Understand Litigation from a Global Perspective

Finally I’d like to take a look at how litigation differs between the United States and the rest of the world. I mentioned earlier that when I ask business executives where is the worst place to be sued in the world, they inevitably select the United States. And why is that? I know that some of you are from the United States. You might have sense of the reasons why. Others of you have probably seen US Litigation on TV shows, and you might have a sense. But, please hit pause and write down the key differences between litigation in the United States and litigation elsewhere.

Here are some items that should be on your list. Number one, in the United States, we use a different approach for hiring lawyers than in many other countries. We use something called a contingency fee system. It’s not always required but it’s one possibility. And with a contingency fee, the payment to the lawyer is contingent on the results of a lawsuit. So, if for example, you hire a lawyer on a 30% contingency, that means, if the lawyer wins $10 million for you, the lawyer’s fee is30% of that or $3 million. If the lawyer loses the law suit, the lawyer’s fee is 30% of 0.

I read a story recently about a lawyer who visited somebody in a hospital, and he was explaining his contingency fee. He said to the injured person, I charge a one third contingency fee, and the injured person said I’m so glad to hear that. The lawyer I talked to earlier wanted to charge me a one-fourth contingency fee, and yours sounds much better. Obviously this person had trouble with math. But that’s the contingency fee system. And that Is spreading to a few other countries because it enables, especially the middle class, to have access to the Jjustice system. Punitive damages, the purpose of punitive damages is to punish the defendant, very similar to a criminal fine.

And it applies when a defendant has done something more than simply being careless, has acted in a reckless manner, in an intentional manner. In causing an injury, a court can assess this additional amount that depending on local law often will go to the plaintiff

rather than to the state, rather than to the government. Discovery is a huge difference. The word discovery is one of those rare legal words that means exactly what it says. Lawyers have a number of tools by which they can discover the type of case that the other side has. A key discovery tool, for example, is the deposition where a lawyer for the other side can force you to testify, under oath, before a court reporter. So everything you say is written down, and then the lawyer can analyze this in determining what kind of a case he or she has. So it’s a very powerful discovery tool. I’ll be mentioning that more in a few minutes.

Jury trials are a fairly unique feature of the US system. Now many countries in the world allow a jury for a criminal trial, but the U.S. is somewhat unique in also allowing juries for civil cases, that is, business litigation. Who pays when you win a lawsuit? In most of the world, the rule is loser pays. If you win a lawsuit, the loser has to cover your attorney fees. But, under the so-called American rule, each side pays his or her own attorney’s fees. So, we’ve got the American rule on the one hand, and the rule that’s sometimes called the everywhere but America rule on the other hand, which is the loser pay rules.

And finally in the United States, we allow class actions. If your company injures me by overcharging me illegally for a product, let’s say $1, I’m not going to sue you for the dollar. But if you have illegally overcharged 50 million customers, then we can join together as a class in suing you. And so all of a sudden, instead of a $1 lawsuit, you face a $50 million lawsuit. Now, who are the big winners in many class actions? Well, it’s the attorney who brings them on a contingency fee.

If the attorney has brought the class action on a 30% contingency fee, and the attorney wins $100 million, the attorney will receive 30 million of that and you and I will receive 70% of $1.00 which is $0.70, or worse yet we’ll get a coupon from the company who has cheated us in overpricing their product. So those are the key differences that you should be aware of in a global economy with respect to litigation. Sometimes the combination of these factors can result in a very low barrier to entry into the legal system. For example, I mentioned a hypothetical earlier where I sue you based on the color of your shirt.

Now this is a ridiculous lawsuit, and I’m going to be kicked out of court fairly quickly. And then the question arises, when that happens, what do I have to pay my lawyer? Well, under the contingency fee, I would pay nothing. What do I have to pay your lawyer? Well, under the American rule I would pay nothing. So there’s a very low barrier to entry when you combine contingency fee with the American rule. Let’s close this discussion, and this whole module, with a case example. And I use this case example also in the negotiation course, but here’s the situation. We have somebody driving a Dodge Caravan. A grandfather driving a Dodge Caravan.

And sitting next to him is one of his friends. Sitting behind the grandfather is his daughter. And sitting behind the friend in the backseat is his grandson, Joshua, eight months old. A driver of a pickup truck driving around 65 miles an hour in a 35 mile an hour zone crashes into the rear end of the Dodge Caravan. And this crash causes the friend’s seat, the friend’s front seat to collapse backwards onto baby Joshua, fracturing his skull and killing him. So those are the facts and let’s see how this plays out under the American system. So number one, the parents decide to file a suit against DaimlerChrysler, the manufacturer of the car, and they hire a lawyer.

Now, the case doesn’t state this, but you can probably safely assume they hired the lawyer on a contingency fee basis. And in their lawsuit, they claim that Dodge Caravan seats are defective. That DaimlerChrysler failed to warn consumers the seats are dangerous, and therefore the company should be liable for compensatory damages and for punitive damages. Now in virtually every country in the world, compensatory damages are allowable if there’s a violation of the law. In other words, you’re entitled to compensation for your injuries. But the U.S. is fairly unique in allowing, also, punitive damages. In this case, they said that the company acted in an intentional, malicious, and reckless manner. So that’s the beginning of the lawsuit.

Next step, the company comes in. And they file papers saying, look the seat design was necessary to protect occupants of the front seat. And the seat design met industry standards, which was true. And the seat design exceeded government regulations, which was also true. So now we have the complaint filed by the parents and the response by DaimlerChrysler. We then enter the most important stage in any lawsuit, which is discovery. This is what takes a long time and is the most expensive part of the lawsuits. So, this was the result of the parents discovery along with hiring expert witnesses.

At trial, they brought in expert testimony that showed that the current seat design was not necessary to protect occupants of the front seat, as the company alleged. They found through discovery that the company knew of the seat design problem for 20 years. The company had a minivan safety leadership team with employees from many areas in the company. And this team concluded that the seat design was unacceptable and inadequate to protect consumers. So what did the company do? The head of the engineering department ordered the chair of this leadership team to destroy the minutes of the team meeting, and they disbanded the safety team and fired the chair. So as a result of this discovery they found this evidence.

Then it’s time for the American jury to make a decision. Should the company be liable for compensatory damages? Should the company be liable for punitive damages? And, if yes, how much in punitive damages? So, please hit pause and write down what you think. Number one, would you make the company liable for compensatory damages? Yes or no, and number two, would you make the company liable for punitive damages, yes or no? And if yes, write down a number. What do you think the company should pay?

Here are the results. The jury decided that the company and the pickup driver, remember this all originated with the pickup truck driver crashing into the back end of the Dodge Caravan. Should be liable for 5 million in compensatory damages, 50% each for the wrongful death of Joshua. Now the pickup truck driver ignored the entire legal proceeding. Never showed up for trial, never responded. He’s probably uncollectable, probably doesn’t have any assets to cover this damage award. And the jury also decided that the company should be liable for $98 million in punitive damages. The trial court said, wait a minute. There’s such a large discrepancy between the 2.5 compensitory damages and the 98 punitive damages.

We are going to reduce the punitive damages to 13 million and this amount was upheld by the Tennessee Supreme Court. They concluded, DaimlerChrysler failed to warm consumers or redesign the seats. The company “deceitfully covered up evidence of the deficiencies of its seat design while at the same time advertising the Caravan as a vehicle that put children’s safety first”. And the court also noted that the compliance with government regulations should not protect manufacturers who know regulations are not sufficient to protect consumer’s. And that following industry practice is not a defense when the practice places consumers at risk. We’ll talk more about that when we get to the module involving customers, stakeholders, and product liability.

What was not involved in the court decision was the American rule. But we can assume that the parents had to pay their lawyer out of their damage reward. It would not be covered by the defendant. And this was not a case involving class actions, this was a case brought by one plaintiff.