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WASHINGTON — As the White House and Congress gear up for yet another run at tort reform, two cases set for argument at the U.S. Supreme Court this week underline the crucial role the justices also play in the policy debate over how much litigation is too much. While legislative efforts to limit lawsuits have mostly fizzled in recent years, the Supreme Court has arguably done more in the field than either of the elected branches by cutting back on punitive damages and restricting, at least modestly, class actions. “The judicial dimension of civil justice reform is very, very important,” says Mark Levy, appellate specialist at Kilpatrick Stockton in Washington, D.C. And, as the cases this week demonstrate, the justices will have the final word on whatever reform measures Congress does pass, in their classic role of statutory interpretation. The two cases, one a closely watched securities fraud class action and the other involving liability for pesticide makers, both involve laws that were aimed, at least in part, at protecting key industries from excessive litigation. The court is being called on to interpret ambiguous wording in the statutes that could lead, ironically, to significantly more tort lawsuits, not fewer. “The cases show that even if you get the damned bill through Congress, you are only halfway there,” says David Price, an attorney for the Washington Legal Foundation, which filed pro-business briefs in both cases. “It’s a real lesson to the folks working on tort reform bills that they should make a superhuman effort to write clearly.” Parties in both cases have enlisted top-tier lawyers to do battle. In the pesticide case Bates v. Dow Agrosciences, set for argument today, heavy hitters David Frederick of D.C.’s Kellogg, Huber, Hansen, Todd, Evans & Figel, will square off against former Solicitor General Seth Waxman of Wilmer Cutler Pickering Hale and Dorr. Frederick represents Texas peanut farmers harmed by a pesticide made by Waxman’s client, Dow. Waxman will argue that a federal law that regulates pesticides pre-empts state tort actions, but Frederick calls that argument “the latest effort by manufacturers to evade liability for their defective products through a sweeping pre-emption argument.” Dura Pharmaceuticals Inc. v. Broudo, scheduled to be argued Wednesday, could determine the future course of shareholder fraud-on-the-market actions against corporations. “The biggest securities litigation case in a decade” is how William Sullivan of Paul, Hastings, Janofsky & Walker in San Diego describes the case. Sullivan, a leading defender of companies hit with such suits, will face Patrick Coughlin of Lerach Coughlin Stoia Geller Rudman & Robbins, the San Diego firm that is home to William Lerach, a leading stockholder class action litigator. At issue in Dura Pharmaceuticals is one tort reform measure that did make it through Congress: the Private Securities Litigation Reform Act of 1995. To make it harder for shareholders to sue companies, the law codified the long-standing “loss causation” principle that requires plaintiffs to prove that the harm they are seeking damages for was actually caused by the defendant. In a suit brought by Dura stockholders following dips in its stock price in 1998, the Ninth Circuit U.S. Court of Appeals interpreted the requirement broadly, to allow damages if a company misrepresentation merely “touches upon” the reasons for the losses suffered. To Dura, the Bush administration and much of the securities industry, that standard, if upheld, would legitimize far too many lawsuits against companies whose stock prices fall for reasons unrelated to any wrongdoing — reasons such as the collapse of Internet stocks or the post-Sept. 11 economic slump. Sullivan offers an unusual hypothetical: a long-ago buggy whip company owner who misstates company earnings and then sees his stock values plummet to zero — not because of the misrepresentation, but because of the introduction of the automobile. “The loss was caused by Henry Ford, not by the company’s statements,” says Sullivan. But under the Ninth Circuit’s theory, Sullivan says, stockholders could seek to recover damages for their losses by claiming that the misrepresentation inflated the price of the stock when they first purchased it. “There are a lot of loss causation cases out there already — all the Internet bubble cases in the Second Circuit, for example,” says Sullivan. “Not every instance of financial unfairness should be punished with damages.” Merrill Lynch & Co., a defendant in numerous Internet bubble lawsuits, told the high court in an amicus curiae brief that the Ninth Circuit standard “invites the abusive litigation and coerced windfall settlements that Congress in the [reform law] sought to forestall.” Mayer, Brown, Rowe & Maw’s Stephen Shapiro wrote the brief. Powerful forces are aligned on the other side of the case as well. In a brief by Kevin Roddy of Hagens Berman in Los Angeles, shareholder groups and AARP claim that rejecting the Ninth Circuit interpretation “would make it much more difficult — if not impossible — for the defrauded investors who lost hundreds of billions of dollars in recent corporate and accounting scandals to recover their losses.” The brief cites Enron, Global Crossing, ImClone and Tyco International as examples. Pre-emption Strike The other tort case before the high court could also have broad impact on lawsuits beyond the pesticide industry in which it originates. When Texas farmers realized that a heavily promoted new pesticide called Strongarm was killing their peanut crops — and not the weeds it was meant to destroy — they prepared to sue Dow under state tort law. Before they did, Dow went to federal court in the Northern District of Texas to seek a declaration that the state suits were pre-empted by the Federal Insecticide, Fungicide and Rodenticide Act. The law bars states from imposing labeling requirements on pesticides other than those set by the Environmental Protection Agency. The district court, affirmed by the Fifth Circuit U.S. Court of Appeals, agreed that the provision amounted to an express pre-emption of state suits because the claims in the suits related to Strongarm’s labeling. Frederick, arguing on behalf of the farmers, says that when Congress enacted the federal insecticide act, it only intended to preclude state labeling requirements imposed by law or regulations, but did not concern itself with the indirect impact on labeling that the litigation would have. Before the 1972 enactment of the labeling provisions of the act, Frederick says, “farmers routinely brought state-law actions against manufacturers for damages to their crops caused by pesticides.” Nothing in the law as amended, he asserts, “indicates that Congress intended to change that tradition.” In a brief by Earthjustice lawyer Patti Goldman, consumer and environmental groups also assert that the compensatory and deterrent purposes of litigation would be thwarted “if the tort system is closed to innocent victims of improperly labeled pesticides through application of the pre-emption doctrine.” Waxman, Dow’s lawyer, argues that allowing the state tort actions would lead to a “crazy quilt” of different labeling requirements in the 50 states that would thwart the congressional goal of uniform regulation of the industry. “It is more efficient to provide one set of labels nationwide and to have the requirements set by an expert federal agency, rather than lay, nonexpert juries in all 50 states,” says Alan Untereiner, a partner in D.C.’s Robbins, Russell, Englert, Orseck & Untereiner and author of a brief in the case for the U.S. Chamber of Commerce. “It comes down to what Congress wants, not what business wants.” In earlier cases on the same issue, the Clinton administration sided with the farmers, but the Bush administration switched sides and filed a brief in the current case on the side of Dow. “If Congress had intended to preserve state common-law actions,” the brief of the solicitor general states, “it would have said so.” The high court has struggled with the pre-emption issue, providing both sides in the Dow case with precedents they can cite. If the high court rules for the farmers against the pesticide industry, its decision could affect numerous other regulatory laws, says Untereiner. “Meat, eggs, poultry, hazardous substances, consumer products — all these laws have similar labeling pre-emption provisions,” he says. The Supreme Court is expected to rule in both cases by the end of June, which more than likely means it will have exerted its influence over the tort reform debate long before Congress is able to act. Tony Mauro is Supreme Court correspondent for Legal Times, a Recorder affiliate based in Washington, D.C. His e-mail address is [email protected].

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