Report No. 22635-ME

MexicoThe Juicio Ejecutivo Mercantil in theFederal District Courts of MexicoA Study of the Uses and Users of Justice andtheir Implications for Judicial ReformJune 22, 2002

Poverty Reduction and Economic Management UnitLatin America and the Caribbean

Document of the World Bank

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CURRENCY EQUIVALENTS

FISCAL YEAR

ACRONYMS AND ABBREVIATIONS

CAS Country Assistance StrategyCIDE Centro de Investigacion y Docencia Econ6micasJEM Jucio Ejecutivo MercantilLGTOC General Law for Credit Operations and SecuritiesSHCP Secretaria de Hacienda y Cre'dito Publico

Vice President: David de FerrantiCountry Director: Olivier LafourcadeDirector: Emesto MaySector Manager: Ron MyersLead Economist: Marcelo GiugaleTask Manager: Linn Hammergren

THE JUICIO EJECUTIVO MERCANTILIN THE FEDERAL DISTRICT COURTS OF MEXICO

A Study of the Uses and Users of Justice and their Implications for Judicial Reform.

TABLE OF CONTENTS

EXECUTIVE SUMMARY ................................................................................... i

CHAPTER 1: INTRODUCTION ................................................................................... 1

CHAPTER 2: A BRIEF BACKGROUND ON JUDICIAL REFORM AND THE ROLE OF EMPIRICALRESEARCH .................................................................................... 3

2.1 INTRODUCTION ................................................................................... 32.2 NEW APPRECIATIONS OF THE IMPORTANCE OF JUDICIAL PERFORMANCE ........................................................... 32.3 THE ROLE OF EMPIRICAL RESEARCH .................................................................................... 5

CHAPTER 3: OBJECTIVE, THEORETICAL FRAMEWORK, AND METHODOLOGY .............................. 7

3.1 ORIGINSOFTHEPROJECT ................................................................................... 73.2 SPECIFIC OBJECTIVES OF THE RESEARCH .......................... ......................................................... 83.3 THEORETICAL FRAMEWORK ................................................................................... 83.4 RESEARCH HYPOTHESES ................................................................................... 103.5 METHODOLOGY ................................................................................... I I

CHAPTER 4: THE JUICIO EJECUTIVO MERCANTIL IN CONTEXT ........................................................ 13

4.1 INTRODUCTION .......... ......................................................................... 134.2 STRUCTURE AND ORGANIZATION OF THE MEXICAN JUDICIARY ............................................ ........................... 134.3 IMPORTANCE AND ORGANIZATION OF MEXICO CITY'S JUDICIARY .................................. ................................ 144.4 THEJEM IN MEXICO CITY..............................................................................................................15

4.5 CONCLUSIONS ................................................................................... 17

CHAPTER 5: THE JEM IN MEXICO CITY'S COURTS, USERS, USES, AND RESULTS .......................... 19

5.1 INTRODUCTION ................................................................................... 195.2 THE USERS: WHO ARE THE PARTIES? ................................................................................... 1 95.3 WHATARETHEUSES? NATUREANDSIZEOFTHECLAIM ............................................................................... 225.4 THE OUTCOME OF THE JUDICIAL PROCESS: PRO-DEBTOR BIAS? ...................................... ............................... 265.5 CONCLUSIONS .......... ......................................................................... 28

CHAPTER 6: ANALYSIS OF THE EVOLUTION AND OUTCOME OF JEM CASES ................................. 29

6.1 INTRODUCTION ................................................................................... 296.2 LE GAL D ESIGN OF THE JEM ................................................................................... 296.3 STATISTICAL ANALYSIS OF THE DIFFERENT PATHS AND DESTINATIONS ..................... ..................................... 336.4 THE MAIN QUESTIONS RESULTING FROM THE JEM PATH ANALYSIS ............................................................... 38

CHAPTER 7: LENGTH OF THE JEM PROCEEDINGS ................................................................................... 39

7.1 INTRODUCTION ................................................................................... 397.2 DURATION OF THE STAGES OF THE JEM ................................................................................... 397.3 VARIABLES THAT HAVE AN IMPACT ON THE DURATION OF THE PROCEEDINGS ............................................... 427.4 IMPACT OF THE 1996 REFORMS ON JEM LENGTH ................................................................................... 437.5 CONCLUSIONS ................................................................................... 44

CHAPTER 8: HOW DO THE PROCEEDINGS END? FORMAL AND INFORMAL EXITS ...................... 45

8.1 INTRODUCTION ....... ................................................................. 458.2 QUANTITATIVE ANALYSIS OF THE FORMAL AND INFORMAL EXITS IN THE DIFFERENT PROCEDURAL STAGES. 46

8.3 THE ACTORS: MOTIVATIONS, COSTS AND EXTRA-JUDICIAL VARIABLES THAT AFFECT THE OUTCOME OF THE

PROCEEDINGS ....... ................................................................. 478.4 POSSIBLE EXPLANATIONS FOR THE RECURRING USE OF INFORMALEXITS ............................ ........................... 50

8.5 CONCLUSIONS ....... ................................................................. 55

CHAPTER 9: EVALUATION AND RECOMMENDATIONS ........................................................................ 57

9.1 INTRODUCTION ........................................................................ 579.2 EMPIRICAL EVIDENCE ON "WHAT EVERYBODY KNOWS" ........................................................................ 579.3 CRITERIA FOR EVALUATING PROCEDURAL EFFICACY AND EFFICIENCY .................................. ........................ 589.4 GENERAL RECOMMENDATIONS ........................................................................ 619.5 FINAL NOTE ....... ................................................................. 66

REFERENCES ........................................................................ 68

ANNEX ........................................................................ 75

METHODOLOGICAL REPORT ........................................................................ 75

GLOSSARY ........................................................................ 83

ACKNOWLEDGMENTS

The study reported here benefited from the involvement of many individuals and institutions.The research team, including the World Bank Task Manager, Linn Hammergen, and the fourprincipal investigators frorm the Centro de Investigaci6n y Docencia Econ6micas' (CIDE), AnaLaura Magaloni (Project Coordinator), Alfredo Ramirez, Layda Negrete and Rosario Tellez,recognize that without these additional contributions their work would have been impossible.

Within the World Bank, we are especially indebted to the co-Task Manager, Richard Messick,who provided input. and guidance throughout the process, and to Guillermo Perry, ChiefEconomist for LAC, Luis Serven (LCSPE), Olivier Lafourcade, Director of the Mexico,Colombia, and Venezuela Country Management Unit, and Marcelo Giugale, Lead Economist forthe same unit, who authorized the study and provided financing for it. We also thank the twoconcept paper teams (for the regional and Mexican research projects) and the respective peerreviewers, Jacob Gammelgaard, David Varela, Judge Jean-Marc Baissus (French Judiciary 2 ), andErik Jensen (Stanford University).

The study itself began at the initiative of the Secretaria de Hacienda y Credito Publico3 (SHCP).Here particular credit goes to Alejandro Karam, then advisor of the Sub-secretary of Hacienda yCredito Publico, Carlos Noriega. Mr. Karam participated in much of the early design andimplementation and provided an invaluable service in establishing contacts with otherinstitutions.

Juan Luis Gonzalez A.Carranca, President of the Tribunal Superior de Justicia del DistritoFederal,4 agreed to open his courts to the research team, giving access to case files and statistics,judicial officials and a physical space to conduct the work. He also provided us with twoinvaluable collaborators, Judges Griselda Nieblas and Adriana Canales, who coordinated theinternal logistics of the work within the courts and helped in the intellectual development of theproject. The support offered by Lourdes Zamora, Director of the Judicial Archives, was crucialto the success of this work, as she was responsible for most of the file location process. We arealso grateful for the enthusiastic participation of all the judges whose case files were the subjectof this research. It bears mentioning that Mexico's Federal District Courts are the first in thecountry to grant ample and unrestricted access to their case files, thus setting what we hope willbe a precedent for facilitating the efforts of future researchers.

Within CIDE, several other staff members collaborated with their special talents and inputs. Thefocus group exercise was carried out under the supervision of Francisco Abundis. The selectionand training of the data collection team, as well as the recruitment of attorneys for the focusgroups was the responsibility of Reyes Rodriguez. Other individuals participating in some phaseof the process include Victor Sanchez, Issac Arteaga, Gerardo Maldonado, Susan Niederstrasserand Edgar Valle.

'Center fot Econominc Research and Instruction2 Thanks to the International Monetary Fund (IMF), Judge Baissus also participated in the design stage of the projectand contributed advice along the way.3 Secretariat of Finance and Public Credit4 The Federal District's Appellate Court

The process of gathering case file information was conducted by another team of lawyers: JorgeDomenzain, Santiago Pefialosa, Alfie Garcia, Claudia Rios, Sergio Mena Mendoza, Juan CarlosSanches Nnfiez, Miriam Baez Silva, Karina de la Rosa, Miguel Angel Gutierrez, Julio CesarVelasquez and Catalina Martinez. Their painstaking discipline was essential in ensuring anaccurate data base as a foundation for the subsequent analysis.

Finally, the recording of the sample listing and the prototype tests of the survey instrument werecarried out with the support of the Divisi6n de Ciencias Sociales y Humanidades5 at theUniversidad de las Americas6 , under the supervision of Mauricio Alvarez Ledezma, and LorenzoOropeza.

5 College of Social Science and Humanities.6 University of the Americas.

EXECUTIVE SUMMARY

Background: This report summarizes research conducted in Mexico's Federal District courts onthe summary debt collection proceedings (Juicio Ejecutivo Mercantil or JEM). The research hadthree origins: a specific request from Mexico's Secretaria de Hacienda y Credito Publico(SHCP) for a study on the judiciary's impact on contract enforcement, the World Bank CountryManagement Unit's assistance strategy with its emphasis on supporting improved governanceand an enabling environment for private sector development, and the Bank's on-goinginvolvement in research on the users and uses of justice.

The SHCP's request in turn drew on Mexican concerns about the decreasing availability of creditand a tendency to seek the explanation in the judiciary's inefficient and ineffective handling ofdebt collection cases. Mexican banks have been especially vocal on this point and havesponsored some of their own investigations on the subject. Apart from the World Bank'sobvious interest in helping identify and eliminate impediments to economic growth, there was anadditional motivation for its involvement - - that of improving knowledge of judicial operationsas a means to designing better judicial reform programs. Along with other participants injudicial reform efforts, the Bank has come to realize that many of these are based on incompleteand often inaccurate understandings of actual judicial performance. Substantial theoreticalliterature, some analyses of aggregate data, as well as academic research and popular criticismson judicial problems all suggest a critical role for the judiciary in encouraging equitable, marketbased economic growth. However, as their identification of operative linkages is speculative atbest, efforts to enhance the courts' contribution still rely excessively on intuition, conventionalwisdom, and untested hypotheses. Although the present study could not resolve this larger issue,it takes a first step by providing empirical information on what the judiciary actually does andrevealing that its economic and social impacts may be somewhat different than those posited.

Focus, Theoretical Framework, and Methodology: Pursuant to the more detailed requestfrom the SHCP and the inherent limitations of time and resources, the study took a smaller sliceof judicial reality, limiting its scope to the single proceedings as seen by the civil and justice ofthe peace courts in the Federal District (Mexico City) during 1997 and 1998. Given theeconomic, political, and social importance of that district (the largest of Mexico's 32 local leveljudiciaries), and the numerical importance of the JEM cases (roughly 30 and 80 percent of totalcivil caseload in the respective courts), this narrow focus still provided a good view both ofoverall court operations (albeit at the upper end of Mexico's local court systems) and of potentialimpacts on "contract enforcement." Because cases were tracked through their entire trajectory,including any appeals to the Federal court system,7 it also allowed a review of the role of bothfederal and local courts and of the somewhat controversial interactions of the two levels.

The on-going debate about court performance and the JEM in particular supplied the basicworking hypotheses for the study. These were a series of statements, drawn from conventionalwisdom, as to how the courts operated and with what results. In brief, they are as follows:

7 Through use of the writ of amparo (a means of protesting alleged violations of constitutionally guaranteed rights),the Federal Judiciary is theoretically able to review any local court decision as well as interpret local laws. Amparoreviews are the major work of the federal courts (roughly 90 percent of their caseload). and a major portion of themdeal with local court decisions. A successful amparo enjoins the protested action; in the case of lower courtdecisions it may reverse the initial ruling or call for a retrial.

* Large users and large sums of money -- most JEM cases involve financially importantparties litigating considerable amounts of money.

* Delays are exaggerated because of tactics used by the debtors.* The judges themselves add to the delays.* Judicial delay is also a consequence of an excessive workload.* Every decision is appealed.* Everything reaches the Federal Courts through a request for amparo.* The JEM proceedings favor debtors as a consequence of biases in the procedural norms

and the judges' own attitudes.* Once the trial starts there is no room for negotiation.* The more judgments and the less delay, the better the justice.

The first objective of the research was thus to test real outcomes against those predicted byMexican experts and other commentators. Analysis was based on data drawn from a randomsample of 464 case files; in the end two samples were used, one of all cases filed in 1997 and1998,8 and a second of cases reaching judgment in 1997. The second sample was added when apilot effort revealed the high percentage of "abandoned" cases, or those which never reached anyofficial resolution. Where outcomes deviated from predictions, the task was to explain thesedeviations, using an analysis of actors' incentives, motivations, and. resources as shaped by theformal and informal procedural rules. This more speculative part of the research drew on neo-institutional and behavioral law and economics for its theoretical framework and a more eclectictype of data -- observation, legal analysis, unstructured informant interviews, and focus groups.The approach and methodologies are similar to those used in earlier Bank studies (DominicanRepublic and Argentina), and while the data sets are not directly comparable, the interpretationof the Mexican findings also benefited from contrasts with this other work.

Findings on Users, Uses, and Outcomes: In line with the working hypotheses, analysis firstfocused on the identity of the parties (individuals or firms, with the latter divided into banks andother organizations), the, sums at stake, and the content of the judgment (pro-plaintiff ordefendant). The profile of users and size of claims did not coincide with conventional beliefs;amounts at stake were small to medium, and while firms constituted slightly more than half (58percent) of the plaintiffs, most defendants (84 percent) were individuals. Banks representedroughly one quarter of the plaintiffs in civil, courts and only 4 percent in justice of the peacecourts, but as regards initiated cases, most of their actions were against individuals. Therelationship changed for decided cases, where banks were still not majority users, but more ofthe defendants in their suits (46 percent) were firms. Nonetheless, the overall picture is not oneof disputes between major economic actors, but rather lesser debts probably incurred forconsumption or small investments.

A pro-debtor bias in the outcomes was also not evident. Nearly 90 percent of the initialjudgments were in favor of the plaintiff (creditor) and the percentage rose after any appeals.This still leaves room for a pro-debtor bias in the procedures themselves, as so many of them (81percent) never reached judgment. That issue is analyzed in a later section. One other interesting

8 Both samples were themselves stratified by the two types of courts, civil and justice of the peace.

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finding, unanticipated9 in Mexican discussions of the proceedings, was the difference in profilesbetween civil and justice of the peace courts. In the former, firm vs. firm conflicts were moreprevalent (21 as opposed to 12 percent), while banks almost disappeared as users in the latter.However, even in the civil courts, the claims tended to be small, with most clustering toward thelower end of the spectrum (45 percent between US $3,000 and US $8,000). One furtherinference (based on the preponderance of individual to individual disputes) is a greater relianceon relational and informal credit in the peace courts, a phenomenon which in light of complaintsabout potential abuses deserves further investigation in its own right.10

Evolution and Duration of Proceedings: A simple path analysis of the trajectories of the casesrevealed a number of factors completely ignored by conventional depictions. The first of thesewas the high rate of cases never reaching judgment, and the second the enormous number (60percent) which never get beyond the first step, the filing of the complaint. A third finding wasthat of those reaching judgment, only a very small number go through the formal executionprocess, and that for most of the rest there is no record of whether the amount awarded wasactually paid. Because we cannot assume that cases the outcome of which is not recorded in thecase files have simply disappeared, additional work (reported below) focused on the out-of-courtactivities of the parties. Finally, appeals and amparos were less frequent than anticipated,although arguably still too usual for the type of conflict involved.

The path analysis also revealed that delays were far less than depicted (a median of 223 days fortime to judgment as opposed to the three years estimated by the experts), and in comparison withthe few other Latin American and European countries for which statistics could be found, hardlythe worst case. Where they did occur, the two "usual suspects," judges and belligerentdefendants were less obviously responsible. In a majority of cases, defendants do not evenparticipate, although when they do, they can create delays by obstructing the seizure orattachment of assets, or filing motions and appeals. However, many of these delay-causingevents were not that frequent, and some (like interlocutory motions, or incidentes) were notsignificantly related to duration. Other major delays appear to originate with the plaintiff'slawyer (possibly as a consequence of out-of-court negotiations with the defendant, butconceivably for other reasons) or with another court official, the bailiff. The bailiff operates asan unsupervised free agent, and seems to rely mainly on informal fees paid for serving notice andmanaging the embargo (seizure or attachment) of assets. Two further findings were that theformal execution process, when actually attempted, took far longer than the "trial" itself, and thatcertain procedural steps (embargo, exhorto,"1 and the entire execution stage) seemed to createbottlenecks (the steps where most abandonment occurred) or delays. Finally, reforms introducedin 1996 to accelerate the proceedings had no noticeable impact on delay. While the reformsmight have been better targeted (to some of the bottlenecks mentioned above), recent European

9 This, like several other "unanticipated" findings, is not in itself surprising. The surprising part is that it had beenlargely ignored in Mexican discussions and proposals for reform.'° One additional problem here for both formal and informal credit'is the interest charged which may raise the realstakes considerably. However, this only changes the use profile as regards secondary objectives and strategies, notthe nature of the initial debt." This involves the request from the presiding judge to a judge in another district (at the peace court level, this maybe another judge within the Federal District) to carry out some necessary action (a summons, embargo, or the callingof a witness).

experience also suggests that the classic summary proceedings may simply not lend itself -tomuch further shortening. Drastic reductions in delay may require more radical changes.

Explaining Informal Exits (Abandonment): Perhaps the most important unanticipated findingfrom the study was the high rate of "abandonment." We have retitled this an "informal exit" todenote uncertainty as to what it really means. Because case file data do not indicate whathappens out of court, the research here relied on interviews and focus groups, and theconclusions offered are thus very tentative. We can be fairly confident about having identifiedthe scope of possible outcomes and the strategies and motives behind them; we have no way ofknowing their relative importance in accounting for informal exits. A certain number of informalexits (the optimum scenario) represent successful out of court negotiations by the parties (mostprobably at the filing of the complaint, at the time of or after the embargo, or after the judgment)or the plaintiff's lesser interest in recuperating the claim (filing to declare a tax loss or to place amarker for future action). Others are explained by the impossibility of recuperating the debt (aninsolvent debtor or problems in identifying assets to embargo). A third set may be explained bydisloyal "agents" (the bailiff who does not effect the embargo or the creditor's attorney who"loses interest" in the case). Although a high rate of informal exits does not necessarily denotean inefficient system (extra-judicial settlements are common in many countries, and in fact whatmakes the system work), we suspect this is not the case in Mexico. However, many of theimpediments (debtor insolvency, poor judgment by the creditor in making loans, unscrupulousprivate attorneys, and problems in identifying assets) are extra-judicial in origin. Others (thebailiff, the complications added by the exhorto and the execution proceedings) are judicial, andsome delays and bottlenecks could be reduced if the judge took a more active role in pushing theproceedings ahead and if certain changes were made in the legal and organizational framework.

Conclusions and Recommendations: The first conclusion is that "what everyone knows" aboutthe JEM and judicial operations in general is highly inaccurate. The research did identifyproblems, but they were not those depicted by conventional wisdom. In evaluating the efficacyof the JEM, more attention should be addressed to its role in encouraging extra-judicialnegotiation and to the impact of exogenous factors on its success. What might look like signs ofefficacy, the high proportion of judgments in favor of the plaintiff or their upholding on appeal,or conversely, of failure, (the less than 20 percent of the cases reaching judgment, the few caseswhich go to formal execution) must thus be interpreted in a different light. The system as itoperates is clearly sending the wrong messages to the users - encouraging those who can affordto do so to contest the virtually foregone conclusions, and so wasting time and resources on surethings. However, the exogenous factors also play a role here. While the study does raise doubtsabout the JEM's impact on the availability of credit, it also suggests that problems with creditpractices (as well as economic crises) have affected the JEM's own efficacy. The courts can dolittle about an insolvent debtor or one who can successfully hide his assets because of other legalprotections.

The resulting recommendations thus touch both the courts and the external variables. Some arespecific to the JEM itself; others can be extrapolated to overall organizational improvements. Itshould be stressed that given the study's limited geographic focus, its findings are suggestive of,but hardly can be taken as the final word on the situation elsewhere in Mexico or in LatinAmerica as a whole:

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1. Commercial Justice* Resolve the issues regarding the bailiffs by introducing better supervision, higher formal

salaries, greater professionalization, and measures to induce the public not to continue theinformal payments.

* Make the execution proceedings more credible so that they constitute an effectivedisincentive to defendants attempting to avoid payment of judgments.

* Simplify the process, attack the bottlenecks, and possibly introduce small claimsproceedings or courts to take care of the mass of plaintiffs attempting to recuperate smalldebts.

* Reconsider the nature of due process guarantees in commercial (and possibly other civil)proceedings.

* Find ways to encourage judges to take a more proactive role so that they may reduce theuse of dilatory tactics.

* Introduce filters for the appeals (and amparo) process, as even the lower than expectedrates of use appear excessive for a summary proceedings.

2. Court Administration* Use real not nominal workloads to evaluate judges' performance and the distribution of

resources.* Improve the system of judicial statistics to support the above.* Make judicial statistics and other information more easily available to the public and

involve citizens in the discussion of proposed reforms

3. Exogenous Factors* Improve the information base supporting credit operations (e.g. credit histories of

individuals and firms, reformns to the Real Property Registry, registries of movablecollateral)

* Address the problems related to the quality, professionalism, and honesty of the private bar.

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CHAPTER 1: INTRODUCTION

The present work reports the findings of research conducted in Mexico City's civil courts and theresulting policy recommendations. The study focused on the Juicio Ejecutivo Mercantil (JEM), 12

the most common civil proceeding in that court district. The JEM resolves conflicts betweencreditors and debtors; its aim is to secure payment of claims arising from the presentation of atitulo ejecutivo,l3 a document (promissory note, check, other types of contract, etc.) establishingthe existence of a liquid debt and the right to demand payment. The study's objective was todetermine the efficacy of the JEM (whether it fulfills its principal purpose); to develop a profileof its principal users (plaintiffs and defendants), uses (nature, size of debts, and possible ancillaryaims); and outcomes, and to identify aspects of the proceedings themselves, related judicialpractices, or users' strategies and tactics which might impede their efficiency. The coremethodology was the analysis of a random sample of case files; this was complemented by astudy of aggregate court statistics, two focus groups with litigating attorneys, and interviews withjudicial officials and other lawyers. 14

The structure of the report is as follows:

Chapter 2 contains a brief summary of current debates about judicial reform and their political,theoretical, and empirical foundations. It locates the current study in a larger body of researchaiming at improving reform design by increasing understanding of the judiciary's realperformance and relevance to larger developmental goals.

Chapter 3 discusses the objectives, theoretical framework, and methodology of the present study.It is complemented by an annex on the sample design and statistical techniques.

Chapter 4 gives a brief overview of the Mexican judicial system and the place of the FederalDistrict courts within it. Its analysis of aggregate statistics on court workloads for the pastdecade show that civil filings represent the majority of cases seen by the Mexico City courts,with JEM proceedings accounting for approximately 40 percent.

Starting with Chapter 5, the most important findings of this research are reported. Chapter 5analyzes the users of the commercial justice: who they are, what they claim, and how they fare.The evidence refutes some of the working hypotheses drawn from conventional wisdom aboutthis and other court proceedings. As contrasted with "what everyone knows," the principalparties to the proceedings are individuals, the claimed amounts are relatively small and in 90percent of the cases where a judgment is delivered, it is in favor of the plaintiff.

Chapters 6, 7 and 8 report findings regarding the trajectory of JEM cases. The analysis uses adynamic perspective, i.e. assuming that cases move along different paths and reach diverseoutcomes. Not every lawsuit reaches a judgment, nor is every judgment executed by means ofpublic auction of seized assets. The parties, at every step of the process, retain the option of

12 These proceedings, found in many civil code countries, are often called summary proceedings for debt collection.See Blankenburg (2000 a and b) and articles in Zuckerman (1999) for a discussion of their uses in Europe.13 As with many of the other Spanish terms used here, there is no adequate English translation. We will thus eitheruse the Spanish or refer to this as a title of credit.14 Chapter III and the Methodological Annex provide details.

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exiting the judicial machinery, either via an explicit judicial ruling (formal exit), or byabandoning further action (informal exit).

Chapter 6 analyzes the diverse paths followed by the cases. It begins with a brief description ofthe legal design of the JEM proceedings. Based on a flowchart of the legal process, it reports thepercentage of cases actually arriving at each stage of the proceedings. The resulting snapshot ofwhat is happening inside the commercial trials provides answers to several preliminaryquestions: Which are the procedural bottlenecks? Which are the most frequent trajectories?Where do most cases end? How many cases exit the judicial machinery prior to a judgment?How many continue through the formal execution process?

This preliminary snapshot and analysis raise two further questions: 1) How long does it take thecases to proceed from one step to the next -- i.e. what is the pace at which matters move insidethe judicial machinery? And, 2) why do cases "exit" the formal proceedings prior to ajudgmrent?' 5 Chapters 7 and 8 analyze these questions separately.

Chapter 7 analyzes the elapsed time of the different stages of the proceedings and identifiesvariables with a significant statistical impact on delay. It compares the empirical evidence withcommon affirmations that the JEM is remarkably slow due, mainly, to the excessive litigiousnessof the debtor or the inefficiency of the judge and again finds conventional wisdom in error.

Chapter 8 focuses on the formal and the informal exits which may occur at any point in theprocess and explores the factors which might explain such behavior. The analysis here isspeculative; because most trials are abandoned in an informal manner, there is no information inthe files on the real outcome of the conflicts. (Did the creditor recover its claim or not?) Tounderstand the parties' decision to remain or exit the judicial machinery, we define the incentivesof each of the relevant actors: plaintiff, defendant, plaintiff's counsel, defendant's counsel, judgeand bailiff. In developing this incentive framework, we rely on qualitative data from informalinterviews and the use of focus groups. The principal aim is to provide some possibleexplanations for the recurring use of "informal exits" and thus to reveal what may actually behappening in the extra-judicial arena and what it tells us about the efficacy of commercial justicein Mexico City.

The last chapter offers a general evaluation of the JEM, some conclusions regarding the mostimportant issues posed by the commercial justice system, and a series of policyrecommendations to cope with them.

15 This last question derived from the unexpected, but extremely important finding that most JEM cases areabandoned before a judgment is delivered, and that a high percentage of such desertions occur after the initialcomplaint and prior to the attachment of assets.

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CHAPTER 2: A BRIEF BACKGROUND ON JUDICIAL REFORM AND THE ROLEOF EMPIRICAL RESEARCH

2.1 INTRODUCTION

The present study is a part of an emerging body of research currently being undertaken in severalLatin American countries. All of this work aims at increasing understanding of existing patternsof demand for and supply of court services and analyzing their interactive influence on judicialperformance and downstream impacts.16 As further elaborated below, these efforts respond to aseries of related developments: recent theoretical contributions highlighting the judiciary'simpact on a wide variety of extra-judicial activities and transactions, increasing public andacademic criticisms of judicial performance, and the experience of several decades of judicialreform efforts. While the first two elements have shaped the reforms, there has been someconcern that they provide an insufficient basis for designing strategies and targeting structuresand practices to leverage the desired improvements. Hence, if somewhat belatedly, thoseinterested in promoting reforms are recognizing their need for a better empirical base so as toensure they attack the most important real problems in the most effective manner.

2.2 NEW APPRECIATIONS OF THE IMPORTANCE OF JUDICIAL PERFORMANCE.

Over the past few decades, there has been increasing attention to the role of the judiciary and itsimpact on social, political, and economic development. The interest is not limited to LatinAmerica, but is truly world-wide. Through its traditional functions of conflict resolution and ruleenforcement, this once orphan branch of government is now credited with a variety ofcontributions to such public projects as the creation and strengthening of market economies, theattraction of foreign and domestic investment, efforts to reduce poverty and spread the benefitsof economic growth, the enhancement of citizen security, the reduction of crime and civilviolence, the advancement of traditionally marginalized populations, the furtherance of stable,democratic governments, and the legitimization of other political institutions. Needless to say,the contributions to date are not viewed as entirely positive, and the increased attention to thejudiciary's potential role has been accompanied by growing criticisms of its real performance.Judicial practices which once counted as minor irritations, folkloric traditions, or idiosyncratictics are now interpreted as major threats to societal well being. The wages of heightenedvisibility are, for better or worse, an escalating demand for institutional change, and one wherethe judiciary will find itself subject to more external examination and suggestions as to whatought to be done.

16Some of these efforts, including the present study, have been financed by the World Bank. See Garavano (2000)and Pastor and Vargas (2000a and b). Chile's Universidad Diego Portales (Vargas et als. 1998 and 2001), and anumber of Colombian entities, most notably the Corporaci6n Excelencia en la Justicia (2000) and the Universidadde los Andes (Fuentes and Amaya, 2001) have undertaken their own research with independent funding.Boaventura de Souza Santos, a Portuguese academic also affiliated with the University of Wisconsin- Madison,collaborated with los Andes in another set of studies, building on prior work in Brazil and Portugal. See LeitaoMarques, Gomes, and Pedroso (1999) for results of the de Souza Santos work in Portugal, and Garcia et als (1996)for one of the Colombian studies. This work builds on, but is somewhat different from a series of earlier effortsfocused on measuring delay, largely because of the new emphasis on disaggregating the case load and using a seriesof case-specific and procedural variables to explain not only delay but also outcome. For examples of the earlierwork see, Gregorio (1995 and 1996), Buscaglia and Ulen (1996) and Dakolias (1999).

3

The initial interest often focused on criminal justice, the protection of human rights, and thecourts' place in controlling state abuses, crime, and civil violence. Attention has more recentl%yshifted to the role of civil courts in helping to establish the foundations for equitable andsustainable market-based growth. There is a vast theoretical literature underlying this shift.Much of it draws on neo-institutional economics and its emphasis on the formal and informalrules shaping economic transactions. The neo-institutionalists' 7 have stressed the importance ofproperty rights, enforceable contracts, and a predictable conflict resolution mechanism inencouraging entrepreneurs to make investments and to expand their network of transactionsbeyond a small circle of known acquaintances. The courts are not the only relevantinstitutions,'8 but they clearly play a critical part in all three areas. Off-shoots of this macro-theoretical approach have focused on the specific contributions of certain legal elements - therole of secured credit, 9 bankruptcy law, 20 or laws defining corporate governance structures andresponsibilities to share holders. l Empirical investigation of these relationships is far lessdeveloped. There are several quantitative studies attempting to relate overall judicialperformance to levels of investment and economic growth,2 2 and a body of case studies trackingthe effects of certain legal innovations. There is very little which tests the impact of the nownearly standard array of measures included in most reform projects (for example, mechanisms toreduce delay, encourage pre-trial- settlement, restrict or broaden appeal rights, enhanceprofessional development, simplify procedures, or increase or reduce court specialization2 3).

The new interest has inspired a second body of academic studies as well as purely popularcriticisms focusing on the problematic aspects of judicial performance. Here the academicemphasis is less on demonstrating downstream impacts, than on identifying and explainingapparent dysfunctions, as defined by user complaints and an implicit model of how things oughtto be. Much like the popular critique, it deals with themes like the courts' alleged failure to keepup with growing demand and the consequently excessive delays in deciding cases, theinaccessibility of justice because of costs or other obstacles, the various ingrained biases in

17 Douglass North (1990), the acclaimed father of the movement is one of the best sources on this approach.However, while North's presentation may be the most elegant and explicit, the emphasis on structural, cultural, andinterest-based explanations for court and legal behavior has been a part of the Law and Development, Law andSociety, Critical Legal Theory, and Law and Economics schools for years. See Blankenburg (1994); Burki andPerry (1998), Correa et als (1999), Daniels et als (1995), Feeley (1983), Frydman et al (1996), Galanter (1974 and1998), Grossman et als (1982), Hendley et als (1999), Jacob (1984); Komesar (1994), Pistor (1995), Shavell (1997),Stone et als (1996).18 There is also a growing literature on informal institutions, which even in countries with well -developedjudiciaries may still play a major role in reducing transaction costs. Where judiciaries are less developed, informalinstitutions may compensate for judicial weaknesses. Theorists disagree as to how effective this compensation isand the ideal balance between the formal public sector and the formal or informal private institutions. See Castelar(1999), Stone et als. (1996).19 For discussions of the literature, see Siebrasse (1997) and Walsh (1997).20 Carruthers and Halliday (1998), Gray and Hendley (1997), Gitlin and Watkins (2000), Averch (2000), Ramasastryet als (2000), Felsenthal (2000), Frome (2000, Kryshtalowych and Greig (2000), and Chen and MacLennan (2000).21 Pistor (1995) and articles in Frydman et als (1996)22 See for example, Sherwood et als.(1994), Laporta (1998), Kaufman, Kray, and Zoido-Lobaton (1999).23 Recent studies have reviewed the impact of some of these mechanisms in the United States. The results are notentirely encouraging for reformers proposing to adopt them in other countries. See Rand (1996), Hensler (1994).More impressionistic studies (see Leubsdorf, 1999, pp. 53-67 and other articles in Zuckerman) also cast doubt on theassumed results of certain common reform measures. As these studies also stress, many of these reforms wereadopted absent a good understanding of the situation they proposed to alter.

4

judicial decisions, corruption and political intervention, the use of the courts to obstruct the fairresolution of conflicts, the outdated legal framework and the judiciary's own inability to updateits decisional criteria to meet the needs of a modem or modernizing, globalized society, theinsufficient availability of alternative dispute resolution mechanisms, and the inadequacies oftraditional forms of judicial governance and administration. Academic contributions to thisdiscussion are often no less impressionistic than popular complaints, although there have been ascattering of attempts24 to use more rigorous empirical methodologies.

The convergence of these two trends - the theoretical arguments as to the courts' role and theacademic and popular criticisms of their traditional performance - have given rise to any numberof reform proposals. In Mexico and the rest of Latin America, the past decade has seen a numberof significant legal changes as well as a vast investment in court modernization.2 5 The usualrecipe is to combine the adoption of modem technologies, aimed at increasing efficiency, withstructural and legal changes aimed at augmenting the judiciary's professionalization and politicalindependence. Complementary measures include increased budgets, the addition of more judgesand courts, and the updating of the procedural and substantive law on which judicial practice anddecisions are based. Given the relative neglect of judicial modernization as compared to that ofthe rest of the public sector, most of these changes were long overdue. At the very least, theyshould prepare the courts to respond to new demands for improved or different kinds ofperformance. However, doubts remain as to their real impact on the wider ills, whether in termsof internal behavior or external impacts, they were supposed to resolve. For the most part, thecurrent modernization and reform programs are aimed at helping the judiciary to do what it hasalways done in a more efficient and effective fashion. This begs the question of whether what ithas always done is what is really needed, 26 and more importantly of the extent to which anyone,reformers included, has an accurate notion of what the courts do, how they do it, and how itmight possibly affect the broader public and society.

2.3 THE ROLE OF EMPIRICAL RESEARCH

There is nothing unique about Latin America's tendency to build reforms on less than certainknowledge either of the problems or their causes and on a sometimes blind faith in the nowstandard solutions. In presenting its final report, the Australian commission charged withreviewing the performance of that nation's Federal Courts marveled at how judicial reformproposals had been forwarded, and occasionally adopted based on the barest, and often

27completely inaccurate understanding of the problems apparently being addressed. Nearlytwenty years before, a US researcher anticipated this observation by noting that what everyoneknows about court performance, and thus the basis for proposed reforms, is often largely in

24Most of these are concerned with court congestion and delay. See for example, Australian Commission, RAND(1996), McKie and Reed (1979); Neubauer et als (1981), Twohig et als (1998). However, uses and outcomes(especially those biased toward certain users) are also addresed here and in more specific works. See Genn (1999),and Grossman et als. (1982). There have also been studies of historical shifts in use patterns. See Khan (1997),Wollschlager (1997 and 1990).25 See Carbonell (n.d.), Concha and Caballero (2001), Cossfo (1998 and 1996), Fernandez et als\(1997), L6pez andFix-Fierro (2000), Beatriz Magaloni (1994), Zepeda (1995) for discussions of some recent changes in Mexico.Correa (2000) provides a brief overview of trends throughout Latin America as well as some skeptical observationsof their benefits for the poor majority.26 For a discussion of this point, see Vargas et als. (1998 and 2001).27 Australian Commission (2000).

5

28.error. 8 As he observed, even judges and lawyers, tend to generalize on the basis of the mostdramatic, and thereby hardly most representative cases; the basis for public understanding isnaturally still further skewed. Recent findings on the U.S. civil justice reforms of the 1990s andon the results of widespread adoption of alternative dispute resolutions mechanisms2 9 suggest notonly that the consequences have been far less than promised, but that the problems addressedmay have been inadequately understood from the start. The litigation explosion turns out to beless explosive than depicted and many of the abuses presumed to accompany it, less widespreadthan imagined.

This is not to suggest that courts are not in need of reform, but only that a reform based on aninaccurate picture of the real situation may well create new problems by attempting to resolveminor or nonexistent ones. If this is the situation of countries with a far greater wealth ofexisting, if not thoroughly analyzed information on court performance, then that of less favorablyendowed countries embarking on extensive judicial reforms can readily be imagined. Toundertake a reform in these circumstances has been likened to mounting a public health programwithout hard data on such basics as mortality rates, incidence and distribution of diseases,popular practices and beliefs which may affect health status, and the efficacy of services alreadyprovided. Although the development of judicial statistics systems has begun to fill a part of thevoid, it is most appropriate for tracking changes in production and productivity, but not foridentifying areas where the content and distribution of services may be less than optimal. Andironically, while these systems are an excellent means of measuring improvements in servicelevels, they are not much help in determining how those improvements can be achieved. Theconclusions are obvious: if only to increase the efficiency of current operations, but moreimportantly, to ensure that those operations advance social values and the public good, we needto examine their content, trajectory, and outcome. Intuition, casual observation, and anecdoteswill no longer suffice. Instead, what is required is a systematic review of the evidence found inthe cases themselves.

28 Kritzer (1983), p. 30. See also Kritzer (2000), Galanter (1998), Daniels and Martin (1995) for discussions of thisphenomenon.29 RAND (1996) and Hensler (1996).

6

CHAPTER 3: OBJECTIVE, THEORETICAL FRAMEWORK, AND METHODOLOGY

3.1 ORIGINS OF THE PROJECT

The present research began as a request from Mexico's Secretaria de Hacienda y CreditoPtublico3 0 (SHCP) to evaluate the judiciary's impact on contract execution and its relevance forthe development of a market economy.3 While the World Bank had no judicial project inMexico, the topic coincided with two of the principal objectives of its Country AssistanceStrategy (CAS): removing obstacles to sustainable growth (and especially private sectordevelopment) and supporting the creation of more effective public governance (with thejudiciary one of the three targeted areas).32 The research would also allow the Bank to explore,in collaboration with its Mexican partners, the potential for further work in the sector andprovide all parties with a better understanding of the objective need and possible benefits.Finally, the request arrived just as a Bank research team was selecting a second country for aregional study on the users and uses of justice. Although the SHCP had initially envisionedanother approach,3 3 it was concluded that the regional methodology was more appropriate forexploring the issues raised.

Because of the sparse empirical information on court activity nationwide, and the incipientquality of research on the subject,3 4 the scope of the resulting study had to be narrowedconsiderably. It was decided to analyze only one proceedings, the Juicio Ejecutivo Mercantil(JEM), within one court district (the Federal District of Mexico City). As discussed below(Chapter IV), the Federal District courts comprise the most economically and politicallyimportant local court system in that country. However, they also are among the most developedof Mexican local judiciaries, and thus cannot be taken as representative of the full range ofperformance of Mexico's local courts. They must be considered at the upper end of that range,and this fact should be taken into account in interpreting the study's findings and conclusions.

The targeted proceeding, the JEM, can be seen as more widely representative, as it is common toall local systems and in its general 'outlines is regulated by federal, not local legislation. TheJEM is utilized to collect outstanding debts substantiated by a titulo ejecutivo.3 5 While allowing

30 Secretariat of Finance and Public Credit.31 Some financial institutions, especially banks, have expressed their concern about the negative impact of judicialperformance on overall economic activity, especially as a consequence of the economic crisis of 1994. They arguethat the lack of an efficient judicial system reduces their capacity to offer credit, which in turn reduces investmentand slows the economy. Hence, this sector has called for reforms to the justice system over the past several years.Among changes enacted are amendments to the Codigo de Comercio (Commercial Code) on May 24, 1996 and thenew law on bankruptcy and insolvency proceedings (2000).32 World Bank (1999), pp. 5-15. Notably, under the subsection on private sector development, a "pending agenda ofpolicy impediments," including contract enforcement, is mentioned (p. 10).3 SHCP had suggested the analysis of a few "typical cases," an approach which has been used elsewhere

(Ledesma,1999; Fuentes and Amaya, 2001), but which provides a more anecdotal treatment. Especially where thereis no basis for determining what is typical, the broader significance of the findings is highly questionable.34 As contrasted with Argentina, Brazil, Colombia and Chile, Mexico has few studies available and all of them havebeen limited to very specific topics. This is partly a result of the restricted access to judicial statistics and othercourt documents. There are some exceptions, see Lopez and Fix-Fierro (1999, 2000); Magaloni and Negrete (n.d.);Zepeda (1995); and Concha and Caballero (2001).35 As explained in Chapter I, this is a document (promissory note, check, or other contract) establishing the presenceof a debt and the holder's right to extract payment.

7

the debtor an opportunity to protest the validity of the title of credit and legal right to payment, itis not intended to be a contentious process and thus should proceed rapidly. Mexican observershave suggested that the JEM has special relevance for economic activity and a direct impact onthe availability of credit.3 6 Moreover, these proceedings constitute a major part of the workloadof Mexico City's civil courts (and are said to hold a comparable role in other state systems).Thus, an in-depth analysis of their performance would both allow us to advance the specificinquiry while simultaneously providing insights on a significant portion of court operations. Forthese reasons it was believed that a study limited to the JEM would nonetheless constitute animportant first approximation to answering the questions which inspired this work.

Beyond these substantive considerations, the study has a complementary purpose: to stimulateempirical research on justice in Mexico and demonstrate its value to those designing judicialreform policies. Thus the specific analysis of a single proceeding is also intended to provokeimitation and to encourage reformers to base their proposals on empirical evidence, decreasingtheir reliance on the traditional doctrinal studies or intuitive appreciations. In the longer term, thegeneration of objective knowledge on judicial operations should reduce the temptation toproduce "therapeutic prescriptions" prior to any diagnosis of the "institutional disease" we wishto eradicate.

3.2 SPECIFIC OBJECTIVES OF THE RESEARCH

The study thus has an ambitious set of objectives which are in no sense limited to the evaluationof the proceedings under discussion. The principal aims are as follows:* Provide an empirically based description of the development of JEM cases.* Analyze the differences in trajectories and outcomes as related to variables characterizing

the initial demand, identity of the parties, amounts at stake, etc.* Use this information to test the validity of a series of working hypotheses based on "what

everyone knows" about the proceedings and about court performance in general.* Identify problems impeding the efficient and effective functioning of the JEM (as

determined by its formal purpose and public expectations) and alternatives for resolvingthem.

* Identify more general (i.e. not process specific) weaknesses in court performance andsuggest ways these might be resolved.

* Further refine the research methodology so that Mexicans and investigators elsewhere cancontinue to apply it and reap benefits not only from their specific findings but also fromcomparisons with a wider body of work.

3.3 THEORETICAL FRAMEWORK

The initial focus defines the judicial process from a dynamic perspective. Legal cases followdifferent paths and reach diverse outcomes. Not all complaints filed receive a judgment, nor areall judgments executed by means of the formally prescribed auction of seized assets. Suchdiverse judicial paths are determined according to the "inputs" of every actor in the process.

36 The empirical validation of these premises had never been thought necessary. Conversely, the results of thepresent study, as discussed below, did not thoroughly support them. As opposed to "what everybody knew", theparties in the JEM were not predominantly large firms and banks, and the sums in litigation tended to be moderate.

8

From the start we realized that the descriptive statistical findings would not explain themselves.It would also be necessary to understand the conduct of the parties and the factors influencing theseries of decisions and actions they each take.

Here the study adopts a neo-institutional framework. The behavior of individual actors is thebasic unit of analysis, and the explanations for that behavior are sought in a series of structuralcharacteristics - the "institutional environment" in which they operate. As is common to thisapproach the following theoretical assumptions guide further analysis:* Actors behave rationally, but theirs is a bounded rationality 37 shaped by a variety of

institutional cues and constraints.* Among the principal institutional elements shaping their actions are the formal and informal

rules, organizational structures, capacities, incentive systems, and the inter-subjectivemental models,38 informing their understandings, valuations, and expectations of events.

* Because actors within the same institutional environment have different interests, resources(including asymmetric access to information), and skills, we can expect to find differentpatterns of responses to an apparently similar behavioral cue. Plaintiffs and defendants donot take the same tact in a legal conflict, but more importantly not every plaintiff (ordefendant) will react identically.

* These differences also affect hierarchical relationships (the principal agent dilemma).Variations in incentives, perspectives, and priorities may cause an agent (actor carrying outa task) to deviate from the specific instructions or wishes of the principal (the actor towhom the agent is accountable).

* Over a period of time, the cumulative impact of these institutional factors on the behaviorof groups of actors creates path dependencies, or standardized sets of responses - thusexplaining, inter alia, why the same law or the same organizational structure may producevery different results in different settings. To alter these results may require modifying afar larger set of institutional variables.

These general guidelines, applied to the judicial setting, provide us with a model in which actorsdefined by functional categories (defendants, plaintiffs, counsel, court officials, etc.) interactwithin a common institutional environment in pursuit of their various ends. Court users are aspecial, nonrepresentative subgroup of the total 3opulation. Their choice and further use of thejudicial forum is both shaped by and shapes the services available and the way they are

37 We owe the concept of bounded rationality to the economist Herbert Simon (1955), who introduced it toemphasize the imperfections in knowledge, skills, and resources available to the individual decision maker. Contraryto the pure rationality model, the real individual confronts a situation of uncertainty and lack of time in which toselect maximizing strategies. Rather than taking advantage of every opportunity to improve outcomes, he reliesheavily on routines, deviating from them only when they begin to produce less satisfactory results. Life is thus lessa series of decisions, than a series of habitual procedures with occasional breaks when habit becomes less practical.Even the breaks with routine involve less than a full search for the best alternative. After years of addiction to therational actor model, analysts of legal behavior are beginning to rediscover and elaborate on these ideas. SeeSunstein (2000) for examples.38 See Garibaldi-Fernandez (1999), p. 256-8. The distinction between subjective and inter-subjective models isrelevant for understanding the conduct of actors operating in an organizational context. The concept is a usefulsubstitute for what is vaguely designated as "culture."39 While the question of how users further shape the services offered is not pursued here, it has attracted the attentionof other researchers (Vargas et als, 2001). Just to mention a few examples, the size of demand and identity ofmajority users is likely to influence the number of courts and judges, may encourage the development of specialized

9

provided. Although conventional understandings of the process do not explicitly use a neo-institutional framework, they do incorporate assumptions about outcomes based on implicitunderstandings of actors' motives, incent-ives, andtactics. Our principal aim has been to test thevalidly of the assumed outcomes by contrasting them with the data drawn from a sample of casefiles. Where the patterns and outcomes deviate from conventional understandings (what"everyone knows" about the proceedings) our additional task is to explain the differences, usingthe neo-institutional framework and the supplementary data provided through interviews,observation, and focus groups. At the explanatory and evaluative levels, this is the mostspeculative part of the exercise, and the study also reaches conclusions as to the additionalresearch needed to test its tentative conclusions.

3.4 RESEARCH HYPOTHESES

In deciding what to look at -- the most important characteristics and impacts of the proceedings -- we have been guided by the educated appreciations of the main critics of commercial justice(legal representatives of financial institutions, entrepreneurs, academics, and to some extentjudges themselves). The opinions of these experts have reached a certain degree of publicacceptance and now constitute the prevailing understanding as to how the process works andwhere its performance falls short. As extracted from written documents, conversations withgovermment officials, and more formal informant interviews, they are the source of the followingworking hypotheses which guided the research design and analysis.* "Large users and large sums of money"-- Most JEM cases involve financially important

parties that litigate considerable amounts of money.* "Delays are exaggerated because of tactics used by the debtors"-- Debtors take advantage

of every legal opportunity to draw out proceedings so as to avoid or put off the obligation topay what is due.

* "The judges themselves add to the delays"-- Judges' failure to respect the legally definedtime limits for their own actions further draws out the proceedings.

* "Judicial delay is also a consequence of an excessive workload"-- Courts are overwhelmedwith lawsuits, which forestalls a prompt and swift justice.

* "Every decision is appealed"-- The contending parties normally appeal any unfavorableresolution, thus raising the cost of commercial justice, both in time and money.

* "Everything reaches the Federal Courts through a request for amparo4 0 "-- Once partieshave exhausted the normal procedural recourses, they proceed to the "exceptional" recourseof claiming a violation of their due process rights.

services as well as changes in or the selective application of the law, and may create judicial biases (because of whocomes to courts and how they shape their complaints and defenses). The judiciary is frequently criticized for itsisolation from society writ large, but this isolation is not total, and observers are beginning to realize that the part ofsociety with which it most frequently comes into contact, may also influence how it organizes its offerings andoutputs.40 The amparo is a means of protesting the violation of constitutionally guaranteed rights, including those of dueprocess in a judicial proceeding. When granted, it enjoins the protested action, or in some cases forces an action nottaken. It lies with federal courts and thus constitutes a second stage for "appealing" state court rulings. It may beused against interlocutory orders (indirect amparos ) or final judgments (direct amparos). The Mexican literature onamparo is enormous; readers wishing more information might start with to Fix-Zamudio (1979). As will bedeveloped further below, our findings on the lesser use of amparo for the JEM probably represent the lower range ofits impact, given that these cases are too straight forward to allow its more creative application. Also currentdiscussions about facilitating amparo's access to the less well off (by providing specialized legal assistance) might

10

* "The JEM proceedings favor debtors"-- This is a consequence of biases in the proceduralnorms design and in the judges' own attitudes.

* "Once the trial starts there is no room for negotiation".- The plaintiff's purpose is afavorable judgment; the defendant's purpose is to win or delay the trial no matter what.Therefore, both parties strive to use all the procedural stages contemplated by the law.

* "The more sentencias4 1 (judgments) and less delay, the better justice"-- The efficacy of theproceedings is best measured by the number of judgments delivered within a reasonableperiod of time without violating any of the due process rights of either party.

Although our search -for these working hypotheses focused on the JEM, it should be noted thatmost of them are generalized to all court operations. Large stakes, lengthy delays, caused by theparties or by the (overworked) judges, and the excessive recourse to appeals and amparos figurein the most frequent criticisms of the entire judicial system. Thus, while the JEM is a specialtype of proceeding (especially for its presumably noncontroversial nature), it still offers a partialview of how the system performs as a whole. In our findings and recommendations, we will thusnote where we believe they are JEM-specific or might be extrapolated more broadly.

3.5 METHODOLOGY

The research utilized four principal sources of information:1 ) Unstructured interviews with court officials and attorneys2) Analysis of aggregate judicial statistics3) Two random samples of JEM case files drawn from the following populations.

a) All JEM cases filed in Mexico City in 1997 and 1998, as a means of determining thegeneral trajectories and the most important variationsb) JEM cases receiving a trial court judgment (sentencia) in 1997, added when apreliminary review indicated the high level of abandoned cases, suggesting that the generalsample would not contain sufficient decided cases to allow generalizations about theirtrajectories up to judgment and during the execution-of-judgment stage.

4) Focus groups with litigators handling large numbers of JEM cases.

To complement the quantitative study, two focus groups were conducted with lawyers of diverseprofiles 2 to provide additional information on events not reflected in the case files.

The methodological details are addressed in the attached annex. It includes information on thesampling and weighting techniques for the case file analysis.

even increase its use for proceedings like the JEM. The real issue is whether amparo, once a means ofcompensating for the actions of unpredictable, incompetent and possibly corrupt local courts, is now itselfinterfering with the development of the efficient and effective resolution of simple conflicts.41 This is another untranslatable term which roughly corresponds to "judgment."42 One group included lawyers specializing in smaller cases for diverse clients; the others were elite lawyers workingwith financial institutions.

12

CHAPTER 4: THE JUICIO EJECUTIVO MERCANTIL IN CONTEXT

4.1 INTRODUCTION

This chapter places the JEM in context. The first section broadly describes the Mexican judicialsystem as a whole and that of the Federal District (Mexico City). The second section usesaggregate statistics to locate the JEM within the universe of court cases filed in the FederalDistrict.

4.2 STRUCTURE AND ORGANIZATION OF THE MEXICAN JUDICIARY

Mexico is a federal republic. It includes one federal and 32 local4 3 court systems (31 states andthe Federal District). The division of responsibilities among the local and federal courts isdetermined by the federal or local nature of the law regulating the conflict and the place wherethe conflict arises. Commercial cases, as discussed below, have a special status in this regard.

The local judiciaries are organized into trial (or first instance) courts, specialized by "materia"(subject matter), and an appellate (Supreme or Superior Court) which is similarly divided intospecialized panels or chambers.44 Some states (and the Federal District) also have another set offirst instance courts, called juzgados de paz, or justice of the peace courts.4 5 Usually, trial or firstinstance courts are responsible for reviewing the facts of the case and reaching a verdict orjudgment based on fact and law. This verdict, as well as certain interlocutory decisions, may bereviewed on appeal by the Superior or Supreme Court of the local district.

The interaction of Mexico's local and federal courts is quite different from that of the typicalfederal model. The federal courts have interpreted the fundamental due process rights guaranteedby the Mexican Constitution so as to give themselves the ability to review most local courtdecisions, as well as to establish criteria to interpret state laws. In essence this creates two stagesfor appealing the decisions of the local trial courts. Certain local judgments may be reviewed bythree different bodies - the local Superior Court, a Federal District Court, and a Federal Circuit

43 While some of our readers objected to the term "local" believing that it connoted municipal courts, we can find nomore apt term, given the inclusions of the states and the Federal District.44 While the design of the local judicatures is similar, there are significant differences in their performance andorganization. Among the 31 states and the Federal District, size, budget, judicial practices and weaknesses varywidely. One indicator is the per capita judicial budget, which ranges from $77 Mx Pesos per year in the state ofCampeche to $16 Mx Pesos in Tamaulipas (Carbonell, p.16) Salaries tell a similar story, ranging from $372,000 MxPesos per year for a first instance judge in the State of Mexico to $53,000 Mx Pesos in Baja California (Carbonell,n.d., p.18).45 While we will use the term "justice of the peace," it is worth noting that in Mexico (as opposed to Great Britain,the US, and many Latin American countries), their judges are lawyers (not lay persons) and to the extent there is ajudicial career, are part of it. In some sense they resemble small claims courts, but here again it would be dangerousto consider them equivalents. They do hear smaller claims, but their procedures are often the same as those of theordinary first instance trial courts. Contemporary proponents of small claims courts usually are advocating not onlycourts which hear "small" cases, but which do so with special, simplified proceedings, pro se representation, andthus a judge trained to work with parties who do not have legal counsel.

13

Court. It is estimated that 90 percent of the Federal caseload consists of amparos and that asignificant portion of the latter involve local court decisions.4 6

4.3 IMPORTANCE AND ORGANIZATION OF MEXICO CITY'S JUDICIARY

The Federal District courts are arguably the most important local judiciary in Mexico. MexicoCity is the country's most important financial and demographic center; the nation's educationaland cultural heart; and the place of residence of a large portion of the federal bureaucracy.Thirty percent of the Mexican population lives in the metropolitan area and most businesses withnationwide operations have their central office there. All this gives a particular significance toMexico City's judiciary as compared to other smaller and less complex states. It also means thatfindings on court operations in the Federal District cannot be automatically extrapolated to othierlocal judiciaries, where different conditions may produce different results.

The Federal District has 191 first instance trial courts. They are organized into four principalspecialized materials: Criminal, Civil, Landlord-Tenant, and Family. Two additional materials,Registries and Insolvency, are now on the verge of disappearing, or, in the case of the latter, havebeen transferred to the Federal Courts.47 There are also 68 justice of the peace courts which hearcivil small claims and criminal misdemeanors. The Superior Court of Justice hears appeals oflower level decisions, and is itself divided into 9 panels for civil matters, 3 for family matters and8 for criminal cases. Each panel has 3 judges. In total there are 60 superior court judges and oneSuperior Court President.

As regards the workloads at the trial court level, the Figure 4-1 displays their evolution over thelast ten years:

Figure 4-1: Number of Civil Filings, Civil and Justice of the Peace Court

160000 ...

140000 - -"..-.&

120000 - -Jh,

100000 .

80000 - -.

60000 _

40000 ,

20000 __-

1989 1990 1991 1993 1994 1995 1996 1997 1998 1999

- CRIMINAL-u-- CIVIL LANDLORD-TENANT :~, FAMILY me BANKRUPTCY|

46 This was the figure that appeared most often in informal conversations. Strictly speaking (if only amparos andnot cases involving the failure to execute amparos are considered), it is too high. However, as Fix-Fierro (1998), p.19 documents, when the two types of cases are considered, it is quite accurate.47 The Registry courts have declined in number from 22 to 2. Absent an ammendment to the judiciary's basic law,they cannot be eliminated entirely, although the historical situation (having to do with disputes over ownership ofapparently abandoned urban property) giving rise to their creation no longer holds. Bankruptcy proceedings weretransferred to the federal jurisdiction with the enactment of the new law on bankruptcy in 2000.

14

As indicated above, over the ten-year period, civil cases represent the highest proportion of casesfiled and also the area with the greatest variations over time. It is worth mentioning that the civilcourts deal with a large variety of conflicts: JEM, ordinary civil matters, foreclosure, ordinarycommercial cases, and "voluntary jurisdiction" cases.48 Via its Judicial Council (Consejo de laJudicatura) the Federal District's Judiciary is able to increase or reduce the total number ofcourts as well as their distribution by material and so respond to changes in the patterns ofdemand. Except for the absolute elimination of types of courts established by law, it can do thiswithout the intervention of the local Assembly, thus operating with a flexibility often not enjoyedby other state or national court systems.

4.4 THE JEM IN MEXICO CITY

The JEM was introduced in 1890 as part of the Federal Code of Commerce. Despite their basis ina federal law, almost all JEM cases initiate before local tribunals; thus they are also regulated bylocal procedural norms.49 This arrangement originates in the federal tribunals' interpretation ofArticle 104 of the Constitution (which establishes the concurrent jurisdiction for commercialmatters) and their decision to delegate to the local judiciaries all JEM cases except those wherethe federation is one of the parties. The result is a paradoxical situation in which a federallycreated proceeding is handled by local courts and further modified by local practice.

In Mexico City, JEM proceedings constitute a significant proportion of total civil filings. For thetrial and peace courts they represent 30 and 80 percent of the workload respectively (See Figure4-2 for trends over the last decade).

Figure 4-2: Juicios Ejecutivo Mercantil as Percentage of total Civil cases(1989-1999)

100%90% 80%-

cr 70%- M~~~~~~~~~~~~~~~~~~ JEM in Justiceme 60% of the Peace0u 50%-0 40% JMiCil

49MxcosSpem orthsdtemndth s o oa poeuallwasspredn h Courts Comec

20%

10% ~ ~ ~ ~ ~~~~1

0% ~ ''

1989 1990 1991 1993 1995 1996 1997 1998

Year

48 The latter are noncontroversial cases which simply require recognition of an action requested by the parties - forexample, designation of heirs.

49Mexico's Supreme Court has determined the use of local procedural law as superseding the Code of Commerceby argui.ng the lack of procedural norms in the latter. (SCJN (Supreme Court), Tercera Sala, Juicio Ejecutivo,Naturaleza Del. Semanario Judicial de la Federaci6n , Quinta Epoca, Tomo LXII, p. 232).

15

Figures 4-3 and 4-4 give the absolute numbers of civil and JEM filings for first instance andjustice of the peace courts during the same period. Several points should be noted in interpretingthese charts:* Because they are controlled by the same federal and local procedural laws, the JEM cases

receive the same treatment in both types of courts.* A JEM's direction to a civil or peace court depends only on the amount of the claim; these

amounts are set by law, but have been raised over time, thus sending more cases to peacecourts.

* Thus, plaintiffs do not have, nor would there currently be much point in having, a choice asto which type of court will hear their case.

* As civil courts receive more cases of ail kinds than do peace courts, the absolute number ofJEM proceedings going to each type of court is more similar than the percentage itrepresents of total caseload. (i.e. in absolute terms, 30 percent of civil cases is not thatdifferent from 80 percent of peace court caseloads.) We still had to weight the sub-sampleswhen combining them, but despite what the charts may appear to indicate, civil courts stillprocess a good percentage of all JEMs.

Figure 4-3 JEM Cases as Percentage of Total Civil Filings, Civil Courts(1989-1999)

160,000

140,000

120,000 -

(U 100,000 - 0OCases filed ofU ~~~~~~~~~~~~~~~~~~~~~JEM

to 8.0,000

E60,000 - 6*Cases filed ofE - not JEM

Z 40,000 -

20,000

01989 1990 1991 1993 1995 1996 1997 1998 1999

Year

16

Figure 4-4 JEM Cases as Percentage of Total Civil Filings,Justice of the Peace Courts (1989-1999)

45,000

40,000 -

35,000 - 1 Ocases filed of JEM

o30,000-

5 ,000 Cases filed of not

E 5,000

01989 1990 1991 1993 1995 1996 1997 1998

Year

As the figures indicate, JEM filings display the same tendency as the remaining kinds of civilcases, which have decreased in absolute numbers from 1995. This also means (see Table 4-1below) that over the last three years, the average workload per judge has declined. The patternsare less clear cut in the case of peace courts because of the gradual shift of cases to theirjurisdiction. Nonetheless, over the entire period, they are similar for both types of courts.

Table 4-1 Av rage civil workloads (total filings per judge)Years 1997 1998 1999 TOTALTrial Courts 4,169 3,459 I 3,107 10,735Justice of the Peace Courts 2,037 2,164 1,868 6,069

4.5 CONCLUSIONS

The following general observations, discussed in detail above, merit reemphasis:* Given its demographic and economic importance, Mexico City provides an interesting

venue for studying the workings of commercially relevant judicial conflicts.* Because of its content and numerical importance, the JEM is a convenient target of analysis

for exploring the courts' handling of commercial cases.* The number of civil filings in Mexico City's court has declined steadily over the past five

years; workloads per judge have declined from 1997 to 1999.* This same pattern is visible in JEM filings.

17

18

CHAPTER 5: THE JEM IN MEXICO CITY'S COURTS, USERS, USES, ANDRESULTS

5.1 INTRODUCTION

This chapter takes a first cut at understanding the JEM by addressing three fundamentalquestions: Who are the users of the JEM (the characteristics of the parties), what are their claims(monetary amounts) and what kinds of judgments result? We begin with these questions becausethey figure prominently in the conventional wisdom ("what everyone knows") about the JEMand court performance in general. In this chapter we thus examine the answers of conventionalwisdom against the empirical evidence provided by the case files. In later sections, we look atthe trajectories of the proceedings themselves, a corresponding second set of questionsconcerning their internal characteristics; and eventually combine the two analyses in an overallevaluation.

The arguments about the dysfunctionality of the JEM and its negative economic impact are basedon a series of assumptions as to who uses it and for what purposes. By its very title (mercantil),it is assumed that the proceedings are intended to resolve conflicts arising within the businesssector over debts incurred among commercial, productive, and financial actors. At stake here areinvestment credits, and contracts among suppliers, downstream producers, and wholesalers andretailers. Recent discussions and criticisms of the proceedings have also emphasized theirimportance to financial institutions, and their consequently critical impact on the availability ofcredit and particularly that for investment.5 0 If the JEM "does not work" (no funciona), thencreditors will not be able to recuperate debt, and as a result will be more reluctant to make loans.Observers commonly cite a decline in bank lending51 and the high interest rates for loans asevidence of a problem which they attribute in part to poor judicial performance. To the extentsuppliers and producers have assumed some of the burden, dissatisfaction with the proceedingscould also hinder economic growth by reducing their willingness to advance merchandise againstfuture payments. These same discussions also suggest that the amounts at stake should be largeones, and thus a bias toward corporate as opposed to individual entrepreneurs. In short, there is abody of conventional wisdom about the users and uses of the procedure which have provided aset of working hypotheses for this study.

5.2 THE USERS: WHO ARE THE PARTIES?

Although the term "user" is often reserved for the plaintiff, we are examining both parties to thedispute, first because the working hypotheses focus on both, and second, because the defendantalso "uses" the proceedings to advance his own position. The analysis in this section is based onthe sample of all cases filed in 1997 and 1998. On an initial review of this and the secondsample (all cases reaching sentencing in 1997) we found no significant differences between theusers' profile of one universe and the other and thus to facilitate matters have not included a

50 See for example Instituto Tecnol6gico Aut6nomo de Mdxico (ITAM) and Gaxiola Morailia y Asociados, S.C(1999). In addition to adding is own evidence for this argument (based on a nonrandom sample of lawyersemployed by financial institutions), the study also cites the most important earlier literature supporting this view.Since its publication, it has been cited frequently in the financial press to further this case.51 One figure commonly cited in Mexican newspapers is that roughly 44 percent of industrial and commercial creditnow comes from suppliers.

19

separate analysis of the second universe. The main research hypotheses regarding JEM userswere:* Users are predominantly large entrepreneurial operations and their creditors* Financial institutions are the principal plaintiffs5 2

In addressing these assumptions, we first classified the parties into two groups: individuals(personas fisicas) and organizations (personas morales). The second category was further

subdivided into: financial institutions, non-financial corporations, civil associations and"other"53

The initial analysis does not support the first of the two working hypotheses. The main parties tothe JEM (66 percent of those identified) are individuals. Organizational actors do representslightly more than half (59 percent) of the plaintiffs, but are only 15 percent of the defendants.

Table 5-1 Organizational ActorsPlaintiff Defendant54

Individuals 19.10% 47.54%Firms 24.50% 8.90%Total 43.60% 56.40%

We can get a still better understanding of the nature of the conflicts by observing howindividuals and firms pair up in disputes - i.e. the extent to which the plaintiff and defendant arethe same or different types of actors. In Table 5-2, we have also separated the sample by the twotypes of courts, juzgados civiles and juzgados de paz. Although conventional wisdom hadnothing to say about the differences here (as the procedures are the same; only the amountscovered vary), we did discover variations in the identity of the parties.

Table 5-2 Classification of Cases by Party TypesPlaintiff-Defendant Civil Courts Justice of the Peace Total SampleIndividuals 26% 50% 38%

Individual Vs. Firm 3% 6% 5%Firm vs. Individual 50% 33% 41%Firm vs. Firm 21% 12% 16%Total 100% 100% 100%

As regards the sample as a whole (last column), not only are individuals a party to the vastmajority (84 percent) of the cases, those with individuals as both plaintiff and defendant are.almost as common (38 percent) as those where an organizational actor makes a claim against anindividual (41 percent). The patterns do vary by the two types of courts, with a virtual reversal

52 "The redemption of bank debtors' portfolio is a significant workload for the local civil courtrooms," ITAM, et al.,p.27.

*This category includes companies created under some less common legal regimes -- Cooperatives, "Sociedad enComandita Simple" (Limited Association), "Sociedad en Comandita por Acciones" (Limited Association by meansof shares), among others.54 Defendants figure as more than half of the actors because of cases with multiple defendants (most commonly thedebtor and the individual guaranteeing the debt).

20

in the importance of individual vs. individual and firm vs. individual; the former situation isalmost twice a likely in the juzgados de paz, while the latter, is considerably more important inthe juzgados civiles. Nonetheless the quintessential predicted use, firm vs. firm, is rare even inthe civil courts, reaching only 21 percent, and 16 percent for the total sample. From this we canderive two speculative conclusions:* The prevalence of debts between individuals suggests a reliance on relational or informal

credit, especially for small amounts (juzgados de paz), but also for larger ones. To theextent this may have replaced more formal sources of credit, it deserves furtherinvestigation as its lack of regulation may pose problems for both debtors and creditors.

* The relative scarcity of firm vs. firm conflicts likewise suggests that we are not dealingprimarily with disputes between investors and entrepreneurs, but rather with loans servingother purposes and thus of a different economic significance than commonly believed. Wepursue this question further in the next section, reviewing the nature of the claims made.

As regards the second hypothesis as to the predominant role of financial institutions, we alsoreview their role as plaintiffs, once more dividing the sample by the type of court (and using thesample of filed cases).

Table 5-3 Type of Plaintiff in ci il and peace courts, Percentages filed casesType of Plaintiff Civil PeaceFinancial Institution 25.20 4.30Other type of firm 43.10 42.00Other type of organization 3.00 0.70Individual 28.70 53.00Total 100 100

Among organizational users as a group, banks do have a significant participation, but still far lessthan that represented by other types for firms. However, there is an evident difference betweencivil and peace courts. Whether their appearance as one quarter of the plaintiffs in the civilcourts constitutes a "significant" use or not is a judgment call, but it clearly is far less than amajority use. Moreover, it is clear that conventional wisdom overlooks entirely the justice of thepeace courts where banks are conspicuous by their near absence. Banks do use the JEM, butthey are hardly majority users, and certainly not if the justice of the peace courts are taken intoconsideration.

The picture becomes far clearer if we look at the other side of the equation - who are thedefendants in cases initiated by banks? Here we combine both types of courts as the cases fromthe juzgados de paz are too few to allow significant generalizations.

Table 5-4 Identity of defendant in cases initiated by Banks[:Bank against individual defendant 82%Bank against organizational defendant 18%

As can be seen, of each 10 cases initiated by a bank, 8 proceed against an individual (and not anorganizational) actor. Although the information included in the case files does not distinguishamong uses of the credit (and especially if it was for consumption or investment), the fact that in

21

most cases the defendant is an individual again raises the suspicion that consumption credit playsa large part.

As noted above, the results were not significantly different for the sample of sentenced cases.The same participation ratios hold for entities and financial institutions. The only exception is inthe composition of the defendants sued by a financial institution, where 46 percent (against 18percent of the sample of initiated cases) are organizational entities. The difference may find itsexplanation in the impact of the 1994 economic crisis, which is more likely to be reflected in thesentenced cases and especially in the identity of the debtors. Cases reaching judgment in 1997are likely to have originated at the height of the crisis (1992 to 1995), a period during which notonly individuals but also organizations faced problems of insolvency. It also may be a result ofthe importance (size) of the credit or the likelihood of its recuperation (given the probablepresence of assets to be seized), and the greater value both parties place on fighting out thedispute in court.

5.3 WHAT ARE THE USES? NATURE AND SIZE OF THE CLAIM5 5

We have already speculated that the predominance of individual users, and especially individualdebtors, indicates that consumption as opposed to investment credits may comprise a significantportion of the JEM use. Still, the over three quarters of the cases involving an individual debtorwith either a corporate or individual actor as the plaintiff, might represent economicallyimportant transactions, where an individual debtor stands in for a corporate entity or is the soleowner of a large enterprise. To explore this possibility we take a further look at the nature of thedemand, and the amount at dispute.

Size of the Claim56

The arguments about the entrepreneurial uses of the proceedings and their impact on theavailability of investment credit and overall economic growth give rise to the next workinghypothesis:

The claims made in the JEMs involve larger rather than smaller amounts.

The findings do not bear out these expectations. As shown in Figures 5-1 and 5-2, in the samplesof both filed and decided cases, more than 70 percent of the claims are for less than $150,000Mexican Pesos. For the sample of all filed cases (Figure 5-1) in almost 40 percent, the sum indispute is less than 14,000 Mexican Pesos. The median real amounts are 26,560 for all casesfiled and 63, 057 for those with a judgment.

55 In this section, we will use only the filed case sample, except in Figures 5-1 and 5-2.56 Regarding the analysis of amounts two points require clarification. First, because the amounts registered in thecourt files were expressed in different currencies (Mexican Pesos, US Dollars, UDI's, etc), it was necessary tostandardize them. Amounts are thus expressed in Mexican Pesos at the exchange rate (where relevant) as of the dateof filing. Second, the initial peso amounts were translated into 1997 pesos using a deflation factor based on thatyear.

22

Figure 5-1: Distribution by Size of Claim

50.00%

40.00%o35. 009/6

30.000/o

20.00% . _ 8 *1 ($0.00 to $14,000)15.00% *1B ~=- *2 ($ 14,001 to $ 150,000)10.00% -. - e<<N8eR^,r$ 03 ($ 150,001 to $ 1,550,000)

5.00%/o W2-, O More than $1,550,0000.00%',

Filed

Categories

Figure 5-2: Distribution by Size of Claim

50.00% - _ ___ __ ___ __ __

_ 40.00% n',. ' 1 ($ 0.00 to $14,000)C i, -pI! Xw7 _ J-., 2*2 ($ 14,001 to $ 150,000)

Su 30.00% j -*- -- r ; u ... 24 50eK : . ' --> . - 0 3 ($1 50,001 to $ 1,550,000)

20.00% _ OMore than $1,550,000

10.00%

0.00Sentenced

Categories

There are nonetheless differences in amounts seen by civil and peace courts, a logical result ofthe fact that the amounts themselves define which cases will be heard by each. In 1997 and1998, justice of the peace courts saw cases involving amounts up to 29, 000 Mexican pesos($3,000 US). Amounts over 30,000 pesos went to the civil courts. (The upper limit for peacecourts has since been raised.) However, as shown in the charts below, amounts tended to besmall in both jurisdictions, with over 39 percent of cases filed in peace court cases involving5,000 pesos (roughly $500 US) or less.

23

Figure 5.3: Cases Filed in Peace Courts, by Size of Claim

5040

9 30;20- I-0

Hasta $5 De $5 a $10 De $10 a $15 De $15 a $20 More than$20

Thousand of pesos, 1997

Figure 5.4: Cases Filed in Civil Courts, by Size of Claim

G 30 - .

10 -

0De $30 a $80 De $80 a $130 De $130 a De $200 a More than

$200 $500 $500

Range of aaims (thusnds of pesos 1997)

Size of Claim by Type of Conflict

To get a better understanding of the likely economic significance of the cases, we compare theamounts at stake with the nature of the conflict as defined by the identity of the parties. InFigure 5-5, the four "boxes" illustrate this comparison. The height of the boxes shows the level

of the sum reached by the majority of the initiated cases in each pairing of parties; the higher the

box is, the higher the disputed amounts. The solid line indicates the median amount for each

category. Further analysis shows no significant difference in heights, and thus no systematic

difference in the claims made by type of actor involved.

24

Figure 5-5: Distribution of Contested Sums in Filed Lawsuits according to Kind of Parties

8

7

CD6

0CD0)

M

0

0)58

N = 39407 4409 43598 17501

llndiv. Vs indiv. Entity Vs Indiv.Indiv. Vs Entity Entity Vs Entity

Kind of Document that Supports the Legal Action

Another potential source of information on the origins of the claim (and thus the use to which itwas put) might be found in the types of documents used to support the legal action.

Table 5.5 Type of Document Used as Basis for Filing Claim,Civil and Peace Courts

Type Of Document Civil PeacePagare 72.70 69.30Check 7.20 19.00Other" 20.10 11.70TOTAL 100 1000

Unfortunately, the nature of the supporting document does not provide any further informationon the uses to which the credit may have been put. The promissory note (pagare), which is themost frequent kind of security, may cover many transactions, from personal loans, credit cards,invoices, purchase agreements, and any kind of investment credit. Checks, which represent thesecond most common category, bear a similar problem. In fact, checks are not accepted by manykinds of business establishments and thus are most often used between people who know eachother. The higher incidence of "other" documents in the civil courts might indicate more formaltypes of credit, but we need far more information to support that thesis than is available in thecase files themselves.

57 This category includes letters of credit, mortgages, leasing contracts, and the like.

25

In short, the information provided in the case files is not sufficient to indicate whether the JEM isused primarily to recuperate consumption or investment credits. Still, it raises strong suspicionsthat we are looking at debts related to consumption or small, rather than large investment. Bothof course, have an impact on economic growth, but not of the sort normally argued by critics ofthe proceedings. The availability of consumer credit will affect the internal market (total sales ofdomestic or imported goods and services); that of small investment or production credit willaffect small and micro enterprises, not large firms.

The relative scarcity of large credits and creditors is subject to a variety of interpretations, bothas to reasons and impact:* That large creditors' dissatisfaction with the proceedings (and thus earlier exit) and the

absence of viable alternatives is indeed responsible for a contraction of credit.* That creditors' dissatisfaction with the proceedings has led them to use alternative

mechanism with a lesser or null impact on credit availability* That the proceedings were never used by large creditors and thus that any contraction or

expansion of large investment credits has other explanations.

A selection among these three explanations would require historical data on uses which is notavailable. The one piece of information we do have, that 20 years ago banks were major users ofthe system58 is not very helpful inasmuch as it is not accompanied by any more details on theidentity of debtors or size of debts. Additionally a relative decline in banks' use of theproceedings could also be explained by a decline in their overall importance as sources of credit-- a trend which may have reasons other than their mere reluctance to make loans. In fact, inmore industrialized nations, the percentage of credit issued by banks does tend to decline, asalternative sources develop. 59 In a final section, we will return to the issue of the largereconomic impact of the proceedings, but as currently conducted, one fact is clear: their directrole on large investment and production credits is relatively minor (their indirect role may be fargreater). Their potentially greater direct impact is on the availability of consumer credit or theactivities of relatively small entrepreneurs.

5.4 THE OUTCOME OF THE JUDICIAL PROCESS: PRO-DEBTOR BIAS?

The finlal hypothesis addressed in this section relates to the presumed pro-debtor bias of theproceedings as indicated by judgments in favor of the defendant or other rulings that might tiltthe results in his favor.6 0 This bias is usually attributed to two factors. Judges tend to

58 This claim occurs in an academic thesis on the JEM written in the 1970s.S9 In'the US, in 1994, the US commercial banks had only 31.1 percent of all credit. Garibaldi-Fernandez, , (1999), p.269. See also The Economist, (January 27, 2001) for a discussion of debt and credit in the U.S. What is formallycalled supplier credits (and less formally, "not paying your bills") is according to that journal, a major means ofcorporate financing at the present time. The Economist only notes that banks have been replaced by other sources ofcommercial credit and now account for less than half. It would appear from this and other discussions of banking,investment, and credit in Mexico and elsewhere that the Mexican bankers' thesis that the courts are to blame is toosimplistic and overlooks worldwide trends for which the experts are still seeking explanations - but usually in a.farwider and very different series of causes.60 "Los abogados bancarios aprecian que, por regla general, los jueces han simpatizado con la causa y con la actitudde los deudores...," ITAM et als., p. 58. The same study also cites findings from an apparently nonrandom, andnon-dated analysis of 653 case files to support this view. As findings related to interlocutory orders, it is not

26

sympathize with the debtors and thus rule in their favor, and the procedure itself is intentionallyor unintentionally designed to help create delays.6' The next section looks at the second set ofarguments; here we review only the outcomes of decisions, exploring an argument commonlymade that because of the class origins of judges and the far greater likelihood of their beingdebtors rather than creditors, they will tend to sympathize with the former. Here we add thesample of decided cases for obvious reasons.

It should be mentioned, however, that of the sample of cases filed, only 19.6 percent reachedsentencing within the period covered (from 1997 to 2000) with another 24.4 percent officiallyterminated (of which only 17 percent are recorded as having settled). The remaining 56 percentwere still officially open; while interviews with attorneys suggest some of the latter had settled,we were unable to determine in what proportion. Hence, to the extent a pro-debtor bias isindicated by a failure to come to closure, critics may have a case.

As regards the judgments themselves, the pro-debtor bias is conspicuous by its absence. Asshown in Table 5-6, in both samples close to 90 percent of the verdicts recorded favored theplaintiff, and only 8 percent ruled for the defendant - in 3 percent, the rulings were mixed, givingsomething to each party.

Table 5-6: Judgment Result

Result Filed Decided Cases

Favoring Plaintiff 89.60 % 87.20 %Favoring Defendant 8.10 % 8.70 %Favoring Both 2.30 % 3.30 %Not Found 0 % 0.80 %Total 100 % 100 %

Still the civil or peace court judgment is not final and may be reversed on appeal or in an amparoreview by the federal courts. Both of these reviews may also simply call for a retrial or a returnto a prior stage of the initial trial, but for the sake of argument we will regard both as victoriesfor the party calling for the review. These additional actions were so rare (an important findingin itself) that the results of the analysis for the initiated cases involve a number too small toconsider significant. In the sample of sentenced cases, the appeals favoring the plaintiff reached87 percent of the total. For the very few cases submitted for amparo, the results were evenhigher, 90 percent. In short, so far as indicated by judicial rulings, a pro-debtor bias is hardlyapparent.

possible to tell whether they influenced the final outcome of the case. However, the authors also cite other Mexicanexperts in support of the presumed pro-debtor bias.61 This idea is neither limited to the JEM, nor to Mexico. Critics of judicial procedures in the region frequentlymention the excessive use of dilatory tactics to augment delays. Our companion study from Argentina (Garavano2000) also found the belief exaggerated.62 Calculation made upon the 19 percent of filed cases that reached a judgment.

27

5.5 CONCLUSIONS

In conclusion, the empirical findings as regards the uses, uses and outcomes of the JEM are asfollows:* Organizational users constitute 58 percent of the plaintiffs and 18 percent of the defendants.* There are important differences between peace and civil courts, especially as regards the

relative importance of banks or individuals as plaintiffs. Banks represent 25 percent of theplaintiffs in civil courts and only 4 percent in peace courts; the figures for individualplaintiffs are 29 and 53 percent respectively.

* Firms are almost twice as likely to be plaintiffs in civil as in peace courts; but in both courtsindividuals are still the most frequent defendants.

* Debt between two organizational actors, presumed to be the predominant use of the JEMand the one with the greatest impact on investment and economic growth, represents only21 percent of civil court cases and 12 percent of those initiated in peace courts. Its highestoccurrence is in the sample of cases with judgments where it reaches 25 percent.

* The amounts at stake are relatively small, and tend to gravitate toward the lower limits inboth types of courts.

* The largest amounts are in fact concentrated in litigation between two organizational actors,but the difference is not statistically significant.

* The JEM's most likely direct economic impact appears to be that on consumer or smallinvestment credit.

* The hypothesized pro-debtor bias of the proceedings is not born out by the verdicts, which,even after appeals are still close to 90 percent in favor of the plaintiff.

28

CHAPTER 6: ANALYSIS OF THE EVOLUTION AND OUTCOME OF JEM CASES

6.1 INTRODUCTION

To analyze the JEM proceedings, we start with a dynamic perspective: legal cases move alongdifferent paths and reach diverse destinations. Not every lawsuit reaches a judgment, nor is everyruling in favor of the plaintiff executed by means of the legally prescribed public auction ofseized assets. Throughout the process, the parties hold the option of "exiting" the judicialmachinery, either with the participation of the judge (a formal exit), or by simply abandoning theproceedings (an informal exit).

In illustrating these points we have used a series of flowcharts. A first section provides anarrative description of the JEM proceedings. The second section introduces a flowchartoutlining the process graphically and indicating the different stages and various paths a case mayfollow. In the third section, our case file data are plugged into the flowchart to indicate theproportion of cases that follow each alternative path and so reach each of the likely destinations.The exercise also allows the detection of the most relevant procedural bottlenecks and the mostproblematic procedural events.

6.2 LEGAL DESIGN OF THE JEM

Complaint, Review (Prevencion), and Admission

The trials commence with the submission of the written complaint, which must identify theparties and the monetary or other claim. It must be accompanied by the document (tituloejecutivo) which supports the claim as well as an explanation of the legal basis on which theplaintiff seeks recovery of the debt.

Once the complaint is submitted, the judge must decide if it fulfills all the proceduralrequirements. The judge may request that the plaintiff submit any missing elements or candismiss the complaint for lack of merit. This stage is called prevenci6n. If the plaintiff does notcomply with any additional requirements noted by the judge, or withdraws his complaint, theprocess ends there. Otherwise, the judge must admit the complaint and go on to the nextprocedural stage.

Notice and Embargo of Assets

Immediately after the admission of complaint, the judge instructs a bailiff (actuario) to servenotice on the defendant (emplazamiento) and request payment of the debt. If the debtor does notpay, the actuary must proceed with the embargo (attachment or seizure)63 of assets.

The embargo is intended to guarantee subsequent payment of the claim. This is done by actualseizure of an adequate quantity of the debtor's assets or simply by issuance of a court order

63 Formerly, the most common action was seizure of the assets. The 1996 reforms now permit the debtor, if theplaintiff so desires, to retain physical possession of the assets under order not to dispose of them. This substitutionof attachment for seizure is a practical matter given the inconvenience or costs likely to be incurred by the creditorwhen assets are seized.

29

prohibiting their sale or transfer to other parties. According to the law, its should comply with thefollowing characteristics:* The affected assets should be the debtor's property.* The assets should not be less nor more than enough to guarantee the amount in dispute,

according to the appraisal performed by the bailiff.* Seized assets will be put under custody of a despositario appointed by the plaintiff. (In

attachment, the debtor himself assumes this role, under order not to dispose of the assets.)* If the debtor (or whoever might be present when the embargo is attempted) opposes this

action, the judge may order emergency measures to allow its completion. These may rangefrom a fine at the judge's discretion, to the arrest and detention of the defendant for up to afortnight. If necessary, police participation may be requested.

* If the assets are insufficient to cover the liability, the plaintiff may request an additionalembargo at any time up to the trial itself.

Flowchart 6-1 shows, in a schematic manner, the development of the JEM from the filing of thecomplaint to notification of the defendant.

FLOWCHART 6-1

Paths of a JEM from filing of complaint to serving of notice

.o | Admitted Noticejd addltlons | | | 4 j ~~Formal Exit|

Filing of ,/1r No Notice /Complaint / Informal

dtions Exitrequested admitted

Defendant's Response

After notice is served, the debtor has 5 working days to answer and to offer arguments contestingthe validity of the plaintiff's complaint. The right to contest the merits of the complaint(oposici6n de excepicones) is granted to every defendant; common defenses include thosejustifying the non-fulfillment of payment, claiming payment has been made, challenging thevalidity of the supporting document, or contradicting the content and statements of the plaintiff'swritten justification. If the defendant does not respond to the notice within the term established,he is declared in rebeldia64 and the trial continues without his participation.

Evidence and Allegations

If the defendant answers the complaint and offers opposing arguments contemplated by Article 8of the General Law for Credit Operations and Securities (LGTOC), he must include in the same

64 Once more, there is no adequate translation. A defendant in rebeldfa is simply a defendant who does not take partin the proceedings - there is no sanction as there would be in the English concept of contempt.

30

written document, the evidence offered in support of his defense. In these circumstances, thejudge gives the plaintiff a three-day period to review the defendant's evidence and to offeradditional evidence (that is evidence different from that submitted with the initial complaint).

If the defendant does not answer the complaint or answers it with arguments not contemplated by

Article 8 of the LGTOC, then the proceeding follows its normal course until public auction.

The law (Code of Commerce) establishes the following terms for procedural actions from thefiling of the complaint to the verdict.* From filing, 5 working days to answer the complaint.* 3 working days for the plaintiff to review the counterevidence.* 2 days for the parties to consolidate their arguments (alegaciones).* 10 days as an extension to the probatory term, at the judge's discretion.* 15 working days as a period for the submission of evidence.* 8 working days to deliver a judgment after final summoning of the parties.

Flowchart 6-2 shows the possible paths of a trial from initiation to judgment.

FLOWCHART 6-2

Likely paths of a JEM from inception to judgment

No 3.,Judgment

Does not /, respond Informal Exit

Filing ofComplaint

\ ~~ ~ ~~~~No |Formal Exit|\ , ~~~~Judgment

>1Responds <Informal Exit

Judgment, Appeal and Amparo

The first instance ends with the judgment. Either party has the right to appeal the initial judgmentto a Civil Panel of the Superior Tribunal. While it is usually the loser who appeals, the victor

may sometimes do so, either because the amount awarded was less than the claim, or because he

is dissatisfied with other elements of the judge's ruling (perhaps believing they leave the way

31

open for an appeal by the other party). If the appeal still leaves one or both parties unsatisfied, arequest for an amparo may be submitted to the federal courts, protesting some violation of dueprocess rights. Appeals of sentences or direct amparos are seen by the Federal Circuit Courts.Interlocutory orders may also be appealed through a similar process, going first to the FederalDistrict Superior Court and then, as an indirect amparo, to a Federal District Court.

FLOWCHART 6-3

Likely paths of a JEM from judgment to direct amparo

|~ ~ ~~~ ~N appealn "Frm Jugmn

Judgmen No Amparo |

| ppeal _><

| Amparo |

Execution of Judgment: Liquidacidn, Appraisal, Auction and Ajudicaci6n

If the judgment favors the plaintiff and it is "firm" (all legal recourses having been foregone orexhausted), the plaintiff initiates the execution procedure. This means he either takes possessionof the assets (ajudicaci6n) or sells them in a public auction, using the proceeds to recover theamount owed. Adjudicacion is only possible, however, after a first attempt at auction has beenmade.

The process begins with the "Iiquidaci6n," which determines the net value of the award. This isnecessary as the judge only awards "principal, interests, and costs," without calculating the sumof the elements. Therefore, both the plaintiff and the defendant may hire specialists (an expert

65accountant) to quantify the previously uncalculated amounts

Once the accrued interests are calculated (liquidated), the "appraisal stage" begins to determinethe worth of the affected assets. This stage also requires the services of a specialist (expertappraiser) on behalf of the plaintiff and, sometimes, of the defendant, if the latter wishes to

65 Sometimes the interest may reach a value far superior to the original debt. The sample of files examined revealeda vast array of formulas used by plaintiffs to determine the interest due. Some of them are quite complex andonerous to calculate. This poses problems of asymmetries of information for debtors and creditors. The fact that theactual award is only determined after the judgment poses other problems. The parties in conflict might have chosendifferent strategies if they had known the real cost of litigation.

32

contest the creditor's appraisal. If both sides use their own appraisers and the calculations differ

by 30 percent or more, the judge must appoint a third appraiser.

After the appraisal stage, the judge has to fix the date of the auction or first bid (primeraalmoneda). The announcement must be published in three different locations: Mexico City'sTreasury Bulletin, the courthouse doors and a daily newspaper as determined by the judge. Thecosts are paid by the plaintiff.

Finally, if there is no buyer at the first auction and the plaintiff does not wish to take possessionof the assets, the whole procedure has to be repeated. If after a third attempt, there still is nobuyer, the judge will then grant the assets to the creditor.

FLOWCHART 6-4

Path followed by JEM from judgment to auction or appropriation of property

L Formal Exit

No interestCalculation I a Formal Exit

Informal fJudgment Exit No Auction orfavors the Appropriation Informal Exit

PlaintiffAppraisal <

Auction ors Interest Appropriation EndCalculationll

No Formal ExitAppraisal I

Informal Exit

6.3 STATISTICAL ANALYSIS OF THE DIFFERENT PATHS AND DESTINATIONS

Based on the above discussions of the legal design of the JEM and the schematic analysis of thedifferent paths cases may follow, we now look at the how the cases in our samples fared. For the

first stages of the proceedings (filing of complaint to notification and notification to judgment)we will use the sample of all filings, while for the later stages (judgment to amparo, and

judgment to auction) we use the sample of cases with judgments. The analysis is descriptive. At

the end of this section the main issues deriving from the aggregated path analysis are posed.

They will be dealt with in the next chapters.

33

First Stage: Filing of Suit until Notification

Flowchart 6-5 contains information collected from the random sample of initiated cases. Itreports the proportion of cases following each of the likely paths during the first stage of theproceedings, i.e. from filing of complaint until service of notice.

FLOWCHART 6-5

Actual JEM trajectories from filing of complaint until notification

Embargo &Notice and Noticewithout embargo

No Demand NoicAdmitted Fra ForEial

.~ ~ ~ ~ ~~~~~.

As revealed by Flowchart 6-5, the judge demands additional information from the plaintiff in 34percent of the cases!'6 This resulted in a formal exit rate of 3 percent for those cases whereplaintiffs preferred to withdraw their claim or simply did not provide the requesteddocumentation.

The 97 percent of the complaints which were admitted then pass to the stage of delivery of noticeand embargo of assets. Here the following three scenarios were present:* Notice and embargo completed. - although this is the standard legal scenario, it occurred in

only 32 percent of filings.* Cases where notice was served, but the plaintiff did not exercise the right to embargo -

cases representing 3 percent of those initiated and which appear on the chart as additions tothe former category.

* Cases where neither notice nor embargo occurred - this, surprisingly, was the majorityscenario in which 65 percent of all initiated cases were included.

For most cases in this last category (and 43 percent of all filings), the last action recorded wasthat of admission, i.e. for all intents and purposes these cases remain legally unresolved. They

6 The estimated frequency of prevenciones should be considered assato the same only in thosecomplaints admitted in which the plaintiff exited after prevencion. Likewise, the percent of cases not admitted isalso underestimated as those which did not get to the prevencian stage were replaced in the sample in order toincrease the amount of data collected.

34

appear on Flowchart 6-5 as informal exits. A smaller proportion of these cases (19 percent of all

filings), offered evidence of a formal conclusion of the proceedings, by means, chiefly, ofwithdrawal of the claim (desistimiento), judicial dismissal for expiration of time limits,

settlement, or payment. Such matters appear as formal exits in the chart.

Second Stage: from Notice to Judgment

Flowchart 6-6 contains information on the trajectories of JEM cases in the second stage of theproceedings, from notification to judgment.

FLOWCHART 6-6

Actual JEM trajectories from notice to judgment

Formal Exit1 No L4

Informal Exit

f, ,rsponse 721 \ Judgment

Notice / Formal Exit

36d Judgment 2

/v| t Informal ExitResponse 4

L2LJ Judgment

As described in the former section, in only 36 cases out of 100 filed cases was notice served tothe defendant. The data on the second stage of the proceedings, from notice through judgment,revealed that in most cases, 21 of each 36 notified, the debtors did not answer the complaint, andtherefore was declared in rebeldia. The proceedings continued without his participation. In theremaining 15 out of each 36 notified debtors presented a legal defense. However, even amongthe cases reaching the stage of notification, not all ended with a judgment. In 17 of each 36notified cases (47 percent), the plaintiff ceased to promote iegal action; in other words, theplaintiff "abandoned" the proceedings. Thus, for every hundred cases initiated only 19 continuedto judgment. Furthermore, contrary to what might appear most logical, plaintiffs were morelikely to abandon cases with a defendant in rebeldia (presumably the easiest to win); cases where

the defendant attempted a legal defense were more likely to proceed to judgment. Thisapparently singular phenomenon requires further exploration which will be carried out in the

next chapter.

35

Third Stage: From Judgment to Amparo

Because, as discussed in the prior section, only 19 percent of cases filed reach a judgment, inreporting on post-judgment events, we use information drawn from the representative andrandom sample of decided cases.67 This means we begin with cases which have arrived atjudgment, not considering any of our other scenarios.

Flowchart 6-7 displays the paths to reach firm verdict after the first instance ruling.

FLOWCHART 6-7

Paths followed by JEM from judgment to direct Amparo

No Appeal Firm Judgment

Decided cases /|10l100 \ /1

30ea Amparo/

12

As shown in Flowchart 6-7, appeals of first instance judgments occur in 30 percent of the cases.Only 12. percent of first instance rulings proceed from appeal to a revision in amparo by thefederal courts. This is certainly far less that the "everything gets appealed" impression conveyedby the experts. The relative infrequency of amparos also indicates thatfor these proceedings, theFederal Courts' role as the "grand reviewer" of all state decisions is somewhat exaggerated. 68

The view that "everything is appealed" may be based on abstract analysis of jurisdictionalcompetencies and not on statistical reality. It also may be extrapolated from experience withother kinds of cases, where appeals and amparos conceivably could be far more frequent.

67 The minority of cases reaching judgment (19 percent) did not provide a sufficiently large number for statisticallysignificant generalizations about their subsequent trajectory. As explained in the methodological attachment andforeseeing this problem, we designed and collected a sample of decided cases. That is why from this sectiononwards, anytime we make reference to the post-judgment stage, as well as in the analysis of timing, we base ouranalysis on this second sample, cases with judgments.68 As none of the authors pretends to be an expert on amparos, we will not further elaborate on this point. However,in response to specific questions posed by readers, we should note that a significant reform is now under discussion,aiming especially at the criticism that the use of amparo tends to be biased toward those who can tolerate theadditional costs it involves. Unfortunately, making amparo more broadly accessible would not resolve (might infact aggravate) the other sources of complaints - - reintroducing the spectre of the federal judiciary as "grandreviewer" of local decisions and adding, if only marginally, to the time required to reach a firm judgment. To avoidthese problems, increased access might be combined with a more effective filter. As Mexican observers have noted,in a growing majority of cases, amparos initially admitted may be subsequently dismissed on procedural grounds(Magaloni and Negrete, n.d) -in some sense, the filter is applied too late. The impact of the proposed changes mayalso be less than imagined or intended inasmuch as an amparo necessarily follows an appeal - hence, even if legalassistance is subsidized for the amparo, there remains the problem of acquiring counsel for the prior step.

36

It is worth remarking, however, that for a proceeding which is not supposed to reopenfundamental issues, the rates appear high, especially because ordinary appeals and amparos tendin their vast majority to support the trial court ruling. International comparisons are difficult, andnot only because of dissimilarities in. statistical systems.69 Still, it also merits noting that theGerman 11 percent appeal rate against all civil judgments from local trial courts (Gottwald, p.224) with a 36 percent success rate has raised discussions in that country of the need to furtherstrengthen the first instance courts. In the U.S. a study to explore the alleged federal "appellatecaseload crisis" found that the appeals rate had not varied between 1977 and 1993, remaining atabout 9 percent (excluding prisoner and three other categories of cases).7 0 The internationalfigures are also striking in that they include a wide variety of cases, and not (where they exist)only summary proceedings. Thus, although conventional wisdom may be wrong in holding thateverything is appealed, it may be heading in the right direction in suggesting that too many trialcourt judgments are sent to local appellate and federal courts.

Fourth Stage: From Firm Judgment to Auction

Flowchart 6-8 shows the ratio of decided cases which undertake the formal executionprocedures.

FLOWCHART 6-8

Paths followed by JEM from firm judgment to auction or appropriation of assets.

FormalExit 13 Formal Exit

No No Auction orCalculation Informal Appropriation \ Informal

/ 64 Exit 3 l Exit3

Cases with 50pro-plaintiff uction or

Judgment e . .KAuction End of90 Intere _ Apprasa opraton Process

Calculation26FomlEi

20 Inforrnal Exit15

69 Most of the articles in Zuckerman (1999), for example, either ignore the topic or note that it is difficult to arrive ata figure.70 Cited in Marcus, p. 84. Rates for state courts are generally higher, estimated at about 25 percent for civil cases.

37

The following findings derive from Flowchart 6-8:* The percentage of rulings favoring the plaintiff actually rose, to 90 percent, for those cases

undergoing appeal and amparo.* A majority of cases do not proceed to the accrued interest calculation stage (liquidacion).* Of those not undergoing liquidacidn, only a few ended in a formal manner, by settlement or

payment reported to the judge. For the others there is no official outcome.* The majority of those undergoing liquidacidn officially remain in that stage and do not

proceed to appraisal. Once more, those with a recorded formal exit here (settlement orpayment) are in a minority - the rest have no official outcome.

From the total sample, only 6 percent reached the appraisal stage and 3.6 percent proceeded to anauction or appropriation of the assets seized. However, here there is a difference in that formalalternatives (settlement or payment) are the rule not the exception. Any case which gets this faris not "abandoned."

6.4 THE MAIN QUESTIONS RESULTING FROM THE JEM PATH ANALYSIS.

The preceding analysis leaves two big questions for the next chapters:1) How long does it take for a case to proceed down any of the paths? That is, what is the

velocity of matters inside the judicial machinery?2) What are the explanations for the recurring use of informal exits in some stage of the

process?

The answers to these questions are crucial to any evaluation of the effectiveness of the JEMproceedings and are thus addressed in the next two chapters.

38

CHAPTER 7: LENGTH OF THE JEM PROCEEDINGS

7.1 INTRODUCTION

One important criterion for evaluating the JEM's efficiency, and also a major source ofcomplaints, is the duration of the proceedings. Like similar summary debt collectionproceedings elsewhere, the JEM was intended as an expedited process and one which thusresponds to the business community's demand for rapid resolution of their conflicts. One of theprincipal objectives of the study was to determine how long the proceedings really take. Initialinterviews with lawyers and entrepreneurs familiar with the proceedings indicated a belief thatthey were excessively slow. In their opinion, the JEM does not allow recovery of the amounts indispute within a reasonable time and consequently works against the interests of the creditor.Based on these interviews and a series of written treatments, the following working hypothesesguided the analysis reported in this chapter:* "Delays are exaggerated and defendants in particular use every opportunity to augment

them." Defendants can be expected to use all pre-judgment opportunities for drawing outthe proceedings, challenging the existence of the debt and the plaintiffs right to collect it atevery turn.

* "Delays are also caused by the judges." Judges themselves contribute to the delays by notmeeting legally stipulated time limits.

* "The courts' large workload also contributes to delay." Courts are overloaded with work,making it impossible for judges to keep up with the demands on their time.

* "Appeals add to the delays." This is both because of their frequency (which as indicatedabove is not the rule) and the sheer time required for their processing.

* "Amparos extend the delays." Once more the effect is blamed on frequency and the timerequired for processing.

The present chapter addresses these issues with a general diagnosis of the real length of theproceedings. The first section reports the time elapsed during the different stages, i.e. the lengthof time required for a case to reach any likely destination. This provides an overview of theaverage and varying lengths of the sampled cases as well as an identification of the stages wheredelays are most common. The second section reviews case-specific characteristics which mightaugment delay -- for example, the number of parties, interlocutory motions, the use of exhortos(requiring actions by a judge in another jurisdiction). Here we are interested both in the impactof these factors and the frequency with which they occur. The third section analyzes the impactof the 1996 reforms, introduced to accelerate the process. A final section compares the findingswith the situation described by the working hypotheses.

7.2 DURATION OF THE STAGES OF THE JEM

As discussed in the preceding chapter, cases do not all end at the same place. Some may beterminated before a judgment, others with the judgment, and still others only after the entire

39

execution proceedings have been completed. Table 7-1 shows the time elapsed for the periodsfrom the filing of the complaint until formal termination of the case.7 1

Table 7-1

Period Median Minimum Maximum(days) (days) (days)

Cases Filing to End-of-Trial Decree 176 3 819concluded (withdrawal of complaint, expiration,budge ntr payment or settlement)Judgment.Period of Filing - Admission 3 0 397Trial Admission - notification 52.5 0 678

Notification - Judgment 111 10 959Filing- Judgment 223.5 29 977Admission - Judgment 199.5 22 975Final Summons - Judgment 9 0 45

Period of Judgment - Accrued Interest Calculation 182 15 990Execution Accrued Interest Calculation - First Bid 268 250 822

Judgment - First Bid 467 224 948

What do these data tell us?* In contrast to reasonable expectations, the cases ending before a judgment (by agreement of

the parties or judicial decision based on their inactivity) last almost as long as thosereaching a judgment. There are no significant statistical differences between the twopopulations. Admittedly, the median duration of the first group is 177 days as contrasted to223 days for the others, but this is a difference of only one and a half months.

* The contrast between the time to judgment and the post-judgment execution (judgment-first bid)7 2 is startling, with the latter taking twice as long.73 Thus, while half of the decidedcases receive a ruling by the judge in a period of seven or eight months, half of thoserequiring judicial execution wait almost one year and three months to reach the first bid.

* The problematic and inefficient character of the auction process becomes apparent onanalysis of the duration of its individual steps. For example, the calculation of accruedinterest lasts almost as long as median time to judgment.7 4

A central question in evaluating the JEM's efficacy is whether its real duration is reasonable forthe judicial collection of debts. Unfortunately, the question does not lend itself to a simple

71 We have used the median in reporting durations to limit the effect of a few extreme cases. Nevertheless, it isworth mentioning that the distributions of elapsed time during the execution stage tend to normalize.72 Ideally, this period should include the auction or appropriation of the assets. However, only a few cases (7 of the230 in the sample of decided cases) reached that stage.73 The lack of statistical correspondence between the time to judgment and length of execution supports an initialassumption that the two stages are independent from one another. That is, the length of a trial does not have abearing on the length of execution.74 With regard to the complexity of the auction procedure, it is worth mentioning some extra data: 78 percent of thecases in that stage are pending the first bid; seven out of ten plaintiffs in that stage have already paid three or morenewspaper advertisements; and 53 percent of the auctions are postponed more than twice. Therefore, the auctionprocedure is not only slow, but also burdensome and complicated.

40

answer. On the one hand, the judges and lawyers interviewed prior to the research were notaccurate in their estimates. They asserted that most cases took three years to reach a judgment,whereas our data indicate that the median duration is seven months and that only a smallproportion take as long as two and a half years.

On the other hand, it is evident that the proceedings normally exceed the legal time limits, and itis conceivable that these legal deadlines are themselves excessive. However, we have no basisfor asserting that the explanation for the existing excesses -lies in the malfunctioning of thejudicial system. Our data do not allow us to assess the extent to which the parties pushed theircases forward in a swift and timely manner. That is, it is not possible to identify the partyresponsible for the delay (iudge, plaintiff, or in a contested case, the defendant7 5 ).

As it does not seem possible to offer an informed decision about the proceedings' efficiency onthe basis of existing knowledge, future research might attempt a comparative evaluation,contrasting the Mexican experience with foreign jurisdictions. The data available, and they arenot extensive, suggest that 223 days are not a bad record for this type of proceeding. Research inColombia76 and Argentina77 turned up average durations of 900 days and 100 to 400 days,respectively, depending on the type of debt. (However, the Colombians' method for derivingthis result is not clearly explained, and it may be based on surveys rather than on actual samplesof cases). Comparable statistics from Spain78 and Portugal79 are 250 (uncontested) and 550 days(contested) for the former and 397 (1990) and 326 days (1996) for the latter. As the Spanish andPortuguese figures are apparently arithmetic means, they are doubtless skewed in some direction,probably upward. In Spain, average time to judgment enforcement was estimated at 9.16months. Of course, as will be discussed in the next chapters, duration is not the only factor toconsider. To pursue these comparisons further one would have to know the rates and outcomesof cases reaching judgment and of out-of-court settlement, and the extent to which the summaryproceedings represent a "normal" means of collecting debt or are reserved only for the hardcases. Thus, the fact that in Spain, the juicio ejecutivo represents only 16.3 percent80 of civillitigation suggests that its may capture a different kind of case than those in Mexico orArgentina.

This raises another important point, accounting for the italicized phrasing. Other Europeancountries appear to have effected dramatic reductions in time for debt collections by taking stepsto short-circuit or eliminate the traditional summary proceedings. Such steps include introducingdefault judgments for non-contested claims, ex parte injunctions like the French injonction depayer81 which like a comparable measure in Italy,82 often proceeds unopposed, or, as in the

75 As noted below, the presence of an active defendant (one who responds to the complaint) is positively correlatedwith the time to judgment. However, the further question is whether such a defendant, by drawing out the time ofhis responses, may create additional delays. Here, as with a less active plaintiff, there is the further question ofwhether the judge can or does take steps to provent this.76 Corporaci6n Excelencia (2000).77 Garavano (2000).78 Dies-Picazo Gimenez (1999), p. 395.79 Leitao Marques et als (1999), p. 426.fi Dfes-Picazo Gimenez (1999), p. 393.81 Cadiet (1999), pp. 303-482 Chiarloni (1999), p. 272.

41

Netherlands, 83 awarding more powers to the bailiffs who negotiate most cases (under threat oflegal action) or use the full ordinary proceedings. As these last examples, as well as the Dutchelimination of the summary proceedings in 1992, suggest, the underlying problem may be thatthe summary proceedings do not lend themselves to shortening below a certain point and thatquicker processing of debr collection requires more radical changes. Thus, if Mexico chooses toretain the classic summary proceedings, it may not be able to shorten the average duration muchfurther.

7.3 VARIABLES THAT HAVE AN IMPACT ON THE DURATION OF THE PROCEEDINGS

Once the time-consuming phases of the process have been identified, we can turn to thecharacteristics of the cases which may account for delays. The working hypotheses are alreadysuggestive of some likely candidates; the research itself has revealed others.

Our initial analysis focused on twenty different variables which might affect the length ofproceedings.. The present reports reviews only the most significant findings within two classes:I) Variables that do have a significant impact on delay.2) Variables that, contrary to what was expected, do not have any impact.

Case-specific Characteristics Affecting Delay

Table 7-2 lists the variables that help explain delays in individual cases.

Table 7-2 Characteristics associated with an increase in teime to judent84Prevalence(Ratio Of

Characteristic Cases Having The Pearson's Sig.Referred Correlation BilateralCharacteristic)

Cases with more than one defendant 30% .247 >.00

Cases requiring action by another judge 37% .231 >.005(exhorto)Cases in which the debtor responds to 47% .398 >00the complaint

Cases with interlocutory appeals 19% .317 >.00

Cases where the amount in dispute was N 169larger than average A >.00

As indicated, five variables showed correlations with the duration of the process (filing ofcomplaint to verdict). Cases showing one or more of these characteristics tend to be slower intheir development; the additional delay is statistically significant. A more thorough statisticalanalysis is required to determine the independent impact of each of these variables on the length

83 Blankenburg, (1999), p. 44784 The information reported in this table suggests the need for more sophisticated statistical analysis, especially asregards suspected endogeneity (interaction of variables). Likewise, it will be sensible to evaluate the statisticalrelevance of the different durations of cases that allegedly belong to different populations.

42

of the trial, absolutely and as regards the legal time limits (e.g. we can't tell whether adefendant's decision to answer the demand adds a delay in excess of the time granted for thatstep).

Two further observations should be made. First, there are some elements which despite theirevident impact on duration, do not occur frequently. Such is the case of interlocutory appeals,which appeared only in 19 percent of the cases. Second, and still more important, some variablesescape the control of the judicial system or the legal norms. - for example, the number ofdefendants, the size of the claim, or the need for an exhorto. In this regard, it is important torecognize the heterogeneity of the JEM users and thus the intrinsic variations in the specialproblems and resulting delays the different proceedings occasion. This should be an importantconsideration in any future efforts to reform the proceedings, to avoid a one-size-fits all modelwhich may not be suitable for all cases.

Case-specific Characteristics Not Affecting Delay

* We did not find any variables that explain the delays following the judgment, i.e. during theexecution stage. Therefore, it seems reasonable to hypothesize that the delays in this periodare attributable to the legal design and not to the specific characteristics of each case.

* The number of plaintiffs and the submission of additional evidence did not affect theduration of the proceedings.

* The existence of incidents85 is a recurring feature (39 percent of sentenced cases), but didnot delay the process in any statistically significant way.

* As for the use of indirect (interlocutory) amparos, we did not find any significant impact onduration. However, they were so infrequent (4 percent of decided cases) that this finding isnot statistically significant. The more important finding is that they occurred so rarely(contrary to prevailing opinion), meaning that even with a greater impact on delay, they donot affect more than a few cases.

* Third party involvement86 and expanded seizures are in the same situation as amparos: wedid not find any correlation with the length of trial, but their occurrence was too rare tomake this statistically significant.

7.4 IMPACT OF THE 1996 REFORMS ON JEM LENGTH

In 1996, the Executive Branch submitted a bill to the Mexican Congress amending some aspectsof Mexico City's Civil Procedures Code and the Federal Code of Commerce. The reports anddebates surrounding the initiative (enacted in the same year) stressed the need to shorten theduration of civil and commercial trials because of the negative impact of delay on investmentand entrepreneurial activity. As regards the JEM, the two most important changes were theelimination of the suspension of proceedings by interlocutory appeals and the provision for thejudges' permanent dismissal (caducidad) of cases in which the parties had taken no action for sixmonths. Both changes, according to their supporters, would reduce the length of JEM

85 As opposed to excepciones (defenses offered at the beginning of the case), incidentes are defenses offered oncethe proceedings are under way.86 Specifically where the ownership of or competing claims on the asset seized come into question.

43

proceedings. The individuals interviewed in conjunction with this study expressed similaroptimism about the impact of the reforms.

The research findings do not bear out these expectations. In the sample of decided cases, 20percent of the observations were conducted under.the amended procedures. A comparison of thisgroup with those following the old rules does not find any significant difference in the durationof the trials. One reason may be, as suggested above, that interlocutory appeals were not veryfrequent. In addition, the provisions for caducidad have been honored in the breach by thejudges. Judges do send case files to the central archives, but tend not to retire them permanently,possibly fearing a complaint from one of the parties. Still, even had judges been willing todeclare permanent dismissal, it is not clear how much this would have affected delay.

7.5 CONCLUSIONS

* For those cases reaching disposition (whether through judgment or some other officialmeans), real delay is far less than commonly believed. While the proceedings commonlyexceed the legal time limits, the time to resolution is only a fraction of what the expertsestimated, and holds up well against the few international examples we could identify.

* It is not evident that judges contribute to any delays in processing JEM cases. The use ofthe "dispositive principle" which gives the parties the responsibility for moving a caseahead, on the one hand, and the impact of factors outside the judges' control, for examplethe need for exhortos, on the other, suggest than many delays are the result of exogenousvariables. If the judges do play a part, our data do not reveal it. However, if judges are notresponsible for much delay, this also means that the impact of an excessive workload mustalso be questioned.

* It is true that interlocutory appeals create additional delays. However, the instances inwhich defendants use or abuse this resource are scarce. Only 19 percent of the sentencedcases underwent appeal prior to judgment. Therefore, the claim that "everything isappealed" is hardly accurate. In addition, the use of the remaining resources cannot beconsidered as dilatory mechanisms per se, as they are honestly exceptional, e.g. the indirectamparo (4 percent of cases) or Third Party claims (6 percent), or else have no discernableimpact on duration, as it is the case for incidentes.

* The reforms introduced in 1996 had no measurable impact on delay, conceivably becausethey addressed peripheral factors, not those having the most impact on duration. Some ofthe latter might be addressed through other types of procedural reforms, but of a far moreradical nature. As the brief review of comparative statistics and the discussion of Europeanexperience suggest, there may be limits to how much improvement can be achieved bytinkering with the summary proceedings itself.

44

CHAPTER 8: HOW DO THE PROCEEDINGS END? FORMAL AND INFORMALEXITS

8.1 INTRODUCTION

The flowchart analysis demonstrates that the proceedings follow different paths and reachdiverse destinations. Not every case ends with a judgment, nor is every judgment executed bymeans of a public auction or appropriation of assets. Throughout the process, the parties havedifferent ways to "exit" the judicial machinery. We have divided these into "formal" and"informal" exits. The first are contemplated by law and recognized by the judge: dismissal forlack of activity, voluntary withdrawal of the claim, payment or settlement. The second, on thecontrary, are characterized by the parties' silence - they do not make explicit their wish to exitthe proceedings and the judge, for whatever reason, does not declare the expiration of their rightto proceed. In such cases, the case is simply "abandoned." The files remain in the judicialarchives as "unfinished" cases which may be reactivated at any moment.

In this section, we explore how these exits, both formal and informal, occur in the differentprocedural stages, and attempt to explain the factors accounting for their occurrence. Tounderstand the parties' decision to either exit the judicial machinery or continue with theproceedings, we use a neo-institutional framework focusing on the interaction of individual goalsand resources with the constraints posed by the organizational structure and its formal andinformal rules. As the case files do not provide the information required, we have supplementedtheir data with qualitative research - informant interviews and focus groups.87

The first section offers a quantitative analysis of the frequency and distribution of formal andinformal exits throughout the different stages of the proceedings. The second provides aqualitative (and admittedly, speculative) discussion of the motivations of each of the principalprocedural actors: plaintiff, defendant, plaintiff's attorney, defendant's attorney, judge andbailiff. The third section poses some possible explanations for the recurring use of "informalexits," based on the motivations and incentives attributed to the various participants. A finalsession offers some general conclusions.

87 It is worth reemphasizing that the research cannot provide definite, exhaustive and comprehensive explanations.We are offering hypothetical explanations; their validation will require further qualitative and quantitativeinvestigation

45

8.2 QUANTITATIVE ANALYSIS OF THE FORMAL AND INFORMAL EXITS IN THE DIFFERENT

PROCEDURAL STAGES

FLOWCHART 8-1Formal and Informal Exits in Three Moments of the Proceedings

Of All 62% Embargo &Complaints > | NotificationAdnmitted / \38%

FORMAL EXIT INFORMAL EXIT19% 43%

De fact withdrawal 56%Dismissal 12% Exhortos 25%Formal Withdrawal 66% Debtor refuses notice 13%Payment 4% Debtor cannot be found 6%

Settlement 18%

|Of All Cases 46% | 54%l

FORMAL EXIT INFORMAL15% EXIT 31%

Formal Withdrawal 36%Payment 43% Informal withdrawalSettlement 21% or lack of further

action

Of All Auction orjudgments Appropriation

that favor theplaintiff

FORMAL EXIT INFORMAL EXIT23.3% 73%

Payment 35% No informationSettlement 15%Plaintiff prevails 50%

46

Once the numbers are added to the flowchart, the following observations can be made:* Informal exits are more frequent than formal ones at every stage of the proceedings. This

poses an enorrnous problem for evaluating the efficacy of the proceedings, as by definition,the case files do not provide information on extra-judicial events.8 8

* The high percent of informal exits probably indicates (as it does in countries like the US89)that the battle between debtors and creditors is fought on a parallel track outside thecourtrooms. The real question is not whether this parallel track exists, but how the partiesfare in using it. Answering that question, which is also central to the issue of the JEM'sefficacy, will require additional types of research, which especially in Mexico will beextremely difficult to conduct.9 0

* One unexpected 9' finding was that in the initial phase of the process, (i.e. betweenadmission of complaint and notification and embargo), the rate of formal and informalabandonment is about 60 percent. For a minority of these cases, there is a formallyrecorded reason. However, for some of these (where the judge unilaterally closes the case)and for all the informal exits, the initial impression is that the plaintiff just loses interest andfails to take further action.

* Correspondingly, for cases which pass this stage, the formal and informal exits are lessfrequent until the moment of the judgment.

* Finally, once a firm judgment exists in favor of the plaintiff, formal and informal exitsagain become common practice. Almost no one chooses to execute the judgment throughauction or appropriation of assets.

In seeking an explanation for these statistical findings, and in attempting an evaluation of theJEM's efficacy, we need to look beyond the case file data and consider the information providedby more qualitative sources, interview and focus groups.

8.3 THE ACTORS: MOTIVATIONS, COSTS AND EXTRA-JUDICIAL VARIABLES THAT AFFECTTHE OUTCOME OF THE PROCEEDINGS

The focus groups sessions conducted with litigating attorneys specializing in JEM cases providedinformation both on the parallel conflicts and on the tactics and strategies of the parties to them.In interpreting the results, we return to the neo-institutional framework and the notion of thebroader institutional setting (and alternative forums) in which the actors operate. The firstsection reviews and expands on some of the basic guidelines introduced earlier. The secondsection combines them with the focus-group information to analyze the motivations of each of

88 This is, however, not peculiar to Mexico. Judges often have no means of knowing whether a judgment has beenexecuted, or whether cases which exit short of a judgment reach some extra-judicial resolution.89 It is by now well established, and a near point of pride, that only a very small percentage of criminal and civil

complaints come to trial in the US. Figures vary from 2 to 10 percent. The irony is that the same statistical profilecould also characterize an extremely unsuccessful system - one where complaints were never resolved, judicially orextra-judicially.90 In Mexico, as in other countries in the region, we found lawyers extremely reluctant to discuss individual cases.However, without that kind of information, putting a number to the different possible outcomes will be nearlyimpossible.91 In comparative perspective, this might not be so unexpected. However, in Mexico no one seems to pay attentionto the extra-judicial resolution of cases and how that might affect the basis for evaluating JEM efficacy - making theexisting evaluations necessarily partial and thus potentially misleading.

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the process actors. A third section looks at several extra-judicial variables that limit anddetermine the actors' strategies and behavior.

Some Analytic Guidelines from Neo-Institutional Economics

* The various participants in the proceedings (parties, lawyers, judges and other judicialactors) act in a rational manner, but to understand their behavior we need a broader andmore detailed vision of their goals and possibilities. Here the legal proceedings and theformal roles they define represent just one part of the story and only one of the meansavailable for pursuing each individual's objectives.

* This means first that individual objectives cannot be limited to those defined by the formalrules of the proceedings. Even the assumption that the plaintiff's principal interest isrecovering the formal debt thus requires reexamination. A plaintiff might be moreconcerned with the accrued interests (which as noted may exceed the principal), or withsome other peripheral consequence (e.g. the ability to write off a tax loss). For other actors(bailiffs and judges) their main motivations may have little to do with their formal role inthe proceedings.

* It also means, as suggested, that we need to view the legal proceedings in the context of thevarious alternatives available to the actors for furthering their ends and to consider theimpact of informational asymmetry, different skills, and resources in allowing actors toshift among them. Members of the judicial system and those who use it frequently have anenormous advantage here and one which may lead to their adoption of far moresophisticated tactics and strategies.

* The formal rules do count, but informal practices and variables exogenous to the system ofjustice also affect both strategies and outcomes.

A Proposed Scheme for Understanding the Motivations of the Main Procedural Actors

The Creditor: The usual interest of the creditor is to recover his or her money within the shortesttime and at the lower possible expense. The JEM will only be relevant to him to the extent thathe may be able to reach such goal. Any alternative plan leading to the same goal at a lower cost(e.g. settlement) may thus be chosen. However, a plan which provides still larger benefits (anaward substantially augmented by accrued interests) may be interesting to some creditors. In acase where the principal goal might seem impossible (the debtor cannot pay), the creditor mayaim for certain lesser rewards (an ability to declare a tax loss).

The Creditor's Attorney: The interest of the lawyer is to maximize his earnings. Thus, thepayment plan agreed with his or her client (the creditor) will have an influence on his or herbehavior during the trial. This is not regulated by law, and there is considerable variation, clearlya theme for future research. Lawyers rewarded with a percent of the recovered amount will tendto coincide with the client's interest (maximum recuperation in minimum time). Lawyers paid bythe task performed or with a monthly fixed fee may be more interested in drawing out theproceedings. However lawyers, under either fee system, who handle a high volume of JEMcases may be less interested in the outcome of any one than in maintaining a steady flow ofincome and thus may plan their strategies and juggle cases accordingly. Such a strategy will onlycoincide with that of a high volume client, one for whom, the individual outcome may also beless important than the income stream.

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The Debtor: Depending on their financial situation and perception of the "threat" posed by thetril itself, debtors rmay assume different positions. If a debtor does not have assets sufficient tocover the debt and finds the judicial process frightening, he may negotiate a new agreement withthe plaintiff, or in the worst of cases, simply let the proceedings continue without even seekinglegal counsel. However, if she has sufficient assets, she may follow one of two alternatives. If theperceived threat is substantial, she may try to settle the matter quickly (by paying the totalamount or refinancing the loan). If the threat is less alarming, she may choose to fight the battlewith all legal weapons at reach. Here her most important resource is time.

The Debtor's Attorney: The debtor's attorney also seeks to maximize his earnings. To do so, theattorney commonly "sells" time to his client, for a monthly fee or for tasks performed.9 2 Thedebtor's lawyer will thus draw out the process so long as there is a financial reward for doing so.Once the client stops paying, the creation of delays stops as well.

The Judge: As contrasted with the rest of the actors, the judge does not operate under theincentive of the pecuniary outcome of the trial itself. His or her profit maximization is a functionof his or her advancement within the judicial career. This depends on the incentive structureestablished by the judiciary itself.93 (An alternative incentive structure revolving around profitmaximization through selling decisions was not mentioned by any informant, nor did we findevidence to suggest its existence. However, in other of Mexico's court systems or in other typesof proceedings, its potential role cannot be discounted.)

The Bailiff (Actuario): Unlike other judicial officials, the bailiff does not seem motivated by thepromise of promotions with the judiciary. While their official salaries are low, bailiffs frequentlyearn more than higher-ranking judicial officials. This is because of the accepted, but highlyextra-official practice of paying bailiffs an additional fee for carrying out their duties. Bailiffsassigned to courtrooms operate largely without judicial supervision and thus behave as a sort offree agent, working- out their own arrangements with the parties and their lawyers. They alsomay use a part of their additional fees to pay for police assistance in carrying out difficultseizures.

Exogenous Variables and their Impact on Actors' Decisions

Evaluation of Assets and Solvency: The bottom line for any proceedings is the debtor's abilityto pay. If the plaintiff and his lawyer cannot identify assets to guarantee payment, there is littlepoint in continuing with the proceedings.

Informafionial problems: The accurate appraisal of the debtor's assets faces some importantobstacles: legal protections for the secrecy of bank accounts and any other kind of investment,

92 This outlook is so common that judges and lawyers actually speak in these terms -vender tiempo (to sell time.)9 In Mexico City, interviews with the judges and judicial officials indicate that this incentive system is based on ahierarchic structure where "pleasing" the people above you is the key to success. Judges also expressed concernabout complaints (quejas) presented by a displeased client to the Judicial Council, which has the power to dismiss,discipline and decide on promotions. The result is that judges are very cautious about compliance with the formalrules (time limits for their own actions) and disinclined to reject any motion, no matter how frivolous, for fear ofbeing accused of corruption or bias. This has undermined the judge's authority to direct the process.

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the not-entirely-reliable information from the Registro Publico de la Propiedad,9 4 uncertainty asto the number of creditors with competing claims, and even, the solidity of the guarantysubmitted by the guarantor. 95 All of these may have a negative impact on the viability of theproceedings.

8.4 POSSIBLE EXPLANATIONS FOR THE RECURRING USE OF INFORMAL EXITS

While the same set of motivations, incentives and exogenous variables affect the behavior of theprocedural actors throughout the proceedings, we divide this discussion into two stages: the useof "informal exits" prior to the judgment and during the execution of judgment.

Informal Exits Prior to the Judgment

There are three broad categories of explanations:1) Optimum explanations2) Those related to exogenous variables3) Those regarding the principal-agent dilemma

Optimum Scenario

a) PaymentThe most optimistic explanation is that upon being notified of the complaint, the debtor takes thematter seriously and spontaneously reimburses the plaintiff. The lawyers interviewedemphasized that formal notice was not necessary. It is common practice to inforrn the debtorthat the complaint had been filed in anticipation that this will be sufficient to force payment. Thefailure to notify the judge (which is actually done in some "formal exits") may be explained bysome omission on behalf of a debtor who is not aware of the rules and who may not have counselto carry out necessary legal steps.

b) SettlementThe other optimum explanation is that the parties have achieved an extra-judicial agreement.This represents the second best solution for the creditor. The advantage for the debtor is a lesserpayment or a renegotiated loan in return for the elimination of the threat or the costs of legalproceedings.96 Failure to report such settlements to the judge would have the same explanationsas those for unreported payment.

c) The lawsuitfiledfor goals differentfrom those of debt redemptionLawyers interviewed suggested that in some occasions actors file a complaint for reasons otherthan recuperating a debt. The purpose may pertain to the accounting practices of the company, orprovide a tax deduction under the "outstanding income" account. For banks which have

94 Public Registry of Real Property. This has become a political hot potato for the Federal District government withcurrent and former employees accusing each other of participation in internal mafias or complicity with certainprivate lawyers. See Proceso (Mexico City), January 14, 2001, pp. 30-1.

In the interviews, cases were mentioned where the assets attached or seized, because of inaccurate information,lost their quality of "liquid assets," as well as some instances of "false guarantors".96 While the onus of a court case might once have provided an additional motive to settle, the lawyers in the focusgroups asserted that following the crash of '94, the fear or shame factor has decreased and no longer is as potent apressure. Of course, we currently have no means to test this hypothesis.

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benefited from government bail-outs, some symbolic effort to recuperate outstanding debts maybe a requirement of this assistance. Clearly in these cases, there is little incentive to advancebeyond the initial filing. Also included in this general category are cases filed to preserve a rightto future legal action. Here there is no intent to do anything immediately, but simply a policyof keeping ones options open. Debtors who appear insolvent may acquire assets or improve theirfinancial situation. Although the 1996 reforms (requiring the permanent dismissal, caducidad, ofcases inactive for six months) theoretically discourage this last possibility, as noted judges havehonored the new requirements in the breach. Even were they to enforce them, if most placemarkers never led anywhere, it might take some time for judicial activism to influence plaintiffbehavior. Given problems in identifying assets, it is not evident that permanent dismissal is afair policy; interviews in other countries (e.g. Brazil) suggest that creditors do sometimesidentify assets only after the debtor has let down his guard.

The Impact of Exogenous Variables

a) Insolvent debtorsDebtor's insolvency is a critical factor in explaining abandonment before notification andattachment. In the cost-benefit calculations for both the plaintiff and plaintiffs attorney, if thedebtor does not have sufficient assets to cover the liability, the trial is a net loss. The reason isclear: facing an insolvent debtor the judicial apparatus is unable to do anything. In theinterviews, the lawyers agreed unanimously that "the patrimonial guaranty is the main JEMproblem."

This provides a strong motivation for abandonment or withdrawal in the early stages of theproceedings; a complaint is filed to maintain the right to further action or to push for spontaneouspayment, but if on further examination, the debtor's assets are insufficient, it makes no sense tocontinue.

Although we cannot quantify the empirical connection between abandonment and insolventdebtors, it does suggest the potential role of factors external to the judicial system, such as theunwise choice of individual (or organizational) subjects of credit or unanticipated economicshocks. In this sense debtor insolvency is an exogenous variable which nonetheless has apotentially major role on the development of the proceedings and especially the high rate ofabandonment in their earliest stages.

b) Informational problems that prevent the execution of the embargo or weaken the guaranty ofassets affectedIt is up to the plaintiff and his attorney to identity the assets subject to attachment or seizure. Ifthey cannot locate suitable assets or if the guarantee of those assets is subsequently weakened(e.g. because of competing claims by other creditors), there is little purpose in continuing withthe proceedings. Once again, abandonment becomes the most efficient solution. Here anotherseries of extra-judicial obstacles enters into play. These include legal restrictions on informationon bank accounts and the inefficient operations of the Real Property Registry. The virtual

97 If the time limit is exceeded, the only available legal recourse is the much more complicated ordinary civilproceedings. Hence, a last minute filing is a sort of marker, but not necessarily an indication of a real intention to gofurther.

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- is also an ~98absence of public registries of movable collateral is also an impediment. These additionaldifficulties reinforce the attachment/seizure stage as a major bottleneck in the proceedings.

The Principal Agent Dilemma

a) The principal agent dilemma between the creditor and his or her attorneyThe attorney functions as an agent for the plaintiff or principal. As in all principal-agentrelationships, the less than perfect coincidence of their interests may have unexpectedconsequences, in this case leading to the attorney's unilateral decision to exit the proceedingsdespite the plaintiff's desire to continue them. The attorney's fee schedule is an importantdeterminant of this pirincipal-agent dilemma. If the lawyer collects the most important share ofthe fee when filing the complaint, the incentive for further actions are lowered and he or she mayeffectively abandon the proceedings and disappear from the client's sight.99

This situation is more likely where the amount in conflict is lower; even if the remaining fees arebased on a percentage of the recovered debt, they will not be very attractive in monetary terms.It is also a more reasonable response when dealing with occasional clients who do not represent apotential source of further business. Such clients are also less likely to move in the same socialcircles, and thus to constitute a threat to the attorney's reputation. The most likely potentialvictim of these disloyal agents is usually a member of the lower socioeconomic strata whoknows little about the justice system and still less about how to select reliable counsel.'00

b) The principal agent dilemma between judge and bailiffAlthough the bailiff is the judge's agent, the interests of the two also coincide imperfectly. Likethe client vis-a-vis his attorney, the judge's ability to supervise the bailiff's actions (which occuralmost entirely outside the courtroom) is extremely limited. For the judge, success within thejudicial career depends on a reputation for imparting far and equal treatment to the parties inlitigation and not occasioning too many complaints from dissatisfied clients. Although onemight suppose that the actions of agents under his formal control would affect that reputation, therelative independence of the bailiff appears to be an assumed fact of judicial life. A judge whoattempts to exert more control over the bailiff's activities runs the risk of attracting morecomplaints than one who just lets things be.10'

98 The World Bank is supporting the drafting of legislation to encourage the use of secured collateral. The bill,presented to Congress along with the new bankruptcy law, was not enacted, but parts of it are being incorporated inother legistlation. See Montes-Negret (2001), 251-2.99 The lawyers of the focus group offered this as one explanation for the high percent of abandoned trials. Accordingto them, this is a problem not only of an excess of unscrupulous lawyers, but also of a variety of individuals whopractice law without benefit of a legal degree. This is possible because judges do not check the credentials ofattorneys, and additionally some lay "litigators" get to court by acquiring formal possession of the titlesubstantiating the debt. They thus appear as pro se plaintiffs.'° To the extent this situation occurs it not only has an adverse impact on equal access to justice, but may adverselyaffect the common citizen's image and perception of the transparency of the judicial institutions. Lackinginformation to decide who is to blame for an unsatisfactory outcome, the citizen may well accept the lawyer'sexplanation that it was the judge.101 This may explain the abandonment of an effort several years ago to put the bailiffs' under tighter judicial control.It was reported to us that this "did not work," and thus that the Federal District courts decided to return to thetraditional system.

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The bailiff thus is a relatively free agent, on court salary, but receiving most of his income fromthe extra-judicial fees the parties pay for his services. Impartial and equal treatment of both thedefendant and the plaintiff hardly enters the equation. The bailiff thus responds to the highestbidder, and measures his efforts against the inherent difficulty of the task and the fee deliveredfor its completion. While it is usually the plaintiff (or plaintiff's attorney) who pays, if theamount is not high enough, a difficult notification or seizure may simply not be carried out. Tobe fair to the bailiff, the work is not easy and may involve confronting hostile, sometimes armeddefendants or a whole neighborhood which has decided to prevent a seizure or just "not know"where the defendant lives.

Once again, the case file data reveal nothing about the real impact of the bailiff's deficiencies ortheir effect in producing informal exits. However, the status of the embargo as an importantprocedural bottleneck does highlight the potentially critical role the bailiffs perfornance mayplay.

Informal Exits after a Judgment

The case file analysis reveals that for every 9 out of 10 firm judgments favoring the plaintiff, theparties exit the judicial machinery without going through the formal process of the auction orappropriation of assets. In most instances, the exit is informal, in that there is no information inthe case files as to whether further action was taken and if so, with what consequences.

The participants in the focus groups suggested that the usual procedure is for the parties toconvene after the judicial ruling to reach their own agreement. As the awards are not limited tothe principal, but also include the unquantified interests and costs, negotiation is often centeredon how much of these surcharges will be paid. Such post-judgment bargaining is a commonoccurrence in civil litigation around the world, although it often comes as a surprise to thegeneral public and first-time court users. Thus, neither its presence nor the lack of attention to itspractice is unusual in Mexico. The extent of its occurrence (as opposed to literal abandonment)and the nature of the outcomes are, however, very important elements in assessing the success ofthe proceedings as a whole. While our information does not allow us to address the firstquestion, we can make some headway in discussing the second, by examining the assets andstrengths of the negotiating parties (creditor - debtor) and how they may tip the balance in favorof one of the opposing interests. 102

a) Creditor's resources in the post-judgment negotiationThe lawyers emphasized that the initial decision to follow the entire legal proceedings tojudgment depends on a first assumption that the affected assets are at least sufficient to cover thecapital amount of the debt and that they remain intact (i.e. not weakened by counterclaims,questionable title, etc.). Absent these conditions, an early fornal or informal exit is the onlyrational strategy. We can thus assume that the plaintiff facing a post-judgment negotiation holdsthree cards: the embargoed assets, a favorable judgment, and the inclusion of interests and otherfees (sometimes significant) to the final award.

102 A quantitative study on the terms and results of the extra-judicial negotiation is of paramount importance forunderstanding the full impact of JEM proceedings on the collection of debt. Meanwhile, what we are able to reportconstitutes a first approach based on the qualitative evidence alone.

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b) Debtor's resources in the post-judgment negotiationThe debtor's most important negotiating asset is the fact that the public auction procedure isexpensive, complex and slow.' 03 If the creditor is forced to use this procedure, the net worth ofthe eventual reward may be substantially reduced. Thus, the debtor is in a position to negotiatethe sum downward, counting on the creditor's greater interest in a swift and otherwise cost-freerecuperation of his monies.

c) Negotiation between debtor and creditorThe balance between debtor and creditor will be a function of the market value of the assets, as itsets the lowest amount acceptable to the creditor in exchange for not continuing with the formalprocedures of liquidation, appraisal, and public auction. That is, the more solid the patrimonialguaranty of the assets, the lower will be the "deduction" offered to the debtor. Attorneys pointout that, in an ideal negotiation scenario, the creditor expects to receive at least the capitalamount and some portion of the accrued interests.

The real question is the extent to which the complexity of the formal execution procedure altersthe creditor and debtor's calculations. While the auction is the major stumbling block, even theliquidation and appraisal stages add costs and delays. A knowledgeable debtor or attorney,understanding the situation, is likely to harden his position, especially if he considers that theasset itself (either because of its nature or questionable title) is intrinsically less interesting to thecreditor. This leaves the creditor with only three options: accept the debtor's terms, appropriatethe asset, or continue through the auction procedure. Admittedly, even in countries where theprocess is presumed to work well, few creditors use the public auction proceedings. Thedifference is their ability to do so with reasonably satisfactory results. Our quantitative andqualitative evidence suggests that in Mexico, this is not the case.

The effectiveness of a judicial system is thus not limited to the quality of the judgments itdelivers. Given the common use of post-judgment bargaining, it is important that it provide aninstitutional framework which facilitates a fair arrangement between the parties in the executionof its rulings. If the creditor and the debtor deem that the legal decision is "impossible toexecute" because of flaws in the judicial machinery, the parties' subsequent negotiation will bebiased in favor of the defendant. We do not have enough evidence to know if this is the case forJEM proceedings in Mexico City, but in evaluating the efficacy of those proceedings, itobviously is an extremely important, and equally neglected consideration. Efforts to produceimprovements by streamlining the pre-judgment operations will be of little help if anunconvincing execution process undercuts the initial judgments and forces the parties into anegotiation which offers more advantages to the loser than the winner.

103 With regard to the legal design of the public auction procedure, see Chap. VI, section 6.2.6. As already stated, theauction procedure is so complicated that almost no one makes use of it.

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8.5 CONCLUSIONS

JEM users commonly exit the judicial machinery prior to the judge's final ruling. The highestrate of abandonment occurs between the admission of the complaint and the serving of noticeand embargo. Six out of 10 cases do not get beyond this stage.

Some possible explanations for abandonment prior to the judgment are summarized in thefollowing Table 8-1:

Table 8-1Likely explanations for the recurring use of "Informal Exits"

Types of Informal ExitsDrotoidmnprior to judgmentOptimistic Scenarios Negotiation between parties

Complaint is filed for reasons other than recuperating a debt.Exits originating in variables Insolvent debtorsexogenous to the justice system Information problems that make impossible the execution of seizure

or weaken the seized assets guaranteePrincipal Agent Dilemma Between creditor and his or her attomeyF ___________________I________ Between judge and actuary

It is a general practice that judgments favoring the plaintiff are not executed by means of a publicauction of the assets. It appears that the most common outcome is either the direct payment bythe debtor or a process of post-verdict negotiation of the amount to be paid.

The public auction procedure is extremely complex, expensive and slow, so that it may adverselyaffect the creditor at the negotiation stage. The limited use of these formal execution proceedingsis not unusual anywhere, but in Mexico it may not be a positive sign (i.e. that debtors simply payup) and thus deserves further investigation.

As indicated by the data and reinforced by qualitative research, the two major bottlenecks in theJEM proceedings (events which either paralyze or significantly alter outcomes) are found at thebeginning (notification and embargo) and the end (public auction of assets).

While exogenous factors have their role in creating these bottlenecks, certain aspects of thejustice system itself (role of the bailiff, complexity of the formal execution proceedings) alsoplay their part.

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CHAPTER 9: EVALUATION AND RECOMMENDATIONS

9.1 INTRODUCTION

Does the JEM fulfill its purpose of allowing the recuperation of legally valid debts in areasonable period of time? This in some sense is the bottom line for the present research. Theanswer, as is usual for many apparently simple questions, does not lend itself to a simple "yes"or "no." In this final chapter, we review the dilemmas posed in evaluating the JEM proceedingsand some tentative conclusions both as to what we now know about the JEM and what remainsto be explored.

The first section compares the dictates of conventional wisdom, what "everyone knows" aboutthe JEM, with the empirical evidence. After establishing the inaccuracy of many of the usualarguments about how and why the JEM doesn't work, we offer a second set of evaluation criteriaand compare them with the study's results. The last section provides some generalrecommendations intended to remedy the problems actually identified and to indicate wherefurther research is still needed.

9.2 EMPIRICAL EVIDENCE ON "WHAT EVERYBODY KNOWS"

One of the important aims of the present study has been to test the validly of conventionalunderstandings against the empirical evidence, both as regards the JEM and, with appropriatecaution, judicial operations in general in the Federal District. This constitutes a first step toshedding some light on the debate and focusing reform efforts on the real problems of thecommercial justice system in Mexico City. As introduced in Chapter III, and further elaboratedthroughout the report, this conventional wisdom, drawn from interviews and publisheddocuments, also lay behind the SHCP's initial interest in the theme. It was organized as a seriesof working hypotheses to guide our research design and analysis. The findings from the case fileanalysis contradict a series of criticisms (based on these hypotheses) of the system'sperformance, which until now had been accepted as facts:

"The poor performance of the JEM has an adverse impact on the country's economy, as mostusers of the trial are wealthy individuals or entities that litigate considerable sums of money."As discussed in Chapter V, whatever the negative impact, it does not occur for the reasons cited.While financial and non-financial enterprises constitute a majority of the plaintiffs in the civil(but not peace) courts, most defendants are individuals and the amounts claimed are small tomoderate.

"The trial is too slow because of the excessive belligerency of the debtor." Neither part of thisstatement hold up under examination. The median duration of proceedings reaching a judgmentis 223 days and, although 39 percent exhausted the possible legal resources, this did not have asignificant statistical impact on their length. While some defendants do fight to the last ditch, andsome trials do extend for far longer periods, the more common scenario is the defendant's failureto participate in the proceedings.

"Delays are increased as every decision of the trial judge is appealed before the local SuperiorCourt and its decisions in turn are appealed before a Federal Court". In fact, only 30 percent ofthe trial court judgments are appealed locally and only 12 percent reach a Federal Circuit Court.

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(Interlocutory appeals of both sorts are still rarer.) Given the nature of the proceedings and theoutcomes of the appeals, even this frequency might be considered high, but it is still far underwhat conventional wisdom holds.

"The procedural rules and the judges themselves show a pro-debtor bias." The evidence showsthat 90 percent of the final (after any appeals) judgments favor the plaintiff. However, the highlevel of abandonment may indicate a structural bias embodied in the rules or the way they areapplied.

If the conventional sense about what is wrong with the commercial justice system is not accurate,it does not follow that the system is without problems. However, these problems are differentones and require a different set of criteria for evaluating efficacy and efficiency.

9.3 CRITERIA FOR EVALUATING PROCEDURAL EFFICACY AND EFCIENCY

An efficient and effective proceeding must provide incentives for extra-judicial negotiationto assure that only the most problematic and difficult conflicts remain within the judicialmachinery.

In current discussions of judicial reform, there seems to be a common agreement that the courtsshould only enter when the conflicts are extraordinarily complex and difficult to resolve.Alternative mechanisms like negotiation, arbitration, and mediation, are increasingly perceivedas a more efficient way to resolve many kinds of disputes and one which may be moresatisfactory to the parties. This may be particularly true of commercial justice with the parties'-higher premium on speedy decisions. Therefore, a criterion for defining the efficacy andefficiency of the proceedings is the number of conflicts solved extra-judicially'3 and under whatconditions.'0 5

The empifical evidence allows us only to say that most matters "exit" the judicial machinerypfior to the judgment (Chapter VIII). Unfortunately, the data do not reveal whether theseconflicts were settled extra-judicially and if so, with what results.

What we may assert is that the reasons for these exits are diverse in nature and that in some caseswhere they do not lead to an extra-judicial resolution, the principal impediments are external tothe judicial system (debtor's insolvency, informational obstacles in locating assets to be seized,lawyer disloyalty, among others). There are, however, several judicial factors which may work

That a high proportion of conflicts is resolved extra-judicially is a fact well known in the U.S., where, forinstance, only 2.5 percent of the lawsuits in California reach the verdict stage. There is a "black box" regarding theoutcome of the remaining demands, but there are good reasons to believe that an important share get to an out-of-court agreement; that is, a settlement. However, the fact is not limited to this country or the common law.Blankenburg (2000 a and b) points out that in several European nations, most debt collection cases are resolved outof court. An important portion of the remaining cases is ruled automatically in favor of the plaintiff (defaultjudgment) when the defendant fails to appear in court. See also articles in Zuckerman (1999).105 While we acknowledge, in response to two of our readers (a lawyer and a judge from the civil code tradition),that certain legal and cultural preferences may make negotiation less acceptable and thus a rate of out-of-courtsettlements comparable to that of the U.S. an unrealistic goal, it is clear that practices and preferences are changing.(See articles in Zuckerman, 1999). Here the word "conditions" becomes important - dejudicializing a matter is onething, but so long as a conflict is justiciable, civil code judges may prefer to retain some role in ensuring that anynegotiation is conducted fairly.

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against successful out of court negotiation or paralyze the judicial process. One of them is thebailiff's role in the notification and embargo stage. Here as with other less common obstacles(those posed by exhortos), the problem may originate extra-judicially (the fact that assets or thedebtor are located in another jurisdiction, thereby requiring the cooperation of another judge).However, the judicial machinery does not appear to have provided a best solution for dealingwith it.

On the other hand, post-judgment negotiation seems to be a recurring reality. The 90 percent ofthe sentenced trials with a pro-creditor judgment, also reach that stage with embargoed assets asa guarantee of payment. However, the creditor's assumed bargaining advantage may be undercutby the reality of the complex, slow and costly formal execution process.106 Here too the judicialmachinery may have a negative impact on outcomes, weakening the creditor's hand, and forcinghim to accept a reward far less than that ruled by the judge. Efforts to make the execution stagemore credible (i.e. easier to use) might have more effect on promoting efficacy than any changein the pre-verdict procedures.

In summary, the JEM proceedings do appear to create a space for negotiation between theparties, but that space may be narrowed by the problems related to the bailiff's performance,procedural details like the exhorto, and the formal execution proceedings. Thus, improving theprocess should not mean encouraging more cases to come to judgment or formal execution, butcreating the conditions to promote a fair negotiation in accordance with the law and itsunderlying values. In fact, the high percentage of pro-plaintiff judgments is in itself a bad sign,meaning that the predictability of outcomes is not encouraging out-of-court settlements of thesecases. A well-functioning system, one which encourages settlement of cases with sure outcomes,should show a closer margin in those going to judgment - indicating that the full proceedings areonly used for the most problematic conflicts.

JEM effectiveness measured by results: the sum recovered by the creditor.

Another fundamental criterion to evaluate the proceedings efficacy is the result; i.e. how much isrecovered by the creditor in cash (either by means of extra-judicial negotiation encouraged by thejudiciary or public auction of the assets seized).

Here again, we lack empirical evidence to allow even the vaguest reckoning of the amountsrecovered. Only a few cases have payments or settlements recorded in their files; public auctionsare so rare that the information from them provides no basis for further conclusions. Therefore,we have no means of evaluating the JEM against this standard.

Admittedly, it is also important to recognize that some debt is "unredeemable" for reasonsexogenous to the system. Facing a bankrupt or insolvent debtor, the commercial justice systemcannot do much. Addressing these problems requires remedies external to the commercial courts

106 Post-judgment bargaining rather than a formal execution process (public auction of assets) is the general rule inmany countries, including the US. Judges may assume it is occurring, but have no direct knowledge of its outcome.The difference is that a plaintiff's threat to go through with an auction is more credible than in Mexico - theimpediments in these other systems are more likely to be the marginally higher expenses as well as an unwillingnessto appear as the villain of the piece. (As a U.S. lawyer put it, "nobody wishes to appear as the bad guy who throws awidow out of her home.")

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and in some cases to the entire justice system. It seem especially important that in Mexico'sacademic and political debate on the subject, a line be drawn between the issues originating inunsound credit policies on the one hand, and a system of justice that does not thoroughly resolvethe conflicts between debtors and creditors, on the other. An issue crossing the line is that ofproviding services and means for individual and organizational actors facing temporary orpermanent insolvency to satisfy their credit obligations without sacrificing their future economicproductivity. The new law on bankruptcy and insolvency may offer a better solution for mediumand large-sized firms, but it offers no remedy for individuals or small businesses.

Our distinction between problems arising in bad business practices or unanticipated economicshocks and situations where the system cannot cause a solvent debtor to repay a legally sounddebt, is also for the moment conjectural. We know both situations affect the JEM's efficacy interms of our second criteria, but have no means of determining their relative frequency let alonethe economic costs to the parties. Nonetheless, any proposed reform must consider the issues,and recognize that some problems are neither the fault of the judicial system nor will be resolvedby changes within it.

Efficiency and efficacy of JEM may only be measured if the exogenous variables areanalyzed and weighed.

The initial research question was in some sense premature - requiring measurement of thejudiciary's impact on a problem (contract enforcement and credit availability), the dimensions ofwhich themselves were unknown as were the other contributing factors. As has been remarkedrepeatedly, if there is a problem with access to credit in Mexico, it requires further researchtargeted only on that issue. Once its dimensions and importance are determined, one can thenbegin to identify the variety of contributing factors. The present research has revealed littleabout the problematic nature of contract enforcement and access to credit, but it does suggest thatthe judiciary's role here or in other areas hinges on several exogenous variables.

Even a far narrower question, that of evaluating the proceedings' efficacy on their own terms,will still have to take the impact of these extra-judicial elements into consideration. Among themost important identified are the following:

Problems related to the professionalism and honesty of the litigating attorneys

The information problems deriving from the poor performance of Mexico City's Public PropertyRegistry and the regulations relative to the debtor's bank accounts and investments secrecy

The formal and informal system whereby creditors select their debtors

The lack of systematized public information about the credit history of individuals and entities orabout their former unlawful conduct (false guarantors, inaccurate information when requestingcredit, etc.)

All these factors have affected the Mexican system of credit, although up till now theresponsibility for any poor performance seems to have been attributed only to the courts.

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9.4 GENERAL RECOMMENDATIONS

As noted at the start, it was hoped that this research would produce findings andrecommendations of broader relevance, and not limited only to the JEM or the Federal Districtcourts. As regards the geographic limitations, we must be extremely modest about extrapolation.The Federal District courts are hardly representative of the nation's local judiciaries, and mayshare with the latter neither their strengths nor weaknesses. While we suspect that some of ourfindings and recommendations (e.g. the need to distinguish real from nominal workload, theimportance of a good statistical system, or the predominance of small claims and individualusers) would apply elsewhere, this is only because they seem to be universally relevant (that isfor all court systems, not just those of Mexico). The majority of our findings and therecommendations derived from them merely indicate questions worth pursuing in otherjurisdictions - for example the high rate of abandoned cases, the unexpectedly low rate ofappeals and amparos, or the less than anticipated delays and the consequences each might havefor reform policy. In the abstract, it is possible to argue both for their broader relevance and forwhy things in less developed parts of the federation might be different.

In terms of extrapolation to other types of civil (or criminal) cases within the Federal District, wecan be a little more confident about separating the JEM-specific from the general suggestions.Bailiffs may be more critical to a JEM proceeding, but there is no reason to believe they operateany differently whenever their services are required. Likewise, judicial passivity is unlikely tobe limited to the JEM. In most instances, it would also be difficult to effect a partial change -the only real exception might be modifications of the procedural rules, although here too, similarpolicies would be worth exploring in other types of conflicts. In each of the three main areas ofrecommendations, we have thus ignored the extra-Federal District implications, but have tried todistinguish between JEM-specific and general reform measures. Our principal system-widerecommendation is that this same type of information be collected in other jurisdictions and forother types of proceedings. Having, we believe, amply discredited conventional wisdom, wehave no wish that our narrowly focused research become the new basis for "what everyoneknows."

Commercial Justice

Although the following recommendations are directed specifically at improving the JEM, all of.them may be applicable to civil (and even criminal) justice proceedings in general. Severalwould in fact be difficult to introduce in any way except across the board (for example changesin the bailiff system). Just as most of the standard complaints about criminal justice echo thoseof court operations as a whole, our findings and recommendations are at least indicative of areasrequiring further research in other areas.

* Solving the issues regarding the bailiffs

There are certainly indications of problems - bias, inequality, bribery and inadequate judicialsupervision -- in the way the bailiffs now work. As regards the JEM proceedings, this appears tocontribute to difficulties in effecting a key stage -- the notification of complaint and the embargoof assets. It is thus not difficult to conclude that Mexico City's court system needs to addressthis weak link. Better supervision, higher salaries, greater professionalization of the group, andefforts (first by education and then by fines) to induce the public not to continue with the stipend

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system should all be explored as remedies. A collective bonding system (as in France) mightalso be interesting - if the judges can't or won't control them, perhaps some form of collectiveself -policing (with appropriate incentives) might work.

* Making the execution proceedings more credible

In all stages, but especially in that of the public auction, the execution proceedings have anabsurd legal design which creates disincentives to their real use. Even if carried out, the realcosts, those imposed by delay, and the assets depreciation resulting from auctioning underconditions that do not guarantee a market price place an undue burden on the creditor. Asimplified, less costly procedure might not be used any more frequently, but it would enhancethe likelihood of the creditor's recuperating the award.

* Process simplification and possible creation of small claims proceedings or courts

Although it is true that few cases exhaust the potential for appeals, incidents and other proceduraltactics, it merits asking to what extent the widespread lack of confidence in the system is relatedto its perceived complexity. As in principle, a titulo ejecutivo does not require an exhaustivevalidation process for its execution, and in fact, 90 percent of the firm judgments favor theplaintiff, it is worth asking what purpose the additional steps really serve. Conceivably theprocedures could be simplified, as they have been elsewhere, without harming the rights of thedebtor, who in many cases doesn't even bother to put up a defense. Three immediate stepsmight be the following:a) The establishment of an expedited procedure for presenting and validating the documents

provided in support of the claim.b) Introduction of some of the measures adopted in various European countries, including a

default judgment for uncontested cases or the use of an ex-parte injunction (like the Frenchinjunction de payer or its Italian equivalent)' 07 which if unopposed would allow immediateexecution. Of course, care must always be taken in adopting "successful" remedies fromother countries, first because they frequently are less successful than the adopters believe,and second because their success, as well as the avoidance of undesirable side effects,usually hinges on having other institutions in place. One would not, for example,recommend that the Mexicans grant the bailiffs the power exercised by those in theNetherlands, at least not until the Mexican bailiff system is substantially reformed.

c) Consideration of a two track proceedings (both in terms of legal requirements andcourtroom handling) separating smaller cases and especially those involving consumercredit from larger ones, and especially those involving organizational actors and otherinvestment credits. Both proceedings might include necessary due process protections, butthese should be designed to handle the foreseeable needs of each type of conflict.

By recognizing the two major types of conflicts potentially handled by the JEM and designingproceedings to meet their separates needs, unnecessarily complicated procedural requirementscan be avoided where they serve no special purpose. Given the still higher rate of abandonmentin justice of the peace courts, it seems especially advisable that procedural simplifications be

107 See discussion in Chapter VII and Cadiet (1999), Chiarloni (1999).

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introduced here. As noted, these courts do not function as true small claims courts, 08 and somethought might be given to introducing that concept in Mexico. This would entail simplifiedprocedures, pro se representation, and training of judges to deal with less inforrned defendantsand plaintiffs. Care would have to be taken so that large users pursuing small claims againstindividuals do not abuse their inherent advantages (access to counsel, familiarity with theproceedings, etc).

There are several other procedural details deserving of attention, although their frequency orproven impact makes them less problematic on average. One example is the exhorto, in whichthe forward progress. of the case depends on another judge's carrying out certain procedures.Here, informants even noted problems posed by the usual means for requesting an exhorto - thepostal system - and its own inefficiencies. The need for the exhorto arises independently;however, so long as it exists, some means must be found for conducting it more efficiently. It isalso worth mentioning that exhortos'09 pose an additional problem for justice of the peace courts,as they must be requested of other JPs within the Federal District itself.

* Reconsider the nature of due process guarantees in commercial (and possibly other civil)proceedings. I I0

While this is an extension of points raised above, it deserves special mention. Although it iswidely accepted that the burden of proof and standards of evidence for civil proceedings aredifferent (less strict) than those for criminal justice, in Latin America it often appears that thelatter have tended to influence the former. This means that civil justice proceedings are oftenfilled with a variety of measures to guard against possible violations of the defendant's rights(the functional equivalent of being innocent until proven guilty). In fact, as we have seen, onlythose defendants who can afford counsel make full use of these protections, and they arguablyuse them abusively. Without eliminating all possibility of defense, these measures could be takenout of the default category and more judicial control exerted over their exercise (see next point).

* Encourage judges to take a more proactive role so that they may reduce the use of dilatorytactics.

The judges do comply with the legal time limits as they affect their own actions, but they are notas insistent that the parties meet their own. This means that a good deal of delay is attributable tothe parties themselves, and even to the plaintiff's lawyer. Judicial reluctance to push the partiesto action and overrule dilatory tactics is a feature of the judicial culture (and incentive system).To act otherwise, judges will need to feel supported in their new role. If they fear a reprimandfrom the Judicial Council when an attomey files a complaint, they will not combat dilatorytactics energetically. Hence the first change lies with judicial leadership - if they want proactivejudges they will have to reward and encourage them.

'Os For a discussion of Brazil's use of small claims courts, see Bermudes (1999), pp. 350-2. Baldwin (2000)provides information on their use in the United Kingdom.

109They have another name, but are essentially the same process.are indebted tO our peer reviewer, David Varela, for this point.

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* Introduce a betterfiltering mechanism for appeals and amparos.

Although the rates of interlocutory appeals and amparos as well as those against final judgmentsare not as depicted by critics (far less than "total"), they can still be considered excessive for thenature of the proceedings. This seems especially true when one considers that the vast majorityuphold the initial ruling. While one must be very careful in interpreting statistical profiles (heretoo, a good and bad system might look the same), a good filter should produce a much closerdivision in rulings upholding or overturning the trial court ruling. While there should always beroom for justifiable appeals, some disincentive (a filing fee or deposit"') might be useful.Appeals and amparos appear to be processed quickly, but they do add time and up the costs forthe parties. If financial disincentives cannot be added up front, then costs should be charged tothe losing party, and the judges will have to take a more active role in deciding what goesforward.

Court Administration

All three points are generalizable to the entire judicial system. They are in no sense limited tothe JEM or commercial cases (nor, we can safely assume,' only to the Federal District).Clearly, estimating real workloads will require comparable information on other proceedings, butthere is reason to believe that the general principle is valid here as well.

* Judges' performance, as well as the distribution of resources and the ability to meet clientdemand, must be evaluated against real workloads, not the nominal ones.

Our path analysis of the proceedings allows a corollary conclusion that, just as cases followdifferent paths, not every case requires the same level of effort on behalf of the judge. There is asignificant difference as regards the 60 percent of filings that never get beyond the admission ofthe complaint as opposed to the 19 percent which reach a judgment. An efficient administrationof human and economic resources thus needs to start with that figure and consider the statisticalprobability that a filing will result in any more work for the judge than a simple admission.Whether real workloads are excessive or not needs to be determined, but in any event they are farless than the nominal ones.

* Elaborate a system of judicial statistics to support the making of decisions and theaccountability of Mexico City's courts.

The most important changes regarding the quality of the justice do not result from the updatingand upgrading of the legal framework, but from the way the judicial institutions perform theirduties. To improve that performance, modify internal processes, identify problems, distributeresources more efficiently, plan for emerging needs, and monitor the behavior and outputs ofjudges and other system actors, a good system of judicial statistics is essential. While MexicoCity's courts, like some (but not all) of those in the rest of the federation do keep statistics, theyseem not to be designed (or used) for these purposes. What exists is also not publicly available

" ' Both of which may be difficult given the Mexican principle of "free" justice, but which nonetheless seem to workin Argentina in reducing appeals (see Garvano, 2000).112Part of the assumption is based on the absence of efforts to weight caseloads, even in Mexico's more developedcourt systems. The other part is based on a small, but growing body of information on management and statisticalsystems in the state judiciaries. See Carbonell (n.d), and Concha and Caballero (2001).

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and in any event, in its current form, would probably not help the public, any more than thejudges, understand what is occurring internally. Foreign experience shows that judicial policycannot be made effectively and the judiciary cannot succeed in telling its story to the publicwithout a good system of management statistics designed to serve both of these ends. If ourstudy has served no other end, it has at least demonstrated the dangers of relying on whateveryone knows about system performance, and the desirability not only of additional researchinitiatives, but also of the judiciary's efforts to improve its own mechanisms for tracking itsoperations.

* Make judicial statistics and other information more easily available to the public andinvolve citizens in the discussion of proposed reforms

We would add to the preceding recommendation a corollary suggestion on the need for greatertransparency in the conduct of court business, including but not limited to making judicialstatistics available to interested-members of the public and researchers. Mexico's astonishinglack of empirical studies on its courts can be blamed at least in part on the courts' belief that thisinformation should not be shared because it somehow violates judicial independence or the rightsof privacy. This belief is not unique to Mexico although it does seem to take a particularlyexaggerated form there. While the current interest in citizen involvement and court out-reach inmany industrialized nations is too recent to evaluate for impact (e.g. does it really lead to a morepositive image or to "better" reform programs with more chances of implementation because ofbroader support?) it would be hard to argue it was anything but a positive trend. It certainly isconsistent with tendencies in the rest of the public sector where there is evidence that it canimprove service delivery, curb corruption, and promote useful innovations. One furtherconsequence of the long-term neglect of the courts throughout Latin America is that they havebeen equally neglectful of their users. Current tendencies to increase the courts' political weight,budgets, and overall importance have advanced without a comparable attention to a clientorientation and greater accountability. This is a potentially dangerous situation for the courtsthemselves, as well as for society as a whole.

Areas Requiring Attention from Other Branches of Government

The second point is clearly suitable for system wide application. Any effort to increase the bar'sprofessionalism could not be limited to one type of proceedings. Although the problems ofadequate information are more specific to the JEM, the measures recommended would havewider benefits, or other court cases, and for the credit system as a whole.

* Provide the information necessaryfor an effective credit system.

One way to tackle the insolvent or unwilling debtor problem is to generate and systematizeinformation about the credit history of individuals and firms. Attention is also required toimproving the operations and performance of the Real Property Registry to make it a morereliable source of information. Systemized registries of movable collateral might also beconsidered as a second order priority. With access to better information one major source ofconflicts between creditors and debtors and a principal impediment to the smooth functioning ofthe summary proceedings will be removed.

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* Address the problems related to the quality, professionalism and honesty of the servicesrendered by the private bar.

The enormous differences in the quality of the legal advice is a problem that also affects citizen'strust in the justice institutions. In protecting the interests of consumers of legal services, somelogical steps include the introduction of obligatory collegiation, the bar associations' ownintroduction of self-policing policies along with an effective means for receiving and handlingclient complaints, regulations to sanction certain ad hoc practices, programs of public educationand services providing assistance to users.

9.5 FINAL NoTE

This research began as a request from Mexico's Secretaria de Hacienda y Credito Publico tomeasure the courts' impact on contract enforcement, credit availability, and overall economicdevelopment. Our study,,which looked at a partial, but significant slice of court activity, foundthat the hypothesized impact and explanations do not hold. (More accurately, as we found thehypothesized causes or points of impact not to exist as portrayed, the conclusions on theirnegative effect do not follow.) Nonetheless we did find weaknesses in court operations, both asregards the specific proceedings analyzed and in general. Some of these may have a directeconomic impact although not of the type predicted -- they seem more likely to affect theavailability of traditional sources of credit to consumers and small entrepreneurs and to generateless formal alternatives which may operate in an exploitative fashion.

A potential indirect or historical impact on the initial issues also exists, but to trace it we wouldneed data on the longer, term trends in uses of the JEM proceedings, sources and practices forlarger investment credit, and the presence and adequacy of alternative means for recuperatinglarge loans. If, as one possible explanation, large creditors gave up on the JEM proceedingssome time ago, and have not found a satisfactory alternative, then thought should be given tomodifying the proceedings or introducing some other judicial process to meet their needs. Ifthey never used it, or have developed another judicial or extra-judicial mechanism, thenmodifying the JEM to meet their needs may be unnecessary or futile.

The findings have also suggested several insights into the design of this or any kind of judicialreform. Two are fairly obvious. Reforms based on conventional wisdom are dangerous because"what everyone knows" is often in error. Moreover, once a societal problem has been identifiedit is also risky to start with the assumption that it originates with the judiciary and must find itsremedies there. We still do not know how debt recovery issues affect the availability of credit inMexico, but we have demonstrated that the judiciary is only one of several institutions with arole here. In effect, neither of these findings came as any surprise to the research team, but wesaw the request as a way of testing our own suspicions as well.

A third finding is less obvious but is equally critical for shaping reform programs. This is theneed for a model which defines the judicial role somewhat differently - not as a system whichenforces juridical security by resolving lots of conflicts, but rather as one which through thepredictability of its outputs both enforces juridical security and encourages the extra-judicialresolution of disputes in accord with the law. This of course is far harder to evaluate (as theabove discussion certainly demonstrates). It also will be tempered by certain cultural and legalpreferences for a judicially regulated solution. Not all systems may aspire to the U.S. record of

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sending only 10 to 2 percent of cases filed through the trial process (or settling up to 60 percentout of court), but they will have to recognize that out-of-court settlements are part of the judicialproduct. A court system which measures its success solely in terms of the number of judgmentsdelivered (or a greater percentage of filings reaching a final ruling) is a court system which will,at least in the modem world, only complicate its own life and that of its users. It is hard to say towhat extent Mexican jurists and reform planners are open to this new model. The nature of theusual criticisms and complaints, and the sheer lack of attention to extra-judicial settlementsuggest is not yet a part of their thinking. Clearly, if it is to be the model, more information isrequired on what is happening out of court. This does not detract from the need for furtheranalysis of case files and a system of judicial statistics which keeps better track of internaloperations. However, in a world of more laws, more conflicts, and enhanced access to theformal system, the judiciary can no longer aspire to give every case its day in court. Ignoring itslimitations will produce an implicit rationing system which will not make the best use of itsresources and may actually decrease juridical security and equality before the law.

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ANNEX

METHODOLOGICAL REPORT

BackgroundThis report begins with a short narrative account of the evolution of the project. Following thatfurther details are given on the case file analysis and focus groups.

In May 2000, a working group was constituted to initiate the research and elaborate its designand action plan. It was coordinated by investigators of the Centro de Investigacidn y DocenciaEcon6micas (CIDE) and included members of other Mexican universities (UDLA and ITAM).In the first meetings, two Argentine researchers with experience in similar studies, the Bank TM,personnel from the SHCP, and a French Judge, Jean-Marc Baissus, seconded by the IMF,participated.

Following some basic decisions on the division of labor, time line, the objectives of the study,and the research instruments that would have to be developed, the CIDE team began to collectinformation to increase its own understanding of the JEM, commercial justice, and theorganization and operations of Mexico City's civil courts. In this it was aided by the UDLArepresentative, a lawyer with extensive experience in litigating debt cases and by Judge Baissuswho provided information on the comparable French proceedings. An exhaustive revision of thelegislation governing the juicio ejecutivo mercantil in the Federal District was also undertaken,complemented by meetings with court personnel.

Although the principal methodological tool would be the analysis of data from case files, it wasalready evident that other sources of information would be required. The preliminary stagesdrew on observation of courtroom practices and informant interviews with judges, courtroomstaff, and court personnel working in the central reception office and judicial archives. Likewise,discussions were held with officials from the SHCP, with lawyers representing commercialbanks, and with other local attorneys known for their experience with commercial cases. Thishelped in the refinement of working hypotheses and the overall research design. To get a betterunderstanding of the significance of the cases, changes over time, and to assist in the sampledesign, the team also collected statistics currently kept by the courts on caseloads at thecourtroom level.

Eventually, given the inherent limitations of the case file records (i.e. they only record whathappens "in court"), it was decided to form focus groups with litigant lawyers as a source ofinformation on external events and also on the parties' strategies and tactics within the courtprocess itself. These groups were conducted in the final stages of the study.

On the basis of these early activities and the determination of the specific questions to beexplored, data collection instruments were created, the sample was designed, selectionprocedures were defined, and a capture mask and data base were constructed.

After a pilot experience with a small random sample, further adjustments were made. First,discussions were held with the Tribunal President for the purpose of gaining access to the entireuniverse of courts, rather than the initial hand-picked targets. Once the principles of randomsampling were explained, the president granted access, with an understanding that the final database would be purged of any information that might be used to identify specific courts or cases.

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This agreement also gave the team full access to the central archives which contain disposedcases as well as those temporarily retired because of the parties' inactivity for more than 120working days. Second; we decided to work with two rather than one sample because of the highrate of "abandoned cases," those with no record of any judicial or extra judicial conclusion. Asample based only on initiated cases would have contained too few reaching judgment to allowsignificant generalizations about their pre- and post-judgment trajectories. Finally, furtheradjustments were made to the data collection instrument and capture mask on the basis ofexperience with the initial versions.

Once the sample selection phase concluded, and after the final adjustments to the forms andcapture mask, we proceeded to the compilation and electronic capture of data. Ten lawyers withexperience in civil litigation were recruited and trained for this task. They were divided in twogroups, each under the supervision of a coordinator. To ensure homogeneity of criteria (aproblem which arose in the pilot experience) a Pollster's Instructive, Catalog of Codes, andAdministrator's Instructive were prepared. The data capture team participated actively in theirpreparation, and trained further by working as a group on a set of case files.

Once the data had been collected, the completed forms and databases were checked and cross-checked for accuracy. The capture mask was designed to identify "impossible answers," butmuch of the checking was manual. The final sample included 464 valid files, 234 cases initiatedduring 1997 and 1998, and 230 reaching a judgment in 1997. This information was translatedfrom Access 2000 to a receiving SPSS database, and then, as planned, was processed andstatistically analyzed. While some of the analysis followed predictable paths,. others resultedfrom preliminary findings which drew attention to additional questions and possiblerelationships.. Analysis of the data is still not complete - that reported here is limited to thequestions posed with the initial request for the study as well as some particularly significantfindings that emerged along the way.

As mentioned earlier, to collect information about conduct and motivations of plaintiffs anddefendants and their respective lawyers, and to explore some of the black holes (predominantlyany out-of-court negotiations) two focus groups were organized toward the end of the study;Further details on this and the case file methodology are provided below.

Data collection: overview of design and data entry instruments

Case file analysis, as its name indicates, relies on data found in the written record (case file) keptby the court for each case. This record includes the written documentation which necessarilyaccompanies any official activity by the parties, judge, or other court official. Despite thearguments about the merits of written versus oral judicial systems, all courts rely heavily onwritten documentation and for this reason, researchers have for decades drawn on the records asa primary source of data. In Mexico, owing to problems of access, the methodology has beenused only sporadically, and it bears noting that the present study represents the first time any ofits court systems has formally allowed researchers to work with a sample of their files.

Given the size of the individual files, and the large quantities of information they contain, it isnecessary to develop a tool for the systematic collection of the relevant data. To this end, specialpre-coded forms, called "Csdulas" by the working group, were designed. The forms wereorganized according to the procedural stages of the trial, in the following manner:

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General form: includes general data about the initial complaint and claim, parties, proceduraldevelopment, verdict, and the compulsory execution through auction.. As it becameapparent that this general forn would be too cumbersome, 6 additional (annexes) formswere developed to facilitate data collection on the details of some procedural events andcharacteristics.

Parties' form: a form was added to provide more specific information on each of the parties(plaintiff and defendant) for each case., including their legal status (individual or corporateidentity) and other data considered potentially relevant. A separate forn was needed givenvariations in the number of parties, and the level of detail required.

Exhorto: the exhorto is a special procedural step involving a request to a judge in anotherjurisdiction (including those within the Federal District itself) to carry out some necessaryaction - often notification, seizure, or the like. Exhortos are not common, but when theyoccur can provoke delay or paralysis of the proceeding. Thus, it was considered necessaryto include detailed information on them in those cases where relevant.

Embargo form.: as the attachment or seizure of assets is a critical step in the proceedings(although one occurring only in 32 percent of filed cases) we needed considerable detailson the number of times it was attempted, the nature of the affected goods, and anysanctions imposed on a debtor who resisted the action.

Evidence form: because of the hypothesized delays occasioned by the presentation of evidenceadditional to that accompanying the complaint, we required a form detailing the duration ofthe evidentiary stage, the number and types of evidence provided, and additionalcomplications for those cases where this stage actually occurred.

Form for incidentes during the process: Incidentes are legal arguments added by the defendantonce the proceeding is under way (as contrasted to the excepciones or defenses presented inthe initial response to the complaint). As their occurrence, frequency, and nature varywidely, a special form was needed to record them.

Interlocutory appeals and amparos: includes details on each of the recourses interposedduring the proceedings. A separate form was required because they can occur at any pointin the case - hence there was no logical place to put them in the general file. Moreoverthey are not all that common.

Observation form: Useful to explain in detail any atypical or very interesting situationpresented during the proceeding or to include explanatory notes of the case.

Table I:Con eptual organization of the general formSECTIONS QUESTIONSComplaint, prevention and admission 1, 2, 3,4Parties 5 y 6Document supporting claim 7Action requested 8Embargo and summons 9, 10 y 11Defendant's response 12, 13 y 14Proofs and pleadings 15 y 16Current status of case 17, 19 y 20Sentence, appeal and amparo 21, 22, 23, 24, 25, 26 y 27Sentence execution 28, 29, 30, 31, 32, 33, 34, 34A, 34B, 35, 36, 37, 37A, 41, 42 y 43Interlocutory appeals 38, 39 y 40General characteristics of the file 44, 45, 46 y 47

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In Table I the general form's organization and content is shown in detail. Table 2 summarizesthe annex forms' organization and content, also indicating their link to the general form.

Data recorded in the forms were transcribed to electronic files through a data capture mask(mascara de captura) specially designed with Microsoft Access 2000. The mask's contents werein turn transferred to SPSS (Statistical Package for the Social Sciences) to be processed andstatistically analyzed. A file was created for each form and for each sample to integrate adatabase of 16 files; in Table 3 the names and formats given are indicated.

On each form, dates for each event are requested. This allowed us to estimate the duration of theprincipal stages, and the proportion of cases reaching each one of them, from the initialcomplaint to conclusion via: desertion, expiration, voluntary withdrawal, judgment and itspossible appeal and amparo, sentence execution and auction of goods.

Sample design.

Considering the investigation's objectives, the distribution of available information in courts, thephysically available files, as well as the preliminary empirical evidence collected, it was decidedto use two different samples corresponding to two distinct populations:a) The 108,208 case filings in 1997 and 1998, for the sixty civil and sixteen justice of the

peace courts of the Distrito Federal which received JEM casesb) The 13,906 cases receiving judgments during 1997 within the same civil and peace courts

of the Distrito Federal

1997 and 1998 were chosen as reference period for the population of initiated cases for thefollowing reasons:a) The entry into effect of the May 24,1996 modifications to the Distrito Federal's Commerce

Code, intended to accelerate the handling of JEM cases affected by them;b) The average duration of a JEM proceeding, estimated as two years according to court and

tribunal employeesc) The possibility of having at our disposal files located in courts, tribunals and civil court's

central archives; and,d) Relatively stable conditions apart from the 1994, 1995 economic crisis, when the highest

frequency of JEMs promoted by banks was observed

The decision to construct the second sample of cases reaching judgment was based on an initialfinding from the pilot as to the low percentage of cases reaching official termination. We choseonly cases reaching judgment in 1997 because of reports from lawyers and judges as to thelength of the execution proceedings (estimated at two to three years). Hence, cases decided in1998 or after might not have completed the entire execution stage.

Each population was divided into two large groups: cases heard in civil courts and those handledby justice of the peace courts; the distinction is based on the size of the initial claim. The upperlimits for peace courts, which see the smallest claims, are set by law. In the period covered, theupper limit was 29,000 Mexican pesos or about $3,000.

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Table 2: Conceptual organization of annexed formsNAME OFTHE ORIGIN IN GENERAL FORM SECTIONS QUESTIONSFORM

Parties Questions 5 and 6: provide form for each Type and legal character I and 2actor and each defendant. Natural person's identification data 3

Company's identification data 4Legal representative in party's favor 5 and 6Experts in valuation stage 7

Only for defendant party Response to complaint 10 and 11Notice and seizure 8 and 9

Exhortos Question 9: If the answer is YES, provide Who promotes it? Column Iinformation for each one (one case per line) Issuance date Column 2

Type of exhorto and subject Column 3Entity where formal application mustbe made Column 4Situation of formal application Column 5Notification date to exhorting court Column 6

Embargo Question 10: If the answer is YES, break Type of affected gooddown the information for each seized good Description of seized good Column I(one good per line) Depositary Column 2

Evidence Question 15: If the answer is YES, provide Type (e.g. document, witness) Column 3information for each proof offered Who provides it? Column I(one proof per line) Admission and hearing Column 2

Admission date Column 3Hearing date Column 4

Interlocutory Interlocutory AppealsAppeals and Question 38_1: If the answer is YES, Date of request Column 5Amparos provide information for each appeal Type of decree appealed Columns I & 2

(one appeal per line) Who requests it? Column 3Was it admitted? Column 4Outcome Column 5

Indirect AmparosQuestion 38_2 : If the answer is YES, Date of request Column I & 2provide information for each amparo (one Nature of claim Column 3amparo per line) Result of amparo Columns 5, 6,

7,8,9 & 10Second amparo instance, if any Col. I I & 12

Incidents Question 39: If the answer is YES, provide Date and party that promotes it Columns 1, 2information for each incident &3(one incident per line) Type of incident Column 4

Date and content of the resolution Columns 5 & 6

Observations Any additional information regarding anyaspect of the Proceeding.

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Table 3: Summary of data base organizationNAME OF THE INITLATED SAMPLE SENTENCED SAMPLEFORM File name Format File name FonnatGeneral Igeneral SPSS 9.0 Sgeneral SPSS 9.0Parties Ipartes SPSS 9.0 Spartes SPSS 9.0Exhortos Iexhortos SPSS 9.0 Sexhortos SPSS 9.0Embargos Iembargos SPSS 9.0 Sembargos SPSS 9.0Evidence Ipruebas SPSS 9.0 Spruebas SPSS 9.0Incidents Iincidentes SPSS 9.0 Sincidentes SPSS 9.0Recourses Irecursos SPSS 9.0 Srecursos SPSS 9.0Observations 'Observaciones Access 2000 Observaciones Access 2000

Sample size, determined by the estimated costs and time needed to collect the data wastentatively set at 500 case files distributed in the following manner:a) A selection of 150 files from 15 first instance civil courts, also randomly selected with a

probability proportional to the number of cases processed multiplied by the 60 first instancecivil courts that operated in 1997 in the Distrito Federal

b) A random sample of 100 files from the total of 16 peace courts that accepted this type ofcase,

c) 150 files reaching judgment in 1997, randomly selected from the same 15 first instancecivil courts selected, and,

d) 100 files from cases decided in 1997, randomly selected from the 16 peace courts

Estimation process

For sample design, therefore, four different populations were considered, according to thedifferent characteristics of population elements. They were actually handled as four independentsamples, even though they were subject to a similar estimation process. This is a two-stagesampling by conglomerates. In first stage, courts were selected, conglomerated, with probabilityaccording to size (number of relevant cases). Because of the disparity of the number of filingsaniong justice of the peace courts and the absence of a detailed central list, it was decided to takea census of all of them. In contrast, a fourth of first instance civil courts were randomly selected.

In the second stage, a simple random sample of case files was drawn from each of the firstinstance civil courts and peace courts included. Because of the way courts keep their registries(government books and sentence books), the sample was selected in a systematic way with arandom start, as will be described below.

The following expressions were used for the estimation process:

Probability of selection. Ili = NiN

ni

EY.iMedia conglomerate estimator. Yi = i='

n8

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Population media estimator. I= N m

Variance of population media estimator V2 m - E 1imN 2 m(m - 1)

Where:M Number of civil or peace courtsM Number of courts in sampleNi Number of files in the i-th courtN File population size (1997-1998)ni Number of files in the i-th court sample (civil or peace courts).yij Interest variable (time period for stage) or dichotomy (0,1) for categorical variables.

File selection mechanisms.

Statistics kept by the judicial offices allow us to know the number of cases initiated in eachcourt, both civil and peace, in 1997 and 1998. In selecting the file sample within each court, thecorresponding Government Book (Sentence Book for the sample of cases reaching judgment)was used. For random selection of files within each court, the total number of cases reported forthat court in 1997 and 1998 was considered. In the case of first instance civil courts, for eachcourt and year a systematic sample of five files with random principle was selected; for whichthe quotient k was calculated. k is the result of dividing the total number of each year's filedcases by 5, the accorded size sample. After having found a random number "s" minor or equal tothe calculated k quotient, direct selection of JEM files from the government book of selectedcourts started.

For selecting files from government books, starting, from the first recorded "s" file in the year,randomly selected within the first k interval, search continued for the remaining four files addingk to s; that is, the selected files were: s, s + k, s + 2k, s + 3k, s + 4k.

For selecting 1997 decided cases, the Sentence Books of the same civil and justice of the peacecourts were used. Because judicial statistics do not record judgments by subject, a census of theselected courts' sentenced files had to be made in order to use the same procedure described forthe case of initiated trials.

Focus groups with litigants

Facing the practical impossibility of interviewing the different actors in the specific cases(claimants and defendants and their respective counsel) it was decided to use focus groups togather data on strategies, parties' conduct, and extra-judicial agreements. This became anindispensable complement to the information obtained from earlier interviews with magistrates,judges, courtroom and court personnel, and lawyers.

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The lawyers included in the focus groups were considered as key informants. Unlike the earliersingle informant interviews, the techniques used here are oriented toward obtaining a map of thegroup's knowledge, perception, interpretation, motivation and opinions.

The basic protocol of a focus group consists in selecting and independently inviting a group ofpeople (generally from 6 to 10) that are part of the study's objective population. It starts with theassumption that participants do not know each other or the session conductor. To obtain, in fact,an individual opinion map sample from a session, the person conducting the session must:a) Stress to the recruited team that each and every opinion countsb) Ensure that time is distributed in an equitable wayc) Avoid protagonist attitudes, leadership or its opposite -passivity or total acceptance of any

opinion; and,d) Ensure that every relevant topic has been thoroughly discussed.

Of course in focus groups there are, or can be, deviations from the statistical rules. The selectionof participants in focus groups is not probabilistic. On occasions, there is not even a directory oran inclusive database. In this case, the selection operates under schemes to be judged asvoluntary. The statistical inference is canceled.

Nonetheless, focus groups are not to be discarded, especially if the sample of group participantsis managed to be probabilistic, to generate, in this way; a statistically valid sample of thecollective opinions' map that delivers its probabilistic properties to the participants sample. Inthis particular case, participants were selected from registered litigants included in the databaseconstructed from a review of the case file sample.

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GLOSSARY

Note: the Spanish terms below are defined as per their use in Mexico. Elsewhere in LatinAmerica, the same words may have different meanings, and the same concepts may go underdifferent names.

Accusatory (criminal justice system): criminal justice proceedings associated with thecommon law tradition. Their most important distinguishing characteristic (as contrasted with theinquisitorial system) is the collection and presentation of evidence by the prosecutor and defensecounsel, not by a presumably neutral investigating judge.

Actuario: bailiff, court officer (in Mexico) responsible for delivering summons, conducting theembargo (see below), and other tasks which must be performed outside of the courtroom

Adjudicaci6n: in execution of a liquid debt, the creditor's direct appropriation of the debtor'sasset in lieu of monies resulting from its sale in a judicial auction.

Amparo: protection of a constitutionally guaranteed right, allegedly threatened by government(or sometimes private) actors or agencies. In Mexico, amparos may also be requested againstjudicial decisions, as a protection of rights to due process. Amparos are reviewed by federalcourts at the district or circuit level, depending on the nature of the action in question. Asregards judicial rulings, indirect amparos (heard by district courts) lie against interlocutorydecisions; direct ones (heard by circuit courts) involve final judgments.

Caducidad: permanent dismissal of a legal case for lack of action by the parties within theprescribed time limits.

CIDE: Center for Economic Research and Teaching, the Mexican public university participatingin the research project.

Depositario: individual charged with holding a seized asset until final disposition is reached.Under the 1996 reforms to the Commercial Code, the defendant (debtor) may serve as adepositario, retaining possession and right to use the asset, under orders not to dispose of it.

Embargo: seizure or attachment of assets to guarantee their availability for payment of analleged debt.

Emplazamiento: notification of the defendant that a legal action has been filed against him.

Excepci6n: argument offered by a defendant at the initiation of a legal claim against him, as towhy that action should not proceed.

Exhorto: request to a judge in another jurisdiction to take action needed in a legal case - forexample delivery of a summons. Exhortos requested of justice of the peace within a single courtdistrict are called pedidos regatorios.

JEM - see juicio ejecutivo mercantil.

Juicio ejecutivo (mercantil): summary debt collection proceedings. An abbreviated legalprocedure for claiming a liquid debt. In Mexico, this is commonly called the juicio ejecutivomercantil and covered by the commercial code (cddigo mercantil) although not necessarily of acommercial origin. In other countries, similar proceedings are simply calledjucios ejecutivos.

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Juzgado de paz: justice of the peace court, the jurisdiction of which is usually determined by thesize of the claim (civil cases) or the weight of the penalty (criminal). In Mexico, justices of thepeace (jueces de paz) are usually lawyers and occupy the bottom rung of the judicial careerladder. In other countries (Peru), they may be layman.

Incidente: any motion or pleading once a legal case has been admitted

Injonction de Payer: French term for a preliminary injunction transferring to a creditor funds orassets claimed in payment of a liquid debt. In theory, this is done prior to the commencement offormal debt collection proceedings, but if the debtor does not protest, this may effectively resolvethe dispute. The practice has been adopted, under different names, in many European countries,and elsewhere in Latin America.

Inquisitorial (criminal justice system): see accusatory system above. In the classic inquisitorialsystem, the collection of the evidence on which a case will be based is done by an instructionalor investigative judge. (In civil cases, a comparable role is played by the juge de nmise en etat)This individual is presumed to be neutral and thus to accumulate both condemnatory andexculpatory evidence. He/she does not present the evidence in court, although in many LatinAmerican countries, this detail is ignored in practice and is a major source of criticisms about thesystem as a whole. The prosecutor and defense counsel may make suggestions as to lines ofevidence and may themselves collaborate it its collection, but they are expected to argue theircases on the basis of the investigative judge's dossier.

Liquidaci6n: post-judgment calculation of total amount awarded, including interest and courtcosts.

LGTOC - General Law for Credit Operations and Securities.

Mercantil: commercial, as in c6digo mnercantil (commercial code)

Pagare': a promissory note. This may be a credit card voucher, an IOU, or a more formalcontract.

Personafisica: an individual party to a legal proceeding.

Persona juridica: an organizational party to a legal proceeding

Persona moral: same as personajjurfdica.

Prevenci6n: at the initiation of a legal action, the stage in which the judge reviews thesubmission and if necessary requests additional information or documentation. It is only afterthese requests are satisfied, that the case may be admitted.

Primnera almoneda: first invitation for bids in a public auction of seized assets.

Rebeldia: a party in rebeldia does not respond to a summons and takes no part in the legalproceedings.

Sentencia: in essence, a judgment or verdict, including both the judge's final ruling on the legaland factual questions, and the awards or penalties.

SHCP: Secretarfa de Hacienda y Credito Publico, Secretariat (Ministry) of Finance and PublicCredit.

Titulo ejecutivo: a document constituting proof of a liquid debt. The basis on which a juicioejecutivo is initiated.

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IMAGING

Report No.: 22635 METype: SR