McElhaney on Litigation
How to Stop the Blitz
The key to an effective strategy is often right in front of you
Posted Sep 1, 2008 8:00 AM CDT
By Jim McElhaney
A year ago, a strange case started brewing in the Land of Enchantment. A small local company called Archuleta’s Camping Gear began marketing collapsible water bottles for outings and hikes that turned out to be remarkably successful. Made of an exciting new polymer, the Blue Mountain Water Bottle keeps liquids hot or cold for hours without the weight or bulk of an ordinary thermos. It was the kind of instant success that breeds litigation.
The case that followed was not based on patent infringement, antitrust or breach of contract. Instead it was an interesting claim of unfair competition in which a manufacturer of more ordinary water bottles called Hike-n-Sip claimed product disparagement by Blue Mountain Water Bottle’s advertisements.
At first the negotiations were entirely between the heads of the two companies—Martin Drewek, the CEO of Hike-n-Sip in Oregon talking directly to Orlando Archuleta, the president of Archuleta’s Camping Gear in New Mexico.
It seemed ready to settle when Archuleta decided to meet Drewek’s demand of $75,000—more than Drewek’s loss and less than Archuleta’s increase in profits.
But before they agreed, word of the dispute reached William “Tricky” Strickland and Joyce Michaelman, who both left Windstrom & Crusher two years ago to start their own commercial litigation firm. Two days later, Drewek withdrew his offer to settle, and Strickland, Michaelman & Fox filed a complaint in federal court on his behalf. The suit asked for $250,000 in compensatory damages and $300,000 in punitives, plus attorney fees.
Annoyed but not distraught, Orlando Archuleta decided to ask his niece, Maria Archuleta, a sole practitioner, to represent him, at least until it looked like the case might actually go to trial.
The next morning, all seven lawyers in Strickland, Michaelman & Fox—every one a “graduate” of Windstrom & Crusher’s “school of scorched earth”—were at the strategy meeting for the case of Hike-n-Sip v. Archuleta’s Camping Gear.
Tricky Strickland stood up and said to Joyce Michaelman, “I think everyone ought to hear—straight from our hardball negotiator—the deal we cut with our client Mr. Drewek, who is Hike-n-Sip.”
“If the court permits an award of attorney fees,” said Joyce, “we will ask for an add-on of 33 percent to both compensatory and punitive damages. Whether or not the court permits the add-on, our agreement with Hike-n-Sip calls for us to get 40 percent of the compensatory damages—or $100,000 out of a $250,000 award—plus 50 percent of any punitive damages.”
All around the table, eyes widened.
“Our game plan is ‘the Blitz,’ ” said Tricky Strickland. “Move fast on all fronts and force an early settlement.
“The defendant was willing to pay more than he thought the case was worth just to avoid the hassle of litigation,” Strickland said. “And our biggest problem is that the defendant’s ads for the Blue Mountain Water Bottle don’t look that bad. They show a picture of our client’s product side by side with theirs but don’t refer to Hike-n-Sip by name. Besides, what they say in their ad looks pretty much like fair comment, and they withdrew the ad as soon as Hike-n-Sip complained.”
“If this case actually goes to trial,” said Joyce, “we might well lose. Its highest value is right now.
“And that brings up an interesting point,” Joyce added. “The defendant actually hired his niece to represent him—Maria Archuleta, the smart, young lawyer who hangs out at Zapata’s Chili House with Angus and his buddies. So our plan is to scare Uncle Orlando but be collegial with Maria.”
CHANGE IN STRATEGY
Six weeks later, when the blitz was under way, the New Mexico Supreme Court played a decisive card in a totally unconnected case. In a unanimous decision, the court held that punitive damages would no longer be permitted in product disparagement cases.
(Any similarity between the state law involved in this article and the actual law of New Mexico would astound the author.)
That decision was announced on a Friday, and the next morning all seven lawyers in Strickland, Michaelman & Fox were in their conference room at 7:30.
“The Blitz is over,” said Wiley Fox. “What do we do now?
“We’ve got to do something,” said Tricky Strickland. “The big stick of punitive damages is no longer a threat. So what’s left?”
“Time and money,” said Joyce Michaelman. “Turn the case into Jarndyce v. Jarndyce—Charles Dickens’ perpetual lawsuit in the first chapter of Bleak House.”
“Except we want it to be cheap, quick and easy for us,” said Wiley, “but long, hard and expensive for them, so they’ll want to settle. How do we do that?”
“Discovery,” said Joyce. “Demand everything the law permits. Just like everybody else. Make it cheaper for them to settle the case than to get it ready to try.”
“Sounds like we’re back at Windstrom & Crusher,” said Tricky.
ANSWERS AT EIGHT O’CLOCK
At 7:45 on a monday morning, two months later, Angus and I were getting off the elevator, and there was federal district Judge Horatio Standwell waiting at the office door. He was carrying an eight-cup jug of dark mountain roast coffee by its wire handle in one hand and a bag of something enticing in the other.
“Judge,” said Angus. “Good to see you. But it looks like you’ve got a problem.”
The judge smiled. “You’re on to me,” he said. “They have walnut-apple bear claws at the new coffee shop down the street, and I thought they might buy a good idea or two,” he said. “Can I come in?”
In the conference room Judge Standwell said he was assigned to the case of Hike-n-Sip v. Archuleta’s Camping Gear. “Do you know anything about it?” he said.
“Only that Strickland, Michaelman & Fox represents the plaintiff and Maria Archuleta is representing the defendant,” said Angus, “but I haven’t talked to either side about what’s involved.”
Judge Standwell told us about how Maria Archuleta was holding her own against the fugitives from Windstrom & Crusher, but that recently she complained that their discovery tactics had become far more oppressive as soon as punitive damages were no longer available.
“It doesn’t make sense,” said the judge. “It’s as if the case was suddenly worth more, not less.”
“Or they forgot they were representing the plaintiff and had fallen back into their defense lawyer mode,” I said.
“Or maybe it’s because Strickland, Michaelman & Fox doesn’t want to try the case and is hoping the defense will want to settle if discovery costs them too much,” said Angus.
“But there’s nothing I can do about that,” said Judge Standwell. “It’s not as if they’re doing something improper. It’s just that they’re suddenly doing too much of something proper to suit the defendant.”
“But what if a party does an otherwise proper thing for an improper purpose?” said Angus, pulling out his pocket copy of the Federal Rules of Civil Procedure. “Rule 11(b)(1) says that by filing a pleading, motion or other paper, the party is certifying that ‘it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation."
“So if you’re causing needless expense to force a party to settle a case, even though what you’re doing is otherwise perfectly legal, is it improper under Rule 11(b)(1)?” said Angus.
“Let me look at that,” said Judge Standwell. “That’s exactly what it says. Too bad there aren’t any cases to back that up.”
“There’s at least one,” said Angus. “Judge Patrick Higginbotham of the 5th Circuit recently wrote a very carefully reasoned opinion on the point in Federal Deposit Insurance Corp. v. Maxxam, at 523 F.3d 566 (2008). He said, ‘In other words, the FDIC would violate Rule 11 if it filed a case that it reasonably thought had merit but pursued it in a manner calculated to increase the costs of defense.’
“And relying on the trial court’s factual findings, that’s exactly what the 5th Circuit decided,” said Angus.
“There’s a lesson in this,” said Judge Standwell. “When you come across a new problem, or just one with a different twist, always read the rules. It’s amazing what you’ll find.
“Angus,” he said, standing up, “this is wonderful. How can I ever thank you for your help?”
Angus smiled and said, “You don’t happen to have another bear claw in that bag, do you?”
Jim McElhaney is the Baker and Hostetler Distinguished Scholar in Trial Practice at Case Western Reserve University School of Law in Cleveland and the Joseph C. Hutcheson Distinguished Lecturer in Trial Advocacy at South Texas College of Law in Houston. He is a senior editor and columnist for Litigation, the journal of the ABA Section of Litigation.