Chapter 3 - Economics

Chapter 3
Trials and Resolving Disputes
The Judicial System
• The court system is adversarial.
• Parties have the responsibility for
bringing a lawsuit, shaping issues, and
presenting evidence.
• Lawyers represent parties’ claims.
• Judges don’t investigate.
• Court applies legal rules to facts
• Trials are often costly and uncertain.
• Complex facts, extensive evidence,
mountains of business records can be
• Juries tend to be less sympathetic to
Basic Trial Procedures
Pleading Stage
Discovery Stage
Pretrial Stage
Trial Stage
Appellate Stage
Enforcement Stage
• See Exhibit 3.2
The Pleadings Stage
Formal statements made to the court by the parties
Jurisdiction needed over subject matter & parties
Notice given of lawsuit by service of process by summons
– Alleges facts for jurisdiction & remedy/remedies
– Requests remedy(ies)
– See Exhibit 3.1 (Casino owner pokes a hole in a Picasso, and
sues Lloyds of London for compensation for losses under his
insurance policy with them.)
Responses to Complaint
– Motion to Dismiss (Demurrer)
• By defendant
– Answer (may include affirmative defenses – usually by
– Counterclaim
– Reply
Discovery Stage
(Legal Tools to Obtain Evidence)
• Rules of Civil Procedure set guidelines & limits to the process
• Purposes: 1) preserve evidence, 2) limit surprises, 3) encourage
• Depositions of parties and witnesses (including experts) –
sometimes videotaped
• Interrogatories of the parties
• Use of Expert Witnesses
• Requests for Admissions
• Orders of Production of Documents
• Physical/Mental Examinations
• Impacts on business – expensive & time-consuming
• Court may sanction a party who fails to comply with discovery
requirements .
– Default Judgment
– Contempt of court (fines, pay costs to the other party)
See Cooper Tire & Rubber v. Mendez
“Is There Something Unclear
About the Rule, Counselor?”
• Federal suits: Rule 8a requires the initial pleading to
be “short and plain”.
• Rule 9b requires it to be to the point – to let the other
party know what the lawsuit is about
• Attorney Webb’s client was suing GMAC Mortgages
• Submitted a 465 page pleading
• Included 37 pages of quotes from e-mails
• 341 pages largely repeated points made in assorted
claims of various points
• Federal District Judge Leighton was not amused.
• Dismissed.
Cooper Tire and Rubber
v. Mendez
Mendez was driving a minivan – 6 passengers
Rear tire, made by Cooper Tire, lost its tread. Minivan rolled over.
4 passengers killed. Mendez and 2 other survived.
Examination showed nail had punctured the tire and it separated.
Mendez and others sued Cooper for product defect.
Jury awarded $11 million+ in damages. Appeals court affirmed.
Cooper appealed that plaintiff’s expert testimony by Richard
Grogan was inadmissible.
• HELD: Reversed. Grogan’s presentation of a theory of wax
contamination at manufacturing as a reason for the separation of
the belts on the tire is unreliable and should not be admitted.
• Expert testimony is admissible if (1) the expert is qualified and (2)
the testimony is relevant and based on a reliable foundation.
Cooper Tire and Rubber v.
Mendez, cont.
• Grogan is not a chemist, engineer or tire designer. Has a British
certificate equivalent to a high school diploma. Not accident
reconstruction expert.
• He did work at Dunlop Tire in England, examining tires,
including those that had failed. He teaches courses on tire
failures and published a book entitled An Investigator’s Guide
to Tire Failures, along with articles on tire failures.
• Grogan’s theory of wax contamination is supported only by his
book and theory has not achieved acceptance.
• Cooper’s chemical engineer and two other Cooper experts
testified that wax migration is a normal, expected, and
understood phenomenon occurring during manufacture and
the life of the tire.
• Cooper’s experts testified: Wax migration is not a defect
• Grogan’s novel theory does not meet the reliability standard for
admission of expert testimony.
• Grogan’s testimony is not evidence of a defect and tire failure;
therefore case fails.
Pretrial Stage
• Summary Judgment – either party
may request
– Judge renders it
• Pretrial Conference – either party or
court may request
– Usually attorneys and judge
– Simplify issues
– Plan course of the trial
– Judges get parties to drop
certain parts of case
– Helps to focus on key issues
– Judges often encourage parties
to reach out-of-court settlement
See Test Yourself, p. 64
Jury Selection
• 6th and 7th Amendments gives right to a jury in
certain cases
• If no use of jury, judge becomes trier of fact
• Selection of jury involves voir dire
• Attorneys allowed limited number of challenges to
reject prospective jurors without stating reason –
peremptory challenges
• Usually 12 persons on jury panel
• Some states have fewer – such as 6 or 9 jurors
Trial Stage
• Opening Statements by attorneys
• Presentation of Direct Testimony
– Direct Examination, Cross Examination, Redirect Examination,
Re-Cross Examination
• See “You Got Me There, Counselor!” (Courtroom
• Closing arguments
• Instructions to Jury (also called charges)
• Verdict by jury. (May be set aside for jury misconduct.)
• Motions For A Verdict
– Motion For A Directed Verdict/Motion For Judgment As A Matter
of Law
• Cases have been presented, but before going to jury, either
party requests entering judgment in its favor
– Motion for Judgment As A Matter of Law/Motion For Judgment
Notwithstanding the Verdict (N.O.V.)
See Exhibit 3.3
Remedies in Civil Litigation
(See Exhibit 3.4)
• Monetary damages • Equitable remedies
– Compensatory
– Punitive or
– Nominal
 See Naples v. Keystone
 See George State
Licensing Board
– Specific
– Injunction
• Permanent
• Temporary
• Preliminary
Naples v. Keystone Building and
Development Corp.
The Naples contracted with Keystone to build their new home.
Work was warranted. Cost was $620,000.
Major problems occurred soon after they moved in.
Crews were sent several times to do repair work.
Problems continued
Expert, Dykins, was hired to evaluate the home. Said extensive
work would be needed.
Estimated costs of repairs: $113,511 + painting for $15, 819.
Naples sued Keystone for the amount.
Trial court held for the Naples, awarding them $59,140.
Stated that a higher damage figure had “not been established
with a sufficient degree of certainty.”
Naples appealed.
Naples v. Keystone Building and
Development Corp., cont.
General rule: Place the party entitled to compensation in position it
would have been if there had been no breach
In unfinished construction damages are measured by
– 1) Reasonable cost of construction & completion, if this does not involve
“unreasonable economic waste” OR
– 2) Difference between value contracted for and value of performance that was
received (without involving “unreasonable economic waste”)
Repairs may not result in improvements on the property that go beyond
the work that was warranted.
The court did not point to conflicting evidence or explanation why it
elected to discredit some portions of the estimate (trim, siding + repair
& paint portions of interior) while accepting others verbatim.
Trial court’s award was therefore illogical.
HELD: Trial court was in error. New trial ordered and limited to issue
damages to compensate plaintiffs adequately.
Georgia State Licensing Board for Residential &
General Contractors v. Allen
• Georgia legislature passed a law: Contractors must have license
issued by the Georgia Licensing Board for Residential and
General contractors
• Contractor must pass exam and other requirements.
• If a county has a requirement at least as strict as state license
process, contractor can operate under such license
• Allen & 40 other contractors had licenses from Muscogee County
• However, county’s licensing requirement not as strict as state’s
• After year-long grace period, Board held these contractors not
properly licensed & could not work until properly licenses
• Many contractors did not know of new requirement – county did
inform them of the new rules
• Contractors sued Board and County for injunctive relief
• Said if can’t work, would suffer “irreparable harm” (Continued)
Georgia State Licensing Board for Residential and
General Contractors v. Allen, cont.
• Trial court granted preliminary injunction against enforcement of
Board’s licensing procedure. Board appealed.
• HELD: Reversed. Ignorance of the law by contractors is no excuse.
• Contractors were served with “notice” of the new law when statute
was passed by the Georgia legislature.
• Granting this injunction should only be if danger to one party is
great, while possible harm to another is minimal.
• Granting the injunction “operated oppressively” on rights of the
Board and the general public.
• New licensing statute was “in the interest of public health safety &
welfare” and to safeguard members of the public
• Plaintiffs not w/o remedy if they challenge the law and win
• Plaintiffs did not show they could not lodge claims for monetary
damages from lost work or business opportunities as a result of the
law during applicable periods of time.
• Injunctive relief is not appropriate here.
Appellate Stage
(Appeal Based on Error of Law)
• Arguments before the
– Written Briefs
– Oral Arguments
• Decisions by the court
– Majority opinion
– Concurring opinions
– Dissenting opinions
• Outcomes of
– Affirmed
– Modified
– Reversed
– Remanded
Enforcement Stage
• If no further appeal is available,
judgment becomes final
• It is res judicata
• Enforcement of judgment is
through writ of execution
• Court orders an official (i.e.
sheriff) to satisfy judgment
through an act (such as seizure
of property, garnishment, etc.)
• A complexity that causes
parties to look for alternative
dispute resolution
• In U.S. each side usually
responsible for own costs
• Not in Britain – loser usually
pays winner’s legal costs
See “Test Yourself” p. 75
Most widely recognized form of ADR
Usually results are faster in resolution of matters
3rd neutral party or panel (usually expert) is arbitrator or arbiter
Parties agree upon this ADR in the contract or during a later
Federal Arbitration Act (FAA) states agreement to arbitrate must be
Arbitrator’s decision is binding
Arbitration decision is final and matter usually cannot be litigated
again or appealed
Usual rule: No right to go to trial (parties to the dispute give up
this right)
– Appeals from these decisions are very specific and limited.
Thousands of international disputes go to arbitration each year
Uniform Arbitration Act (UAA) upholds the integrity of this process
The Arbitration Agreement
Decided at time of making the
contract or after dispute arises
Begins when party files a
Parties agree on arbitrator(s)
The hearing procedure
– Closed door
– Less restrictive procedural and •
evidentiary rules than a trial
– Arbitration associations have
rules that guide
• Good faith cooperation
• Voluntary and prompt exchange
of documents
• Uncooperative parties may be
required to pay fees and
compensation by arbitrator
Arbitrators are usually attorneys, but
need not be – often are experts in a
The award (decision)
– Usually given in writing within 30
days of close of arbitration
– Arbitrators have broad powers to
decide remedies
Appealing the award
– Attacks on arbitrators are rarely
– Errors of fact or law are usually
not reviewable
– Grounds for overturning appeal:
fraud, partiality, serious
procedural misconduct, excessive
use of power by arbitrator
– Arbitrators have wide latitude in
Generally arbitration award is final
• Least formal form of ADR
• Parties decide to settle matter
between themselves
• Often use lawyers or
representatives, though not
– Lawyers, etc. are agents of
the parties of the dispute
• Negotiated settlement is
usually a contract, which is
enforceable, like other
contracts, by the courts
Stages of Negotiation
• Stage 1: Study issues and
• Stage 2: Exchange of information
– Different styles: i.e.“tough guy”
vs. “problem solver”
• Stage 3: Work your strategy
– Usually involves compromise
• Stage 4: Agreement is reached;
usually a contract is written
- Policy of the courts is to enforce
negotiated settlements that have the
effect of a contract
• 3rd neutral person (mediator)
assists the parties of the dispute
• Parties mutually decide on a
• Mediator makes suggestions
• Mediator’s suggestions are NOT
BINDING on the parties
• Parties may go to trial after this
• Mediation often helps to maintain
the relationship between the
• Mediation also involves labor
disputes and marital disputes
The Mediator
• Most states have no
requirements at law, but some
states considering licensing
• Most people prefer a trained or
experienced person
• Usually parties agree to
maintain confidentiality
• If no requirements, the
mediator may be the choice of
the parties
• If mediator fails to act
professionally, may be subject
to liability to one of the parties
The Mediation Process
• Mediator collects information, outlines key issues, listens,
asks questions, observes the parties, discusses options,
and encourages compromise
• Mediator often helps to draft the settlement agreement
• The settlement agreement is enforceable in court
• Mediator may assist in deciding the confidentiality of the
• If confidentiality is agreed upon, nothing can be said in
• Information revealed during negotiation or mediation
should not be used as evidence if the dispute goes to a
later trial
See “Test Yourself,” p. 81
Innovative Forms of ADR
• State & federal courts have experience with ADR
• Judges almost always press for parties to negotiate a
• Many courts have formal mediation or other ADR Programs to
resolve disputes
• Courts have held that ADR proceedings are closed to the public
and the press
• Some forms of ADR have been invented by private parties
• Summary Jury Trials & Mini Trials
– Not real trials
– Effort to imitate a trial so parties can see what a likely result
would be
– Parties can still proceed to a full, expensive court trial.
– Nothing learned in this trial can be used as evidence in later
full court proceedings.