The Resolution of the Famous Multimillion-Dollar "Pant Suit," Filed by a Judge: Why the Drycleaner Defendants Defeated the Plaintiff

On June 25^th, Judge Judith Bartnoff of the Superior Court of the District of Columbia decided the famous "pant suit" in favor of the defendants. In this suit, a man who is a judge (and a lawyer of long standing) sued a family who owned a drycleaner's for $53 million dollars, based on the theory that its failure to give him $1150 to replace a pair of pants he claimed they'd lost, was evidence that they'd defrauded thousands of other customers over the course of four years.

As I pointed out in my previous column on the case, it exposed a serious weakness in the American legal system that unscrupulous and clever litigants can exploit: Since our legal system allows most contested issues of fact to be tried, it is very hard to shut down a meritless lawsuit in its early stages, as long as it is hung upon a plausible legal theory.

The Bizarre Claim, and the Plausible Legal Theory that Accompanied It

The plaintiff, Pearson--who got his J.D. at Northwestern and did postgraduate work at Georgetown Law School--combined odd and implausible factual claims with legal theories that ranged from the pedestrian to the bizarre.

His odd factual claim was that the defendants, the Chung family, had lost the pants he'd entrusted to them; and then, refusing to admit that fact, had altered a cheap pair of pants to match his measurements, forged a claim ticket, and tried to "pass off" the altered pants to him.

The pedestrian legal theory on which this bizarre story of "forged pants" hung (pun intended) was simple fraud and conversion -- that is, the tort of taking another's property illicitly for one's own use.

The more bizarre legal theory that Pearson urged was that the sign in the store that said "Satisfaction guaranteed" was a promise to make Pearson--the customer--"satisfied," no matter what he demanded in order to be satisfied. Pearson claimed that the Chungs' allegedly willful failure to live up to the promise in the sign was a violation of DC's consumer fraud statute, and that the Chungs violated the statute repeatedly, since they never intended to satisfy the promise implied in the sign with respect to any of their customers.

Judge Pearson's Wise Ruling

Judge Bartnoff made short work of Pearson's interpretation of the DC consumer fraud statute, pointing out that:

"In [Pearson's] view, if a customer brings in an item of clothing to be dry cleaned, and the dry cleaner remembers the item, and the customer then claims that the item is not his when the dry cleaner presents it back to the customer after it has been cleaned, the cleaner must pay the customer whatever the customer claims the item is worth if there is a 'Satisfaction Guaranteed' sign in the store, even if the dry cleaner knows the customer is mistaken or lying. Nothing in the law supports that position." (Emphasis supplied.)

Judge Bartnoff held, instead, that the DC consumer fraud statute--though one of the most liberal in the nation--must still be interpreted under a standard of objective reasonableness, not according to disappointed consumers' subjective and idiosyncratic preferences. Thus, she held, while the promise of "satisfaction guaranteed" might have obliged the Chungs to make reasonable efforts to determine whether the pants were lost (and then offer reasonable compensation), it did not require them to accept a consumer's assertion which was not based on reason.

So did the Chungs, in fact, make reasonable efforts? Judge Bartnoff thought they had, for she deemed Pearson's reasons for believing that the Chungs had lost his pants ridiculous, and held that the Chungs' version of had happened--that the pants returned to Pearson were, in fact, the very pants he dropped off--was more plausible.

Charitably, Judge Bartnoff - rather than accuse Pearson of lying -- allows that he may have mistakenly "assumed" that he brought in a different pair of pants than the pair he really brought in, and then refused to back down in the face of contrary evidence.

The Stakes: Why Meritless Cases Often Settle for "Nuisance Value"

Why does this matter? It matters because, as was pointed out in the tort reform blog "Overlawyered," the Chungs offered Pearson a $12,000 settlement after he filed his initial multi-million dollar consumer fraud suit. And that settlement, it turns out, would not have been based on any genuine legal obligation; it would have been based purely on the case's "nuisance value."

Why might defendants like the Chungs offer to settle cases at "nuisance value"? One theory is that they cannot afford to "roll the dice" where the risk of liability is very high. At first glance, the Pearson suit fits this model. The Chungs were facing a $53 million suit. But on closer examination, the "roll the dice" argument is very unpersuasive. Pearson's suit never posed a risk of multimillion dollar liability to the Chungs, and their lawyers--who appear to be very competent--must have told them that. The probability of a $53-million-dollar liability judgment was not tiny--it was essentially zero.

But risk isn't the only reason defendants settle; attorneys' fees convince them to settle too. Sadly, it may have cost the Chungs money simply to have their lawyers ensure that Pearson's suit was as frivolous as it appeared. And, at a certain point, it might well have cost the Chungs more than $12,000 to prove to a court that Pearson's suit was meritless.

A Possible Remedy for Meritless Cases: Rule 11 Sanctions, and Even a "Loser Pays" System

Fortunately, there is at least one remedy for meritless suits like Pearson's:

The District of Columbia has adopted a local version of the Federal Rules of Civil Procedure's Rule 11. D.C. Super. Ct. Civ. R. 11 "provides for the imposition of sanctions against a party or attorney where the trial court finds that a pleading was factually groundless, unwarranted by existing law or a good faith argument for a modification of that law, or interposed for an improper purpose," as a D.C. court explained in 1993 in Kleiman v. Kleiman. Sanctions can include the obligation to pay the defendant's lawyers fees.

The Chungs will move for sanctions under Rule 11, and I hope Judge Bartnoff awards them. But if history is any guide, she probably will not. Rule 11 has proven to be a very toothless weapon against abusive plaintiffs - for two reasons.

First, American lawyers still feel very strongly that the "American Rule" of civil litigation: Each side bears its own costs, regardless of the outcome. The argument is that it is more democratic than the European Rule, under which the loser pays the winner's legal bills.

Second, it is very easy for a plaintiff to argue that they do not deserve to be sanctioned under the literal language of the Rule 11. For one thing, how can we say for sure that all of Pearson's interpretations of the DC consumer fraud statute were made in bad faith? As I noted above, under one version of the statute, he would have had a good claim for the replacement value of the pants, if he had really left them there.

In addition, how can we say for sure that the pleading was "factually groundless?" Recall that Judge Bartnoff left open the possibility that Pearson made a good-faith mistake when he assumed that the Chungs had lost his pants and replaced them with a forged pair. That is indeed hard to believe, but I can understand why Judge Bartnoff does not feel comfortable concluding, as a matter of law, that Pearson is a liar.

Thus, Rule 11 does not effectively protect defendants from frivolous, or even, in some cases, fraudulent suits.

Why, Despite Rule 11's Ineffectiveness, There Is No Epidemic of Fraudulent Litigation (Except Perhaps When Lawyers are Plaintiffs)

Some tort reformers use Rule 11's ineffectiveness to claim that we are in the midst of an epidemic of suits that are no more than a collection of knowing falsehoods calculated to extract settlements. Are they right?

Certainly, in certain areas of civil litigation--such as litigation over asbestos and silicosis--some, or even many, such suits may have been brought. But claims of an epidemic, in my view, are overstated.

This is for a simple reason: The plaintiff's attorney who brings a frivolous suit is probably going to spend a lot of money losing the case and getting paid nothing. Logically, if the defendants do not settle, the plaintiff will be hurt just as badly as the defendant in terms of litigation costs. If the case is accepted on a contingency basis, the plaintiff's attorney may not take it in the first place. Contingency fee litigation essentially makes the plaintiff's lawyer an investor in the lawsuit, and no rational lawyer would invest in a business venture based on flimsy theories and facts.

Notice one thing about the Pearson case: Pearson was his own lawyer. The Chungs had to pay their lawyers by the hour; Pearson worked for himself for free. That skewed Pearson's incentives - and may have made him perceive the case as virtually costless for him to bring. It wasn't costless in the end, however; it wasted time Pearson could have spent on a more profitable or enjoyable endeavor.

Tort reformers have suggested that "lawyer-driven" litigation is likely to be frivolous and initiated in bad-faith in order to achieve a quick settlement. However, I would like to propose that the opposite might be the case. Perhaps we should be worried about lawyer-plaintiffs who represent themselves. In theory, no plaintiff's lawyer wants to waste time on a losing case, especially when another case might be a winner that will offer a higher return. But what if a plaintiff's lawyer is trying her own case? She won't have to "shop" her cases the way normal plaintiffs do, convincing an objective third party to "invest" their time into the case. They can lose perspective on their real economic interests, and become irrationally committed to the case, since it is their own.

Perhaps what Judge Pearson has proven for us is that lawyers cannot be trusted to rationally evaluate the expected value of their own cases. They may have a tendency to ignore the fact that their legal claims are preposterous, and the case meritless.

If this is the case, then rather than rely on Rule 11, perhaps we should adopt the "Loser pays" rule in cases where lawyers represent themselves. That might eliminate the risk that led the Chungs to offer $12,000 to make Pearson go away. After all, no lawyer would have wasted their time on Pearson's case, except Pearson. So maybe the only way to get Pearson to think like any other lawyer, would have been to point out to him that, were he to lose the case, he would have to pay for all the lawyers employed by the Chungs.

That might have stopped this pants suit.