Litigation
A lawsuit places the outcome of a dispute in the hands of a third party. That party may be a judge, jury, or an arbitrator in binding arbitration. Regardless, it transfers ultimate power to make a final decision over a dispute from the parties directly involved to a person who has no stake in the outcome of the dispute. The outcome of litigation under these circumstances is unpredictable, to say the least.
Litigation also places final control over the dispute in the hands of someone much less familiar with the problem at hand than the parties themselves. Many civil courts handle everything from tort claims to family law matters to business disputes. While judges may be knowledgeable in a specific area of law, they will have no prior experience in the facts of a particular case. The judge may also have little or no experience in business, and lawyers often have to educate a judge in complex legal and factual circumstances that may be foreign to the judge.
Litigation is not an efficient method of problem solving. The rules of civil procedure governing pre-trial matters and the rules of evidence at trial are complex and arcane. Courts move from one dispute to another rapidly and it is difficult for even conscientious jurists to stay familiar with the parties and their disputes between appearances. Companies that have attempted to operate through a court procedure, such as a receivership or a bankruptcy, know that this is a very cumbersome and inefficient way of making complex business decisions.
Litigation of course is also very expensive. There is no natural limit on the cost of litigation. The $50,000 legal dispute can be as complex legally and factually as the $5,000,000 business dispute. Once commenced, litigation acquires a life of its own. It is not a simple matter to cancel a lawsuit after it has acquired a certain momentum. Once this critical mass is reached, lawsuits tend to move in a glacial manner toward an unpredictable resolution. Especially in high stakes matters, it is likely that the parties lose control of the cost of the solution.
Finally, litigation typically destroys whatever relationship existed between the plaintiff and defendant. It may also require a considerable effort to collect or enforce a judgment, which increases the intensity of the hostility. Successful businesses operate in an atmosphere of good will and trust. Those companies that are known to handle problems in a fair manner may do better over time than those who are litigious and hostile.
Civil Procedure
When a company is sued, or planning to bring a lawsuit of its own, it generally has a choice between having the case decided in a state or federal court. If such a choice is available, the company needs to consider a variety of factors in deciding which court would be best.
Some cases must be brought in a federal court. Examples are actions for patent and copyright infringement, bankruptcy cases, suits for refund of federal taxes, claims under federal antitrust laws and other cases where federal jurisdiction is exclusive. A much larger number of cases must be brought and defended in a state court. These are actions in which the plaintiff’s claim is based upon state law and the plaintiff and at least one defendant reside in the same state.
But many cases can be brought in either a state or federal court. These include actions in which the parties on each side all reside in different states (i.e., where no plaintiff and no defendant reside in the same state), where the claim in suit exceeds a certain amount, or where the plaintiff’s claim is based squarely on federal law and Congress has provided that the claim can be enforced in either a state or federal court.
Cases between corporate or individual citizens of different states invoke federal jurisdiction called diversity jurisdiction, so-called because there is diversity of citizenship among the parties. Actions based on federal law may be tried in federal court on what is called federal question jurisdiction.
If a company has a choice of state or federal court, here are some factors that should be considered:
The jury pool. State courts draw their jurors from the county in which the court sits. Federal courts draw from a district-wide pool. In urban counties, a state court jury can be expected to consist primarily of city dwellers from a range of social and economic classes. Federal courts, with access to jurors throughout a multi-county district, are likely to include more suburban dwellers.
- Jury size. Civil juries in most state courts consist of twelve persons. Federal civil juries in most districts are made up of six persons. There is little reliable information about whether a six person federal jury will behave differently from a twelve-person state court jury because of differences in jury size.
- Number of votes required for a verdict. Here the differences between federal and state court juries may be more significant than those associated with jury size. Federal juries must vote unanimously to reach a verdict. Most state court juries can return a verdict arrived at by majority vote.
- Differences in federal and state court litigation style. In a state court a case may be subjected to a "fast track," which contemplates readiness for trial within 120 days after the complaint is filed. This results in short time limits which can increase litigation costs and limit thoroughness of preparation for trial. State cases often are not assigned to a judge for all purposes. This means that pretrial motions may be heard by one judge after another and that you will not know who the trial judge will be until the case is assigned just before trial. In most federal courts, cases are assigned by random drawing to one judge for all purposes when the complaint is filed. This means that the judge who will conduct the trial will become familiar with the case throughout the pretrial period.
- Discovery. There is more document production in federal courts than state courts. Federal courts require lawyers to generate a greater quantity of written material than in state court and to attend status conferences and other supervisory proceedings. An increasing number of federal courts require pretrial resort to alternate dispute resolution proceedings, which can include mediation, early neutral evaluation or nonbinding arbitration. These features of federal practice increase litigation costs for some cases over what costs might have been in a state court.
- Differences in the way governing law is applied. Judicial precedents involving similar cases in either the state or federal court may work to the advantage or disadvantage of a party in one court or the other. When the law is unclear, there are still general considerations that may help you make a choice of court. If the case turns on federal law, as with cases which qualify for federal question jurisdiction in the federal court, litigating the action in a state court may deny you the federal law expertise of a federal judge. If the case will be governed by state law for which there is no definitive authority from an appellate court, a state trial judge can decide what state law ought to be, subject only to the final decision of a reviewing court.
Mediation
An alternative to litigation is mediation. Generally, mediation is tried when the parties have been litigating a case for a period of time through traditional methods. Some courts incorporate mediation into their structures, requiring that cases be mediated before trial to see if the matter can be resolved. In some cases, mediation is required under the contract that governs a dispute. Mediation clauses in contracts are added when the parties try to foresee and avoid many of the negative aspects of civil litigation.
Mediation is a form of assisted negotiation. The mediator, who is selected jointly by the parties, generally is a former judge or an experienced attorney in private practice that is selected because of a special area of expertise or a general reputation for success in facilitating productive mediations. The goal of mediation is to have the parties resolve their own dispute by identifying their respective interests and crafting a solution that takes these interests into account. The mediator tries to get behind the stated legal positions of the parties and get them to discuss and resolve their real interests.
The procedures in mediation are generally informal and vary from case to case. The parties are often given an opportunity at the beginning of the session to make a formal statement of their position. The mediator does not try to determine which party has the winning legal argument, rather he or she tries to facilitate a consensual resolution of the dispute.
