The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
Gary Neustadter of the Santa Clara University School of Law has just published a fascinating paper on what he calls "randomly distributed trial court justice."
Neustadter conducted a massive empirical study of 218 essential identical proceedings in California bankruptcy courts filed within a two-year (2010-2012) period by Heritage Pacific Financial LLC. The actions all involved virtually identical promissory notes (secured by real property), which Heritage had acquired on the secondary market; and they each sought a determination from the court that the obligations on the notes were "nondischargeable" in bankruptcy under the Bankruptcy Code's fraud exception to bankruptcy discharge.
Because the proceedings were essentially identical, they offer a rare laboratory for testing the extent to which our entry-level justice system measures up to our aspirations for "Equal Justice Under Law." We are unlikely to find many conditions better suited to empirical exploration of that question: (1) civil litigation filed during a relatively brief time span by one plaintiff against 266 defendants (including co-defendant spouses); (2) some defendants defaulting, some defendants appearing pro se, and some represented by an attorney; (3) dispersal of the litigation among forty-seven different bankruptcy court judges, all sitting in one state (and thus, where applicable, required to apply the relevant substantive law of a single state); and (4) legal claims and factual allegations by the plaintiff so nearly identical that each dispute is resolvable on the basis of one obvious and straightforward factual question (reliance by an originating lender on a borrower's misrepresentations) or on the basis of three less obvious and more complex legal rules (a California statutory limitation on fraud claims and two alternative varieties of a standing defense).
The results showed a "stunning and unacceptable level of randomly distributed justice at the trial court level, generated as much by the idiosyncratic behaviors of judges, lawyers, and parties as by even handed application of law."
In the 218 proceedings, Heritage sued 266 individuals for claims totaling $21,267,016. The claims in each of the adversary proceedings were substantial, ranging from $11,773 to $458,596, with a median claim of $89,363. . . .
Information about the amount of Heritage's recovery from a defendant is available for 210 of the 218 proceedings. It recovered nothing in ninety-four of those 210 proceedings (45 percent). It suffered seven judgments of dischargeability, four on summary judgment and three following trial. It acquiesced to dismissal with no payment to Heritage, based on mutual releases, in forty-nine filed written settlement agreements. Bankruptcy courts dismissed twenty-six other proceedings on Heritage's unilateral requests for dismissal, and dismissed, or entered judgment against Heritage, in twelve proceedings for other reasons.
In the remaining 116 adversary proceedings for which the information is available (55%), Heritage recovered at least $2,142,561 in aggregate (approximately 10% of its total claims), consisting of $1,138,564 owing by virtue of ten default judgments, one summary judgment, two judgments following trial, and $1,003,997 pursuant to 103 filed written settlement agreements. . . . Each of the written settlement agreements calling for payment to Heritage provided for payment of significantly less than the amount of Heritage's claim against the settling defendant, typically through installment payments. . . . The range of amounts defendants agreed to pay by way of settlement [ranged from] .9% to 48.3% . . .
It's pretty disturbing (though I'm not at all sure the results are surprising) as a reflection of how capricious the legal system can be. Neustadter has some interesting speculations on what causes the variation in outcome, and how it can be ameliorated. Worth a look.