By John J. Pappas
This is one of a series of articles under the by line “Butler Pappas on Bad Faith” originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 16, #14, p. 29 (November 20, 2002). © Copyright Butler Pappas 2002.
I. The Problem
A. Financing
For many reasons, the scope of discovery in “bad-faith” cases is out of control -- that is, without limits. First, paradoxically, the finance of litigation has swung in favor of the plaintiffs' bar. There was a time when the typical charge was that insurers and defense counsel would win by flexing their muscular financial power in the expensive litigation arena. However, the past twenty years has seen the emergence of more than a few well-financed plaintiffs' law firms willing to flex their own substantial financial muscle. Moreover, the past twenty years has seen a strong corporate culture develop within insurers that is anathema toward expenses -- especially litigation costs. Sadly, the most common, and possibly the most “persuasive” argument a plaintiff has against a defendant is that litigation expenses will likely exceed the dollar figure presently required to settle. Some have referred to this as “legal extortion.” Others have referred to this simply as “risk aversion” and “costs control.”
B. Profit-Seeking
Second, the above is encouraged by the quest for profit. That is, suits are brought and discovery attempted because those who finance it find it profitable. Surely the profit does not lie in the “bad-faith” verdict. The percentage of “bad-faith” verdicts is so small as to be almost non-measurable. The percentage of verdicts and judgments for punitive damages is even less, and of those, the ones that are sustained on appeal are a small percentage of that. The recurring financing of such broad “bad-faith” discovery is found to be profitable due to the settlements such discovery obtains, or, at least, the perception that such discovery obtains such profitable settlements.
C. Liberal Discovery Language
Third, the laws and rules of discovery are liberally construed. Rule 26 of the Federal Rules of Civil Procedure states in pertinent part:
(b)(1) . . . parties may obtain discovery regarding any matter, not privileged, that is relevant to the claim or defense of any party, including the existence, description, nature, custody, condition, and location of any books, documents, or other tangible things and the identity and location of persons having knowledge of any discoverable matter. For good cause, the court may order discovery of any matter relevant to the subject matter involved in the action.
(emphasis supplied). Because the language of the Rules of discovery are so broad, and discovery itself is mainly “self-policed” by the attorneys themselves, it is not unusual for the discovery process to go uncontrolled, or even abused.
In the annotation concerning the 1983 amendments to Rule 26 the following is stated:
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Thus the spirit of the rules is violated when advocates attempt to use discovery tools as tactical weapons rather than to expose the facts and illuminate the issues by overuse of discovery or unnecessary use of defensive weapons or evasive responses. All of this results in excessively costly and time-consuming activities that are disproportionate to the nature of the case, the amount involved, or the issues of values at stake.
Given our adversary tradition and the current discovery rules, it is not surprising that there are many opportunities, if not incentives, for attorneys to engage in discovery that although authorized by the broad, permissive terms of the rules, nevertheless results in delay.
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As a result, it has been said that the rules have “non-frequently [been] exploited to the disadvantage of justice.”
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These practices impose costs on an already burdened system and impede the fundamental goal of the “just, speedy, and inexpensive determination of every action.”
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(emphasis supplied). Unfortunately, the language of the Rules remains vague, broad, and liberal.
D. Black Robes
Fourth, many of our courts are overworked, understaffed, and underpaid, especially where most discovery disputes occur, in large metropolitan areas across the country. Many courts are forced into crisis triaging. Discovery issues rarely appear on such judicial radar screens. Protecting a privilege or work product from discovery, may tweak a court's interest, but limiting discovery because it is not reasonably calculated to lead to admissible evidence is rarely found to be worthy of the court's limited time. In such a context, the micro-myopic view is that limiting such discovery, especially without having the luxury of understanding the details of the particular issues at hand, may result in the following: 1) rightful discovery denied; and 2) settlement less likely. If, however the court grants the discovery: 1) that does not mean it will be found to be competent or admissible evidence; 2) if the plaintiff's attorneys are willing to incur the costs and attorney time that may never be compensated, why should the court stop them (no doubt some may reason that the corporate defendant or insurance company has plenty of assets to survive such expenses, and, nevertheless, such expenses they incur are a pass-through anyway, that is, a part of their own business model); and 3) allowing the discovery will more likely result in settlement. The latter point has a couple of legs to it.
First, the discovery obtained may better establish the settlement value of the case. Second, if the insurer does not want to produce these documents or testimony, it can always settle. The settlement of cases is the primary goal of all American civil courts. It is efficient, final, terminates expenses, conserves tax dollars, and, at least theoretically, the resolution is “fair” or the parties would not have settled.
E. The “Costs”
What the above does not seem to take into account, however, is the price society pays for such unrestrained and expensive litigation discovery. It encourages the bringing of marginal, if not frivolous lawsuits, the true gatekeepers of which are the plaintiffs' attorneys. Frankly, in many respects, such a gate has not been closed for many years. Why should it? The invasive, burdensome, and expensive discovery process itself results in profitable settlements. Such profitable settlements have a profitable settlement value independent and separate from the merits or lack of merits of the lawsuit. This cannot be a good thing.
Additionally, there is a perception among insurers, and after more than twenty years of representing insurers, the author believes it s a strong perception, that an insurer does not receive fair treatment in our civil justice system. The old belief was that an insurer would win as a matter of law, preferably before, but most certainly after, a plaintiff's attorney has his or her opportunity to sway a jury of insureds. The confidence that insurers once had in the judiciary to follow the law and be fair seems to have waned, and for some it has expired.
“Who cares,” you may “rhetorically” say. Well, the author believes that if the most common litigants in our American civil justice system, insurers (including their involvement as liability carriers), believe that the American judicial system is so unfair and unpredictable, that it must repeatedly pay hundreds of millions of dollars in settlements on claims and cases that it believes have no merit, this is not a good thing. Besides the obvious pass-through detriment to the American consumer, how could such a cynical view of our civil justice system be to the benefit of our society and its perception of the integrity of our civil judicial system?
Insurance companies are spending millions of dollars creating little bureaucracies within larger bureaucracies simply to manage and respond to this exponential explosion of “bad-faith” discovery. Your larger insurers have more than one full-time employee with the sole job description to gather, collate, index, and otherwise be the “spoke” in the wheel of “bad-faith” discovery. This includes, but is not limited to corporate documents that may be thirty years old, as well as corporate documents that are being created as we speak. It certainly includes (b)(6) depositions of the corporate insurer. Most insurers will require such a person have within their reach the deposition transcript of any employee who has ever been deposed. The failure to have such centralized bureaucratic oversight can result in discovery omissions and mistakes that may be interpreted by the plaintiffs' bar, if not the court, as a deliberate attempt to thwart the discovery process, if not actually deceive.
II. The “Solution”
A. Be Reasonable
So what is the solution? Assuming the above even identifies a problem, which many will suggest does not, how should we solve it? The simple macro answer is increase the number of judges, their compensation, and their staff. Assuming that this article will not have such an influence on our Federal or State tax and budgetary process, what else can be done? Be reasonable.
B. Rules of Reason
The discovery Rules and their own annotations require that much. Rule 1 of the Federal Rules of Civil Procedure states:
[These Rules] shall be construed and administered to secure the just, speedy, and inexpensive determination of every action.
In the Federal Civil Judicial Procedure and Rules Justice Powell, with whom Justice Stewart and Rehnquist join, state:
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Report of the ABA Section of Litigation makes clear that the 'serious and widespread abuse of discovery' will remain largely uncontrolled.
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I doubt that many judges or lawyers familiar with the proposed amendments believe they will have an appreciable effect on the acute problems associated with discovery.
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Experience under the discovery Rules do demonstrates that, 'not infrequently [they had been] exploited to the disadvantage of justice.' Herbert v. Lando, 441 U.S. 153, 179 (1979)(POWELL J. concurring). Properly limited and controlled discovery is necessary in most civil litigation. The present Rules, however, invite discovery of such scope and duration that district judges often cannot keep the practice within reasonable bounds.
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Delay and excessive expense now characterize a large percentage of all civil litigation. The problems arise in significant part, as every judge and litigator knows, from abuse of the discovery procedures available under the Rules. Indeed, the National Conference on the Causes of Popular Dissatisfaction with the Administration of Justice, led by THE CHIEF JUSTICE, identified “Abuse in the use of discovery [as] a major concern” within our legal system.
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Litigation costs have become intolerable, and they cast a lengthening shadow over the basic fairness of our legal system.
(emphasis supplied).
The rationale that if the plaintiff's attorney is willing to incur such expenses and attorney time, why should they be stopped, is not reasonable. The reasoning that by allowing discovery to go essentially uncontrolled as a settlement tool is not reasonable. It's also not right. A stepped process of reasonableness should be a constant standard throughout all discovery. The court should approve a discovery plan that has an “end-game.”
C. Be Reasonable in Process
Besides being reasonable in what “bad-faith” discovery can be obtained, be reasonable in how it is obtained. Written discovery should be preferred over depositions. Request for Admissions should be encouraged. Interrogatories in lieu of depositions, especially those of the corporate-defendant employees, should be preferred. (b)(6) depositions of the corporate-defendant should be emphasized, in lieu of “cherry-picking” numerous employees for deposition in their individual capacity simply because a prior deponent mentioned their name. Besides being burdensome and, unfortunately, often used simply to harass and annoy, opinions and interpretations solicited at such depositions are not the opinions and interpretations of the corporate-defendant. Although hours of testimony obtained from an employee, typically one of thousands, in which that witness gleefully opines on whatever is asked of him or her, without any preparation to render such opinions, and certainly no authority to do so on behalf of the corporate-defendant, is a waste of time and money.
This “stepped discovery,” controlled and limited by the concept of reasonableness, typically can be limited in terms of the scope of such discovery based upon such concepts as the relevant substance, time frame, and geography. For instance, what corporate documents, corporate conduct, corporate culture, existed fifteen years ago, rarely, has any reasonable relation to existing corporate documents, conduct, and culture. Moreover, as a practical matter, the broader the topics that are deemed relevant to discovery, the farther back in time you go, and the larger the relevant geography, the more burdensome and expensive it is to identify, locate, gather, collate, and present such discovery. The more likely the corporate-defendant will innocently not be able to find a particular document, which, no doubt, the opposing side will argue was a deliberate concealment or even an attempt to spoliate evidence.
In a stepped discovery process controlled by the reasonableness standard, the farther removed from the subject substance, time, and geography, the more the court should insist on those seeking the discovery to establish the reasonableness of such a discovery request. Thus, under such a process of discovery, even information twice or three times removed from the subject substance, or relatively far back in time, or far away from the subject location, may be discoverable. But before that discovery is allowed, the party seeking the discovery should be required to show in stepped progression, how the discovery to date, reasonably justifies such discovery that on its face is far removed from the subject of the present litigation. And, the more distant in substance, time, and geography from the subject litigation, the more specific and limited should be that discovery if allowed.
Recently the author witnessed questions posed at the deposition of an individual employee of a corporate-defendant-insurer (not a (b)(6) designated representative), which had more than 30,000 employees, concerning that person's knowledge of the company's computer system, software, browser, internet link, and the like. When objected to, opposing counsel stated it was “reasonably” calculated to lead to the discovery of admissible evidence in that they intended on obtaining an Order from the court to have a computer and software expert go directly into the corporate-defendant-insurer's computer and software system to determine whether in fact that defendant had produced all the documents requested, or rather, deleted or purged certain documents, including but not limited to e-mails and computer-log notes. Of course, there has never been a scintilla of evidence that such has occurred in the case.
D. “No Mas!”
Ultimately “bad-faith” discovery will simply come down to a judge saying “no mas.” Waiting for the well-financed plaintiff's attorney to self-police, and voluntarily suggest termination of the “slippy slope” of “bad-faith” discovery is wishful thinking. Suggesting that any single additional Interrogatory, Request for Production of Document, or deposition, could not possibly lead to the discovery of admissible evidence would be naive. Is it possible that there may be some single document inadvertently hidden in a single employee's top desk drawer that is only discovered if that particular employee is subpoenaed for deposition? Of course. Does that justify 30,000 depositions? No. Would such even justify 10 depositions? No. If the discovery is conducted analytically, in a reasoned, stepped fashion, given all the other avenues of obtaining information against that defendant, a limited discovery plan will no doubt result in obtaining all that is needed. The possibility of something maybe being out there, that does not reveal itself through such a reasoned, stepped discovery plan, simply does not justify more discovery. There are bigger issues, more important to our society, than a single plaintiff having limitless discovery. It is vital that we trust our civil judicial system to be fair in process as well as in consequences.
III. No Arbitrary Discovery Limits
Note, however, the author does not advocate arbitrary discovery limits. Some courts have attempted to address discovery abuses by providing specific, yet arbitrary, limits to discovery. Some courts have limited the number of Interrogatories, the number of depositions a side may take, or even the length a deposition may last. Recently, a Federal Court Magistrate arbitrarily limited each side to 10 depositions, which precluded taking the depositions of five persons whose affidavits were submitted against the opposing party's Motion for Summary Judgment and in favor of their own.
The author favors reasoned and reasonable discovery, not arbitrary limits. Among the wise and the good, such Rules are usually reasonable and workable. Among the wise and the good, however, such Rules are unnecessary. Among less perfect creatures, such arbitrary limits usually do more harm than good. Not infrequently such limitations are used to hide and obfuscate that which is clearly discoverable.
IV. Insurers Must Be Reasonable And Prepared To Be Reasonable
If a well reasoned, stepped and reasonable discovery plan, with limitations, is to be backed by any court, the insurer must be prepared. Although insurers and their defense counsel can and should argue for reasonable limitations to “bad-faith” discovery, such a position will only be credible, if the insurers are prepared to efficiently deliver much of the discovery requested. If an insurer draws its battle line too tightly, a court will be more inclined, when busting that line, to bust it well beyond that which the court may have accepted as reasonable. Additionally, insurers must be prepared to deliver much of the corporate documents and prepared to deliver its corporate position through knowledgeable and articulate (b)(6) deponents. Does this mean full-time employees, dedicated to such efforts? Yes.
V. Conclusion
Paradoxically, the best way to control and limit “bad-faith” discovery is for defendant-insurers to provide reasonable discovery plans that produces much of the discovery sought. In order to give less, you must be willing and capable of giving more.