Arbitration often isn’t fast and cheap.

I’ve written before that the instinctive preference many express for arbitration over litigation in court is not always good for the client. But now it seems, according to Law.com, that litigators are beginning to question the very basis of that instinctive preference — that arbitration is faster and cheaper:

Large-scale commercial contracts often include arbitration clauses in the hopes of avoiding large-scale commercial litigation. But litigators are starting to find the quicker, cheaper, more private aspects of arbitration have turned into lengthy, expensive and often public quasi-trials.

This has a growing number of attorneys advising clients to either take their chances in court or tailor very specific arbitration clauses with the hopes of limiting the expense of arbitration. It’s a slow-moving process, however, as litigators are rarely consulted when corporate attorneys are drafting contracts.

In the old days, Cozen O’Connor litigator Philip G. Kircher said, arbitration used to mean a six-month process “from cradle to grave.” There was very little discovery, fewer depositions and less case management. The parties would go before one or three arbitrators and have a short, informal hearing with the rules of evidence more relaxed than in court.

As arbitration became more popular because of the expense of litigation, corporations’ growing distrust of juries and the length of time it took a case to get to trial, the arbitrators became all the more sophisticated. That resulted in the parties asking more of those arbitrators in terms of complex discovery, more depositions and pretrial conferences, he said.

“Slowly but surely, what was once supposed to be fast and cheap was becoming probably just as expensive, if not more so, than going to court,” Kircher said.

Kircher had two arbitrations recently that have gone through weeks of trial, hundreds if not thousands of exhibits, dozens of witnesses and lots of briefing. The panel then sits with the cases for months to review all of that material.

“Even when there’s a final award, more often than not the losing party tries to find a way to appeal it anyway, so [it gets] hung up for another year before the award is rendered to judgment,” Kircher said.

He is part of a growing segment of attorneys who would rather have the security of an appeal and the finality of a court decision by taking their cases to court. Kircher is advising his clients to create clauses in their contracts that agree to have a nonjury trial in the event of a dispute or at least agree on a certain jurisdiction, preferably in federal court.

[Hat tip to Philip Loree.]

Using the legal system to intimidate — Cook County Prosecutor and Northwestern’s Medill Innocence Project

Before beginning my teaching career, I was a commercial litigator for almost 12 years. As a result, many think I’m one of those people ready to sue at the drop of a hat. But I think that litigators might be among the most litigation-averse people around — we know the price litigation extracts, and we know it’s one of the least desirable means of dispute resolution around. (That’s not to say it isn’t crucial — one has to resort to bold and difficult measures when others fail.)

So litigators know too that suing people — forcing them into litigation — is a powerful weapon. Sometimes it is used flat out to intimidate. An example of litigation being used for, apparently, nothing but intimidation is pointed out by techdirt:

The Medill Innocence Project at Northwestern University “gives undergraduate students firsthand experience in investigating wrongful convictions.” The Project’s efforts have freed 11 prisoners, including 5 who were on death row. But now, according to the Chicago Tribune, in preparation for a hearing the Project’s efforts have won for another prisoner, “[t]he Cook County state’s attorney subpoenaed the students’ grades, notes and recordings of witness interviews, the class syllabus and even e-mails they sent to each other and to professor David Protess of the university’s Medill School of Journalism.”

I can’t say I disagree with Northwestern’s lawyer, who said the prosecutors subpoena is “an unwarranted fishing expedition that focuses on the messenger — rather than on the possibility that an innocent man has spent more than three decades behind bars. Prosecutors, he said, ‘seem to be peeved’ at the Innocence Project for uncovering a wrongful conviction.”

The new economy, the billable hour, and law school tuition — change is afoot.

When things change, things change.

I’ve written at length before about the perversities created by the hourly rates charged by lawyers. Hourly billing has been the standard practice in most of legal practice for the past 50 years or so. The practice on its face is troubling — just as our current health insurance scheme provides incentives for doctors and hospitals to do and bill more (and, conversely, to engage in less preventative medicine), so too does the billable hour provide incentives for lawyers to do more and, therefore to bill more.

The system has maintained itself in the same way many of our economic practices have maintained themselves — by means of an every increasing pie. And from the provider end the inflation worked its way down to every level — bills, salaries, hours, and law school tuition all skyrocketed. The tuition rise could be paid for by loans that could be paid with inflated salaries. The inflated salaries were paid by inflated bills, which were produced by inflated hours.

And in 2008 the whole edifice came crashing down. Now, all the talk is about different billing practices.

We’re all still waiting for the change, however. One outcome of a change would be, I hope, a decrease in the use of sheer economic weight to out-litigate an economically disadvantaged adversary. As things stand, as much as I hoped always to be efficient for my client, the adversary would require me to do more than I otherwise would if the adversary chose to contest every matter and to thoroughly investigate every single piece of discoverable evidence (no matter how trivial or irrelevant).

And U.S. students are desperate for relief from the tuition costs the billing practices have raised. Legal jobs are scarce, and those that exist are at depressed salaries. But tuitions have not yet come down. They’re going to have to.

Wind of Change: Education and democracy are the ways to wind power.

Legal disputes may be arguments over the meaning of laws, but they are even more importantly disputes over different views of what is right, what is just, what is fair.  And the practice of law is, above all else, the practice of problem solving and dispute resolution.  The laws and the procedures are really only vehicles for solving the problems created by those disagreements about values.  There may be no more concise a way to sum up why yesterday I wrote that the most difficult part of practicing law isn’t learning the laws and the procedures but,  rather, learning how to apply the law in an infinitely complex world.

So I could pretend that there’s some deep significance in the fact that four weeks ago an appellate court in New York rejected the lawsuit instituted by the Wind Power Ethics Group (WPEG) — a citizens’ organization based in upstate New York — in an effort to stop the proposed construction of a series of wind-powered generators by St. Lawrence Windpower, LLC.  According to WPEG, the project is one of a four wind projects that, if completed, will “create a continuous swath approximately 25-30 miles east to west . . . where wind turbines will be ubiquitous.”  The result, WPEG continues, “amounts to an unacceptable sudden and uncontrolled environmental transformation of an entire region of New York State driven by corporate greed and questionable ethics.”  The court rejected WPEG’s claim (opinion, pdf)  that the local zoning board had been mistaken in ruling that St. Lawrence Windpower’s project “qualified as a utility and that the project therefore was a permitted site plan use in that district.”

More specifically, the court ruled “that the classification by the [zoning board] of the series of wind-powered generators as a utility within the meaning of section 315 of its Zoning Law is neither irrational nor unreasonable, and that the determination is supported by substantial evidence.”  But if you think that the important parts of this court case were the meaning of the word “utility,” how courts distinguish between rational and irrational classifications, and how much evidence is “substantial” evidence, you’re sadly mistaken.  I’m not at all suggesting that lawyers don’t need to understand these matters; rather, what I’m suggesting is that these legal issues are merely vehicles in which what really is being decided is the justice of placing a series of wind power projects in an area extending 30 miles in one of the most beautiful parts of our continent. In short, the real issue (which might have been, but likely was not, most readily shown through the events leading up to and resulting in the zoning board’s decision) is whether the opponents of the wind power projects should (as a matter of justice) prevail over the proponents of the projects.

It is plain that one source of opposition is the NIMBY syndrome.  People will protest — and sue — to keep whatever they fear and loathe away from where they live.  But they will also protest and use the law to fight whatever is imposed on them without any consideration of their views.

The Danish Wind Industry Association has looked closely at attitudes to wind power, observing, in a paper entitled “Public Attitudes Towards Wind Power” (pdf), that in general opposition to wind power comes from people who do not think it is a practical solution to our energy problems because it is too expensive and unreliable (because of its dependence on the wind) and because wind turbines are ugly and noisy.  Supporters of wind power, on the other hand, believe it is a practical solution to our energy needs, that climate change poses risks that must be addressed, and that wind power is limitless, non-polluting, and safe.

But when confronted with the prospect of wind turbines in their own neighborhood, supporters tend to lose their enthusiasm:

There is a great difference between wind energy as an idea and wind turbines as acceptable structures in the landscape. As we have seen people support the general idea of renewables and wind power. But when it comes to actual projects in a local area, the acceptance of wind power seems to vanish. This pattern is called the “Not In My Back Yard” syndrome or in short just the NIMBY syndrome (Paul Gipe, 1995). The basic theory is that people support wind energy on an abstract level but object to specific local projects because of the expected consequences concerning primarily noise and visual impact. The NIMBY syndrome is not a special feature for wind power. It can be detected in many other situations. New highways, bridges, tunnels, hospitals, airports, nuclear power plants, and other energy generating plants all face resistance at the local community level.

Nevertheless, the support returns among people who actually do live with wind turbines in their back yards.  The “latest study done in Denmark (Andersen et al., 1997) . . . shows “some interesting results.”  The study was conducted in the town of Sydthy, which has a population of 12,000.  98% of Sydthey’s energy iis provided by wind power.  Many of Sydthey’s turbines date from the early 1980′s and therefore are smaller and noisier than more modern turbines.  The study shows “that people with a high degree of knowledge about energy generation and renewables tend to be more positive about wind power than people with little knowledge.”

First, proximity to turbines has no significant correlation to support or opposition to them (though, surprisingly, the people with wind turbines almost literally in their back yards are more positive about wind power than people living further away):

The distance to the nearest turbine has no effect on people’s attitudes towards wind turbines in general. This indicates that people living close to wind turbines do not consider noise and visual impact to be significant problems. As a matter of fact people living closer to the nearest wind turbine than 500 meters tend to be more positive about wind turbines than people sited further away from the turbines.

In addition, the visibility of turbines seemed to have no effect on attitudes toward wind power (but  increased numbers of turbines seem as surprisingly attractive as turbines next door: “people who could see between 20 and 29 turbines tended to be more positive about wind energy than people being able to see only a smaller number of turbines.”)  Perhaps confirming the stereotypical rural contempt for the tendency of city dwellers to romanticize nature, “people living in a city zone (defined by speed limits) tend to be more negative than those living in a country zone.”   Four out of five Sydthey residents “do not feel bothered at all by noise made by turbines,” and “[a]s expected, the longer people live near the turbines the fewer experience noise inconveniences.”  Finally, middle-aged people are most sensitive to the noise of turbines, men perceive the noise to be louder than do women, and people who have a more favorable view of the utility of wind power feel less inconvenience.

One might conclude that the solution to the NIMBY problem, then, is increased information, but the Danish Wind Industry Association recognizes that inference may be too simplistic or, at least, incomplete.  As is apparent from WPEG’s assertion, mentioned above, that its opposition to the wind power projects in the Thousand Island region is based on its opposition to “corporate greed and questionable ethics,”

people in areas with significant public resistance to wind projects are not against the turbines themselves, they are primarily against the people who want to build the turbines. Often the local people are kept out of the decision making process. Some have hostile attitudes against the developers, the bureaucracy or the politicians on beforehand. Those factors have a significant effect on public attitudes in a specific area. Attitudes towards concrete projects are site specific. They are primarily formed by the interaction with central actors and the extent of involvement of local interests are a major explanatory factor.

So the answer is no merely to educate people on the practicality, aesthetic quality, and relative quiet of wind turbines.  It is to get people involved.  Another recent study shows that “85 per cent of the population wants to be kept informed about plans for new windpower. . . . 49 per cent said they would definitely go to public meetings if such meetings were arranged.”

Unfortunately, wind power developers may not have yet gotten the message.  “[I]n less than 50 percent of German wind power projects local inhabitants were given opportunities to articulate their opinion during planning phase. And in only 8 per cent of the cases where people were actually heard, did the developers hold information meetings. In one out of three cases the public had actual influence on the siting process typically through legally prescribed access to present formal objections.”

As Steffan Damborg, the author of the Danish Wind Industry Association’s article concludes, “Decision making over the heads of the local people is the direct way to protests.”  I would add only this: decision making over the heads of people affected by the decisions is the direct way to lawsuits.  The lawyers representing the parties to the lawsuits probably don’t mind, but the rest of us should.

Requiring McDonalds to disclose the calories in the Big Mac: good for consumers, or treating customers like idiots?

Today’s Wall Street Journal Law Blog has a post that nicely summarizes the varyious views on the impact of individual lawsuits on corporate behavior.  Referring to an article in the Wall Street Journal by Nathan Koppel (subscription only), the blog explains that “a surge in litigation against food companies for allegedly selling unhealthy products and for misrepresenting their products’ nutritional value” has led the food companies to adopt “a host of health-promoting steps, like reducing their use of trans fats, limiting marketing of sugary products to children, and toning down boasts about their products’ nutritional value.”

Thus, for example, in New York Restaurant Association v. New York City Board of Health (pdf), the United States Court of Appeals for the Second Circuit upheld a New York City law requiring restaurant chains to post calorie information on their menus.  In doing so, the court rejected the argument that the fact the restaurants already satisfied the federal regulations on required disclosures issued by the FDA meant that the city’s regulations were “pre-empted.”

As I mentioned last month, the U.S. Supreme Court recently rejected arguments by a pharmaceutical company that having satisfied FDA labeling requirements, it should not also be subject to state law that imposed even stricter requirements on the company regarding what it must warn about in selling its drugs.  The Supreme Court in that case emphasized the important role litigation plays in supplementing federal regulation, pointing out that regulatory agencies are limited in what they can do and should not be relied upon to alone police an industry unless Congress makes it clear that the agency is supposed to have that exclusive authority:

The FDA traditionally regarded state law as a complementary form of drug regulation. The FDA has limited resources to monitor the 11,000 drugs on the market, and manufacturers have superior access to information about their drugs, especially in the postmarketing phase as new risks emerge.

A lawyer in the New York Restaurant Association case argues, though, that such lawsuits are “part of a larger ‘paternalization of society,’ adding that such litigation ‘in effect, says the masses aren’t intelligent enough to understand what they are buying.’” He is not alone in his sentiments, even if he lost his most recent case.  Michael Doyle, a reporter for McClatchy’s Washington Bureau, wrote in the aftermath of the decision that the “calorie police have won another one.”

War is Peace, or They can sue, but you can’t.

There is wisdom and responsible citizenship, and then there is mindless use of law to advance whatever selfish interests one has when one has them.  May my students know the difference, and may they not serve clients who want the latter at the cost of the former.

In November 2006,  the Committee on Capital Markets Regulation issued a report arguing for cutting back on regulation of financial markets, for limitations on private lawsuits and on lawsuits by state attorneys general, and for increased restrictions on the ability of the Securities and Exchange Commission to issue new rules. The Committee on Capital Markets Regulation was a private group, but it had prominence.   Its co-chairs were R. Glenn Hubbard, the dean of the Columbia University Graduate School of Business, and John L. Thornton, the chairman of the Brookings Institution, its formation was endorsed by then-Treasury Secretary Henry M. Paulson Jr., and a significant part of its funding came from the Starr Foundation, started by Maurice R. Greenberg, who had in 2006 recently been deposed as Chairman of AIG.

Greenberg and AIG were notoroius for their hostility to lawsuits.  It figures — AIG is (was?) an insurance company, and liabilities are what insurance companies are supposed to pay for.  As the founder of one law firm I worked for, Gene Anderson, always says, “Insurance companies are in the business of collecting premiums and denying claims.”

Now, though, Greenberg no longer heads AIG and AIG showed itself incapable of paying for the liabilities it had collected premiums to insure.  So their minds seem to have changed.  Greenberg has become a lawsuit enthusiast, most recently suing AIG for for securities fraud based on alleged “‘material misrepresentations and omissions’” that  caused him to acquire New York-based AIG shares in his deferred compensation profit-participation plan at an ‘artificially inflated price.’”

And I just read that AIG commenced a lawsuit last month against the federal government seeking a return of $306 million in taxes it claims it should not have paid.  The claims include taxes paid in connection with AIG’s financial products unit (“the once high-flying division that has been singled out for its role in A.I.G.’s financial crisis last fall”), and “AIG offshore entities whose function centers on executive compensation and include C. V. Starr & Company, a closely held concern controlled by Maurice R. Greenberg and the Starr International Company.”

As the New York Times puts it:

A.I.G. is effectively suing its majority owner, the government, which has an 80 percent stake and has poured nearly $200 billion into the insurer in a bid to avert its collapse and avoid troubling the global financial markets. The company is in effect asking for even more money, in the form of tax refunds. The suit also suggests that A.I.G. is spending taxpayer money to pursue its case, something it is legally entitled to do. Its initial claim was denied by the Internal Revenue Service last year.

And if you think corporations should be liable to individuals for damages their products cause, that taxes should be raised on the people who earn more than 95% of our citizens, and that we should tax the inheritances of heirs who have done nothing to earn that money, you’re accused of engaging in “class warfare”?  I’ve got news for you: they struck first.

You don’t have to sue — defamation and exposure

Another key to representing a client well is to ignore things better forgotten.  From CNet: a chiropractor sued an individual who had posted a negative review of the chiropractor online.  The chiropractor’s attorney is quoted as saying that the issue in the case is whether the review stated facts or the reviewer’s opinions:

“[My client] has no problem with people expressing their views and opinions about his service, . . .  [b]ut there is a line where if someone, even on . . . on the Internet, publishes a false statement of fact as opposed to an opinion, then that person can and should be held responsible for their words.”

But a bigger issue may be that the chiropractor’s billing practices are at the center of the defamaion lawsuit, and all the defamation lawsuit has done so far is highlight the fact the chiropractor bills insurance companies more for his services than the prices he quotes to patients.

Litigation is a public event.  Court files are open to the world.  When you sue someone, you often open up to inquiry a lot you never thought might see the light of day.  You and your lawyer need to consider these possibilities seriously before you sue.  No matter how good a lawsuit you have, you don’t need to sue, and it might turn out that even if the lawsuit alone seems to have an upside, the downside it poses to your life makes it not worthwhile.

Involved in a lawsuit? Be ready to welcome the world into your life.

One of the downsides of engaging in litigation, even on behalf of a righteous cause, is the way in which you must open much you consider private not only to your adversary but often also to the public.  Your motives, your finances, your personal relationships, and, in certain circumstances, your physical and emotional health will be subject to inquiry in the course of a lawsuit.  Often, these questions and answers will be part of the public record.  Court records, after all, are public records.

Fortunately, unless you are considered newsworthy, most of the public will not go rooting through court files.  It is inevitable, though, that the new technologies and media outlets will be used to exploit the exposure of personal matters.

So I am not surprised that, as reported in the ABA Journal, “Outraged by deposition testimony in a fraud suit against a Houston automobile dealership, a client of a Texas attorney arranged, with the lawyer’s help, to post a six-minute excerpt on YouTube.”

In this case, the judge ordered the post taken down (because the deposition was not yet part of the public record in the case), but he refused to sanction the lawyer and client who had initially posted it. “However, the final salvo hasn’t yet been fired in battle to publish the deposition excerpt on YouTube. [The plaintiff's attorney] plans to file a written transcript of the deposition at the courthouse, as part of the record in the case, and then post the full deposition on the site. Under those circumstances, says [the defense lawyer] . . . , his client would be unlikely to protest.”

Litigants gone wild

Most legal disputes don’t become lawsuits. Most civil lawsuits (approximately 98%) settle before trial. Why? Once evidence and cooler heads come into play, reason takes over. Thus, most lawsuits that go on at any length, much less to or even beyond trial, arise for one of two reasons: (1) the adversaries each have reasonable grievances and legitimate grounds with which to press them, or (2) at least one of the parties is out of his mind.

An example of the latter type is described by MercuryNews.com and in its own farcical way brings to mind Jarndyce v. Jarndyce:

The case so far has spawned more than 53 court appearances and a stack of documents a foot tall. A judge was forced to withdraw in the middle of a key hearing; the matter has been appealed as high as the California Supreme Court; and the legal drama that just won’t die is still dragging on after three years.

An international identity-theft ring? Gang-related homicides? Some horrible child abduction case?

Not even close.

The case that won’t quit concerns two scratch marks less than 6 inches long on the rear door of a Toyota RAV4. Damage to the electric vehicle: $653.13. Owner and alleged victim: Silicon Valley tech millionaire Steve Kirsch.

Santa Clara County prosecutors say Kirsch’s involvement had nothing to do with why they accused two people in 2005 of felony vandalism – a stiff charge that carries a maximum penalty of three years in state prison and has set off the avalanche of legal maneuvers.

The car was keyed, prosecutors allege, in retaliation against Kirsch, an avid anti-junk-fax crusader who had taken one of the defendants to court for sending multiple unsolicited faxes.

This was more serious than your average vandalism,” said Deputy District Attorney Pinaki Chakravorty, one of several prosecutors involved in the case over the years. “Kirsch’s power, influence and wealth had nothing to do with it. They didn’t get what they wanted in court and they tried to intimidate the person who brought the case.”

Just one teensy glitch in the object lesson for would-be vandals: One of two defendants — Howard Herships — turns out to be a self-styled legal beagle who continues to deluge the courts with motion after motion.

Herships, 64, of San Francisco, said he’s been unfairly charged and vows to fight the case at the county’s Hall of Justice, which he calls the “Hall of Injustice.” The other defendant cut a deal without implicating Herships and had the charge wiped off the books.

“This case is insane,” says Herships. “It was only charged in the first place because Kirsch is very influential in Santa Clara County and probably worth about $200 (million) or $300 million.” . . .

A trial to resolve the matter is set for Dec. 15, but everyone involved with the case that won’t die is resigned to another delay. A judge last year reduced the charge against Herships to a misdemeanor, which carries a maximum of a year in county jail. But he’s more likely to wind up being put on probation — if a jury doesn’t walk Herships. Regardless, Deputy District Attorney Marisa McKeown, who’s now handling the case, says the county will not drop it as a matter of principle.