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Chapter Two

Civil Procedure

American procedure has developed to remove non-meritorious cases quickly and cheaply while making meritorious cases so expensive to pursue that settlement occurs. The primary problem is that litigants are often confused as to whether their positions are meritorious. This is further complicated by litigants making a significant emotional investment in litigation that tends to undermine rational settlement. As Paul explains, “The very fact that you have lawsuits among you means you have been completely defeated already.”1 The question is not whether a litigant will lose, but how much the litigant will lose. When plaintiffs win, they are unlikely to recover the full valuation of their case. Even when defendants win, every action involves labor hours, attorney fees, and inventory holding costs. This chapter provides a framework for answering that question, which is pursued at the level of individual actions in subsequent chapters. The Federal Rules of Civil Procedure are used here, though many of these concepts exist at the state level as well.

At a high level, there are four principal phases of trial. At the pleading phase, litigants test one another’s allegations. At the discovery phase, litigants discern whether allegations are supported by competent evidence. At the trial phase, litigants seek to overcome their burdens of proof and persuasion to get a trier of fact to rule in their favor. At the appeal phase, litigants seek to have a portion of the other phases reversed or redone. The important aspect for the manager is that cases that can be disposed of at the pleading phase pose a low risk to the firm. Cases that can be disposed of at the discovery phase pose a moderate risk to the firm. Cases that require a trial for disposition pose a high risk to the firm. Thus, the procedural phases enable the manager to discern the cost risk of various kinds of causes of actions that will be discussed in later chapters.

The Pleading Phase

The only action in Federal Court for a civil remedy is a civil action.2 The civil action begins with filing a complaint with the court.3 The complaint must be filed for the plaintiff and then served on the defendant.4 Generally, the complaint must include well-pleaded factual allegations that show that relief is plausible on its face. General conclusory allegations are insufficient.5 A party alleging fraud or mistake must do so with particularity of the circumstance indicating the time, place, and content of acts along with the identity of the actors.6

A defendant can end a lawsuit filed by a plaintiff at the pleading stage by filing a motion to dismiss. Under FRCP 12, there are seven ways to prevail with such a filing: 1) lack of subject-matter jurisdiction, 2) lack of personal jurisdiction, 3) improper venue, 4) insufficient process, 5) insufficient service of process, 6) failure to state a claim upon which relief can be granted, and 7) failure to join a party under FRCP 19.

Subject matter jurisdiction requires at least either federal question or diversity of parties. Federal question jurisdiction requires a federal statute to authorize filing of a case in Federal court.7 Diversity jurisdiction requires that all of the plaintiffs be residents of different states than all of the defendants and that the amount in controversy exceeds $75,000.8

Personal jurisdiction comes from the Due Process Clause of the 14th Amendment. In order for the court to have personal jurisdiction over the defendant, either 1) the defendant must be served with process in the state where the court resides, 2) the defendant must have minimal contacts with the forum state such that the defendant could foresee being taken to court, or 3) the defendant must consent.

It is possible that personal jurisdiction could be present, but venue is not proper. A civil action can be brought in 1) a judicial district where a defendant resides, 2) judicial district in which a substantial part of the cause of action occurred, or 3) in the absence of 1 or 2, any jurisdiction where there is personal jurisdiction. If it is not brought there, the action lacks venue.9

Process is the summons and complaint; if either is missing the process is inadequate. Service of process normally requires an agent of the plaintiff to hand the summons and complaint to the defendant. However, sometimes defendants play games with this, thinking that if they hide well enough, they can never be sued. That is not in fact the case. Leaving the process at the defendant’s house with a person of adult age and responsibility, mailing it, or electronic transmission (if it in fact arrives) are adequate.10

A failure to state a claim upon which relief can be granted occurs when the allegations fail to show that relief is plausible on its face. For instance, when a lawsuit has been filed after the statute of limitations had passed. Alternately, claim preclusion and issue preclusion can bar actions that have already been litigated from being litigated a second time. Issue preclusion prevents a litigant from re-litigating an issue in a subsequent lawsuit that a court has decided in a previous lawsuit, when the issue was necessary for judgment to be rendered.11 Claim preclusion prevents a litigant from filing a subsequent suit on a matter that was not raised in a previous suit when it could have been raised.12 Most commonly, however, the plaintiff simply doesn’t allege an essential element of claim.

All necessary and indispensable parties to obtaining a judgment to an action must be joined in the action. If parties are missing, the suit can be dismissed until the parties are joined.

It is very inexpensive for a defendant to file a motion to dismiss. As a result, settlement is unlikely if the defendant thinks the court will dismiss the case.

Case Problems

William Twombly and others sued Bell Atlantic for engaging in anti-competitive behavior in violation of the Sherman Act. The Sherman Act prohibits entering into a “contract, combination, or conspiracy” that impermissibly restrains trade. According to Twombly’s allegations, Bell Atlantic and other large telecommunications companies did not communicate with one another directly, but rather operated in parallel to avoid competing against one another in certain areas. Bell Atlantic moved to dismiss, stating that these allegations (even if true) did not indicate that it was plausible that an antitrust violation occurred. Twombly responded that it was possible that a violation occurred, but that he would need to engage in discovery to figure it out. Has Twombly stated a claim upon which relief can be granted?13

Harry Robinson bought a car made by World-Wide Volkwagen Corp. in New York State. He then proceeded to drive to Arizona. En route, a car collision in Oklahoma caused his fuel tank to ignite, causing burns to Robinson. Robinson sued World-Wide Volkwagen Corp. in Oklahoma state court, where the trial court judge was Charles S. Woodson. World-Wide Volkwagen Corp. sued Judge Woodson in the Oklahoma Supreme Court, asking that the case be dismissed for a lack of personal jurisdiction as none of the parties were residents of Oklahoma. Robinson argued that since the event happened in Oklahoma, personal jurisdiction was appropriate in Oklahoma. Did Judge Woodson have personal jurisdiction over World-Wide Volkwagen Corp.?14

John Sheehan sued Deil Gustafson for breach of contract in Federal court in Minnesota. Sheehan was a resident of Nevada, but Gustafson’s situation was more complicated. Gustafson had bank accounts, investment accounts, a corporation, real property, and an office in Minnesota. He also had labeled his tax returns as a Nevada resident where he had lived with his parents for over a decade. He used that address on his driver’s license and passport. Did diversity jurisdiction exist in this case?15

Gaynell Reyno was appointed administratrix for five Scottish passengers who died in a plane crash in Scotland. Reyno sued Piper Aircraft Co. (Piper), who made the plane, in the Middle District of Pennsylvania where Piper’s headquarters is located. Piper moved to dismiss the case under the doctrine of forum non conveniens. It argued the case should be brought in Scotland, as all of the witnesses and evidence were in Scotland, the event happened in Scotland, and Scottish law would apply. Reyno responded that plane crash victim rights were stronger in the United States and that Piper was not inconvenienced by having the case. Could the trial court dismiss the case for forum non conveniens?16

Under the Microscope—What is the Effect of Detailed Notice Pleading?

There are two kinds of pleading standards, notice pleading and fact pleading. The former is embraced by FRCP 8 and historically required only enough information to put the defendant on notice of whatever was being alleged. The latter requires much more detail about the circumstances of the allegations and is embraced by FRCP 9. Twombly and a subsequent case, Ashcroft v. Iqbal, 556 U.S. 662 (2009), moved the notice pleading standard closer to fact pleading. The practical effect of this was that there was an increase of cases that were dismissed where the trial judge gave leave to the plaintiffs to amend their complaint and thus, the proportion of cases actually dismissed did not really change.

Plaintiffs’ lawyers in many actions take cases based on a contingency fee. That is, the lawyer only gets paid if the plaintiff collects a judgment or a settlement. Whether the lawyer will take the case is a function of how much is likely to be collected (D) and how many hours (H) are necessary to obtain this collection. Inherent in this calculation is some marginal revenue (or hourly rate) that the attorney demands that is represented by attorney labor supply (ALS).

ALS=f(D,H)

The amount that is likely to be collected (D) is a function of prudent attorney decisions (A) and what the case is worth (W). W is likely a probability distribution.

D=f(A,W)

A is an upward sloping marginal cost variable. As litigation proceeds, there is an increasing chance of making a mistake, since there is progressively more happening as described in the sections below. Accordingly, there are two different ways to approach civil litigation. In the first model, the attorney simply files a complaint and attempts to negotiate a settlement. In the second model, the action proceeds through discovery, but typically settles before trial.

The issue for a manager is that some seemingly impoverished person is suing the firm for what seems like a trivial matter. The manager may wonder what lawyer would take such a weak case. The answer is that the lawyer is hoping the manager will settle early and not go into the discovery phase. Heightened pleading standards actually make this more difficult for the attorney but at the same time, the investigation required to make the complaint makes settlement more likely. Studies show these two effects cancel one another out.17

The Discovery Phase

After a motion to dismiss fails, the defendant submits an answer that provides either an affirmative defense or claims that the plaintiff is simply wrong and denies the allegations. Either way, discovery begins.

Discovery is a process of exchanging information between parties in order to gain information about the facts and circumstances of the case. That information determines whether the facts of the case demonstrate that a genuine dispute exists between the parties. Where there is no genuine issue of material fact, a party can move for summary judgment. If granted, summary judgment can end the case at the close of discovery.18

There are primarily five avenues in which parties exchange information. The first is initial disclosures. All details related to the case: witness identification information, damage calculation, and experts intended to be called as witnesses, need to be disclosed up front.19

Parties can depose witnesses. Typically, there is an oral examination of a witness under oath that is recorded by a court reporter. Absent an extenuating circumstance, a witness may only be deposed once per civil action.20 Parties can submit up to 25 written questions, called interrogatories, to one another and ask for a written response under oath.21 Parties can submit requests for production of documents or other physical evidence to be examined. A party receiving such a request must respond within 30 days.22 Finally, a party can request another party to either admit or deny facts, the application of law to facts, or the genuineness of documents produced. Again, there are 30 days to respond.23

At the close of discovery, the parties either have an idea of what settlement will be worth, or one side may believe that the other has no case at all. Summary judgment is granted where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.24 The discovery stage is substantially more expensive than the pleading stage, but not nearly as expensive as the trial stage.

Case Problems

Liberty Lobby sued Jack Anderson, publisher of Investigator Magazine, for defamation. Investigator Magazine had published stories claiming Liberty Lobby was a neo-Nazi group. Anderson moved for summary judgment stating that the evidence in discovery failed to show that Anderson had acted with actual malice by clear and convincing evidence. Liberty Lobby responded that as long as evidence existed, a jury could use it to determine whether actual malice existed. How much evidence must Liberty Lobby produce to have summary judgment denied?25

George Vais sold his firearms under the trademark “VAIS.” Vais became sick, sold his business to Ronald Bartlett, who started Vais Arms, Inc. and then moved to Greece. Six months later, George felt better and moved back to the United States, where he started up his firearm business again. Ronald sued George for trademark infringement, stating that George had abandoned the mark “VAIS” when he sold the business and moved to Greece. To show he did not abandon the mark, George submitted a single personal affidavit stating that he intended to return to the United States and use the mark and thus the mark was not abandoned. Is George’s declaration enough to create a genuine issue of material fact and avoid summary judgment?26

Under the Microscope—The Effects of Aggressive Summary Judgment

Returning to the matter of the trial lawyer operating on contingency, the focus now shifts to the view of the manager being sued. The manager has a singular focus—minimizing cost. Litigation defense costs generally do not add value to the firm in nearly the quantity of selling goods and services if these expenses offer any benefit at all. To the contrary, litigation defense costs drive up overhead costs and thus drive up the contribution margin necessary to put products on the shelves.

In Samuel Issacharoff & George Loewenstein, Second Thoughts About Summary Judgment, 100 Yale L.J. 73, 88–91 (1990), the authors demonstrate that aggressive use of summary judgment drives up costs for plaintiffs’ attorneys and lowers settlements. Accordingly, the manager facing a lawsuit that cannot be disposed of on a motion to dismiss but can be vanquished on a motion for summary judgment is, in a macro perspective, better off. This is because Plaintiff’s attorneys would take fewer cases that are not likely to result in adequate payment.

The question then becomes how exactly does one discern which cases have enough merit to survive a motion to dismiss and which cases have enough merit to survive a motion for summary judgment? That question is pursued in detail throughout this monograph. As various causes of actions are explored, there is an emphasis on the quantum of proof necessary to overcome these motions.

The Trial Stage

At a high level, there are two different kinds of trials, a bench trial and a jury trial. A jury trial must be demanded within 14 days of raising a claim in a complaint.27 U.S. Const. Amend VII provides that a jury trial is only available for “suits at common law, where the value in controversy shall exceed twenty dollars.” Suits at common law are usually defined as those matters for which a jury trial was offered in 1798. For example, tort liability is a matter of common law. Contract interpretation is a matter of equity. Contract breach and damages are matters of common law.

In a jury trial, the process for selecting jurors is known as voir dire. This is a pair of French verbs literally translated “to see to tell.” A little is lost in the translation; the Latin root is “verum dicere,” which means “tell the truth.” Potential jurors are asked a series of questions by attorneys for all sides and possibly the judge to which they must respond truthfully.28 Attorneys can remove jurors from the jury pool with preemptory challenges.29 A jury must begin with at least six and no more than twelve members.30 Jury selection typically takes at least one day.

When the jury is selected, the plaintiff begins with the opening statement. The opening statement frequently includes a summary of the evidence that the plaintiff plans to present and how that evidence demonstrates that the plaintiff should win. The defendant then makes an opening statement along the same lines except concluding that the defendant should win.

Following that, the plaintiff’s case in chief beings, frequently by calling a witness. Witness testimony generally needs to be taken in open court.31

The Federal Rules of Evidence provide extensive regulation as to what evidence is admissible in trial. In general, evidence presented must be relevant. Relevant evidence is that which indicates a claim, defense, or witness credibility is more or less likely than if the evidence was not presented.32 Witnesses can testify as to matters within their personal knowledge of the facts of a case.33 They can offer opinion about matters related to events perceived.34 However, an expert witness is needed to testify as to scientific, technical, or other specialized knowledge.35 Under the rule against hearsay, a witness cannot repeat an out of court statement which is offered as a statement of truth unless an exception applies.36 However, there are exceptions that allow certain kinds of hearsay when there is some indicia of reliability or there is no better way to get the evidence into court.37 Documents can be admitted provided an exception to the rules against hearsay is given and the documents can be authenticated. Authentication is some indicia that the document is whatever the proffering party says it is.38 Documents are either self-authenticating or can be authenticated by a witness.39

After all that, in a jury trial, the defendant can move for judgment as a matter of law stating that under the controlling law, a particular claim cannot be maintained given the evidence produced.40 Similarly, in a bench trial, the defendant can move for summary judgment under FRCP 56.

If the motions for judgment are denied, the trial proceeds to the defendants case in chief. Witness examination operates by calling a witness and then asking a sequence of open ended questions for direct examination. The other side then has the opportunity to ask questions under cross-examination. The process is identical for the plaintiff and the defendant. After the defendant’s case in chief, the trial proceeds to closing statements.

Closing statements are similar to opening statements except that a summary of admitted evidence replaces an expectation of witness testimony. Most importantly, the plaintiff and the defendant tell the trier of fact what outcome is desired.41 In a jury trial, the jury receives instructions from the judge as to how they should make a decision.42 In a bench trial, the judge prepares findings of fact and conclusions of law.43 After that, the judge enters judgment.44

Case Problems

Roger Reeves claims that Sanderson Plumbing Products, Inc. (Sanderson) terminated him because of his age (57) in violation of the Age Discrimination in Employment Act (ADEA). Sanderson responded that Reeves was fired for failing to keep accurate timesheets. Reeves stated that Sanderson should not be believed because one of its employees made inappropriate comments about older employees. Sanderson moved for judgment as a matter of law under Fed. R. Civ. P. 50 stating that there was no connection between Reeves’ age and his termination. Reeves argued that he had made a prima facie case under ADEA, that he provided evidence that Sanderson was not credible, and that should be enough to take the case to the jury. Is Reeves’ case strong enough to go to the jury?45

Dimick sued Schiedt for negligence and the jury awarded a verdict for $500. Dimick thought that was too low and moved for a new trial. The trial judge stated that unless Schiedt agreed to raise the judgment to $1,500, the trial court would grant the motion and institute a new trial. Schiedt agreed, but then appealed stating that U.S. Const. Amend. VII provided that “no fact tried by a jury, shall be otherwise re-examined.” Dimick responded that, were the shoe on the other foot and the parties had settled the case for less than the amount awarded by the jury, the lower judgment would be enforced. Can parties settle for a higher amount than a jury verdict?46

Marley Company made an electrical heater that was in a fire that killed Bonnie Weisgram. Weisgram’s family sued Marley for products liability and at trial, produced three witnesses who stated that a defect in the heater caused Bonnie’s death. A jury found in favor of Weisgram. Marley moved for judgment as a matter of law and judgment for a new trial stating that all of the three witness testimonies were inadmissible and that without evidence of causation, judgment should be entered for Marley. Can a Court of Appeals vacate a jury verdict and enter judgment in favor of the party who lost the jury verdict?47

The Appeal Stage

At the appeal stage, the factual record is set. As U.S. Const. Amend. VII explains, “no fact tried by a jury, shall be otherwise re-examined.” Likewise, facts found by a judge are subject to substantial deference on appeal. Accordingly, appeals raise legal errors rather than a misinterpretation of the factual posture. Appeals are governed by the Federal Rules of Appellate Procedure.

Within 30 days of the entry of judgment, a party seeking a change in the judgment can file a notice of appeal with the district court.48 The party making the appeal is the appellant; the party opposite is the appellee. The appellant files the first brief to which the appellee responds. Then the appellant gets to file a reply brief.49

Both parties have an obligation to put the standard of review in their brief. There are three primary standards of review that come up in this book: de novo, clear error, and abuse of discretion.

De novo is Latin for new and means that the appellate court gives no deference to the legal conclusion of the trial court. Interpretation of a contract requires de novo review on appeal. It does not matter what the trial court concluded, the appellate court will reconsider the matter.

In some cases, there is a mixed question of law and fact on review. This occurs when the facts and law are not disputed, but the application of facts to the law is disputed. Some of these cases are reviewed for clear error. For instance, issues of whether established facts constitute negligence or whether proximate cause is shown are reviewed for clear error. Under this standard, when the trial court’s account of the evidence is plausible in light of the entire record, the court of appeals may not reverse it. This happens even if the court of appeals would have weighed the evidence differently.

Trial courts have discretion to make decisions. However, this discretion can be abused, for instance, when the trial court makes factual findings that have no basis in the record at all. This requires that the appellate court has a definite and firm conviction that the trial court made a clear error of judgment in reaching its decision. This standard is more deferential than clear error.

Under federal law, decisions of the Courts of Appeals can be reviewed by the U.S. Supreme Court under a petition for certiorari. The U.S. Supreme Court has discretion over whether or not to take such cases.

Case Problems

Keith Forsyth alleges that Attorney General John Mitchell authorized warrantless wiretapping of Forsyth and other Vietnam War protestors causing damages to the protestors. Mitchell sought qualified immunity—a privilege that protects government officials from civil liability as long as their conduct does not violate established rights that a reasonable person would know. The trial court denied the request. Mitchell sought to appeal the issue of qualified immunity before final judgment issued this case because if the privilege existed, then there would be no trial as a matter of law. Can Mitchell appeal the decision of qualified immunity before a final judgment issues in his case?50

11 Corinthians 6:7.

2Fed. R. Civ. P. 1, 2.

3Fed. R. Civ. P. 3.

4Fed. R. Civ. P. 4.

5Fed. R. Civ. P. 8.

6Fed. R. Civ. P. 9.

728 U.S.C. § 1331 (2016).

828 U.S.C. § 1332 (2016).

928 U.S.C. § 1391 (2016).

10Fed. R. Civ. P. 5.

11Restatement (Second) of Judgments § 17(3) (1981).

12Id. at § 17(1)–(2)

13Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).

14World-Wide Volkswagen Corp v. Woodson, 444 U.S. 286 (1980).

15Sheehan v. Gustafson, 967 F. 2d 1214 (8th Cir. 1992).

16Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981).

17Jonah B. Gelbach, Measuring the Effects of a Heightened Pleading Standard under Twombly and Iqbal, Searle Civil Justice Institute (October 2013) available at: http://bit.ly/17JbQWf.

18Fed. R. Civ. P. 56.

19Fed. R. Civ. P. 26.

20Fed. R. Civ. P. 27.

21Fed. R. Civ. P. 33.

22Fed. R. Civ. P. 34.

23Fed. R. Civ. P. 36.

24Fed. R. Civ. P. 56.

25Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986).

26Vais Arms, Inc. v. Vais, 383 F.3d 287 (5th Cir. 2004) but see Hill v. Tangherlini, 724 F. 3d 965 (7th Cir. 2013).

27Fed. R. Civ. P. 38, 39.

28Fed. R. Civ. P. 47.

2928 U.S.C. § 1870 (2016).

30Fed. R. Civ. P. 48.

31Fed. R. Civ. P. 43.

32Fed. R. Evid. 401.

33Fed. R. Evid. 602.

34Fed. R. Evid. 701.

35Fed. R. Evid. 702.

36Fed. R. Evid. 802.

37Fed. R. Evid. 803–804.

38Fed. R. Evid. 901.

39Fed. R. Evid. 902–903.

40Fed. R. Civ. P. 50.

41The trier of fact, whether a judge or jury, is the entity that determines factual matters in a case.

42Fed. R. Civ. P. 51.

43Fed. R. Civ. P. 52.

44Fed. R. Civ. P. 54.

45Reeves v. Sanderson Plumbing Prods., 530 U.S. 133 (2000).

46Dimick v. Schiedt, 293 U.S. 474 (1935).

47Weisgram v. Marley Co., 528 U.S. 440 (2000).

48Fed. R. App. P. 3.

49Fed. R. App. P. 28.

50Mitchell v. Forsyth, 472 U.S. 511 (1985).