Remarks by ace general Counsel and Appleseed Board Member Bob Cusumano

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Remarks by ACE General Counsel and Appleseed Board Member Bob Cusumano

at the ACE Securities

Panel Counsel Conference

June 4, 2013

Greetings, everyone! Thank you for the opportunity to speak on some issues of common interest to all of us. I would like to talk about the American courts, since that is what we have most in common in this room.
Our common experience with the courts, however, is a very uncommon one compared to other users of the system

  • It tends to be federal

  • It tends to be highly competitive

  • It tends toward highly sophisticated parties, sophisticated judges and complex issues

  • We even create, in a sense, our own litigation market prices through examination of judicial outcomes in our very special arena within the courts.

We collectively inhabit a niche in the courts that -- perhaps -- we forget is a niche. Despite our griping about certain courts and certain judges, ours is a relatively luxurious, attentive litigation environment . . . an island of deep reason and thoughtful elaboration.

It may be an island in danger of being swamped.
Some facts and figures:

Federal courts cost the nation zero-point-two-percent of the federal budget. Approximately 300,000 civil suits are filed in federal courts every year, nationwide.

Each of the following 5 state court systems had more than a million new filings: FLA, MD, NY, VA, CA. I have it on good authority that more cases of every sort are filed in a WEEK on the island of Manhattan than are filed in a YEAR in ALL the federal courts combined. State courts handle more than 95% of all civil and criminal cases.
No one even collects reliable national level data for the state courts. You can roll up the individual states a bit, though. In general, state courts cost only about 2-3% of state expenditures. They have about 40 million customers a year.
For this expenditure, the states run the courts, civil and criminal, deal with probation, deal with wills for the 5 million people who die every year, deal with small claims, and parking tickets, and everything else on which a busy society depends to make the world work in a reasonably fair manner.
Let's look in detail at the federal courts -- the smaller better system -- first. The federal courts, being part of so-called "discretionary spending", recently suffered the sequester. This means a budget cut of approximately 5%, or $350 million, on their zero-point-two percent of the federal budget. It is a random cut, entirely thought-free, in one of the most microscopically inexpensive areas of government. It has led to furloughs, freezes, delays and immediate declines in service levels. This from Supreme Court Justice Anthony Kennedy, hardly a raving socialist: "The federal courts routinely, day in and day out, supervise more people than are in the federal prison population," Kennedy said. "We supervise more than 200,000 criminal offenders, some of whom are very dangerous. If the Congress thinks that because of some automatic cuts this has to be cut back, you are doing a few things. Number one, you are putting the public safety at risk. Number two, you are undercutting the ability of a separate branch of government to do its functions."

Or perhaps we might hear from the less conservative, and somewhat younger, contingent on the Supreme Court -- this from Justice Breyer: "If someone comes into the courtroom and they see a column and there's a hole in it, and the inside is falling out into the floor, what do they think about justice in the United States?" Breyer asked. "Those things are symbols. They don't have to be grand ... but they do have to be kept up."

Apart from money, the federal courts are suffering from politically induced under-staffing. Federal judges are retiring at a rate of one per week. The average time to confirmation for a federal judicial nominee has risen from about 60 days 30 years ago to about 225 days now. And that is for so-called "non-controversial nominees". You have seen what happens to nominees with any hint of controversy around them. The result is that about one in eight federal bench positions are vacant. 46 of those vacancies meet the criteria for a "judicial emergency" based on caseloads. Arizona's Tucson federal district court declared a vacancy emergency as its remaining judges found their caseload of just criminal cases rise to 1200 each. Imagine that -- 1200 defendants entitled to a speedy trial, before you even turn to your securities and insurance cases, and your prisoners’ rights cases, and your tort suits. The vacancy level recently crossed 100, out of a federal judiciary of about 850, compared to 50 just four years ago.

Maybe it is just as well that we can't fill the positions because we also can't pay the judges. Federal judicial pay has been essentially static in real dollars since World War II, although it has been in steep decline since the early 1990s. You have to go back to World War I, or into the nineteenth Century, to find federal judicial pay levels substantially below where they are now. Circuit court judges earn what third year associates at major law firms earn. The nine Supreme Court Justices are more senior -- so they are paid at about 5th year associate rates.

But the federal courts are, by and large, professionally run institutions located in buildings that are not crumbling, with excellent management and a strictly limited jurisdiction. And federal judges, underpaid as they are, are by and large learned individuals intent on a life of public service. And so the service remains pretty good, no matter how many zeroes there are in the damages claim.
So let's look at the state courts. In the state courts, few of these things are true. There are massive problems with physical infrastructure, judicial professionalism, staff and service levels, and ongoing budgetary body blows, one on top of the other. This is no mere one-off random sequester; this is slow and steady starvation. And the crisis of service is right here, right now.
In NY, the 2012 budget cut the courts $170 million (out of a $2.4 billion court budget, which is just 2% or so of the overall NY state budget). That is an 8% decline after years of flat budgets, and other cuts, in the context of a crumbling physical infrastructure.
In California, the cuts have been worse. Over $1 billion cut from a baseline budget of about $3 billion four years ago. The California courts have lost 65% of their general state funding support in three years. At least 53 courthouses have closed, and eight more are scheduled to be closed, just in Los Angeles County. The waiting time for even a mediation of a child custody disputes has risen in at least 19 counties and you can figure on a 4-5 month wait. Nice recipe for domestic violence, wouldn't you say?
In Massachusetts, there have been cuts on top of cuts, in a system that has already lost 8% of its headcount throughout the system. Staff at the trial court level has been reduced from 7,629 to 6,293, down 17.5 percent. A hiring freeze was instituted in October 2008.

Lest you think this phenomenon is limited to "blue states", or urban states, I offer you Georgia, with a 14% cut in 2010 followed by a 6% cut in 2011. In Georgia, the state Supreme Court's chief justice had to ask research database company LexisNexis for pens and pencils to give to her law clerks. In Oklahoma, we have had layoffs, a salary freeze, and intentional delays in filling judicial vacancies, and the same in Mississippi. Or try South Carolina, which has the fewest judges per citizen of any state and nearly three times as many filings per judge. Nevertheless, the State slashed its state funding for the courts by 40 percent over the past decade.

In all, 42 states have reduced their judicial budgets in the past three years, with cuts in some jurisdictions totaling more than 12 percent. In the last three years, 34 states have laid off court employees, 39 have stopped filling clerk vacancies and 23 have reduced court operating hours.

More locally, a small town in Ohio had its court close for new filings of lawsuits for three months, unless the litigants brought copies of the pleadings -- the court had no money for paper.

A quote from the presiding judge: “Even though paper is inexpensive, it’s still enough to shut us down,” People in the community donated enough paper so that “we were able to limp through the year.... We also got about three rolls of toilet paper,” he said. “Obviously, they were confused about what kind of paper we needed.”

A judge in California had a clever characterization of the situation "[We provide] services based upon the tyranny of the urgent."

We have had moratoriums on civil trials, because the criminal cases have to come first. We have had delays in civil cases because domestic violence civil cases also have to cut the queue: As one judge said, "You can’t have people tied to each other when they can’t live together.”

In half the states, the salaries of judges have been frozen. Two-thirds of the states have frozen the salaries of court staff. Almost one-third of the states are operating with at least 8% fewer trial court staff than they had four years ago. Almost one-third of the states have reduced the level of central office staff by more than 8%. Furloughs - a day a month, a day a week - have become the adaptation of choice. But as one judge from New Mexico put it recently: "Furlough closures of backlogged courts don’t save a dime for the taxpayer or for the government. It’s not like a furlough closure of a museum or a park or a tourist train, where you can actually save money by cutting services." People seeking justice don't, and often can't, go someplace else.

We have had massive delays in motion dispositions because there are not enough judges and clerks. Go to New York Supreme any morning, and see the line of customers wind around the maze, out the door, and down the steps. And then, after you get in, try to figure out what to do when the courtroom itself is full to capacity and another 25 lawyers are milling around outside because they can't get in. The clerks ask the lawyers by the door to holler the next case number down the hallway. I experienced this scene myself just three weeks ago. Nice symbol of American justice.

The consequences of this are already being visited on most of the major classes of users of the judicial system -- criminal defendants, civil parties with family problems, those in need of legal aid, those with mortgage problems, families of those who die. But they have not yet been fully visited on those litigants -- us -- with corporate disputes containing a lot of zeroes that are centered in federal courts. But I am sure some of you here are seeing it happening, and it is certain that our relatively luxurious litigation environment will not last. Already we see companies fleeing the courts for "private justice systems", and it is very difficult to rely on a judge with a caseload of 1500 lawsuits to sort out the best way to handle the latest intricate controversy under the Securities Acts.

In the end, this problem reduces to a direct challenge to the third co-equal branch of government. It becomes, at a point, a constitutional issue.

From a member of the Supreme Court of Georgia: “It has gotten to the point where it is difficult to say that we are delivering the constitutionally required judicial system.” That is Georgia the State, by the way, not Georgia the former Soviet Socialist Republic.

From Ted Olson, litigator of choice for the right side of the political spectrum: "We have a tragedy taking place in our courts." From David Boies, litigator of choice for the left side of the political spectrum: “All commercial activity depends on the judicial system,” he said. “If businesses can’t get their contracts enforced or their business disputes resolved, commerce begins to grind to a halt.”

A judge in Montana pegged the irony, the paradox: "As an independent third branch of government, our responsibilities are great but our needs are small."

From New Hampshire Supreme Court Chief Justice John Broderick: "What's happening now is that the United States justice system as we all remember it is being dismantled and butchered down. At some point, I guarantee you, you'll wake up and say, 'What happened?'"

What to do about it? This is difficult for any individual to influence. I think our politics needs to reflect adherence to our principles, and I think this, of all major issues, stands as squarely bipartisan. I imagine that the US Chamber of Commerce and the ACLU come out about the same way on these questions. The issue gets stuck because it appears technical and it appears numerical and it appears marginally incremental. And while no one wants to starve the courts, it is the fifteenth most important issue for everyone except the users and inhabitants of the justice system. So the issue gets stuck until it finally re-appears as a complete crisis.

We need to make support of the third branch a public issue, a voting issue. We need to talk it up in the halls of capitalism as well as the halls of legislatures. We need to convince the corporate community that viable judicial systems are every bit as much in their interest as free trade or freedom from over-regulation. We need to remind ourselves that our industries are creatures of the law, and that a law that cannot be enforced is not really a law so much as a hypocritical menace to society.

The lawyers among us can do even more. We can contribute and participate in the effort to fix these problems. We can help with the "tyranny of the urgent", for awhile anyway. We can reduce the volume and intensity of disputes. We can forego dumb motions. We can convince clients to contest the main issue and not every issue. We can applaud our judges, and refuse to demean or insult them. We can advertise that the third branch of government has the highest popular approval ratings of the three, and beats the American Congress by like 55 to 12.

Here at ACE, we are trying to do these things within and without our Legal Department. And we have also done something else -- We've created a philanthropic trust called the ACE Rule of Law Fund to suport rule of law enhancement efforts around the world. This endeavor is funded by voluntary contributions by our lawyers as individuals, and that amount is matched by our company, by me, and by many of our most significant outside law firms. The fund is not open to the public -- it is our own thing within the ACE Legal community. We don't solicit or advertise. Over the past 5 years, the ACE Rule of Law Fund has collected about a million dollars and used it to support about 25 projects on every inhabited continent. It has likely made a real difference, in Kyrgyzstan and in Philadelphia, in Mozambique and in Queens.

"Our responsibilities are great", yes, but "our needs are small", what a great short summary and how true.... -- so I think just about anyone can make a real difference, if they give it a try.

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