Friday, June 10, 2016

While We Were Grading: Recent Scholarship on Civil Procedure

Here are seven papers posted on SSRN in the last month relating to civil procedure issues:

  1. We Have a Consensus on Fraud on the Market -- And It's Wrong 

James C. Spindler (University of Texas School of Law; McCombs School of Business, University of Texas at Austin)


Recent scholarship overwhelmingly contends that the fraud on the market securities class action has neither deterrent nor compensatory effect and should be cut back or even abandoned entirely. This scholarship largely focuses on two critiques: circularity, which holds that shareholder class action claimants are suing themselves, making compensation impossible; and diversification, which holds that fraud constitutes a diversifiable risk, such that diversified shareholders both gain and lose from fraud in equal measure and hence are not negatively impacted. These critiques are arguably the most important and widely-used theoretical development of the last two decades in securities law, and enjoy a broad consensus.

Unfortunately, these critiques are wrong. After tracing the evolution of these critiques, this paper demonstrates economically that, despite widespread acceptance, none of the principal claims of these critiques are correct. In particular: fraud on the market does indeed compensate defrauded purchasers despite circularity (under certain conditions, perfectly); and diversified investors do have expected losses from fraud and have incentives to undertake deadweight precaution costs. Further, the fraud on the market remedy deters both precaution costs and, under certain conditions, fraud itself. The critiques are fundamentally flawed, the academic consensus on fraud on the market is incorrect, and the panoply of reform proposals based on these critiques is without foundation. These critiques have fueled a trend of cutbacks and ongoing existential challenges to fraud on the market (as in Halliburton) that, in light of these results, should be rethought.

  1. The Missing Branch of the Jury 

Suja A. Thomas (University of Illinois College of Law)

Ohio State Law Journal, Forthcoming


Over time, the criminal, civil, and grand juries have declined in power. Cost, incompetence, inaccuracy, and inefficiency are often cited as the reasons for this fall. Recognizing that authority that formerly resided in the jury has shifted to the traditional constitutional actors of the executive, the legislature, the judiciary, and the states, this article explores a new theory for the decline of the jury. In the past, the Supreme Court has used the doctrines of the separation of powers and federalism to protect the power of the traditional actors including the branches, while it has not used any similar doctrine to preserve jury authority. At the same time, the power of the jury has eroded. This article argues that the jury is effectively a “branch” of government — similar to the executive, the legislature, and the judiciary — that has not been recognized and protected. In many instances the Court originally found authority in the jury to later take the same authority and give it to a traditional actor. A novel study helps explain why the status of the jury has changed. It shows that legal elites and corporations appear to have influenced this shift against jury authority.

  1. Information & Settlement: Empirical Evidence on Daubert Rulings and Case Outcomes 

James C. Cooper (George Mason University School of Law - Law & Economics Center)


In 1993, the Supreme Court established a new standard for the admissibility of expert evidence with its decision in Daubert v. Merrell Dow Pharmaceuticals. Although whether Daubert actually has increased the reliability of expert evidence remains an open question, empirical research generally suggests that Daubert has increased the judicial role in expert testimony as the number of challenges has increased. An unexplored topic to date is how Daubert outcomes impact litigation outcomes. This paper aims to fill that gap by examining how Daubert outcomes in federal district court affect the likelihood and timing of settlement. This paper also fits into the larger empirical literature that explores how information flows impact settlement. The sample of 2,127 Daubert motions made in 1,017 private cases from 91 federal district courts, spanning from 2003-2014, and involving 57 different causes of action provides the most comprehensive overview of Daubert practice in federal courts to date. The main empirical results suggest that defendant Daubert wins (plaintiff wins) are associated with a reduction (increase) in the likelihood of settlement. Results from duration analysis suggest that longer pendency time for Daubert motions are associated with lower settlement rates (a 4-7 percent reduction in the rate of settlement for every month that a Daubert motion goes undecided). Decomposition finds that the indirect effect of Daubert pendency (delay due to the reduction in communication between parties while Daubert motions pend before the court) may account for the majority of the measured reduction in the settlement rate. These results suggest that courts might reduce the cost of litigation if they were to adopt “Lone Pine”-type procedures that structure expert discovery and concomitant Daubert motions early, especially when expert testimony is required to prove certain elements of a claim.

  1. Martinez v. DuPont: A Look at the Future of Forum Non Conveniens in Delaware Commercial Litigation 

Jacob J. Fedechko (Delaware Journal of Corporate Law; Widener University - Delaware Law School)

Delaware Journal of Corporate Law (DJCL), Vol. 40, No. 2, 2016


For over fifty years, foreign plaintiffs found Delaware to be a safe forum when brining a lawsuit against a Delaware entity, in part because of the State's strict forum non conveniens doctrine. But, as a result of the Delaware Supreme Court's decision in Martinez v. E.I. DuPont de Nemours & Co., the burden placed on defendants under the doctrine has been eased. The Supreme Court used Martinez as an opportunity to adjust the overwhelming-hardship standard in a way that will arguably lead to a more practical application of the forum non conveniens doctrine. In light of the case history and prior decisions, however, it is equally likely that this case will produce discord in the application of the doctrine by allowing trial courts to retain jurisdiction over corporate and commercial disputes while clearing their dockets of "less desirable" suits. The judiciary may be able to resolve this discord, should it arise, by turning to public interest factors.

  1. The Roles of Litigation in American Democracy 

Alexandra D. Lahav (University of Connecticut - School of Law)

Emory Law Journal, Vol. 65, 2016


Adjudication is usually understood as having two functions: dispute resolution and law declaration. This Article presents the process of litigation as a third, equally important function. Through the repeated performance of litigation, participants perform rule of law values and in so doing, form a collective democratic identity. Litigation does this in five ways. First, it allows individuals, even the most downtrodden, to obtain recognition from a governmental officer (a judge) of their claims. Second, it promotes the production of reasoned arguments about legal questions and presentation of proofs in public, subject to cross examination and debate. Third, it promotes transparency by forcing information required to present proofs and arguments to be revealed. Fourth, it aids in the enforcement of the law in two ways: by requiring wrongdoers to answer for their conduct to the tribunal and by revealing information that is used by other actors to enforce or change existing regulatory regimes. And fifth, litigation enables citizens to serve as adjudicators on juries. Unlike other process-based theories of the benefits of litigation, the theory presented here does not hinge on the sociological legitimacy of procedures or outcomes. The democratic benefits of these performances ought to be considered in the reform of procedural rules.  

  1. Aggregation by Acquisition: Replacing Class Actions with a Market for Legal Claims 

Charles Korsmo (Case Western Reserve University School of Law) & Minor Myers (Brooklyn Law School)

Iowa Law Review, Vol. 101, No. 1323, 2016


The traditional class action is broken, and we propose to replace it with a new mechanism for structuring mass claims: aggregation by acquisition. We argue that legal causes of action should be freely alienable, such that even small claims could be bought and sold. In such a world, financiers could purchase claims (or shares of claims) directly from individual claim holders, assembling a mass of claims that may be negative-value if litigated individually but positive-value when litigated together. Aggregation in this way would solve the same collective action problems as class actions and derivative actions, but without generating the serious pathologies that plague those procedural devices.

Our proposal may sound like a fanciful thought experiment, but in fact it is already at work in one small corner of corporate litigation: stockholder appraisal. We present the example of appraisal here — where claims effectively trade with shares of stock and where litigation appears strongly meritorious — as a microcosm of how aggregate litigation would work under our proposal. As we explain in this Article, our proposal would improve the deterrent effect of private litigation, would deliver faster and more concrete relief to injured persons, and would minimize the volume of nuisance litigation. While aggregation by acquisition may hold promise across a broad swath of substantive law, it could most easily be put into practice in corporate and securities litigation. We outline the reforms necessary for doing so. Extending our proposal to other spheres of litigation would be more complex, raising many serious but potentially surmountable obstacles.

  1. Adversary Breakdown and Judicial Role Confusion in "Small Case" Civil Justice 

Jessica Steinberg (George Washington University - Law School)

BYU Law Review, 2016 Forthcoming


This Article calls attention to the breakdown of adversary procedure in a largely unexplored area of the civil justice system: the ordinary, two-party case. The twenty-first century judge confronts an entirely new state of affairs in presiding over the average civil matter. In place of the adversarial party contest, engineered and staged by attorneys, judges now face the rise of an unrepresented majority unable to propel claims, facts, and evidence into the courtroom. The adversary ideal favors a passive judge, but the unrealistic demands of such a paradigm in today’s “small case” civil justice system have sparked role confusion among judges, who find it difficult to both maintain stony silence and also reach merits-based decisions in the twelve million cases involving unrepresented parties.

This Article contends that the adversary ideal is untenable in the lower civil courts. Appellate courts and ethics bodies have virtually ignored this problem, with the result that judges are left to improvise a solution. Indeed it is now routine for judges to flout tradition and doctrine by concocting ad hoc and unregulated procedures that assist the unrepresented with fact development and issue creation. This Article argues that such efforts should be formalized and regularized through an affirmative duty on judges to develop the factual record in cases that arise in the lower civil courts. In complex federal litigation, adversary norms have evolved and the judicial role has been greatly enhanced to manage the unique pre- and post-trial needs of cases with numerous parties and high public impact. This Article argues for a parallel framework to enlarge the role of the judge in small, two-party civil cases. An affirmative duty may chafe against orthodox notions of the judge as “passive arbiter,” but it would harmonize the disparate procedural practices already in use in the lower courts and go a long way towards resurrecting the procedural values of accuracy, impartiality, party voice, and transparency in civil adjudication.

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