Pretrial Discovery
GEORGEB. SHEPHERD
Emory University School of Law, Atlanta, Georgia USA gshep@law.emory.edu
The paper investigates the pretrial discovery process empirically. Using data from an interview survey of both attorneys in 369 federal civil cases, and by employing a simultaneous-equations tobit econometric model, I identify factors that determine the plaintiff’s and defendant’s discovery levels. The four main results show that the discov-ery behaviors of plaintiffs and defendants are different, but interdependent. First, the plaintiff chooses an amount of discovery by examining a case’s underlying fundamen-tals, such as the amount at stake. The plaintiff does not increase her discovery in response to increased discovery by the defendant. Second, the defendant does not rely on fundamentals. Instead, the defendant chooses a discovery amount that mirrors the plaintiff’s amount. Third, the plaintiff and defendant respond to their adversary’s apparent discovery aggression differently. The defendant responds by conducting more discovery than she otherwise would have, almost exactly tit-for-tat. In contrast, the plaintiff conducts less discovery than otherwise. Fourth, the nature of an attorney’s fee arrangement influences the attorney’s discovery behavior substantially. © 1999 by Elsevier Science Inc.
I. Introduction
Two views exist about the behavior of litigants during pretrial discovery, the formal process by which litigants exchange information before trial. Some argue that litigants’ use of discovery promotes efficiency and justice. Discovery causes quicker and fairer settlements because litigants use discovery to force their adversaries to put their cards on the table, eliminating bluffing and ambush. Others contend that discovery causes waste and injustice. Because discovery permits a litigant to impose costs on her
adver-Associate Professor of Law, Emory University School of Law. I thank Timothy Bresnahan, Clint Cummins, William A. Glaser, Daniel P. Kessler, Linda Mabry, Fred S. McChesney, Roger G. Noll, A. Mitchell Polinsky, Martin Schultz, Anne Shepherd, William G. Shepherd, Scott Stern, Dale B. Thompson, Frank A. Wolak, seminar participants at Emory University, Stanford University, and at the 1996 annual meetings of the American Law and Economics Association, and an anonymous referee. I am grateful for support from the John M. Olin Foundation and the Lynde and Harry Bradley Foundation.
International Review of Law and Economics 19:245–263, 1999
© 1999 by Elsevier Science Inc. 0144-8188/99/$–see front matter
sary, litigants can wield discovery strategically as a harassing weapon in litigation trench warfare, prolonging cases and causing unfair settlements.1
This paper sheds new light on this debate by investigating litigants’ discovery behavior empirically. Using data from an interview survey of both attorneys in 369 federal civil cases, I identify factors that determine cases’ discovery levels.
The four main results suggest an overriding pattern: In the discovery process, plain-tiffs behave differently from defendants. First, plainplain-tiffs tend to conduct fundamentals discovery: The plaintiff chooses an amount of discovery by examining a case’s under-lying fundamentals, such as the amount at stake or the number of factual issues. The plaintiff does not increase her discovery in response to increased discovery by the defendant. Second, in contrast, the defendant’s choice of discovery amount tends not to rely on fundamentals. Instead, the defendant chooses an amount that mirrors the plaintiff’s amount, counterpunching in response to whatever discovery the plaintiff conducts.
Third, the plaintiff and defendant respond to their adversary’s apparently excessive discovery requests differently. If the plaintiff appears to have conducted excessive discovery—what I call discovery “aggression”—then the defendant retaliates: The de-fendant responds by conducting more discovery than she otherwise would have, almost exactly tit-for-tat. In contrast, the plaintiff responds to the defendant’s apparent discov-ery aggression by retreating: The plaintiff conducts less discovdiscov-ery than otherwise. The litigants’ behaviors of counterpunching, retaliating, and retreating demonstrate the interdependence of the amounts of discovery that each litigant seeks.
Fourth, the nature of an attorney’s fee arrangement influences the attorney’s discov-ery behavior substantially. A litigant’s discovdiscov-ery behavior also responds to characteristics of both the litigant and the adversary.
I proceed as follows. Section II describes the empirical model, which is designed to test several hypotheses from earlier theory. After Section III introduces the data, Section IV reports the results. Conclusions follow in Section V.
II. An Econometric Model
After the plaintiff files a lawsuit, each litigant decides whether to conduct discovery— that is, whether to demand information formally from her adversary.2 The available
discovery choices are wide. The Federal Rules of Civil Procedure allow a litigant to seek information by interrogatories, which are written questions; document requests; re-quests for admissions; rere-quests for physical examination; and depositions, which require the litigant’s adversary or other witness to answer questions in person. The methods are expensive to varying degrees, both to the litigant who demands discovery and to the adversary who must respond to the demands.
Several theoretical models have explored various aspects of the discovery process’ economics and incentives.3My recent theoretical model both incorporates lessons from
1CompareHenry S. Farber and Michelle J. White, “Medical Malpractice: An Empirical Examination of the Litigation
Process,” 22Rand Journal of Economics199, 200 –201 (1991) (discovery encourages settlement)withMichael E. Wolfson, “Addressing the Adversarial Dilemma of Civil Discovery,” 36Cleveland State Law Review17–19 (1988) (discovery “gives impetus and opportunity to the baser litigational instincts of delay, deception, and unbridled confrontational advo-cacy”).
2Recently, some courts began also requiring modest automatic disclosure.See infratext at note 12.
3George B. Shepherd, “A Theoretical Model of the Pretrial Litigation Process and Discovery,” unpublished
earlier models and suggests other possible influences on discovery behavior.4 The
model identifies five factors that might conceivably influence litigants’ amounts of discovery. First, each litigant’s discovery amount might depend on the case’s funda-mentals. For example, in cases with large stakes and many factual issues, discovery’s net benefits will be large, so that both litigants will seek substantial discovery.
Second, the litigant’s discovery amount might depend on the adversary’s amount; a litigant’s additional discovery might cause the adversary to counterpunch with more discovery of her own. Third, additional interdependence might exist because appar-ently excessive discovery by the adversary might cause increased discovery from the litigant. Discovery creates strategic opportunities for the litigant to impose costs on her adversary. If the adversary’s discovery seems to exceed a tradition-established coopera-tive level—perhaps through a misunderstanding—the litigant might believe that the adversary is seeking abusive discovery to impose costs and obtain unfair advantage. The adversary’s apparent discovery excess might cause the litigant to retaliate, counter-punching more violently.
Fourth, the attorney-client fee arrangement can influence the amount of discovery that the attorney seeks. For example, because plaintiff’s attorneys who receive payment on an hourly basis usually profit more from additional discovery than do plaintiff’s contingency attorneys, hourly lawyers might conduct more discovery. Fifth, discovery amounts might depend on characteristics of the litigant and the adversary.
To test which of these possible influences actually affects litigants’ discovery behavior, I use a simultaneous-equations bivariate tobit econometric model. Intuitively, the model is as follows.
The amount of discovery that the plaintiff demands might be a function of:
Plaintiff’s lawyer’s perceptions of the case’s underlying fundamentals (e.g., stakes); Attorney-client fee arrangement (e.g., hourly fee or contingency contract);
Characteristics of the plaintiff (e.g., wealthy, business); Interdependence factors:
Amount of discovery that defendant demands—plaintiff may counterpunch; Misunderstandings that might trigger retaliation;
Characteristics of defendant and defendant’s attorney.
Symmetrically, the amount of discovery that defendant demands might be a function of:
Defendant’s lawyer’s perceptions of the case’s underlying fundamentals; Attorney-client fee arrangement;
Characteristics of the defendant; Interdependence factors:
Amount of discovery that plaintiff demands; Misunderstandings that might trigger retaliation; Characteristics of plaintiff and plaintiff’s attorney.
Legal Studies435 (1994); John Kennan and Robert Wilson, “Bargaining with Private Information,” 31Journal of Economic Literature45 (1993); John K. Setear, “The Barrister and the Bomb,” 69Boston University Law Review569 (1989); Steven Shavell, “Sharing of Information Prior to Settlement or Litigation,” 20Rand Journal of Economics183 (1989); Robert D. Cooter and Daniel L. Rubinfeld, “Reforming the New Discovery Rules,” 84Georgetown Law Review61 (1995).
Because theory suggests that a counterpunch effect could conceivably exist such that the amount of discovery that a litigant seeks might influence the amount that her adversary seeks, the intuitive model treats both of the litigants’ discovery levels as endogenous and simultaneously determined; one cannot know the amount of discovery that the plaintiff will conduct without knowing the defendant’s amount, and vice versa.
In technical terms, the model is5:
y15g1y21b1x11u1 if right side.0, (1)
50 if right side<0,
y25g2y11b2x21u2 if right side.0, (2)
50 if right side<0.
The variables y1 and y2 are the days that the plaintiff and the defendant devote to
demanding discovery from each other—I discuss this discovery measure further below. I use a tobit specification because the dependent variablesy1andy2are non-negative—
either zero or positive. The right sides of equations (1) and (2) are functions of each litigant’s expected net benefits from discovery; the larger the right sides of (1) or (2), the greater are discovery’s expected net benefits. The amount of discovery that each litigant will choose, yi, will depend on discovery’s net benefits; the larger the net benefits, the more days of attorney time that the litigant will desire to devote to discovery. We observe the net-benefits function—the right sides of (1) or (2)— only when the function equals or exceeds zero; a litigant conducts discovery only if she expects discovery’s net benefits to be positive. Thus, a litigant’s amount of discovery,yi, equals the right-side discovery function if the function is positive, but equals zero if the function is negative.
As in the intuitive model, each litigant’s amount of discovery,y1 ory2, is both the
dependent variable in the litigant’s own discovery equation and an explanatory variable, but still endogenous, in the adversary’s discovery equation. Because each ofy1andy2is
endogenous and may depend on the opposing litigant’s level, the two-equation, simul-taneously estimated model in (1) and (2) is appropriate. Because the model treatsy1
and y2 as endogenous and simultaneously determined, the model permits testing of
whether the counterpunch effect exists: whether each litigant’s discovery level responds to the adversary’s level. The coefficients g1 and g2 indicate the sensitivity of each
litigant’s discovery amount to the amount of discovery that her adversary conducts. For example, a large value forg1indicates a large counterpunch effect for the plaintiff such
that additional discovery by the defendant will induce the plaintiff to conduct large amounts of additional discovery.
Next,x1andx2each represent groups of exogenous variables that influence
discov-ery’s net benefits for the plaintiff and defendant, respectively, and so may influence the amount of discovery that the litigants desire. For example,x1 contains factors such as
the plaintiff’s perception of the case’s fundamentals and the plaintiff’s fee arrangement with her attorney.
Similarly, b1 and b2 are groups of coefficients that indicate the sensitivity of the
5SeeTakeshi Amemiya, “Multivariate Regression and Simultaneous Equation Models When the Dependent Variables
plaintiff’s and defendant’s discovery amounts to the possible influences on discovery other than the adversary’s discovery amount. For example, the sizes of the coefficients withinb1will indicate whether the plaintiff uses fundamentals discovery; for a plaintiff
who uses fundamentals discovery, the largest coefficients inb1will be for fundamentals
such as the amount at stake or the number of factual issues. Finally,u1andu2are error
terms. I use maximum likelihood to estimate the various coefficients.6
In addition, I extend the model to test the possibility that an exogenous7 “trigger”
influence, T, causes a litigant’s discovery amount to become more sensitive to her adversary’s discovery amount, suggesting that the trigger influence causes retaliation. The discovery equations become:
y15g11y21g12Ty21b1x11u1 if right side.0, (3)
50 if right side<0,
y25g21y11g22Ty11b2x21u2 if right side.0, (4)
50 if right side<0.
For example,Tmight indicate exogenous conditions that would cause a litigant to believe that her adversary had conducted excessive discovery. The litigant might then retaliate with additional discovery, responding with greater amounts of discovery to each unit of the adversary’s discovery. The coefficients g12 andg22 measure the
in-creases in sensitivity thatTcauses, suggesting the degree to whichTinduces retaliation. As before, I estimate the model by maximum likelihood.8
6In technical terms, I divide the observations into the following four subsets:
S1;~observationuy1.0,y2.0!, S2;~observationuy1.0,y250!,
where)imeans that the range of the product is overt[Sj. I make three assumptions. First, to assure a unique solution,
I assume thatg1g2,1. Second, to assure identifiability, I assume that at least one variable inx1is not contained inx2,
and vice versa. Seeinfranote 22 for a discussion of why the assumption is realistic. Third, I assume that (u1,u2) is
independent among observations and bivariateN(0,v12,v22,v12).SeeAmemiya,supranote 5. 7I construct the trigger variables to ensure that they are exogenous.See infranote 19. 8I divide the observations into the same four subsets as before,S
1,S2,S3, andS4. With thefdensity also defined as
before, the likelihood function for the model of (3) and (4) is:
III. The Data: Sources and Predictions
The data are from a survey that researchers at Columbia University conducted in 1962 and 1963 to assess the impact of the discovery provisions of the Federal Rules of Civil Procedure on litigation’s cost and efficiency. The data are information about a sample of 527 federal cases in 8 subject matter categories that ended in 1962 in 6 judicial districts.9In interviews, each of which lasted approximately 1.5 hours and involved more
than 220 questions, researchers sought to obtain information from both attorneys in each case on the case’s discovery activity.10Court docket sheets and written
question-naires provided further information. Researchers obtained interviews with 460 of the plaintiffs’ attorneys and 488 of the defendants’ attorneys. The sample that I use consists of the 369 cases in which both of a case’s attorneys provided interview information for the variable that, as I discuss below, I use as the primary dependent variable.11
Despite their age, the data remain relevant. The federal discovery rules changed little from before the survey until 1993, when the rules changed moderately in approximately one-third of federal districts. Although rules in the changed districts now require modest automatic disclosure,12 discovery beyond the automatic disclosure remains
subject to the old system, as does discovery in most state courts. In addition, the issues that motivated the original data collection are the same issues that policy makers debate now: whether the litigation and discovery processes are wasteful and inefficient.13 In
addition, the data reveal a litigation process that is similar to the process seen in more
z
)
4
E
2`2b2x2
E
2` 2b1x1f~u1,u2!du1du2.
9The survey excluded certain subject matter categories “to simplify the analysis and focus on the major types of
private civil litigation.” William A. Glaser,Pretrial Discovery and the Adversary System45 (1968). Within the eight included categories, the selection of cases was not completely random. The six districts in the sample are more heavily urban and had higher caseloads than the average district. The sample contains a higher number of antitrust and copyright cases than the actual frequency of these cases in the federal courts. A detailed discussion of the data appearsid. at 44 –50, 263–287.
10In both the 9% of cases in the sample that had more than one plaintiff and in the 25% of cases that had more
than one defendant, researchers contacted only the attorneys for the plaintiff and defendant whom the complaint listed first. Any bias from the questions’ retrospective nature was probably small. Many answers that the respondents gave were against their interests. The survey seems to have offered little incentive for lawyers to lie to make themselves look good; many attorneys voluntarily made themselves look bad.
11Several tests revealed no unifying characteristics that linked the observations that were outside the 369-observation
sample. Within the sample, a small number of observations were missing for some of the explanatory variables. Different observations were missing for different variables; in an apparently random manner, survey respondents sometimes failed to answer a few questions. I filled the gaps in the explanatory variables with imputed values.SeeG. S. Maddala,Econometrics201–207 (1977); Zvi Griliches, “Economic Data Issues,” 3Handbook of Econometrics1465, 1488 – 1494 (Zvi Griliches and Michael D. Intriligator, eds., 1986); Carlos Daganzo,Multinomial Probit88 – 89 (1979). The imputation may cause coefficients’ standard errors to be inaccurately low. As a check, I also estimated my models in two other ways: with data in which I filled missing values with variables’ means, and by discarding any observation in which any variable was missing. The results from the alternate estimations confirmed the findings from the estimations that used imputed values.
12SeeFed. R. Civ. P. 26(a).
13Chief Justice Earl Warren’s foreword to the book that originally presented the data noted the issues that the survey
recent studies.14Although one other study examined the data’s means and frequencies,
it did not investigate the data econometrically, estimating no regressions.15
I now describe the variables that I use. Each description ends with my prior expec-tation about the relation between the variable and the amount of discovery. Table 1 lists the variables’ means and standard deviations.
14SeeDaniel Segal,Survey of Literature on Discovery From 1970 to the Present: Expressed Dissatisfactions and Proposed Reforms
(1978) and David M. Trubek et al.,Civil Litigation Research Project Final Report(1983).
15Glaser,supranote 9.
TABLE1. Means (standard deviations) of variables
Variable Plaintiff Defendant
Dependent variable
Days on own discovery 5.85 4.54
(15.71) (11.63)
Explanatory variables Underlying fundamentals
Expected plaintiff’s recovery ($1000) 54.68 23.74
(204.77) (103.05)
Expects nonmonetary relief 0.14 0.07
(0.35) (0.25)
Believe adversary has some evidence 0.70 0.71
(0.46) (0.46)
Factual issues exist 0.91 0.91
(0.28) (0.28)
Disagree on factual issues 0.82 0.82
(0.39) (0.38)
Antitrust case 0.06 0.06
(0.23) (0.23)
Hourly attorney-client fee arrangement 0.17 0.56
(0.37) (0.50)
Litigant characteristics
Business client 0.43 0.95
(0.50) (0.22)
Client previously employed lawyer 0.34 0.83
(0.47) (0.38)
Wealthy client 0.26 0.85
(0.44) (0.35)
Interdependence factors
Adversary’s discovery amount 4.54 5.85
(11.63) (15.71)
Triggers; adversary’s apparent discovery aggression
Disagreement on evidence location 0.41
(0.49)
Difference in expected 0.88
recovery/mean expected (0.80)
Dependent Variable
The dependent variable is the number of days that each litigant devoted to seeking discovery.16The amount includes the time that the attorney devoted to drafting
dis-covery requests, as well as time that the attorney devoted to compelling her adversary to comply with the requests. I exclude from the amount the days that the litigant devoted to responding to her adversary’s requests. The dependent variable reflects the amount of discovery that a litigant chooses, not amounts that her adversary imposes on her. The average litigant devoted approximately 5 days to seeking discovery from her adversary, but with large variance. This variable appears both as the dependent variable in each litigant’s discovery equation and as an explanatory variable, but still endogenous, in the adversary’s equation.
Exogenous Explanatory Variables
I test the impacts of the following factors on each litigant’s discovery amount.
Underlying Fundamentals. I test the influence of the following case fundamentals on the amount of discovery that litigants seek.
EXPECTEDPLAINTIFF’SRECOVERY. The survey asked each litigant to recall the amount that, at the case’s beginning, the litigant expected the plaintiff eventually to recover. I anticipated that larger expected recovery would correlate with more discovery. Other things being equal, the larger the case’s stakes, the greater discovery’s marginal benefits. In large cases, the parties have an incentive to leave no stone unturned. With much at stake, even relatively minor information can change settlement or judgment amounts substantially. Measured in thousands of 1962 dollars, the amounts ranged from zero to $2.3 million.17Hypothesis: positive relation.
LITIGANTEXPECTSNONMONETARYRELIEF. Nonmonetary relief, such as an injunction that compels or prohibits an action by the defendant, may have substantial worth. I anticipated that an expectation that the court would award nonmonetary relief would be associated with larger discovery. A defendant who expects the plaintiff to recover no money, but to obtain a court order that will shut the defendant’s company down, might be predicted to conduct more discovery than a defendant who expects the plaintiff to obtain neither money nor injunction. Hypothesis: positive relation.
ADVERSARY HAS EVIDENCE. If, before discovery begins, a litigant believes that she already has all relevant factual information, then little discovery is necessary. More discovery is necessary if the litigant believes that her adversary possesses important information. Hypothesis: positive relation.
16I re-estimated the models with two other dependent variables: the days that each litigant devoted to responding
to her adversary’s discovery requests, and each litigant’s total discovery days, including both seeking and responding days. Results, including the patterns for coefficients’ signs, magnitudes, and significance levels, were similar to results with the primary dependent variable.
17Only plaintiffs tended to be overoptimistic. On average, the plaintiff expected to recover more than double the
FACTUAL ISSUES EXIST. I expected that if a case involved only issues of law—for example, about the manner in which statutes apply to undisputed facts—then a litigant would tend to choose to conduct little discovery. However, a litigant might conduct more discovery if, as this variable measures, the litigant, at the case’s beginning, believed that the case contained factual issues that discovery could resolve. Hypothesis: positive relation.
DISAGREEMENT ON FACTUAL ISSUES. I anticipated that if, at a case’s beginning, the litigants disagreed about relevant facts, then the litigants would conduct more discovery. Only if factual disputes exist do litigants require discovery to resolve the disputes. Hypothesis: positive relation.
ANTITRUSTCASE. Antitrust cases often involve unusually complicated facts. In addi-tion, an antitrust suit can threaten a defendant corporation’s existence and its manag-ers’ jobs. Thus, I expected that antitrust cases would induce large discovery, even in comparison to other cases with similar characteristics; the other characteristics may not reflect fully an antitrust case’s large stakes and unusual complexity. Hypothesis: positive relation.
Attorney-Client Fee Arrangement. This dummy variable indicates attorney-client relation-ships in which the client, not the attorney, incurs discovery’s marginal cost. The client bears discovery’s marginal cost if the client pays the attorney on an hourly basis: The client compensates the attorney for each additional hour that the attorney devotes to discovery.
In contrast, the attorney bears discovery’s marginal cost in several relationships. For example, many plaintiff’s attorneys receive payment pursuant to contingency fee con-tracts. The attorney pays discovery’s major costs, including the opportunity cost of the attorney’s time.18 In return, the attorney receives a fraction, often one-third, of the
plaintiff’s recovery. Likewise, many defense attorneys in my sample were on retainer agreements. Under a fixed retainer agreement, the client pays the attorney a fixed yearly fee, regardless of the level of litigation activity. From the fixed fee, the attorney funds most litigation costs, including for discovery. Similarly, approximately 6% of defense attorneys and 2% of plaintiff’s attorneys represented their clients on a fixed-fee basis, under which the client paid the attorney a flat fee for litigating the case (in contrast to the fixed-fee per year under a retainer agreement). As Table 1 shows, for 17% of the sample’s plaintiffs, the client paid discovery’s marginal costs under hourly contracts—most of the rest of the plaintiff’s attorneys were on contingency—in contrast to 56% of defendants.
Theory suggests that principal-agent incentive conflicts will cause lawyers who pay discovery’s marginal costs to conduct less discovery than lawyers who do not pay the costs. For example, a contingency agreement creates an incentive for the attorney to conduct less discovery than is optimal for the client. The attorney pays discovery’s marginal costs, but receives only a fraction of the marginal benefits. Suppose that a plaintiff’s attorney with a one-third contingency fee agreement expects that additional
18Under certain contingency agreements, the client is responsible for some costs, such as filing fees and fees for
discovery will cost $500 of attorney time, but will increase the plaintiff’s expected recovery by $1,000. Although the discovery would benefit the client, the attorney has an incentive not to conduct the discovery. The discovery costs the attorney $500, but increases her contingency fee only $333.
In contrast, a plaintiff’s attorney who is paid by the hour has an incentive to conduct excessive discovery. The attorney incurs none of discovery’s costs but, instead, profits from each discovery unit in two ways. First, the attorney’s earnings increase. More units of discovery mean more hours billed and more payment from the client. Second, additional discovery reduces the attorney’s malpractice risk. Just as a doctor may conduct extra tests to reduce her risk of malpractice, an attorney conducts extra discovery to reduce the attorney’s malpractice risk.
Several forces may constrain hourly attorneys’ incentive to exploit their clients. First, many attorneys comply with their ethical responsibility to act in their clients’ best interests. Second, attorneys may fear that a client will discharge an attorney who conducts wasteful discovery. The constraint may be weak. An attorney can often con-vince an inquiring client that the attorney’s chosen discovery level is appropriate, regardless of whether the level is wasteful. Just as a patient must rely on her physician’s judgment in deciding her treatment, a client must often rely on her attorney’s judgment in setting discovery levels. Third, many associates at law firms receive fixed salaries that do not vary with their firms’ profits. Such an associate who controls a case’s discovery has little incentive to conduct excessive discovery. Nonetheless, hypothesis: positive relation.
Litigant Characteristics. The amount of discovery that a litigant seeks may also be determined by her own characteristics.
BUSINESSCLIENT. As Table 1 shows, more defendants than plaintiffs are businesses: 95% of defendants; 43% of plaintiffs. Hypothesis: uncertain.
CLIENTPREVIOUSLYEMPLOYEDPRESENTLAWYER. Table 1 indicates that more defense attorneys than plaintiff’s attorneys have previously represented their present client: 83% of defense lawyers; 34% of plaintiff’s lawyers. Hypothesis: uncertain.
WEALTHY CLIENT. This variable indicates whether a business client’s net worth ex-ceeds $500,000 or an individual client’s annual income exex-ceeds $20,000, in 1962 dollars. Hypothesis: uncertain.
Interdependence Factors. The following factors explore the manner in which the liti-gants’ discovery amounts influence each other.
ADVERSARY’SDISCOVERYAMOUNT. I use the adversary’s discovery amount as an endog-enous explanatory variable to test its influence on the litigant’s discovery amount. Hypothesis: positive relationship.
of which indicates the existence of exogenous circumstances that could lead a litigant to believe, even if mistakenly, that the adversary’s discovery is excessive.19
DISAGREEMENT ONEVIDENCE LOCATION. If litigants’ beliefs about which litigant pos-sesses relevant facts differ, then misunderstandings may arise about motives for the litigants’ discovery. For example, if each litigant believes that the other possesses most of the relevant facts in the case, then each litigant will expect her adversary to seek little discovery. However, each litigant will seek much discovery. A misunderstanding may arise, which might spark retaliation. Each litigant might believe that the adversary has sought discovery merely to impose costs. Because the litigant believes that the adversary possesses all relevant evidence without discovery, the only possible purpose for the adversary’s discovery is harassing imposition of response costs, not a reasonable search for information. The litigant may retaliate by seeking more discovery.20 Hypothesis:
positive relationship.
DIFFERENCE INEXPECTEDPLAINTIFF’S RECOVERYAMOUNT. Misunderstandings may oc-cur if the litigants’ expectations about the case’s stakes differ substantially. For example, suppose that a litigant believes that a case has small $5,000 stakes, but her adversary believes that the case’s stakes are $1 million. When the litigant receives large discovery requests that are appropriate for a big case, the litigant may mistakenly conclude that her adversary seeks merely to impose costs; she will believe that only small-case discovery is reasonable in what she believes to be a small case. The misunderstanding may cause her to retaliate.21Hypothesis: positive relationship.
Adversary Characteristics. In a separate specification, I examine the influence on a litigant’s discovery amount of various characteristics of the adversary, including the adversary’s fee arrangement with her lawyer and whether the adversary previously hired her lawyer. Hypothesis: uncertain.
Interactions and Squares. The influences of several variables may differ depending on the case’s stakes. For example, the existence of a contingency fee agreement may cause a larger change in discovery days in a $1 million case than in a $1,000 case. To reflect this possibility, in all specifications, I interact variables with the stakes variable. Likewise, litigants’ discovery amounts may not respond linearly to changes in stakes; the marginal
19I use these indirect instruments, rather than direct information about whether the litigant believed that discovery
was excessive, for two reasons. First, the indirect instruments are more clearly exogenous to the model and avoid possible endogeneity bias. In contrast to the indirect instruments, causation for the direct information about beliefs is uncertain. A belief that the adversary conducts excessive discovery could induce additional discovery, or causation could be the opposite: High discovery might induce a belief that discovery is excessive. Second, the indirect instruments permit exploration of the role of misunderstandings in triggering more discovery.
20I include only the differences in beliefs about evidence location that might trigger additional discovery. For
example, if each litigant believes that she has most of the relevant information, then no dangerous misunderstanding arises. Each litigant seeks little discovery and is pleasantly surprised at the small amount of discovery that her adversary seeks.
21My proxy for a litigant’s estimate of a case’s stakes is her expectation of the plaintiff’s eventual recovery. A given
benefits of discovery may change with more discovery. Thus, I include as an explanatory variable the square of stakes.22
IV. Results
The first two columns of Table 2 present an estimate of the simultaneous system from equations (1) and (2). The first column reports the model’s estimated coefficients for the plaintiff; the second column reports the defendant’s coefficients. Although the system permits each litigant’s discovery amount to respond to her adversary’s amount, it includes no trigger variable that might alter a litigant’s sensitivity to her adversary’s amount. The four columns to the right present two estimates of the model from equations (3) and (4), which includes a trigger. The trigger for the specification in columns 3 and 4 is the existence of a difference in beliefs about which litigant possesses factual information. The trigger for the specification in columns 5 and 6 is the measure of the difference in litigants’ expectations of the plaintiff’s eventual recovery. The coefficients for continuous variables indicate the number of days that discovery will increase if the variable increases by one unit. The dummy variables’ coefficients indicate the days that discovery increases if the variable changes from zero to one.23
The results demonstrate an overriding pattern: In many ways, plaintiffs behave differently from defendants.
Underlying Fundamentals. Plaintiffs, but not defendants, employ fundamentals discov-ery: In general, case fundamentals influence only plaintiffs’ discovery, not defendants’ discovery. In each of the three specifications—in columns 1, 3, and 5—all nine of the plaintiff’s coefficients for fundamentals are significantly different from zero, in one- or two-sided tests. All of plaintiff’s fundamentals coefficients in all three specifications are statistically significant at the 5% level, except for one coefficient in the third specifica-tion that is significant at only the 10% level.
In contrast, in the first and third specifications, only one defendant’s fundamentals coefficient differs significantly from zero. In the second specification, none of the defense coefficients is statistically significant.24 In addition, most all of the defense
fundamentals coefficients are smaller in absolute value than the corresponding plain-tiff’s coefficients.
Most of the plaintiff’s coefficients for the fundamentals exhibit predicted signs. The coefficients for expected plaintiff’s recovery and for the variable’s square indicate that a case’s stakes are an important positive influence on plaintiff’s discovery amount. For example, the second specification indicates that, at the mean stakes of $54,680, addi-tional stakes of $10,000 induce approximately 1.3 more days of plaintiff’s discovery.
The squared term’s negative coefficient indicates that increasing stakes increase
22The model requires at least one variable that theory predicts will directly influence each litigant’s amount of
discovery, but not her adversary’s amount. Except for the antitrust variable, all of the fundamentals variables satisfy the requirement. Each of these fundamentals variables is a litigant’s private, subjective perception of a case’s characteristic. The litigants’ perceptions often differ. Frequently, a litigant does not reveal her perceptions to her adversary, at least in a credible manner. Thus, the litigant responds only to her own perceptions, not to her adversary’s perceptions.
23I estimated several other models: separate instrumental-variables models and separate tobits for each litigant’s
discovery decision. Although these models are imperfect because they ignore the data’s censored nature and/or the model’s simultaneous structure, results for the alternate models confirm the primary model’s results.
24I also estimated models that eliminated the two interacted variables from the defendant’s fundamentals. The
TABLE2. Simultaneous equations bivariate tobit estimates of influences on litigants’ discovery amounts
(4.02) (5.25) (4.45) (5.88) (4.32) (6.24)
Fundamentals
Expected plaintiff’s 0.095** 0.076 0.15** 0.032 0.19** 0.037
recovery ($1000) (0.035) (0.15) (0.039) (0.23) (0.042) (0.18) Square of expected 20.00012** 20.000019 20.00020** 20.0000071 20.00016** 20.000033
plaintiff’s recovery (0.000027) (0.000024) (0.000032) (0.000027) (0.000033) (0.000029) Expects nonmonetary 10.57** 21.29 11.79** 22.12 10.87** 24.48
relief (3.28) (3.23) (3.63) (3.58) (3.63) (3.98)
Adversary has 9.99** 1.76 11.58** 1.30 10.77** 3.78*
evidence (1.96) (1.69) (2.22) (1.88) (2.27) (2.04)
Factual issues exist 213.80** 3.46 214.40** 3.87 27.59* 4.46
(3.56) (3.25) (4.01) (3.71) (3.89) (3.90)
Factual issues3 0.17** 0.12 0.27** 0.20 0.14** 0.19
expected recovery (0.049) (0.14) (0.057) (0.22) (0.054) (0.17)
Disagree on factual 6.60** 1.86 9.04** 2.59 6.54** 2.27
issues (2.57) (2.24) (2.91) (2.46) (2.75) (2.64)
Disagree on facts3 20.18** 20.0036 20.30** 20.036 20.23** 0.0067 expected recovery (0.045) (0.046) (0.053) (0.052) (0.053) (0.056)
Antitrust case 8.74** 9.79** 11.73** 4.39 18.88** 24.75
(4.30) (3.60) (4.61) (3.86) (4.90) (4.84)
Attorney-Client
Hourly fee 0.71 2.15 1.38 2.73 20.58 3.19
(3.04) (1.67) (3.35) (1.85) (3.41) (1.96)
Hourly fee3 0.10** 20.17** 0.17** 20.20** 0.24** 20.19**
expected recovery (0.024) (0.044) (0.029) (0.051) (0.054) (0.051)
Litigant Traits
Business client 3.80* 2.27 3.75 1.85 2.17 0.16
(2.26) (3.74) (2.51) (4.09) (2.41) (4.39)
Client previously 24.36** 20.93 24.25* 21.10 21.70 0.84
employed lawyer (1.98) (2.04) (2.21) (2.26) (2.07) (2.42)
Wealthy client 28.29** 6.65** 28.90** 8.09** 26.78** 6.29**
(2.45) (2.37) (2.73) (2.65) (2.66) (2.88)
Interdependence Factors
Adversary’s discovery 20.14 0.21** 20.12 0.33** 0.011 0.84**
amount (0.16) (0.10) (0.17) (0.10) (0.14) (0.13)
Adversary’s discovery 21.4** 0.71**
log(L) 22308.10 22279.44 22269.54
Notes: Dependent variables are days that each litigant devoted to seeking discovery from adversary. Standard errors are in parentheses (n5369).
*Significant at 0.10 level (2-sided test). **Significant at 0.05 level (2-sided test).
---plaintiff’s discovery days at a declining rate. For example, in a large case with stakes of $250,000, the second specification indicates that additional stakes of $10,000 induce only 0.5 more discovery days, compared to 1.3 more days at stakes’ mean. It appears that discovery provides plaintiffs with declining marginal benefits. The first days that a plaintiff devotes to discovery may benefit the litigant greatly. However, discovery’s marginal benefits decline as the plaintiff’s additional discovery exhausts the most productive discovery opportunities.
As predicted, a plaintiff’s expectation that she will obtain nonmonetary relief in-creases plaintiff’s discovery substantially: by more than 10 days. Nonmonetary relief is a valuable prize. The second specification indicates that a case that plaintiff expects to yield only an injunction or a declaratory order, but no money, induces the plaintiff to conduct as much discovery as a case from which plaintiff expects to win approximately $90,000. An injunction that shuts down a competitor can be as valuable to a plaintiff as a large money judgment against the competitor.
Similarly, as theory predicts, a plaintiff conducts substantially more discovery in a case in which she believes that the defendant has important facts. Likewise, as predicted, antitrust cases induce more than 8 days more discovery than do other cases. Accounting for interaction terms, that a case contains factual issues or factual disagreements has different impacts on plaintiff’s discovery depending on the case’s size. The few signif-icant fundamentals coefficients for defendants display expected signs.
Attorney-Client Fee Arrangement. For both plaintiffs and defendants, the nature of the attorney-client fee arrangement influences the amount of discovery substantially. As predicted, plaintiff’s lawyers who receive payment by the hour conduct substantially more discovery than plaintiff’s lawyers who receive a contingency fee. The hourly-fee and interaction coefficients combine to indicate that, at the mean stakes, an hourly fee arrangement increases plaintiff’s discovery amount by 5 to 12 days, depending on the specification.25
The influence of the fee arrangement is more complicated for defendants. In all but the smallest cases, non-hourly defense attorneys conduct more discovery than hourly defense attorneys. However, the impact of the fee agreement on defendants is relatively small: The hourly-fee and interaction coefficients indicate that, at the mean stakes, non-hourly defense lawyers conduct between 1 and 2 more discovery days than hourly defense lawyers. A possible explanation is that, unlike for plaintiffs, defense contingency agreements did not exist in my data. Instead, most defense attorneys who were not paid by the hour received payment by retainer. The continuing relationship that a retainer contract establishes may explain defendants’ larger discovery under retainer agree-ments than under hourly agreeagree-ments. Although additional discovery imposes costs on the retainer attorney, the attorney nonetheless conducts the discovery, perhaps to foster the continuing relationship and to continue to receive the relationship’s benefits.
Litigant Characteristics. Attorneys for business clients tend to conduct more discovery than attorneys for individuals, although the effect was statistically significant at the 10% level only for plaintiffs and only in one of the three specifications. Cases involving
25Similarly, unreported alternate specifications of the model indicate that, as theory predicts, contingency lawyers
businesses may be more complex than other cases in ways that the other explanatory variables do not reflect. Or businesses who pay their attorneys by the hour may not monitor their attorneys as effectively as individual clients do.
An attorney generally conducts less discovery if the attorney has previously repre-sented the client. However, the effect is statistically significant only for plaintiffs and only in two of the three specifications (at the 5% level in the first specification, at the 10% level in the second specification). Attorneys who have previously represented a client may have gained experience that permits them to conduct less discovery; they do not need to reinvent the wheel in every case. Or attorneys on hourly fees may limit excessive discovery for long-time clients to preserve continuing relationships and win future business.
Puzzlingly, the presence of a wealthy client influences plaintiffs and defendants in contrasting ways. In all three specifications, a wealthy client causes a statistically signif-icant increase in defendant’s discovery (at the 5% level) of more than 6 days. This is consistent with wealthy clients’ facing fewer wealth constraints and so being able to afford more discovery. In addition, the wealthier the client, the more efficient an hourly contract may become.26 Furthermore, wealthy clients’ hourly contracts may induce
their attorneys to conduct additional discovery. However, although these factors might be expected to create a similar positive relationship between client’s wealth and dis-covery for plaintiffs, the opposite is true. In all three specifications, a wealthy client causes a reduction in plaintiff’s discovery (significant at the 5% level) of approximately 8 days.27
Interdependence Factors: Adversary’s Discovery Amount and Triggers. The three specifica-tions demonstrate the interdependence of the litigants’ discovery amounts. However, only the defendant behaves in an aggressive, strategic way.
ADVERSARY’SDISCOVERYAMOUNT. As theory predicts, even absent a misunderstanding trigger, defendants counterpunch. In all three specifications, if no misunderstanding trigger has fired, defendant’s discovery amount responds strongly, significantly (at the 5% level), and positively to plaintiff’s amount. The counterpunch coefficients are substantial: Depending on the specification, an additional day of plaintiff’s discovery induces from 0.21 to 0.84 additional days of defense discovery.
In contrast, plaintiffs exhibit no counterpunch effect. Absent a misunderstanding, the amount of discovery that a plaintiff seeks does not respond to the amount that the defendant seeks. The plaintiff’s response coefficients in the three specifications are small—negative in two specifications and positive in one—and insignificant.
26For an economic model of how wealthy clients’ lower risk aversion may cause hourly contracts to be more efficient
than fixed-fee contracts, see George B. Shepherd and Morgan Cloud, “Time and Money: Discovery Leads to Hourly Billing,” 1999University of Illinois Law Review(91).
27It is conceivable that a wealthy plaintiff with an hourly agreement may recognize that the hourly agreement, unlike
TRIGGERVARIABLES. Misunderstandings about discovery motives influence discovery behavior: Both trigger variables have significant impacts (at the 5% level) on the degree to which each litigant’s discovery amount influences her adversary’s amount.
As expected, defendants tend to retaliate: If conditions suggest that the plaintiff seeks discovery merely to harass, then the defendant conducts more discovery. This is true for both triggers. A misunderstanding about which litigant has relevant evidence causes the defendant to retaliate with an additional 0.71 day of discovery to each plaintiff’s discovery day. The expected-recovery trigger causes retaliation of an additional 0.18 day for each plaintiff’s day.
Moreover, both triggers cause defendants to retaliate against plaintiffs’ discovery tit-for-tat. When no trigger fires, a defendant responds to plaintiff’s discovery with a discovery amount that is a fraction of the plaintiff’s amount; the fraction in the two trigger specifications differs. When the triggers fire, the defendant’s response fraction in both specifications increases almost exactly to 1: in the second specification in column 4, from 0.33 to 1.04; in the third specification in column 6, from 0.84 to 1.02. The total size of defendants’ retaliation can be large. For example, evaluation of the coefficients for the second specification at variable means indicates that the evidence location trigger causes an increase in the defendant’s discovery of 4.15 days or 91%.
In contrast, plaintiffs do not generally retaliate. Instead, plaintiffs retreat: The triggers cause plaintiffs to respond to defendants’ additional discovery by conducting substan-tially less discovery. A perception that the defendant has imposed excessive discovery may intimidate the plaintiff and may cause the plaintiff to believe that resources that a discovery war would consume could be more profitably invested outside the case. Faced with a potential discovery war, the plaintiff cuts her losses and reduces discovery.
Specifications with Adversary Characteristics. Table 3 presents results for specifications that are identical to the first two specifications in Table 2, except that the explanatory variables for each litigant include, in addition, two characteristics of the litigant’s adversary: whether the adversary pays her lawyer by the hour, and whether the adversary has employed her lawyer before.28 In Table 3, coefficients and significance levels for
variables other than the new adversary variables are nearly identical to those in Table 2. Columns 2 and 4 in Table 3 suggest that adversary characteristics influence the discovery behavior of the defendant, but not the plaintiff. The defendant’s coefficients for the two adversary variables are positive, relatively large, and, in each of the two specifications, one is statistically significant—a different one in each specification. First, that the plaintiff’s attorney receives payment by the hour causes the defendant to conduct from 2 to 4 days of additional discovery, depending on the specification. The plaintiff’s hiring of an hourly lawyer may signal to the defendant that the plaintiff secretly believes that her case is weak, and so requires extra time and resources; both litigants know that the plaintiff’s hiring of a lawyer by the hour creates an incentive for the lawyer to devote more effort to the case than does payment on contingency. Or it could signal that the plaintiff’s case is so weak that no competent contingency lawyer was willing to take it; no contingency lawyer was willing, in effect, to invest in the case. Perceiving a hidden weakness, the defendant conducts more discovery in order to identify the weakness.
28In unreported specifications, other adversary characteristics, such as whether the adversary is wealthy or whether
TABLE3. Simultaneous equations bivariate tobit estimates, with adversary characteristics
Expected plaintiff’s 0.098** 0.076 0.15** 0.046
recovery ($1000) (0.035) (0.14) (0.039) (0.22)
Square of expected
Adversary has evidence 9.86** 1.66 11.41** 1.29
(1.94) (1.65) (2.20) (1.85)
Factual issues exist 213.85** 3.26 214.41** 3.94
(3.56) (3.19) (4.00) (3.65)
Factual issues3 0.17** 0.12 0.27** 0.18
expected recovery (0.048) (0.13) (0.056) (0.21)
Disagree on factual 6.74** 1.97 9.17** 2.59
issues (2.56) (2.20) (2.89) (2.42)
Disagree on facts3 20.18** 20.0025 20.30** 20.035
expected recovery (0.045) (0.046) (0.053) (0.051)
Antitrust case 7.85* 10.33** 10.94** 4.86
(4.32) (3.51) (4.61) (3.80)
Attorney-Client
Hourly fee 0.73 1.57 1.12 2.05
(3.11) (1.62) (3.36) (1.81)
Business client 3.60 2.68 3.67 2.30
(2.31) (3.65) (2.56) (4.02)
Adversary has 1.77 4.51** 1.58 2.13
hourly fee (1.74) (2.27) (1.92) (2.54)
Adversary hired 1.60 2.39 1.87 3.09*
lawyer before (2.20) (1.66) (2.44) (1.83)
Interdependence Factors
Notes: Dependent variables are days that each litigant devoted to seeking discovery from adversary. Standard errors in parentheses (n5369).
*Significant at 0.10 level (2-sided test). **Significant at 0.05 level (2-sided test).
---Second, the plaintiff’s hiring of an attorney that the plaintiff has hired before causes the defendant to increase discovery by 2 to 3 days, depending on the specification. The defendant may conclude that the plaintiff would choose her trusted but expensive attorney only if the plaintiff secretly believed that her case were weak.
The two adversary-characteristics variables may also provide information to the de-fendant about the case’s characteristics that the other variables do not provide. For example, plaintiffs may hire hourly counsel that they have hired before only in espe-cially complicated business disputes that tend to require much discovery.
Adversary characteristics do not influence plaintiffs’ discovery as strongly. As columns 1 and 3 in Table 3 show, the plaintiff’s coefficients for the two adversary variables are positive, as with the defense coefficients. But the coefficients are smaller and statistically insignificant. Again, this is consistent with plaintiffs’ conducting fundamentals discovery and focusing less than defendants on seeking strategic advantage.29
V. Conclusions
This paper presents an empirical economic examination of the factors that determine litigants’ amounts of pretrial discovery. An econometric model and data from interviews with both attorneys in 369 federal cases reveal that, in conducting discovery, plaintiffs behave differently from defendants. Moreover, the plaintiff’s and defendant’s discovery amounts are interdependent. Specifically, there are four main patterns.
First, plaintiffs conduct fundamentals discovery. A plaintiff chooses an amount of discovery by examining a case’s underlying fundamentals, such as the amount at stake or the number of factual issues. The plaintiff does not counterpunch: The plaintiff does not increase her discovery in response to increased discovery by the defendant.
Second, the defendant chooses an amount of discovery differently. Unlike the plain-tiff, the defendant ignores fundamentals. Instead, the defendant observes the plaintiff’s discovery level and then counterpunches, seeking a discovery amount that mirrors the plaintiff’s level.
Third, plaintiffs and defendants respond to apparent discovery aggression differently. If the plaintiff seems to have conducted excessive discovery, then the defendant retal-iates, conducting more discovery than she otherwise would have. Indeed, the defen-dant’s retaliation is almost exactly tit-for-tat, with one unit of defendefen-dant’s discovery for every unit from the plaintiff. In contrast, if the defendant seems to be conducting excessive discovery, then the plaintiff retreats, conducting substantially less discovery than otherwise.
Fourth, the nature of the attorney’s fee arrangement influences the attorney’s dis-covery behavior substantially. For example, plaintiff’s attorneys who are paid by the hour conduct in excess of 5 more days of discovery than plaintiff’s attorneys who are paid on contingency. This may be due to differing principal-agent incentives between attorney and client. Similarly, each litigant’s discovery responds to other client charac-teristics, such as the client’s wealth or whether the client is a business, as well as to characteristics of the adversary.
29Results suggest in two ways that litigants’ discovery behavior does not vary greatly among cases with different
In a substantial number of cases, no discovery occurs: In 35% of the cases, at least one of the litigants conducts no discovery. The results help to explain this. The cases without discovery are those with small stakes, few factual issues, and where each litigant believes that the other has little factual evidence. In addition, plaintiffs will tend to conduct less, or even no, discovery either if conditions suggest that the defendant is conducting excessive discovery or if the plaintiff’s lawyer is paid on contingency.
