Blawgletter®

Business Torts Ain't What They Used to Be (in Texas)

On this springy Friday, when the world looks new and everything again seems possible, Blawgletter offers a second installment to a thingy we've undertaken to pen for the Litigation Section of the State Bar of Texas in its new Hot Topics for Trial Lawyers:

Let’s take another stroll down memory lane, shall we? Back to when Texans knew more about tortas than torts. Before our legislature started winging personal injury torts and business torts with the same buckshot. 

Now we take up what UT Law Professor David A. Anderson calls “judicial tort reform” - specifically the Texas Supreme Court’s role in making tort cases harder for plaintiffs to win. See Judicial Tort Reform in Texas, 26 THE REVIEW OF LITIGATION 1 (2007). Gary P. Nunn’s London Homesick Blues will furnish our background music.

Putting ourselves back in that place again. A quarter-century ago - a mere decade after the Lost Gonzo Band recorded the epochal Viva Terlingua! album in the Luckenbach Dancehall - torts enjoyed a golden age in Texas, in large part because a let-the-jury-decide attitude prevailed on the Supreme Court. Holdings that reflect that view include:

• Reviewing courts must disregard all evidence that tends to negate a jury finding of gross negligence. Burk Royalty Co. v. Walls, 616 S.W.2d 911 (Tex. 1981).

• A jury may award damages for any percentage of harm that defendants’ conduct caused - even if the plaintiff caused more than 90 percent. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414 (Tex. 1984).

• If a defendant denies making a promise, a jury may find that he made the promise with intent to defraud. Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432 (Tex. 1986). 

The Court also, um, neglected procedural matters that might hinder trial on the merits. Before 1995, for instance, the Court seldom rejected expert evidence. Despite a complete re-write of the class action rule in 1977, the Court didn’t reverse a single class certification order until 1996. And only in the following year did the Court revive forum non conveniens as a doctrine allowing dismissal of cases that involve foreign corporations as plaintiffs.

I’m leavin’ just as fast as I can. The 60 Minutes report in late 1987 on the coziness of some justices with the personal injury bar - that “Justice for Sale” thing - helped prompt a backlash. At that moment, Democrats - as they’d done since 1876 - held all the positions on the Court. Then the Dems commenced a not-entirely-voluntary exodus. Three Republicans sat on the Court in 1988-90, four during 1991-94, five in 1995, six in 1996-98, and nine since 1999.

When a Texan fancies, he’ll take his chances. Has the change in personnel made business tort litigation riskier for plaintiffs? Yes. Heavens, yes. As UT Law Professor Anderson found, defendants won a whopping 87 percent of tort cases in the Supreme Court of Texas during 12 months in 2004-05. 

Interestingly, the cornucopia of defense victories resulted mostly from the harsher way the Court interprets statutes, construes pleadings, applies procedural rules, and reviews evidence. “No evidence” analysis of verdicts has proven especially fatal for plaintiffs. See City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (holding that reviewing court must disregard evidence that court concludes “reasonable jurors” could not have believed even though they did). And, in the 15 or so decisions since Southwestern Refining Co., Inc. v. Bernal, 22 S.W.3d 425 (Tex. 2000), the Court has disallowed, affirmed disallowance, or substantially narrowed every class certification order it reviewed.

You can put up your dukes. The Court’s shift from a let-the-jury-decide ethos to a judge-centric approach coincided with, and likely contributed to, a decline in civil trials generally. Fewer cases got past pre-trial motions to jury trials, and the ones that juries did decide a lot more often died in post-trial proceedings. 

According to the “Jury Activity” reports by the Texas Office of Court Administration for 1996, Texas district courts tried 2,971 civil cases to verdict and directed verdicts in 253. Ten years later, the same courts put a mere 1,335 civil cases to juries while instructing verdicts in 459 cases. That comes to a 55 percent drop in jury trials and an 81 percent increase in taking cases out of jurors’ hands.

I want to go home with the armadillo. Party affiliation probably doesn’t define any justice’s judicial philosophy or determine justices’ votes in any particular case or on any specific issue. But balance does seem to improve the quality of decisions. A recent study of state supreme courts' “influence” shows a fascinating - and in its way encouraging - phenomenon at the Texas Supreme Court: It wielded by far the most influence during the six years, from 1993 through 1998, when a mix of Democratic and Republican justices sat on it.  (See Don Cruse's in-depth analysis on the Supreme Court of Texas Blog.)

Should we -- dare we -- hope for a return to balance?

Up Against the Wall Red Neck Mother doesn't mean what you think.

Seldom Right, Never in Doubt

Anne Reed at Deliberations takes a helpful look today at Lawyers:  So Certain, So Wrong.  Her topic?  "We all assume that if we like something, the rest of the world is going to like it too -- and when we assume that, we're usually mistaken. "

Ms. Reed goes on to relate the value of mock jurors in revealing "preference asymmetry".

Blawgletter applauds the reminders that (1) trial lawyers, like everyone else, fall in love with pet theories and (2) they benefit from airing them Before It's Too Late to Change (such as after opening statements).

Our feed mock tries every big case.

Lack of "Exclusionary" Conduct Dooms FTC's Rambus Order (Update)

Let's play Monopoly®!  If a dominant manufacturer charges monopoly prices for its products, does it violate antitrust law?  No.  Of course not.  Are you nuts?

What if it won its monopoly by deceiving a standard-setting organization (SSO) into adopting standards that embody inventions the monopolist secretly intended to patent?  Um, er, probably.

But what if the SSO would've adopted the monopolist-favoring standards anyway but forced the Dominant Firm to charge low royalties for competitors to use its inventions?  Nope.

So ruled the D.C. Circuit yesterday, holding that the Federal Trade Commission messed up when it answered the last question yes. 

The rap on Rambus.  In Rambus Inc. v. FTC, No. 07-1086 (D.C. Cir. Apr. 22, 2008), the Commission charged that memory chip maker Rambus failed to disclose -- deceptively, the FTC alleged -- that the company intended to add, to pending patent applications, claims that would cover technology it asked an SSO, the Joint Electron Device Engineering Council (JEDEC), to adopt as industry standards.  The Commission concluded that Rambus's conduct violated section 2 of the Sherman Act and section 5(a) of the Federal Trade Commission Act. 

Reversal of fortune.  The unanimous panel held that Commissioners erred in resting their decision on an either-this-or-that finding of fact -- only the this of which could sustain the monopolization charge:

[The FTC's] factual conclusion was that Rambus's alleged deception enabled it either to acquire a monopoly through the standardization of its patented technologies rather than possible alternatives, or to avoid limits on its patent licensing fees that the SSO would have imposed as part of its normal process of standardizing patented technologies.  But the latter -- deceit merely enabling a monopolist to charge higher prices than it otherwise could have charged -- would not in itself constitute monopolization.

Rambus, slip op. at 4-5.  The problem lay in the fact that the alternative that finding -- that Rambus avoided caps on its licensing fees -- didn't inherently hurt the competitive position of other DRAM makers.  Sure, Rambus got to extract fatter royalties as a result of fooling JEDEC.  But charging a high price doesn't always injure competion; in fact it usually helps competitors stay in the game.  So said the court.

So what should the FTC have done?  It ought to have squarely found -- if it could, which the court doubted -- that JEDEC would have refused to incorporate Rambus's inventions into the standards for memory chips.  That would've supported a conclusion that Rambus engaged in conduct tending to exclude competition -- because, you see, rival chip makers wouldn't have had to license Rambus's inventions in order to meet industry standards and thus would not have suffered a potentially crippling competitive disadvantage vis-a-vis Rambus. 

No harm (to competition), no foul.  The decision points up the importance of showing in monopolization cases that the behavior in question exerted an exclusionary (anticompetitive) effect and not simply that the conduct made life harder for competitors.  Proving that the monopolist used standards it fraudulently obtained to foreclose competition -- either by refusing licenses for patents that read on the standards or charging exorbitant rates for them -- would likely pass mustard.  The same would apply if the dominant firm employed other sharp methods -- bribery, for instance -- to secure adoption of standards that competitors couldn't use without infringing its patents.

The wisdom of juries.  Curiously, the panel didn't mention a defense verdict last month for Rambus in Hynix Semiconductor Inc. v. Rambus Inc., No. C 00-30905 RMW (N.D. Cal. Mar. 26, 2008).  Rival chip-makers Hynix, Micron, and Nanya alleged the same deceptive conduct that the FTC did.  But they failed to convince the jury, which refused to find:

• "that Rambus acquired or maintained its monopoly power through anticompetitive conduct";
• "that Rambus engaged in anticompetitive conduct";
• "that Rambus ma[d]e important representations that it did not have any intellectual property pertaining to the work of JEDEC and intend[ed] or reasonably expect[ed] that the representations would be heard by or repeated to others including [rival chip makers Hynix, Micron, and Nanya]";
• "that Rambus utter[ed] half-truths about its intellectual property coverage or potential coverage of products compliant with synchronous DRAM standards then being considered by JEDEC by disclosing some facts but failing to disclose other important facts, making the disclosure deceptive"; and
• that "JEDEC members share[d] a clearly defined expectation that members would disclose relevant knowledge they had about patent applications or the intent to file patent applications on technology being considered for adoption as a JEDEC standard".

The court didn't cite the jury, but it did express grave doubt that the FTC's evidence supported its findings.  The Commission will get a new chance to substantiate its allegations on remand.

Injury to competition.  By Jove, Blawgletter thinks we've got it!

Our feed actually prefers Zeus.

Whither Cy Pres?

An ancient doctrine.  A new twist on the good old cy pres doctrine lets judges redirect money that a defendant presumptively owes to a group of people -- often members of a class in a class action -- to other deserving folks.  That doesn't sound good.  Why on Earth should a court divert funds from the people to whom the cash ought to belong?

Short answer:  Because the parties can't find the beneficiaries through reasonable effort; the beneficiaries choose not to fill out and return paperwork (often a "proof of claim"); or the tiny amounts don't justify the cost of distribution.

But, you say, if the beneficiaries won't get the cash, what purpose does the litigation serve?  The Council of the American Law Institute answers thus:

The cy pres remedy -- also known as "fluid recovery" -- originated in the context of charitable trusts.  The concept was that, if the testator's precise terms could not be carried out (for example, because a specific charitable organization no longer existed), the court could modify the trust in a manner that would best carry out the testator's intent (for example, by selecting a similar charity).

Principles of the Law of Aggregate Litigation, Council Draft No. 1, comment a to section 3.07, at 209 (Nov. 19, 2007).

Ah.  The "remedy" aims to "best carry out" the purpose of the litigation.

Why should strangers benefit?  But that, too, strikes Blawgletter as problematic.  How can you justify a civil lawsuit that benefits -- only or even mostly -- strangers to it?

Under usual principles of "standing", you can't.  But what happens if you do have a group, or class, who did suffer loss from a defendant's wrongdoing?  Should the wrongdoer go free because few class members submit a proof of claim or because the cost of writing and mailing checks would consume the face amount?

The ALI says no.  We agree.  And we especially see little or no danger of abuse in cases that go to judgment or in ones that end in settlement and distribute residual funds in cy pres fashion after most of the money goes to class members.

Problem cases.  The worries come in lawsuits that settle for a purely cy pres remedy.  Because in those cases the rigor and discipline of litigation play a weaker role.  Class members may not care about funds they won't receive.  Settling defendants probably just want to get the process over with.  Class counsel shift focus from maximizing the recovery to getting something for their efforts.  And judges have few guideposts on where to send the cy pres funds.

The ALI Council's draft addresses the concerns in two principal ways.  First, by providing that residual settlement funds "should presumptively [go] . . . to participating class members unless the amounts involved are too small to make individual distributions economically viable".  Id. sec. 3.07(b).  Second, by allowing for (but not requiring) a "cy pres approach if the parties can identify a recipient involving the same subject matter as the lawsuit that reasonably approximates the interests being pursued by the class."  Id. sec. 3.07(c).

Attack the bar.  The American Enterprise Institute, on the other hand, sees cy pres as a problem of enriching "the plaintiffs' bar":

[The Class Action Fairness Act] bases fee awards in coupon settlements on the actual redeemed value of the coupons; if coupons are donated to charity, those coupons cannot be used to calculate a fee award.  The same principle should apply when cash is involved.  Contingent-fee attorneys should be rewarded only for benefits going directly to the class.  Moreover, if a cy pres settlement benefits the plaintiffs' bar directly or indirectly, that settlement should off set the contingent fees.  A $20 million cy pres award to Public Citizen or the Impact Fund should count as part of the attorneys' fee award, not as a justification for additional attorneys' fees.  Such a mechanism would give plaintiffs' attorneys the proper incentive to align their interests with those of the class when devising a settlement:  if the class members do not get paid, the attorneys do not get paid.

We think the AEI's solution confuses the process of negotiating a maximum settlement amount with class counsel's fee application.  Those are separate things.  Indeed, if class counsel ask for a fee guarantee before the parties arrive at the settlement amount, the defendants' counsel should so advise the court.  Absent such collusion, the "common fund" that class counsel created is the total settlement amount.

The AEI proposal also conflates class counsel with "the plaintiffs' bar".  Perhaps repeat defendants view private lawyers who serve as class counsel and public interest groups such as Public Citizen as a monolith, but class counsel don't view the world in that way.  A dollar to Public Citizen buys no groceries for class counsel.  It's a fantasy to think otherwise.

Solutions, please.  We applaud debate about cy pres as a way to redress wrongdoing.  The remedy is explicitly imperfect.  Let's try to make it better, shall we?

The perfect is the enemy of the good.

The Best Job in the Federal Judiciary

Blawgletter argued a few weeks ago to a bench that few practicing lawyers know much about -- the U.S. Judicial Panel on Multidistrict Litigation. 

Repeat appearers call it simply "the Panel" or "the MDL Panel".  Its website defines its mission thus:

Origin and Purposes
The Judicial Panel on Multidistrict Litigation, known informally as the MDL Panel, was created by an Act of Congress in 1968 – 28 U.S.C. §1407.

The job of the Panel is to (1) determine whether civil actions pending in different federal districts involve one or more common questions of fact such that the actions should be transferred to one federal district for coordinated or consolidated pretrial proceedings; and (2) select the judge or judges and court assigned to conduct such proceedings.

The purposes of this transfer or “centralization” process are to avoid duplication of discovery, to prevent inconsistent pretrial rulings, and to conserve the resources of the parties, their counsel and the judiciary. Transferred actions not terminated in the transferee district are remanded to their originating transferor districts by the Panel at or before the conclusion of centralized pretrial proceedings.

Historical Summary
Since its inception, the Panel has considered motions for centralization in over 1,900 dockets involving more than 250,000 cases and millions of claims therein. These dockets encompass litigation categories as diverse as airplane crashes; other single accidents, such as train wrecks or hotel fires; mass torts, such as those involving asbestos, drugs and other products liability cases; patent validity and infringement; antitrust price fixing; securities fraud; and employment practices.

Membership of the MDL Panel
The MDL Panel consists of seven sitting federal judges, who are appointed to serve on the Panel by the Chief Justice of the United States. The multidistrict litigation statute provides that no two Panel members may be from the same federal judicial circuit.

What makes the job such a good one?  We think several things do.  First, the Chief Justice appoints Panel members, and partly as a result a slot on the Panel carries a lot of prestige.  Second, the Panel's docket includes the biggest, highest-dollar, and sprawlingest cases in the U.S.  From its inception in 1968 through September 30, 2007, the Panel had transferred a total of 202,601 cases, 76,842 of which remained pending.  Third, the Panel exercises tremendous discretion in choosing whether and where to centralize multidistrict cases for pretrial purposes.  Review is rare, and reversal is even rarer.  Finally, each lawyer's argument typically lasts no more than two minutes -- every judge's dream.

Happy Monday.