Lawsuits in a Market Economy

The Evolution of Civil Litigation

Stephen C. Yeazell

• Publisher: University of Chicago Press
• Year: 2018
• ISBN:
  9780226546421
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

Some describe civil litigation as little more than a drag on the economy; Others hail it as the solution to most of the country's problems. Stephen C. Yeazell argues that both positions are wrong. Deeply embedded in our political and economic systems, civil litigation is both a system for resolving disputes and a successful business model, a fact that both its opponents and its fans do their best to conceal. Lawsuits in a Market Economy explains how contemporary civil litigation in the United States works and how it has changed over the past century. The book corrects common misconceptions—some of which have proved remarkably durable even in the face of contrary evidence—and explores how our constitutional structure, an evolving economy, and developments in procedural rules and litigation financing systems have moved us from expecting that lawsuits end in trial and judgments to expecting that they will end in settlements. Yeazell argues that today's system has in some ways overcome—albeit inconsistently—disparities between the rich and poor in access to civil justice. Once upon a time, might regularly triumphed over right. That is slightly less likely today—even though we continue to witness enormous disparities in wealth and power.The book concludes with an evaluation of recent changes and their possible consequences.

CHAPTER ONE

Civil Lawsuits in a Market Economy in a Democratic Federal Republic

Like many law schools, mine admits foreign lawyers to study US law. They arrive knowing a good deal more about US law than I or my students know about the legal systems from which these lawyer-students come. Some of the things they “know” are entirely accurate: that the United States is almost unique in having civil jury trials; that litigation plays a greater role in the political life of the United States than it does in the political life of most foreign systems; that the United States has class actions, which are unknown in most other systems. Like many Americans (including some members of the American bar), they also “know” some things that aren’t true—things about the amount of civil litigation and about the size of judgments, topics examined in this chapter.

When my foreign students evaluate the US legal system, some things surprise them and may strike them as odd or dysfunctional. One of these surprises comes from the wide fragmentation of power in the United States and the energy devoted to litigating which of the possible sources of power will have authority over a given case.

Much about US civil litigation has changed over the past century—sometimes to the point of unrecognizability. But this change has occurred within a framework fixed either by basic structural principles of government or by deeply embedded economic practices. Starting with these allows us to see what parts are bedrock and what are new, shallowly rooted landscaping.

The present regime, embodied in the US Constitution, divides governmental power between the states and the federal government and among the states. Whether and how this would happen have become part of history and of the national myth—the Articles of Confederation and their failures; the Continental Congress’s call for a group of delegates to consider revision; the delegates’ meetings, conducted in close secrecy, in the summer of 1787; the fateful decision to depart from their instructions and to draft an entirely new constitution; the debates over ratification; the ratification, closely followed by the adoption of the amendments constituting the Bill of Rights; and the Civil War, which followed half a century later and rewrote the social and political contract. The details of these events lie too far from the focus of this study to warrant rehearsal, but several of them established the uniquely American structure of civil litigation.1

The first, alluded to already, was the decision to establish multiple court systems. More precisely speaking, the framers of the US Constitution decided to leave in place the existing state court systems but to establish alongside them a federal Supreme Court and such lower courts as Congress might establish. Debates raged around who would appoint the members of the Supreme Court and whether it would be part of a “Council of Revision” empowered to reject unwise legislation. But there was never a serious discussion about creating a single, unified judicial system: such an idea, like the idea of an executive serving for life, might well have convinced the many who suspected that those favoring the new constitution were secret monarchists.1f

The decision to leave each state with its own court system means that in a good number of cases there will be at least two state courts in which civil litigation may occur. To take an easy and everyday example, a traffic accident on the New Jersey Turnpike, a crowded road feeding into New York City, can easily involve both a resident of New York and a resident of New Jersey. If a lawsuit ensues, the plaintiff (let’s suppose she is the New Jersey resident) may have a choice of suing either in New Jersey, where the accident occurred, or in New York, where the defendant (say, a New York trucking company) is located.2 Under modern law, claims having plausible connections with multiple states—say, a commercial transaction involving a product with subcontractors located in several states—may properly be conducted in any one of those states. Moreover, federal and state jurisdictions can overlap. For example, to stay with our auto accident in New Jersey, if the damages exceed $75,000 (easy to imagine, given the current prices of automobiles and medical care), a federal court can hear the claim, giving the plaintiff at least four different courts in which to bring a suit—state and federal courts in New York and New Jersey.3

For our purposes this jurisdictional multiplicity and redundancy gives US civil litigation a special cast: at its threshold often lie fierce battles about which jurisdiction may or must hear the case. These battles sometimes turn on homely facts: Had the plaintiff’s deceased husband moved his high school yearbooks to his new home in Kansas?4 Had the New York car dealership advertised in the national press? Behind these apparently trivial details lies the compromise struck in 1787, a compromise requiring the existence of state courts independent both of one another and, in most cases, of the federal judiciary as well. Federal judicial power trumps that of the states only when either a provision of the federal Constitution or a constitutionally enacted federal law displaces state law. Litigants on both sides exploit this jurisdictional multiplicity: they “shop,” as lawyers put it, for favorable substantive law and favorable (or sometimes simply familiar) procedures and for a favorable judge or jury. This jockeying for a friendly (or at least not an unfriendly) forum is a familiar theme in international disputes: everyone wants home field advantage. What surprises my foreign students is that the constitutional structure of the United States makes this jockeying a feature of domestic litigation as well.

A second important constitutional choice—this one made in both state and federal constitutions—was to continue (“preserve,” as the federal Constitution puts it) the use of juries in civil cases. Two aspects of the jury warrant special emphasis in this discussion. First, not all civil cases are triable by a jury. The federal Constitution (and its state siblings) froze into place an existing English-law division between cases triable by a jury and those triable by a judge sitting without a jury.5 The difference turns on highly technical distinctions: for our purposes it’s important only to note that the question is not “In what cases might a jury have the most to contribute?”6 Second, not only must the case belong to the class of cases triable by a jury, but one of the parties must ask for a jury. Because of these threshold requirements, much jockeying about who will hear a case can occur before a shred of evidence is presented.

For generations there has been a robust debate about the merits of the civil jury, and this is not the place to repeat that argument. Instead, consider the profound effect of the jury on civil litigation. First, because juries are temporary (most will serve only for a single trial) and composed of lay persons, they introduce an element of uncertainty into trials: professional training and folkways make the behavior of judges more predictable than that of jurors. Second, various rules of appellate review give jury decisions more insulation from reversal than equivalent decisions rendered by judges, so an outlier decision rendered by a jury may well withstand appellate review. Third, the presence of lay persons on juries exercises a continual check on the tendency of law to become complex, baroque, and ethereal. Systems administered entirely by professionals tend to become, over time, incomprehensible to outsiders. Law is no different. But because we assume jurors are ignorant of the law, we regularly have to explain it to them, formally in jury instructions delivered by the judge and informally in lawyers’ arguments to the jury. Any body of law that becomes too complex to be understood by a group of lay persons will not be applied properly. Occasionally lawyers have argued that their area has become too difficult for jurors to understand and that such cases should therefore be exempt from jury trial. Such arguments have lost. Juries remain, and it is law, not the jury, that has to do the adapting. As a consequence, the texture of the substantive law has to remain simple enough for jurors to understand. If one believes that complexity and nuance produce a finely tuned legal regime, the jury’s resistance to complexity counts as a drawback. If one believes that any legal system that becomes incomprehensible to its subjects is a system in trouble, juries’ tendency to inhibit complexity in law stands as a virtue.

One can also see in the civil jury’s fact-finding power a slight pressure away from “law” and toward “justice.” It is easy to overstate this tendency. Virtually every study reports that jurors take their constrained roles seriously, try very hard to apply the law as it is given them, and in a very high proportion of cases reach verdicts that match what the judge would have done in the same case.7 Unlike its criminal counterpart, a civil jury cannot reach a verdict that lacks factual support, but at the margins a jury may “read” facts in a way that favors one side over the other. As with the jury’s tendency to resist legal complexity, this power to introduce community sentiment into verdicts can be a force of good or an evil to be resisted, depending on where one sits. Its virtues are obvious: “hard” law sometimes conflicts with our sense of “what’s right,” and a jury’s power to uphold the latter over the former is the stuff of folklore that has some basis in fact. But community sentiment does not always represent the forces of light. Many believe, for example, that the US Supreme Court’s generations’-long delay in deciding whether civil rights employment discrimination cases must be tried by juries flowed from the justices’ fears that in some regions of the country jurors would regularly—and unjustifiably—disfavor plaintiffs of minority groups. Again, this is not the place to decide whether the civil jury has been a hero or a villain, but to note its special place in the structural characteristics that shape civil litigation in the United States.

Finally, the jury shapes procedure even in cases where no jury will sit, either because there is no right to a jury in a particular case or because there is, but the parties have not asked for one. In theory, those who created procedural rules could have created different procedures for jury trials and for those in which only a judge sits. The English had done so. But the states and the federal government took a different course, using the same procedure for both kinds of cases. That choice mattered because it dictated several features of US procedure that strike my foreign students as unusual. For example, when a trial begins, the parties have to be prepared to present all their evidence in a fairly compressed time. They cannot, as sometimes happens in other legal systems, present part of their case, wait for the judge to rule, and then, depending on his ruling, go back to gather evidence bearing on other parts of the case that the judicial ruling has now made salient. This requirement of a compressed presentation has two effects. In some cases it pressures parties to prepare to present or defend against evidence that turns out to be unnecessary; to that extent it is wasteful. On the other hand, having had to prepare the entire case—including anticipations of what the other side may do—can cause the lawyers and their clients to understand the case as a whole, its strengths and its weaknesses. Confronted with that comprehensive view, they may have a greater propensity to settle rather than to face the uncertainties of trial, especially a trial by jury. We shall return later to this culture of settlement and its consequences for modern civil litigation.

Stepping back from these specifics, one can see in all these features of institutional design a common consequence for civil litigation in the United States: substantial threshold fighting over the location and identity of the tribunal, what lawyers call forum selection. What court in what place will hear the case? Will a jury hear the case? There are, of course, legal ground rules for these questions, but many of the ground rules allow room for argument, and some of the arguments depend on factual matters. Consequently, the outcomes of these questions can be uncertain and can consume litigant and court time and money, and it is easy to criticize them as inefficient if one sees the inexpensive processing of disputes as the primary function of civil litigation. From this standpoint, this characteristic of US litigation—threshold disputes about the appropriate forum—represents either a quaint historical artifact or a major reproach to the system. But these issues also have continued political salience: a proposal to unify the court systems or to abolish (or universally extend) civil jury trials would fail, and the failure would be due not only to strategic lobbying by groups whose oxen would be gored but also to deep-seated constitutional understandings. So, as we observe such debates about forum recurring as a theme in twentieth-century civil litigation, we should bear in mind that these conflicts reflect a long constitutional history.

* * *

Constitutional choices created one form of dispersed authority in the United States. Choosing a market economy—a choice made in incremental and uneven steps over two-plus centuries—created another form of dispersion, with equally important consequences for civil litigation. Except perhaps for a brief period in the 1930s, when economic crisis caused a flirtation with more centralized control, the existence and primacy of markets as a form of economic organization has not been in doubt. Indeed, a significant goal of those delegated to consider changes in the Articles of Confederation was to create a government in which states could not “engage . . . in commercial discrimination against their neighbors.”8 Through a variety of constitutional provisions, the federal Constitution forbade such discrimination. Subsequent congressional action went further, to create a national market, though not without controversy. The largest political questions were over the extent to which the federal government should seek to foster and regulate a national market. In the first part of the nineteenth century, the off-and-on existence of the Bank of the United States marked the borders of federal power; in the second half, currency (hard or soft, gold or silver?) and the Sherman Act, which regulated monopolies, further defined the market conditions. As J. Willard Hurst, the pioneering legal historian, summed up, “Nineteenth-century lawmaking in the United States gave its energy more continuously and devotedly to building, extending, and implementing the market than to any other institution of society.”9 The twentieth century saw numerous efforts to regulate those markets, particularly the securities and financial markets, but at the start of the twenty-first century, many observers would still say that the US economy’s principal trait was the relative freedom of participants to structure transactions.

To say that the United States has a market economy is to say that numerous decentralized transactions drive our economic life: sales of land and agricultural products, timber and livestock, minerals, manufactures (these gained importance in the second part of the nineteenth century), services, loans, mortgages, pledges, partnerships, stocks and bonds—deals of all sorts. When these deals have gone bad, as they regularly have done, a lawsuit often has resulted, a suit likely resting on the law of contract.

In a market economy, contract claims will dominate civil dockets. They have done so and still do. As we’ll see in more detail in chapter 2, tort suits make headlines and the evening news teasers,2f but contract cases dominate in numbers and significance.10 Most civil claims in the United States rest on agreements. Many of those agreements are various credit arrangements—a loan, or an installment sale of goods or services, or, today, a credit card debt or unpaid check. The mix of these ingredients has differed over our history: the nineteenth century saw more suits involving land sales and various bills and notes; the latter part of the twentieth more credit card and installment sales. But in all periods these agreement-based claims have dominated. Can one say anything about their general characteristics? Because they are agreements, those who draft them have the opportunity to maneuver for advantage.

Those advantages fall roughly into three categories: first, the substantive terms of the deal, including price, interest rate, warranties, and the like; second, the number and kind of defenses the other party may assert; third, the forum in which a dispute must be aired. By and large, sellers and creditors will do the drafting, and thus they have the initial advantage in such terms. But the extent to which such efforts at gaining the upper hand will succeed varies by era and by jurisdiction: creditors and sellers may have had a greater advantage in the federal courts in the first half of the nineteenth century, while debtors and purchasers may have fared better in, say, California, in the latter part of the twentieth century. Though the tension in contract cases will be constant, the contested issues change over time and space. The defenses assertible on a bill of exchange (the ancestor of a check) were a contested issue in the early nineteenth century. In the early twenty-first century a similarly contested issue is the extent to which major credit-extenders can, by placing an arbitration clause in their standard agreements, take cases out of the court system—where they might face a jury—and into private arbitration. Again, individual litigants care greatly about the resolution of these questions, but for our purposes the key point is their persistence, in various guises, in an economic system resting on contract and a legal system that largely defers to those contracts.

Contract has a second defining characteristic reflected in the caseload and in individual cases: a built-in tension between flexibility and certainty. Contemporary economic life, from the stock market to property ownership to credit cards, rests on ingenious contractually created fractionated interests in “ownership,” interests that can be aggregated and disaggregated, securitized, and sold and bought, and also can change according t...

Table of contents

• Cover
• Title Page
• Copyright Page
• Contents
• Preface
• Introduction: Ladies and Gentlemen, We Have a Crisis, but What Is It?
• chapter 1.  Civil Lawsuits in a Market Economy in a Democratic Federal Republic
• chapter 2.  The Demography of Civil Litigation
• chapter 3.  The Economics of Civil Litigation
• chapter 4.  Privatizing Procedure, Restructuring the Bar
• chapter 5.  The Politics of Civil Litigation
• chapter 6.  Where We Are and Where We’re Going (and a Bit about Where We Should Go)
• Notes
• Footnotes
• Index