Originally printed in Management Magazine: UCLA Graduate School of Management Magazine Vol. 1 No. 3 Spring 1982
By Charles Rosenberg
I can see the scene vividly in my mind's eye: Galactic Robotics has just been sued by its major supplier, Robot Arms and Legs, Inc. Arms and Legs is claiming that Galactic owes $1 million for breach of contract. The Galactic Executive Committee has just met and agreed, unanimously and emphatically, that it owes Arms and Legs not one red cent. Indeed, the arms and legs supplied by Arms and Legs have malfunctioned, customers have been complaining, and, if anything, Arms and Legs owes money to Galactic.
Galactic has hired the best law firm in town. One of the executives has just been to a fancy seminar which has taught hi that the chances for success in litigation can be quantified at the outset. So he is dispatched to see the lawyers and told to press for a number. He does. "What are our chances?" "50% 60%? What do you think?"
The lawyer hesitates. This is an important client, and he doesn't want to appear stupid or unprepared--after all, he's been looking at the case for almost a week: "Well, uh, maybe 80%," he says, "although there are some problems."
They talk about the problems, but the executive returns to the Executive Committee, happy as a clam, to report that "the lawyers say" that we've got a good case, an 80% chance of winning. The Committee calculates that this means only a 20% chance of losing-a maximum exposure of $200,000- and vows to fight to the death.
Six months later, Galactic settles by paying Arms and Legs $500,000, $300,000 more than "predicted" by the 80% success analysis.
Now you may be thinking, well, there was nothing wrong with the analytic approach the executive took, the lawyer just got his analysis wrong. To the contrary, however, I would argue that the initial conversation between the executive and the lawyer bordered on being meaningless -that it provided about as much useful information as you get when you ask the National Weather Service if it will rain next Tuesday.
In the first place, to predict the outcome of a suit like Arms and Legs vs. Galactic, a lawyer must have information about both the facts and the applicable law. Unfortunately, at the outset of a litigation, lawyers usually cannot know all there is to know about those things. Some facts, for example, will be subject to dispute and some may even be entirely in the possession of the other side. And where the law is unclear (which it often is in some critical area), the resolution of the legal issues will be entirely in the hands of a judge. Thus, any initial prediction of the outcome of a litigation must contain a large margin of error. The lawyer for the Galactic might better have said to his client, "I think you have a 60% chance of winning, but depending on how certain facts and law turn out, your chances could vary by as much as 30% in either direction."
Second, litigation goes through distinct phases. Each phase is information-rich as to unresolved questions of both fact and law. As a result, both the initial prediction itself and the margin of error in that prediction inevitably change as the litigation progresses and more information is obtained. The Galactic lawyer might more accurately have said, "if you come back after each phase of the litigation is done, I will give you a new prediction of the outcome, with a smaller range of possible error."
Third, it may be largely irrelevant to focus primarily on depicting the ultimate outcome because most litigations are compromised far short of trial and have no clear cut winners or losers. For example, in the federal courts, fewer than 8% of cases filed go to trail. Most of the others end in some form of compromise. The Galactic lawyer might well have said to the Galactic executive: "Look, if you insist, I can give you a prediction of who will win, but let's be more realistic and talk about how to position ourselves to extract the quickest, most advantageous compromise."
I do not mean to suggest by this that litigation should not be analyzed at the outset. Indeed, people in business deserve and should ask for a "straight answer" from their lawyers about the course of a suit. I mean to suggest, rather, that litigation is rough terrain, and that an outcome analysis, to be meaningful, must take account of litigation's inevitable hills and valleys and twists and turns. This article is intended as a rough road map of that terrain, with a few tips for travelers.
Phase 1: Looking Down the Barrel of a Complaint
Lawsuits start, formally, with the filing of a complaint by the plaintiff. Since if is taken as axiomatic that most disputes are settled before they get to the complaint stage, it follows that almost ever complaint has been preceded by some attempt on the part of the litigants to resolve the matter short of litigation.
The filing of a complaint is thus likely to have behind it a history of disagreement and failed compromise, and therefore to be an act with some emotional content- the plaintiff is usually fed up, or angry, or, at the very least, despondent over finding a private solution to the dispute.
Despite the heavy emotional context, complaints tend to be unemotional, uninformative documents. Indeed, they usually contain only a barebones recital of the plaintiff's gripe- a skeletal story at best. For example, if Arms and Legs were to sue Galactic, the complaint would probably be only a few paragraphs long, and recite only the following: (1) that there was a contract between galactic and Arms and Legs to produce arms and legs, (2) the arms and Legs had carried out its part of the contract, and (3) that Galactic had breached the contract by refusing to pay Arms and Legs, thereby damaging it in the amount of $1 million.
Galactic would be then be required to file an answer. But answers are even more cryptic than complaints; they are not required to explain or defined anything, but only to admit or deny the complaint's skimpy allegations. So Galactic's answer would likely be only a few paragraphs long. In would probably admit that there was a contract, deny that Arms and Legs had carried out its part, deny that there had been a breach, and deny, accordingly, that Arms and Legs had been damaged in any amount.
Thus, this initial round of litigation provides no real information to the participants that they didn't already have. It resembles nothing so much as a ritual dance in New Guinea. Remarkably, however, the ritual leads to settlement, without further litigation, in perhaps 20% of cases filed. There are four factors which, I think, account for this phenomenon.
The first is catharsis and recognition. For the plaintiff, the filing of a complaint is a hostile act, a close analogue to punching someone in the nose. For the defendant, the suit is often felt as if it were a punch in the nose. Yet these very emotions can often set the stage for compromise. For the plaintiff, compromise may come to seem more palatable because of the cathartic value of having finally "done something." For the defendant, compromise may come to seem more agreeable because initial anger is often followed by the recognition that the adversary, disliked and perhaps even belittled, will not simply "go away" if ignored.
The second is information supplied by a neutral outsider, each party's lawyer. That lawyer will inevitably point out the weaknesses in the client's case (only the rare care is perfect), together with the cost of pursuing the adversary's unconditional surrender.
The third is the passage of time. Because an answer is usually not filed until a couple of months after the complaint is served, the plaintiff's symbolic punch in the nose and the defendant's reaction to it are usually embedded, glue-like, in a two or three-month period in which nothing happens.
The fourth is isolation. Before the suit, the plaintiff and defendant dealt with each other in increasingly emotional ways. After the filing, the plaintiff and defendant do not talk directly to one another. If they do communicate, it is through their lawyers.
The situation might be summed up this way: After the emotional high of getting the lawsuit under way, with both plaintiff and defendant wanting vindication, there comes a relatively quiet time when both parties are permitted to contemplate the weaknesses in their position and the cost of going forward. Because they no longer have to deal directly, but can deal through intermediaries (lawyers) who are as yet emotionally uninvolved with the dispute, disputes which seemed a few months before to be at an emotional flash point, can be, and often are, compromised.
This phenomenon has several implications for people in business who manage litigation. It means that it is probably best not to enter into litigation, as either plaintiff of defendant, thinking of it as a war which will be fought to unconditional surrender. It means that you should, a the outset, let your lawyer know what parameters of compromise are acceptable. Otherwise, you may leave the lawyer with the false impression that you are not interested in compromise or will think poorly of the lawyer for raising the possibility. Finally, it means that it is not always best to hire the lawyer who eats ball bearings for lunch. Lawyers who have a fuller range of emotions maybe better at exploiting the "natural" openings for advantageous compromise that occur in this and other phases of the litigation.
Phase II: Moving to Dismiss (Or Getting a Judge Involved)
The first phase of a lawsuit has little to do, except symbolically, with the courts. Although the papers are filed at the courthouse, no judge ruses to read them, and, absent something further being done by the parties, the court will take no action on its own. Metaphorically speaking, only a large filing drawer takes notice of the newborn suit.
Either party may change this situation by bringing a "motion," which asks the court itself to take action. Although there are many kinds of motions, the second phase of a suit is frequently dominated by a "motion to dismiss."
A motion to dismiss, if brought, is always brought by the defendant and can usually be filed either before or after the answer. It says to the court, in essence: "Look, the complaint here is fundamentally flawed and should be dismissed because a critical piece is missing." For example, a complaint for breach of contract must contain an allegation that there was a contract. In Arms and Legs' Complaint for breach had somehow failed to include that allegation, Galactic would be in a good position to move to dismiss on the ground that the complaint lacked that fundamental element.
A motion to dismiss, then, is analogous to urging that a runner in a baseball game failed to score because, although he rounded the bases, he failed to tag third base as he went by. The problem is that if the motion succeeds, the other side usually gets a chance to amend its complaint and correct the defect. It is as if a judge finds that the runner has indeed failed to tag third base but allows the runner thirty days to go back and try again.
Many motions to dismiss thus result only in the plaintiff sharpening the details of the complaint through amendment. This is sometimes helpful to the defendant in understanding what the plaintiff is really driving at, but it is not, in and of itself, usually a major matter. The real importance of motions to dismiss lies elsewhere. Specifically, in some circumstances they can provide a great deal of information about how the court will resolve disputed legal issues in the case. A more detailed look at Galactic's litigation strategy will illustrate.
As associate has written the following memorandum to a partner to Galactic's law firm:
You have asked me to explore how Galactic might legally avoid paying full price for the defective parts which it received from Arms and Legs, but which have, nevertheless, been used in products sold to customers. Astoundingly, I have discovered that there is some possibility that Galactic might have to pay nothing at all.
Last year the Congress passed the Interference with Free Enterprise Act of 1981. That Act provides that any supplier of robot parts must register with the Federal Robot Agency. If it does not do so, that robot parts supplier is barred from bringing any lawsuits in the United States. Looking at the Arms and Legs Complaint I note that they have not alleged that they have registered, and we might bring a motion to dismiss on that basis. Of course, if Arms and Legs has registered, they can simply amend their Complaint to so indicate.
More important, however, the Interference Act provides that if a registered robot supplier provides parts with do not meet certain quality standards, the purchaser need not pay for those parts at all, even if the purchaser uses them. This portion of the law was inserted at the last minute by Senator Drummond, whose household robots have apparently malfunctioned on a regular basis. Obviously, if we can show that the defects in the parts supplied by Arms and Legs fall below the Act's minimum quality standards, Galactic may get away without paying at all.
The lawyer for Galactic then brings a motion to dismiss, arguing that Arms and Legs cannot bring suit unless it registers, and that because Arms and Legs' complaint does not allege that it has registered, the complaint should be dismissed. Arms and Legs responds by arguing it does not have to register (and thus does not have to so allege in the complaint) because the Act applies only to suppliers and it is a manufacturer.
This is obviously a farfetched example. It illustrates, however, that the court, in ruling on the limited issue of whether Arms and Legs' Complaint must allege that it has registered under the Interference Act, will also have to rule wether the phrase "supplier" within the Act covers "manufacturers" as well.
If the court rules that the Act does cover manufacturers (and grants the motion to dismiss) Arms and Legs can simply register and then amend its complaint. However, such an amendment will permit Galactic to argue later that it owes nothing to Arms and Legs because the Act provides for no payments to companies who violate the Act's quality control provisions. On the other hand, if the court denies the motion to dismiss by ruling that the Act does not cover manufacturers, it will, in essence, have ruled that the Act is not applicable to Arms and Legs. This would gut a major thrust of Galactic's defense.
Although not ever motion to dismiss contains within it an important legal ruling, it is not uncommon. As a result, at he conclusion of the motion to dismiss phase, the terrain may well look very different than it did at the outset.
For those in business who manage litigation, the motion to dismiss scenario demonstrates that while important legal questions in a case can be identified at the beginning, they need not always wait until the end to be answered or clarified by the court. Hence, when a litigation begin, a litigation manger should obtain from the lawyer in charge a list of legal issues critical to the outcome. There should then be a discussion of the ways in which those legal issues can be clarified before trail, and of the methods, costs, benefits, and risks of obtaining early clarification.
Phase III: Discovering The Facts
Discovery is the anti-Perry Mason device of modern litigation. It is designed, if used properly, to get each side in a litigation to tell the other side almost everything it knows about the facts and, unlike, in a classic Perry Mason plot, to prevent surprise witnesses or documents at the trail. In other words, no one "confesses" on the stand in modern civil trials. The three most frequently used discovery devices are depositions (sworn testimony under oath, taken before trail), interrogatories (written questions to the other party) and various kinds of requests for documents and other materials int he possession of the other side or third parties.
An intended side effect of discovery is to encourage settlement. Each side learns both the strengths and weaknesses of the other side's case in more detail than originally available in the complaint or answer. The party who is the "target" of discovery also comes to understand better both the strengths an weaknesses of his own case. Finally, individual officers or employees of the parties themselves frequently participate in discovery. This often brings home that the litigation will be a long twilight struggle with little immediate gratification. All these factors create a psychological atmosphere which promotes compromise. Although there are no accurate statistics, I would estimate that 40-50% of all cases filed settle during or immediately after discovery.
Despite these sometimes salutory aspects, discovery can get out of hand. One of the most labor intensive aspects of litigation, it can become ruinously expensive- a cost out of all proportion to its benefit. This is particularly true when a lawyer tries to engage in "razed earth" discovery- i.e. attempts to discover every document, depose every person even remotely involved and ask each such person every imaginable question.
People who manage litigation need to be vigilant in preventing their lawyers from carrying out costly overkill, and instead to ensure that the lawyers engage in "pinpoint" discovery- deposing only critical witnesses, making their depositions short and to the point, requesting limited categories of documents, filing short and reasonable interrogatories, and so forth. To do this, though, litigation managers need to understand why lawyers sometimes engage in discovery overkill. It is not done out of foolishness or greed, but out of fear- fear that failure to obtain everything will somehow cause them to miss a key document or statement that will win (or lose) the case.
For a lawyer to engage in cost effective pinpoint discovery, the lawyer must be well informed about and comfortable with the case's facts and business context. Otherwise, the lawyer has little basis for judging what is likely to be important and what is not. Clearly, then, client participation in educating the lawyer about the facts of the case is critical to the cost effectiveness of discovery.
A litigation manager can start this process by pre-packaging the key facts for the lawyer- by preparing chronologies of events, by listing key players, by providing groups of important documents, and so forth. Once that is done, the litigation manager should participate in deciding who should be deposed and what they should be asked and should also have a hand in creating document requests and in drafting and responding to interrogatories.
Of course, the person in charge must have in mind during this process the cost/benefit analysis involved in deciding not to probe into apparently marginal areas. For while a good deal of money can be saved by excluding apparent irrelevancies from discovery, there is always a small risk that an important fact will thereby be missed.
Now you may be thinking that this all seems obvious, and it is. Yet, oddly enough, a significant number of clients distance themselves from this part of the litigation and seem to want the lawyer to do most of the work in putting the facts together. Other the years, I have come to think that this is mostly a function of the psychology of hiring a lawyer.* Unfortunately, hiring a lawyer is too often seen as hiring a gladiator to do battle on your behalf. And while there seems to be grudging acceptance of the idea that you have to pay part of the cost of the sword and shield, there seems to be a disinclination to accept he idea that you might have to walk out into the arena yourself.
Business managers of litigation who have this attitude need to change it, and to begin viewing litigation, not as a war, but as a complex management problem in which the legal task to be done are best accomplished as a collaborative effort. There is no better place than in discovery to apply that idea.
Phase IV: Moving For Summary Judgement (Or Ending the Ballgame Early)
At any point in the case, either the plaintiff or the defendant may bring a motion for summary judgment (although it is most often done when the mother motions and discovery have been completed). A motion for summary judgement is a request that the court enter judgement for one party (i.e. declare a victory) without bothering to have a trial.
The general theory of a motion for summary judgment is that the key facts are undisputed. Accordingly, if the applicable legal principles are applied to the facts it should be possible to determine the outcome of hte case without having the trial. It is as if someone said to the umpire in a baseball game, "Look, it's so clear who will win, that there is no point having the ballgame. It will just be a waste of time."
To illustrate, if we suppose that Galactic had won its motion to dismiss, but that Arms and Legs then amended its complaint to allege that it had registered under the Act, Galactic might now bring a motion for summary judgement. That motion would argue (1) that it is undisputed that Arms and Legs supplied robot parts which did not meet the quality standards of the Interference Act, (2) that the Act clearly provides under those circumstances that no payment need be made to a supplier/manufacturer of robot parts, and (3) that summary judgment can therefore be entered in favor of Galactic.
Obviously, then, the focus of argument in a motion for summary judgement is whether the key facts are key and whether they are really undisputed. Normally, the party making the motion for summary judgement attempts to prove that the key facts are undisputed by submitting sworn affidavits setting forth its "undisputed" facts. If the other party fails to contradict those facts by filing its own affidavits, a court will then normally conclude that the facts are undisputed and enter summary judgment. Of course the other side is usually able to cast great doubt on the "undisputedness" of key issues through its own affidavits.
Therefore, motions for summary judgment are rarely granted. They do, however, serve an important purpose by pinning down the other side as to its view of the facts and law. This is so because a motion for summary judgement is one in which the defending party can lose the ballgame. As a result, a party responding to such a motion usually pulls out the best that it's got. The response to the motion thus usually spells out the other side's legal and factual theories in some detail. And unlike responses to discovery, the party cannot afford to respond evasively.
There is also a downside to a motion for summary judgment. The other side can, and often does, file its own counter-motion for summary judgment. In other words, if one side says, "We should win this case without a trail," the other side usually says, "No, we should win this case without a trial." Although rare, it is not unknown for the party bringing the original motion for summary judgment to lose the counter-motion and thus end up losing the case.
Nevertheless, a manager of litigation should have the possibility of a motion for summary judgment high on the list of matters to discuss with the lawyers handling the case.
Phases V, VI and VII: Pre-trial, Trial and Appeal
By the end of the discovery and motion phases, approximately 80% of business cases filed have been settled or disposed of through dismissal or summary judgment. For those that are left, there remain the phases of pre-trial, trail and appeal.
Once the motions and discovery are over, many courts require the parties to enter a "pre-trail" phase. This is a phase in which the court itself becomes actively involved in eliciting from the parties what witnesses they plan to call at the trail, what documents they plan to introduce into evidence, and so forth. In recent years, however, because many judges do not like trails and regard them as wasteful, it has also become a phase in which judges try to pummel the parties into settling. These settlement efforts are frequently successful. For example, in the federal courts, of the 20% of civil cases that reach the pre-trial stage, approximately half are settled during pre-trial.
Of the trial phase, I will say only this: it is costly and extraordinarily wearing on everyone concerned. In the commercial litigation area, however, it is fortunately a relatively rare event.
If you lose the trial, you can, of course, appeal. But it is statistically unlikely that the result will be reversed. In the federal courts, for example, only about 20% of civil appeals result in reversal.
A parting note: If, at the beginning of a case, your opponents say that they are so angry they will "take it all the way to the Supreme Court," you are entitled to snicker. Of the more than 500,000 civil cases filed in the United States every year, fewer than 200 are ultimately decided by the Supreme Court.
* I have written more extensively elsewhere about the psychological relationship between clients and lawyers. "The Lawyer as Hired Gun," Los Angeles Lawyer, July 1979.