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High Cost of Legal System Justified by “Intangible” Value?

by Guest Blogger Victoria Pynchon

Overlawyered is a natural read for mediators such as myself.  The high cost of litigation. Expensive. Procedurally encrusted and, with electronic discovery, a 21st century e-Bleak House.  Endless legal process for those with the funds to foolishly waste on pre-trial dispositive motions; appeals; returns to the trial court; verdicts; motions for new trials and judgments notwithstanding the verdict, further appeals.  A process that is brutal on the people and an enjoyable though intense board game to the lawyers who participate.  Lawyers for whom winning everything because that’s our job. Win. Not write a brilliant motion.  Not make a cogent closing argument.  Not buy our witnesses $150,000 in new clothes.  All that might be necessary.  But without the  win, pointless.

Having said that — and having personally experienced the case that went to trial only after it was “old enough to drive” (the Stringfellow Insurance Coverage Litigation) — what I am about to say may surprise Overlawyered’s readers.

The rule of law (and the human resources necessary to keep its machinery running) accounts for a full 57% of the wealth of developed nations like ours.

This statistic comes not from the ABA, some self-serving trial lawyers association (i.e., the Plaintiffs’ bar) or a left-leaning academic at an Ivy League University.  No.  This comes from the World Bank!

As ReasonOnline science correspondent Ronald Bailey recounted in The Secrets of Intangible Wealth a little more than a year ago;

Human capital and the value of civil institutions – as measured by the rule of law – constitute not just a part of the economic well-being of nations, but the largest share of wealth in virtually all countries.

The statistics compiled by the World Bank should surprise you as much as they did me:

Once one takes into account all of the world’s natural resources and produced capital, 80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type.  [According to] the World Bank[‘s] economists  . . . .  the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.

We need only return to the first principles we were taught in law school — certainty of contracts, for instance — for the following figure to be less than completely astonishing:

the  natural wealth in rich countries like the U.S. is a tiny proportion of their overall wealth—typically 1 percent to 3 percent.

Why?  Because we

derive more value from what [we] have. Cropland, pastures and forests are more valuable in rich countries because they can be combined with other capital like machinery and strong property rights to produce more value.

And the role of the rule of law here?  Predictability — trust in civic, political and financial institutions (cf. the stock market when it’s working productively) — freedom of contract, the internalization of legal precedent for managing disputes that are never litigated, and many more efficiencies made possible by the mere presence of a working justice system in America.

I write this as we experience an unprecedented Presidential campaign, the result of which is uncertain and, to many people, frightening.

All I can say to those filled with fear of a McCain or of Obama presidency, is to remember this — America’s political institutions and the people who elect representatives to serve them are more powerful than any single man (or woman).  Whoever is elected, we retain the power to eject him if he over-reaches.  So let’s get past this ENDLESS campaign and laissez le bon temps roulez!

Attempt to Conjure Fake Victory Out of Settlement & Subvert Justice Foiled

Guest Post by Victoria Pynchon

This just in from my IP ADR Blog colleague Mike Young of Alston + Bird

I wish I was clever enough to make this stuff up, but I’m not.  Only reality can be this bizarre.

A sexual harassment defendant settles the case for $1.3 million.  Not satisfied with the usual “no admission of liability” clause found in most settlement agreements, Mr. Harasser insists on an adjudication of NON-liability as a condition to paying the $1.3 million.

Here’s how the parties work it:

As part of the settlement, the harassment dispute will be “arbitrated” based on stipulated facts.  The defendant will have sole discretion in the selection of the “arbitrator” and will pay the entire fee.  The stipulated facts are, essentially, “defendant is innocent and plaintiff is wrong.”

Not only does the settlement agreement set forth the stipulated facts for the “arbitration,” it also dictates the arbitration award, word for word (essentially “the defendant is innocent and the plaintiff is wrong), and then spells out the press release that will follow the “arbitration,” that the defendant was totally vindicated in the lawsuit by a defense award (leaving out, of course, the part about paying $1.3 million to the plaintiff).

With me so far?

A fake arbitration to be followed by a false press release…and then the defendant pays the $1.3 million.

This is pulling a fast one on the public and a perversion of the justice system since the fake arbitration award would inevitably be followed by an uncontested entry of judgment based on the arbitral award.

Were I the defendant, I would be pretty careful to select an arbitrator who I knew would go along with this, like my [hypothetical] sociopathic uncle.  I certainly wouldn’t select a former judge and one of the State’s top private jurists.

But, what do I know.  In this case, the defendant with the unilateral right to select the arbitrator for this “arbitration” selected a former San Francisco judge sitting on the prominent JAMS panel, Daniel Weinstein.

To no one’s surprise except maybe the defendant, the plaintiff didn’t show up for the “arbitration.”  Why should she?  Based on the stipulated facts, she already “lost” the “arbitration.”  For reasons that are not fully explained in the subsequent legal opinion, but probably because Weinstein is smart and ethical enough to know a rat when he sees one running across his conference room table, Weinstein refused to participate in the sham proceeding.

As the defendant, what would you do now? I’d probably pay the $1.3 million and call it a day. Because the case had not been dismissed, the court called the parties in to see what was going on.  The plaintiff said she wanted to enforce the settlement.  The defendant said the plaintiff breached the settlement agreement by not showing up to the “arbitration,” and that the settlement agreement had a real arbitration provision so that any dispute over the agreement had to be arbitrated (the old fashioned way).  The trial court read the settlement agreement for the first time, and then denied the defendant’s motion to compel arbitration.

Now would be a good time to pay up and move on.  There’s been no publicity and no public disclosure of this bizarre effort to fool the press and public with a sham arbitration proceeding.  But no.  This defendant decided to appeal the denial of the motion to compel arbitration, making everything public.

Sure enough, the appellate court issued an opinion, not officially published but available on the web for the world to see at, in which this entire fake arbitration process is shared with readers like you and me.

Here you have an effort to create a false record for the purpose of issuing  a misleading press release to fool the public into believing the defendant was exonerated. It’s certainly fraud but is it actionable by anyone? And because the attempt was foiled by this new Darwin Awards winner, no harm was ever done.

We praise the ethical decision of JAMS neutral Daniel Weinstein in refusing to join in this attempt to use JAMS, and eventually the Courts, to perpetrate a public fraud.  Is there any question that an arbitrator who would go along with this sham would be violating his/her professional responsibilities (not to mention undermining JAMS’ sterling reputation)?

But where is the judicial outrage?  In the appellate court opinion, none of the justices took the defendant to task.   There is no indication that the trial court was shocked or concerned by the possibility that it was overseeing a settlement whose goal was to defraud the public.

The “A” in ADR does not mean “A”nything goes in the pursuit of expedited calendars.  It is alternative, not anarchic.

[editor’s note: see also Nov. 16 (American Apparel’s view of episode)]