By Heather Rogers, Remapping Debate

Oct. 3, 2012 — Across the United States, “business uses the courts far more than anyone else,” explained Frank B. Cross, a professor of business law at the University of Texas at Austin. And among those cases, “the vast majority is business-to-business.” Most common among these, Cross said, are breach of contract and fraud cases that involve any product or service — office equipment, software, the work of an accountant — that doesn’t live up to the contract’s promise. Another frequent problem comes when one company misses one or more payments to another. If the unpaid firm doesn’t have ready access to courts, Cross said, that firm’s financial stability is put at risk. “A working court system is absolutely essential to business,” he concluded.

“A working court system is absolutely essential to business.” — Frank B. Cross, business law professor at the University of Texas at Austin

Due to increasingly severe budget cuts, more and more state court systems have become dysfunctional in the last few years. According to data from the National Center for State Courts (NCSC), a nonprofit research, consulting, and advocacy group, 42 state legislatures reduced their state court budgets between 2008 and 2011. A variety of cutbacks ensued — including staff layoffs, reductions in courthouse hours, and pay cuts for courthouse personnel — and many state judicial systems have consequently slowed down (see visualization on next page). The NCSC’s data show that since 2008, 29 states have seen an increase in case backlogs, and 15 states have experienced an increase in the time it takes for cases to go from filing through resolution.

“Let’s say I’m in a business-to-business dispute over intellectual property,” Joseph Dunn, former California senator and current executive director of the State Bar of California, explained. If the case drags on for years as opposed to months, even if the aggrieved business is otherwise healthy and eventually wins, “No investor is willing to put money down.” The pendancy of litigation can make a company seem like an unwise bet. “Banks and investors looking for a good return will avoid this kind of risk,” Dunn said. He explained that in California, before the cuts, a typical intellectual property dispute would have taken 12 months to resolve. “Now it’s three to five years,” he said. These longer wait times “have become deadly to the business community.”

Cutting muscle, not fat
“In any system if you’re a legislator and you say we’re going to cut 5 percent from the budget, the fact is that doesn’t affect everyone in the same way,” explained Gregory Hurley, an analyst at the NCSC. “If you’re [the Fish and Game Department], you can cut the amount of fuel, you can drive less for the next year. If you’re a court system, you don’t have that equipment. What you have are staff, and if your budget gets cut, you have to start letting people go.”

Data show that since 2008, 29 states have seen an increase in case backlogs, and 15 states have experienced an increase in the time it takes for cases to go from filing through resolution.

Roy Weinstein, managing director of Micronomics Inc., an economic research and consulting firm that has produced two reports (see here and here) on the effects of underfunding state courts, explained that the direct victims of judicial system budget cuts are “the people who service those courtrooms…the court reporter who used to work there, the bailiff or two who used to work there, the court clerk who used to work there — they’re gone.”

It is a simple formula that has been repeated in state after state: fewer judicial clerks and other support staff equal less administrative work and case management getting done. With fewer people literally moving things through the system, the system becomes sclerotic. And judges — lacking the clerks they need to help with research and associated tasks — become overburdened. Those judges take longer to decide motions and to schedule trials.

Businesses paying more of the bill
In many court systems that have had their budgets cut, courts are passing more of their costs onto litigants. In Superior Court in San Francisco, court reporters used to be provided for free in civil cases — important because, among other things, a transcript is needed if a party wishes to appeal. Last year, the court shifted that cost to the litigants themselves in most civil cases. The daily court reporter’s bill can easily exceed $1,000.

A particularly common stratagem to compensate for reduced state funding is to increase filing fees. Since 2008, according to the NCSC, 26 states have increased their filing fees.

For example, in California, among the hardest hit state courts in the country, basic filing fees for a civil case have climbed from $335 in 2008 to $435 in 2012. For more complex cases, which are frequently business-against-business disputes, the filing fees have almost doubled, surging from $550 in 2008 to $1,000 today. On top of the basic filing charge, there are other fees assessed at various phases of a case, such as for filing motions.

In 2009, Florida raised its filing fees for disputes involving less than $50,000 by over 30 percent. Fees for disputes involving between $50,000 and $250,000 increased from $295 to $900, and disputes involving higher sums have had their fee surge from $295 to $1,900. One Democratic senator from the state, Maria Sachs, told Remapping Debate that she thinks the courts should be almost entirely funded through fees.

Last May, Alabama’s state lawmakers approved a significant increase to civil case filing fees. For disputes involving more than $50,000, the fee increased 15 percent; in cases involving smaller amounts, the fee has jumped by 25 percent. The measure was supported by wide majorities in both the house and senate. Democratic State Senator William Beasley was among them. “The fee system is a good mechanism to fund the court system because, that way, the people who are using the court system are paying the fees,” he told Remapping Debate.

But some question the wisdom of this strategy. “The higher the filing fees are, the more costs that are shifted from the judicial branch to the actual litigants almost to the point of it becoming a ‘you-use-it, you-pay-for-it’ scenario,” said Dunn, the head of the California Bar Association. “As states have moved away from taxpayer support of the judiciary to fee-based revenue support, you are pricing the judicial system out of reach of many startup companies and smaller companies.”

So how much additional delay is there?
California has seen the country’s steepest cuts in its state court funding, in dollar terms: over $300 million in fiscal year 2011-2012 alone. If planned cuts for the upcoming fiscal year go through, another $544 million would be stripped from the state judiciary. The effects of these cuts are being felt throughout the state.

According to Michael Burke, a defendent-side civil litigator in San Francisco, “It used to be you could get [a motion hearing] within the normal notice period, usually 21 days. You could just call up and get a date,” Burke said. But now, “It could be two or three months.”

John Kithas, a San Francisco attorney, who has been in civil practice for almost 40 years, currently has a case that’s stuck in the earliest phases, even though it was filed nine months ago. While charging that some delays are due to stalling by his adversaries, Kithas was certain that budget reductions were part of the problem. “It’s been almost a year and we haven’t learned anything” he said incredulously. In the past, he asserted, he would be at this same phase in litigation after only a month or two. “In this case we’re out there for [nearly] a year, we have almost no discovery turned over to us,” he said. “We’re probably looking at another year before trial.”

“As states have moved away from taxpayer support of the judiciary to fee-based revenue support, you are pricing the judicial system out of reach of many startup companies and smaller companies.” — Joseph Dunn, executive director of the State Bar of California

Burke said there are many steps along the way where a case can get held up thanks to fewer courthouse resources. “There are all sorts of things throughout litigation that the court has to sign off on. It could be a ruling on a motion. It could be approving a settlement,” he explained. “There’s no end to what the court needs to approve by way of order or ruling during the process of litigation,” he said. And the delay caused by the cuts “just bogs everything down.”

In fiscal year 2011-2012, Alabama’s legislature shrunk its court funds by almost 9 percent, the largest percentage cut of any state that year.

In that year, Sue Bell Cobb, the state’s chief justice, who acts as the administrative head of the judiciary, ordered courthouses to close on Fridays. And needing to cut still more, she reduced by half the number of weeks that jury trials (“jury weeks”) were available to civil litigants. By mid-2012, budget cuts had led to clerk staff being thinned in the majority of Alabama’s courthouses.

“In the civil setting they did away with most law clerks and courtroom deputies,” recounted Lee Benton, a business attorney in Birmingham. “That means a judge gets a brief from both sides but he’s having to do all his research personally. It dumps a much heavier caseload on a judge, and that delays him in issuing a decision.”

According to G. Bartley Loftin III, a Madison County, Alabama, lawyer, who focuses primarily on commercial litigation, “When you have a client come in and say, ‘We have this situation how long is it going to take?’ and when you say, ‘18 to 24 months,’” he explained, “a lot of them are shocked at the time it may take.” Loftin has observed this slowdown increasing as court budgets shrink. “There’s a direct link to underfunding,” he said.

“Businesses are already in a fragile position these days,” Benton said. “If you’re already on the banana peel, [litigation delay] just pushes you over the edge.”