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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]
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]
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]
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]
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]
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.
Attorneys' Fees
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]
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]
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.
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.
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.
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]
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
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.
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].
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
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.
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.
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."
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]
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. …
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?