Where We Are
Finding the problems in our civil justice system is the easy part -- fixing them is harder
The American Lawyer and Corporate Counsel
The apocalypse is upon us. Just pick up a newspaper. Litigation in this country has run amok. Doctors are being hounded out of their practices by lawyers rushing willy-nilly to file malpractice suits. Class action specialists are suing entire industries, using the brute force of media attention -- and, often, the muscle of cooperating state attorneys general -- to bully settlements from terrified defendants. Certain jurisdictions, the "hellholes" of American litigation, routinely dole out megamillion-dollar verdicts to undeserving plaintiffs. Business innovation is squelched. Liability concerns taint every decision by corporate counsel. Ski slopes, beaches, even playgrounds -- is nothing safe from marauding tort lawyers?
Soon, if we're to believe the hype, you won't even be able to eat the Oreos you've always known and loved, and for that you can blame those most convenient of scapegoats -- the cigar-chomping, cuff-link-wearing, Gulf Stream-flying plaintiffs lawyers of America.
We'd all be so much better off without them.
We'd be driving around in SUVs with exploding tires -- no seat belts or air bags, of course. We'd be fire-proofing our homes with asbestos, spraying our crops with pesticides, using Dalkon Shields for birth control, and chasing Big Macs with a dose of fen-phen. Smokers would be blissfully unaware that the tobacco industry knew all along of the cancer risks in cigarettes. Shareholders would trust the top brass at the Cendant Corporations and Waste Managements into which they'd poured their savings. And parents of brain-damaged babies would sleep better at night knowing that the kind folks at their health insurance companies would take good care of them.
You get the idea. The conventional wisdom would have us all rail against the occasional ridiculous tort suit or loony jury verdict rather than remember that plaintiffs lawyers are just fulfilling the role we assigned to them about 30 years ago. This revolutionary change was essentially a two-step process. First came the ideological shift: Courts would resolve ever more issues in a land full of victims. And second, the technical rules themselves were changed to invite a different sort of lawsuit. "Something was attractive to society in settling problems by litigation," says Walter Olson, the litigation pundit who slays lawyer-excesses on his "Overlawyered" Web site. The attitude that prevailed in the 1970s, Olson says, was, "let us do more justice by allowing more people to sue. The role of the courts was seen as providing remedies by letting in claims." In revamping federal and state rules of civil procedure, the courts, legislatures and lawyers themselves in the 1960s and 1970s made their contingency-fee brethren an instrument of social justice: They were supposed to safeguard the people against the wrongs of corporate America. And there's plenty of evidence that they did, and still do.
But here's the problem. The contingency-fee system relies on the market's unseen hand to regulate litigation, assuming that plaintiffs lawyers won't bring silly suits because they won't recoup their costs and make money. To some extent, the market has worked effectively, almost brutally effectively. Read Nathan Koppel's story, "Bad Medicine," about medical malpractice lawyers in Texas weighing the prospects of the cases that patients present, and see if you don't feel a pang for the thousands of legitimately injured Texans whose claims never get to a courthouse. At least in the Texas medical malpractice bar, plaintiffs lawyers who file meritless cases don't stay in business long.
The peculiarities of our legal system, however, have warped the ideal of the tort litigation market. The prime culprit is federalism itself. Every state has its own laws of liability. But because big corporations conduct business nationally, they're subject to the laws of each jurisdiction -- which means that some states become havens of tort litigation. Consider asbestos litigation, the well-oiled machine of American torts. Asbestos cases now crowd court calendars in a handful of states, chiefly Mississippi, Texas, West Virginia, New York and Illinois, where state law and sympathetic juries make plaintiffs' claims more valuable than they would be in other venues. To a lesser extent, the same is true of other torts. Plaintiffs lawyers have only to look at the Web site of the American Tort Reform Association to find the friendliest jurisdictions, which ATRA has helpfully defined as "judicial hellholes." If a plaintiff is lucky enough to be injured in, say, Madison County, Illinois, he has won the liability lottery. If he's injured in a more conservative jurisdiction and can't figure out some way to bring suit elsewhere, well, sorry.
The capriciousness of the civil justice system is ever more troubling as liability cases grow more complex, with juries of ordinary people called upon to decide complicated scientific disputes. Even in the federal courts, where the Supreme Court's 1993 Daubert ruling gave judges increased responsibility for weighing the scientific merit of arguments offered by plaintiffs' experts, nearly identical facts can produce different rulings from different judges. In "Inexact Science", Matt Fleischer-Black chronicles one federal judge's struggle with the complex science in a heart-rending tort case -- and considers whether this judge's solution presages a new way to reconcile science and the courts.
We in the news business contribute to the degradation of the civil justice system by paying so much attention to huge verdicts without putting them in context. Such coverage, says James Haggerty, author of "In the Court of Public Opinion," makes potential plaintiffs eager to sue, leading to yet more spurious litigation. Moreover, he says, media attention tends to force defendants to settle. "The goal," he says, "is to scare defendants into settling. ... PR is the legal strategy."
The combination of forum shopping and media attention is most dangerous, tort reformers say, in class actions in state courts. Although federal courts clamped down on the use of class actions in personal injury cases in the 1990s, after the Supreme Court's Amchem and Ortiz decisions threw out nationwide asbestos settlements, some states are still considered amenable to mass tort class actions. Haggerty asserts that when such cases are filed, with big damages projections attached, the news stories they generate attract yet more potential class members. "When defendants do the math," he says, "they often see it's too hard to defend the class action."
Too risky, in other words, to defend the case -- and, frequently, too expensive. It's worth pointing out that plaintiffs lawyers aren't the only attorneys profiting from litigation today. The hourly fees charged by most big defense firms are part of every defendant's risk calculations. For more than a decade there's been talk of alternative billing models -- and some high-profile experiments with alternatives -- but most big firms, says Jones Day litigation chairman John Strauch, remain reluctant to tamper with hours-based billing because of the inherent unpredictability of litigation. Strauch calls a lump-sum approach to billing defense costs "a dangerous undertaking," and says that even incentive-based billing, which he concedes creates incentives for efficiency and successful outcomes, is "imperfect because of the element of uncertainty" for firms. Clients, in other words, are stuck with an ironic reality: Paying their lawyers to win at trial may cost more than settling a case early. And that is why plaintiffs lawyers are sometimes able to make money on cases of dubious merit.
The tobacco litigation stands as the apotheosis of modern litigation trends. Despite the behavior of the industry, which for decades hid evidence of the dangers of its products, plaintiffs lawyers representing individual smokers, even with the help of antismoking activists, never managed to crack the industry defenses. Then one well-financed group of plaintiffs lawyers filed a nationwide personal injury class action against the tobacco companies, while another group of strategic-minded plaintiffs lawyers teamed up with a few state attorneys general to recoup state health care costs. Both groups of plaintiffs lawyers, as well as the attorneys general, proved to be adept at public relations. More and more states filed suit, many hiring the same private firms that had kicked off the litigation. The industry, facing ruin, finally worked out a settlement that called for payments to the states of more than $200 billion, as well as industry-sponsored advertising aimed at discouraging smoking among teenagers.
Plaintiffs lawyers succeeded where federal regulators had failed, forcing the industry to acknowledge and take responsibility for the dangers of smoking. In so doing, they fulfilled the implicit job society has assigned them. (And inspired the federal government to follow their lead with a suit whose potential impact Douglas McCollam explores in "Smoke Signals".) Even defense lawyers such as David Bernick of Kirkland & Ellis and Barry Ostrager of Simpson Thacher & Bartlett concede that litigation can serve a valuable regulatory function. Says Ostrager: "[Some cases] provide an incentive for improving behavior, so they are beneficial to society."
But the tobacco litigation's $15 billion in fees to plaintiffs lawyers -- and the unseemly battles to divide it among them -- didn't help the image of contingency fee lawyers. Since the tobacco litigation, plaintiffs lawyers always seem, fairly or not, to be looking for the next tobacco, the next astronomical payday. The nobility of the cause, the high-minded fight to right wrongs perpetrated on people seems to have been subsumed by a search for deep pockets and mass actions. Every time a plaintiffs lawyer proclaims that he and his brethren are now targeting HMOs or fast-food restaurants or video game makers, there's a sense that balance is lost, that civil justice has been perverted.
Of course, the history of litigation is rife with defendants complaining about lawsuits destroying America. University of Wisconsin law professor Marc Galanter has lately made a career of studying the perception of lawyers and litigation. In a November 2002 essay in the Texas Law Review, Galanter pointed out that as long ago as 1960 -- even before Civil Procedure reforms -- editorials grousing about reckless juries and unjustified suits were already beginning to appear. Thirty years ago Fortune carried an article titled "The 'Legal Explosion' has Left Business Shell-Shocked," descrying the "society in which business is endlessly besieged by legal problems." Business Week, a few years later, noted that "almost to a man, insurance executives think that the tort system is running amok." That was the year, 1976, in which the phrase "tort reform" seems first to have appeared.
But contrary to tort reform hype, says Galanter, tort litigation in state and federal courts is actually on the decline, and has been since the mid-1990s. Similarly, he says, median jury awards have not even kept pace with the rise in other costs. (Only 12 percent of jury verdicts are over $1 million, while more than 50 percent are under $50,000. The net result, Galanter says, of misplaced political and media attention to supposedly outrageous verdicts is to undermine public faith in the civil justice system.
Even he concedes, however, that tort litigation is not an efficient system for compensating victims. It's too fickle and unpredictable, too dependent on factors having nothing to do with the injury sustained. "But if the alternative regime," Galanter says, "is just less of the same -- well, that's not very good, except for the people who pay less."
And most of the tort reform proposals making headway politically are just that -- less of the same. If the goal of the civil justice system is, in fact, justice, it's hard to see how the system is improved by, say, caps on damage awards, such as those Texas just enacted. As Koppel's piece points out, the caps will penalize not those filing frivolous suits, but those who've already proved the merits of their cases. Tort reformers say proposals to limit forum-shopping, keep class actions in federal court, or curtail punitive damages will make the system more fair.
Actually, though, such proposed reforms don't necessarily serve to distribute compensation more equitably to victims, but rather to reduce the total amount of money flowing to victims. Arthur Bryant, the executive director of the plaintiff-lawyer-funded Trial Lawyers for Public Justice, is hardly an objective observer, but he has a valid point here. "Problems such as coupon settlements, suits that cost class members money, or suits in which the defendant gets broad releases are not properly addressed. ... Most of the proposed changes are not designed to fix the system." (Ironically, as Ashby Jones points out in "A Class Act?" those inadequate class-action settlements may be addressed by a proposed law eagerly supported by many corporate defendants. The Class Action Fairness Act would move most class actions into federal court -- where federal judges have shown themselves increasingly willing to deep-six settlements that they think are unfair to class members. Perhaps corporate America should be careful what it wishes for.)
Of all the proposed legislation floating around, only the asbestos bill voted out of the Senate Judiciary Committee in July seems intended to balance fairness to both victims and defendants, mitigating the effect of the litigation lottery by providing preset damage awards to victims based on their injuries. As "Change of Venue" explains, there are a host of problems with the bill, which faces a difficult and uncertain road to becoming law. But in its underlying theory that litigation is incapable of providing justice and Congress must step in to do the job, it is provocative indeed. Litigator Philip Howard, the author of "The Death of Common Sense: How Law Is Suffocating America," says that's the direction in which we must head if the goal is social justice. "There's something fundamental that's flawed," he says. "What's missing is, in effect, law. What is needed is not tort reform but a shift in legal philosophy. ... Congress should balance social interests, not litigation."
That's where we are. Where do we go from here? What is the future of litigation? Throughout this issue you will find articles analyzing proposed litigation reforms, as well as suggestions for change from prominent practitioners on both the defense and plaintiffs side of the bar. One lesson to bear in mind when considering any proposed systemic changes: Plaintiffs lawyers are like water, and tort reform is like plugging leaks in a dike. They will find another hole, and eventually come crashing through it.
The ultimate solution, to prolong the metaphor, may be to divert the waterway. So here's a radical thought. What if, instead of tort litigation, we had a national victim's compensation fund, funded by a tiny tax on all corporate revenue? We could still have plaintiffs lawyers investigating malpractice and bad products and all the other problems that lead to personal injury suits. But liability would be determined by a minicourt administered by the fund, and damages would be awarded based on a matrix of injury. Egregious conduct by corporate defendants would result in punitive damages to be paid into the fund. Legitimate victims would be compensated fairly, innocent corporations would be vindicated, transaction costs would be slashed.
Will it ever happen? Certainly no time soon. Too many lawyers, with too much political influence, have an interest in keeping things exactly as they are. For now, we'll just have to be satisfied that at least we can eat our Oreos in peace. That plaintiffs lawyer who filed the Oreo suit? He withdrew it.
Additional reporting by Kathrin Weston.