The legal community – lawyers, scholars, companies, associations, Courts, the National Council of Justice (CNJ), inter alia – has long debated the practice of the negative phenomenon of predatory litigation. Simply put, it typically refers to the unreasonable filing of a substantial number of actions in bad faith, and resorting to assorted strategies, with a view to obtaining advantages – including for enrichment purposes –, while harming the other party.
In the civil scope, this approach usually hovered over mass consumerist, generic demands, with the same basis and cause of action, without submitting documents, or presenting questionable ones, following the belief that the volume of lawsuits could achieve illegitimate intentions against business companies. In addition to overburdening the court system and bringing immeasurable damage to the treasury, it limits the constitutional principle of broad access to justice to those who genuinely need judicial relief.
It turns out that, in recent times, predatory litigation seems to be looming large in another area, with a new disguise, and focusing on a different target audience: less bulky portfolio processes, filed by debtors in strategic recovery of high amounts in credits. The intention, on the other hand, remains the same, with the difference that it now has been targeting less on the number of processes and more on the amounts in dispute.
The system is simple, but sometimes performed in an elaborate way, given the million-figure sums. Debtors of relevant credits, high-profile businessmen (as parties under a given jurisdiction), on their own initiative or at the suggestion of lawyers who are far from thinking about the best – legitimate – interest of their clients or the ethics of the profession, file actions for review, motions to stay execution or, ultimately, court-supervised reorganization petitions – among many other measures. Therefore, outside of scope of the common consumer. It reached the business sector, with parties advised by accountants, lawyers, financial consultants specializing in the topic –, which rules out the argument of the weakness of one party, in whatever aspect.
Whatever the path, the aim is to try to obtain validation, via the Judiciary Branch, for partial or total discount on the debt before its creditors, which goes by the name of “skipping out.” The theses are as teratological as possible, which only emphasizes the bad faith of the lawsuits. They range from decisions or articles of law inapplicable to concrete cases, deliberate delay of the process, and even the denial of what they had expressly agreed beforehand, when entering into banking operations and contracts. And that’s not all. The strategy also involves entering into reorganization proceedings, even without real economic and financial need, to impose suspensions of actions and executions to creditors, obtain the declaration of the essentiality of assets – delaying the execution of assets, and in the case of default, for creditors not subject to reorganization effects –, and attribute to creditors under reorganization payment with extremely punitive conditions. The background is always the same: playing the victim of the economic and financial situation, which tends not to match the reality of the facts.
Most of the time, even in the appeal phase, creditors are successful in demonstrating how far-fetched the points raised are, and the full right they actually hold. However, exceptionally, some judicial decisions, owing to confusion or ignorance of the topics – which are actually not simple to understand –, end up granting any of the various claims of predatory litigants. In recovery cases, there is an even more intense challenge, as the judge does not even make a value judgment depending on the discussion.
If such bad faith lawsuits manage to delay recoverability or if they have one of several requests granted, this new type of predatory litigation achieves its unfortunate purpose, which is nothing more than a legal adventure that tries to use judicial means as if throwing a bait.
The undue attempt to reduce the charges or else the recovery processes, by way of example, are not free of risks or costs. What is observed, in practice, are parties being surprised with collections for paying loss of suit fees, fines for malicious litigation, and other court costs.
Not infrequently, one is faced with the situation of debtors who, in addition to debt, owe high amounts of expenses arising from additional proceedings, filed by themselves, without any grounds supporting the requests. In the same vein, debtors, after the court-supervised reorganization petition, start worrying about the lack of credit and business partners, due to the – justified – lack of appetite of those which once contracted with them.
The success of these demands, in contrast, serves as a stimulus for other ill-intentioned parties, as well as propaganda for lawyering that intends to make this adventure a very profitable business.
Needless to say, the criticism is not meant to generalize or to be exhaustive: serious lawyers who act in the best interest of their clients, aiming to combat any real contractual abuses (which are not discarded and are not taken for granted); the aid to a serious restructuring of liability or bona fide entrepreneurs in real difficulty, or the processes, defenses, and appeals reasonably filed. There are renowned panels in the country in this segment precisely intended to accomplish earnest and reasonable work in the negotiations in which they participate.
Although the intention is not to call this practice “predatory litigation” or to find a more appropriate nomenclature, the core is the same. We are facing a market that uses law and consequent judicial decisions to legitimize illegitimate claims.
In the same way that CNJ encourages measures aimed at curbing mass predatory litigation, or the creation by the “Intelligence Centers” and “Demand Profile Monitoring Centers” of State Courts of a strong network of information disclosed through technical notes, it seems healthy to turn attention to abusive practices within the scope of high-value credits, in view of the relevance and impact on the market.
The argument that punishing such actions or establishing preventive measures will harm the rights of those who have been harmed and inhibit ethical professionals does not seem reasonable. The right and the wrong sides are crystal clear. The provision in the legal system for ordering a fine in cases of malicious litigation is a victory that has repercussions on the system as a whole, but does not remove the need to understand the above practice and the disguised intentions. Authorities heedful of this new conduct undoubtedly leave less room for such a regrettable exercise to succeed.
Authors:
EVA BEATRIZ BLASCO XAVIER
Holds a Graduate Degree in Legal Operations from the Pontifical Catholic University of Paraná, and a Graduate Specialization in Management and Business Law from Fundação Getulio Vargas. Managing Partner of Ernesto Borges Advogados law firm, performing in the areas of civil litigation, large-scale consumerism, and banking law.
MARCUS VINÍCIUS RAMON SOARES DE MELLO
Master in Commercial Law from the Pontifical Catholic University of São Paulo. Lawyer in São Paulo, in the areas of court-supervised reorganization, strategic civil litigation, banking law, and agribusiness.
Autor: Eva Beatriz Blasco Xavier • email: eva.xavier@ernestoborges.com.br • Tel.: +55 67 99239 1111
