The Nontrial Adversarial Model

Abstract

JOEL SELIGMAN [*] I INTRODUCTION During past two decades, a nontrial adversarial model has evolved for deciding private law claims. Underlying this evolution are three different types of dynamics: (1) a dramatic growth in size of class actions, epitomized by Washington Public Power Supply System litigation of 1980s [1] and Court's approval of fraud-on-the-market presumption, rather than a requirement of individual proof of fraud, in Basic, Inc. v Levinson; [2] (2) a significant growth in cost and litigation leverage of discovery; [3] and (3) a fundamental shift in political orientation of Congress in litigation, illustrated by gravitation from unanimous support for greater insider trading penalties during 1980s [4] to hostility toward plaintiffs' attorneys after 1994 congressional election. [5] While this nontrial adversarial model is not unique to field, it is more pronounced in private class actions than in most other areas. Virtually every private class action in recent years has been resolved through a pretrial motion or a settlement. [6] A trial on merits is a rare exception. [7] The central issue raised as a result of this shift is whether nontrial adversarial model makes sense in area of litigation. Professor Elliott Weiss supports this shift in his article Pleading Securities Fraud. [8] However, answer to this question should await a more comprehensive study of Private Securities Litigation Reform Act of 1995 (PSLRA). II DEVELOPMENT OF THE NONTRIAL ADVERSARIAL MODEL The origins of this shift to nontrial adversarial model can be traced back to Supreme Court's discussion of strike suits in its 1975 decision Blue Chip Stamps v. Manor Drug Stores. [9] There, Supreme Court expressed its concern regarding potential for a large number of plaintiffs in class actions to abuse their leverage under Federal Rules of Civil Procedure's discovery rules to force settlements in frivolous lawsuits. [10] As a result, after Blue Chip Stamps, successful assertion of a [Rule 9(b)] defense based on failure of a plaintiff to have pleaded fraud with sufficient particularity increased in federal securities cases. [11] Underlying this increase in number of dismissals based on Rule 9(b) motions were profound changes in judicial interpretation of Rule's application in private cases. During this period, federal courts found Rule to require them to dismiss claims that were mere conclusory allegations to effect that a defendant's conduct was fraudulent or in violation of Rule 10b-5, [12] or that defendant's reports represented a false, misleading, and inflated picture of assets, earnings, and business. [13] An example of this interpretation of Rule is found in following statement by First Circuit Court of Appeals in Wayne Investment Inc. v. Gulf Oil Corp.: It is well settled that Rule 9 'requires specification of time, place, and content of an alleged false representation, but not circumstances or evidence from which fraudulent intent could be inferred.' [14] This opinion epitomized movement toward stricter pleading requirements for fraud for plaintiffs under Rule 9(b) after Blue Chip Stamps. Despite this growing trend, [o]n a motion to dismiss, [courts still] read complaint generously and drew all inferences in favor of pleader. [15] Courts still gave deference to plaintiffs' complaint for two central reasons. First, Rule 9(b) did not require the pleading of detailed evidentiary matter. [16] This meant that courts could not get a clear idea of strength of a case prior to discovery phase of litigation. As a result, judges needed to be more cautious in dismissing claims to protect valid lawsuits. …