March 20, 2007

Who pays for civil litigation?

by Dave

Today's SCOTUS decision in Travelers Casualty & Surety Co. v. Pacific Gas & Electric (which allowed one massive company to recover attorney's fees from another massive company in a bankruptcy proceeding) got me thinking about a topic that I have had a few conversations about recently: the allocation of the costs of civil litigation.

The taxpayers, of course, bear most of the costs for the maintenance of the judiciary. Yes, there are filing fees and court costs, but they do not come close to approximating the costs of judges, courthouses, clerks, bailiffs, and the rising costs of dry-cleaned robes. And well we should bear those costs: it is difficult to question the effect that the rule of law and the relatively objective adjudication of commercial disputes has had on our economic progress as a nation, and whether as individuals we have been involved in litigation or not, we all benefit from that growth. As for the judges: despite the perennial complaints from the judiciary about how badly they are underpaid, the six-figure salaries that they receive dwarf the majority of American citizens' wildest dreams, and are certainly not bad for 9 to 5 government work with a large degree of power.

The parties themselves, of course, often expend huge sums of money on their case. Lawyers, expert witnesses, deposition and document management services, etc. all handsomely profit off of civil litigation. And even the litigating parties, in a sense, profit... if there was no profit motive there would be no litigation. Whether a plaintiff or a defendant, if one qualifies litigation as a cost of doing business, the parties benefit from winning awards in their favor, protecting against IP infringement, ensuring effective commercial contracts, allocation of costs through insurance, a stable marketplace that encourages growth, and a competitive business environment.

Of course, in relatively limited circumstances (as described in Travelers), and in some egregious circumstances a prevailing party might even recover their costs from the losing side. Now there's a nice benefit: being a party to civil litigation at a reduced cost!

All in all, I think the litigation system does a decent job of allocating costs (though the folks over at Overlawyered might disagree). But there is one glaring exception.

Jurors.

Jurors, who are required by law to temporarily suspend their lives and sometimes spend weeks listening to what Company A did to Company B (which to many will be nothing but stultifying, boring drivel) without any recompense beyond a few dollars a day and a free sandwich, bear massive costs in a system where they often have no stake nor get much benefit.

Why do jurors bear "massive" costs? First of all, jury duty is a regressive poll tax. Irregardless of one's financial situation (with the minor exception of those few for whom jury duty would pose catastrophic economic consequences), we are all equally required to give up the time that the courts ask us for in exchange for a $5 to $50 daily payment (curiously, it is high cost-of-living and highly litigious states like California ($15) that are at the bottom of that scale, while rural low cost-of-living states like South Dakota ($50) are at the high end).

While some might argue that high-income individuals give up more if they are required to sacrifice their high salary while on jury duty, most high-income individuals are salaried and either continue to receive their salary, or they have competitive jury pay available at their job. In addition, they have investment capital that continues to work for them regardless of what they are doing. And they have savings and a financial cushion that will reduce the impact on them if they do end up taking the juror fees.

However, the majority of jurors do not have high incomes or salaried positions. They often are paid hourly, and the loss of hours means loss of income. Many are living day-to-day, week-to-week, and even a few dollars in their daily take home has a significant economic impact on them.

Thus, it is a recessive tax. While high income individuals might give up a greater amount and/or percentage of their incomes when called on to serve on a jury (though often they need not give up anything at all), it is the poor and middle classes that might give up a greater impact on their disposable income and financial well-being.

Further, high income individuals have more at stake in civil litigation. As discussed, a stable system of litigation produces excellent economic results, results that primarily benefit high income individuals and owners of invested capital. I'm a big advocate of free markets and their effects on all class levels, but I find it hard to swallow that low-income individuals should bear such a great burden in ensuring that giant corporations have a fair playing field to continue to earn profits for their shareholders, most of whom are not the low income individuals forced to sit on civil juries. Talk about exploitation of labor.... Company A and Company B, as well as lawyers and judges, all profit from forcing common folks to help them resolve their disputes with little recompense or choice in the matter.

All of this is justified and compelled by the contention that is each citizen's "civic duty" to serve on a jury, even though, at the time this obligation was created, only white male landowners could serve on most juries (of course, that obviously had much more significant problems, but for the purposes of resolving commercial disputes there is less exploitation involved when we limit jury duty to those who had both the economic capacity to sustain the hit to their income as well as those who had the largest stake in a commercial system governed by the rule of law).

I propose that one of two things happen (though they won't): either the taxpayers bear the burden of better juror pay, or the losing party does.

If the tax system takes the hit, this will represent more accurately the relative stakes in the system. We tax capital, not heads. The greater the amount of capital, the greater the amount of tax, the greater the stake in the system.

Or, you could impose the costs on the losing party. This would provide side benefits: it would serve as a curb to frivolous lawsuits by plaintiffs, while serving as an incentive to defendants on the wrong side of the law to settle a case.

Of course, those incentives and disincentives are relatively meaningless when you consider how low the cost of paying jurors would be in comparison to the huge costs of civil litigation. I doubt the costs of reasonable wages would exceed the amount the litigation departments at US law firms bill their clients for photocopying.

Why won't it happen? No one to advocate for it. Jurors are a shifting group without a common set of long term interests. There is no jurors union. Who would pay for the lobbyists? Who would make the campaign contributions?

And politicians have no incentive to do it on their own. Even though jury duty is a tax, it is a politically easier one to charge (under the guise of it being a "civic duty") than raising taxes elsewhere. And they certainly don't want to annoy the chambers of commerce by passing laws imposing the costs on the parties.

What do you think? Other arguments for or against raising juror pay? Comments are open.

March 20, 2007 05:18 PM | TrackBack
Comments

"The parties themselves, of course, often expend huge sums of money on their case."

:-) This reminds me of a law clerk who calculated at one hearing that due to the hours billed by the 20 expensive lawyers in the room, of whom only a handful actually spoke, there probably had been enough money expended in the course of the hearing to pay the judge's salary for a year.

"the six-figure salaries that they receive dwarf the majority of American citizens' wildest dreams"

Given the American people's resistance to the estate tax and mid-20th-century levels of federal income taxation of the rich, which policy views seem to be premised on the hope that they, too, will be rich someday (though I'd have to chart whether one becomes more inclined to eat the rich after having retired without accumulating an estate subject to tax nor ever making enough income to fall in the top bracket), I don't think less than $200k is the majority of Americans' "wildest dreams." See also rap videos, other portrayals of wealth in pop culture.

I would think that if individual jurors and people who anticipate having to serve on a jury found the cost to be really onerous, they would petition to have the rates increased. Indeed, this may well account for the relatively high rates in South Dakota, where the polity is smaller and thus perhaps easier to rally behind a commonplace cause like "increase juror wages!" Since I haven't heard of any wacky referenda to do the same in California, I'm inclined to think that the Sunshine citizens just bear it as they do earthquakes, mudslides, Mel Gibson, etc.

Posted by: PG at March 22, 2007 03:29 AM

If you asked a majority of Americans if they think they will ever earn $165,000 a year, they would say no. Rap videos may appeal to young people who think they will be wildly successful, but teenagers certainly don't constitute the majority of Americans. I suppose there may be some holdouts that really believe they will actually win the lottery and give up their factory job, but c'mon. I certainly don't believe that the 30 to 50 year old foreman, schoolteacher or accountant really believes that their MTV career is kickin' in to gear any day now.

And the belief that one should not tax the rich is not, by any means, premised by the belief one will eventually become rich. I believe in many policies that are to my personal detriment, even though I have no expectation of ever taking advantage of them. A person who believes the rich shouldn't be taxed is more likely doing so out of a sense of what they believe to be fair, not phantasmagorical self-interest.

If you are one of the working poor - the people who are most economically affected by jury duty -are you really gonna take time off from your $10-an-hour job and go out and start up a jurors union or press for a referendum? That would be pretty dumb. Nobody really benefits enough economically from such a situation to take the issue on, and it is certainly not politically sexy enough to get politicians behind it sua sponte. It's just an externality.

Posted by: Dave at March 22, 2007 03:05 PM
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