Litigation as Feud

The Hatfield clan in 1897.

The Hatfield clan in 1897.

Orlando Residence v. G.P Co., LLC is an exceptionally complex dispute, ongoing in various forms since the 1980s, which I’ve been fortunate enough to get to recode for my veil piercing project.  This January, the case came up on appeal, again, before the Seventh Circuit.  In an exceptionally clear opinion, Judge Posner took the parties to task and directed the trial court to move them toward some kind of peace.  Too bad he had to lead off with this bit of rational actor claptrap:

“For 22 years these parties and their predecessors have been litigating, in numerous lawsuits in different courts, a dispute over a piece of property in Nashville. We were told at argument without contradiction that the parties have expended $3 million in legal fees, a figure that exceeds any reasonable estimate of the amount in controversy. Yet such behavior need not be irrational or a product of spite or even of bad legal advice. A rational litigant, having expended $X in unsuccessful efforts to prevail, yet having additional litigation options that he can pursue, will compare the cost of those options to the expected benefit, disregarding the $X he has spent already. That is a sunk cost–a cost he cannot recover by anything he does and therefore a cost that will not influence his behavior (if he is rational). Still, from an overall social standpoint, the money spent on this litigation–which we cannot quite end today, much as we would like to–is excessive. But our decision will bring the end within sight.”

Er, yes.  It could be that the parties are thinking about litigation as a series of real options. But if Posner had read the underlying dockets, I think he’d come to a different conclusion.  I’d say something more like a mix of legal agency costs and unadulterated hatred.  The point is generalizable.  Vexatious commercial litigation is exceedingly rare – I’ve found in previous work that less than 1% of cases have more than 150 docket entries.  And it strikes me (anecdotally) that the amount at stake is at best a noisy predictor of such messy fights.

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8 Responses

  1. Matt says:

    I’d say something more like a mix of legal agency costs and unadulterated hatred.

    But wait! We can tell a “rational actor” story about that, too- we just have to assume that the utility the party gets out of annoying the other side (even if they don’t win, and don’t even expect to) is higher than what they’d get from the money they spend. That’s what’s so “wonderful” about such stories- they can be made to fit any bit of behavior if you’re willing to be just a bit creative.

  2. Using the same reasoning about sunk costs, Posner would have to argue that playing the dollar auction game, losing your shirt is rational. At every play, the second highest bidder should regard his lost bid as a sunk cost and move to become the highest bidder. Of course this is nonsense that even Posner cannot defend.

    Although many argue that the only rational response to the dollar auction game is not to play, I believe that their is a coordinated solution:

    http://bizop.ca/blog/how_would_you_play_that/2009/03/shubiks-dollar-auction.html

  3. Jens Müller says:

    The problem becomes even worse in jurisdictions were attorney fees can be claimed from the opponent by the prevailing party: The expected benefit will increase during litigation …

  4. A.J. Sutter says:

    I second Matt’s view. As a client (very rich, but not the type of guy you’d want to buy a used car from) once calmly told the head litigation partner at a NY firm I worked at decades ago, “Y’know, I got a real hate on these people, so I’d like this to be an old-fashioned litigation, with interrogatories ‘n depositions ‘n everything …”

  5. A.W. says:

    btw, the link to the opinion is broken.

  6. A.W. says:

    I would say i can’t disagree more about Jen’s argument. First getting back attorneys fees are not a payout, so much as a chance to recoup all loses. of course it encourages litigation when you know you are right and know you can prove it, but that’s not a bad thing. by contrast, it discourages litigation carried out for harrassing or otherwise vexious purposes because if you know eventually you will have to pay for the other side’s lawyer you will realize you are only hurting yourself.

    and posner’s economic analysis is right to a certain extent. people get in a trap where the marginal costs of the next action are slight, but they are accumulating a cost far greater than any payout, but smaller than the marginal costs. an elightened rationality asks “how much will i have to pay, total” at the beginning of the litigation, however, which is where the rational actor often fails to be maximally rational.

    But the post is right to say that there is a high probability that these litigants are not rational actors and they just hate each other. it is funny how in law school you are taught it is always about money, but in real life you quickly discovery, it is almost never really about money.

  7. Leave it to Posner to put it perfectly: it is time for peace. When money is not an issue, the suit is as much about the pains and length of litigation to bother the other party as it is about the cause of action. That is not the purpose of our courts or American justice system as a whole.