A growing national chorus of leading academicians and corporate and defense counsel are coalescing around efforts to make fundamental reform to the Federal Rules of Civil Procedure a reality as the Federal Judicial Conference Rules Committees continue their program to study and review meaningful amendments that could fundamentally reshape the Federal Rules of Civil Procedure.There is growing agreement on the need to improve the administration of justice by reducing the excessive costs and delays and improving the quality of justice of the current system. For example, a 2009 Report by the American College of Trial Lawyers (ACTL) and the Institute for the Advancement of the American Legal System concluded that the civil justice system was "in serious need of repair" and laid the foundation for significant reform.
The recent LCJ winter membership meeting provided an opportunity to learn more from judges leading the federal rulemaking effort and to serve as a platform for corporate and defense counsel who support reform to refine their consensus on necessary changes.The LCJ meeting included presentations by Judge Lee Rosenthal, Chair of the Judicial Conference Standing Committee on Rules of Practice and Procedure, and Judge John Koeltl, a member of the Civil Rules Advisory Committee, both of whom encouraged LCJ, the corporate and defense bar, and all others affected by the federal rules to remain fully engaged in the national dialogue surrounding those rules.
The judges addressed the major reform proposals of the White Paper submitted by LCJ, DRI, FDCC, and IADC to the 2010 Litigation Conference at Duke Law School, organized by the Judicial Conference Rules Committee (Reshaping the Rules of Civil Procedure for the 21st Century). These proposals focus on revamping the Federal Rules to include meaningful Rule amendments in four core areas: (1) Notice Pleading, (2) Discovery, (3) Preservation, and (4) Cost Allocation.
The Civil Rules Advisory Committee's study of these proposals is already proceeding in the usual careful and deliberate manner. At the recent Standing Committee meeting, the Chair of the Civil Rules Committee, Judge Mark Kravitz confirmed that the Committee will address each of the above four core areas of concern in due course, as well as many other good ideas that resulted from the Duke Conference.
Preservation. The Committee's primary focus appears now to be on exploring each of the major elements of a preservation Rule: (1) when the preservation obligation is triggered, (2) the scope of the preservation obligation, and (3) developing a nationwide standard of appropriate sanctions for loss or spoliation of information. It was noted that a Rule stated in terms of acting reasonably, in good faith, and proportionally to the litigation does NOT help plaintiffs or defendants and that the Rules should provide parties with more specific guidance in these areas. All interested parties were invited to work with the Committee to develop language that incorporates each of the "preservation elements" into specific Rule language.
There is general recognition among members of the bar and judiciary that parties are over preserving at great cost and burden in the effort to avoid sanctions because the "chaotic" patchwork of different standards forces conformity with the "most egregious/lowest common denominator standard" in any jurisdiction in the nation. Although actual sanctions' rulings are relatively rare, there is no doubt that they drive pervasive, counterproductive behavior. A national rule is required, but there still remains an issue as to the Committee's power under the Rules Enabling Act to mandate conduct prior to commencement of litigation. That issue presently is being put aside to focus first on crafting a practical Rule and real progress is being made on this "power" issue. One participant at the Standing Committee meeting commented that if the Rules can provide for pre-complaint perpetuation of evidence they can address preservation of information.
A Subcommittee of the Civil Rules Committee may have a draft Rule proposal for consideration at the full Committee meeting in June at least as to sanctions, and will work to develop Rule language as to each element of a preservation Rule. The Subcommittee's original charge was to focus on the triggers for the preservation obligation, and support was expressed for more specific trigger language than "reasonably foreseeable" as well as better defining the scope of the obligation.
Scope of Discovery. Debate surrounding the proper scope of discovery has been ongoing for more than a generation. Rule 26 has been amended no less than four times in an attempt to reach the goal of providing "just, speedy, and inexpensive" resolution in each action. To greater and lesser degrees, each amendment attempted to address the ongoing problems of discovery misuse and abuse. Despite these numerous attempts, discovery costs, burdens, abuse, and misuse remain major culprits in the dissatisfaction surrounding our nation's civil justice system. Ultimately the Rules Committee will have to consider a rule that more sharply focuses the scope of discovery to where it should be focused - on the claims and defenses in the action. In addition, discovery requests must be in proportion to the stakes and needs of the litigation, and specific categories of electronically stored information should be presumed not discoverable in most cases, without a further showing of need and materiality. By emphasizing proportionality in discovery and placing limits on the extent of that discovery, LCJ's position strikes at the heart of current practices, which fuel runaway discovery costs.
Pleadings. The Federal Judicial Center should soon complete a study on the impact of the Twombly and Iqbalopinions on decisions on motions to dismiss, and thereafter the Rules Committee is likely to consider the many suggestions for amendment of the pleading Rules. The Judicial Conference remains strongly opposed to federal legislation that would thwart the Rules Enabling Act, which gives primary responsibility for recommending rule changes to the judicial branch. Fortunately, less emphasis is expected on the issue in the new Congress. LCJ proposes amendments to the Rules that would implement the sensible and realistic "plausibility" pleading standard in Twombly and Iqbal to include more than merely notice pleading, which from a historical perspective is a pleading standard more appropriate to modern litigation in the information age.
The Supreme Court's articulation of the "plausibility" standard may result in the dismissal of a number of complaints that would no doubt have been allowed to proceed to the discovery stage under a lax pleading standard that demanded nothing more than the vague and conclusory assertion of the defendant's violation of law. However, no injustice is done by the dismissal of a complaint if a plaintiff is unable to plead facts sufficient to demonstrate the existence of a valid substantive claim.
Most important, those who have protested the supposed injustices committed to plaintiffs by these decisions willingly ignore the other side of the coin: the great injustice done to defendants who in reality have violated no legal right of the plaintiff's, by permitting a plaintiff's unilateral, conclusory, and unsupported assertion of liability to impose the enormous and expensive burdens of almost unlimited discovery on the defendant. If plaintiffs with unfounded claims are permitted to proceed to discovery, the probability of ultimate victory on the merits - either by summary judgment or trial - will be of little comfort to an unjustly sued defendant. Even under this best-case scenario, a business defendant would inevitably pass the costs on to its consumers, thereby artificially raising the cost of its product or service.
Cost Allocation. The purpose of discovery is to permit parties to access information that will enable fact finders to determine the outcome of civil litigation. Having rules that encourage the parties to police themselves and to focus on the most efficient means of obtaining the truly critical evidence is the best way to achieve that purpose. Therefore, LCJ submits that the Rules should be amended to require that each party pay the costs of the discovery it seeks, which will encourage each party to manage its own discovery expenses by placing the cost-benefit decision on the party in the best position to limit those costs - the requesting party. The leadership of the Rules Committees appears to recognize that although these issues are politically difficult, they are now on the table in certain contexts and deserving of a large national conversation.
Rulemakers Should Consider The Impact Of The Legal System On American Competitiveness
Review of the Federal Rules, which was kicked into high gear following the Duke Law School Litigation Conference in May, 2010, in which more than 20 LCJ members participated, has gained new momentum as business leaders, the bar, and the judiciary have become more aware of the interplay between the nation's suffering economy and the opportunities that litigation reform might hold for boosting U.S. competitiveness in a global economy.
Today's economy demands that we make a vigorous concerted effort to propel new rules changes that minimize the costs of litigation especially in view of the adverse impact litigation is having on the competitiveness of American companies. Adopting meaningful amendments to the Federal Rules governing pleadings, discovery, preservation, and cost allocation is, in our view, the best way to achieve real relief from the costly and inefficient administration of justice which has come to characterize the current civil justice system.
According to recent surveys and analyses, litigation costs continue to rise and are consuming an increasing percentage of corporate revenue and profits compared to our foreign competitors.Global competition for foreign investment is increasing, and the changing dynamics of the global economy are affecting the United States' ability to remain a leader in this area.
With U.S. litigation expenses representing an inordinate proportion of each dollar of profit earned, it is perverse public policy to waste that money by allowing systemic inefficiencies to go unaddressed. Fixing the problems to truly facilitate the "just, speedy and inexpensive" resolution of actions would free up a significant amount of corporate revenues that could be used productively to create jobs, to lower prices of products and services, to invest in research and development of new products and services, to contribute to partnerships with local communities, and to increase shareholder returns, among many other purposes.
Indeed, corporate defendants are not the only ones on which these excessive litigation costs fall. Inevitably, many of these costs are passed on to consumers and taxpayers in the form of higher prices and decisions to forego promising areas of research, to withdraw products and services from the market, and to relocate jobs and other corporate investments to jurisdictions with more efficient and cost-effective civil justice systems.
These issues should be a matter of concern to all of those affected by the legal system. Quite simply, in today's global economy, if U.S. litigation costs are significantly higher than those in other countries, and the situation is left unchecked as economic differences between countries narrow, the United States will be unable to compete effectively in the global marketplace.
Published January 31, 2011.
