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The great civilizations, dating back to ancient Babylon, resolved disputes by conducting trials. There are many reasons why 'trials' have stood the test of time ' validated by centuries and civilizations ' as a universally recognized method of dispute resolution.
In the last few decades, 'going to trial' has lost its luster. Corporate counsel and business leaders have grown wary of the risk, expense and diversion of resources associated with trials. As plaintiff lawyers availed themselves of new theories of liability and liberal discovery, courts have grown congested and the road to verdict has grown longer. Trials have become synonymous within the business community with aberrant verdicts and wasteful expenditures of time and money.
In fact, a recent report by the Administrative Office of the U.S. Courts shows that fewer cases are going to trial each year, despite the consistently large number of cases filed. The report states that in 2006 there were 259,541 civil cases filed in federal district courts, a 2.5% increase from 2005. However, the number of completed trials decreased by 3.3%, and that's been the story over the last decade. In 1997, more than 10,000 trials were completed ' nearly double the 5121 trials in 2006 ' and each year the figure has waned, indicating corporate America's growing distaste for resolving its business differences in a court of law.
But for those who are willing to look past the generalities, there are valuable opportunities in the courtroom. There is no better time to buy, than when everyone is selling. The current aversion to going to trial creates genuine opportunity for those who are willing and able to embrace the time-honored process. To be sure, many disputes should never result in a trial. In fact, many disputes should never result in complaints or in litigation. But smart corporate litigation counsel are beginning to recognize that certain cases are better tried than settled.
Among other things, in-house counsel should more often approach their case management as if they are going to trial; consider the use of expedited or accelerated trial procedures where appropriate; and never lose sight of the fact that trial will always offer the opportunity to settle, if it's in the best interests of the company to do so.
The North Star of Case Management
In deciding whether to settle or proceed to trial, several issues warrant close scrutiny. While there are no hard and fast rules, there is a north star for finding the right direction: you should manage every case as if you are going to try it and you will find out quickly whether your adversary is prepared to do the same.
Because of the general aversion to trial, most parties believe from the outset of the case that it will settle; after all, 99% of all cases settle. So parties engage litigators at firms that were involved in the deal at issue; they engage litigators who are not trial attorneys; and they look for ways to convince the other side that they have risk and exposure, and wait for nature ' mediators and settlement conferences ' to take its predictable course. Those who assume their adversary will ultimately resolve the case short of trial create a dangerous vulnerability ' but one that is too infrequently exploited.
It is often clear very early in discovery and pre-trial motion practice, whether your adversary is really planning on trial. And when it is not, a favorable end ' either in the courtroom or settlement table ' is in sight, provided you are prepared to go the distance. Litigants who do not intend to try a case often signal that fact because they approach discovery as a means of imposing cost and disruption that make settlement attractive. Those who are really preparing to try their case are generally not interested in running roughshod in discovery. Rather, they approach discovery more thoughtfully as a means of blocking and tackling ' securing answers that foreclose certain testimony or theories at trial, and securing admissions and ammunition for cross-examination. When adversaries hear that you only need three depositions, not ten, to get ready for trial ' they understand you are interested in trying the case ' and not interested in shaking the tree.
Making an internal emotional and financial commitment that you are prepared to try a case, if necessary, has two obvious benefits ' it allows you to prevail in all those situations where the other side lacks that resolve, and it assures that you are never the victim of the safe assumption that the case will settle.
What happens when you meet an adversary who believes in its case and is prepared to present it in the courtroom? Often, you have a great opportunity to resolve your dispute efficiently and fairly. Litigants who are devoted to resolving their dispute in the courtroom ' rather than to using the litigation process to bludgeon the other into submission ' generally can agree on means to streamline discovery and trials.
A few recent experiences speak to the point.
Expedited and Streamlined Trials
We recently represented a party in a fairly complicated and high-stakes corporate control dispute. Our client asserted buy-sell rights in some 50 real estate limited partnerships in which a highly sophisticated Wall Street firm was the general partner. The general partner claimed to have lawfully sold the same properties to a third party buyer for whom it did investment banking work. The right to buy depended upon whether intercompany partnership transfers should be characterized as loans or distributions, and whether waterfall distributions to partners should be calculated on a partnership-by-partnership or pooled basis.
Notwithstanding the factual and legal complexity, we agreed to try the case within 60 days of the filing of the complaint and further agreed to limit each side to presenting their case in 8 hours. We completed fact and expert discovery inside of 45 days. Within two months of the filing of the complaint, the case was over. We spent less time and money trying the case than most parties spend in discovery in cases of comparable magnitude. The experience looks even better in hindsight because we prevailed, but regardless of outcome, the efficiency of resolution was hard to surpass in any alternative dispute process.
In most cases, it is in both sides' interest to go to trial on an expedited basis, with limited discovery and/or limited trial time. Cycle time is the single biggest driver of litigation cost. Compressing trial preparation and discovery requires focus on the 80% of the case that matters most. And making the offer to expedite sends an important signal to your adversary. An adversary's refusal to accept an offer to streamline and expedite often sets the tone for resolution of the case. It is clear who has blinked and who believes in their case. By pressing persistently for quick trial dates and for the close of discovery, you reduce costs and secure more favorable settlements.
Settlement During Trial
In fact, trial itself offers a continuous opportunity for resolution. My last two federal court cases both settled in the middle of the trial. In the first, the issue of whether our client had a right not to proceed with a merger upon a material adverse change in the performance of the target company. The MAC clause had a carve-out, if the change in business was the result of the economy; and the economy had gone into a modest recession between the agreement to purchase and the scheduled closing. The target company ultimately went bankrupt and blamed its demise on our decision not to close. The stakes were in excess of $200 million and the plaintiff believed that a local jury would be very sympathetic to them. We could not settle the case on reasonable terms until the plaintiff recognized that our client had the temerity to present its case to their local jury.
In fact, by the end of the cross-examination of the plaintiff's second principal witness, the plaintiff knew three things: the trial would go on for some time; the loser would appeal; and the jury probably had heard enough to form instincts about the case that would be hard for either side to overcome. Both sides were relatively bullish on their case and it likely remained impossible to agree on a settlement number. But we were able to agree on a means for settling the case by submitting it to the jury in the middle of the plaintiff's case, subject to 'brackets' on the result. Each juror was allowed to vote a private ballot: leaning plaintiff or leaning defense and each plaintiff ballot was worth money to the plaintiff on an agreed sliding scale. The plaintiffs traded in their in terrorem damages for the certainty of securing a modest recovery. The jury came back in the middle of the brackets. The case was resolved on terms that were significantly below any offer we had seen prior to the start of trial.
Of course, there are times when arbitrations provide quicker and less expensive forums than courtrooms. And there are times when mediations and early settlement discussions allow both sides to achieve outcomes that approximate trial results, without the expense and delay. But counting on mediation or settlement to take you out of harm's way is a dangerous way to conduct business.
Cases Too Small to Try
There are cases where the stakes are simply too small to warrant the expense of trial. In those cases, you should settle as early as you can unless you can recover fees or believe that capitulation will attract others. If you face an unreasonable plaintiff, offers of judgment can at least shift the risk of costs. And involving the judge in settlement efforts very early on can work. There is no weakness in making clear that you will settle early to avoid costs of litigation, particularly if it is backed up by a willingness to go to trial if your adversary is unreasonable. You can often amortize the cost of the trial of a small case by pointing to it as an object lesson in the next hundred small cases that come your way.
Cases Too Large to Try
There are also cases where the stakes are so large that you may find it an unacceptable risk to go to trial. There are a few counterweights that can help. First, plaintiffs generally don't want to bet your company either ' the last thing any plaintiff wants is a claim in bankruptcy. Most plaintiff attorneys recognize that run-away verdicts are often thrown-away verdicts on appeal. As a result, the ransom demands will almost always come down in size once they read your body language and know you really are prepared to stand firm.
Second, judges are generally willing to scrutinize damage claims that are based on principles of terrorism; you will often find a friend in motion practice that's designed to reduce the range of damages and/or the risks of liability. Judges will often sense when the risk level is too high for a case to settle and will work with the parties to reduce that risk.
Third, exceptions notwithstanding, trials generally produce just results. Generally, the outcome reflects the vindication of an important principle. Generally, judges and juries follow the rule of law. Generally, the truth has an uncanny ability to come out.
The first case I ever tried involved a classic credibility dispute. The opposing party claimed it sent a letter, through counsel, making clear that it was not amenable to the deal that we alleged. We had little proof of the agreement ' but we had a client who believed in his cause and persevered in going to trial. My client was adamant that he did not receive the letter and that it was never sent ' because he had conversations with its author, an attorney, at the time that the letter was purportedly sent, who that was at odds with the substance of the letter. This was in the days when all lawyers in a firm were listed on letterheads. It was only the night before opening statement that we noticed a name in the list on the letterhead. The name was not on the letterhead in a letter dated a month earlier nor in the letterhead on a letter dated a month later. This name belonged to someone who was not admitted to practice law until a year after the letter was purportedly written. His name on the letterhead proved the letter was back-dated by a year.
Justice and truth have a way of coming out in the courtroom. Cross-examination is a great crucible that yields truth. It's why the institution of the trial has endured the centuries and been embraced by civilizations worldwide. Like every product and financial statement, litigation now comes with a disclosure: No one can guarantee the outcome. But aberrant verdicts are an exception that should not obscure a general truth: Those business leaders and corporate counsel who make a commitment to taking cases in which they believe to trial will find rewarding opportunities both in the courtroom and on the path there.
[IMGCAP(1)]
David J. Bradford, a Partner at Jenner & Block LLP, Chicago, is member of the firm's Litigation Department, and co-chair of its business litigation practice. Bradford has been lead trial counsel in numerous state and federal court lawsuits. He may be reached at [email protected].
The great civilizations, dating back to ancient Babylon, resolved disputes by conducting trials. There are many reasons why 'trials' have stood the test of time ' validated by centuries and civilizations ' as a universally recognized method of dispute resolution.
In the last few decades, 'going to trial' has lost its luster. Corporate counsel and business leaders have grown wary of the risk, expense and diversion of resources associated with trials. As plaintiff lawyers availed themselves of new theories of liability and liberal discovery, courts have grown congested and the road to verdict has grown longer. Trials have become synonymous within the business community with aberrant verdicts and wasteful expenditures of time and money.
In fact, a recent report by the Administrative Office of the U.S. Courts shows that fewer cases are going to trial each year, despite the consistently large number of cases filed. The report states that in 2006 there were 259,541 civil cases filed in federal district courts, a 2.5% increase from 2005. However, the number of completed trials decreased by 3.3%, and that's been the story over the last decade. In 1997, more than 10,000 trials were completed ' nearly double the 5121 trials in 2006 ' and each year the figure has waned, indicating corporate America's growing distaste for resolving its business differences in a court of law.
But for those who are willing to look past the generalities, there are valuable opportunities in the courtroom. There is no better time to buy, than when everyone is selling. The current aversion to going to trial creates genuine opportunity for those who are willing and able to embrace the time-honored process. To be sure, many disputes should never result in a trial. In fact, many disputes should never result in complaints or in litigation. But smart corporate litigation counsel are beginning to recognize that certain cases are better tried than settled.
Among other things, in-house counsel should more often approach their case management as if they are going to trial; consider the use of expedited or accelerated trial procedures where appropriate; and never lose sight of the fact that trial will always offer the opportunity to settle, if it's in the best interests of the company to do so.
The North Star of Case Management
In deciding whether to settle or proceed to trial, several issues warrant close scrutiny. While there are no hard and fast rules, there is a north star for finding the right direction: you should manage every case as if you are going to try it and you will find out quickly whether your adversary is prepared to do the same.
Because of the general aversion to trial, most parties believe from the outset of the case that it will settle; after all, 99% of all cases settle. So parties engage litigators at firms that were involved in the deal at issue; they engage litigators who are not trial attorneys; and they look for ways to convince the other side that they have risk and exposure, and wait for nature ' mediators and settlement conferences ' to take its predictable course. Those who assume their adversary will ultimately resolve the case short of trial create a dangerous vulnerability ' but one that is too infrequently exploited.
It is often clear very early in discovery and pre-trial motion practice, whether your adversary is really planning on trial. And when it is not, a favorable end ' either in the courtroom or settlement table ' is in sight, provided you are prepared to go the distance. Litigants who do not intend to try a case often signal that fact because they approach discovery as a means of imposing cost and disruption that make settlement attractive. Those who are really preparing to try their case are generally not interested in running roughshod in discovery. Rather, they approach discovery more thoughtfully as a means of blocking and tackling ' securing answers that foreclose certain testimony or theories at trial, and securing admissions and ammunition for cross-examination. When adversaries hear that you only need three depositions, not ten, to get ready for trial ' they understand you are interested in trying the case ' and not interested in shaking the tree.
Making an internal emotional and financial commitment that you are prepared to try a case, if necessary, has two obvious benefits ' it allows you to prevail in all those situations where the other side lacks that resolve, and it assures that you are never the victim of the safe assumption that the case will settle.
What happens when you meet an adversary who believes in its case and is prepared to present it in the courtroom? Often, you have a great opportunity to resolve your dispute efficiently and fairly. Litigants who are devoted to resolving their dispute in the courtroom ' rather than to using the litigation process to bludgeon the other into submission ' generally can agree on means to streamline discovery and trials.
A few recent experiences speak to the point.
Expedited and Streamlined Trials
We recently represented a party in a fairly complicated and high-stakes corporate control dispute. Our client asserted buy-sell rights in some 50 real estate limited partnerships in which a highly sophisticated Wall Street firm was the general partner. The general partner claimed to have lawfully sold the same properties to a third party buyer for whom it did investment banking work. The right to buy depended upon whether intercompany partnership transfers should be characterized as loans or distributions, and whether waterfall distributions to partners should be calculated on a partnership-by-partnership or pooled basis.
Notwithstanding the factual and legal complexity, we agreed to try the case within 60 days of the filing of the complaint and further agreed to limit each side to presenting their case in 8 hours. We completed fact and expert discovery inside of 45 days. Within two months of the filing of the complaint, the case was over. We spent less time and money trying the case than most parties spend in discovery in cases of comparable magnitude. The experience looks even better in hindsight because we prevailed, but regardless of outcome, the efficiency of resolution was hard to surpass in any alternative dispute process.
In most cases, it is in both sides' interest to go to trial on an expedited basis, with limited discovery and/or limited trial time. Cycle time is the single biggest driver of litigation cost. Compressing trial preparation and discovery requires focus on the 80% of the case that matters most. And making the offer to expedite sends an important signal to your adversary. An adversary's refusal to accept an offer to streamline and expedite often sets the tone for resolution of the case. It is clear who has blinked and who believes in their case. By pressing persistently for quick trial dates and for the close of discovery, you reduce costs and secure more favorable settlements.
Settlement During Trial
In fact, trial itself offers a continuous opportunity for resolution. My last two federal court cases both settled in the middle of the trial. In the first, the issue of whether our client had a right not to proceed with a merger upon a material adverse change in the performance of the target company. The MAC clause had a carve-out, if the change in business was the result of the economy; and the economy had gone into a modest recession between the agreement to purchase and the scheduled closing. The target company ultimately went bankrupt and blamed its demise on our decision not to close. The stakes were in excess of $200 million and the plaintiff believed that a local jury would be very sympathetic to them. We could not settle the case on reasonable terms until the plaintiff recognized that our client had the temerity to present its case to their local jury.
In fact, by the end of the cross-examination of the plaintiff's second principal witness, the plaintiff knew three things: the trial would go on for some time; the loser would appeal; and the jury probably had heard enough to form instincts about the case that would be hard for either side to overcome. Both sides were relatively bullish on their case and it likely remained impossible to agree on a settlement number. But we were able to agree on a means for settling the case by submitting it to the jury in the middle of the plaintiff's case, subject to 'brackets' on the result. Each juror was allowed to vote a private ballot: leaning plaintiff or leaning defense and each plaintiff ballot was worth money to the plaintiff on an agreed sliding scale. The plaintiffs traded in their in terrorem damages for the certainty of securing a modest recovery. The jury came back in the middle of the brackets. The case was resolved on terms that were significantly below any offer we had seen prior to the start of trial.
Of course, there are times when arbitrations provide quicker and less expensive forums than courtrooms. And there are times when mediations and early settlement discussions allow both sides to achieve outcomes that approximate trial results, without the expense and delay. But counting on mediation or settlement to take you out of harm's way is a dangerous way to conduct business.
Cases Too Small to Try
There are cases where the stakes are simply too small to warrant the expense of trial. In those cases, you should settle as early as you can unless you can recover fees or believe that capitulation will attract others. If you face an unreasonable plaintiff, offers of judgment can at least shift the risk of costs. And involving the judge in settlement efforts very early on can work. There is no weakness in making clear that you will settle early to avoid costs of litigation, particularly if it is backed up by a willingness to go to trial if your adversary is unreasonable. You can often amortize the cost of the trial of a small case by pointing to it as an object lesson in the next hundred small cases that come your way.
Cases Too Large to Try
There are also cases where the stakes are so large that you may find it an unacceptable risk to go to trial. There are a few counterweights that can help. First, plaintiffs generally don't want to bet your company either ' the last thing any plaintiff wants is a claim in bankruptcy. Most plaintiff attorneys recognize that run-away verdicts are often thrown-away verdicts on appeal. As a result, the ransom demands will almost always come down in size once they read your body language and know you really are prepared to stand firm.
Second, judges are generally willing to scrutinize damage claims that are based on principles of terrorism; you will often find a friend in motion practice that's designed to reduce the range of damages and/or the risks of liability. Judges will often sense when the risk level is too high for a case to settle and will work with the parties to reduce that risk.
Third, exceptions notwithstanding, trials generally produce just results. Generally, the outcome reflects the vindication of an important principle. Generally, judges and juries follow the rule of law. Generally, the truth has an uncanny ability to come out.
The first case I ever tried involved a classic credibility dispute. The opposing party claimed it sent a letter, through counsel, making clear that it was not amenable to the deal that we alleged. We had little proof of the agreement ' but we had a client who believed in his cause and persevered in going to trial. My client was adamant that he did not receive the letter and that it was never sent ' because he had conversations with its author, an attorney, at the time that the letter was purportedly sent, who that was at odds with the substance of the letter. This was in the days when all lawyers in a firm were listed on letterheads. It was only the night before opening statement that we noticed a name in the list on the letterhead. The name was not on the letterhead in a letter dated a month earlier nor in the letterhead on a letter dated a month later. This name belonged to someone who was not admitted to practice law until a year after the letter was purportedly written. His name on the letterhead proved the letter was back-dated by a year.
Justice and truth have a way of coming out in the courtroom. Cross-examination is a great crucible that yields truth. It's why the institution of the trial has endured the centuries and been embraced by civilizations worldwide. Like every product and financial statement, litigation now comes with a disclosure: No one can guarantee the outcome. But aberrant verdicts are an exception that should not obscure a general truth: Those business leaders and corporate counsel who make a commitment to taking cases in which they believe to trial will find rewarding opportunities both in the courtroom and on the path there.
[IMGCAP(1)]
David J. Bradford, a Partner at
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