LAWMALL
.COM

Settlement Potential - Section 2(d)/2(e) Lawsuits

Email This Section to Interested Businesses, Associates, Friends or Relatives

Meritorious Section 2(d)/2(e) lawsuits are probably more capable of being settled than Section 2(a)/2(f) lawsuits, although I am not able to give you any insight from whatever settlements I have negotiated. First of all, whatever settlements I have negotiated, if any, are always made with agreements not to divulge any of the terms of settlement. The denial of advertising and promotional money is often easier to prove than the difference in per-unit prices for Section 2(a) claims, and there are fewer applicable defenses for 2(d)/2(e) claims against a manufacturer.

The defendant always seeks a confidential settlement, and surprisingly the judge does not even learn (most of the time) the terms of the settlement. All the judge learns is that the case is being dismissed by reason of a confidential settlement agreement dated such and such a date, signed by the settling parties. At times, the judge may ask the terms of settlement (or he/she may even have participated in settlement - something which many judges want to avoid, because it could prejudice them with information and arguments that might prevent the judge from acting fairly if the settlement does not work out and the case has to be tried. In federal courts, the federal judge will often assign settlement discussions to a magistrate judge (appointed to a 10-year term), so the Article III (lifetime) federal judge will not hear matters that might require the judge to recuse himself/herself if a settlement does not work out.

From the defendant's standpoint, the defendant and its lawyers tend to worry that (i) the plaintiff might actually win, with a very high amount, and this win would undoubtedly receive a lot of publicity in the industry and in the main media; this would hurt the defendant because it would encourage others to sue; (ii) antitrust litigation costs a lot more for the defendant than most other types of litigation because of the complex nature of proving a case, a complexity I might add that is caused by the defendants themselves when arguing that the antitrust laws should not apply for one reason or another. The federal appellate courts often seem to look for ways to reverse an antitrust judgment against a major corporation, and these grounds for reversal often create new issues requiring costly discovery by both sides to determine if such issue applies for one side or the other. One such complexity comes to mind right away, in the area of purchasing directly. A 2(a) plaintiff must prove that he purchased directly from the seller, unless (and here is the exception, that works in the favor of the plaintiff) the defendant (not the seller) was creating the rules by which the plaintiff's purchase price (or the plaintiff's loss of benefits under the contract) was being determined; (iii) discovery of the defendant's highest officials is something they don't want and could encourage them to want a settlement to avoid having to testify as to their practices under oath in a pre-trial deposition; (iv) the defendant might want to get the plaintiff back into the fold and off the manufacturer's back, if the plaintiff is important enough to the defendant; (v) the defendant knows that during discovery the plaintiff will obtain the details of the discrimination that is going on and that no matter how hard everyone tries to keep the details secret, the secrets often do leak out, such as employees of the plaintiff who hear about the discrimination but not about the confidentiality of the disclosure; at trial, the secrets are revealed in the opening and closing statements, and in the evidence given in open court and then to the jury in the jury room; the judge will often reveal the secrets in published decisions during pre-trial; and the courts are holding that the press presumptively are entitled to see these secrets upon request (and the court is required to make a prompt decision); and the judges themselves try to stop the parties from designating everything "confidential - for attorneys eyes only" and a defendant can't be sure what secrets the federal judge will say should not be hidden from the public; and finally the plaintiff can apply to the court for an order releasing designated documents from the confidentiality obligations.

Finally, the amount at stake for one plaintiff is often far less than the amount that the defendant winds up paying in legal fees, paralegal fees, review, coding and making pdf copies of hundreds of thousands or even millions of documents produced in discovery. If a plaintiff estimates that it is entitled to $100,000 (or $315,000 when trebling and adding a 15% legal fee), the plaintiff should also calculate how much the defendant is going to spend to defend the lawsuit, and hopefully at the end pay a substantial portion of the amount truly owed to the plaintiff. Assuming the defendant's team of lawyers over a 3-year period (or even longer) is going to fight to the finish, that fight could amount to an average of 1,000 hours per year for 3 years. The law firm is probably billing the defendant at the rate of $600 per hour or more, so that each year the suit could cost $600,000 in legal fees, plus the costs of reviewing and coding documents, and putting them into machine readable (pdf with an affixed scanned text file) form. You can see that for a 3-year period the lawsuit for $315,000 could easily cost the defendant $2,000,000. Don't worry. The defendant understands that it has to put up a fight when anyone claims wrongdoing, because if the defendant does not, then it will rapidly receive hundreds or even thousands of claims, which would bankrupt the company. In one case, I estimated that the major retailers spent about $70 million defending the case; the well-heeled plaintiff spent about $35 million (admittedly), and a settlement was agreed to for an amount equal to about 20% of the amount spent by the plaintiff.

Defendants generally spend far more than they ever admit, and are generally unwilling at the outset of the litigation to pay any reasonable amount to the plaintiff. The required ritual is that the plaintiff and its lawyer have to proceed with the meritorious lawsuit; the defendants have to go through various legal efforts to try to dismiss the case with motion practice, the parties have to start discovery and prepare for trial and then, shortly before trial, the case is ripe for settlement. This is the way in which the defendant can settle every case but do so only after forcing the plaintiff to give up most of the benefits by denying recovery for a long period and reducing the net value of the recovery by reason of all of the litigation costs and effort.

There is a strategy to cope with this. Read on.

Your Lawsuit Strategy

Bearing the foregoing in mind, you may wonder if a lawsuit is worthwhile? Are any lawsuits worthwhile? Wal-Mart commenced a lawsuit against Visa and Mastercard and settled it for several billion dollars. New York Attorney General Spitzer has settled a limited number of suits, or threatened suits, during the past several years for about $5 billion. Millions of people continue to commence lawsuits and do so because if you don't sue, you won't collect anything. Companies generally are not in the business of handing out money to persons who complain by letter to corporate wrongdoing. These letters (especially those with infantile demands) are thrown in the circular file (or filed to be brought up if you should ever sue) and usually no payment is made. The corporation knows that most people will not sue. The demand letter is not going to go any further for 999 out of 1,000 such letters, and the corporation prefers to wait for that 1 lawsuit (yours!) to be commenced, which it puts on the back burner by hiring a top lawfirm, to make a variety of motions, to resist your efforts in obtaining legitimate discovery, to force you and your attorney to weaken your resolve by demanding far more discovery (at great cost to the defendant) than the defendant will ever need, and to make you and your lawyer spend a lot of time and money before the defendant finally decides to settle your case.

Meanwhile, the federal judge has far more motions and trials than he/she needs, and often has his/her attention directed to other matters that are more pressing (such as criminal matters, which require the court's immediate attention) or older civil matters, to try to get them resolved.

The court does require the counsel to meet and confer, and to come in to report to the judge as to the status of the case, and any problems, but this type of case (antitrust) is often considered a complex case and will be given a longer period for the parties to obtain discovery and make motions than most other types of case.

Finally, however, when the case is nearing 3 years old and still in the courts, the court system can push the parties to resolve the matter by putting it down for trial, even though lawyers will argue they still have other things to do. When putting it down for trial with little prior notice, the judge is not only trying to get the case completed, he/she is also trying to get the parties to settle the case, if they can.

Thus, along the way there is a time when settlement is very much a possibility. The trick is to get to this settlement stage without spending but a small fraction of what the defendant has spent.

If I had to manage a case and spend as much as the defendants spend, I wouldn't be able to run any lawsuit. The defendants spend something like 100 to 1,000 times more than I spend on a case. If the defendants spend $5,000,000 defending a 2(d)/2e) RPA antitrust case, I would like to spend less than $25,000, or 1/200th as much. (Remember, I'm probably on a contingent-fee basis without the value of my time included in the $25,000, whereas most of the $5,000,000 spent by the defendant is for attorneys' fees).

Without trying explain all ways can costs, do like keep down instead permissible (or 14 hours); also, I take out-of-town or out-of-state depositions witnesses by call, even though almost always send 2 attorneys distant location, involving about 4-6 days attorney billing time against my 1-2 hours $100 telephone bill for AT&T conference call involved. Through a variety these savings, I'm able reduce costs of litigation substantially and make it possible put up with whatever the defendants try to do.

My first case (an antitrust case) started in 1970, when I filed a 110-page antitrust complaint for a company called National Auto Brokers Corp. ("Nabcor") and various Nabcor franchisees. This case last 18 years, ending in 1988. I had to hire a truck to car the files (more than 100 filing cabinet drawers) back to the client in Philadelphia when the case was finally over.

One way I reduced costs in that case (which I no longer do) was to have the deposition witnesses speak into a microphone, with a series of microphones run through a Shure mixer, and then into various tracks for individual playback. I then had the client's daughters prepare a draft of the deposition by typing up the material on the tracks, and then I submitted the typewritten transcript to the lawyers for the 63 defendants (including General Motors, Ford, Chrysler) for their review and correction. The defendants started to hire a court reporter to sit in the room and take down everything that was said, but not officially. Instead, since I was taking the deposition my way was the "official" way, and the defendants' attorneys then compared what my side had prepared as the transcript and compared it to the transcript prepared by a real court reporter, and then they (without showing me a copy of the real court reporter's transcript) gave me a long list of the various corrections, many debatable, that they wanted me to make before they would agree to accept my transcript as the official transcript for the deposition. We then had various meetings to iron out the discrepancies and finally after a lot of time on all sides, we were able to get about 20 transcripts reviewed and approved. The cost of doing this to the defendant, including the real transcript they purchased for each deposition) probably tripled or quadrupled their out-of-pocket expenses for these 20 depositions. I, on the other hand, didn't spend any money at all for the 20 transcripts, other than an occasional bus fare to meet with the defendants to iron out differences.

As I said, there are ways to keep the costs down. The defendants have an apparent obligation to their clients to maximize costs that they thrust upon the plaintiffs and their counsel, and without any insight into keeping costs down this type of lawsuit (an antitrust lawsuit) can become uneconomic.

The strategy, in a nutshell, is to spend my time (which doesn't cost the client money) to create as strong a case as possible, and to oppose much of whatever the defendants try to do in their efforts to dismsiss the case. To give them whatever they want as to discovery (since it is easier and faster to give all the client's files instead of going into court and trying to get a court order limiting the discovery to 85% of the files), to spend as little as possible, and to use legal ingenuity instead of aggressive motion practice to put up with whatever the defendants throw out and wait for the time in which cases are usually settled. This type of case is like any other. Defendants don't like to settle right away because it would encourage others to sue, but neither do defendants want to go to trial because they know that the jury is quite unpredictable, especially when the defendant is violating the law and hurting its smaller customers in the process.