Privatizing the Judiciary; D. Popeo

The Problem: A Judicial Bottleneck There are two reasons for the recent bureau cratization of the judicial system: an increase in legal activism (which encourages parties and lawyers to seek judicial redress of an ever-in Mr. Popeo is founder and general counsel of the Wash ington Legal Foundation, a pro-free enterprise public in terest law and policy center in Washington, D.C. This article first appeared in WLF's Legal Backgrounder series. Copyright © 1988, Washington Legal Foundation. creasing list of judge-made legal "wrongs") and the government's inability to respond to the courts' added work load. In 1960, the U.S. District Court system reg istered a mere 80,000 case filings. Today, by contrast, the most recent Annual Report of the Administrative Office of the U. S. Courts records that plaintiffs filed 238,982 civil cases from June 1986 to June 1987. That growth rep resents a 200 per cent increase in civil litiga tion. Actual court days have increased only 40 per cent during the same period.

The major cost to parties that this judicial bottleneck creates derives from the long dis covery periods preceding trial. From the date of filing, the average civil case takes 20 months to get to trial. This in turn has led to a huge backlog in civil cases. For example, 243,159 civil cases were pending as of June 1987. Although excessive delays and broadened discovery methods produce a financial boon to lawyers, the litigants (both individual and cor porate) have suffered. According to The Prac tical Lawyer (March 1985), an insurance com pany will pay an average of $32,000 in legal fees out of every $100,000 judgment that is awarded. Moreover, if a plaintiff wins $100,000, he can expect to take home up to 15 per cent less than what he would have recov ered if he had received the compensation at the time the award became due (the time of the in jury). This is because he has lost interest over the three-year waiting period preceding judg ment.

The public also pays through higher taxes and lost national productivity. Currently, taxpayers spend $10,000 a day to keep each Fed eral district court operating. In some states the cost may be even higher. For example, Arizona taxpayers dole out $24,000 per day to keep their Superior Court system functioning. Ac cording to the National Insurance Institute, in 1985 insurance companies paid nearly $85 bil lion in casualty claims, but spent an additional $16 billion in legal fees. This lost revenue is recouped from the general public in the form of higher premiums for individuals and busi nesses. Higher premiums, in turn, raise the costs of goods and services to all consumers. A Private Judiciary Although most of the for-profit companies that provide Alternative Dispute Resolution (" ADR") and private courts did not appear until the early 1980s, they have already been quite successful in accommodating the in creasing demand for efficient and fair adjudica tion. The precursor to these for-profit compa nies is the American Arbitration Association ("AAA"). Although the AAA has principally been used by businesse~ to solve contractual disputes, parties are now using AAA guidelines and services to resolve other types of claims.

Businesses with contract disputes have in creasingly turned to arbitration to settle them. In 1971, the American Arbitration Association conducted 22,549 dispute resolutions. By 1986, that figure more than doubled to 47,202. This trend is supported by former Chief Justice Warren Burger who has said, "If the courts are to retain public confidence, they cannot let dis putes wait two, three and five years or more to be disposed of." Companies like Endispute, based in Wash ington, and the Center for Public Resources ("CPR") in New York, have followed the AAA's example by providing services in addi tion to deciding contractual disputes like those handled by the AAA. Endispute, like CPR, deals with mediation, arbitration, and mini trials in what CPR refers to as "win-win solu tions," in contrast to the purely adversarial outcome of litigation. For example, Endispute has participated in patent and antitrust issues relating to the chemical and aerospace indus tries, as well as in an important mini-trial that 301 resulted in a $61 million dispute settlement be tween American Can Company and Wisconsin Electric Power Company. Although groups like the AAA, Endispute, and the Center for Public Resources serve only quasi-judicial functions, their growth is directly related to the judiciary's failure to resolve disputes in a timely manner.

Alternatives to traditional dispute resolution are being developed in the area of libel law as well. The Iowa Libel Research Project, an off shoot of the University of Iowa Law School, has developed a program to allow libel plain tiffs and defendants to settle their differences outside the courtroom. A "neutral" is ap pointed in each case to decide if the media statement at issue was false and whether the reputation of the complainant was harmed. Often the remedy is to get the media to publish or broadcast the neutral's finding or to pay to have it published elsewhere. Given that the average libel suit now lasts four years and that 73 per cent of plaintiffs say they would be happy with a retraction, correction, or an apology, it would seem that non-traditional dis pute resolution in this sensitive area has a promising future. Perhaps the most dramatic result of the disil lusion with the current judicial system has been the creation of actual "shadow" courts run by for-profit companies. Two examples of these private initiatives are the publicly owned Judi cate (now located in all 50 states and the U.S.

Virgin Islands) and the Arizona-based Civi Court. While associations and companies like AAA, Endispute and CPR provide expert medi ation and consulting geared toward dispute res olution, these shadow courts actually hear cases and hand down legally binding decisions. While some in the legal establishment suspi ciously view these for-profit companies as a potential vehicle for' 'abuse and injustice," the result has been just the opposite. CiviCourt di rector Alice Wright has noted the companies' very existence rests on pleasing both the plain tiff and the defendant. If abuses take place on a significant scale, demand for their services will drop. At CiviCourt and Judicate, the parties are allowed to select the judge they wish to try their case. Selections are made from a list of senior and retired judges. The parties also decide what rules of discovery and evidence will be used 302 THE FREEMAN. AUGUST 1988 'and whether the decision will be legally binding. The companies stress fairness to both parties. As one superior court judge familiar with Judicate has said, "If they don't, they'll be out of business. ' , One advantage of companies like Judicate is that they generally issue clearer and more con cise opinions with no intent to set legal prece dent for other parties. Since decisions are con fidential, they are not published. Thus a savings in time and money results from avoiding overly verbose and prospective opinion-writing.

The Future Whether it is an arbitration clause in a con tract or patent infringement claims against a company, more and more potential litigants are solving their problems outside the courtroom. They are doing so for one main reason-the need to settle their disputes without the ruinous consequences of prolonged, expensive litiga tion. Cases now being handled by ADR compa nies include antitrust, personal injury, medical malpractice, insurance, and practically all other non-criminal disputes. As long as a significant backlog of cases exists in the nation's courts, the private ADRs will continue to have an incentive to provide inexpensive, speedy, and just judicial services. Although the private sector is not currently large enough to markedly relieve the state and federal governments' caseload, a strong profit motive exists to expand. If dispute resolution continues to offer cost-efficient and fair adju dication in areas previously left to the govern ment, industry growth potential is enormous given the estimated 8 million filings annually that are expected to come before our Federal and state courts this year.

Businesses should be encouraged to foster the creation of private courts, because their use could provide significant benefits to them. For example, although private courts would apply established law (which is, at times, unfortu nately marred by an anti-business bias), there is almost no chance that the private judge would create a new judicial doctrine out of whole cloth. In addition there would be no judicial fiats that would shock business defendants and favor "small plaintiffs." Perhaps a more significant plus for busi nesses would be the absence of juries in the new private system. Juries typically tend to dis favor businesses over non-business parties. This is especially true when the business is not based in the region where the court is sitting. Judges, as finders of fact, are presumably more sophisticated than juries and less likely to be burdened by a jury's typical prejudices.

However, the strong incentives to erect a comprehensive private judiciary may be offset by disincentives arising from the would-be legal entrepreneurs' fears that any investment made in this field may be lost. Business people seem vaguely apprehensive that some future legislative backlash may occur, incited by "public interest" groups' exaggerated em phasis on the negative policy implications of a private judiciary . It is true that privatization of the judiciary will not happen without costs. The real costs, however, are not those to which such interest groups would likely object. Highly qualified judges, already being tempted away from their low-salaried positions on the bench back to the private sector, would likely leave in greater numbers for work as private judges. This mi gration might further impoverish the pool of legal thinkers in the publicly financed judi ciary, thereby leaving behind both less skilled jurists and the type of activist judges for whom there would be no demand in the private sector.

Another perceived cost of privatization, asPRIVATIZING THE JUDICIARY 303 suming the demand for dispute resolution does not rise in response to decreased costs, is the reduction in the number of billable hours that firms can expect to generate. The costs to the legal profession may here be directly inverse to the benefits clients receive. Accordingly, the legal establishment may be reluctant to endorse privatization. (The American Bar Association has taken no position on the trend as yet.) However, in this respect it is certain that businesses involved in private dispute resolu tion would gain. Alan Epstein, president of Ju dicate, insists that any loss to a firm in billable hours will be offset by an increased capacity to take on cases, as well as by a happier group of clients. Cases with profound social policy implica tions will inevitably continue to be brought in the public courts. Nevertheless, it seems likely that legislatures will eventually be persuaded that the greater dispensation of justice (in terms of speedier proceedings and the higher real awards that would result) outweighs any poten tial impoverishment of the public judiciary.

In sum, the policy question at the core of any future debate concerning whether a private ju diciary should be allowed to exist is whether the public judiciary could profit by a little com petition to its status as the primary organ of dispute resolution. Given the current crisis, the answer should be in the affirmative. D In the September Issue of The Freeman . .. • "What Should We Do About Luck?" by James L. Payne • "On the Foundations of Economic Liberty" by Roger Pilon • "The Monitor: America's Socialized Shipwreck" by Gary Gentile • "Charles Schwab and the Steel Industry" by Burt Folsom 304 John Bright: Voice of Victorian Liberalism by Nick Elliott j ohn Bright did more than anyone else to bring about the great advances for liberty in nineteenth-century Britain. A lea~ing orator and agitator, he was considered by many to be the best political speaker of the century. His voice contained a quiet passion which cap tivated fellow members of Parliament and roused the many thousands he addressed at public meetings.