The Real Cost of Litigation Reform: Justice, Not Discovery Costs, Are at Stake

February 14, 2014
Guest Post

by Brooke D. Coleman, Associate Professor, Seattle University School of Law

Litigation reform is bandied about in an inevitable way. The narrative supporting such reform says that corporations are coerced into settling frivolous claims because the cost of litigating in federal court is so high. Further, the story goes, corporations do not want to be in the United States because the litigation risks are too much. This narrative of excessive cost and abuse is used to justify various litigation reforms, ranging from tort reform to attorney sanctions. The most recent entrant into the reform fray comes from the Committee on Rules of Practice & Procedure of the Judicial Conference of the United States. This rulemaking body has proposed amendments to the Federal Rules of Civil Procedure. These amendments would make it easier for parties to resist producing documents, provide greater protection to parties who fail to preserve key information, and limit the number of ways parties can request information from one another. By limiting access to information in this way, these proposed amendments to the discovery rules promise to lower litigation costs. 

The problem with this narrative and the attendant reforms is that they are inaccurate. First, discovery costs are generally not too high in comparison to the stakes parties have in litigation.  Second, the argument that the proposed restrictions on discovery are justified undervalues the benefit of civil litigation.

First, the numbers matter. Discovery is already at the right level in most cases. The Federal Judicial Center, an independent research body that works for the federal courts, published a study of discovery in 2010. It found that the median discovery costs for plaintiffs were $15,000, and the median costs for defendants were $20,000. The FJC study surveyed more than 2,000 lawyers (half plaintiff and half defense) for its study and looked at all cases terminated in federal court during the fourth quarter of 2008. What these numbers show is that, in the run of cases, discovery is not all that costly. This is not to say that discovery cannot be expensive. It can. Yet, a related study determined that higher costs are associated with cases where the parties have more at stake. More specifically, for both plaintiffs and defendants, the study found a 1 percent increase in stakes was associated with a 0.25 percent increase in total discovery costs. This makes sense. When the parties to the litigation have more at risk, they will spend more to litigate their case. 

Yet, the civil litigation narrative arguing in favor of reform runs completely counter to the reality of these numbers.  For example, former U.S. Senator Jon Kyl recently asked the public to consider a CEO’s dread when confronted with the words, “We’ve been sued in federal court.” This consideration was posed in order to convince corporate CEOs and general counsels to weigh in in favor of the pending changes to the discovery rules. Kyl supported his call to action with numbers that do not accurately reflect the true story of civil litigation. 

First, he used a statistic from the RAND Institute for Civil Justice that looked at only 8 “very large corporations” for its data and reviewed only 45 cases. Not surprisingly median discovery costs were $1.8 million per case. This statistic does not show that discovery is out of control in typical cases and indeed along with the FJC study shows that it is not. Second, he used a 2010 survey of Fortune 200 companies that found that in 2006-08 discovery costs ranged from $620,000 to $3 million per case. It is certainly true that these numbers -- on their face -- seem substantial. But, Kyl’s statement of the data ignores a couple of other important contextualizing statistics. The median revenue of Fortune 200 companies in 2011 was $25 billion. This means that even if we assume that the average cost of discovery in each case is $2.5 million (an estimate that runs on the high end), this is only 0.01 percent of those companies’ median revenues. Discussing the cost of litigation without contextualizing the impact the company is having on our society – and the profits it is reaping – is misleading. 

What is implicit in these kinds of arguments, but unstated, is a concern about litigation by individuals against organizations – 60 percent of the cases brought in federal court. Concern is focused on the cost associated with cases that range from product liability to securities fraud to employment discrimination. Yet, these are the cases that serve a critical private regulatory function in our society. This kind of litigation incentivizes companies to follow the law, and it holds corporations accountable when they do not follow it. In other words, the dread that we should be concerned about is not the words “we have been sued in federal court,” but should instead be the words “one of our loved ones has been hurt by a dangerous product,” “lost his retirement funds because of corporate fraud,” or “has been terminated from her job unfairly.” 

Our litigation system necessarily costs money. But, the purpose of the system is to achieve justice. No doubt, the costs should be contained as much as possible, but that containment should be achieved without sacrificing basic access to our federal system of courts. The proposed discovery rules incentivize producing parties to hold back information that is necessary to get to the truth, and they further burden requesting parties with proving that they need materials before they can even know what that information is. These proposals may make CEOs and general counsels feel more sanguine about the bottom line of their litigation costs, but they should provoke a great amount of dread in the rest of us. Corporations are less likely to be held accountable for their misdeeds if these changes are made. That cost alone renders the current litigation reform proposals unjustified.