REACTING TO LITIGATION – AN OPPORTUNITY

The Sheriff arrives at your door, bringing greetings from the courthouse far away.  You glance at the documents with a sinking feeling.  You are being sued.  This is never a good sign.  The best possible result will be to spend a lot of money to prove your innocence.

There is a natural tendancy to simply put the documents on your desk.  You can read them later.  The lawsuit is not going anywhere.

Then you realize you have 45 days to respond.  You let the document sit for a few more days.  Before long, you have waited a month, and finally, you send the documents to Risk Retention Services.

You have just made a cardinal error.  While you will not be held in contempt, and will not waive any defenses, you have lost the opportunity to move the action to the United States federal court.

The United States district courts are found all over the United States, and cover large geographic areas.  They have jurisdiction over U.S. federal laws, federal crimes and civil lawsuits.

If none of the defendants are from the “local court” and the plaintiff resides in that state, you may be able to move the lawsuit from state to federal court.

The requirements are that the parties be from different states, and the amount in controversy exceeds $75,000.  It is a rare case where the plaintiff’s attorney is not seeking over $75,000, so the question will come down to diversity of citizenship.

There are several advantages to removal.  First, plaintiff lawyers often “forum shop” to find the best local court likely to bring in a plaintiff’s verdict.  Perhaps this will be a state court located in a city center with a large union population.  Perhaps this will be the local state court, where the judge is the next-door neighbor of the plaintiff or his lawyer.  Either way, the plaintiff is going to seek the best possible courthouse for his lawsuit.

In general, federal courts provide an even playing field.  It covers a very large geographic area, eliminating the prejudices of an urban population.  Its judges are appointed for life, and they can therefore grant motions to dismiss without fear of reprisal from the trial lawyers (plaintiff) who fund their campaign or their reappointment.  Federal courts have attorney law-clerks, who actually read the motions and perform legal research (which is impossible in the chronically understaffed state court systems).

The federal courts often view scheduling orders as orders – not suggestions – so cases move forward more quickly (which substantially reduces litigation costs).

The federal courts employ an expert standard which requires that an expert be qualified, and use the scientific method before being allowed to testimony – and often actually enforce this rule.  State courts are much more likely to let everything in and let the jury decide what is (or is not) junk science).

Thus, there is a natural knee-jerk reaction to remove.  But the decision cannot be that easy.

Perhaps the accident occurred in a very conservative county.  Perhaps investigation has shown that a motion to dismiss is unlikely.  In this case, the potential jury will be better in state court than in the broader federal court (which will include liberal counties).  It may make more sense to leave the case in state court.

Or, perhaps you are in California, where the federal judiciary and Ninth Circuit Court of Appeals are notoriously liberal.

The important thing to take away is that a reasoned decision on where you will fight your lawsuit can have a significant impact on the cost of the defense, as well as the potential result.

However, if you do not remove to federal court within 30 days, you waive your right to remove.  If you file on the 31^st day, the court cannot accept jurisdiction.

There may be exceptions to this rule.  For example, where the plaintiff has filed against a local defendant as well as an out of state defendant.  In that case, you cannot remove (no complete diversity).  Yet, if the local defendant either settles or is dismissed, complete diversity now exists.  You will have 30 days from the date of the dismissal to remove, provided that the removal takes place within one year of the filing of the initial complaint.

The point, however, is that while there are complicated exceptions and rules, you should never sit on a complaint.  When the sheriff shows up, or if you get a complaint in the mail, immediately turn it over to  Retention Services so that counsel can be obtained.  An immediate review of the propriety of removing to federal court will be undertaken.

COURT MEDIATION  RULES CHANGING

Courts nationwide have long recognized that most civil lawsuits do not result in a trial.  Indeed, over 97 percent of all lawsuits filed last year resulted in a settlement or resolution short of trial.  Still, many parties insist that they want to try the case.  Judges seem to know better.

Virtually all federal courts as well as state courts require mediation before assigning a trial date.  After all, there is no sense in filling up a calendar with trials if the case is going to settle anyway.

Unfortunately, many parties simply sent pro-forma representatives, without real authority to settle, because a strategic decision had been made to not resolve the matter at all.

Many courts, exemplified by the Florida state court system, now have changed their rules.  They require that the party, and the attorney, file a certification naming the person who will attend the mediation on their behalf, and certifying that the person who will attend, in person, is authorized to enter a binding settlement agreement.  No more “let me call my boss” for these courts.

Of course, the courts miss the point entirely, and on many grounds.  Firstly, mediation is an effective process if the amount of settlement is the open question.  If the question is “how much” should we pay, a mediator can often bring the parties together.  But if there is no liability, and the question is whether to pay, the mediator, and the mediation process, is simply not an effective method of resolving disputes.

Secondly, no matter who a company sends for mediation, there are many people that are relied on in making an effective decision.  There is no question that an officer or director has authority to bind the company.  However, the chief financial officer (how much cash do we have?) the litigation manager (how does the evidence look) and the board of directors (will I be supported) will all impact the decision maker.  Whether you send the officer or director, an employee, or your litigation manager, and appoint him with binding authority, it is the rare individual who will make a settlement decision (particularly for meaningful dollars) without input from his management team and chain of command (up and down).  Just because you have authority does not mean you throw your resources out the window and make decisions.

At Risk Retention Insurance Services, we have long held the belief that the party should be entitled to opt-out of mediation, as they are (for us) almost always an unnecessary expense with no real prospect of settlement.  Rarely, at mediation, does the plaintiff accept a $500 offer (but it does happen on the morning of trial).  But if you are not going to make a substantial offer, why waste everybody’s time.  The attitude that “just because someone sues you means that you should offer a lot of money” makes a mockery of a  justice system which is to apply … justice.