Applying a game-theoretic approach based on the classic prisoners' dilemma provides valuable insights into corporate managers' decision-making incentives under existing discovery rules. It demonstrates that the fee structure imposed by current discovery rules leads to inefficiency and motivates corporate litigants on either side of a controversy to employ abusive discovery practices, although each party would benefit from cooperation. Using this framework, this Article shows how a cost-sharing regime can motivate litigants to engage in cooperative discovery and, as a consequence, facilitate more efficient and less abusive discovery practices. To date, scholars, who have posited that cooperative behavior in the discovery process will ultimately reduce abuse and concomitantly lower costs, have proposed such solutions as completely shifting the cost from the responding party to the requesting party. This will not resolve the problem. Accordingly, this Article argues that a default-rule of equal cost-sharing would realign the strategic incentives of corporate litigants to encourage cooperation as opposed to abuse in discovery. Although the parties currently have the ability to contract around the responder-pay-all default, research has shown that a party who suggests a departure from a default rule is negatively perceived by her opponent. However, a 50/50 cost-sharing rule changes the default and allows corporate parties to more effectively bargain because their starting positions are better aligned with their incentives. Evenly dividing the cost of document discovery alters the underlying assumptions of the decision-making process and makes mutual cooperation the only economically advantageous alternative. Tying the cost borne by a requesting party to the cost incurred by the responding party creates, in the language of game theory, a dominant strategy of cooperation. Consequently, it would reduce exposure to uncapped litigation costs, discourage useless discovery requests, reduce overly broad or inappropriately narrow discovery responses, and avoid potential sanctions that may be imposed on corporate litigants for discovery misconduct. The cost and uncertainty that result from increasingly expensive discovery demand a reexamination of the incentives underlying the current rules and the impact on corporate litigants. Part I of this Article considers how document discovery has changed litigation practice. It briefly focuses on the initial change in traditional "paper document" discovery with the evolution of the photocopier and then turns to the electronic discovery revolution. Discovery, even in its paper-based form, has always been prone to excess and abuse. However, advances in information storage have magnified the incentives and opportunities for abuse that flow from a cost-allocation structure that allows parties to externalize discovery costs. Specifically, Part I identifies how modern discovery provides the means by which adversaries may impose expensive and burdensome requests or responses on their opponents, leveraging these tactics to induce premature and misvalued settlements. Part II briefly discusses attempts to ameliorate the discovery dilemma such as the December 2006 amendments to the Federal Rules of Civil Procedure ("FRCP"). As amended, FRCP 26(b)(2)(C) enumerates the factors that courts must weigh when deciding whether to use their discretion to shift discovery costs. This Article argues that FRCP 26(b)(2)(C) does not adequately address the cost of discovery or the ways in which current incentives lead a rational actor to abuse the discovery process. Part III proposes a novel cost-sharing legal regime, based on the prisoners' dilemma, which would restructure litigant incentives to encourage cost-lowering cooperation. The switch to a cost-sharing default rule would reduce abusive discovery tactics and in turn would improve the ability of corporate managers to assess risks when making litigation and settlement decisions.
Nicola F. Sharpe,
Corporate Cooperation through Cost-Sharing,
Mich. Telecomm. & Tech. L. Rev.
Available at: https://repository.law.umich.edu/mttlr/vol16/iss1/3