If you have never been involved in a lawsuit, your perception of what it is like may be based largely on television courtroom dramas. Once the scene is set with the client’s first meeting with the lawyers, the factual investigation sleekly homes in on key evidence, briefs and legal papers seem to appear out of nowhere, depositions last ten minutes, and a trial comes to a dramatic conclusion just in time for the credits to roll.
Would that it were so.
In reality, litigation is usually a messy, prolonged, and unpredictable process. It is designed to get at the truth, but doesn’t always do so. It is imperfect, it is expensive, but sometimes it is simply necessary. It is the way that a society based on the rule of law has chosen to resolve disputes. Although it may be imperfect, but it is better than pistols at twenty paces.
Happily, most participants in the art market are novices at litigation. This is partly due to the fact that the art world is a relatively small community – made up largely of individuals and small businesses – in which relationships matter, and litigation tends to disrupt relationships. Nevertheless, litigation happens. There are some disputes that simply cannot be resolved any other way. One or both parties may feel that their position in the dispute is simply too fundamental to their business to compromise. Someone who owes you money may simply not pay unless a court orders him to do so. And sometimes, you will simply be sued.
Patterson Belknap does a lot of litigation. We are very good at it. But it is important to us that our clients understand the process, especially if they have never experienced it before.
If you are thinking about filing a lawsuit – or deciding how to respond if someone threatens to sue you – you should know what lies ahead.
What it is.
Litigation is nothing more (and nothing less) than the presentation of a dispute to a judge or jury who first decide, based on the evidence, what they believe really happened, and then apply the law to those facts in order to determine how the dispute will be resolved.
To assure that all of the facts are disclosed and the appropriate law is considered, litigants follow a strict, predefined process. As a general matter, the process is designed to permit the resolution of a matter at the earliest possible point. A court will dismiss a complaint that has no legal validity even if all the facts alleged by the plaintiff are true. Similarly, a court will rule in favor of one or the other party if the facts of the matter are not in dispute and the resolution of the case requires only the application of the law to those facts—what lawyers call “summary judgment.” At any point in the process – as the court’s views on the law become clearer and as more facts are disclosed – the parties themselves can make judgments as to their own likelihood of success and seek to settle the case before trial.
That is not to say that the process is designed to be inexpensive. It is not.
Litigation is expensive for a reason.
Most law firms, including ours, charge time-based fees, and litigation is extremely time-intensive. You need to know all of the key facts and all of the applicable law in order to navigate every stage of the litigation.
There is no such thing as “litigation lite.”
Gathering your facts. Developing the facts starts with your own memory and your own files. You (and your lawyer) need to be very clear on what happened that caused the dispute and what you will be able to prove to a judge or jury. Who did what? Who said what to whom? What is in writing, and what is not?
During this process your lawyer will ask you a lot of questions to test your own memory and flesh out the story. If there are others who may have information about what happened, your lawyer may want to interview them as well. You and your lawyer will certainly need to search through your own files for documents, e-mails, and any other form of evidence that might be relevant to the case. You want to know as much as you possibly can as early as possible. If there are documents that will undermine your position, you and your lawyers want to know about them up front rather than be surprised by them later.
This factual investigation will allow your lawyer to make several determinations: whether your grievance amounts to what lawyers call a “cause of action,” i.e., is it something for which the law provides compensation; how likely you are to be able to prove your case and win a lawsuit that you bring or that may be brought against you; can you prove (as you will have to) that you have actually suffered damages that can be identified and quantified with some specificity; and, the best strategy for pursuing or defending your position.
Knowing the law. The legal system in the United States is referred to as a “common law” system. Simply put, this means that the law is developed primarily by “case law” – the courts determine on a case-by-case basis how the law is to be applied to a particular set of facts. Each case becomes a precedent for the next one that presents similar facts – a precedent that the next court can follow, reject, or distinguish based on sometimes very small differences in the fact pattern.
A courtroom is not an art fair. The court will apply the law, and only rarely will be influenced by customs and practices of the art community that are inconsistent with legal doctrine. Knowing the law that will be applied in your case will inform your decisions as to whether to litigate or settle and the best strategy to follow in either event. It will be your lawyer’s job to persuade the court at various points in the litigation (or your opponent in settlement discussions) which cases to apply and which to distinguish or reject.
Finding the applicable case law is not always easy. Think of the process as looking for one particular vein of gold in a massive mine. As an attorney, you start with some very broad sense of what you are looking for – e.g., cases involving breach of contract in a sale of art, or cases involving fraud or negligence. You narrow the search as you go along, trying to find cases with fact patterns that are as similar to your own as possible. You need to search broadly enough to know that you are catching everything, and narrowly enough to know that you are not missing the one case that a court will think is determinative.
Once you find those cases, you need to be sure that they are still good law by checking to see if they have been overturned on appeal or if the case law has changed by, for example, a more senior court deciding the relevant issue in a different way. You need to find the cases that will help you, as well as the cases that will help your opponent.
Some of this process can now be accomplished on-line through dedicated legal websites. But, at the end of the day, every case has to be read and analyzed. And, as every judicial opinion will cite other cases as precedent, legal counsel needs to read those cases as well to be sure that there is nothing in them that will hurt your argument.
Arguments on the law are presented to the court through briefs and oral presentations each time you “make a motion” to the court – i.e., each time you ask the court to rule on something. Motions occur throughout the case: you may ask the court to dismiss the case, to grant you summary judgment, to rule on the scope of discovery (described below) or the admissibility of evidence at trial. We once made a stack of all of the opinions that were cited in just one brief in a relatively simple lawsuit. Those cases by themselves accounted for about a foot of paper, and each page required close reading and understanding. If we had collected the actual statutes, cases and other materials that had to be read in order to find and hone the law, the pile may have been four times that high.
“Discovery” of the other party’s facts. Once a lawsuit is filed and is not dismissed, the parties will engage in discovery. “Discovery” is the process by which each party gets access to the evidence the other party has that could either prove or disprove his case. As part of discovery, each side can request documents, e-mails and any other form of printed or recorded evidence that may be in the possession of the other party, take the depositions of the other party (testimony under oath before a court reporter), depose other witnesses who may have knowledge of the matter in dispute, and seek sworn answers to written interrogatories. Discovery can also include court-authorized inspections of premises or of works of art.
Discovery can be very expensive, depending on the factual complexity of the case, the number of witnesses, the volume of relevant documents that each side has to assemble and produce, etc. Every document has to be carefully reviewed – does it support or undermine the other side’s case? Deposition questions must be prepared to elicit the testimony that you will need to support your case in a motion for summary judgment or at trial.
Similarly, your own files have to be combed to assure that you are producing all of the documents that are called for by the discovery demands of the other side. Your own witnesses have to be prepared to be deposed; they have to learn how to respond to questions in a very structured setting and be refreshed on facts that may have occurred months or years before.
Discovery is a regulated process, and either party can be sanctioned if it fails to comply with the rules. If you are asked for “all” documents that relate to the sale of a work of art, for example, you cannot pick and choose which documents to provide. You have to provide all of them – even the ones that have your notes and doodles on them. Either party may object to discovery demands, but the threshold for permissible discovery is fairly low. The information requested must be reasonably calculated to lead to the discovery of admissible evidence. In most instances, if the requested information is not privileged (i.e., subject to a legal protection of confidentiality such as the attorneyclient privilege) it will have to be produced. In some cases, the court will permit the production to take place subject to a mutually agreed protective order that will keep it from being disclosed to the public.
Trial. Less than 2% of civil lawsuits in the United States make it to trial. The vast majority of cases are dismissed or settled along the way. Where a case has not been dismissed, the parties have an incentive to settle as trials require substantial and costly preparation. On courtroom dramas, lawyers may seem to ask questions off the cuff, and opening and closing arguments are short and sweet. In real life, it takes long and intense hours of preparation. And every trial involves risk, no matter how confident one might be about its outcome.
Appeal. Even when you win at trial, the case may continue through an appeal process. If it does, each appeal to a higher court will involve a full briefing schedule and, in most cases, oral argument. In other words, you have not fully won until the trial court’s decision has been upheld by the highest court that hears it. The entire process can take years.
Pay your own way. In the United States, the general rule is that each party pays its own legal fees. The exceptions are where a specific statute that governs the case allows for the recovery of legal fees, or where the dispute involves a contract in which the parties have agreed that the losing party will pay the winner’s legal bill. The Visual Artists Rights Act is an example of a statute that allows for the recovery of legal fees when a violation of the statute is proved.
Litigation is not predictable or controllable.
In most art-related transactions, you can usually predict with some certainty what the process will entail and how much it will cost to complete it. You can anticipate and account for the relevant risks in how you draft a contract or invoice. If the buyer can’t pay the purchase price, or the work can’t be legally exported to the buyer’s country of residence, the deal can be cancelled and the contract between the parties determines whether one party owes anything to the other.
In litigation there is no such certainty – either as to outcome or cost.
You can’t script the other side. You can control only your own actions in litigation; you can’t control your adversary. Your opponent can make motions or discovery demands that you may not have anticipated or that may even be procedurally objectionable. But you have to respond anyway. You can’t ignore them. You can object, answer, make your own motions to the court – but you have to respond. Once you are involved in litigation, either as a plaintiff or a defendant, you have only three choices: default, contest, or settle. You can’t simply walk away without consequence.
You can’t script the court. There is always risk in litigation. No matter how strong you are on the facts and the law, there is always a risk that a judge or a jury will see things differently. There are ample war stories of litigants stunned by the outcome of a case, and even more stunned when the decision is upheld on appeal.
You and your lawyers can do everything right, and still lose.
There will almost always be some surprise along the way. A surprise is a surprise because, by definition, you did not expect it to occur. An important document is disclosed during discovery that you didn’t know existed. A witness tells a different version of the facts (or lies) during testimony. A witness dies; a party changes counsel; your expert witness submits a report that could undermine your position on, for example, the authenticity of a work. Surprises can have an impact on the outcome of a case. And surprises can cost money as your lawyer decides how to respond to them.
Litigation can be disruptive.
No matter how well your lawyer shoulders the burden of the litigation, it will necessarily cost you both time and energy that you could be spending on other business or personal matters. More than that, though, it can also interfere with other business relationships.
Suppose, for example, that you are a dealer and an artist sues you for an alleged breach of contract or breach of fiduciary duty. The complaint alleges that you sold the artist’s work for an amount that is greater than the amount that you reported to the artist. The documents in your own files support your defense that you did nothing of the sort. Under the rules of discovery, the artist may be permitted to obtain the list of the clients to whom you sold her work and to subpoena documents in their possession relevant to the sales. While it is customary in the industry never to release those names, the names are not subject to any legal privilege and a court could require you to disclose them. Even if you are able to have the information disclosed under a protective order, you may not be able to protect your clients from the burden or expense of producing documents that relate to transactions that they thought would be confidential.
Litigation is public.
Litigation is meant to be a public forum. Most court filings are available to the public (including journalists), and courtrooms are open to visitors and observers. You have to assume that everything about the case – all the allegations, everything that is disclosed in discovery or entered as evidence at trial – will become public.
Especially if you are the defendant in an action – i.e., you are the one who is being sued – you should be prepared with a media strategy. Because of the way litigation is structured, the plaintiff’s allegations will always be the first thing that people hear. The facts that support the defendant’s position may not become public for weeks or months after that. You may be very anxious to speak to the press and get your side of the story out while people are still paying attention. But, doing so may cause problems in the litigation down the line. In most cases, your lawyer will likely advise you not to talk to the press or issue a prepared written statement. The right strategy will differ from case to case.
Litigation can be emotional, but should not be approached emotionally.
Large companies see litigation as an inevitable cost of doing business in the United States. When you are an individual or a small institution or gallery, it can seem much more personal. If you are sued, someone is saying you did something wrong. If someone has wronged you, you want to get him to make things right. In either case, it can feel very much like a matter of principle.
Some cases do involve matters of principle, but you need to identify them with care. You should approach litigation the same way you approach any other business decision – what is the potential risk, what is the potential reward, and what is the best way to get to the desired result.
In the next issue of the Legal Canvas we will discuss alternate forms of dispute resolution – arbitration and mediation.
BASIC STEPS IN THE LITIGATION PROCESS
The course of a lawsuit will vary depending on its facts and on the procedural rules of the court in which it is being tried. As a general matter, though, litigation will include some or all of the following very basic steps.
The Complaint. This is the first statement of the actual claim, the facts on which it is based, and the damages or other forms of relief that are sought.
Emergency Relief: Temporary Restraining Order and Preliminary Injunction. These forms of emergency relief only granted where the plaintiff (the person that brings the lawsuit) can show that he is both likely to win the case and that if the defendant (the person being sued) is not stopped from doing whatever is being enjoined (e.g., destroying a work of art), the plaintiff will suffer irreparable harm, i.e., harm that cannot be cured by the payment of compensation. Litigating a motion for a preliminary injunction normally requires formal motion papers, affidavits (fact statements from witnesses and counsel), and briefs (memoranda that make legal arguments). Usually, the plaintiff submits papers, the defendant submits briefs and affidavits in response, and the plaintiff has a chance to submit briefs and affidavits to rebut the defendants arguments. Once all of these submissions are made, the motion is considered to be “fully briefed.” At that point, the court can decide whether to hold a hearing at which the lawyers can present live witnesses and argue their cases – all to permit the judge to make a determination of who is likely to win the case if it is litigated.
Motion to Dismiss. Once a complaint is brought, the defendant may either answer it (see below) or move to dismiss it. In a motion to dismiss, the court must accept as true all facts as alleged by the plaintiff, and then decide whether those facts make out a “cause of action,” i.e., a claim for which the court can provide compensation. Motions to dismiss can be based on a failure of the plaintiff to allege facts that would support a necessary element of the particular cause of action at issue. For example, a plaintiff suing for a breach of contract has to allege facts that show that there was a contract. Motions to dismiss can also be based on other grounds, such as the complaint having been brought beyond the applicable statute of limitations, the legal period during which a claim can be raised. Again, a motion to dismiss will be fully briefed, and a judge may hold oral argument once all the briefs are submitted.
Answer. An answer is filed in response to the complaint, either directly or after an unsuccessful motion to dismiss. The answer typically responds to each and every one of the allegations in the complaint, either admitting or denying the allegation, or stating that the defendant does not have sufficient information to respond either way. The answer can also include affirmative defenses, such as wrongful conduct on the part of the plaintiff that caused the defendant’s actions. Finally, the answer can raise counterclaims against the defendant or cross-claims against third parties, which essentially become “complaints” against those parties.
Discovery. Discovery is the process by which the parties exchange information. The information and materials that are exchanged can be used at trial and can also inform the parties’ decisions as to whether to settle the case.
Summary Judgment. At the end of discovery, either or both parties may make motions for summary judgment. Summary judgment is granted where there are no material issues of fact and the judge can decide the case as a matter of law. Summary judgement motions generally require the submission of affidavits, a full briefing schedule, and a hearing. An order granting summary judgment is appealable to a higher court.
Trial. Where discovery has been completed and the lawsuit has neither been settled nor dismissed, it goes to trial. The trial is a hearing in which each side presents evidence, and the judge or a jury makes a determination about what happened. The law is then applied to those facts – either directly by the judge (where the trial is being heard without a jury) or by the jury which must follow the directions of the judge as to the law. The outcome at the trial court level can be appealed to a higher court.