Why Is Privatized Procedure So Rare?

For some time, I’ve been mulling over how closely parties can tailor the rules of civil procedure to their own purposes. That is: can parties write enforceable contract terms which state that if they sue each other, the ordinary procedural rules won’t apply? Do such contracts exist? For example, parties might contract to be able to take 5 depositions in a case instead of the default 10. Or they might dispose of the rules of hearsay.  The literature on this topic of private procedure arguably started with the Scott/Triantis piece, Anticipating Litigation in Contract Design, and has gotten new momentum from Bone, Kapeliuk/Klement, Dodge, and Drahozal/Rutledge. My contribution, freshly up on SSRN, ended up being slightly more empirical than I’d expected — though I guess this won’t surprise any of our long-time readers.  In Why Is Privatized Procedure So Rare?, I try to explain why there is actually so little private procedure in places we’d expect to see it:

“Increasingly we hear that civil procedure lurks in the shadow of private law. Scholars suggest that the civil rules are mere defaults, applying if the parties fail to contract around them. When judges confront terms modifying court procedures — a trend said to be explosive — they seem all-too-willing to surrender to the inevitable logic of private and efficient private ordering.

How concerned should we be? This Article casts a wide net to find examples of private contracts governing procedure, and finds a decided absence of evidence. I search a large database of agreements entered into by public firms, and a hand-coded set of credit card contracts. In both databases, clauses that craft private procedural rules are rare. This is a surprising finding given recent claims about the prevalence of these clauses, and the economic logic which makes them so compelling.

A developing literature about contract innovation helps to explain this puzzle. Parties are not rationally ignorant of the possibility of privatized procedure, nor are they simply afraid that such terms are unenforceable. Rather, evolution in the market for private procedure, like innovation in contracting generally, is subject to a familiar cycle of product innovation. Further developments in this field will not be linear, uniform and progressive; they will be punctuated, particularized and contingent.”

Download it here. I’d love your comments. It’s out in the scrum, but I’m intending to continue to revise it as data continues to come in.

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4 Responses

  1. Anono says:

    Why are arbitration clauses not private contract clauses governing procedure? Instead of creating a bespoke procedure for each deal, can you not achieve the goal of opting out of the governmentally prescribed procedures by adopting a pre-cut arbitral process in line with your goals? I’m not seeing why arbitration clauses are not a subset of the larger category, but if there is an explanation as to why they are not I am interested in learning.

  2. Dave Hoffman says:

    The paper talks about this a bit — my view is that it’s a fundamentally different thing to contract out of procedure (and court) and into arbitration v. contracting around procedure but staying in court. Different for legitimacy reasons, different in terms of social costs, and different in terms of enforceability.

  3. shg says:

    While I’m probably one of the last people you would expect to offer a comment, here goes anyway:

    There is always a concern that privatized rules, which are mutual to the parties, will work great under certain circumstances, but come back to bite a party in the butt under others. The combination of mutuality and uncertainty as to how the relationship might crash leads to reliance on the default rules. They may not be better, but they aren’t worse either, and if a suit follows, no one will be responsible for screwing it up by including a special rule that turns out to be suicidal.

    Thus, unless a party is absolutely positive a rule will inure to its benefit (and not the other side’s, or at least not the other side alone), it’s just a matter of CYA. Nobody ever got fired for sticking with the default.

  4. Bruce Boyden says:

    I haven’t been following the scholarly debate here, but it does not seem surprising to me that there are few clauses modifying rules of civil procedure or of evidence, as I don’t think anyone should expect that, outside of the waivable defenses like personal jurisdiction, the parties could bind the court to any agreement. The most they could do is, e.g., agree to recommend certain discovery procedures in their Rule 26(f) report. If courts won’t be bound, it removes the incentive to spend a lot of time crafting limiting language.