|
I have been
researching "The Litigation Explosion". Below are some of the
articles I intend to blog about in greater detail later.
(emphasis mine) [my
comment]
http://www.triallawyersinc.com/kstreet/kstr02.html#02
INTRODUCTION
POLITICAL POWER
How Trial Lawyers, Inc. Became Washington’s Most Influential Business
Lobby
…
The Rise of the Plaintiffs’ Bar
Although the legal profession and the Anglo-American system of tort law
long predate the United States itself, an organized plaintiffs’ bar—and
the rise in political influence of trial lawyers like Fred Baron—are
relatively recent developments. As noted by legal historian John Fabian Witt,
“For the first century and a half of U.S. history, the
plaintiffs’ lawyer barely existed as a category.” [24]
Until the late nineteenth century, torts was not recognized as a discrete
branch of law; the first American treatise on the subject was not published
until 1859. [25]
Early-American accident lawyers “shifted back and forth between
representing defendants and plaintiffs,” and “[t]hrough the first
half of the twentieth century, plaintiffs’ lawyers remained for the
most part diffuse and unorganized.” [26]
However, amid and following the upheavals of the Industrial Revolution, reformers
during the Progressive era and the New Deal came to believe that the old
common-law tort system was ill equipped to handle proliferating workplace
injuries and thus promoted the establishment of a regulatory system.
Borrowing from Germany, American states began to enact workers’
compensation laws that handled employees’ injury claims outside the
tort system: “Between 1910 and 1921, forty-two states passed industrial
injury legislation, replacing tort law with an administrative system
affording compensation for accidental injuries arising on the job.” [27]
From among the lawyers who handled these new workers’ compensation
claims arose the trial-lawyer bar and its lobbying arm. In
1946, Sam Marcus, a Detroit workers’-comp lawyer representing the
Congress of Industrial Organizations, met Sam Horovitz, a Boston
employee-claims attorney who represented the American Federation of Labor.
[28] In August of
that year, the two formed the National Association of Claimants’
Compensation Attorneys (NACCA). Initial membership was eleven, and Marcus was
the group’s first president. In 1949, NACCA began to take on its
current form, when the nation’s most prominent personal-injury lawyer,
Melvin Belli (see box), persuaded the group to admit all tort lawyers rather
than merely those representing injured workers. [29]
THE KING OF TORTS
If Trial Lawyers, Inc. had a single founder, it would have to be San
Francisco personal-injury lawyer Melvin Belli, dubbed the “King of
Torts” by Life magazine in 1954. [44]
Belli was “a man of scarlet silk-lined suits, of multi-colored Rolls
Royces, of courtroom theatrics and Hollywood high-jinks.”
[45] His
clients included the Rolling Stones, Lee Harvey Oswald killer Jack Ruby, and
Hollywood stars Mae West and Errol Flynn. [46] Belli also wrote
several books, including the three-volume treatise Modern Trials,
which earned him over $1 million in royalties. [47]
Other lawyers had reason to buy Belli’s book, which explained the
tactics he had used to revolutionize the world of tort law. Belli had been
the trial attorney in the famous 1944 case Escola v. Coca-Cola Bottling
Co., [48]
which laid the foundation for strict liability—liability without
fault—in product defect cases [The whole concept of liability
without fault is perverted. If someone is injured and no one is at fault,
then no one should be sued.]. In the 1950s, Belli launched modern
pharmaceutical litigation with his successful case against a manufacturer of
polio vaccines. [49]
A seminal law review article he wrote, [50]
along with his aggressive advocacy, helped increase substantially the amounts
awarded for “intangible” injuries like pain and suffering. And to
play upon jurors’ heartstrings and put them in a more generous
mood, he pioneered the use of “demonstrative evidence”
[trial lawyers behave like glorified con artists…] —photographs
and props that depicted and dramatized his clients’ suffering. [51] Many
of Belli’s theatrics seem bold even today: in one case, he arranged to
have “an injured, 680-pound client [hoisted] through the courthouse
window,” and in another, he shocked a 1940s jury “by having a
client bare her chest to show scars from an injury. She then shed tears that
landed right on her scars.” [ultra manipulative and not a healthy way
to run a legal system] [52]
Although Horovitz initially opposed Belli’s entreaties, he soon
embraced the group’s expanded mission with gusto, and in 1949, he
“took his family on a three-month, 10,800-mile tour across the South
and Southwest in a silver aluminum Airstream trailer to establish local
branches and chapters of the NACCA.” [30]
Dubbed the Silver Bullet Tour by the trial lawyers, Horovitz’s mission
was wildly successful, bringing hundreds, and then thousands, of new recruits
to the lawyer-lobby cause. [31]
Because the regulated world of workers’ compensation offered attorneys
far less upside than did the open and rapidly expanding world of tort law,
the NACCA soon found itself departing from its original purpose.
“Within just a few short years, the NACCA had become an organization
dedicated not to the improvement of the workmen’s compensation system, but
to its rollback. By the early 1950s, NACCA advocated the
abolition of workmen’s compensation.” [32]
Membership in the lawyer lobby swelled, and in 1960, the organization changed
its name to the National Association of Claimants’ Counsel of America,
which better reflected its new mission. Four years later, the group
adopted the catchier-sounding American Trial Lawyers Association (ATLA), then
switched again in 1972 to a similar name, Association of Trial Lawyers of
America. [33] The
government-relations arm of Trial Lawyers, Inc. would keep this moniker for
thirty-four years, before deciding in 2006 to disguise its mission by
adopting the innocuous-sounding American Association for Justice. [34]
THE LAW EXPANDS
Trial Lawyers, Inc. could never have grown into the big business it is if
the traditional legal rules limiting the scope of litigation had not first
been loosened. In 1944, pioneering trial lawyer Melvin Belli represented
Gladys Escola, a waitress who had suffered severe hand injuries when a bottle
of Coca-Cola exploded as she was putting it into a refrigerator [this is
called a freak accident]. [53] Under
traditional doctrines, in order to establish liability, Belli would have had
to prove negligence on the part of the bottling company. [54]
However, the bottle’s pieces had been discarded, and he had no
evidence of error in the manufacturing process. [55]
Belli persuaded the California Supreme Court to discard the existing legal
standard and hold that a jury could deem the bottler negligent under the
doctrine of res ipsa loquitor (“the facts speak for themselves”),
permitting the court to infer and assign fault purely on the basis of
evidence of the explosion. [56]
Escola ushered in the era of modern product-liability law; Belli remarked,
thirty years later, “If there is one legal decision upon which Ralph
Nader built, this was it.” [57]
The Escola case is remembered less for its holding—few today would argue
that it is unreasonable to hold a manufacture liable for an exploding soda
bottle [I argue it. It is an INSULT TO COMMON SENSE.]—than for its
concurrence, [58]
written by Justice Roger Traynor, who had taught Belli at the University of
California at Berkeley’s Boalt Hall School of Law.
Traynor argued that the court should dispense with negligence altogether and
instead embrace the doctrine of “strict liability,” that is,
“an absolute liability when an article that [a manufacturer] has placed
on the market, knowing that it is to be used without inspection, proves to
have a defect that causes injury to human beings.” [59] Traynor
would enshrine strict liability in the law of California in the 1963 case Greenman
v. Yuba Power Products, [60]
which, according to a 1996 poll of the membership of the Association of Trial
Lawyers of America, was the most significant change made to tort law in the
previous fifty years. [61]
In 1965, a scant two years after Yuba Power was decided, William
Prosser, a University of California, Hastings College of the Law professor,
would incorporate Yuba Power’s strict-liability standard into
the American Law Institute’s Second Restatement of Torts, [62]
which greatly influences state supreme courts around the country. (Prosser
had argued for strict product liability in his 1941 torts treatise. [63]) The
Second Restatement also legitimized other theories of liability that have
come to dominate product-liability litigation: “design defects”
(which asks juries to play scientist and determine whether an alternative
product design would have reduced or avoided injuries) and “failure to
warn” (which asks juries to determine whether products’ warning
labels—which have, understandably, proliferated as the result of
application of the legal rule—are sufficient to notify customers of
product risks). [64]
In parallel with this expansion of the substantive law of tort, the
procedural law went through a major overhaul, and this also facilitated
a surge in litigation. Under both the common law and various
state codes, filing a lawsuit required pleading a case with
particularity—that is, meeting certain thresholds before a legal claim
would be allowed to proceed. [65] These
pleading rules were “criticized for overemphasizing form over
substance,” [66] and when
Yale Law School dean Charles E. Clark set about drafting the first
Federal Rules of Civil Procedure during the New Deal, under authority
delegated to the judicial branch by the Rules Enabling Act, [67] he
effectively gutted the old rules.
Code pleading had controlled the volume of litigation not only by requiring
plaintiffs to plead facts with particularity but by requiring them to give
notice to a defendant that a suit had been filed, to narrow the legal issues,
and to exclude meritless claims. [68] The new 1938
Federal Rules, however, dispensed with all such requirements save notice. [69] Clark’s
vision was to allow virtually any claim to have its day in court—where
the truth of the matter would be determined—but it failed to anticipate
the economic realities that the new system would create. The
Federal Rules’ new, open-ended discovery process enabled wildly
expensive fishing expeditions and—in combination with the
“American rule” that each side in litigation must bear its own
costs [70]—encouraged
shakedown suits and other forms of what was, in effect, legal
extortion. Later procedural changes, including a shift to “opt
out” class actions in a 1966 amendment of the Federal Rules, [71] gave
even more power to plaintiffs and the lawyers who represented them.
It’s All about the Money
When ATLA first set up the Attorneys Congressional Campaign Trust, in 1979,
it was a relatively small player, giving only $400,000 to campaigns that
year. [35] It quickly
became a much more powerful force: since 1990, the group’s PAC
contributions to federal campaigns have exceeded $33 million, and lawyers
altogether, excluding lobbyists, have contributed $1.05 billion to federal
candidates. [36] Not only
have lawyers’ campaign contributions exceeded those of every other
industry or profession over the last two decades; they have exceeded those of
every other one in each two-year political cycle. [37]
Trial Lawyers, Inc.’s ability to keep tort reform off the table in the
recent discussions over health-care reform is not surprising in light of the
fact that lawyers’ congressional-campaign contributions in the last
election cycle substantially exceeded the combined total of political
donations from doctors, pharmaceutical companies, HMOs, hospitals, and
nursing homes. [38]
http://www.triallawyersinc.com/kstreet/kstr03.html
PUBLIC
RELATIONS
ATTORNEY IMAGE MAKERS
How the Litigation Industry Works Through the Academy,
Media, and Surrogate Groups to Burnish Its Perception
The litigation industry realizes that it has a popularity problem, as
evidenced by its recent decision to change the name of its top industry
association from the Association of Trial Lawyers of America (ATLA) to the
American Association for Justice [72]—a
moniker less suggestive of a lobbying group for plaintiffs’ lawyers
than of the Justice League of America, the team of superheroes in the 1970s
Saturday-morning Super Friends cartoons. [73]
Lawyers will never be popular—doubts about barristers predate the
American republic [74]—but
the trial bar has much to gain from obfuscating its avaricious business
model and perpetuating its image as a loose cadre of individual
advocates who simply hang their shingles and stand up for the little guy
against corporate predators.
To meet its public-relations aims, Trial Lawyers, Inc. supplements its
government-relations efforts with a strong web of ties to the academy,
media, and various “consumer” groups. By encouraging
law-review articles and amicus briefs; news stories, movies, and
television programs; and studies and statements from purportedly independent
nonprofit organizations, the trial bar works to reinforce its mythical
identity—and thus head off and disarm popular opposition.
Ivory-Tower Advocates
As the organized plaintiffs’ bar developed, its leader, Melvin Belli,
befriended septuagenarian law professor Roscoe Pound, former dean of Harvard
Law School. [75]
Pound later penned a glowing introduction to Belli’s best-selling book Modern
Trials. [76] An
early critic of the common law, Pound in his later years had become a fierce
opponent of the New Deal, and he came to view the common law of tort as
a substitute for the bureaucratic state. [77]
Pound thus became a leading advocate for the plaintiffs’ bar and, by
doing so, gave it an air of academic legitimacy. The Harvard
professor’s legacy continues to aid the litigation industry: the Pound
Civil Justice Institute, a think tank founded by the plaintiffs’ bar in
1956, conducts seminars, including some for judges, and publishes papers to
promote the interests of Trial Lawyers, Inc. [78]
The tort bar continues to cultivate relationships with academics who are
willing to speak on its behalf. Drawing upon their august institutions’
reputations for seriousness and their own for independence, many of them
profit handsomely from their ties to the trial bar. Law
professors can earn hefty sums as “expert” witnesses by giving an
academic seal of approval to mass-litigation settlements, dodgy fee
arrangements, and questionable theories of injury.
Law professors’ work is regularly cited in support of pro-litigation
positions, notwithstanding conflicts of interest. Consider Jones v. Harris
Associates, [79] a
case for which the U.S. Supreme Court heard oral arguments on November 2,
2009.
In Jones, the trial bar is seeking greater latitude to sue mutual
funds over their management fees. A group of law professors signing a
friend-of-the-court brief on behalf of the plaintiffs cited the work of three
other professors who had already served as expert witnesses in the same
case. [80] Such practices
are often undisclosed; the same trial bar that attacks any study even partly
funded by industry tries to obscure its own role in enriching its
ivory-tower advocates.
An Unsuspecting Media
Trial lawyers have also aggressively courted the media. The
little-guy-against-corporate-evildoer makes for good theater, so the
trial lawyers’ mythology finds its way regularly into the popular
media, for instance in the books and movies written by John Grisham and in
television shows produced by David E. Kelly. [81]
Grisham is himself a former plaintiffs’ lawyer who makes no secret of
his friendship with his fellow Mississippian Dickie Scruggs, [82] a
leader of Trial Lawyers, Inc. before he pleaded guilty to conspiring to
bribe a judge. [83]
Trial lawyers also work the news media to stir up public fear, primarily by
funneling victim stories to consumer reporters. News analyst John Stossel, who
earlier won nineteen Emmy Awards as a consumer reporter, notes that trial
lawyers are the reporter’s “perfect source”:
This partnership between reporters and trial lawyers is not a good thing
[It is a very, very bad thing], but it’s hard for us reporters to
resist, because trial lawyers are a perfect source. They do most of the work
for us [who likes to work?]. We don’t need to make phone calls
to search for victims; the lawyers identify the most telegenic of them [telegenic
= fraud artists (slight exaggeration)], the people whose stories make you
cry [suffering doesn’t equal wrongdoing.], and they’ll
bring them right to our office [how convenient].
Then they identify the “bad guy” for us [This guy won
“won nineteen Emmy”? Journalism in America is dead and buried].
We don’t need to do much original investigating [original
investigating is for REAL reporters], since the lawyers use their
subpoena power to force companies to turn over just about every record
they’ve ever produced [if you look through “every record
they've ever produced”, you are guarantied to find some kind of damning
evidence]. The lawyers usually find some dirt (bet they’d find dirt
on you if they got all your papers) and hand it to us [a COMPETENT,
HONEST reporter would note that trials lawyers will not be turning over
any exonerating evidence]. We double-check it, but we’re following
the lawyers’ script [A "nineteen Emmy"
“journalist” made his career by reporting completely one-sided,
blatantly-bias, trial-lawyer-manufactored stories. I nearly can’t
believe it (after the horrors I have found on Wall Street and Washington, there
is nothing I can’t believe anymore).]. [84]
http://www.triallawyersinc.com/html/part02.html
Introduction
A RECESSIONRESISTANT INDUSTRY
As U.S. economy sputters, Trial Lawyers, Inc. continues to rake it in.
The national economy struggled again in 2002, as the stock market declined
more than 20%, retail sales weakened, and businesses put off new investments.
But the lawsuit industry proved resilient, and Trial Lawyers, Inc. recorded a
banner year.
Led by novel lawsuits making big scores in diverse sectors—reeling
in everlarger class action verdicts, expanding the scope of asbestos
litigation, barraging doctors with unprecedented new levels of claims—the
lawsuit industry once again proved among the most lucrative business sectors
in America. Trial Lawyers, Inc. earned around $40 billion in revenues
last year as settlements and claims reached record proportions. [6]
The Lawsuit Industry
Despite the enormity of that sum, some people may find it strange to
describe our civil justice system as an industry. After all, the
classic conception of a plaintiff’s lawyer is an advocate who waits
until he is approached by a client with a grievance to be resolved—by
negotiation, if possible, and by court action only as a last resort. But
that conception is far from the current reality, at least for the big
plaintiffs’ attorneys running Trial Lawyers, Inc.
These leading plaintiffs’ lawyers run complex, multimilliondollar
organizations that use sophisticated and expensive marketing to pursue
clients through every commercial avenue, including the Internet. Like any
business expanding its market presence, Trial Lawyers, Inc. uses sales
tactics such as nocost, norisk offers. As one lawsuit
industry–sponsored website declares, “Seek justice NOW by
submitting your class action information online to be considered for a FREE
case evaluation!” [7] These
tactics are often designed to launch mass tort cases of the sort that have
all but replaced the principle of fair and impartial justice with a new
governing principle: winning through intimidation.
Free from the threat of antitrust actions, which have never been brought
against the lawsuit industry, the industry is frequently organized into
cartels: alliances of firms specialize in particular kinds of lawsuits (e.g.,
asbestos or medical malpractice), trade information, share briefs, combine
clients, and jointly finance actions. [8] Law professors
acting as “new product” consultants and legal magazines acting as
a trade press publish articles describing the latest practice areas that are
likely to produce “gold” for advocates. [9] The lawsuit
industry even has its own venture capitalists—investors who back firms
filing enormous, speculative class action suits with the hope that there will
be rich rewards somewhere down the road [10]—and
its own secondary financial market, where shares in future legal fees are
bought and sold. [11]
The Cost of the Tort Tax
While this new and predatory style of law has been a bonanza for Trial
Lawyers, Inc., it has been a drain on the American economy and a serious
threat to the livelihood and lifestyle of many Americans. America’s
tort system costs over $200 billion annually; [12] even
assuming that the underlying lawsuits have merit, much of this cost is
wasteful and excessive—at least $87 billion, according to the
president’s Council of Economic Advisors. [13]
The overall cost of this “tort tax” on our economy over the
next ten years will be more than $3.6 trillion, assuming tort costs increase
at their 30 year trend. If tort costs increase at their 2001 pace, the ten
year cost of the tort tax will be over $4.8 trillion—almost triple
the size of the 2001 and 2003 Bush tax cuts combined. [14]
A Dangerous Racket
The impact of predatory litigation is staggering. Asbestos litigation alone
has driven 67 companies bankrupt, including many that
never made or installed asbestos, costing tens of thousands of jobs
and soaking up billions of dollars in potential investment capital. [15]
Moreover, the negative social costs of Trial Lawyers, Inc. can be measured in
more than just dollars and cents. In 2002, a dozen states experienced
medical emergencies because doctors and hospitals could no longer afford
malpractice insurance. [16]
Women scrambled for doctors to deliver their babies, [17]
seriously injured patients had to be airlifted out of some locations because
there were no practicing emergency room physicians available, [18] and hospitals
closed maternity wards to protect themselves. [19]
And thanks to Trial Lawyers, Inc., the babies that do get delivered are
vulnerable to deadly and thoroughly preventable diseases. Why? The
litigation industry has used specious theories lacking scientific support to
sue vaccine manufacturers for alleged harmful effects caused by vaccines and
vaccine preservatives. [20]
Recognizing that vaccines provide enormous public benefit but inevitably
cause side effects in some recipients, Congress in 1986 saved the few
remaining vaccine manufacturers from near bankruptcy by shielding them from
lawsuits and setting up an alternative nofault compensation system for those
harmed by vaccinations. [21] The
lawsuit industry’s recent end run around this legislation, in
an age of potential bioterrorism, threatens not only public health but
also homeland security.
Trial Lawyers, Inc. and its defenders argue that they are providing a
necessary service. They portray themselves as the friend of the “little
guy” against incompetent doctors and uncaring corporations. Though this
portrayal may have been accurate 30 years ago—and may be today for some
attorneys—the kingpins of the lawsuit industry have pursued mass tort
and class action suits and turned litigation into a multibilliondollar
business.
More and more, the industry resembles a racket designed to do little more
than advance the incomes and interests of its members—everyone
else be damned. In most class action cases, Trial Lawyers, Inc. rakes
in huge fees while individual plaintiffs walk away with pennies. [22] In
medical malpractice cases these days, Trial Lawyers, Inc. often takes between
40% and 70% of the award for its fees and costs. [23] In
tobacco litigation, lawyers who never went to trial and never filed an
original brief have claimed hundreds of millions of dollars in fees. [24] Trial
Lawyers, Inc. is truly a lucrative—and dangerous—racket.
http://www.triallawyersinc.com/html/part03.html
Attorneys’
Fees
THE NEW BILLIONAIRES
Top officers of Trial Lawyers, Inc. haul in skyhigh fees for little work.
Once upon a time, the average person blanched at lawyer fees that reached
upward of $500 an hour at many of the best firms. But those high hourly fees
are chump change compared with what Trial Lawyers, Inc. is raking in these
days. From tobacco settlements to asbesto class action suits, the industry
now boasts fees that can range as high as an astounding $30,000 an
hour, turning some members of Trial Lawyers, Inc. into overnight
billionaires and providing the capital to bankroll new lawsuit ventures in
new markets. [25]
The Tobacco Settlements
Regardless of one’s view about the merits of the suits, the megafees
from the 1998 tobacco settlement were nothing but egregious. Some 300 lawyers
from 86 firms will pocket as much as $30 billion over the next
25 years even though, for many of them, the suits posed minimal risk and
demanded little effort. [26] That
staggering sum comes right out of taxpayers’ pockets—enough
money to hire 750,000 teachers. When it comes to big corporations
ripping off the public, no one holds a candle to Trial Lawyers, Inc.
More than $8 billion will go to a handful of firms that pioneered the first
tobacco lawsuits in Mississippi, Florida, and Texas. The Florida teams will
take home $3.4 billion, or $233 million per lawyer. [28] That’s
$7,716 an hour—assuming they each worked 24 hours a day, seven days a
week for three and a half years. [29]
Trial lawyers are now hauling in fees that can range as high as an
astounding $30,000 an hour, turning some plaintiffs’ attorneys into
overnight billionaires.
The branch of Trial Lawyers, Inc. hired by the state of
Illinois to handle the tobacco settlement took no depositions and never
submitted a reckoning of their hours, but pocketed $121 million—and
complained it should have gotten $400 million. [30] Ohio and
Michigan also signed on late in the game—after the heavy lifting had
already been done—but their lawsuit industry sections still got $265
million and $450 million, respectively. [31]
The Michigan award alone amounted to $22,500 an hour for the
Pascagoula, Mississippi, firm of Richard “Dickie” Scruggs and for
Ness Motley, the Charleston, South Carolina, firm that was headed by
prominent trial attorney Ron Motley. [32]
Motley, in many ways the “founder” of Trial Lawyers, Inc., helped
get the asbestos litigation industry rolling in the 70s. Motley
has now moved on to other prey, including leadpaint manufacturers, from whom
he hopes to extract more huge sums, along with contingency fees for Trial
Lawyers, Inc. [33]
The Scruggs firm will collect $1.4 billion in the tobacco settlement. [34] Scruggs, who
might be called the president of the tobacco branch of the lawsuit industry,
is now gunning for HMOs. [35]
Baltimore trial lawyer Peter Angelos, who along with Motley and Fred Baron
was an asbestossuit pioneer, claimed a disputed $1.1 billion in tobacco fees,
or one quarter of Maryland’s entire award. [36]
Angelos is now suing cellphone makers (so far unsuccessfully) [37] in
addition to passing his time as owner of the Baltimore Orioles.
Who Benefits?
While Trial Lawyers, Inc. makes a fortune from its suits—Scruggs and
other top officers are known to fly around in their private jets [38]—its
customers are often left with crumbs. For example, in one Florida class
action, lawyers for flight attendants suing the airlines for health problems
resulting from secondhand smoke pocketed $349 million of the $349
million settlement. [39] The
flight attendants who brought the suit got nothing unless they filed
individual suits and demonstrated that secondhand smoke actually made them
sick.
Class members in a lawsuit against Toshiba for defective laptop computers did
little better, collecting between $100 and $443 in cash and coupons. The take
for Trial Lawyers, Inc.: $148 million. [40]
For the lawsuit industry as a whole, less than half of all dollars
actually go to plaintiffs, and less than a quarter of all dollars
actually go to compensate plaintiffs’ economic damages. As the above
examples indicate, in mass tort and class action claims, plaintiffs’
awards are typically divided among so many individuals that the only
people who meaningfully profit are the plaintiffs’ lawyers themselves.
And in capturing 19% of a $200 billion pie, Trial Lawyers, Inc. does
handsomely indeed. [41]
http://www.triallawyersinc.com/kstreet/kstr05.html
FEDERAL
GOVERNMENT RELATIONS: EXPANDING LIABILITY
SUE YOU, SUE ME
Congress Is Working to Undo Limits on How, When, and Whom Lawyers Can Sue
Until recently, the main purpose of Trial Lawyers, Inc.’s involvement
in federal politics was to block reform legislation that would deny it
various lucrative lines of business. In 1995, for example, Bill Clinton,
an ally of trial lawyers, vetoed the Private Securities Litigation Reform Act
(PSLRA), [159]
which was designed to stop class action “strike suits” against
companies whenever their stock’s price sharply declined. But Congress
overrode the veto, [160] and
the new law has helped improve the securities litigation climate. [161]
When, in 1996, Congress tried to pass a product-liability law designed to
curb frivolous suits by limiting punitive damages, it, too, met with a
Clinton veto, [162] even
though he had supported such legislation as governor of Arkansas. [163] This
time, however, Congress lacked the votes to override.
Clinton’s successor, George W. Bush, was a president friendly to
litigation reform: as governor of Texas, he had successfully steered
comprehensive tort reform through the Texas Legislature. [164] But
with one exception, he was unable to get traction against the lawyer
lobby’s Washington power, which doomed his efforts to reform
medical-malpractice law by imposing national caps on damages, [165] as
it did his efforts to shift thousands of questionable, if not fraudulent,
asbestos claims out of the courts and into an administrative system. [166] Bush’s
one success was the Class Action Fairness Act of 2005 (CAFA), [167]
which prevented plaintiffs’ lawyers from “shopping” large,
national class actions to the most lawsuit-friendly jurisdictions in the
country by allowing defendants to remove them to federal court.
With the Democratic Party currently controlling both Congress and the
White House, the litigation industry is taking a somewhat different tack. No
longer satisfied with fending off efforts to reform lawsuit abuse, the
plaintiffs’ bar is now actively seeking to expand its business
opportunities. One of the bills backed by Trial Lawyers,
Inc.—the first passed by the new Congress—extends the time that
plaintiffs have to file suit, allowing attorneys to dredge up long-dormant
claims. [168] Other
legislation would facilitate legal “fishing expeditions”
by permitting claims to go forward that rested upon the shakiest of
allegations. [169]
Still other proposed acts of Congress would expand the universe of parties
that plaintiffs can sue. [170] One
of them would lift a prohibition against suing the government itself, at
considerable cost to the taxpayer. [171] [The
audacity…]
Led by Ledbetter
Perhaps the clearest evidence of Congress’s new penchant for generating
litigation is the transformation of Lilly Ledbetter, a former employee at a
Goodyear Tire plant in Gadsden, Alabama, [172] into
a Democratic symbol of victimization by corporations. Invited
to speak on the second night of the 2008 Democratic National Convention,
right before keynote speaker Mark Warner, the former governor of Virginia, [173] Ledbetter
was the subject of a 2007 decision by a divided U.S. Supreme Court that
denied her sex-discrimination claim against her former employer on the
grounds that she had filed her complaint too late. [174] The Ledbetter
decision prompted a media outcry—“Injustice 5, Justice 4”
declared a New York Times editorial [media is corrupt to the core] [175]—and
then-candidate Barack Obama adopted Ledbetter’s cause as his own. [176]
DEPUTIZING TRIAL LAWYERS
Of the legislative gifts that Congress has bestowed on Trial Lawyers, Inc.,
one of the most bounteous is the right—inscribed in qui tam, or
“whistle-blower” statutes—to police frauds allegedly
committed against the federal government. After the False Claims Act (FCA), [206]
enacted in 1863, was expanded in 1986, [207] it
became big business for the plaintiffs’ bar. Since then, whistle-blower
actions have produced more than $20 billion in claim payments. [208]
The qui tam provisions of the FCA permit private attorneys
representing whistle-blowers to obtain damages, on the
government’s behalf, of three times the amount of money
lost in the alleged fraud. The whistle-blower and his attorney can
collect up to 30 percent of these sums. [209] The
resulting windfalls can total tens of millions of dollars. [210]
Because of the potential for abuse of such statutes, the courts have worked
to limit their reach by insisting that the targets of fraud suits actually
intended to defraud the government—as the U.S. Supreme Court did in its
unanimous 2008 decision in Allison Engine Co. v. United States. [211] The
Fraud Enforcement and Recovery Act of 2009, [212]
signed into law in May 2009, overturns Allison Engine, even with
respect to those cases that stem from conduct that occurred before the
act’s passage. The new law dramatically expands the plaintiffs’
bar’s reach in qui tam suits by allowing lawyers to go after
subcontractors to businesses that do government work, though they never
worked directly for the government themselves or intended to commit fraud. [213] The
bill’s sponsor, Senate Judiciary Committee chairman Patrick Leahy
(D-Vt.), has received more than twice as much money from lawyers since 2005
as he has from any other industry, and those donations overwhelmingly come
from the plaintiffs’ bar. [214] Two
of Leahy’s top four donors are California plaintiffs’
firms—toxic-tort giant Girardi & Keese and personal-injury powerhouse
Cotchett, Pitre & McCarthy—and he’s also received hefty sums
from the American Association for Justice, the political action committee of
the plaintiffs’ bar. [215]
An even more audacious power grab for Trial Lawyers, Inc.’s qui tam
business was attempted by Rep. Lloyd Doggett (D-Tex.) during the markup of
health-care reform legislation in the House. Doggett tried to insert language
into the bill that would allow suits involving Medicare to be filed on behalf
of the U.S. government, even when it objected. Fortunately,
Republicans on the committee insisted on removing the provision. [216] Like
Leahy, Doggett received campaign contributions from lawyers in this electoral
cycle that were at least double those from any other industry, his largest
donor being Nix, Patterson & Roach, the giant Texas asbestos-litigation
firm. [217]
…
Politicians under the sway of Trial Lawyers, Inc., however, were
undeterred by these facts. The law enacted in Ledbetter’s name could
have clarified the period in which a Title VII suit can be filed by stating
that it would start only upon discovery of the alleged discrimination, a rule
that would not have been in conflict with the Court’s actual decision.
Instead, the first act of the 111th Congress gutted the statute of
limitations in pay-discrimination claims entirely. It now effectively
allows potential plaintiffs to wait years before suing, as paycheck after
insufficient paycheck piles up, adding to the damages that can be claimed and
forcing employers to maintain old employment records indefinitely. [185]
Moreover, the new law dramatically expands the class of potential litigants
in such suits by changing the long-standing rule that a claimant had to be an
actual victim of discrimination; the new law states that anyone
“affected by” the discrimination being alleged can sue. [186]
Going Fishing
In addition to extending the period in which employees may file
pay-discrimination claims, the new Congress is considering legislation
that would make it dramatically easier to file suits across the board.
As noted earlier, the
1938 Federal Rules of Civil Procedure abolished traditional pleading
requirements for filing a civil lawsuit and implemented a system of
“notice” pleading whereby a litigant merely has to place a
defendant “on notice” of being sued and of the factual and legal
claims against him. [187] Notice
pleading, combined with new, liberal discovery rules that enabled
plaintiffs’ lawyers to demand essentially any document or file that
might be remotely relevant to a lawsuit, [188] licensed
“fishing expeditions” in federal courts: plaintiffs could
file first, seek documents at defendants’ expense, and determine
whether they actually had a case once the documents came in. [189]
In recent years, the Supreme Court has tried to place outer boundaries on
these expeditions. In a 2007 case, Bell Atlantic v. Twombly, [190]
plaintiffs’ lawyers filed a class action alleging that local telephone
companies had conspired to restrain trade in violation of the antitrust laws. The
Court determined that the plaintiffs’ allegations, even if true, could
not sustain a valid claim because the plaintiffs did not allege “enough
factual matter (taken as true) to suggest that an agreement was made”
among the phone companies—a legal requirement for finding such an
antitrust violation. [191]
In May 2009, the Supreme Court considered another case, Iqbal v. Ashcroft,
[192] in
which a Pakistani Muslim detained after the September 11, 2001, terrorist
attacks alleged that he had been mistreated while in custody. Iqbal’s
lawsuit targeted various federal officials, including the attorney general of
the United States and the director of the Federal Bureau of Investigation. The
Court determined that Iqbal’s complaint was insufficient to support a
claim under Twombly, since the legal standard required proof of
intentional discrimination by the individuals named, who would have had to be
driven by animus toward the plaintiff, and Iqbal alleged no facts that would
permit even an inference of discriminatory intent. [193]
Needless to say, Twombly and Iqbal, though cases of limited
applicability, sent shock waves through the plaintiffs’ bar by
threatening to imperil lawyers’ strategy of launching fishing expeditions.
To “fix” this problem, Pennsylvania Democrat Arlen
Specter—whose son Shanin is a major Philadelphia plaintiffs’
lawyer and a vocal public critic of tort reform [194]—introduced
a bill, the Notice Pleading Restoration Act of 2009, [195] which
would overturn the Supreme Court’s decisions in Twombly and Iqbal.
Even critics of those decisions, however, have noted that Specter’s
poorly drafted bill would likely interfere with statutory pleading
requirements well beyond the scope of the Court’s recent decisions. [196]
Security-Suit Schemes
Senator Specter has not limited himself to protecting Trial Lawyers,
Inc.’s fishing license; he has also been working hard to ensure that
plaintiffs’ lawyers can cast their lines in new waters. Notwithstanding
stricter rules imposed on securities suits by the 1995 PSLRA [197] and the
“kickback” conspiracy convictions that put the two most prominent
securities class action attorneys, Mel Weiss and Bill Lerach, in federal
prison, [198]
recent financial crises—the bursting of the dot-com bubble, the
subprime-mortgage debacle, and the subsequent collapse of major financial
institutions—have left ample opportunity for the securities litigation
industry to thrive).
In 2008, however, the Supreme Court decided not to extend the judicially
created “right to sue” over alleged securities fraud to
plaintiffs suing third parties. [199] In
that case, Stoneridge v. Scientific Atlanta, the Court considered a
class action filed by the stockholders of a cable company that had inflated
its books. However, their suit was not against the cable company itself but
rather its vendors. The Court noted there was no evidence that Congress
intended to authorize private securities litigation against third parties
under an “aiding and abetting liability” theory and that doing so
would “expose a new class of defendants” to litigation
risks, raise “the costs of doing business,” deter “
[o]verseas firms . . . from doing business here,” “raise the cost
of being a publicly traded company under our law,” and “shift securities
offerings away from domestic capital markets.” [200]
Indeed, securities class actions do little more than arbitrarily shift
dollars from one group of shareholders to another. In such suits, one group
of shareholders, which bought or sold shares in a given time period, sues the
company whose shares they own. Unfortunately, suing the company means
essentially suing all the other shareholders. Generally speaking, then, small,
diversified shareholders, who are about as likely to be holders as buyers of
any given security, particularly if they are invested in pension or mutual
funds, are also as likely to be defendants as plaintiffs in such litigation.
[201] In
addition to failing to compensate the victims of a successfully executed
fraud, securities class actions are ineffective at deterring fraud, since
research shows that securities class actions’ settlement values are
unrelated to the merits of the underlying cases. [202] Securities
lawsuits, therefore, serve mainly to enrich the plaintiffs’ bar by
extracting massive settlements from companies experiencing stock-price
turbulence. [203]
Nevertheless, last summer Senator Specter introduced the Liability for Aiding
and Abetting Securities Violations Act of 2009, [204]
which would overturn Stoneridge and create an explicit, open-ended
private right of action against anyone who provided “substantial
assistance” to anyone else guilty of violating “any rule or
regulation” under any of the vast number of securities laws. [205]
Specter’s bill would go far beyond the narrow facts of the Stoneridge
case to create a whole new class of securities class action defendants—and
a whole new spectrum of legal shakedown opportunities for Trial
Lawyers, Inc.
http://www.triallawyersinc.com/kstreet/kstr06.html
FEDERAL
GOVERNMENT RELATIONS: ATTACKING ARBITRATION
CONTRACT KILLING
Trial Lawyers, Inc.’s Allies in Congress Are Trying to Scale Back
Private Arbitration
The Democrats in Washington can’t seem to decide what they think about
arbitration. On the one hand, one of the top legislative priorities of the
congressional leadership and the White House is the Employee Free Choice Act
(EFCA), [218] which
calls for mandatory arbitration of all union disputes. So deep
is the EFCA-backers’ faith in arbitration that the law would even
empower government-appointed arbitrators to write labor contracts from
scratch when newly formed unions cannot agree to terms with management—in
effect, to dictate the terms of a labor “contract” without
reference to any actual underlying contract into which the parties freely
entered. [219]
On the other hand, congressional leaders are waging an all-out war to
eliminate all arbitration clauses in consumer and employment contracts.
Such provisions are standard in many industries—they are indeed
the only way that small injuries can ever get compensated, given the
expense of litigation that often makes legal representation unavailable,
because such cases offer plaintiffs’ attorneys only paltry contingent
fees. But arbitration and other forms of alternative dispute resolution remove
the middleman—the trial lawyer—which, to the
plaintiffs’ bar’s political patrons, makes such extralegal
approaches unthinkable.
The Value of Arbitration
In contrast to the EFCA’s heavy-handed provisions, standard employment
and consumer arbitration contracts operate against a backdrop of preexisting
contractual norms and rules of law. Professional arbitrators—usually
senior attorneys or retired judges—resolve claims without incurring the
time and expense of civil litigation, which takes, on average, more than two
years [220] and
can cost thousands of dollars.
THE ANTI-FEDERALIST CONGRESS
From the time of the New Deal onward, the Left has generally favored a
strong national regulatory regime, while conservatives have generally
fought its relentless expansion. It is therefore curious that the Democratic
majority in Congress should be considering bills permitting tort actions to
be brought under state law against the financial [242] and
automobile [243]
industries, for example—even if such state tort claims conflict
with the federal regulatory regime.
State tort litigation can make a mess of the federal regulation of interstate
commerce. Consider the situation in health care, one of the most heavily
regulated—and litigated—industries. In 2008, the
U.S. Supreme Court considered a case, originating in New York, in which a
patient had been injured by the bursting of a balloon catheter during
surgery. [244] The patient
alleged that Medtronic, the device’s manufacturer, was at fault. The
facts of the case, however, told a different tale: the catheter’s
labeling—as required by the U.S. Food and Drug Administration
(FDA)—indicated that it should not be used in “calcified”
arteries and that it was designed to withstand only “eight
atmospheres” of “rated burst pressure.” [245] As
the Court noted, however, Riegel’s doctor failed to heed these warnings.
[246] The
artery into which the doctor inserted the catheter was “heavily
calcified,” yet he attempted to force a full ten atmospheres of
pressure through it. [247]
Fortunately, Congress included express language in 1976 statutory amendments
that forbade the states from setting standards for medical devices beyond
those required by the FDA. [248] On
that basis, the Court made the commonsense ruling that Riegel’s lawsuit
against the manufacturer was barred. [249]
Unfortunately, the express preemption language that governs medical devices
does not apply to all FDA-regulated products. Indeed, such clauses are rare
within the federal code, much of which was written before the litigation
explosion of the last five decades.
Perhaps unsurprisingly, the lawyer-dominated Congress is working to
eliminate the statutory provision that barred Riegel’s
product-liability claim. Worse, the bill in question, the Medical
Device Safety Act of 2009, [250]
would permit suits to proceed that stem from injuries that originated long
before the law’s effective date, if otherwise valid under state law.
Thus, arbitration has served as a major avenue for providing justice to
small claimants. In 2002, the American Arbitration Association handled more
than 200,000 claims—a figure corresponding to roughly 80 percent of all
federal civil cases. [221] In
2006, the National Arbitration Forum handled 214,000 arbitrations dealing
solely with debt collection. [222]
Although you wouldn’t know it from the criticisms issue from the
trial bar and its allies, these private arbitration systems are not
tilted in business’s favor. A November 2009 study released by
the Searle Center on Law, Regulation, and Economic Growth at Northwestern
University School of Law examined comprehensive data sets of consumer
arbitrations and found that after controlling for variations in case
characteristics, consumers were more likely to prevail in arbitration
than in court and that there was “no statistical difference in the amount
they were awarded as a percentage of the amount sought.” [223]
Americans in general realize the value of arbitration. When asked whether
they would choose litigation or arbitration if they could “choose the
method” of resolving “any serious dispute” between
themselves and a company, 82 percent of those surveyed said that they
would opt for arbitration. [224] And 71
percent said that they opposed Congress’s “remov [ing]
arbitration agreements from contracts consumers sign with companies.”
[225] Unfortunately,
such consumer sentiment may not be sufficient to hold back Congress’s
assault on contract, which is propelled by the lobbying clout of Trial
Lawyers, Inc.
Funny Business
Before
he was a senator, Al Franken (D-Minn.) entertained the public as a writer and
performer on the sketch comedy show Saturday Night Live. Perhaps
it’s fitting, then, that Franken’s first legislative success, [226] an
amendment supported by Trial Lawyers, Inc., [227]
became the premise of comedians’ jokes and spoof websites.
On October 1, Senator Franken took to the Senate floor to relate the sad
plight of Jamie Leigh Jones, who claimed that she was harassed, drugged, and
gang-raped four days after arriving in Iraq to work for Kellogg Brown &
Root (KBR). [228]
Jones initially filed an arbitration complaint, then sought to sue her
employer in court. KBR tried to consolidate the complaint
before the arbitration panel, which Jones opposed. After three years of legal
wrangling, the Fifth U.S. Circuit Court of Appeals held the arbitration
clause unenforceable in Jones’s case because her claimed injury was not
“related to” her employment, and the court gave Jones the
go-ahead to proceed with her civil claim. [229]
Franken said on the floor of the Senate that three years was “simply
too long for a rape victim to wait, just to have her day in court.” [230] He
therefore proposed an amendment to an appropriations bill for the Defense
Department that would, he said, “extend much of the Fifth
Circuit’s reasoning to government contractors who continually subject
workers to these so-called mandatory arbitration clauses.” But it would
do so, he said reassuringly, only by “narrowly target [ing] the most
egregious violations.” [231]
When thirty Republican senators voted against Franken’s amendment, they
became fodder for comic ridicule. The Daily Show’s Jon Stewart
exclaimed, on the air, “I understand we’re a divided country,
some disagreements on health care. How is anyone against this?” [Easily.
I am against it] [232] A
video posted on the website of MSNBC’s Rachel Maddow went viral, the
Democratic Senatorial Campaign Committee went on the attack, [233] and
the Republican senators were mocked on a spoof Internet site,
www.republicansforrape.org.
The problem with the comedic and political reaction is that Franken’s
amendment was not, as he claimed, “narrowly
targeted.” Rather, Franken’s legislation makes any
arbitration clause in the employment contracts of any defense
contractor inapplicable to “any claim under Title VII of the Civil
Rights Act of 1964” or “any tort related to or arising out
of” an “intentional infliction of emotional distress” or
“negligent hiring, supervision, or retention.” [234] In
essence, Franken’s amendment prevents every defense contractor from
contracting with its employees to choose private arbitrators over the civil
courts to resolve virtually any kind of employment dispute—a far
broader provision than Franken’s invocation of the gruesome allegations
in Jones’s case would suggest. But given the public caricature of
Franken’s amendment, it is unsurprising that it made it into the final
law. [235]
TOY STORY [This is truly wrong]
On October 12, 2009, lawyers at the class action firm Coughlin Stoia Geller
Rudman & Robbins reached a settlement with toy maker Mattel and its
Fisher-Price subsidiary resolving a suit over the 2007 recall of 967,000
toys, manufactured in China, that may have contained lead-based paint. [251] The
lawyers stand to pocket a hefty $12.9 million in fees [252]—likely
to be a high percentage of the total settlement value [253]—but
the litigation overall is hard to condemn: a major manufacturer
distributed products that contained a dangerous substance banned under U.S.
law.
Notwithstanding the righteous concern about Mattel’s potentially dangerous
products, the congressional response to the public panic over the
lead-containing toys—the Consumer Product Safety Improvement Act
(CPSIA), [254] signed
into law on August 14, 2008—is a regulatory nightmare and
litigation time bomb that threatens to place virtually every producer of
items for children on the wrong side of the law. Hawked by
lawyer-allied consumer groups like the Public Interest Research Group, [255] and
pushed by House Speaker Nancy Pelosi (D-Cal.), the bill was drafted in the
House under the watchful eye of Energy and Commerce Committee Chairman Henry
Waxman (D-Cal.), a longtime ally of trial lawyers whose second-largest
campaign donor over the last twenty years has been the plaintiff’s
bar’s political action committee, now known as the American Association
for Justice. [256] That
same lawyer PAC once employed as a registered lobbyist David Strickland, who
developed the CPSIA in the Senate, where he served as counsel to the Commerce
Committee. [257]
(Strickland now oversees American automobile regulation as the head of the
National Highway Transportation Safety Administration.)
With such a cast of characters drafting the bill, it is unsurprising that
the CPSIA goes beyond the lead-paint concerns that provoked the health scare.
Anne Northup, a commissioner of the federal Consumer Product Safety
Commission (CPSC), observes that the law reaches products “that do not
create a lead hazard for children” and that “such ordinary
items as zippers, buttons, belts, the hinge on a child’s
dresser—and even that bicycle from Santa Claus—are
outlawed,” [258] making
any manufacturer or retailer of such products subject to a lawsuit premised
on an alleged violation of the statute’s provisions.
To make things easy for the lawyers, the statute authorizes an open website
for reporting violations—which attorneys will doubtless use both
to identify claims and “establish” purported wrongdoing.
[259] Also
waiting in the wings are suits by pioneering, politically ambitious state
attorneys general (see box, page 13), who are authorized to enforce the law
alongside the CPSC. [260] As
reported in Crain’s Chicago Business, suits arising from the
CPSIA are among the “most likely” successors to the litigation
industry’s long-standing asbestos-lawsuit profit center. [261]
The CPSIA’s costs are not conjectural—the CPSC estimates that the
law cost toy manufacturers $2 billion in the eight months following its
enactment [262]—and
they will grow exponentially once all of the statute’s testing
requirements come into effect. Economies of scale permit large manufacturers
like Mattel to meet the CPSIA’s onerous testing and labeling
requirements, but the prohibitive cost of complying with these rules
has prompted small manufacturers and retailers of toys to shut their doors. [263]
Although the CPSIA has generated many a public outcry, Congress has
predictably resisted holding hearings to learn about the grievances of those
affected.
[For more on the Consumer Product Safety Improvement Act (CPSIA) see article
below.]
An Assault on Contract
Senator Franken’s amendment is but one of the litigation
industry’s attacks on private arbitration. Other such bills being
pushed in Congress by Trial Lawyers, Inc. include:
The Fairness in Nursing Home Arbitration Act (H.R. 1237, S. 512) would
make unenforceable all arbitration clauses regulating disputes between
nursing homes and their boarder-patients. [236]
The Mortgage Reform and Anti-Predatory Lending Act (H.R. 1728), which
passed in the House of Representatives, would make unenforceable arbitration
clauses in any mortgage loan or home-equity line of credit. [237]
The Payday Loan Reform Act (H.R. 1214) would present challenges to
arbitration clauses in “payday loans,” [238] and
the Taxpayer Abuse Prevention Act (S. 585) would prohibit arbitration
clauses in loans given in anticipation of tax refunds. [239]
The Consumer Fairness Act (H.R. 991) would make consumer-arbitration
contracts unenforceable, [240]
while the Arbitration Fairness Act (H.R. 1020, S. 931) would go even
further and make unenforceable arbitration clauses in all employer,
franchise, and consumer contracts. [241]
Each of these pieces of legislation would reduce consumer choice,
increase costs, and deny compensation to many truly
injured individuals. But they would all help the bottom line of Trial
Lawyers, Inc.
A TRIAL-LAWYER TAX BREAK
One way that Trial Lawyers, Inc. is exploiting its congressional
influence is by seeking an old-fashioned tax break. A group of legislators
led by Republican-turned-Democrat Arlen Specter—“the favorite
senator of the trial lawyers” [264]—has
introduced a bill giving the plaintiffs’ bar a $1.6 billion cut in its
taxes. [265]
Under the traditional common law, “maintenance” and
“champerty” were crimes (and torts). Generally speaking, it was
illegal for anyone, including an attorney, to maintain, support, or promote
another’s litigation (maintenance), whether or not an agreement existed
to pay the supporter a portion of a lawsuit’s proceeds (champerty),
should there be any. [266] On
its face, the personal-injury bar’s financing structure—the
“contingent fee,” the share of the proceeds that a winning client
pays his attorney, who has fronted the cost of the litigation—runs
afoul of the historical understanding of champerty. Therefore, expenses in
contingent-fee cases have been treated by courts not as support of litigation
per se but rather as loans to clients, to be repaid upon a winning
lawsuit’s resolution. [267]
The IRS has thus forbidden plaintiffs’ lawyers working on the
basis of contingent-fee arrangements to deduct, for tax purposes, litigation
costs as “expenses” when they are incurred. Rather, such
expenses are treated as loans, to be expensed as “losses” only in
the event that the loan is “uncollectible” after a losing case
has been closed (or, alternatively, to be deducted from the sum of taxable
proceeds following profitable verdicts or settlements). [268]
Specter’s bill would change the IRS rule and allow all litigation
costs to be expensed immediately, even though other kinds of loans
generally are not. This tax break would encourage lawyers to file both
a greater number of cases and weaker cases, and “the federal
government [would], for all intents and purposes, share in the cost and
risk of bringing the initial litigation. Under current and certainly
potential future tax laws, this could be as much as [forty percent] of the
cost of bringing litigation.” [269]
Unsurprisingly, the trial bar’s advocates in Congress would prefer to
avoid an up-or-down vote on the legislation on its own. Thus,
lawyer-lobbyists have worked to “tuck it into something” [270]
else—for example, a 2008 bill that extended (but did not change)
various research-and-development and energy tax credits. [271]
http://en.wikipedia.org/wiki/Consumer_Product_Safety_Improvement_Act
Consumer
Product Safety Improvement Act
The Consumer Product Safety Improvement Act of 2008 is a United States law
signed on August 14, 2008 by President George W. Bush. The legislative bill
was known as HR 4040, sponsored by Congressman Bobby Rush (D-Ill.). On
December 19, 2007, the U.S. House approved the bill 407-0. On March 6, 2008,
the U.S. Senate approved the bill 79-13. The law—public law
110-314—increases the budget of the Consumer Product Safety Commission
(CPSC), imposes new testing and documentation requirements, and sets new
acceptable levels of several substances. It imposes new requirements on
manufacturers of apparel, shoes, personal care products, accessories and
jewelry, home furnishings, bedding, toys, electronics and video games, books,
school supplies, educational materials and science kits. The Act also
increases fines and specifies jail time for some violations.
This act is seen in part controversial because of its impact to many
types of businesses that did not cause the problem. Because of the
wide-sweeping nature of the law, many small resellers will be forced to
discontinue the sale of children’s products and are in risk of
losing (and in some cases have already lost) their business.
…
Targeted industries
It is targeted mostly toward "children's products", which are
defined as any consumer product designed or intended primarily for children
12 years of age or younger.
There are also new rules governing All terrain vehicle (ATVs).
It also affects any product that is subject to anything the CPSC regulates by
requiring certificates of conformance which state that the product was tested
to conform to the regulations it is subject to.
Testing and exposure levels
Lead
The legislation reduces the limit of lead allowed in surface coatings or
paint to 90 ppm (from the current limit of 600 ppm) effective on 14 August
2009.
The legislation reduces the amount of total lead content in children's
products to
600 ppm by 10 February 2009
300 ppm by 14 August 2009
100 ppm by 14 August 2011
The Falvey Opinion (named for Cheryl Falvey, General Counsel for the CPSC)
issued on 12 September 2008 stated that these limits would be retroactively
applied to products on retailer's shelves on the dates indicated.
Phthalates
As of 10 February 2009, it shall be unlawful for any person to manufacture
for sale, distribute in commerce, or import any children's toy or childcare
article that contains the phthalates DEHP, DBP, or BBP at levels higher than
0.1 percent.
The legislation bans from any children's toy that can be put in a child's
mouth or childcare articles phthalates DINP, DIDP, and DnOP at levels higher
than 0.1%.
…
Mandatory testing
The legislation requires that every manufacturer of a product subject to a
consumer product safety rule will provide a "General Conformity
Certificate" to certify, based on unit testing or a reasonable testing
program, that the product complies with all safety rules. This requirement
was imposed on every product manufactured on or after 12 November 2008. The
certificate must:
be in English
list the name, address, and phone number of the manufacturer, importer,
and/or private labeler issuing the certificate and any third party testing
facility
list the date and place of manufacture and date and place of testing
list the contact information of the records keeper
list each applicable rule, standard, and ban
These certificates must accompany the product through the distribution
chain through the retailer. They must be available to the CPSC during any
inspection.
Children's products are singled out for third party testing
by this Act [third party testing is expensive].
…
Penalties
The Act imposes or increases both fines and jail time penalties, and mandates
coordination with the CPSC when effecting a manufacturer's product recall.
The law
1) increases civil penalties for failure to report
possible product hazards to the CPSC in a timely manner from $5,000 per
violation 2) (with a cap of $1,825,000) to $100,000 per violation (with
a cap of $15 million)
increases criminal penalties for various prohibited acts to include
forfeiture of assets and imprisonment for up to five years, and 3) eliminates
the requirement that the CPSC first notify a company of noncompliance before
seeking criminal penalties
requires CPSC approval of the remedy offered in a product recall, rather than
giving the recalling party its choice of repair, replace, or refund
Criticism
Manufacturers, both large and small, have protested the extremely short
timelines, the failure to take into account manufacturing processes, and the
failure to take into account the breadth of the impact.
Congress passed this legislation in the wake of several high profile recalls
in 2007 and 2008 of toys manufactured in China. Though many of these later turned
out to be problems with design rather than manufacture, public
pressure was increased as the result of at least one case of lead poisoning
and subsequent issues with tainted pet food and other products shipping from
China. The legislation, HR 4040, was passed in July 2008 and signed into
law by President Bush in August 2008. The first deadline came up in
September, and several major deadlines come up in February 2009.
Manufacturers point out that many of the products to be impacted are
already making their way through the supply chain. As a result, much
inventory that was legal prior to the signing of the law and was manufactured
shortly thereafter will probably be on shelves as the deadlines approach.
The Natural Resources Defense Council and Public Citizen apparently agree
that these products are already in distribution, but believe that
manufacturers should still be held liable. The problem is not the
lead or phthalate content, as they imply, but the fact that the products must
be tested to make sure they comply. There is also confusion of what
products need a GCC and which do not. They have not been tested because the
items generally do not contain hazardous materials; CPSC has been slow to
define some of the accreditation or testing criteria; some of the low volume,
low value items are not economical to test; and lot tracking methods would
not allow some of the items to be tracked.
Manufacturers also point out that even if they were to attempt to comply, there
are logistical problems. Companies with large varieties of products,
known as Stock Keeping Units or SKUs, will have difficulty selecting several
samples of every item. Even if they can, there are not enough testing
facilities to handle the volume in time to meet the schedules.
Manufacturers also note both the difficulty and the apparently
contradictory mandate to perform unit testing. An apparel
manufacturer, for example, might use a single mill product such as organic
cotton cloth coupled with a few organic dyes and a few pieces of hardware such
as zippers or buttons. Those can be combined in limitless ways and in various
sizes. Testing all of the final products generally provides no more
information than would testing the individual inputs (or
"components"), but is vastly more expensive.
Final product testing may actually be counterproductive if, for
example, a solid lead button is tested as part of a larger product. When
tested separately, the button would fail, but when mixed together with the
other inputs, the final total lead content may fall below the standard. Thus,
unit testing would result in certifying the safety of a product which has
unsafe components that could be swallowed by a child.
Other manufacturers point out the problem of defining "children's
products." Electronic products such as video games could be
considered children's products, and are therefore subject to that testing.
Electronics products contain lead as a component of solder; whereas the
European Restriction of Hazardous Substances Directive standards have long attempted
to phase out lead solder, the tin solder is known to suffer from a defect
known as tin whiskers. This means that entire classes of products may
become unavailable as manufacturers withdraw from the markets, banned
as they are unable to pass tests, or defective as they
substitute inferior components.
Additionally, products such as “regular Children’s
books”, that have never been a health problem, are being
included in the products that must be tested and certified.
The law requires some rulings from the CPSC on a predetermined schedule, and
allows for other rulings as necessary. Manufacturers must wait until a final
ruling is made before they can perform the required testing or gather the
required documentation. Many times this ruling isn't available until after
the item is already required. For example, the law required the issuance of a
GCC for products manufactured "on and after November 12, 2008", but
the GCC ruling was not published in the Federal Register until 18 November
2008.
These criticisms have been leveled by large and small manufacturers alike. According
to 2002 business census data, 99% of the apparel manufacturers in the
United States are small businesses, using the Small Business
Administration's definition of "less than 500 employees." Many of
them believe that they will not be able to manage or afford the mandated
testing and will go out of business. This has resulted in an
online petition campaign by small manufacturers of children's apparel.
Larger manufacturers are faced with problems stemming from their leverage,
from aspects of Sarbanes-Oxley legislation, from their visibility, and from
the logistics of managing the testing of large varieties of products. Large
manufacturers tend to be very leveraged, and use their eligible inventory as
their borrowing base. Because the inventory is going to become unsalable on
10 February 2009, there will be an abrupt change in their borrowing base.
This raises the question of whether corporate officers can legitimately claim
inventory in their current borrowing base. Because many of these loan
agreements and all publicly traded companies require audited financial
statements at the end of the year, inventories will be tested. This will
result in a negative change in valuation and a sharp reduction or termination
of available credit. For public companies, it raises the issue of whether
those officers are making false representations, introducing the
specter of criminal liability under Sarbanes-Oxley.
In early 2009, local media reported that children's clothes, books, toys, and
other items were being removed from shelves at local stores - and in some of
these cases even to the point of causing the entire store to close
- in Wichita, Kansas , Ionia, Michigan , Conway, Arkansas , Goldsboro, North
Carolina , Lincoln, Nebraska , New York City, New York (NYC) , Rochester, New
York , Marshall, Minnesota , Kailua, Hawaii , New Port Richey, Florida , and
Tucson, Arizona.
According to Walter Olson's report 'The New Book Banning' in 'City
Journal' (NYC), the CPSIA has problems because due to economics, some
stores destroyed books, and some used book sellers removed many
books. One small bookstore owner interviewee criticized the CPSC and referenced
the book Fahrenheit 451, where the destruction of books at government
behest was a plot point. Olson also claims that there has never
been any known case of a child receiving lead poisoning from a book. In
his closing paragraph, Olson writes "... ours will be a poorer world...".
The enaction of the CPSIA banned the sale of youth motorcycles and ATVs
because of the lead content of battery terminals and tire valve stems. The
law has a provision for exceptions to be made by the CPSC, but it has not
done so for these products as of March 2009. The ban has left many
motorsports retailers with unsalable products, and motorcycle
industry leaders suggest that the ban may cost the US economy $1
billion.
http://online.wsj.com/article/0,,SB1023064523437699560,00.html?mod=opinion
JUNE 3,
2002
Trial-Lawyer Trifecta
As John McCain kept telling us, campaign finance reform was going to
reduce if not end special-interest influence in Washington. Perhaps the
Senator forgot to tell the plaintiffs' bar, which is dominating the current
Congressional session as completely as any lobby ever has.
From asbestos-litigation reform to terrorism insurance to even the patients'
bill of rights, the tort lawyers are blocking whatever they don't like.
So great is their clout in the Senate that the lawyers are even inducing
Democrats to kill their own self-professed priorities. Ed
Hyman's ISI Group calls it the "trial lawyer trifecta," but even
that understates their influence.
…
What about urbanites, with whom Democrats claim a special affinity? Fears
about the post-September 11 real estate market cratering have so far proved
exaggerated. But one reason may be market confidence that such
uninsurable risks as nuclear terrorism would, in the end, call forth a
responsible government policy. That faith becomes less viable with every
month that Mr. Daschle continues to stall terror insurance legislation over a
single issue: whether trial lawyers will be able to sue property owners
who become victims of terrorism. Lesson: Lawyers beat construction
workers, hands down.
The third big trial-lawyer triumph is stopping any restraint on the economic
plague of asbestos litigation. Even many Democrats want to answer repeated
pleas from the Supreme Court to bring some sanity here. But their
Senate colleagues in the party of "working families" refuse to do
anything about lawsuits that have busted out from companies that made or sold
asbestos and now threaten to bankrupt those that merely used the stuff or
knew someone who did. Reform here is dead too.
We recently asked Delaware Democrat Tom Carper about all this clout and he
explained it crisply: "Trial lawyers raise a lot of money." He
should know. As a rare Democrat willing to challenge the trial bar, he's
sponsoring a Senate version of the class-action reform that has already
passed the House. But he can't get Mr. Daschle to bring that one up for a
vote, either. We're beyond trifecta now, into Grand Slam territory.
Harry Hopkins once said the Democratic electoral formula was tax and spend. Nowadays
it's sue and sue, so the settlement proceeds can be recycled into campaign
donations. The only thing left is for the lawyers to cut out the
middle man and elect one of their own to the White House, which they may do
in two years in the person of Mr. Edwards.
http://www.discovery.org/a/2383
…
ASBESTOS LAWSUITS--the country's longest-running personal injury claims--are
still ravaging industrial America. The story began in the 1960s when Ward
Stephenson, a Texas personal injury attorney, bypassed the limited awards of
Worker's Compensation by suing the manufacturers of asbestos over lung damage
suffered by oil-refinery workers. As the claims mounted, trial lawyers
uncovered the Sumner Simpson papers (named for the founder of
Raybestos-Manhattan), which revealed that manufacturers had known as early as
the 1930s that asbestos was causing significant harm to workers' lungs. The
subject was hushed up, however, and asbestos became a household item in the
1950s, exposing millions of people. Tens of thousands of insulation
installers, pipe fitters, and construction workers suffered miserable deaths
from asbestosis and a dreaded cancer, mesothelioma, in what has been called the
greatest industrial health disaster in American history.
By some legal version of Gresham's law, however, the bad cases have
eventually driven out the good. After Johns Manville and Raybestos went
bankrupt, lawyers turned on construction companies, oil companies,
steelmakers, and eventually anyone who ever came near asbestos.
Bethlehem Steel, Babcock & Wilcox, Combustion Engineering, and W.R. Grace
all fell into bankruptcy as a result of asbestos litigation. The makers of
automobile brakes were sued because brake pads had been made of asbestos.
When Federal-Mogul, the leading manufacturer, went bankrupt, lawyers sued
Kaiser Aluminum, which made the brake shoes that cut into the brake linings.
Kaiser went bankrupt in 2002. Over 75 major corporations have now filed
for Chapter 11 as a result of asbestos suits, and trial lawyers now
have General Motors, Ford, Chrysler, General Electric, and Westinghouse in
their sights.
Meanwhile, the actual health crisis is subsiding. Mesothelioma
deaths peaked in 1992, and the incidence of asbestos-related disease is in
decline. Yet claims keep increasing. Lawyers began sending
mobile X-ray vans to factories to screen for potential clients. Sympathetic
doctors produce sympathetic diagnoses. Over 650,000 claims are now pending,
with more than 100,000 filed in 2004. Recently, Johns Hopkins researchers
asked six independent reviewers to reexamine 492 X-rays submitted by
plaintiff attorneys in support of their clients' claims of lung scarring. The
initial X-ray readers had reported abnormalities in 95.9 percent of the
films. The independent reviewers found them in 4.5 percent. The results were
published in the August 2004 issue of Academic Radiology, the journal of the
profession.
The compromise to which both sides have now agreed is a $100-billion-plus
trust funded by asbestos-related companies to compensate present and future
victims in exchange for relief from further lawsuits. "A year ago the
manufacturers were offering $100 billion, while the labor unions wanted $150
billion," says Stanton Anderson, executive vice president of the U.S.
Chamber of Commerce. "Now they're talking about $140 billion." One
good sign: The unions have generally excluded trial lawyers from their
conferences.
What paralyzes Congress is the fear that the lawyers will quickly
burrow around the system. ("A lawyer is a person skilled in
circumventing the law," observed Ambrose Bierce.) Some are already
repackaging their asbestos cases as "mixed dust and silica" claims,
arguing these should be exempt from the agreement. There is also the question
of pending claims. Daschle insisted anyone who had a court date would be
exempt from the trust agreement--which is one reason why the 100,000-plus
cases were filed last year. All these details will have to be ironed out.
Even among plaintiff attorneys, however, there is a sense of urgency.
"It used to be that I could tell a man dying of mesothelioma that I
could make sure his family would be taken care of," testified Steven
Kazan, an Oakland plaintiff lawyer who filed his first asbestos case in 1974.
"Today, I often cannot say that anymore. And the reason is that other
plaintiffs' attorneys are filing tens of thousands of claims every year for
people who have absolutely nothing wrong with them."
http://www.ftc.gov/speeches/leary/classactionsummit.shtm
THE
FTC AND CLASS ACTIONS
By Thomas B. Leary
…
II. The Genesis of Modern Class Actions.
…
Multiparty litigation was dramatically transformed by the 1966
amendments to Federal Rule of Civil Procedure 23, which provides the
governing framework for class actions today. Before these 1966 amendments,
the text of Rule 23 was silent on the issue of whether all potential class
members were excluded unless they affirmatively "opt in" or whether
all potential class members are included unless they affirmatively "opt
out." In other words,
was the default standard exclusion or inclusion?
Despite this ambiguity, it was well established that the default standard
before 1966 was exclusion. One district court observed, "Prior to the
1966 amendment to the Rule, an individual could wait to see the outcome of
the litigation before deciding whether or not to become a party." This all changed
when the new rule permitted opt-out classes. The Supreme Court noted that,
because it "permitt[ed] judgments for money that would bind all
class members save those who opt out," section (b) (3) of Rule
23 "was the most adventuresome innovation of the 1966 Amendments."
There were plausible arguments for this innovation. The principal problem
with an opt-in requirement was that large numbers of people may not even
realize they had been harmed [Because they weren’t]. It is difficult to
communicate effectively with large numbers of potential class members. An
affirmative opt-in requirement can be a substantial obstacle to class
formation and can leave large numbers of uninformed claimants with no remedy.
Moreover, a failure to compensate fully can result in underdeterrence
of wrongdoing [civil law is not supposed to deter wrongdoing. That is
what criminal law if for]. There were problems for defendants, as well.
Opt-in classes can lead to serial litigation as claimants "game"
the system by waiting to see what will happen before they commit. An opt-out
regime appeared to alleviate all these concerns. It also allowed classes to
be created more quickly and it facilitated the prompt adjudication of
claims.
Notwithstanding the fact that the opt-out mechanism would consolidate the
claims of largely silent class members, the supporters of the amendments
expected that consumers would remain the real parties in interest. As the
Ninth Circuit explained, "there is nothing in the Advisory
Committee's Note that suggests that the amendments had as their purpose the
authorization of massive class actions conducted by attorneys engaged by
near-nominal plaintiffs." [BUT THERE
WAS NOTHING PREVENTING IT EITHER! The KEY aspect of the law isn’t what
is allowed but what ISN’T allowed.]
There is, however, a fundamental flaw in an opt-out system that was not
widely recognized in 1966. Simply put, people have to opt-in at some
point if they ever are to be compensated for the wrongs that gave rise to the
litigation. If class counsel is successful, the matter typically will be
resolved by a settlement or verdict that creates a fund for the class. In
order to take advantage of that compensation, individual class members will
have to identify themselves and demonstrate affirmatively that they are
entitled to share in the fruits of victory.
Since individual class members are still required to opt-in, the 1966 Rule
amendments postpone but do not eliminate notice and mass communication
problems. The bulk of the class members are still likely to be uninformed
and indifferent. The opt-in rates for some recent class action settlements
are astonishingly low [this is because most class action lawsuits are BS
(people don’t feel wronged)]. In Strong v. BellSouth
Telecommunications, Inc., for example, the settlement provided class members
with the option of either continuing under a service plan or canceling and
receiving a credit. Although the settlement purportedly provided $64 million
in compensation, the credit requests submitted by class members
amounted to less than $1.8 million. In Buchet v. ITT Consumer Fin.
Corp., the proposed settlement would have provided class members with coupons
worth up to $39 toward the purchase of property insurance or related
products. The court refused to approve the settlement, citing actual
redemption rates that ranged from 0.002% to 0.11% for similar coupons.
III. The Unintended Consequences of "Opt-Out" Classes.
Postponement of opt-ins from the beginning to the end of litigation not only
fails to solve some basic difficulties with class actions, but also
aggravates other problems in ways that were not anticipated.
A. Lawyers in Control
One direct effect is that lawyers, rather than clients, become
the real parties in interest. If consumers are required to opt-in
affirmatively before class certification, class action attorneys will have
bona fide clients to whom they must be attentive and responsive. If consumers
are not identified until the remedy phase, class action attorneys
themselves can act on their own. And, if the response rate is minimal
at that phase, they largely are still on their own.
Amended Rule 23 permits lawyers to speak for immense
"phantom" classes of people who have not selected them - -
who may, in fact, be entirely unaware that they are parties to a lawsuit. In
theory, individual notice is required if it can be undertaken with reasonable
effort, so that people will have the opportunity to opt-out. In practice,
this requirement has not been strictly applied and, even if it were,
experience shows that most people either do not pay attention or have little
incentive to opt-out. The lawyer can still purport to speak on behalf of a
horde of passive people, and automatically acquires substantial
bargaining power.
Lawyers are subject to the same frailties as any other group of human beings
and it is unreasonable to expect that they will always be able to
differentiate between their own interests and the interests of the class
members they are supposed to represent [Agreed]. The traditional problem
of conflicts among a class of plaintiffs or defendants that has always
existed in multiparty litigation has been transmuted into a potential problem
of conflicts between lawyers and class members.
A further consequence of delayed opt-in and low response rates is that class
action litigation subtly shifts away from the goal of compensating
people for wrongs that they have suffered toward the goal of
punishing wrongdoers, or at least assuring that they do not profit from
their misconduct [by assuring that the EVEN LESS DESERVING trial
lawyers profit instead]. There is nothing wrong with this idea, in principle [Only
someone without principles could write this]. Punishment or disgorgement of
ill-gotten gains are powerful weapons that serve the important public purpose
of deterring misconduct in the future [this ideology is so dishonest it makes
me ill]. The problem is that these weapons have been placed in the hands of
people who act, in effect, as private bounty hunters but who are not
primarily concerned with public benefit. There is heightened need for
public oversight to avoid outcomes that underdeter, overdeter or deter the
wrong parties.
B. The Risk of "Collusive Settlements"
The overwhelming majority of class actions, like the overwhelming majority of
other lawsuits, are settled before trial. When response rates and actual
payouts are expected to be low, however, there is the potential for a
substantial pool of unclaimed funds. This surplus can, in effect, be
split between plaintiffs' lawyers, who are essentially free agents, and the
defendants. Certain recurring features of modern class action
settlements suggest [make obvious] that these "parties" may
be [are] tempted to craft a compromise that subordinates the interests of
the class. Two examples of particular concern are (1) so-called
"coupon" settlements, where class members receive discounts on
future purchases from the defendants rather than cash and (2) settlements where
class counsel get an inordinately large share of the recovery.
There may be situations in which the use of coupon compensation is
appropriate - - for example, when the size of each class member's individual
recovery is likely to be de minimis - - but even a cursory review of current
class action practice suggests that this particular form of compensation is
over-used. Defendants may be tempted to agree on coupon compensation because
they are counting on a low redemption rate or because the coupons can
actually generate additional sales. The net cost is minimal and a
settlement has minimal deterrent effect. Class action attorneys may
be tempted to settle for coupon compensation that ultimately is of limited
value, or even no value to the class, provided that the coupons facially
appear valuable enough to justify counsel's own substantial cash fees.
Two publicly reported examples - - admittedly extreme - - illustrate the
anti-consumer potential of coupon settlements. In the Bank of Boston
settlement, the bank was accused of over-collecting escrow money from
homeowners and profiting from the float. The settlement gave up to $8.76 to
each class member, and $8.5 million in fees to attorneys. The
fees were paid by deducting money - - usually more than the amount of the
award - - from class members' accounts, resulting in net losses for class
members [so wrong…]. In the Charter Communications settlement,
defendant cable company was accused of charging customers excessive
late-payment fees. Under the settlement, attorneys got $5.5 million in
fees. Customers got a new late-payment policy and a choice of various
free services, but they also got larger cable bills. One class
member complained: "please don't sue anyone else on my behalf. I
can't afford any more of these brilliant legal victories." [Trial
lawyers are leeches, pure and simple]
C. Unrealistic Expectations for Judicial Oversight
In theory, judges can oversee over the entire process, from the initial
decision on whether to certify a class to the ultimate approval of a plan for
the distribution of whatever money is collected. In practice, this oversight
may not be as rigorous as it looks in theory.
…
Class action lawyers who sue defendants with a national presence (and deep
pockets) have the ability to search out those judges most likely to be
receptive. A review of class action trends suggests that lawyers are
increasingly, and successfully, engaged in forum shopping. A recent study by
the Manhattan Institute, for example, focused on three jurisdictions with
disproportionately high volumes of class action filings: Madison County, Illinois;
Jefferson County, Texas; and Palm Beach County, Florida. The results were
surprising.
First, all three counties showed a substantial increase in class action
filings. The most extreme case, Madison County, Ill., experienced a
1850% increase in filings between 1998 and 2000. In fact, Madison
County has been the forum for more class actions than all but two counties in
the United States - - Los Angeles County and Cook County, Ill. - - which are
vastly greater in size. Jefferson County filings nearly doubled and Palm
Beach filings increased 31% in the same period.
Second, a significant number of these class actions were filed: (1) against a
defendant that was not based in the county, and (2) on behalf of a putative
nationwide class. In other words, a handful of class action friendly
jurisdictions increasingly determine the contours of lawsuits that can affect
public policy on a nationwide basis. Again, Madison County was the
most extreme. Not one class action was filed against a defendant based in
the county, and 81% (57 out of 70) were brought on behalf of a putative
nationwide class. In Jefferson County, only 8% of class actions were filed
against defendants based in the county, and 57% (27 out of 47) were brought
on behalf of a putative nationwide class. In Palm Beach County, only 50% of
class actions were filed against defendants based in the county, and 51% (46
out of 91) were brought on behalf of a putative nationwide class.
D. The Process Can Drive the Result
The problems resulting from the amendments to Rule 23 - - the rise of
lawyer-driven class actions, and forum shopping - - have been exacerbated by
the tendency for the needs of process to drive substantive outcomes. This
development results from the fact that classes are certified before courts
become well informed about the significance of the issues.
In the landmark Eisen case, the Supreme Court concluded that "nothing in
either the language or the history of Rule 23 . . . gives a court any
authority to conduct a preliminary hearing into the merits of a suit in order
to determine whether it may be maintained as a class action." A court is
supposed to be able to decide whether "questions of law or fact common
to members of the class predominate over any questions affecting only
individual members," without inquiring deeply into the merits. It
is very difficult to draw this overall balance in a factual vacuum. The
rules also provide, however, that a class action may proceed "with
respect to particular issues." So, a court may be tempted to look for
some common element up front and worry about the individual issues later on.
For instance, a class plaintiff can plead the existence of a
"conspiracy" or a "misrepresentation," which looks like a
factual issue that is appropriate to decide only once - - and, indeed, in a
government prosecution it would be - - but which may only be the beginning of
a complex inquiry in a private class action, where individual class members
are affected in different ways.
Once a class is certified to address a single common factor, it acquires a
life of its own. If the case does not settle promptly, conservation
of judicial resources may motivate courts to find ways to shortcut a
burdensome inquiry into other substantive elements of the plaintiff's case,
like actual "impact" on, or "reliance" by, a large number
of individuals who are differently situated. Substance is tailored to serve
the needs of process rather than the other way around.
It is more likely that the easy certification of a single common issue will
put a case on the settlement track. The level of litigation exposure inherent
in many statewide or nationwide class actions often makes a trial unlikely,
even unthinkable, and puts enormous pressure on defendants to settle
claims, regardless of their merit.
IV. The FTC's Interest in the Process
The FTC is an agency with responsibility for consumer protection. It is
therefore obvious why it would be concerned about settlements that do not
adequately compensate injured consumers, either because they only provide
class members with largely worthless discount coupons or because the class
action lawyers are awarded a too generous share of the proceeds. Similarly,
when consumer redress is impractical because claimants cannot be located or
because individual claims are too small - - and deterrence is therefore the
primary objective - - it is obvious why the agency would be concerned if the
recovery appears to be inadequate.
It is less obvious why the FTC is concerned about forum shopping and
procedural rulings that increase plaintiff's bargaining power to such an
extent that defendant's may settle meritless claims or pay too much money. Why
should we care if class action defendants pay too much? There are a number of
reasons.
First, class action settlements that are too large increase the cost of
doing business. These costs are ultimately passed on to consumers - -
all consumers, not merely the much smaller subset of consumers that have
actually received some form of class action compensation. This phenomenon has
promoted some legal commentators to refer, glibly but with justification, to
the imposition of a "tort tax" - - a key component of which is the
explosion of class actions. According to some current estimates, the
"tort tax" costs over $200 billion annually. Much of this cost can
be attributed to the increase in class action filings which, between 1997 and
2000, increased 300% in federal courts and 1000% in state courts. I do not
necessarily endorse this estimate and, of course, it includes lawsuits based
on matters with which the FTC is not directly concerned. I do not doubt,
however, that the impact on consumers is substantial.
It can be argued that the "tort tax" is not all bad because the
large sums involved may deter illegal or careless behavior. This is not necessarily
true, however, if the people who bear the burden are ultimate consumers
rather than actual wrongdoers. (Consumers can also be harmed indirectly if
competitive companies are crippled or destroyed by crushing damage
recoveries.) Moreover, there can be such a thing as
"over-deterrence" if the risk of large class actions causes
businesses to avoid pro-consumer activities. For example, if some
minor defect in a message to consumers can give rise to substantial
liability, regardless of the amount of consumer harm, it may inhibit sellers
from providing useful information in the first place.
Overdeterrence can also have a chilling effect on the Commission itself. The
agency was originally established to provide more precise guidance to the
business community and to the public on commercial practices that are
acceptable. We have maximum flexibility to adapt to new situations because
our orders are prospective and do not automatically give rise to retroactive
liability. If massive liabilities can flow from conduct that was not
clearly understood to be wrong at the time, I personally would be less
willing to consider the imposition of new legal duties. [some
integrity]
Finally, it is troublesome if people in the business community become cynical
about the legal profession and the legal process [legal process only
destroyed America (exaggeration). What is there to be cynical about?]. This
concern is based on a hard-headed calculation that disrespect for the law
does not foster compliance with the law. All the efforts of government and
private enforcers combined cannot monitor the entire business landscape - -
the health of our system depends in large measure on voluntary law compliance.
People are more highly motivated to obey the law if it appears to be
both sensible and fair. [The opposite is also true: People are more
highly motivated to ignore the law if it appears to be both illogical and
wrong]
http://www.discovery.org/a/2272
La
Grippe of the Trial Lawyers
Guess Who's to Blame for the Flu Vaccine Fiasco.
By: William Tucker
The Weekly Standard
October 25, 2004
JOHN KERRY wasted no time jumping on President George Bush about the
unexpected shortage in flu vaccines this year. Why wasn't Bush paying
attention? He should have done things differently. And of course Kerry had a
"plan" to solve the whole mess.
If Kerry thinks he can solve the flu vaccine problem, he need look no further
than his own running mate, trial lawyer John Edwards. Vaccines are the one
area of medicine where trial lawyers are almost completely responsible for
the problem. No one can plausibly point a finger at insurance companies, drug
companies, or doctors. Lawyers have won the vaccine game so completely
that nobody wants to play.
Two weeks ago, British regulators suspended the license of Chiron Corp., the
world's second-leading flu vaccine supplier, for three months. Officials cited
manufacturing problems at the factory in Liverpool, England, where Chiron
makes its leading product, Fluvirin. Chiron was scheduled to supply 46
million of the 100 million doses to be administered in the United States this
year. The other 54 million will come from Aventis Pasteur, a French company
with headquarters in Strasbourg.
So why is it that 100 percent of our flu vaccines are now made by two
companies in Europe? The answer is simple. Trial lawyers drove
the American manufacturers out of the business.
In 1967 there were 26 companies making vaccines in the United States. Today
there are only four that make any type of vaccine and none making flu
vaccine. Wyeth was the last to fall, dropping flu shots after 2002. For
recently emerging illnesses such as Lyme disease, there is no commercial
vaccine, even though one has been approved by the Food and Drug
Administration.
All this is the result of a legal concept called "liability
without fault" that emerged from the hothouse atmosphere of the
law schools in the 1960s and became the law of the land. Under the old
"negligence" regime, you had to prove a product manufacturer had
done something wrong in order to hold it liable for damages. Under
liability without fault, on the other hand, the manufacturer can be
held responsible for harm from its products, whether blameworthy or not [absolutely
retarded]. Add to that the jackpot awards that come from pain-and-suffering
and punitive damages, and you have a legal climate that no manufacturer
wants to risk.
In
theory, prices might have been jacked up enough to make vaccine production
profitable even with the lawsuit risk, but federal intervention made vaccines
a low-margin business. Before 1993, manufacturers sold vaccines to doctors,
doctors prescribed them to patients, and there was some markup. Then
Congress adopted the Vaccine for Children Act, which made the
government a monopsony buyer. The feds now purchase over half of all
vaccines at a low fixed price and distribute them to doctors. This has
essentially finished off the private market.
As recently as 1980, 18 American companies made eight different vaccines
for various childhood diseases. Today, four companies--GlaxoSmithKline,
Aventis, Merck, and Wyeth--make 12 vaccines. Of the 12, seven are made by only
one company and only one is made by more than two. "There are
constant shortages," says Dr. Paul Offit, head of the Vaccine
Education Center at Children's Hospital of Philadelphia. "With only one
supplier for so many vaccines, the whole system is fragile. When even
the smallest thing goes wrong, children miss their vaccinations."
The intersection between mass vaccinations and the tort system was bound to
be messy. When you vaccinate enough people, someone, somewhere, is
going to have a bad reaction. You could give a glass of milk to 100
million people and a few would inevitably get violently sick from it. With
vaccines, there will be allergic reactions and a tiny but predictable
percentage of people will suffer some kind of permanent damage or even die. Because
of liability without fault and the generosity of the tort system, the
result is huge damage awards.
The first instance of this came in 1955 with polio vaccinations. Cutter
Laboratories, the California company that now distributes Cutter's Insect
Repellent, made an early batch of vaccines, some of which had live viruses in
them. Almost all the children in Idaho were administered the vaccine and
several dozen contracted polio. In 1957, the parents of Anne Gottsdanker, an
8-year-old girl whose legs had become paralyzed, sued Cutter, with famed
personal injury lawyer Melvin Belli representing them.
The jury found Cutter's actions were not negligent--the orders had been
rushed, standards had not been clear, and safety precautions were still
rudimentary at the time. But, using the new doctrine of liability without
fault, the jury held Cutter accountable anyway and awarded $147,300. "That
decision made Ralph Nader possible," Belli later claimed.
"It was a turning point," says Dr. Offit, whose book The Cutter
Incident will be published next year. "Because of the Cutter decision, vaccines
became one of the first medical products to be eliminated by lawsuits."
That this would be the outcome wasn't immediately clear. Soon after the
trial, the Yale Law Journal published an article arguing that insurance
against adverse reactions was the solution. The public wouldn't buy
policies because it would be too complicated and expensive, but vaccine
makers could. Insurance would cover the cost of bad outcomes and the
manufacturers would pass these costs on to their customers. Those few who
were harmed by a vaccine would be covered by those who benefited. Everything
would work out. Unfortunately, this thesis failed to anticipate how
high damage awards would go.
WHEN AN UNUSUAL EPIDEMIC occurred at Fort Dix, N.J., in 1976, for example,
the federal government decided to vaccinate the whole country against the new
"swine flu." To the astonishment of Congress, the insurance
companies refused to participate. Senator Ted Kennedy charged
"cupidity" and "lack of social obligation." The
Congressional Budget Office predicted that with 45 million Americans
inoculated, there would be 4,500 injury claims and 90 damage awards, totaling
$2 million. Congress decided to provide the insurance.
As Peter Huber recounts in his book Liability, the CBO's first estimate
proved uncannily accurate. A total of 4,169 damage claims were filed.
However, not 90 but more than 700 suits were successful and the
total bill to Congress came to over $100 million, 50 times what the CBO
had predicted. The insurance companies knew their business well.
Adding to the problem are the predictable panics about vaccines that spread
among parents and are abetted by trial lawyers. In 1974, a
British researcher published a paper claiming that the vaccine for pertussis
(whooping cough) had caused seizures in 36 children, leading to 22 cases of
epilepsy or mental retardation. Subsequent studies proved the claim to be
false, but in the meantime Japan canceled inoculations, resulting in
113 preventable whooping cough deaths. In the United States, 800
pertussis vaccine lawsuits asking $21 million in damages were filed over the
next decade. The cost of a vaccination went from 21 cents to $11.
Every American drug company dropped pertussis vaccine except Lederle
Laboratories. In 1980, Lederle lost a liability suit for the paralysis of a
three-month-old infant--even though there was almost no evidence implicating
the vaccine. Lederle's damages were $1.1 million, more than half its gross
revenues from sale of the vaccine for that entire year.
In recent years, the most prevalent anti-vaccine rumor has held that
Thimerosal, a mercury-containing preservative used in vaccines from the 1930s
until just recently, is behind an "epidemic of autism." Once again,
scientific studies have disproved the allegation, but hundreds of parents are
filing suit, and trial lawyers continue to troll for clients.
Congress tried to stave off liability problems with the National Childhood
Vaccine Injury Act in 1986. The program functions almost as an ideal
"medical court," with panels of scientists, virologists, and
statisticians reviewing each complaint and rewarding those that seem
legitimate. Unfortunately, the program allows plaintiffs to opt out of
the system. Trial lawyers continually bypass it and elect to go to
trial--particularly for cases where the review looks unpromising. With
Thimerosal, lawyers have argued that the law does not apply because mercury
was an additive, not the actual vaccine. The result is jackpot awards and
very little protection for the vaccine companies. In 1998, the FDA
approved a vaccine for Lyme disease, which strikes 15,000 people a year. GlaxoSmithKline
manufactured it for three years but quit when rumors began circulating
that the vaccine caused arthritis.
All this has made the flu an epidemic waiting to happen. Each year flu
viruses circle the globe, moving into Asia in the spring and summer and back
to North America in the winter. Surface proteins change along the way so that
the previous year's vaccine doesn't work against the following year's
variation.
Each year in February, the Centers for Disease Control meets with the
vaccine-makers--all two of them--and decides which strain of the virus to anticipate
for next year. Then they both make the same vaccine. Last year the
committee bet on the Panama strain, but a rogue "Fujian" strain
suddenly emerged as a surprise invader. A mini-epidemic resulted and 93
children died, only two of them properly vaccinated.
With several companies competing in the field, as was once the case,
somebody would have been more likely to produce a dark horse vaccine. If that
rogue strain emerged, the dissenting company would hit the jackpot, and there
would be ample supplies of an effective vaccine, at least for those most at
risk. In the "planned economy" of the CDC, however, there is no
back-up for an unexpected turn of events. This year there isn't even a front
line.
Are trial lawyers ready to accept responsibility for their starring role in
creating this health hazard? Don't hold your breath. "This is just the
typical garbage and propaganda from the drug manufacturers," says
Carlton Carl, spokesman for the Association of Trial Lawyers of America. "There's
absolutely no disincentive for making vaccines. American companies
don't do it for the same reason they're sending jobs overseas--because it
increases their profits." [When America collapses, people like
Carlton Carl are going to be the source of a lot of justified anger. I look
forward to that.]
Whether doctors are quitting the profession because of an out-of-control tort
system, whether malpractice premiums are the cause of health care
increases--such hardy perennials of the litigation debate are still a subject
of lively controversy. But with vaccines there is no argument. Trial
lawyers have all but ruined the market. Yet they are still unwilling
to take responsibility.
I couldn’t resist putting this in
here. The U.S. Department of Justice is seeking qualified mentally retarded trial lawyers.
The
U.S. Department of Justice, Civil Rights
Division is seeking up to 10 experienced attorneys for the position of Trial
Attorney in the Voting Section in Washington, D.C.
…
…
PREFERRED QUALIFICATIONS:
…
The Civil Rights Division encourages qualified applicants with targeted
disabilities to apply. Targeted disabilities are deafness, blindness,
missing extremities, partial or complete paralysis, convulsive disorder, mental
retardation, mental illness, severe distortion of limbs and/or spine.
Applicants who meet the qualification requirements and are able to perform
the essential functions of the position with or without reasonable
accommodation are encouraged to identify targeted disabilities in response to
the questions in the Avue application system seeking that information.
My reaction:
Enough to make you lose all faith in the US legal system, no?
Eric de Carbonnel
Market Skeptics
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