settlement
and was confidential.
While this development caused many employers to re-examine
their social media policies, a subsequent NLRB decision may
decrease the concern. The NLRB more recently held that a
newspaper had the right to fire a newspaper reporter over his
“tweets” on the micro-blogging site Twitter.68 The Arizona
Daily Star reporter had already been warned more than once
about the content of his tweets that identified him as a reporter
and linked to the newspaper’s website.
One of the first questioned tweets criticized one of the newspaper’s headlines. The paper’s human resource department
encouraged the reporter to address his concerns internally
rather than on Twitter. Subsequently, the reporter’s managing
editor told the reporter he should not make comments
damaging to the newspaper’s reputation via social media.
According to the NLRB decision, the paper encouraged the
reporters to use Twitter, but had no written policy about it.
The reporter stopped tweeting about the paper, but still found
himself in trouble. The reporter tweeted various comments
about Tucson’s homicide rates. Some of his tweets included:
• August 27 - “You stay homicidal, Tucson. See Star Net
for the bloody deets.”
• August 30 - “What?!?!? No overnight homicide? WTF?
You’re slacking Tucson.”
• September 10 - “Suggestion for new Tucson-area theme
song: Droening [sic] pool’s ‘let the bodies hit the floor’.”
• September 10 - “I’d root for daily death if it always happened in close proximity to Gus Balon’s.”
• September 10 - “Hope everyone’s having a good Homicide
Friday, as one Tucson police officer called it.”
• September 19 - “My discovery of the Red Zone channel
is like an adolescent boy’s discovery of h...let’s just hope
I don’t end up going blind.”
The reporter also retweeted a local television news station
post, noting a misspelled word. The television station’s tweet
said: “Drug smuggler tries to peddle his way into the U.S.”
The newspaper reporter retweeted the post and added: “Um,
I believe that’s PEDAL. Stupid TV people.”
When the television station complained to the newspaper,
the managing editor told the reporter to stop tweeting until
a senior management meeting. Rather than stopping, the
reporter changed his screen name and removed some of his
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supervisors as followers. The reporter also protected his
tweets so only people with his approval could view them.
The reporter was fired later that month.
The NLRB wrote: “In this case, even if the employer implemented an unlawful rule, the charging party was terminated
for posting inappropriate and unprofessional tweets, after
having been warned not to do so. The charging party’s
conduct was not protected and concerted: it did not relate
to the terms and conditions of his employment or seek to
involve other employees in issues related to employment.”69
Conclusion
If there is a common thread among the legal issues presented
by the introduction of mobile phones, email, and social media
into employee privacy, it is the universal need for employers
to set expectations and obtain written acknowledgement of
those expectations from employees. Consent, and vigilant
avoidance of exceptions to the policies created, will carry an
employer through the largest portion of the minefield. A basic
understanding of some of the applicable laws and statutes will
also help when issues not addressed in the policies inevitably
arise. Venturing, then, into social media employers must
be wary of using an employee’s public complaints about
the conditions of his or her work as a basis for discipline or
termination. As communication tools evolve and blur the line
between company and private communications, companies
will struggle to maintain the proper balance. The employers
are not the only ones. The law is struggling to keep pace
as well.
Travis Crabtree is a Member of the law firm of Looper Reed &
McGraw, P.C. in Houston who focuses on Internet law and commercial litigation. He authors the blog www.emedialaw.com where
he discusses the latest on these and many other similar issues.
Michael Kelsheimer is a Shareholder of the firm of Looper Reed
& McGraw, P.C. in Dallas, practicing employment law. Michael
maintains the website www.texasemployerhandbook.com and
authors a monthly guide called the The Employer Handbook. O
1
Billings v. Atkinson, 489 S.W.2d 858, 860 (Tex. 1973).
Indus. Found. of the S. v. Tex. Indus. Accident Bd., 540 S.W. 668,
680 (Tex. 1976), cert denied 430 U.S. 934 (1977).
3 Jennings v. Minco Technology Labs, Inc., 765 S.W.2d 497, 499 (Tex.
App.—Austin, 1989); cf., Farrington v. Sysco Food Serv’s, Inc., 865
S.W.2d 247 (Tex. App.—Houston [1st Dist.] 1993).
4 Id.
5 29 U.S.C. § 2002 (2010).
6 45 CFR § Part 160; 45 CFR Part 164, Subpart A & E.
2
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7
Tex. Bus. & Comm. Code § 501.001 (2010).
K-Mart Corp. Store No. 7441 v. Trotti, 677 S.W.2d 632, 634 (Tex.
App.—Houston [1st Dist] 1984).
9 Id.
10 Id.
11 Id. at 637-638.
12 18 U.S.C. § 2509, et seq. (2010).
13 18 U.S.C. § 2511(2)(d) (2010).
14 U.S. v. Amen, 831 F.2d 373, 378 (2nd Cir. 1987); Williams v.
Poulos, 11 F.3d 271, 281 (1st Cir. 1993)(quoting Griggs-Ryan v. Smith,
904 F.2d 112, 116-17 (1st Cir. 1990).
15 Griggs-Ryan, 904 F.2d at 117.
16 Deal v. Spears, 980 F.2d 1153, 1157 (8th Cir. 1992).
17 Tex. Civ. P rac. & R em. Code § 123.001(2) (2010).
18 Collins v. Collins, 904 S.W.2d 792 (Tex.App.—Houston [1st Dist.]
1995).
19 18 U.S.C. § 2510(5)(a) (2010).
20 There is a dearth of case law interpreting the business use
exception under the ECPA. Many of the cited cases were decided
before the statutes were recast, but remain applicable due to the
use of the same language.
21 Deal, 980 F.2d at 1157.
22 Id. at 1157-58 (determining that recorder was instrument rather
than phone and since the recorder was not provided by the phone
company, exception not applicable); cf., Epps v. St. Mary’s Hosp. of
Athens, Inc., 802 F.2d 412, 415-16 (11th Cir. 1986)(holding interception device was dispatch device to recorder).
23 Watkins, 704 F.2d at 582-83; Briggs v. American Air Filter Co.,
Inc., 630 F.2d 414, 420 (5th Cir. 1980).
24 Id. at 583-584.
25 See United States v. Steiger, 318 F.3d 1039, 1048-49 (11th Cir.
2003); Konop v. Hawaiian Airlines, Inc., 302 F.3d 868 (9th Cir. 2002);
Steve Jackson Games, Inc. v. U.S. Secret Serv., 36 F.3d 457 (5th Cir.
1994); see also Wesley Coll. v. Pitts, 974 F. Supp. 375 (D.Del. 1997),
summarily aff’d, 172 F.3d 861 (3d Cir. 1998).
26 See 18 U.S.C. §§ 2701–2711 (2010); Note, the SCA has been
given various names by commentators including: (1) the “Electronic
Communications Privacy Act” or “ECPA” because it was first
enacted as part of that statute; (2) the “Stored Wired and Electronic
Communications and Transactional Records Access” statute or
“SWECTRA” because that is the formal title given to Chapter 121
in Title 18; (3) Stored Communication Act, by the United States
Supreme Court in City of Ontario v. Quon, and (4) “Title II” because
it was enacted as the second title of ECPA. The SCA is technically
part of the ECPA and not a stand-alone act. For ease of reference,
this article will refer to Title I of the ECPA, sometimes referred to
as the “Wiretap Act” as the ECPA and Title II as the SCA.
27 18 U.S.C. § 2701(a)(1) (2010).
28 Cell phone and text messaging services are each an “electronic
communication service” within the meaning of the SCA. 18 U.S.C.
§ 2711(1) (2010)(incorporating definitions from Title I at 18 USC
§ 2510(12) and (15)); see also Crispin v. Christian Audigier, Inc., 717
F.Supp.2d 965, 979 (C.D. Cal. 2010) citing Jayne v. Sprint PCS, No.
CIV S-07-2522 LKK GGH P, 2009 WL 426117, *6 (E.D.Cal. Feb. 20,
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2009)(cell service); In re Applications of U.S. for Orders Pursuant to
Title 18, U.S.Code § 2703(d), 509 F.Supp.2d 76, 79 (D. Mass. 2007)
(cell service); Quon v. Archstone Wireless, 529 F.3d 892, 900-03
(9th Cir. 2008), reversed on other grounds by City of Ontario v. Quon,
560 U.S. ----, ---- - ----, 130 S.Ct. 2619, 2629-31, 177 L.Ed.2d 216
(2010)(text service).
29 18 U.S.C. § 2702(a)(1) (2010).
30 18 U.S.C. § 2701(c)(1)(content and user information) and 2702(b)
(3)(as to content of voicemails or texts).
31 There is small chance an employer may claim rightful access to
content of communications for company issued cell phones under
18 U.S.C. § 2702(b)(1) if the employer can successfully argue that
it is the “addressee” or an “agent” for the recipient. This point does
not appear to have been raised in a case and was glossed over in
Quon v. Archstone Wireless, 529 F.3d at 900.
32 18 U.S.C. § 2702(c)(3) (2010).
33 “Customer records” include “record[s] . . . pertaining to a
subscriber” include transactional records, such as account logs that
record account usage; cell-site data for cellular telephone calls; and
email addresses of other individuals with whom the account holder
has corresponded. See H.R. Rep. No. 103-827, at 10, 17, 31 (1994),
reprinted in 1994 U.S.C.C.A.N. 3489, 3490, 3497, 3511; see also
Hill v. MCI WorldCom Commc’ns, Inc., 120 F. Supp. 2d 1194, 1195-96
(S.D. Iowa 2000) (names, addresses, and phone numbers of persons
called”); United States v. Allen, 53 M.J. 402, 409 (C.A.A.F. 2000) (log
providing date, time, user, and detailed internet addresses); In re
Application of United States, 509 F. Supp. at 80 (historical cell-site
information).
34 Tex. Civ. P rac. & R em. Code § 123.001(2) (2010).
35 Id.
36 18 U.S.C. § 2711(1) (2010) (incorporating the definition of
“electronic communication” from 18 U.S.C. § 2510 (12)).
37 560 U.S. ----, ---- - ----, 130 S.Ct. 2619, 2629-31, 177 L.Ed.2d
216 (2010).
38 Id. at 2625.
39 Id.
40 Id. at 2626.
41 Id.
42 Id.
43 Id.
44 Id.
45 Id.
46 Id.
47 Id. at 2630-33; note that certiorari was denied regarding the
lower court’s decision against the cell service provider under the
SCA.
48 Trotti, 677 S.W.2d at 634-35.
49 18 U.S.C. § 2510.
50 18 U.S.C. §§ 2701-12.
51 ‘Electronic communication’ means any transfer of signs, signals, writing, images, sounds, data, or intelligence of any nature
transmitted in whole or in part by a wire, radio, electromagnetic,
photoelectronic or photooptical system that affects interstate or
foreign commerce.” 18 U.S.C. § 2510(12) .
✯ Fall 2011
52
67
__ F.3d __, 2010 WL3503506 (7th Cir. Sept. 9, 2010).
18 U.S.C. § 2520(b).
54 18 U.S.C. § 2701.
55 18 U.S.C. § 2510(15).
56 2010 WL 3896533 (W.D. Pa. Sept. 30, 2010).
57 Interestingly, family law cases raise an equal amount of issues
concerning what can and cannot be done with data on laptops and
password-protected Internet email or social networking accounts.
58 18 U.S.C. § 2510(17)(B).
59 18 U.S.C. § 1030.
60 18 U.S.C. § 1030(a)(1).
61 2009 WL 48187 (M.D. Ga. Jan. 7, 2008).
62 Damage is defined as “impairment to the integrity or availability
of data, a program, a system, or information.” 18 U.S.C. § 1030(e)
(8). “Loss” is “any reasonable cost to any victim, including the cost
of responding to an offense, conducting damage assessment, and
any revenue lost, cost incurred, or other consequential damages
incurred because of interruption of service.” Id. at § 1030(e)(11).
Through 18 U.S.C. § 1030(a)(4) liability is premised on there being
at least $5,000 in losses in any one-year period.
63 2011 WL1742028 (M.D.Fla. May 6, 2011).
64 __ F.3d __, 2011 WL1585600 (9th Cir. 2011).
65 Pietrylo v. Hillstone Restaurant Group d/b/a Houston’s, D.N.J., No.
06-5754, unpublished, Sept. 25, 2009.
66 NLRB Case No. 34-RC-002401. For details, see the February 11,
2011 NLRB Press Release available at www.nrlb.gov/news-media/
news-releases/archive-news (last visited June 14, 2011).
67 Id.
68 Lee Enterprises, Inc., d/b/a Arizona Daily Star, NLRB Dir. of Advice,
No. 28-CA-23267 (April 21, 2011 [released May 10, 2011]).
69 Id.
53
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✯ Fall 2011
C hanges in the 2010 Pattern Jury C harges
BY J. BRETT BUSBY
I. Introduction
The Texas Pattern Jury Charges (the PJCs) are revised every
two years. A different committee is responsible for reviewing
and revising each volume, and an Oversight Committee
reviews all of the volumes and resolves any conflicts between
them. The committees meet frequently to try to provide the
best pattern charges for the bar.
The members of each committee are appointed by the State
Bar’s president, who strives for diversity in the appointments
so that each committee includes practitioners who bring both
plaintiff and defense perspectives, as well as trial and appellate
judges from around the state.
In this article, I focus on the significant changes made in the
2010 editions of the General Negligence & Intentional Personal
Torts (Negligence) volume, the Malpractice, Premises, &
Products (Malpractice) volume, and the Business, Consumer,
Insurance, and Employment (Business) volume. I also address
revisions to the general instructions in Tex. R. Civ. P. 226a
that were issued after the 2010 editions were published.1
II. Issues for All Volumes
A few significant changes apply to all three of the civil
litigation volumes. The same instruction is often repeated
in each volume.
A. General Instructions
All volumes of the Pattern Jury Charge contain general or
“boilerplate” instructions that include the instructions to the
jury panel before voir dire examination, instructions to the
jury after jury selection and the charge of the court. These
instructions come from Rule 226a of the Texas Rules of Civil
Procedure. The volumes contain a version of these instructions
that is now outdated. The Supreme Court has now revised
these instructions, effective April 1, 2011.2
Proposed changes to Rule 226a were drafted initially by
the Oversight Committee, reviewed by the Supreme Court
Advisory Committee, and ultimately approved by the Texas
Supreme Court with some modifications. The purpose of the
changes was to make the instructions clearer for the jury.
They also include some new safeguards concerning jurors’
use of the internet and note-taking.
The changes accomplish the following:
• Remind the jurors not to communicate about the
case via phone, text, email, Facebook, Twitter, etc. or
photograph the proceedings.
• Remind the jurors not to research anything about
the case via the internet.
• Instruct jurors about the proper use of notes during
trial and during deliberation.
• Provide for the destruction of notes after the trial.
• Add the following language to the definition of
preponderance of the evidence: “A preponderance of the
evidence is not measured by the number of witnesses or
by the number of documents admitted in evidence. For
a fact to be proved by a preponderance of the evidence,
you must find that the fact is more likely true than not
true.”
• Revise the instructions to the jury on a 10-2 or 11-1
verdict and include an instruction that “all jurors should
continue to deliberate on every question. You may end up
with all 12 of you agreeing on some answers while only
10 of you agree on other answers. But when you sign the
verdict, only those 10 who agree on every answer will
sign the verdict.”
• Provide a new verdict form.
B. Proximate Cause
By far the most discussed change to the PJCs was the change
to the definition of proximate cause. The individual committees voted 2-1 to include the concept of “substantial factor”
in the definition. Given this split, the Oversight Committee
discussed the issue, considered input from the individual
committees, and voted to make the same change in all three
volumes.
Many committee members felt that the definition of proximate
cause should have changed in the 2008 volumes in light of
Ford Motor Co. v. Ledesma, 242 S.W.3d 32 (Tex. 2007), which
addressed the meaning of producing cause. As a result of the
Ledesma opinion, the 2008 pattern jury charges redefined
“producing cause” as “a cause that was a substantial factor in
bringing about the [occurrence or injury] and without which
the [occurrence or injury] would not have occurred. There
may be more than one producing cause.” E.g., Malpractice
PJC 70.1 (2008).
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Then, in 2010, the supreme court reversed a judgment in
which the jury was instructed under the old definition of
producing cause. Transcon. Ins. Co. v. Crump, 330 S.W.3d 211
(Tex. 2010). In Crump, the court explained, “‘The two elements
of proximate cause are cause in fact (or substantial factor)
and foreseeability . . . . Cause in fact is established when the
act or omission was a substantial factor in bringing about the
injuries, and without it, the harm would not have occurred.’”
Id. at 222–23 (quoting IHS Cedars Treatment Ctr. v. Mason, 143
S.W.3d 794, 798–99 (Tex. 2004)). The court then held that
the trial court submitted an erroneous jury charge by failing
to include the “substantial factor” language in the definition
of producing cause. Id. at 225. In light of this holding, the
Oversight Committee felt that the definition of “proximate
cause” in the Pattern Jury Charges had to be changed.
In the below-the-line comments to the new and independent
cause instructions, the Committees have also added the
phrase “unbroken by any new and independent cause” to
the proximate cause definition. This corrects an inadvertent
omission in the 2008 edition.
C. Exemplary Damages
In recent years, the various pattern jury charge committees
have tried to standardize their treatment of exemplary damages. The Business volume still differs from the Malpractice
and Negligence volumes in the imputation of gross negligence to a corporation. Compare Business PJC 115.38B with
Negligence PJC 10.14C and Malpractice PJC 85.2C. A subcommittee with members from all of the volumes is meeting this
year to attempt to resolve the differences.
✯ Fall 2011
69
As a result, the Committee added some “ands” to the Joint
Enterprise question in PJC 7.11 to clarify that all of the listed
elements must be satisfied for the question to be answered
affirmatively. It now reads like this:
A “joint enterprise” exists if the persons concerned
have (1) an agreement, either express or implied,
with respect to the enterprise or endeavor; and (2) a
common purpose; and (3) a community of pecuniary
interest in [the common purpose of the enterprise],
among the members [of the group]; and (4) an equal
right to a voice in the direction of the enterprise,
which gives an equal right of control.
Likewise, the Committee added an extra “or” to the Assault
and Battery question in PJC 6.6 to clarify that the defendant
need commit only one of three acts listed to be liable for
assault. It now reads as follows:
A person commits an assault if he (1) intentionally,
knowingly, or recklessly causes bodily injury to
another; or (2) intentionally or knowingly threatens
another with imminent bodily injury; or (3)
intentionally or knowingly causes physical contact
with another when he or she knows or should
reasonably believe that the other will regard the
contact as offensive or provocative.
Similar additions of “and” and “or” have been made
throughout all volumes.
III. Negligence Volume – Green Cover
If the plaintiff seeks recovery of uncapped exemplary damages
based on conduct described as a felony in certain sections
of the Penal Code, the Business volume notes at least one
decision holding that the instruction must inform the jury
that the alleged fraud must have caused the plaintiff’s injuries.
See Business PJC 115.39-.45 (comment on “When to use”);
Service Corp. Int’l v. Guerra, No. 13-07-707-CV, 2009 WL
3210940, at *9-10 (Tex. App.—Corpus Christi Oct. 8, 2009),
rev’d on other grounds, 2011 WL 2420208 (Tex. June 17, 2011).
D. “Or” and “And”
Each volume has changed the way that multi-part instructions
use the words “or” and “and”. These changes grew out of a
project by the Oversight Committee, which included a survey
of trial judges and a study with mock jurors. The Committee
found that when “and” was used only between the last two
elements in a list, mock jurors did not understand that they
had to find that all of the elements were satisfied.
A. Revisions to the Damages Chapters
1. Injuries of Minor Child. The Negligence Volume Committee
has made several changes to PJC 8.4, which is the damages
question to be used in a case involving injuries to a minor
child. The first change is to the basic question itself. The old
version charged the jury with determining the cash award that
“would fairly and reasonably compensate Paul Payne, Jr. for his
injuries, if any,” that resulted from the occurrence in question.
The new version instead seeks the award that “would provide
fair and reasonable compensation for Paul Payne, Jr.’s injuries,
if any.” The proposed comment accompanying this change
explains it fairly plainly:
This question differs from prior versions as well
as from most other damage questions in that it
does not ask the jury to determine the amount that
would “compensate Paul Payne, Jr. for his injuries,
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if any . . . .” Because 8.4 includes elements of
damage (e.g., loss of earning capacity and medical
care expenses incurred prior to the age of majority)
that reflect injuries to the minor, but that are not
recoverable by the minor, the Committee felt that
a revision was necessary to remove any reference
to the person being compensated. Rather, a more
accurate question, given the potentially differing
rights to recovery, is one that asks the jury to value
the injuries themselves, without regard to who is to
be compensated for those injuries.
The Committee has also changed the individually listed
damages elements in PJC 8.4. The new version separates
those damages incurred before the minor reaches majority
and those that in reasonable probability the minor will incur
after turning 18. Thus, the damage element of “loss of earning
capacity” is now divided into three parts: (1) “loss of earning
capacity sustained in the past;” (2) “loss of earning capacity
that, in reasonable probability, will be sustained from the
time of trial until Paul Payne, Jr. reaches the age of eighteen
years;” and (3) “loss of earning capacity that, in reasonable
probability, will be sustained in the future after Paul Payne,
Jr. reaches the age of eighteen years.” Similarly, the damage
element of “medical care expenses” is divided into three parts.
The Committee added comments to PJC 8.4 explaining the
reason for this change and how to submit the elements when
the child reaches majority before the case goes to trial.
2. Parents’ Loss of Services of Minor Child. The Committee also
added language to its comment following PJC 8.5 to aid the
practitioner dealing with the parents’ loss of services of a
minor child as a damages element. The new language follows:
Texas law permits a parent to recover damages for the
loss of services of a minor child. The following types
of services are examples from the case law: running
errands, doing yard work, washing dishes, sweeping
floors, mopping, dusting, washing windows, making
minor repairs, cutting hay, feeding animals, washing
laundry, performing farm work, shining shoes,
ironing clothes, caddying, harvesting watermelons,
and generally helping around the house. See, e.g.,
Green v. Hale, 590 S.W.2d 231, 235-36 (Tex. Civ.
App.—Tyler 1979, no writ); Gonzalez v. Hansen,
505 S.W.2d 613, 615 (Tex. Civ. App.—San Antonio
1974, no writ).
“The monetary value of a child’s lost services is
not akin to and cannot be measured with the
✯ Fall 2011
mathematical precision of lost wages,” Pojar v. Cifre,
199 S.W.3d 317, 347 (Tex. App.—Corpus Christi
2006, pet. denied); but the plaintiff must present
some evidence of the performance and value of lost
services and must also establish that the injury at
issue precludes performance of such services. Pojar,
199 S.W.3d at 347); Gonzalez, 505 S.W.2d at 615.
3. Exclusionary Instruction for Other Condition. The Committee
has rephrased PJC 8.7, an exclusionary instruction meant to
prevent awards for conditions not caused by occurrence giving
rise to the lawsuit. The old instruction charged the jury not to
“include any amount for any condition not resulting from the
occurrence in question.” The new instruction—an attempt at
clarification—tells the jury not to “include any amount that
did not result from the occurrence in question.”
B. Negligent Entrustment
In light of a recent Texas Supreme Court opinion addressing
liability for negligent entrustment, the Committee altered
the comment to PJC 7.12 concerning proximate cause. The
Comment in the 2008 volume provides that “[n]egligent
entrustment is considered a proximate cause of the collision if
the negligence of the driver to whom the vehicle was entrusted
was a proximate cause of the collision.” The cases cited for
this proposition are a Fourteenth Court of Appeals case from
1968 and a Texas Supreme Court case from 1951. The new
comment, citing the new case, reads as follows:
Proximate cause of entrustor. Negligent entrustment
is considered a proximate cause of the collision if
the risk that caused the entrustment to be negligent
caused the accident at issue. TXI Transportation Co.,
Inc. v. Hughes, 306 S.W.3d 230, 240-41 (Tex. 2010)
(neither the driver’s status as an illegal alien nor the
fact that he had used a fake Social Security number
to obtain his commercial driver’s license was a
proximate cause of the accident).
C. New Limitations PJC
The biggest change made by the Negligence Volume Committee
is the addition PJC 14.1 on limitations. The Committee added
this question to address cases in which a plaintiff files suit
within the limitations period but does not serve the defendant
until after the statute has run, and the defendant pleads the
affirmative defense of limitations. Sometimes trial courts
can dispose of such questions on summary judgment, such
as when it can be shown as a matter of law that the plaintiff
was not diligent in seeking to effect service. But often such
accusations are questions of fact. This PJC provides trial courts
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with a ready method to submit the issue to the jury hearing
the merits of the case. The new PJC is fairly straightforward:
Did Paul Payne, or someone acting on his behalf,
exercise diligence to have Don Davis served?
The standard of diligence required is that diligence
to procure service which an ordinarily prudent
person would have used under the same or similar
circumstances. The duty to use diligence continues
from the time suit was filed against Don Davis on
[date] until Don Davis was served on [date].
Answer: “Yes” or “No.”
Answer:
IV. Malpractice Volume – Red Cover
✯ Fall 2011
71
cases to use the word “reasonable” instead of “ordinary” to
describe the applicable standard of care. Although the phrase
“ordinary care” has been used in the PJC for many years, the
Committee was concerned that it had no precedential support
and tended to suggest a lower and more forgiving standard
of care—i.e., that the defendant only had to be “ordinary.”
3. Responsible third party. In PJC 51.2, 61.2, 66.2, and 71.2,
the Committee added a sentence to the “responsible third
party” comment informing practitioners that at least one Texas
court has held that it is “only upon the trial court’s granting
of a motion for leave to designate a person as a responsible
third party that the designation becomes effective.” Valverde
v. Biela’s Glass & Aluminum Prods., 293 S.W.3d 751, 754-55
(Tex. App.—San Antonio 2009, pet. denied); see also Ruiz v.
Guerra, 293 S.W.3d 706, 714-15 (Tex. App.—San Antonio
2009, no pet.).
4. Emergency care. On the subject of emergency care, the 2010
A. Revisions to the Malpractice Chapter
edition deletes the comment about “when to omit Question
1. Lost chance of survival. Based on the Texas Supreme Court’s
2” from PJC 51.18A, 51.18B, and 51.18C. After considerable
opinion in Columbia Rio Grande Healthcare v. Hawley, 284
discussion, the Committee concluded that this comment
S.W.3d 851, 860-61 (Tex. 2009), the Malpractice Volume
was confusing and potentially misleading, particularly in
Committee included a comment and a proposed instruction
suggesting that the emergency care
in PJC 50.1-.3 about the “lost chance of
question presented an “affirmative
survival.” The comment explains that
Although the phrase “ordinary
defense.” The Committee also added
“an instruction for lost chance of surcare” has been used in the PJC
a comment to PJC 51.18C explaining
vival should be submitted only when
for
many
years,
the
Committee
that the four “relevant factors”
the plaintiff suffers from a particular
was
concerned
that
it
had
no
regarding whether the medical care
medical condition, such as cancer,
or treatment was rendered with
precedential support and tended
that places the proximate cause of the
willful or wanton negligence should
plaintiff’s death or impending death
to suggest a lower and more
be omitted if any of the three characinto question.” The comment further
forgiving standard of care—i.e.,
teristics specified in Tex. Civ. Prac.
explains that “when evidence demonthat the defendant only had to be
& R em. Code § 74.154(b)(1)-(3)
strates that such a medical condition
“ordinary.”
apply. Thus, if the medical care or
pre-exists the alleged negligence of
treatment (1) occurs after the patient
the defendant, and at the time of the
is
stabilized
and
is
capable
of receiving medical treatment
alleged negligence, the medical condition resulted in the
as
a
nonemergency,
(2)
is
unrelated
to the original medical
plaintiff having a 50% or less chance of survival, the [lost
emergency,
or
(3)
is
related
to
an
emergency
caused in whole
chance of survival] instruction is proper.” The proposed
or
in
part
by
the
negligence
of
the
defendant,
then the jury
instruction states:
should not be instructed about the four factors that bear on
whether the defendant may have rendered the medical care
You are instructed that Paul Payne must have had a
“with willful or wanton negligence.”
greater than fifty percent (50%) chance of survival
if reasonable medical care had been provided on or
B. Revisions to the Premises Chapter
around [the time of the alleged negligence] for the
1. Right to control. The Committee continually discusses,
negligence of Dr. Davis to be a proximate cause of
debates, and revises the “right to control” question and comthe [injury] to Paul Payne.
ment in PJC 66.3. The 2010 edition is no exception. Based
on a comment from a practitioner, the Committee added a
2. Reasonable care. PJC 50.1 includes a new comment sug“caveat” noting the distinction between a contractual retention
gesting that it may be appropriate in certain malpractice
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of the right to control and the actual exercise of control, and
explaining how this distinction may affect the submission or
phrasing of a right to control question. The Committee also
added a note explaining that Tex. Civ. Prac. & R em. Code
§ 95.003 is the source of the phrase “some control” that is
included in the proposed question.
2. Easement holders. The Committee added a comment to
PJC 66.4, 66.5, 66.6, and 66.9 explaining how the status of
a plaintiff (as invitee, licensee, or trespasser) should be determined when the defendant is either an exclusive easement
holder or a non-exclusive easement holder of the premises in
question. If the defendant is an exclusive easement holder,
the jury should look to the plaintiff’s status in relation to the
easement holder. If the defendant is a non-exclusive easement
holder, however, the jury should look to the plaintiff’s status
in relation to the landowner.
C. Revisions to the Products Chapter.
1. Negligence in products cases. Based on requests from both the
bench and bar, the Committee included in the 2010 edition a
new question, PJC 71.7, showing how to submit a negligence
theory in a products liability case. The accompanying comment explains that a negligence theory in a products case may
be premised on a negligent design, negligent manufacturing,
or negligent marketing; as a result, the question incorporates
the appropriate definitions from those theories, in addition
to the traditional definitions of “negligence,” “ordinary care,”
and “proximate cause.” The Committee also included a comment in this and other PJC sections cautioning against the
submission of strict liability, negligence, and implied warranty
theories in the same case because the risk of conflicting
answers may require a new trial.
2. Negligent undertaking. Based on a comment received from
a practitioner, the Committee revised the existing question
and comment on negligent undertaking (PJC 71.8). The
question formerly defined element 3 of negligent undertaking
as follows:
3. either [someone] relied on Don Davis’s performance
or Don Davis’s performance increased Paul Payne’s
risk of harm.
The comment then discussed the use of “someone” to cover
situations in which “[t]he person relying on the performance
of the conduct in question [is] not the plaintiff or anyone in
privity with the plaintiff.”
The revised question redefines element 3 to state:
✯ Fall 2011
3. either [Paul Payne] relied on Don Davis’s
performance or Don Davis’s performance increased
Paul Payne’s risk of harm.
The revised comment replaces the previous “use of someone”
comment, instead providing a “caveat to paragraph 3” of the
question. This caveat discusses the two types of negligent
undertaking that will dictate whether to use the name of
the plaintiff or someone else in the paragraph. The plaintiff’s
name should be used if the negligent undertaking involves
the rendition of services to the plaintiff. See R estatement
(Second) of Torts § 323. But the name of a third party
should be used if the negligent undertaking involves the
rendition of services to another, which the defendant should
recognize as necessary for the protection of a third party. See
R estatement (Second) of Torts § 323A. The second type
of negligent undertaking was involved in Torrington Co. v.
Stutzman, 46 S.W.3d 829, 838-39 (Tex. 2000), which is the
case that originally gave rise to PJC 71.8.
3. Breach of warranty. During the Committee’s routine review
of PJC 71.10 (breach of implied warranty of merchantability
under Tex. UCC § 2.314(b)(1)-(2), (4)-(6)), it discovered that
the “conditioning” instruction between the first and second
question was wrong because it erroneously instructed the
jury to answer question two (on proximate cause) only if
the answer to question one (on merchantability) was “yes,”
(instead of “no,” as it should have read). That discovery, in
turn, revealed further deficiencies in the existing version of
PJC 71.10. As a result, the Committee completely rewrote PJC
71.10, and then made substantial revisions to the related PJC
71.9 (breach of implied warranty of merchantability under
Tex. UCC § 2.314(b)(3)) and PJC 71.11 (breach of implied
warranty of fitness for a particular purpose). The revised
questions in PJC 71.9, 71.10, and 71.11 faithfully track the
elements of the UCC and hopefully will be more useful to
the bench and bar than the previous versions.
D. Revisions to the Damages Chapter
1. Damages for injury to a minor. The Committee modified the
question and comments to PJC 80.5 (personal injury damages — injury of minor child) to reflect that personal injury
damages generally are not recoverable by a minor. Thus, the
revised question asks the jury to value the injuries themselves,
without regard to who is ultimately going to be compensated
for those injuries. In addition, revised PJC 80.5 includes several
subparts for loss of earnings and medical care expenses that
can be used when the minor turns 18 before trial. Finally, PJC
80.6 (personal injury damages — parents’ loss of services of
minor child) expands the existing comment that describes
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the types of services by a minor for which the parents may
recover damages.
2. Economic damages in legal malpractice cases. Inspired by the
Business Volume’s effort to delineate the types of damages
available in DTPA and breach of contract cases, the Malpractice
Volume added a new PJC 84.4 that gives several hypothetical
examples of how instructions may be worded to submit various
measures of damages in legal malpractice cases. These examples
include:
Sample A—Value of the original suit
The amount, if any, that Paul Payne would have
recovered and collected if his original suit against Tom
Taylor had been properly prosecuted by Don Davis.
Sample B—Loss to the value of the original suit
The difference, if any, between the amount that Paul
Payne [recovered] [settled for] and collected in his
original suit against Tom Taylor and the amount he
would have [recovered] [settled for] and collected if
the original suit had been properly prosecuted by
Don Davis.
Sample C—The increase in damages assessed against Paul
Payne in the original suit
The increase, if any, in damages assessed against Paul
Payne in his original suit with Tom Taylor caused by
the failure of Don Davis to properly defend the lawsuit.
✯ Fall 2011
Committee is the addition of new questions and instructions regarding violations of the Texas Securities Act. The
Committee concluded that the law had become sufficiently
settled on many issues under the Securities Act to allow
reliable patterns to be drafted. These new pattern questions
and instructions appear in the fraud chapter as PJC 105.12
through 105.18.
1. Liability for factual misrepresentation or omission. The
main question and instruction regarding whether a factual
misrepresentation or omission violates the Texas Securities
Act is PJC 105.12. That question and instruction, as well
as selected portions of the comment, are reprinted below.
This section also contains an instruction regarding when a
prediction, projection, or other statement of belief constitutes
an untrue statement of material fact (PJC 105.13), as well as
questions submitting the defenses that the plaintiff knew of
the untruth or omission (PJC 105.14) or that the defendant
did not know of it (PJC 105.15).
PJC 105.12
Did Don Davis commit a securities law violation
against Paul Payne?
A securities law violation occurs when—
1.
V. Business Volume – Blue Cover
A. Revisions to the Fraud Chapter: New Questions and
Instructions on Texas Securities Act Violations
The most significant change by the Business Volume
a person [sells or offers to sell / buys or offers
to buy] a security by means of either
a. an untrue statement of a material fact;
or
Sample D—Additional attorney’s fees incurred
Reasonable and necessary attorney’s fees incurred
by Paul Payne for legal services proximately caused
by the negligence of Don Davis. Do not include any
attorney’s fees incurred for the prosecution of this
claim against Don Davis.
The accompanying comments provide the legal support for
these sample instructions, including the Texas Supreme Court’s
recent opinion in Akin, Gump, Strauss, Hauer & Feld, L.L.P. v.
Nat’l Dev. & Res. Corp., 299 S.W.3d 106, 113-14 (Tex. 2009).
The Committee invites the bench and bar to comment on
these samples and to provide any additional ones that may be
appropriate for inclusion in the next edition.
73
b. an omission to state a material fact
necessary to make the statements made,
in light of the circumstances under
which they are made, not misleading;
and
2.
the other person [purchases the security from
/ sells the security to] him; and
3.
the other person suffers injury.
A fact is “material” if there is a substantial likelihood
that a reasonable investor would consider it
important in deciding whether to [purchase / sell]
a security, because it would significantly alter the
total mix of information made available.
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COMMENT (selected portions)
When to use. PJC 105.12 is based on Tex. Rev. Civ.
Stat. Ann. art. 581-33A(2) and 33B, which applies
only to fraud in a transaction involving the sale or
purchase of a security.
In a case involving an alleged registration violation
of Tex. Rev. Civ. Stat. Ann. art. 581-33A(1) or 33 C,
parts a and b of this instruction should be modified
as necessary to reflect the statutory elements of such
a violation.
Sells or offers to sell. The Texas Securities Act
broadly defines “sell,” as well as “sale” and “offer for
sale,” in Tex. Rev. Civ. Stat. Ann. art. 581-4(E). See
In re Enron Corp. Secs., Deriv. & ERISA Litig., 258 F.
Supp.2d 586, 603-04 (S.D. Tex. 2003). If there is a
dispute about whether a sale occurred or an offer
was made, additional instructions may be necessary.
If the person who allegedly committed fraud sold
the security, then “sells or offers to sell” should be
used in part a of this instruction, and “purchases the
security from” should be used in part b. If the person
who allegedly committed fraud bought the security,
then “buys or offers to buy” should be used in part
a, and “sells the security to” should be used in part
b. The italicized word him in part b may be replaced
with “her” or “it” depending on the defendant that
allegedly committed the violation.
Security. Whether something constitutes a
“security” under the Texas Securities Act will usually
be a question of law for the court. See Grotjohn Precise
Connexiones Int’l, S.A. v. JEM Fin., Inc., 12 S.W.3d
859, 868; Campbell v. Payne, 894 S.W.2d 411, 417-18
(Tex. App.—Amarillo 1995, pet. denied). However,
in some cases there may be predicate factual disputes
for the jury to resolve regarding whether something
is a security under the TSA. For example, the TSA
lists an “investment contract” as a security, but
the definition of “investment contract” includes
multiple elements that may raise a factual dispute.
See Anderson v. Vinson Exploration, Inc., 832 S.W.2d
657, 662 (Tex. App.—El Paso 1992, no writ).
Damages. PJC 115.19, which addresses direct
damages in fraud cases, may be modified to submit
damages resulting from a securities law violation.
✯ Fall 2011
The comment to PJC 115.19 explains the necessary
modifications and also addresses the remedy of
rescission.
2. Liability as a control person or aider. In addition to the
primary liability discussed above, the Texas Securities Act
imposes liability on those who control a party that violates the
Act or aid in a violation. The Committee decided that the law
of control person liability was not sufficiently clear to allow
a pattern question to be drafted, so it provided an extensive
comment instead (PJC 105.16). The comment identifies the
different tests for control person liability adopted by Texas
courts. The Committee also drafted a question that submits
the defendant’s lack of knowledge defense to control person
liability (PJC 105.17).
Finally, the Committee included a question and instruction
on liability for materially aiding a securities law violation
(PJC 105.18).
B. Revisions to the Fiduciary Duty Chapter
PJC 104.1 submits the question whether an informal fiduciary
relationship exists but does not address formal fiduciary
relationships. The Committee added a comment stating that
a question should also be submitted when the existence of a
formal fiduciary relationship is disputed.
PJC 104.2 places the burden on the fiduciary to prove that
there was no breach of fiduciary duty. It formerly included
a comment advising that the instruction should be modified
in cases where the burden does not shift to the fiduciary. To
ensure that the proper modifications are made, the Committee
has replaced this comment with a new question and instruction (PJC 104.3) that places the burden on the plaintiff to
prove a breach of fiduciary duty in appropriate cases.
C. Revisions to the Tortious Interference Chapter
PJC 106.3 submits the justification defense to a tortious
interference claim. The question previously asked: “Did
Don Davis interfere because he had a good-faith belief that
he had a right to do so?” To make clear that the trial court
decides whether a legal right is colorable, while the jury finds
whether the defendant had a good-faith belief in the right,
the Committee rewrote the question to ask: “Did Don Davis
have a good-faith belief that [describe colorable legal right]?”
This new question also avoids asking the jury to consider
the defendant’s motive for interfering, which the Supreme
Court has held is irrelevant. Tex. Beef Cattle Co. v. Green, 921
S.W.2d 203, 211 (Tex. 1996).
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D.
Revisions to the Civil Conspiracy Chapter
Based on a recent case from the Austin Court of Appeals,
the Committee added a comment to the conspiracy question
(PJC 109.1) suggesting that when there is evidence of divisible
damages from multiple underlying torts, and there is a dispute
about which torts were the subject of a conspiracy, the court
should consider asking the jury to find the torts that were
the subject of any conspiracy. See THPD, Inc. v. Continental
Imports, Inc., 206 S.W.3d 593, 604-05 (Tex. App.—Austin
2008, no pet.).
VI. New Issues
It takes an enormous amount of time and energy to create
new issues. Some areas of the law are still unclear as to what
exactly would be asked of the jury. Some areas of law arise too
infrequently and do not merit the time needed to prepare a
pattern jury charge. Some areas of the law are too fact-specific
to be captured adequately by a pattern.
Feel free to contact the chairs of the various committees if
you have ideas for new issues. If you have drafted a unique
jury charge, send it to the chairs. This might be the starting
point for getting a new issue into the PJC.
VII. General Tips
Consult the PJCs early in the development of your cases.
They can be a blueprint for your original petition. And they
can pinpoint defenses that you need to plead. But be aware
of any new case law or statutory law in your area. You should
also know the elements of damage that you must prove and
know the types of damages that follow each cause of action.
Review the other volumes to see if any instructions are
applicable to your case. For example, mitigation of damages in
the Negligence volume is limited to the treatment of personal
injuries. See PJC 8.9. A more generic mitigation instruction
can be found in the Business volume and could be useful
for other elements of damages. See PJC 110.7. If you have a
cause of action to which the discovery rule applies and need
a statute of limitations issue, the Business volume is the only
volume with that issue. See PJC 102.23.
J. Brett Busby is a partner in the appellate group at Bracewell &
Giuliani LLP in Houston. He serves as Chair of the Committee
on Pattern Jury Charges: Business, Consumer, Insurance, and
Employment. O
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I would like to thank Justice Tracy Christopher, Fourteenth
Court of Appeals, Justice Jeff Brown, Fourteenth Court of Appeals,
and Jeffrey S. Levinger, Hankinson Levinger LLP, for their contributions to an earlier version of this article that was presented at the
State Bar’s 2010 Advanced Civil Appellate Practice Course.
2 See Amendments to Texas Rules of Civil Procedure 281 and 284
and to the Jury Instructions under Texas Rule of Civil Procedure
226a, No. 11-9047 (Tex. Mar. 15, 2011), available at http://www.
supreme.courts.state.tx.us/miscdocket/11/11904700.pdf.
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STATE
STATE BAR
BAR LITIGATION
LITIGATION SECTION
SECTION REPORT
REPORT
the
A DVOCATE
EVIDENCE &
PROCEDURE
UPDATES
U
PDATES ON CASE LAW pertaining to
procedure and evidence as compiled by
Luther H. Soules III, of Soules &
Wallace and Robinson C. Ramsey, of Langley
& Banack, Inc.
Commercial Law
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77
Evidence Update
BY LUTHER H. SOULES III & ROBINSON C. RAMSEY
�
SUPREME COURT OF TEXAS
RULE 103: PRESERVATION OF ERROR
Serv. Corp. Intern. v. Guerra, No. 09-0941, 2011 WL
2420208, at *9 (Tex. June 17, 2011) In this suit against a
cemetery owner for moving a body from one burial plot to
another without the family’s permission, the cemetery owner
complained of the admission of evidence of other lawsuits
against it. The family countered that the cemetery owner had
waived error because although it “first raised objections to
evidence of other suits, verdicts, and judgments by a motion
in limine and objected when the evidence was introduced,
[it] did not object when the [family]’s attorney referred to the
matters during jury selection and opening statement.” The
Supreme Court disagreed.
The cemetery owner was “not seeking a mistrial or complaining about matters that occurred during the jury selection
process and to which it did not object,” the Court pointed
out, “it is complaining about the admission of evidence during
trial, to which it timely objected. Error is preserved with
regard to a ruling that admits evidence if the opponent of
the evidence makes a timely, specific objection and obtains
a ruling.” Therefore, “[t]he failure to object to an attorney’s
statements during voir dire of the jury panel, without more,
does not waive a later objection to evidence offered during
trial, because statements by lawyers during the jury selection process are not evidence.” Here, the cemetery owner
preserved error because it “timely objected when evidence
of other lawsuits was introduced.”
The family also argued that the cemetery owner “waived
error by referring to the other lawsuits in its own opening
statement,” thereby “opening the door” by “effectively inviting
a response.” But the attorney for the family, not the cemetery
owner, “was the first to allude to other lawsuits in opening
statements. The response of [the cemetery owner]’s attorney
was not inappropriate in manner or substance: he acknowledged that other suits had taken place, but maintained that
the trial should be about the … family’s claims and the facts
underlying those claims.” Therefore, the cemetery owner’s
attorney “did not exceed the boundaries of the [family]’s
attorney’s statements or introduce new matters into the
proceedings so that he invited a response.” As a result, the
cemetery owner “did not open the door or waive error.”
RULE 404: PRIOR WRONGFUL ACTS
2420208, at *10–11 (Tex. June 17, 2011) “Evidence of other
wrongs or acts is not admissible to prove character in order
to show ‘action in conformity therewith.’ But it is admissible
to show a party’s intent, if material, provided the prior acts
are ‘so connected with the transaction at issue that they may
all be parts of a system, scheme or plan.’ This can be shown
through evidence of similar acts temporally relevant and
of the same substantive basis.’” In this suit by a decedent’s
family against a cemetery operator for changing burial sites
without the family’s permission, the Supreme Court held
that the family “failed to demonstrate sufficient connection
between the events in this case and the alleged actions in
other lawsuits to show the other suits were admissible.”
The family argued that this evidence was admissible “because
the other suits involved similar facts to those underlying
their claim—double sale of a plot or moving a body without
the family’s permission.” But they “presented no evidence”
that the prior suits “involving allegations that plots that
had already been purchased and were sold a second time to
someone else … were so connected to the events here that
they were all part of a system, scheme, or plan.” One of the
resale-of-plot cases occurred “in a different cemetery before
it was owned by [the defendant] and nearly twenty years
before the events in this case. There was no evidence that
any of the same employees were involved in … the [previous]
case and … that the events were somehow connected, or
that circumstances surrounding the sales were similar.”
Furthermore, they “presented few details about the other
cases they alleged involved sales of plots that already belonged
to someone else. To the extent details were provided, they
showed that the sales were at different cemeteries and each
took place at least two years before the events underlying
[this] case.”
The family urged that “the other cases were relevant to show
a pattern of indifference amounting to a common scheme
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and show that [the cemetery owner] took no action to avoid
recurrences of misconduct. But without evidence of the actual
facts and circumstances involved, the evidence [did] not show
a sufficient connection to the events at issue to support their
being relevant.”
Under these circumstances, the Supreme Court concluded
that “the trial court erred by admitting irrelevant evidence
of other lawsuits, verdicts, and judgments.”
COURTS OF APPEALS
RULE 403: EXCLUSION OF RELEVANT EVIDENCE
In re D.O., 338 S.W.3d 29, 37 (Tex. App.—Eastland 2011, no
pet.) In this termination-of-parental-rights case, the mother
complained that the trial court erroneously admitted testimony from the child’s foster mother that the child had “placed
a swastika on one of his textbooks.” The mother argued that
“the swastika evidence was not relevant to the issues to be
decided by the jury and that, even if the evidence was relevant,
its probative value was outweighed by its prejudicial effect,”
but the trial court overruled her objection.
“Evidence is relevant if it has any tendency to make the
existence of any fact that is of consequence to the determination of the action more or less probable.’” Here, the
Department of Family and Protective Services “had to prove
that at least one statutory ground for termination occurred
and that termination was in the best interest of the children.
Therefore, any evidence that [the mother] engaged in conduct
constituting a ground for termination or that related to the
best interest of the children [was] relevant. The fact that [the
child] placed a ‘Nazi symbol’ on his book [was] relevant to
determining whether [the mother] endangered [the child]’s
physical or emotional well-being and also to evaluating [the
child]’s best interest.”
“Relevant evidence may nonetheless be excluded ‘if its
probative value is substantially outweighed by the danger of
unfair prejudice.’ Rule 403 favors the admission of relevant
evidence and carries a presumption that relevant evidence
will be more probative than prejudicial. Excluding evidence
under Rule 403 is an extraordinary remedy that must be
used sparingly.” Here, the court of appeals concluded that
the mother did not demonstrate “that the admission of the
‘Nazi symbol’ evidence unfairly prejudiced her.” Therefore,
it held that the trial court “did not abuse its discretion in
admitting the evidence.”
Republic Waste Services, Ltd. v. Martinez, 335 S.W.3d 401,
✯ Fall 2011
408, 409–10, 411 (Tex. App.—Houston [1st Dist.] 2011, no
pet.) “Although relevant, a trial court may exclude evidence if
its probative value is substantially outweighed by the danger
of unfair prejudice, confusion of the issues, or misleading the
jury.” In this wrongful death and survival action, the trial
court sustained the plaintiffs’ objection to the admission of
evidence that the decedent was an illegal immigrant on the
ground that it was “highly prejudicial.”
“The probative value of evidence showing only that the
plaintiff is an illegal immigrant, who could possibly be
deported, is slight,” the court of appeals observed, “because
of the highly speculative nature of such evidence. Without
a showing that a plaintiff will likely be deported in his
working lifetime, the jury is invited to engage in conjecture
and speculation regarding whether he will be deported, when
he will be deported, and, if deported, whether he will return
to the United States to work. As a result, the probative value
of evidence concerning a plaintiff’s illegal immigrant status
is low, while the prejudicial effect of this evidence is high.”
The appellants argued that their offer of proof “contained
evidence showing more than a possibility that [the decedent]
would have been deported; that is, they assert[ed] that they
offered evidence beyond [the decedent]’s simple status as an
illegal immigrant.” In this regard, they pointed to the portion
of their offer of proof that “described the federal immigration
ICE raid conducted two weeks after [the decedent]’s death.”
This testimony, they contended, “was evidence from which
the jury could have reasonably inferred that [the decedent]
would have been deported in the near future.”
The court of appeals disagreed. “The probative value of
[the] bill of exception testimony was slight because of its
speculative nature,” the court concluded. “At the same time,
the prejudicial effect of the evidence was great. As a result,
the trial court could have properly concluded that [the] bill of
exception testimony did not survive the balancing test under
Rule 403.” Therefore, although the evidence of the decedent’s
illegal status was “of some relevance to the determination
of [his] lost future income,” its probative value “was slight
given the speculative nature of the evidence sought to be
admitted and the ample evidence that was admitted about
[his] immigration status. Simply put, the usefulness of the
evidence was limited given what other evidence was, and
was not, admitted in this case.”
“Had the illegal immigrant status evidence been admitted,
the jury would have been required to essentially guess
whether [the decedent] would ever have been deported.
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Simultaneously, the prejudicial effect of revealing that [he]
was an illegal immigrant would be great and outweigh[ed]
the probative value of the evidence. In short, the record
support[ed] the trial court’s determination that the illegal
status evidence was inadmissible under Rule 403.4.”
“In the end,” the court of appeals explained “we come back to
the principle that the decision to admit or to exclude evidence
is committed to the trial court’s sound discretion. The trial
court is left to exercise that discretion by applying the law
to the evidence presented in each case before it. Although
the rules of evidence always govern, the evidentiary decisions made after applying those rules will vary from case to
case.” Considering the circumstances of this case, the court
of appeals concluded that “it was within the trial court’s
discretion to exclude the evidence concerning [the decedent]’s
illegal immigrant status.”
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Luther H. Soules III at Soules & Wallace, P. O. Box 15588, San
Antonio, Texas 78212, 210-224-9144, email l.souleslaw@swbell
net.
Robinson C. Ramsey is a shareholder with Langley & Banack,
Inc. in San Antonio. Board-certified in Civil Appellate Law and
Family Law, he has written and spoken on the topics of evidence
and civil procedure for periodicals and seminars including: the
Texas Bar Journal; the State Bar of Texas Litigation Update Course;
the State Bar of Texas Advanced Courses in Civil Appellate, Civil
Trial, Expert Witness, and Personal Injury Law; the State Bar
Ten-Minute Mentor Series; and the University of Houston Law
Center’s Evidence/Discovery and Litigation/Trial Tactics Series. He
has also authored and co-authored books on evidence and appellate
procedure, and is one of the authors for Thomson Reuters’ “Inside
the Minds” series of nationally published books on the future of
the legal profession. O
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Procedure Update
BY LUTHER H. SOULES III & ROBINSON C. RAMSEY
SUPREME COURT OF TEXAS
JURY CHARGE
2420208, at *3–4 (Tex. June 17, 2011) “When an element of
a claim is omitted from the jury charge without objection and
no written findings are made by the trial court on that element
then the omitted element is deemed to have been found by
the court in such manner as to support the judgment.” In this
suit for reburying a body in a different cemetery plot without
the family’s permission, “the actors’ status as employees was
an element of the [plaintiff]’s negligence claim. …[T]here was
no objection to the charge on the basis that it omitted the
element nor did the trial court make findings on it, so there
[was] a deemed finding in support of the judgment. But just
as with any other finding, there must be evidence to support a
deemed finding.” Here, the Court concluded that the evidence
was legally insufficient to support the deemed finding.
COURTS OF APPEALS
CITATION
Holmes v. Texas Mut. Ins. Co., 335 S.W.3d 738, 741–43 (Tex.
App.—El Paso 2011, pet. abated) “When a plaintiff files his
petition within the limitations period but does not serve the
defendant until after the period expires, the plaintiff must
exercise diligence in serving citation to interrupt the running
of limitations. Indeed, a timely filed suit does not interrupt the
applicable statute of limitations unless the plaintiff ‘exercises
due diligence in the issuance and service of citation.’ If the
plaintiff diligently effects service after the limitation period
expired, the date of service relates back to the date of filing.”
“The plaintiff bears the burden to prove diligence when a
defendant affirmatively pleads limitations and shows that
service was not timely. Diligence is determined by whether the
plaintiff acted as an ordinarily prudent person would under
the same or similar circumstance and whether the plaintiff
acted diligently up until the time the defendant was served.
An unexplained delay in effecting service constitutes a lack
of diligence as a matter of law.”
Here, the defendant “was never served with the original peti-
tion, nor is there any evidence in the record that [it] was ever
aware that [the plaintiff] filed suit against it in district court.
Rather, their first notice of the suit was five-and-a-half years
later when [the plaintiff] filed his First Amended Petition.”
The plaintiff offered “no explanation for the delay in serving
[the defendant], much less that he was doing anything in
furthering his case against [the defendant].” The court of
appeals held that “[s]uch an unexplained, lengthy delay in
effecting service was certainly unreasonable and constitutes
a lack of due diligence as a matter of law.”
Nevertheless, the plaintiff urged that “he did all that he was
required to do by filing the petition and asking that the Clerk
mail it to [the defendant].” In rejecting this argument, the
court of appeals pointed out that “[a]lthough the Clerk of the
Court has the duty, upon request by the plaintiff, to issue
and deliver the citation as directed … and although a party
‘may ordinarily rely on the clerk to perform his duty within
a reasonable time, the ultimate responsibility to ensure that
citation was had to the defendant still falls to the plaintiff.’”
As a result, if the plaintiff “learns, or by the exercise of diligence should have learned, that the citation was not issued
or served on the defendant, it is still incumbent upon him
to ensure that the job gets done.”
Here, “the burden to ensure that service was had fell to [the
plaintiff] despite his request to the District Clerk.” But the
plaintiff did not point out “any undertakings on his part
in determining whether service was completed in over five
years.” Furthermore, even though he was aware that the
defendant “may not have been served,” the plaintiff “still
made no inquiries into whether service was ever had.” The
court of appeals believed that “an ordinarily prudent person
would check whether the original citation was actually
served when the defendant failed to file an answer within
a reasonable amount of time.” Because the plaintiff did not
do so, he did not interrupt the running of limitations, and
the summary judgment against him was affirmed.
PLEADINGS
Ritchie v. Rupe, 339 S.W.3d 275, 305–07 (Tex. App.—Dallas
2011, pet. denied) “After the time for filing amended pleadings has passed, the trial court abuses its discretion in
denying leave to file an amended pleading unless (1) the
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party opposing the amendment presents evidence of surprise
or prejudice, or (2) the amendment asserts a new cause of
action or defense, and thus is prejudicial on its face, and the
opposing party objects to the amendment. An amendment
that is prejudicial on its face has three defining characteristics:
(1) it asserts a new substantive matter that reshapes the
nature of trial itself; (2) the opposing party could not have
anticipated the new matter in light of the development of
the case up to the time the amendment was requested; and
(3) the amendment would detrimentally affect the opposing
party’s presentation of its case. The decision to allow or deny
the amendment rests with the sound discretion of the trial
court, and the trial court’s decision will not be overturned
unless it constitutes a clear abuse of discretion. The burden
of showing surprise or prejudice rests on the party opposing
the amendment.”
Here, after the close of all evidence, the defendants moved
for a directed verdict on the ground that “they were not liable
in their individual capacity.” In response, the plaintiff asked
for leave to amend the petition to allege that the defendants
were liable “in their representative capacities.” At the hearing
to determine whether the defendants were “prejudiced and
surprised by the amendment,” the defendants’ attorney stated
that they “were prejudiced by the amendment because it
left them with insufficient time to investigate various trialrelated issues arising with the trusts included as defendants,
including limitations, proportionate responsibility, contribution, and whether to present expert testimony about trusts
and trustees.” The plaintiff countered that the defendants
“had not shown actual prejudice but only assertions that
they might have proceeded differently.” After the defendants
stated that they did not want a continuance, the trial court
granted the trial amendment.
The defendants complained on appeal that the trial amendment “was prejudicial on its face and that they presented
substantial evidence of surprise and prejudice.” But the
court of appeals concluded that “based on the record before
it, the trial court could have reasonably concluded that the
amendment did not reshape the nature of the trial itself, that
appellants anticipated the new matter in light of the case, and
that the amendment did not detrimentally affect appellants’
presentation of their case.” Therefore, it held that the trial
court “did not abuse its discretion in granting [the plaintiff]
leave to amend her petition.”
Taylor v. Taylor, 337 S.W.3d 398, 401–02 (Tex. App.—Fort
Worth 2011, no pet.) “Texas follows a ‘fair notice’ standard
for pleading. Generally, a pleading provides fair notice of a
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claim when an opposing attorney of reasonable competence
can examine the pleadings and ascertain the nature and
basic issues of the controversy and the relevant testimony.
In the absence of special exceptions, the petition should be
construed liberally in favor of the pleader.”
In this divorce case, the wife’s original petition asked the
trial court to order the husband “to make payments for the
support of the child” and also sought “a temporary order for
‘child support ... while this case is pending.’” The court of
appeals held that this pleading provided the husband “with
fair notice of [the wife]’s request for child support during the
pendency of the case.” The court further found that “there can
be no dispute that [the husband] had specific notice that [the
wife] sought retroactive child support” because the parties
“announced to the trial court that they had agreed to all issues
concerning ‘division of property, assignment of liabilities, current child support, health insurance, conservatorship, rights,
duties, and responsibilities’ and that [the wife] had reserved
the issue of retroactive child support to be litigated after the
parties testified about the matters to which they agreed.”
Therefore, the trial court “abused its discretion by refusing
to hear evidence concerning child support from the date of
[the wife]’s original petition through the date of judgment.”
Beyond that, the wife contended that the trial court “abused
its discretion by refusing to hear evidence concerning child
support from the date of separation through the date of her
original petition.” Her petition, however, did not “mention
or even refer to a request for child support for that period of
time.” She argued that the husband “waived any complaint
concerning the sufficiency of her pleading by failing to
specially except,” but her “only relevant requests for child
support” were that the husband “be ordered to make payments for the support of the child” and that “the trial court
should make a temporary order requiring [the husband] to
pay ‘child support, health insurance premiums for coverage
on the child, and 50 percent of the child’s uninsured medical
expenses while this case is pending.’ Nothing in her pleading
even hint[ed] that she sought child support for dates prior to
the date of her original petition.”
The court of appeals held that the husband was “not required
to except to the petition and ask whether there are other theories that [the wife] want[ed] to allege.” Although her petition
provided him “with fair notice of her request for child support
during the pendency of the case, nothing in [the] petition
suggest[ed] that she sought child support from the date of
separation through the date she filed her original petition.
Requiring [the husband] to specially except to [the] petition
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to determine whether [the wife] sought child support prior to
the date of her original petition would be akin to requiring a
defendant to specially except to a plaintiff’s pleading because
other theories or causes of action are available but not included
in the plaintiffs pleading.” Therefore, the court concluded that
the wife’s original petition “did not provide [the husband]
with fair notice of her request for retroactive child support
from the date of separation through the date of [the] original
petition and that [the husband] did not waive his complaint
concerning the sufficiency of [the] pleading for retroactive
child support from the date of separation through the date
of her original petition by failing to specially except.”
In re Spooner, 333 S.W.3d 759, 764–65 (Tex. App.—Houston
[1st Dist.] 2010, orig. proceeding) “Assertions of fact, not
pleaded in the alternative, in the live pleadings of a party are
regarded as formal judicial admissions. A judicially admitted
fact is established as a matter of law, and the admitting party
may not dispute it or introduce evidence contrary to it. This
rule is based on the public policy that it would be absurd
and manifestly unjust to permit a party to recover after he
has sworn himself out of court by a clear and unequivocal
statement.” Nevertheless, a judicial admission “must be clear,
deliberate, and unequivocal.”
In this medical malpractice case, the defendants generally
denied liability and also affirmatively pled the statute of limitations. In motions for summary judgment, they pointed out
that although the plaintiff had begun to experience chronic
pelvic pain immediately after her tubal ligation surgery, she
did not file her lawsuit until over two years later. The plaintiff
argued that by making these statements the defendants had
“judicially admitted that they had left the sponge within [her]
and that the sponge had caused her injury.”
The court of appeals disagreed. “When read in context,” the
court concluded, “the passages cited by [the plaintiff] from
each motion for summary judgment are not clear, unequivocal,
and deliberate statements admitting that the sponge was
retained in the … tubal ligation or that retained sponge caused
[the plaintiff] to suffer chronic pelvic pain for nine years to
ten years. …The subject statements were offered to support
[the defendants]’ affirmative defense of limitations; they were
not offered to disavow or otherwise abandon [their] general
denial of liability.” The record revealed that, “in addition to
asserting the affirmative defense of limitations, [the defedants] have denied, and continue to deny in other filings, [the
plaintiff]’s allegations supporting her claims.” Therefore, the
court of appeals held that the trial court correctly ruled
that these statements did not constitute judicial admissions.
✯ Fall 2011
SANCTIONS
D Design Holdings, L.P. v. MMP Corp., 339 S.W.3d 195,
203–04 (Tex. App.—Dallas 2011, no pet. h.) “Rule 13
provides for sanctions against a party or attorney who signs
a pleading, motion, or other paper that is ‘groundless and
brought in bad faith or groundless and brought for the
purpose of harassment.’” “Groundless” means “no basis in
law or fact and not warranted by a good faith argument for
the extension, modification, or reversal of existing law.” Bad
faith “is not simply bad judgment or negligence, but means
the conscious doing of a wrong for dishonest, discriminatory,
or malicious purposes.” “Harass” is used “in a variety of legal
contexts to describe words, gestures, and actions that tend
to annoy, alarm, and verbally abuse another person.” Courts
generally “presume that pleadings and other papers are filed
in good faith,” and the party seeking sanctions “bears the
burden of overcoming this presumption of good faith.”
Rule 13 requires the trial court “to hold an evidentiary
hearing to make the necessary factual determinations about
the motives and credibility of the person signing the allegedly
groundless pleading.” Here, the trial court’s order denying
the appellees’ motion for sanctions made “no mention of a
hearing or any evidence considered, and the appellees stated
in their brief that “[t]here were no evidentiary hearings below.”
Furthermore, the record did not show “any objection by
appellees to the lack of the required evidentiary hearing.”
Therefore, the court of appeals could not conclude that “the
trial court’s denial of appellees’ motion for sanctions was an
abuse of discretion.”
SUMMARY JUDGMENT
Arellano v. Americanos USA, LLC, 334 S.W.3d 326, 329–30
(Tex. App.—El Paso 2010, no pet.) “Failure to obtain written
rulings on objections to summary judgment evidence waives
the issue, unless the record reflects an implicit ruling by the
trial court. For there to be an implicit ruling, the record must
contain something indicating that the trial court ruled on
the objections, other than the mere granting of a motion for
summary judgment. Here, there was “no indication that [the
appellees]’ objection to [the appellant]’s affidavit was ruled
upon either explicitly or implicitly. As such, the company’s
objection [was] waived, and the objected-to summary judgment evidence remain[ed] a part of the summary judgment
record.” Therefore, the court of appeals considered the
affidavit in its review of the merits of the appeal.
DISCOVERY
Dyer v. Cotton, 333 S.W.3d 703, 717–18 (Tex. App.—Houston
[1st Dist.] 2010, no pet.) “A party may request disclosure
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of the name, address, and telephone number of any person
with knowledge of relevant facts. Parties have a duty to
amend or supplement incomplete or incorrect responses to
written discovery. If a party fails to timely make, amend, or
supplement a discovery response, that party may not offer the
testimony of a witness who was not timely identified unless
the trial court finds that (1) good cause exists for the failure
to timely make, amend, or supplement the response, or (2)
the failure will not unfairly surprise or prejudice the other
parties. This rule is mandatory, and the only permissible
sanction for a violation—exclusion of the testimony—is
automatic, unless the trial court finds good cause or lack of
surprise or prejudice. The party seeking to call the witness
bears the burden of establishing good cause or the lack of
unfair surprise or prejudice, and although the trial court has
discretion in determining whether good cause or lack of unfair
surprise exists, the trial court’s finding must be supported
by the record.”
Here, the appellee responded to the appellant’s initial request
for disclosure by identifying a person as “a person with knowledge of relevant facts and a potential witness, but reported his
address and telephone number as ‘unknown.’” In response to
the appellant’s objection to the appellee’s calling this person as
a witness for failing to list his address, the appellee’s attorney
explained that at the time of the designation he did not have
the address. He then described “various efforts” he made to
find the person, including “hiring an investigator to investigate
[the witness]’s whereabouts.” Shortly before trial, the appellee’s
attorney learned that the witness’s business “took him out of
the state for much of the time” and that the witness “had
been absent for most of the last several years doing title work
out of the state,” and that he “had only returned to the area
about a month before trial began.”
So the situation was this: (1) the appellee “timely identified”
the witness as a person with knowledge of relevant facts;
(2) the witness was aware of facts that were relevant to the
plaintiff’s claim; and (3) the appellant “who was a business
acquaintance of [the witness], was equally able to investigate
and ascertain [his] whereabouts.” Under these circumstances,
the court of appeals determined that trial court did not abuse
its discretion in allowing this testimony because “the trial
court properly could conclude that [the appellee] made a goodfaith effort to locate [the witness] and that [his] testimony
would not surprise or unfairly prejudice [the appellant].”
JUDGMENT
SLT Dealer Group, Ltd. v. AmeriCredit Fin. Services, Inc.,
336 S.W.3d 822, 831–32 (Tex. App.—Houston [1st Dist.]
✯ Fall 2011
83
2011, no pet.) In this breach-of-contract case, the appellant
complained that “the trial court’s order granting the First
Amended Motion to Modify is a nullity because it violates
the rule prohibiting more than one final judgment.” The
trial court’s order granting the motion to modify and the
first amended judgment were both signed “well within the
court’s plenary power,” which had been extended by the
appellee’s timely filing a motion to modify the judgment to
include an award of appellate attorney’s fees. The appellant
acknowledged that “a trial court can modify a final judgment
while it retains plenary power, but assert[ed] that the ‘entry
of a second judgment in the same case does not automatically
vacate the first judgment, and if there is nothing in the record
to show that the first judgment was vacated, the second
judgment is a nullity.’”
“Any change in a judgment made during the trial court’s
plenary power is treated as a modified or reformed judgment
that implicitly vacates and supersedes the prior judgment,
unless the record indicates a contrary intent.” Nothing in the
record here indicated that the trial court “did not intend that
its second judgment supersede the first.” Furthermore, the
language of the order granting the motion to modify, which
stated that the judgment “will be modified,” considered in
conjunction with “the inclusion of the word ‘Amended’ in
the title of the second judgment,” indicated that the trial
court intended “that the second judgment replace the first.”
Therefore, the court of appeals concluded that this modified
judgment, which “contained substantively all the same terms”
as the original judgment “and added an award of attorney’s
fees,” was “not a nullity.”
Luther H. Soules III at Soules & Wallace, P. O. Box 15588, San
Antonio, Texas 78212, 210-224-9144, email l.souleslaw@swbell
net.
Robinson C. Ramsey is a shareholder with Langley & Banack,
Inc. in San Antonio. Board-certified in Civil Appellate Law and
Family Law, he has written and spoken on the topics of evidence
and civil procedure for periodicals and seminars including: the
Texas Bar Journal; the State Bar of Texas Litigation Update
Course; the State Bar of Texas Advanced Courses in Civil Appellate,
Civil Trial, Expert Witness, and Personal Injury Law; the State
Bar Ten-Minute Mentor Series; and the University of Houston
Law Center’s Evidence/Discovery and Litigation/Trial Tactics
Series. He has also authored and co-authored books on evidence
and appellate procedure, and is one of the authors for Thomson
Reuters’ “Inside the Minds” series of nationally published books
on the future of the legal profession. O
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the
the
A DVOCATE
FROM MY SIDE OF
THE BENCH
The Closing
by Hon. Randy Wilson
157th District Court,
Harris County, Texas
Commercial Law
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85
F rom M y Side Of The Bench
The Closing
BY HON. RANDY WILSON
O
NE OF THE TRUE PLEASURES OF BEING A DISTRICT JUDGE
Write it down. My experience is that about half the jurors
is that I get to get to watch closing arguments. This
will write down the answers that are suggested by the lawyer
is advocacy at its best; lawyers displaying their skills
that a juror may be favoring. Jurors want to make sure they
and fighting for their clients. The closing argument is both
get the answers right.
emotional and logical. Yet, some of the most eloquent and
Third, tell the jurors what will and will not go back to the
gut wrenching closing arguments fail to achieve the desired
jury room. For example, tell them that the exhibits will be
goal—arming the jury with the tools they need to answer
sent to the jury room and that they will be able to take their
the questions your way.
notes back but that certain demonstratives were not admitted
in evidence and they won’t have them in the jury room. If
Let’s set the stage. By closing argument, the jury has heard
there is a particular demonstrative that lists a lot of dates or
all the evidence and many have made up their minds. They
numbers or other data that was referred to frequently during
are sitting there with a copy of the charge in their hands.1
the trial, invite the jury to jot down on their notes things
They probably have a pen and paper since they may have
that they want to remember.
been taking notes during the trial.
Indeed, pursuant to a rules amendFourth, and most important, you
ment effective April 1, 2011, jurors
Simply put, one of the most
should use the closing argument to
are allowed to take their notes
arm your favorable jurors with the
effective things you can do during
back to the jury room.2 Bottom
ammunition they will need during
closing is to carefully and specifically
line—they’re sitting there poised to
deliberations. While you might
identify the exhibits and evidence
write what you say. Unfortunately,
be tempted to give a bombastic
that supports your conclusion to a
many lawyers squander that golden
and emotional closing, such an
particular question.
opportunity. Here are my suggesargument may sound good at the
tions.
time but by the time deliberations
begin, those emotional points will
First, always argue from the charge. While it would seem
be a distant memory. Rather, you need to provide not just
that this suggestion would be unnecessary, I see far too
the specific evidence, but also the reasons why a vote should
many closings where the lawyers give a long speech and
be a certain way. The jury may have already made logical
either never get to the charge or hurriedly rush through the
conclusions, but some may need reasoning in addition to
charge almost as an afterthought. The charge should not
the specific evidence. Tell them, for example that there are
be a mere add-on to be discussed at the end of the closing.
five reasons why a particular question should be answered
Rather, the charge should be the core of your argument and
a certain way. Then, list the reasons and the evidence that
the outline for your presentation. The charge enables you
supports each reason. A lawyer once said during closing,
to focus your argument on the specific causes of action and
“When you get to this question during your deliberations,
the elements for each.
you should focus on Exhibits 3, 12 and 24. You might even
want to make a note of those exhibit numbers so that when
Second, never hesitate to suggest and write proposed answers
you get to that question, you can go right to the key exhibits.”
to each question. While I would like to think that the questions in the jury charge are well drafted, I have to confess
Simply put, one of the most effective things you can do during
that sometimes even the pattern jury charge questions are
closing is to carefully and specifically identify the exhibits
sometimes less than perfect and could be confusing. Don’t
and evidence that supports your conclusion to a particular
assume that the jury knows what answer favors your client.
question. Jury deliberations usually last many hours or even
86
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days. As deliberations wear on, the jury will long forget some
of the emotional appeal in your closing. However, their notes,
with your specific listing of favorable facts will be with them
throughout deliberations. This will provide the roadmap
for your favorable jurors to persuade the others to your side.
Of course, a plaintiff gets a rebuttal. The opening argument
should be based on the charge and a listing of the favorable
evidence. The rebuttal argument, however, is the time to let
loose and give your emotional arguments.
Finally, don’t get bogged down in minutia. Don’t feel
compelled to respond to each and every point the other side
makes. This is not a collegiate debate where you are judged
on whether you have answered each and every opposing
point. Rather, this is persuasion at the highest level. Pick
your key points and don’t get distracted by each and every
opposing argument. Far too often, I see lawyers get derailed
by rising to the bait of their opponents by trying to answer
each and every point.
Am I suggesting that a closing argument should be devoid of
emotional appeal? Of course not. You have to make the jury
want to vote for you. But you can’t or shouldn’t stop there.
In addition to emotional appeal, you must give them the tools
they will need to persuade other jurors during deliberations.
Judge Randy Wilson is judge of the 157th District Court in Harris
County, Texas. Judge Wilson tried cases at Susman Godfrey for
27 years and taught young lawyers at that firm before joining the
bench. He now offers his suggestions of how lawyers can improve
now that he has moved to a different perspective. O
1
Tex.R.Civ.P. 226a now requires that “[b]efore closing arguments
begin, the court must give to each member of the jury a copy of the
charge.”
2 Tex.R.Civ.P. 281.
✯ Fall 2011

Arbitration, Bench Trial, or Jury Trial?

Transcription

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