Update (January 24, 2018): Viking Forest Products, LLC v. Twin Mills Timber & Tie Company, Inc. is a nauseating case.
The allegations in the case were that Defendant Twin Mills Timber & Tie sold Viking Forest Products non-existent “crane mats” (used in the construction industry as stabilizing pads and bridging for the movement and operation of cranes and other construction equipment). Twin Mills allegedly accepted payment for crane mats from Viking and then failed to make them to the tune of $797,738.29.
This appears to be a classic zombie case, no genuine dispute but the case nevertheless lumbers on (pun intended). How much money should it take to Viking to obtain a judgment against Twin Mills? How much time?
The case started as an unopposed arbitration in the Spring of 2016. It took the rest of 2016 to get the arbitration award (which did not include any award for the claimant’s legal fees). The Pyhrrhic battle to get the arbitration award converted to a court judgment (through confirmation of the arbitration award and entry of judgment) has been pending in U.S. District Court (D. Minn.) for over a year now. It is on-going.
This is simply one more of thousands of lawsuits that reflect our broken legal system. Presumably, Viking has incurred over $100,000 in legal fees for, essentially, nothing to date (and who knows when it will get its hand on cash?). It is no wonder that lawyers are heavily criticized by many in our society who correctly suggest that too often the system does not work for anyone other than the lawyers.
We are at a loss as to how to address this massive failure. How about one simple adjustment: a more liberal use of fee-shifting when defendants needlessly and in bad faith prolong litigation? (See Singer, Jacob (2010) “Bad Faith Fee-Shifting in Federal Courts: What Conduct Qualifies?,” St. John’s Law Review: Vol. 84: Iss. 2, Article
4). Conduct sufficient to allow for “bad faith” fee-shifting should include when “action should have been unnecessary and was compelled by the party’s unreasonable, obdurate obstinacy.”
But you might reasonably ask: if a company is going to ignore an $800,000 debt, how will adding another couple hundred thousand dollars for the other side’s legal fees speed up resolution? This is a fair point.
How about apportioning some of the fees to be paid by the lawyer or law firm of the bad faith litigant? After all, most often it is the lawyers who embody and promote parties’ unreasonable, obdurate obstinacy, choking the legal system with reams of garbage.
Presumably, the bar would find any such broadened use of Rule 11 deeply objectionable. They would argue that it impedes their obligation to be zealous advocates for their clients. (Coincidentally, it would result in them making less money, of course.) Perhaps it would temper or cap the zeal without damaging its clear and important value to our adversarial system?
It seems that somehow the calculus must change to clear our legal system of zombie cases.
Update (August 21, 2017): In this lengthy string of posts below, now spanning four years, we have lamented a often repeated phenomenon: business disputes where there are no actual disputes as to the facts and no actual disputes as to the law.
We wrote:
Apparently when commercial transactions of a certain magnitude — a large magnitude — go wrong, there just is no better way in this day and age. Businesses have to call in lawyers to settle up.
We discuss cases where one side says a machine it bought does not work; the other side says it does. All agree that, if it works, plaintiff loses. If it does not work, defendant loses.
In LEI Packaging v. Emery Silfurtun, et al., the egg carton moulding machine evidently did not work. But it took the plaintiff years and, undoubtedly six-figure legal fees, to finally get a judgment.
We hereby coin the term, “Zombie cases,” for such silly and expensive non-disputes. What we mean is that these cases are the proverbial walking dead. There is no genuine live dispute but the lawsuit lives on.
Zombie cases enrich lawyers, clog the legal system, and cause Americans to lose faith in our legal system.
“Are you telling me,” many angry clients have said to many lawyers,”I may have to pay you $X,000 dollars to get the obviously liable defendant to pay me the $Y,000 dollars he owes me? And $X,000 may exceed $Y,000? And so you’re suggesting that I take a settlement offer of 50% of $Y,000 when the obviously liable defendant owes me twice that????”
“Yes,” many lawyers have candidly answered. “That is exactly what I am suggesting.”
The tools that our legal system generally uses to fight Zombie cases do not work well. We have several defective tools.
Sanctions
Sanctions for “frivolous cases,” in which a litigant is held responsible for the opposing party’s fees and costs for lawsuits with no legal merit or factual basis. This tool does not work because courts are extremely reluctant to use it. It is so rarely imposed that it does not seem to have much, if any, deterrent effect on Zombie cases.
Prejudgment Interest
If defendant owes $Y,000 on Day #1, forces plaintiff to sue for it, forces plaintiff to incur the expenses of a lawsuit (normally including lawyers’ bills), prejudgment interest would seem to be a serious deterrent to a defendant’s concocted defenses. At the end of litigation, defendant knows it will have to pay $Y,000 plus 10% simple interest.
We think this tool likely has some deterrent effect on Zombie cases but it has little if any if the defendant is insolvent or on the brink of insolvency.
Summary Judgment
Summary judgment can, of course, sharply reduce a litigant’s cost, which is an alternative means of attacking Zombie cases. Rather than threatening the non-settling non-meritorious litigant with higher costs, help the meritorious litigant resolve the non-dispute more quickly and more cheaply.
The problem here is that many courts are reluctant to entertain summary judgment motions early on, even in Zombie cases. Courts seem concerned about improvidently granted motions, which, if appealed, will prolong the lawsuit rather than shorten it.
Thus, the summary judgment tool is generally extremely expensive.
Also, the summary judgment tool is very often counter-productive. Lawyers overuse the tool in non-Zombie cases, in cases where there are clearly factual issues that preclude summary judgment, and, so, on balance, it is not clear that the tool saves our legal system more money than it costs the system.
We are not so egotistical to suggest we have an answer to the problem of Zombie cases but here are some thoughts: (1) Courts should be more liberal with sanctions and when a litigant is shown to never have had a case, the litigant and, possibly, the litigant’s lawyer, should be sanctioned; (2) Courts should be more open to summary judgment motions very early on in a case. They should not an almost automatically reject such early motions as they often do in most cases (except for a simple small “cut and dried” debt collection actions, mortgage foreclosures, etc.).
In business-to-business contract cases, a fee-shifting provision can be useful leverage if the responsible party has the money at risk. (If it doesn’t, a fee-shifting provision is as irrelevant as the liability risk in terms of killing off a Zombie case.)
Anyone have any other solutions to Zombie cases?
Update (February 22, 2017) (under the headline: Solving The Puzzle of Lawsuits Without Genuine Legal Disputes…): This long string of posts, below, started nearly two years ago, puzzled over the case of LEI Packaging v. Emery Silfurtun, et al. in which the plaintiff sued defendants claiming that the Emery Rotary Quattro TP (Thermo Press) Pulp Moulding Machine that LEI bought from Emery to make egg cartons did not meet the specifications in the purchase agreement.
We puzzled over the case because this is not a legal question. This is a factual question: does the machine work or not? As such, why are these businesses paying LAWYERS (a lot of money, presumably) to figure it out?
As this case has progressed, the answer seems to be emerging. The machine did not work like it was supposed to. Several defendants simply have no money. As with other cases discussed below in this post (about pasta-packing machines and sugar), this case appears to be a long hard war of attrition for toward a predictable win for a plaintiff but an expensive one that might never result in the recovery of money.
From recent correspondence in the case, we learn that defendant Emery nearly went bankrupt and got out of the case for pennies on the dollar. The case, therefore, proceeds against the “et al.” defendants. One of them, in turn, “Samey,” has walked away from the case. Now LEI has a default judgment against Defendant Samey. Another defendant, Hedinn, Ltd. is still in the case.
In seeking its default judgment against Samey, LEI had to prove up its damages. In response, Hedinn questioned LEI’s factual claims underpinning its claim for damages. LEI cried foul, asked for, and was given the Court’s permission to respond to what LEI argued were “factual and calculation errors” in Hedinn’s response. LEI counsel laid those out for the Court last week. This week, Hedinn responded dismissively:
We write on behalf of Defendant Hedinn hf to respectfully note that Plaintiff LEI Packaging, LLC’s letter brief …did not correct any factual or calculation errors or misstatements made by Hedinn …. Rather, LEI’s letter brief appears to be an attempt by LEI to provide additional factual context and arguments in response to accurate citations to the record Hedinn made in its Memorandum in Opposition.
Because the Court specifically directed the parties to limit their letter submissions to addressing ‘factual or calculation errors or misstatements,’ Hedinn will not respond to the new factual representations and arguments raised in LEI’s letter brief unless instructed to do so by the Court.
In short, Hedinn argues that LEI’s letter brief merely adds “factual context” but does not correct “factual errors.”
(We note that U.S. President Donald Trump got over 1,000 more times as many votes as Thomas Jefferson got. This is not a factual error though, in isolation, it might be misunderstood. Additional factual context: The total U.S. population in 1800, when Jefferson won was about 5 million people and most adult Americans were not allowed to vote back then. Jefferson got 60+% of the popular vote vs. 46% for Trump. etc. etc. In short, context is critical to understanding facts and it would seem that Hedinn might be shooting blanks to hold off or slow down LEI’s progress.)
Update (December 24, 2015) (under the headline: “Arbitration is a matter of consent, not of coercion.”): A sues B for an allegedly faulty egg-carton-making-machine implicating work performed for B by sub-contractors C and D.
A and B agree to arbitrate their differences. Can A force C and D into arbitration? Not in the case described below and in U.S. District Court Judge Ann D. Montgomery (D. Minn.)’s opinion this week.
“Arbitration is a matter of consent, not of coercion,” Judge Montgomery points out (quoting a 1999 court of appeals decision).
We’ll put aside for another time the bottomless abyss and enigma of what “consent” and “coercion” are. Like the related idea of “waiver” (“the intentional relinquishment of a known right”), the closer you look, the less you see. Suffice it to say that it is and it should be harder to force a party into arbitration when they have not actually entered into an arbitration agreement, for obvious reasons.
Now that C and D have repelled the effort to force them into arbitration, can C and D get a stay of the court proceedings pending the outcome of the A vs. B arbitration? That is unclear. The Court wonders out loud whether C and D have contracts with B including “flow through” clauses, obligating C and D to join in the arbitration? So Judge Montgomery has permitted “A” to engage in “very limited discovery” to determine if any formal obligation requires C and D to arbitrate. If so, the Court will entertain a later renewed motion to compel arbitration.
[Query: If C and D knew they had agreed with B to participate in arbitration involving B, wouldn’t their lawyers have had a duty to disclose this to the Court in the context of A’s motion to compel arbitration against C and D? Minnesota lawyers’ ethical rules require “candor toward the tribunal.” Arguing that one is not a “signatory” to an arbitration agreement and therefore not obligated to arbitrate, when one is signatory to an ancillary agreement agreeing to participate in an arbitration, seems less than candid to me.]
Update (June 26, 2015): The post below noted a recent commercial dispute with high-powered lawyers on both sides to deal with an issue as to whether a large machine functioned as promised and, if not, who’s responsible and how do the parties allocated the losses. It looks like the dispute may be off to arbitration. The parties have agreed to negotiate as to whether they can agree to arbitrate…
“The only problem with arbitration,” one seasoned lawyer told me years ago, “is that it’s arbitrary.” This is, of course, a cynical generalization and a controversial opinion. In any event, let’s hope that LEI Packaging of Chisago and Emery Silfurtun of Ontario can cheaply return full-time to their main preoccupations, their profit centers rather than their “legal spend,” that is, selling eggs and carton-making machines.
Original post (May 18, 2015) (under the original headline: “There is no better way.”) “Can it box pasta or not?” I asked nearly five years ago. “There has to be a better way,” I suggested about resolving a different commercial dispute back in 2013. More recently, Minnesota Litigator has covered (or maybe I should say “coated”?) “Sugar v. Sugar,” which appeared to be a commercial dispute that boiled down to the simple syrup of defendant regretting and re-negging on its commitment to buy sugar from the Plaintiff at a very high price. (Note to clients: Regret = OK. Re-neg ≠ Ok.)
Apparently when commercial transactions of a certain magnitude — a large magnitude — go wrong, there just is no better way in this day and age: businesses have to call in lawyers to settle up.
There was a time in this country (and elsewhere) when you would go to a barber if you had a tooth-ache or a festering limb that you needed removed. Seriously.
There may come a time in the future when the thought of going to lawyers to settle a dispute over your Emery Rotary Quattro TP (Thermo Press) Pulp Moulding Machine (specifically, its performance and payment for it) will seem as bizarre as it now seems to go to your barber to have your foot amputated.
Until then, however, for purely selfish reasons, I am delighted to say that lawyers must wade in to commercial disputes like LEI Packaging v. Emery Silfurtun, et al.
LEI Packaging of Chisago, Minnesota bought an egg carton manufacturing machine from Emery Silfurtun. Apparently Emery promised to be able to come up with a machine that could make 7,200 egg cartons per hour (that’s 120/minute) but “[s]oon after Emery delivered and took efforts to install the Machine, numerous problems became present…”(Complaint, Para. 16).
Call me visionary, but it seems to me that in years to come we might all recognize that there are others who might be in a better position than lawyers to get their arms around whether a Emery Rotary Quattro TP (Thermo Press) Pulp Moulding Machine performed as promised and, if not, what the value of the impaired machine is, what the harm to the buyer is, what the operative contract between buyer and seller says.
Having said that, the real action in this case could very well play out between co-defendants. Maybe the machine really and truly failed to meet the commitment of 7,200 egg cartons per hour and maybe the question is, who’s to blame? I will stay tuned…