The Tortellini

Maybe trial lawyers need to dig a little deeper

While I was perusing the ever-entertaining website of Texans for Lawsuit Reform, I noticed that they had circulated an outraged press release back in November complaining that the local campaign finance watchdog group, Texans for Public Justice, was "funded by trial lawyers." TLR apparently got TPJ's tax filings and discovered the shocking news that three big plaintiffs law firms had given the group a grand total of $50,000, which constituted more than a third of its budget.

I wasn't especially surprised to find trial lawyers among TPJ's donors, given the paucity of other sources of funding for progressive politics in Texas. What did suprise me, though, was that TPJ's budget was so tiny! The whole shop runs on $160,000 a year. That's barely enough to keep the lights on and the web site up. By comparison, the tort reform group, which got $15,000 in seed money from the tobacco industry, has a PAC that spent more than $3 million in the last election. It's really a credit to TPJ's clearly underpaid staffers that it has made such an impact on the Texas political scene with the budget of an ankle-biter.

Of toenails and tort reform

Texans for Lawsuit Reform has found a novel way of converting lawmakers to their cause: free pedicures. What I find really amazing isn't the lure of free beauty treatments, but the fact that TLR has anything left to lobby for!

Schumer drinks the Kool-Aid

I saw that the Wall Street Journal ($) yesterday was heralding the fact that New York senator Chuck Schumer, a Democrat, has "seen the light," so to speak, about tort reform. Schumer has endorsed the ridiculous study commissioned by Mayor Bloomberg that declares tort reform the single biggest key to retaining U.S. dominion of global finance.

I don't want to beat a dead horse here, but as I've noted before, I find it very hard to believe that the threat of a lawsuit is the biggest fear foreign companies have of doing business on U.S. soil, especially when you consider all the other factors like, say, the health care system. In any event, just as a reminder, the latest research on securities litigation suggests that the CEO's concern about shareholders' suits cited in the now-famous McKinsey study is wildly overblown.

Not only has the rate of shareholder suit filings plummeted 44 percent over the past decade, but the risk of getting sued has also fallen such that the average American corporation has less than a 2 percent chance of getting hit by a shareholder suit in any given year. If that's enough to scare off foreign companies, we have a lot bigger problems than the tort system. Oh, and before you start writing in about the "lawsuit lottery" and the risk of that one big, ship-sinking verdict, let me just point out here that no company ever settles a lawsuit for billions of dollars unless it actually did something really mean or really stupid to deserve it (and yes, Enron does come to mind here), in which case, the lawsuits are working exactly like they're supposed to...

What are the hazards of the modern workplace?

I was reading Paul Brodeur's famous book on asbestos this week and it reminded me that I've been meaning to write an article about what workplace injuries can tell us about the changing nature of the economy and work itself.  A hundred years ago, workers died from all sorts of horrible things, including silicosis and black lung sorts of diseases. You don't see that much of this anymore, but I suspect that even in the service economy, the are some dangerous professions. One that comes to mind: Starbucks barristas. OK, it's clearly not the same as coal mining, but I wonder: do those folks suffer from bad burns occasionally from the coffee? I saw a near miss the other day..Anyway, this could just be a stupid inquiry, but if there are any workers comp lawyers out there or others who see the casualties of the modern workplace, I'd be interested in hearing from you about your observations....

Those Wacky, Tragic Warning Labels

One of the tort reform movement's most succesful media campaigns involves those "wacky warning labels" that manufacturers put on products to help avoid lawsuits. The tobacco-industry creation, M-Law, or Michigan Lawsuit Abuse Watch, now sponsors an annual contest for the craziest label, and the media eats it up (John Stossel can't get enough of these). On their face, many of the labels do seem sort of nutty, but this year's winner bothers me because I suspect that the origins of the warning label stem from a bona fide tragedy.

This year's contest winner, picked by listeners of a Detroit radio station, was a label on a laundromat washing machine that read, "Don't put any person in this washer." Maybe this sounds self-evident, but Washington area readers may recall that in 2005, a 14-year-old West Virginia boy was waiting with his 5-year-old sister for their mother to use a pay phone at a laundromat. Playing around, the boy put the little girl inside one of the washing machines, and when he closed the door, it started to run, even though he hadn't put any quarters in it. The machine air locked and there was no way to open it until after it finished the cycle. The boy and his mother tried using rocks from the parking lot to break the glass on the front, and the mother clawed through the glass with her bare hands trying to save her daughter. But by the time she was able to get her out, the little girl had died.

I remember this story being so harrowing, and the images of the mother using her fingernails to scrape at the washing machine glass while watching helplessly as her daughter was suffocated so awful, that it's hard for me to get a good laugh out of the warning label. Maybe adults know not to play around with these things, but kids will do stupid things sometimes, and anything that would give them pause, I'm all in favor of. I mean, the label may seem dumb, but what's the harm in putting it on--especially if it might save a child's life?

Bush and the docs

I suppose I should weigh in on the State of the Union address last night, but I confess that I didn't watch it. I didn't need to hear Bush speak to know that he would beat the old malpractice horse and call for fewer "junk lawsuits" against doctors. I have to wonder sometimes whether doctors still fall for this. It's the domestic policy version of blaming Osama bin Laden for the war in Iraq.

In the run-up to the 2004 presidential election, Bush and his policy operation helped organize doctors and whip them in to a frenzy about malpractice lawsuits, promising them that support for Republicans would bring them relief from high insurance premiums and "lawsuit abuse." Some states went ahead and passed legislation making it harder for injured patients to sue their doctors. But no one ever really thought Congress would do anything about this, much less the White House, whose lobbying efforts on the med mal bills were half-hearted at best. After all, medical malpractice law is overwhelmingly a state issue, not a federal one. Even some Republicans can see that.

Doctors, though, with all their white-coat protests and threats to abandon their elderly patients to move to Guam or whatever state had a "better liability climate," provided Bush and his corporate backers with a useful tool for passing another anti-consumer bill they really did want, the Class Action Fairness Act (CAFA). Of course, CAFA had nothing to do with medical malpractice, but the doctors' protests enabled Bush to equate legal reform with helping Marcus Welby, M.D.

Remember how Bush showed up in Madison County, Illinois for a photo op with some nice doctors in 2005, just a few weeks before CAFA went to the Senate floor? The U.S. Chamber of Commerce had already made the county the poster child for class action reform, but Bush made it sound like passing it would fix the health care system. Talk about bait and switch! Doctors, though, I've come to realize, have a bit of a tin ear when it comes to politics. I do hope someday they realize that they've been had...

The Sixth Circuit's Ink Blot Test

Peter Nordberg over at Blog 702 has an interesting post about a Sixth Circuit decision involving a lawsuit against Greyhound. A passenger sued the bus line after being injured in a crash that resulted from a crazy guy attacking the bus driver. Nordberg's writing is ever so subtle, an unusual quality in a blogger, and he frames the case as a Rorschach test for diagnosing people's attitudes about litigation. (Oh yeah, and there's some stuff in there about expert witnesses...) It's worth checking out.

Tort law is making me paranoid

I remember reading once about a funny psychological phenomenon among medical students, who often start to suffer from many of the symptoms of the diseases they study. I wonder if something similar happens to trial lawyers. After spending the past two years doing nothing but read about various lawsuits that stem from the wreckage of accidents and malpractice, I've often wondered how some lawyers ever manage to get out of bed in the morning, for a number of reasons.

Just from my own work, I now have heart palpitations every time I have to get into say, a Dodge Caravan, as I did last week for a drive to New York, or a Ford Explorer. I've seen too many lawsuits that revealed how poorly those cars fared in accidents. I hated to drive before, but now, after watching accident recreations of tractor trailers crushing passenger cars, I really don't enjoy getting on the highway. There's nothing like seeing trial exhibits of a doctor breaking his patient's neck while inserting a breathing tube to keep you away from "elective" surgery. That tummy tuck is DEFINITELY out.

Bill Childs over at Torts Prof Blog has enlightened me about the dangers of amusement parks (as if I didn't already suspect that those places were sort of a problem!). Visiting friends in the Virginia countryside last year, I watched in horror as they sent their 8-year-old daughter off to ride on a pink, kiddie ATV that screamed: lawsuit in abeyance. The death and destruction that's at the heart of tort law has definitely given me a different, if possibly distorted, view of the world. Heart palpitations notwithstanding, it has its upside: I saw many compelling reasons to applaud my husband for going out to shovel the sidewalk late last night in our  first snowstorm of the year...

Reader's Digest discovers Lester Brickman

Reader's Digest has a story this month that gives wider circulation to Cardozo law prof Lester Brickman's latest proclamations on mass tort fraud. While I would never, ever, defend what happened in Texas with the whole silicosis mess, and I don't doubt that there are some problems with asbestos litigation in general, I do find Brickman's estimates about the breadth and cost of fraud to be a little hyperbolic. As with so many attempts to put a price tag on parts of the tort system, I'm a bit skeptical of his numbers, as well as his methodology.His rhetoric often seems to outshine the data. He loves to talk about all the plaintiff's lawyers in the "Sultans of Brunei Club" who make $25,000 an hour, for instance, even though few lawyers ever command that kind of money.

Also, he rarely mentions--nor does Reader's Digest--that he makes pretty good money working for the asbestos industry as an expert witness in litigation and bankruptcy cases. While researching my book, I came across one of Brickman's expert witness reports in which he noted that he his customary fee was $650 an hour. That's pretty good dough for a humble academic, and hardly makes him the dispassionate observer he's made out to be in the press....

On Hot Dogs and Republicans...

Ted Frank, among others, has also taken issue with my post yesterday in which I observed that many of the leading lights of the tort reform movement appeared to me to be "overprivileged white guys." I didn't suggest that all of them are overprivileged (thought almost all of them do seem to be white and male!). I apologize to all the former burger-flippers and grocery store clerks who took this personally. 

I also apologize for inadvertently characterizing myself as a peon. I am certainly not underprivileged, as Ted points out. For what it's worth, however, I did spend a fair amount of my youth and early adulthood in grueling, minimum-wage jobs. The most memorable was a long stretch cooking corn dogs at the now-defunct Ogden City Mall and the L.A. County Fair, wearing red polyester hot pants, clown-striped tank-tops and matching cone hat. (I still have the hot oil burn scars and varicose veins to show for it). The chain motto was "Fast, Fresh and Friendly." (You can't make up stuff like this!)

The founder of Hot Dog on a Stick was a cretin who only hired women (most of them teenagers), and decorated the hot dog stands with mirrors strategically positioned to show off the hot-pants and the inevitable jiggling that ensued while we pounded the pulp out of lemons in 10-gallon lemonade drums. To say that we hot dog girls endured a fair amount of humiliation in exchange for earning the California, as opposed to the Utah, minimum wage that we got working for this company would be an understatement.

But I digress. ..I did have one other response to Ted's post today. Just for the record, and contrary to what the subhed of my book may also suggest, I don't "dislike Republicans." My father used to be one, until the party started spending too much time worrying about what people did in their bedrooms and not enough about the budget and other things that matter. My late father-in-law was a longtime Republican member of the New York state assembly, and many of my extended family members are stalwart GOPers whom I love dearly. I may disagree with many of the GOPs major platform items, including much of its tort reform agenda and most especially, the gay-bashing parts, but I try not to write people off because of their political beliefs. Besides, there are plenty of democrats who have supported tort reform in recent years. The GOP hardly has a monopoly on this issue.

I do find, though, that there is a mean streak in conservative, GOP politics today that is prominently displayed in debates over tort reform. When I wrote yesterday about the background of some of the biggest tort reform advocates, I was also thinking that the dearth of empathy among tort reformers for the people who become plaintiffs in personal injury suits might stem from the buffers of privilege. I forgot, though, about the Clarence Thomas School--the kind of thinking that comes from raising yourself up by the bootstraps, and then having nothing but disdain for all the other poor schmucks who can't seem to do the same. Clearly, you don't have to be overprivileged to be mean...

Correction and clarification

Thanks to AEI's Ted Frank and other readers for keeping me on my toes. A correction to yesterday's post about the Salazar case in Nebraska. I wrongly reported that the Nebraska Supreme Court had issued its decision in the case in September. In fact, the court handed down the decision about the insurance coverage in July 2005. (The court issued an earlier ruling upholding the trial court's decision in 2003.) I apologize for the error.

Ted and others are also right in some of their criticism of my interpretation of the decision, in the sense that the county's liability insurance provided excess coverage for multiple $1 million claims, rather than single claims exceeding $1 million. However, I do think that the plaintiff's lawyers in this case had a potentially credible argument that there was a contractual issue involved outside of the state's damage cap. The lawyers argued that Salazar, the plaintiff, was the intended beneficiary of the county's insurance policy, and thus was entitled to claim benefits available regardless of the state cap. (The trial court judge in this case assessed his damages at $7 million.) They argued in the appeal that the insurance company had offered $50,000 more than the $1 million cap to settle the case before trial, as evidence that the excess policy benefits were available to their client. Obviously the court disagreed, as do many of you, dear readers. 

In any event, I apologize for the errors of my own, and appreciate everyone who took the time to correct them, and to join the discussion of what I think is a pretty interesting case regardless of how you feel about its merits.

Affluence and accidents

One reason that I find many of the major tort reform advocates and their attendant "intellectuals" a little bit arrogant is that they seem to think that they are immune from the random misfortune that leads to personal injury lawsuits. Not that trial lawyers can't be a little full of themselves, but for a long time, I thought the leading lights of tort reform were just in denial about their potential need for the legal system, and that accidents were just that: random, and not dictated by class or privilege. But then I saw a story in the Washington Post recently that changed my mind.

A new study found a direct correlation between childhood IQ and rates of hospitalization for accidental injuries. The smarter the kids, the less likely they were to have serious accidents, a trend that continued through adulthood. Researchers offered several explanations, including that kids with lower IQs were more likely to drop out of school and end up in more dangerous and poorly paying jobs. Head injuries as a child also led to more accidents as an adult. Education mitigated the effects, so even dumb kids who got a decent education (our current president, perhaps?) were less likely to be injured.

The study made me think that maybe the tort reformers are right. They--and the billionaire CEOs they represent--don't really need tort law. Most of them are overprivileged white guys who, I suspect, have never flipped a burger except maybe on their outdoor Viking kitchens. Their private schooling and Ivy League bona fides mean they don't have to work in coal mines or put themselves in harm's way as cops or soldiers. Affluence means they don't have to drive crappy American cars that are deadly in accidents or rely on bad doctors and risk malpractice--all the things that land people in court. The odds are consistently in their favor. Tort law, then, is for the rest of us peons, just the folks that the "reform" movement wants to shut out of the justice system...

Why Insurance Companies Love Tort Reform, part 437.

The insurance industry has spent the better part of the last 50 years scaring Americans into believing that lawsuits are driving doctors out of business, shutting down Little League, and generally making life miserable for any decent business. One of the many results of this campaign is that Americans now buy lots of insurance to protect themselves against all these looming lawsuits--probably in most cases, far more insurance than they really need, thanks to caps on damages won by those very same insurance companies.

Consider this case: Not long ago, a county government in Nebraska spent $300,000 on a $5 million liability insurance policy. In Nebraska, it's impossible to win more than $1 million in a lawsuit thanks to a hard cap on damages, but apparently the insurance company didn't see fit to remind county officials of this.

The policy recently came to light after a speeding deputy sheriff slammed into a man taking his fiancee out to breakfast. The accident killed the woman and left Manuel Salazar a paraplegic. Salazar's medical bills alone before the lawsuit went to trial were $1.2 million. Even though the county had a $5 million insurance policy, the Nebraska Supreme Court in July 2005* said that none of it above $1 million could be used to pay Salazar's claim. Salazar is now reliant on public benefits, and the taxpayers of Nebraska are safe in the knowledge that their county has contributed its share to the insurance industry's windfall profits over the past few years by buying a policy that the county can't even use to compensate someone who was wrongly injured by one of its employees...

*I originally misstated the date of this decision and have corrected it. Read more here...

The Sizzler: One ride that's not so amusing..

Sorry for the blog neglect of late. Occasionally I have to do work that pays the bills, and unfortunately, blogging for Google ads just doesn't do it! To catch up, today I've got several items that have been sitting on my desk for a while, but seem interesting if not so timely at this point...

The first comes via law prof and amusement park safety expert Bill Childs. He wrote an interesting post last week on his TortsProf blog about "The Sizzler," an amusement park ride that has killed an injured some kids, including a 9-year-old in Texas who was thrown from the ride. While there's plenty of evidence to suggest that the ride is defective (particularly the restraints that should have kept the girl in her seat), the people of Texas won't be able to sue over any associated injuries, Childs writes, because the 2003 tort reform law there creates a 15-year statue of repose. So even though the Sizzler is in active use in many places, it is at least 15 years old, and thus its owners and operators are largely immune from lawsuits. Childs writes

there are dozens or hundreds of Sizzlers in operation (it is, I have read, the most popular carnival ride in existence), with the same restraint system.  But due solely to its age, its manufacturer is immune from suit, and the operators will generally be effectively immune from suit.  Where's the appropriate deterrence and motivation to (for instance) urge ride owners to update the restraints?

From tort reform to jury nullification?

Someone once told me that one of the most visible results of the tort reform movement on American culture was that it had given people permission to be mean. A perfect example of this seems to have come from an insurance company lawyer in Las Vegas recently. Earlier this month, the Nevada Supreme Court voted to discipline a defense lawyer who regularly represented Allstate for disparaging plaintiffs and the legal system during closing arguments, arguing that the lawyer was aiming for jury nullification.

Lawyer Philip Emerson used almost identical closing arguments in four different cases. Here are some excerpts:

"People must take responsibility for their lives and not blame others for challenges and setbacks. People must stop wasting taxpayers' money and jurors' valuable time on cases like this."

And this:

This is a case where the plaintiffs are trying get something for nothing ... it's cases like this that make people skeptical and distrustful of lawyers and their clients who bring these types of lawsuits. It's a big factor as to why our profession is not as honorable in the eyes of the public as it once was. But the only way that people and their chiropractors will stop bringing these cases is if juries start saying no, enough is enough. Our legal process is meant to justly compensate and make one whole, not to make them rich.

In another case, Emerson asked jurors to imagine their own child getting injured, then said, "[i]s that an opportunity, does that mean you just go out and sue-negligence? It's an accident." The Nevada court ordered Emerson to pay all the attorney's costs in four cases in which he engaged in "attorney misconduct" and ordered new trials in two of the cases.

I'm not so surprised by the sorts of things Emerson was saying in court (though it is pretty funny to see how often he recycled his identical closing arguments. How much do you supposed he billed Allstate for that?). What I find sad about it is that he clearly thought that his arguments would resonate well with the jury. But I guess he knows juries a lot better than I do, as he won three out of the four cases at issue. 

 

How insurance companies create tort reformers

While I was researching my book, I tracked down a story that had been circulating during debates over products liability legislation in Congress in the mid-90s, involving a guy who sued an American flag company in Texas for injuries he'd suffered trying to bring the flag down in a wind storm. Tort reform groups like the NFIB had held up the story as an example of a frivolous lawsuit, because one of the flag companies that was sued didn't make the flag or the pole it'd been flying on.

I tracked down both the lawyer for the plaintiff and the owner of the flag company, to hear their sides of the story. The political debate had obscured very substantial and valid arguments both men had about the lawsuit, which showed not so much that the system wasn't working, but rather, how insurance companies exacerbate some of its deficiencies.

Pete Van de Putte, the owner of Dixie Flag, in San Antonio, turned out to be a nice guy married to a democrat in the Texas legislature, and was not the hard-core tort reformer he'd been made out to be during the congressional debates. But he was pissed about the lawsuit, for good reason. His insurance company had settled the case for $5,000, without consulting him, even though his company had nothing to do with the flag accident. But the insurance company thought it was simply cheaper to pay than to fight.

I suspect this kind of decisionmaking by insurance companies happens all the time, and I don't blame people for being angry about it. Cheap settlements leave them feeling like they've been wrongly accused of a crime and never given a chance to clear their names. For most people, this is an infuriating insult and a moral outrage that goes beyond money. Van de Putte had been willing to spend his own cash to defend his case because he knew he was right, but the insurance company never gave him the opportunity.

As for the plaintiff, Hank Childers, he was indeed severely injured when he stopped in a parking lot one day and tried to help some guys at a quick-lube shop who were struggling to bring down a gigantic American flag in a heavy wind storm (the same August winds that had blown over the Pope's grandstand that year). The flag pulled Childers 70 feet in the air and then splatted him on the pavement, where his face was crushed and both arms broken. He was hospitalized for a long time and lost some vision and use of his hands and arms--ending his guitar playing forever. His face was put back together with rods and plates. He had no health insurance.

By the time he was able to contact a lawyer, the statute of limitations on the case was about to run out. His lawyer, Henry Ridgeway, says he did his best to research the case on very short notice to identify the proper parties, but that he did have to "sue everybody" to avoid missing someone important and thus losing the case later. He said he knew he would be able to remove the errant filings, if any, after the statute of limitations had expired, but he wouldn't be able to add anyone. Dixie Flag just happened to be one of the misfires, the result of imperfect information available at the time the case was filed.

If Pete Van de Putte's insurance company had simply let him fight the suit, he would likely have been dropped from the case pretty quickly and moved on. Instead, he became the poster child for products liability law reform. Ironically, Van de Putte now thinks that at least in Texas, tort reform has gone too far, in part because his house developed a toxic mold problem, and his experience hasn't made him any fonder of insurance companies...

One more new review...

Here's Mother Jones on Blocking the Courthouse Door this month...

Workers Comp: Lousy for workers and even worse for injured patients..

Philip Howard, the founder of the pro-tort reform group Common Good, had an op-ed in the Wall Street Journal this weekend calling for the creation of his latest project, health courts. Howard and his supporters claim that by eliminating juries from medical malpractice cases and replacing them with "experts" and special judges, the health care system would be fairer and patients safer. Howard argues that such a system would resemble workers compensation. Anyone who knows workers comp these days should find that a chilling possibility.

Becky Foster and her family found out first hand just how fair workers comp is, and how "safe" it makes the American workplace. Two years ago, Foster's step-son Jeremy Foster, 19, was killed in an Arkansas sawmill accident. His sweatshirt got tangled up in a wood chipping machine that had been inexplicably altered by the company, making it impossible for him to free himself. Foster was working alone at night. When his co-workers later found him hanging from a ladder, he had been asphyxiated.

Even though Foster was a temp at the plant, Arkansas workers comp laws do not allow his family to sue the mill for negligence. Lawyers have told his family that there's also no point in pursuing a workers comp claim, either, because Foster didn't have any dependents. As a result, the sawmill's only penalty for killing the young man came from the federal Occupational Safety and Health Administration (OSHA), which found numerous safety violations at the mill, but only fined the company $4,500 (and later reduced that piddly number to $2,250). (You can read more about the Fosters' story here.) As Becky Foster has pointed out, $2K is hardly enough to persuade a company to make a safer workplace.

Such meager punishments doled out by "experts" seem equally unlikely to spur major safety initiatives in the health care system. Besides, as Howard so deftly argues, the threat of jury awards has already made patients too safe, by driving an epidemic of defensive medicine, where we all get more health care than we really need because doctors are so afraid of being sued! Replace the juries with a health care version of OSHA/workers comp and things really promise to go downhill...

Some more book news

The Washington Monthly has been kind enough to review Blocking the Courthouse Door in its January issue. You can read the review here. Be sure to check out the Monthly's fine political blog as well...

Tomorrow, I'll be on the Bob Edwards show on XM public radio (XM 133). You can listen online if you don't have a satellite connection (XM offers a free online trial sub!).

For Pennsylvania readers, at 11:30 EST Monday, I'll be on "The Law Show," with Cliff Rieders in Williamsport, which airs on WRAK (1200/1400 a.m.)

Risk vs. Reality

University of Wisconsin law prof Marc Galanter once wrote an article called "An Oil Strike in Hell," on legends about the civil justice system. In it he gives a run down of some fascinating research comparing the views of corporate CEOs to those of corporate risk managers about the so-called "litigation crisis" back in the 1980s.

Risk managers and mid-level public employees viewed most lawsuits as a nuisance and thought the impact of the liability issue was "far more related to rhetoric than reality." The CEOs, who were much less likely to have direct experience with litigation but whose companies may have also funded major tort reform initiatives, thought that lawsuits were a huge menace. Galanter suggests the CEOs might be drinking their own Kool-Aid. He observes,

"As in the case of chemical weapons, it is hard for those who launch media distortions to keep them away from their own troops."

I was reminded of this article today when I was looking at the new data on securities litigation from NERA. There are some amazing nuggets buried in it, including this one about the impact of a 44 percent decline in the rate of shareholder lawsuit filings over the past decade:

With the drop in filings, the average corporation now faces less than an 8% probability of being the target of at least one such suit over a five-year period. The annual likelihood of a suit has fallen 9% since the period of 1993 to 1995, from 1.8% to 1.6%, prior to the PSLRA.

Despite Treasury Secretary Henry Paulson's recent suggestion that the threat of lawsuits was deterring foreign companies from doing business in the U.S., this new data means that most companies have less than a 2 percent chance of getting hit with a shareholder suit in any given year.

Even if a company does get sued, odds are also slim that it will ever have to pay out in a verdict or settlement. NERA reports that nearly 40 percent of all shareholder class actions filed between 1999 and 2004 were dismissed. Dismissal rates have doubled since passage of the 1995 Private Securities Litigation Reform Act. All told, this hardly seems like enough to deter corporate Europe/Asia/etc. from profitable ventures here. (Maybe those would-be investors have just seen too many of the scary lawsuit abuse ads the U.S. Chamber of Commerce keeps putting up in the Union Station Metro!)

Nonetheless, I'm sure this sober assessment will do nothing to dampen corporate enthusiasm for yet more restrictions on securities litigation in the coming year. Indeed, the U.S. Chamber of Commerce's Institute for Legal Reform has already released a press release insisting that the decline in shareholder suits is but a "temporary blip" and that more and bigger suits are just over the horizon, thus necessitating further dire measures to "fix the broken securities litigation system"...

 

When tort reform backfires...

One thing that always heartens me is the way the dynamic American legal system continues to confound the corporate interests trying to immunize themselves from lawsuits. Sometimes I think it must be a conspiracy by tort reform lobbyists as a way of keeping themselves lucratively employed, but it's not unusual to see some tort reform measures backfire on the very people who wanted them so much.

Good examples in the past include the Florida doctors who in the 1980s demanded a "loser pays" provision in the state's medical malpractice law that would require losing parties in a lawsuit to pay the other side's legal bills. They thought it would deter lawsuits. Instead, after a few years in practice, doctors begged the legislature to repeal it because they often ended up being the losers who paid. Even when they won, the brain-damaged plaintiffs or widows who'd sued them didn't have much money to offer the defense lawyers.

In 2004, business groups in California succeeded in passing a measure that would divert a hefty portion of any punitive damage award to a state public benefit trust fund as a way of keeping the money away from trial lawyers. After the fund collected exactly zero dollars, the business groups tried to prevent its reauthorization, largely because they realized that jurors might be inclined to award even bigger punitive awards if they knew the money would go to the public and not an individual plaintiff. (The legislature renewed it anyway.)

But the latest example comes in the hot area of securities litigation. Back in 1995, at the behest of big businesses, Congress in all its wisdom passed a bill over Clinton's veto to restrict shareholders' lawsuits. New data from National Economic Research Associates show that the law did reduce the rate of filings by 44 percent over the past decade. But when it comes to these sorts of things and the lawyers who file them, what doesn't kill them only makes them stronger. The remaining shareholder class actions were among the largest ever, in part because of multi-billion settlements in the enormous corporate fraud cases like Enron and WorldCom. The other reason is that the 1995 law forced lawyers to be more selective in their filings and to find bigger plaintiffs, like public pension funds, to lead the litigation, which drove up the stakes substantially in what lawsuits were still able to go forward.

The results shouldn't be so surprising. Similar things have happened in the medical malpractice and products liability arenas, where median awards have actually gone up in places that have passed caps on damages or made it harder for injured patients to sue. There are fewer suits, but the remaining ones are really, really serious. Unfortunately, these trends have the perverse effect of creating yet more demands for tort reform even as the ability of regular people to prevail in a lawsuit has already been substantially curtailed...

Isn't this a conflict?

While I was reading up on the U.S. Chamber of Commerce's latest lobbying plans, I noticed that their "Outlook 2007: State of American Business" event this Friday, featuring Commerce Secretary Carlos Gutierrez and chamber prez Tom Donohue, is co-sponsored by Congressional Quarterly.

Given the gobs of money that the chamber spends lobbying Congress ($60 million in 2004 and 2005 just on legal reform alone!), should the ever-so-balanced media outlet really be getting so chummy with these guys?? After all, it's hard to imagine CQ co-hosting an event with the trial lawyers...

The Business Lobby's 2007 Agenda

One nice thing about big corporate business groups is that they spend a lot of money telling the world exactly how they plan to spend the next year screwing over the little guy. Today the U.S. Chamber of Commerce held a press conference to spell out their priorities for the year. Naturally, even though the media have already declared business the winner in this old fight, the agenda includes a bunch of new legal "reform" initiatives.

Legislation reining in securities litigation tops the chamber's list, along with measures to limit discovery and mass medical screenings, and passing the federal asbestos trust fund. The chamber also plans to continue meddling in off-year state judicial elections and lobbying for legislative "improvements" in the "problem states" of California, Louisiana, Texas and Wisconsin. State attorney generals are still a big target, especially those who have the nerve to make contingency fee contracts with outside counsel. Read the full report here.

One thing not on the list: Defending chamber prez Tom Donohue from lawsuits over his performance on several corporate boards. Rumor has it that he's in the crosshairs of some pissed off securities lawyers this year. Read more here about their potential ammunition...

 

Nardelli calls it quits..

A coincidence? Yesterday I posted about Home Depot CEO and tort reform enthusiast Robert Nardelli's paranoid and autocratic management tendencies, and then, he resigned (WSJ sub req). Naturally, he'll be taking $210 million with him in a severance package as thanks for depressing the company's stock price and continuing to let cheap lumber fall on its customers....

(Thanks to Eric Turkewitz for the heads up...)

The Myth of Defensive Medicine

Throughout all the big medical malpractice debates in recent years, doctors' groups and their political supporters have regularly insisted that fear of lawsuits forces physicians to practice expensive "defensive medicine." The idea is that to avoid suits, doctors prescribe unnecessary tests and treatments, thus driving up the cost of health care.

This argument always seemed to me pretty ridiculous, since performing unnecessary procedures on people is itself a form of malpractice. But also, in an era of managed care and increasingly stingy health care insurance coverage, average Americans never seem to be suffering from an excess of health care, at least not in their family doctor's offices.

A story this weekend in the Austin-American Statesman confirms my suspicions. The story is about a case headed to the Texas Supreme Court over an interesting technical issue, but the details show why the "defensive medicine" argument is such an empty one.

The plaintiff, Sharon Boyd, 57, made four different visits over 16 months to three different doctors, complaining of rectal bleeding and constipation. Not one of them ordered a single diagnostic test, not even a colonoscopy, which is recommended for everyone over 50, bleeding or not. Finally, 3 years after her initial complaints, Boyd demanded a colonoscopy. Turns out she had stage 4 colon cancer. She died not long after finding a lawyer. Cases like these are just far too common for defensive medicine to be anything but a myth...

Home Despot

I was reading Gretchen Morgenson's column($) in the New York Times Sunday and heartened to see her give the "What Would Stalin Do?" award to Robert Nardelli, the CEO of Home Depot, for running the company's shareholder meeting like a Gulag chief.

Nardelli, if you'll recall, appeared with George W. Bush early last year at the White House Economic Conference panel on tort reform, a cause Nardelli has embraced as his company's safety record has deteriorated. Home Depot shareholders this year finally got a good taste of the paranoia about public scrutiny that the company has shown in dealing with injured workers and customers.

In 2003, the Atlanta Business Chronicle published a disturbing investigation into the dangers that lie in Home Depot's aisles of plumbing pipes and aluminum siding, including the story of a 3-year-old who was crushed to death by 2,000 pounds of falling kitchen counter tops. The series highlights Home Depot's legal strategy of covering up stories about people injured or killed in its stores through aggressive use of confidentiality agreements at all levels of litigation, not just in settlements.

None of this is new, but Nardelli's dishonorable mention Sunday just reminded me that I've often suspected it's not really just money that drives business leaders to support tort reform, but transparency. Personal injury lawsuits rarely put a dent in big companies, which have insurance and deep pockets to pay out most of the awards against them. But those suits often dislodge important (and embarrassing) information from companies about their public health and safety records--information that the government rarely obtains. And that's why CEOs hate them so much, especially people like Nardelli, who just can't countenance anyone on the outside questioning the way his company does business, even if it kills someone.