Ten people were arrested in Mississippi on charges related to the $150 million verdict rendered for five plaintiffs in 1999 against the manufacturer of one of the components of the diet-drug combination fen-phen. See 10 arrested in probe of $150M fen-phen verdict, Jackson (Miss.) Clarion-Ledger, Aug. 31; AP, Ten charged with fraud in fen-phen-case in Jefferson County, Biloxi (Miss.) Sun-Herald, Aug. 31. An FBI agent said that the arrests came after an 18-month investigation into large jury awards in the state, focusing on how plaintiffs became involved in the lawsuits and how juries were selected from an area where many people are related or acquaintances.
August 2004 Archives
On August 9 Ted Frank posted on the case of Illinois lawyer Joseph Dowd, who insisted on collecting a six-digit "referral fee" from Mary Corcoran although the underlying litigation had been sufficiently unsuccessful that the prominent firm of Corboy & Demetrio, which handled the case, declined to charge a fee at all. (Prof. Steven Lubet wrote the case up in American Lawyer). This weekend the New York Times's Adam Liptak filed a lengthy report on the case, with various additional details including a new wrinkle: apparently it was lawyer Dowd who first approached the widow Corcoran, at Harpoon Louie's restaurant. Mr. Dowd, whose role in the case was basically to pick up the phone and call the highly regarded Corboy firm, "is not satisfied with the $140,000 the court awarded him. He has filed a new suit for the interest that sum would have earned had he received it sooner."
For readers who enjoyed our recent featured discussion about competition in the market for personal-injury representation, Prof. Brickman presents his views in article form in the Summer issue of the Cato Institute's journal Regulation (where I once served as an editor, long ago). There's also a response written by Michael Abramowicz.
The AFL-CIO has put up a quiz which supposedly tells if you're at risk of losing your entitlement to overtime pay under the recent Bush Administration revisions to New Deal-era labor regulations. According to contributors and commenters at George Lenard's employment blog, however, you can't trust the results of the quiz. MoveOn.org has been airing ads attacking the rules change, and those ads are based on fibs too, according to FactCheck.org. The Department of Labor explanation of the changes is here.
The Kentucky Supreme Court last week vacated a $15 million punitive damages award against Ford Motor Company and sent the wrongful-death case back for a new trial on the punitive award only. See AP, Kentucky High Court Throws Out $15M Damage Award Vs Ford, via cnnmoney.com, Aug. 27; State Supreme Court orders new trial on damages in Ford suit, Business First, Aug. 27; opinion in Sand Hill Energy, Inc. v. Smith, 1999-SC-1028-DG (Ky., Aug. 26, 2004) available via searchable court website. Ford already has paid $5.6 million in compensatory damages to the family of a Kentucky man who was fatally struck when a parked Ford pickup truck inadvertently went into reverse. The Kentucky Supreme Court's decision, issued on remand from the U.S. Supreme Court, was the most recent decision by a state high court interpreting limits on punitive damages awards set by the U.S. Supreme Court in State Farm v. Campbell.
In a 5-2 decision, the Kentucky court said it was "clear" that the jury was improperly encouraged to "punish Ford for its [alleged] conduct throughout the country." The jury had heard testimony about nationwide sales of vehicles with the allegedly defective transmission, the number of reports nationwide of vehicles slipping from "park" into "reverse," and deaths from those incidents. In closing arguments, plaintiffs' counsel told the jury "we have to make them pay" and discussed the number of "defective" Ford transmissions that were "on the road."
Instead, the court said, the jury should have been instructed not to consider extraterritorial conduct when it determined punitive damages. Just in case the issue of use of evidence of Ford's net worth to set punitive damages arises at the new trial, the majority noted that the United States Supreme Court and the Kentucky Supreme Court have frowned on the practice because it focuses attention on the defendant's financial condition instead of the injury and allows jurors to express bias against big business.
The dissent opined that both "excessive punitive verdicts are a serious problem, but equally serious is the unreasoned fear of the application of such verdicts to well-meaning professionals and organizations. Both conditions contribute significantly to excessive insurance rates for many businesses and professionals. The answer is not to unduly or unconstitutionally limit the right of recovery, but rather for an improvement of the regulation of the insurance industry such as has been accomplished in California."
I'd like to thank Professors Brickman and Painter for their very engaging discussion of contingency fees, which will be preserved by a permalink here. Also, welcome to Shook, Hardy, and Bacon's Leah Lorber, who will be guest-blogging with us over the next week. Leah has published extensively on tort reform issues and is sure to enliven our forum.
In its latest move to clean up abuse of Mississippi�s legal system, the Mississippi Supreme Court severed a multi-plaintiff asbestos case yesterday, calling the joinder of the 264 claims �a perversion of the judicial system.� HarrisMartin, Miss. Sup. Ct. Severs Asbestos Claims, Calls Case "A Perversion" of System, Aug. 26 (includes link to opinion).
The court took issue with the plaintiffs� apparent failure to provide core information about the workplace exposure claims against the 137 defendants named in the case, such as �when they were exposed, where they were exposed, by whom they were exposed, or even if they were exposed� -- essentially anything that would suggest they had an actual cause of action. The Mississippi Supreme Court recently has tackled other questionable litigation practices in the state, for example, tightening procedures to stop the unwarranted mass consolidation of personal injury claims that won some Mississippi jurisdictions the dubious title of �Judicial Hellholes� from the American Tort Reform Association. See Janssen Pharmaceutica, Inc. v. Armond, No. 2003-IA-00398-SCT (Miss. Feb. 19, 2004); Court reverses Propulsid Award, bigclassaction.com, May 13 (discussing two additional Mississippi Supreme Court cases that "build on and expand the joinder limitations expressed in Armond"); ATRA, Bringing Justice to Judicial Hellholes 2003.
From our voluminous clip files: "The Gillette Co.'s first line of defense against product liability claims is a vp of product integrity known by some at the company as 'Dr. No.'...[Robert] Giovacchini also has forced the addition of oil of mustard to Liquid Paper so kids won't sniff it for a cheap high and a reduction of the amount of apricot aroma used in Earth Born shampoo so the lingering apricot scent on freshly shampooed hair won't attract bees." (Kathryn J. McIntyre, "Gillette's Dr. No guards company against liability", Business Insurance, Apr. 18, 1988, not online).
In yesterday's Wall Street Journal (sub - $), historian John Steele Gordon observes that two of the salient features of the American litigation system -- the rule that each side bears its own costs, and the popular election of judges -- have been emulated virtually nowhere else on earth. It's a fair inference that these ideas have not been found particularly attractive as compared with the many American innovations that have spread widely to other parts of the globe. And the European WSJ today editorially criticizes the case (see Overlawyered, Nov. 17-19, 2000) in which American attorney Ed Fagan (more), apparently undaunted by charges of forum-shopping, is suing in New York over a cable-car tunnel calamity in Austria.
More evidence that tort reform, contrary to partisan claims, reduce insurance rates: Texas. The Texas legislature approved a series of medical malpractice reforms, and the Texas electorate simultaneously approved an amendment to the Texas constitution to protect the reforms from being nullified by the judiciary. The reforms took effect September 1, 2003, and have already shown results--results that will improve even more once a backlog of lawsuits filed in a rush to avoid the reforms in the summer of 2003 works its way through the system. A Texas Hospital Association study finds marked improvements in liability costs. Insurance rates for hospitals have declined 8% and 17% for fiscal 2004 and 2005; the Texas Medical Liability Trust, the state's largest medical malpractice insurer for individual doctors, reduced premiums by 12%. Christus Health, which self-insured, has saved $21 million, and will use that money to build a community clinic for the indigent in Corpus Christi. A trial lawyers' front group representative churlishly complains that "We should not be measuring the success of this on whether hospitals are making more money."
A note on press coverage: the Texas Medical Association titled a press release on its study "Texas Health Care Liability Reform Beginning to Bear Fruit." This was translated by the Houston Chronicle into the Aug. 24 headline "Tort reform yet to give much benefit to doctors." (Terry Maxon, "Hospitals finding healthy savings", Dallas Morning News, Aug. 22).
For those who missed it, our editor Walter Olson had an opinion piece in yesterday's Wall Street Journal examining Democratic presidential nominee John Kerry's recent proposal on medical malpractice reform. Walter notes that it makes sense to "feel skeptical" about Kerry's proposal, since in the Senate he's "joined other Democrats in blocking (sometimes through filibusters) proposals to rein in medical malpractice, product liability, class actions, tobacco-suit fees and so on."
Kerry has pitched his idea on the stump by noting that trial attorney John Edwards might actually be able to persuade trial lawyers to accept changes, much as "only Nixon could go to China." Our editor's column pokes holes in this analogy and points out that any conclusion that Kerry might effect a significant reform contrary to lawyers' interests requires assuming that those same lawyers are "being foolish to sign the checks" that have so dramatically financed the Edwards and Kerry campaigns.
Olson then addresses each point in Kerry's proposal, one-by-one, finding them in general to be "symbolism" over "substance":
* "Certificates of merit" requiring a "medical specialist" to approve a suit before the case proceeds is a net positive, but probably of very limited impact, as Edwards himself noted in a 1995 interview;
* "Non-binding mediation" before trial is a good idea, but the details are crucial -- past Democrat proposals have included such provisions to preempt stronger, and effective, state laws promoting alternative dispute resolution;
* Eliminating "punitive damages for conduct that's not intentional, grossly negligent or recklessly indifferent to life" is of little significance in the medical malpractice arena, for which pain and suffering, not punitive damages, escalates damage awards;
* "Three-strikes-you're-out," an Edwards favorite, is of little to no significance, given that it's almost impossible for a lawsuit to be found "frivolous" under current rules, particularly in the medical arena.
Finally, Olson's piece tackles the favorite trial lawyer/Democratic shibboleth, i.e., that the medical malpractice insurance crisis is basically caused by those big, bad insurance companies, and thus that any reform should "stick it to 'em." We've addressed that claim in this forum elsewhere, here, here, here, here, and here.
Also, contrary to the Kerry-Edwards press release claims, which recycle some discredited reports to suggest that pain and suffering caps are ineffective in reducing medical malpractice claims, see this PointOfLaw entry with a link to the recent RAND report demonstrating the efficacy of California's $250,000 MICRA cap on pain and suffering med-mal damages. See also Ted Frank's discussion of the topic of whether tort reforms affect med-mal insurance rates here and here (cross-posted from Overlawyered.com), and the links listed by our editor on Overlawyered here.
Professor Richard Painter's response to Professor Lester Brickman in their contingency fee Featured Discussion has been posted. Professor Painter finds much agreeable about Professor Brickman's early offer proposal but continues to maintain that the New American Rule is worthy of consideration since it is less procedurally complex, does not involve discovery, operates whether or not there is a settlement offer, and only involves bilateral negotiation between the plaintiff and client without involving the defendant. Professor Painter believes that his proposed Rule would solve the primary problem in the contingency fee market, which is information asymmetry.
I will note that those disappointed by the delay in this posting should blame me, not Professor Painter, as I have been away from mid-Friday afternoon through this morning and was unable to facilitate the posting sooner. Also, though we will typically try to close our Featured Discussions within a week when possible, given that Professors Brickman or Painter were on a somewhat slower posting schedule than our editor and Professor Krauss in our first discussion, I will extend the ability for further comment to our participants if they feel that they have additional substantive points to add to the discussion. I would like to thank both Professors Brickman and Painter for their time, and their valuable thoughts on contingency fee reform.
ALSO: We expect to have a guest blogger who has written extensively on the topic of legal abuse and tort reform later this week. Stay tuned!
The American Bar Association is expected to throw its weight behind a major revision of standards for jury procedure, according to the Aug. 10 National Law Journal. Most of the contemplated reforms are things we've been cautiously supportive of in the past, including wider latitude for jurors to take notes and ask questions, and continued adherence to the traditional standard of twelve-member juries and unanimity. Also being discussed is the single step that would probably do most to bolster public confidence in juror selection, namely cutting down on lawyers' use of peremptory challenges. Unfortunately, supporters of peremptories say they expect the panel to shelve that idea. And the panel is reportedly considering expanding the availability of for-cause challenges -- even though for-cause challenges in some situations give attorneys even more scope for gamesmanship, and for manipulating the composition of juries, than do peremptories. For more, see the passage of The Rule of Lawyers excerpted last year in Reason.
New York attorney general Eliot Spitzer, whose ambitions so often furnish grist for this space, last week "said his office has created an interactive Web site to help New Yorkers comparison shop for prescription drugs". (Reuters/CancerPage, Aug. 17). Which prompts Jack Henneman to wonder (Aug. 17): where exactly does the Empire State's chief law enforcement officer get the authority to start up a new program you'd think would fit more plausibly into some service-oriented branch of the New York government? "If this is within the mandate of his office, what isn't?" The site itself doesn't appear to shed much light on the source of authority, but maybe there are some broadly worded consumer protection powers that Spitzer's office is relying on. Reader ideas are welcome: email editor - at - thisdomainname - dot - com. More: the Center for Individual Freedom is giving Spitzer grief more broadly.
The Wall Street Journal has an editorial this morning ($ - sub) praising the landmark legislation enacted in Ohio earlier this year which applies medical criteria to asbestos and silica claimants (see Overlawyered, Jun. 6). For more on the legislation, check out this paper (PDF) recently published by the Washington Legal Foundation.
You'd think the government of the state of California, with its $97 billion budget, could afford to hire lawyers the regular way. But according to the WSJ, Commissioner John Garamendi's Insurance Department has retained private attorney Gary Fontana on a contingency basis to assert civil claims against French entities involved in dealings with collapsed Executive Life, on behalf of policyholders. Fontana is demanding $2.4 billion from the French state and $1 billion from a French private business; we haven't seen reference to what his contingency share would be of those sums if recovered. The controversy is straining relations with France. (Glenn Simpson, "How Insurance Spat Further Frayed U.S.-French Ties", Wall Street Journal, Apr. 16, reprinted at website of Rep. Doug Ose). More on the case: Business Week.
"'The biggest emerging risk for insurance groups world-wide is the proliferation of the U.S. tort system or elements of it,' says Allianz AG's chief risk officer, Raj Singh. Although a number of crucial elements of the U.S. system -- such as class actions -- aren't available in many places, it is only a matter of time before lawyers or consumer activists find ways around the problem, insurance executives say."
Damages in Europe, however, are often tiny compared with those in the U.S. "A second major difference with the U.S.: Nowhere in Europe can lawyers operate on the basis of contingency fees, the system by which lawyers get paid only if successful and take a percentage of any damages awarded. What's more, in the U.K. and Ireland, plaintiffs who lose their case often end up footing their opponent's legal bills, a risk that prevents a lot of speculative and frivolous suits from coming to court, lawyers say. But the absence of contingency fees, too, might be coming to an end. Some French lawyers now accept lower billing rates in exchange for a 'success fee'. And since 2000, British lawyers can charge a 'conditional fee,' taking nothing if unsuccessful and as much as twice their usual fee if they win." -- Charles Fleming, "Europe Learns Litigious Ways", Wall Street Journal, Feb. 24 (search on title name, $)
"Though frequency has changed little over the past few years, it has stabilized at extraordinarily high levels. On any given day, there are more than 120,000 malpractice actions pending against the physicians of the United States. One sixth of America�s physicians report a claim every year (The Doctors Company, unpublished data, 2002). For highrisk specialties, the numbers are even larger. The average neurosurgeon reports a claim every other year (The Doctors Company, unpublished data, 2002). Expressed differently, 50% of America�s neurosurgeons are sued every year." Dr. Richard Anderson of the Doctor's Company in California (more of his writing) has a fact-filled piece on the medical malpractice crisis in the Jun. 14 Archives of Internal Medicine (PDF).
Those of you who have been anxiously awaiting Professor Painter's response to Professor Brickman in their ongoing Featured Discussion on contingency fee reform... it's here! Professor Painter makes several points regarding the contingency fee issue generally, offers both praise and mild criticism of Professor Brickman's "early offer" proposal, then lays out the case for his "New American Rule."
To recap, Professor Brickman's early offer idea would only permit contingency fees above a rejected early settlement offer. Professor Painter objects (a) that pre-offer discovery litigation could actually increase costs under the proposal, (b) that the proposal is more restrictive on "market mechanisms" (of fee contracting) than necessary, (c) that the early offer approach wouldn't affect situations where a lot of work was performed for exhorbitant fees (e.g., the tobacco fees), and (d) that the proposal peculiarly gave the defendant power to interfere with the plaintiff-attorney contract through its own settlement decisions.
The New American Rule would, in essence, force plaintiffs' attorneys to offer a choice between a contingency fee percentage and an hourly rate (upon a successful outcome) to their clients, at the outset, before representing them. Although such a regulation could be avoided by offering an exhorbitant hourly rate, the client would at least be aware of that rate and presumably more competition would be added into the market for contingency fees. Professor Painter lauds his approach as less market-intrusive. Interestingly, he also introduces two "corollaries" to the New American Rule: (1) that large entities (e.g., governments) not be allowed to enter into contingency fee contracts at all since they can self-insure; and (2) that courts "take seriously" ethical requirements that fees be reasonable. While (2) seems seems self-evident but difficult to enforce, (1) would I think be a most welcome development...
He doesn't think much of it: "Any self-respecting judge will dismiss this suit --and do more. Because the only point is political self-promotion, the judge ought to require the attorneys general to pay court costs and defendants' costs from their own pockets." ("Clearing the Air", Newsweek, Aug. 11 (via Andrew Stuttaford, NRO "The Corner"). For more on the suit, see Jul. 21, Jul. 27, and Aug. 3; CommonsBlog, Jul. 27 and Aug. 14; Mark Clayton, "In hot pursuit of polluters", Christian Science Monitor, Aug. 19).
Over on Volokh Conspiracy, our friend David Bernstein has a post on junk science in asbestos litigation. Professor Bernstein cites to a study posted on Healthfactsandfears.com in which "plaintiffs' B-readers reported that 95.9% of 492 chest x-rays had possible asbestos-related lung damage, [but] unaffiliated doctors found that only 4.5% of them showed possible damage." Those who've read Professor Brickman's voluminous piece on the subject shouldn't be surprised.
Our Featured Discussion on contingency fee reform, with leading legal ethicists Lester Brickman and Richard Painter, has begun. Professor Brickman has started the discussion with a description of the contingency fee problem and a summary of his "early offer" proposal as a potential solution. For a fuller overview of the participants' positions, see my earlier entry here. Check back here throughout the week to see the conversation unfold.
David Bernstein, contributor to this site, has an op-ed discussing the sexual harassment suit by a woman who worked with scriptwriters at the TV comedy "Friends" which charges (inter alia) that the writers' brainstorming sessions and other interactions included too many sexually oriented jokes (via Volokh). See Overlawyered, Jul. 31 and links from there.
American Business Journals reports on the federal legislation introduced by Rep. Lamar Smith that would strengthen sanctions against wrongful litigation (see Jun. 21). The National Federation of Independent Business is strongly in favor (PDF), as are the U.S. Chamber and ATRA. Victor Schwartz testified in favor (PDF) For more on the bill, see Overlawyered, Jun. 21.
Last Friday, as I'd predicted, the Ninth Circuit accepted an interlocutory appeal of San Francisco District Judge Martin Jenkins's decision to certify a 1.6 million-member employment discrimination class action suit against the company. I continue to expect that the Ninth Circuit will reverse the ill-considered class action certification. For my thoughts on the problems underlying the class certification, see here. See also our editor's comments here, and Manhattan Institute Senior Fellow Steve Malanga's Wall Street Journal column on the case here. (via Howard Bashman)
UPDATE: The Arkansas Democrat-Gazette has a thorough article on the dueling statistics each side will use in the case here.
DaimlerChrysler Assistant General Counsel Steve Hantler, a national leader on tort reform issues, wrote this August 4 column in the San Francisco Examiner. Pulling his title from Philip Howard's widely read 1996 book, The Death of Common Sense, the essay also references the Manhattan Institute's 2003 report, Trial Lawyers, Inc. See also Hantler's recent piece in Chief Executive magazine, "The Mounting Assault by Trial Lawyers, Inc."
Readers who had followed our earlier coverage of Second Circuit Judge Guido Calabresi's controversial comments this June before the American Constitution Society (see my original commentary, with links to the rest of the blogosphere here, and see my follow-up with links to broader editorial reaction here) might be interested in a recent story on the judge in "Underneath Their Robes." The website is a humorous look at federal judges, by its own description "a combination of People, US Weekly, Page Six, The National Enquirer, and Tigerbeat, focused not on vacuous movie stars or fatuous teen idols, but on federal judges. Article III judges are legal celebrities, the 'rock stars' of the legal profession's upper echelons. This weblog is a source of news, gossip, and colorful commentary about these judicial superstars!"
As a friend and former student of Judge Calabresi, I'd say that the piece is a bit harsh and delves too much into psychobabble; but it is nonetheless a well-written read and a summary of the career -- and criticisms -- of a thinker who is in many respects the intellectual founder of modern American tort law. We at PointOfLaw, of course, see a lot of flaws in that tort law system. I'd personally be more interested in more analysis of Guido's academic contributions, rather than superficial pop-psychology, but that's not UTR's mission -- we'll have to do that here. Anyway, despite the article's harshness, I found a lot to smile about in the way of "Guido memories" as I read the account -- and the wasabi story is priceless...
Those who have followed tobacco suits in this space, and on Overlawyered.com, are well aware of last year's $10.1 billion verdict against Philip Morris in Madison County, Illinois, for alleged false advertising surrounding the marketing of "light" cigarettes as "safer" alternatives to higher-tar brands.
Now, a similar suit in Massachusetts is in the news. On Friday, the Commonwealth's Supreme Judicial Court by a 4-3 vote permitted the certification of a class making substantially the same allegations as the in the Madison County case. The court's majority determined that "a class action is not only an appropriate method to resolve the plaintiff's allegations, but, pragmatically, the only method whereby purchasers of Marlboro Lights in Massachusetts can seek redress for the alleged deception."
The Massachusetts case is the first in which a state's highest court has certified a class over a cigarette manufacturer's marketing of light cigarettes. The Madison County court's certification decision is currently on appeal at the State Supreme Court; no such ruling has yet been issued in the 11 other states in which similar suits are pending.
The "deceptive marketing" claim is a clever device to get class status for cigarette claims. Unlike traditional health-related claims, in which each individual plaintiff's case differs, the marketing claims focus instead on the economic costs of cigarettes and thus are more defensibly aggregated. Of course, the "Light" brands aren't priced higher than the comparable premium brands (in the case of Philip Morris, Marlboro "Reds"). As far as I can figure it, the claim is that, but for the "deceptive marketing," at least some of the class members would have quit smoking rather than smoking the "light" alternative, and thus the class as a whole is entitled to reimbursement for their smoking expenses.
To me, that sounds like one of those somewhat-plausible-in-theory but stupid-in-practice approaches that have so permeated the modern law of tort. Ahh, for the good old days of proximate cause.
Anyway, my head's beginning to hurt. I'm going to enjoy one of my new lower-sugar, lower-carb cans of C2. Or maybe two...
Both an op-ed in the LA Times and Alex Tabarrok bemoan the lack of a safe harbor for industries that have to comply with extensive regulations before releasing a product; even getting expensive and time-consuming certification from the FDA that a drug is "safe and effective" won't protect a manufacturer from lawsuits claiming that the product is unreasonably dangerous on flimsy evidence. Such protection exists for medical devices (as opposed to drugs) under federal law, though some courts' narrow view of pre-emption law permit suits to go forward anyway. (Henry I. Miller, "There's a Cure for Frivolous Drug Lawsuits", LA Times, Aug. 16; Alex Tabarrok, Marginal Revolution blog, Jul. 27; Shannon P. Duffy, "FDA's Approval of Medical Device Bars Products Suit", Legal Intelligencer, Jul. 22; see also this site, Jul. 26 and Jul. 26; Overlawyered, Jul. 14 and links therein).
The Sarbanes-Oxley bill made it unlawful for companies to take negative employment action against staffers who blow the whistle on various improper financial practices, but one consequence may be to put a premium, among employees with potential disputes with their employers, on characterizing themselves as having raised such objections. Such claims are mounting rapidly in number and may become a significant sector within employment law in the future. (Tamara Loomis, "Whistle while you work", Corporate Counsel, Jun. 9; Alexei Oreskovic, "Fighting Fraud or Whistling Dixie?", The Recorder, Apr. 26; Charles H. Kaplan, Thelen Reid & Priest, Winter 2002-03.)
Here's an excerpt from Robert P. Riordan and Lisa Durham Taylor, "Sarbanes-Oxley Whistleblower Claims: Fast Start or Fizzle?", Alston & Bird LawMemo, undated: "So far, seven of the first 169 cases have reached federal court. Once in court, there is a significant risk that the plaintiff will try to burden the company with high-cost discovery aimed at putting the company�s accounting practices on trial. The employee will argue that he needs to discover such information in order to satisfy his obligation to show a good-faith basis for his belief that wrongdoing occurred. The true issue, however, remains whether the employee spoke out and was retaliated against as a result, not whether accounting improprieties occurred. Thus, companies may make a strategic decision not to contest the good-faith element, and thereby try to limit discovery to avoid expense and keep the dispute focused on alleged retaliation."
Talk about reviews that unsell movie tickets: Stephen Hunter of the Washington Post calls this 145-minute slab of anti-business propaganda "another unhelpful screed, uncontaminated by sense or perspective ... mostly talking-head interviews with such droning didacts as Noam Chomsky. .... It's the angry guy at the party who stands too close and spits while he talks." ("So Much Less Than Moore in 'Corporation'", Jul. 16; Neil Hrab, "Celluloid Bolshies", TechCentralStation, Jul. 28). The spin-off book from the project, meanwhile, is written by Joel Bakan of the University of British Columbia. He's a law professor. More: Spiked-Online didn't like it either.
The 1971 high court decision that spawned the gigantic "disparate impact" branch of employment discrimination litigation tends to be accepted as unquestioningly if it had been handed down on stone tablets, but George Lenard revisits the original facts and arguments in Griggs v. Duke Power and finds the Court's logic somewhat less than inescapable.
The "writer/raconteur/grouch", known for his focus on Second Amendment liberties, just sent us a gale of traffic by kindly linking to my recent featured discussion with Michael Krauss (now at last with its own permalink) on gun lawsuits and federalism. The post and many of its comments section also discuss the case posted by Ted a few days ago in which an Illinois court upheld a six-digit referral fee.
Next week, PointOfLaw.com will have its second Featured Discussion, on the subject of contingency fee reform. Two of the nation's leading experts on legal ethics, Lester Brickman and Richard Painter, will discuss potential ways to improve the legal system through reforming the way lawyers charge contingency fees.
As our editor Walter Olson described in his first book, The Litigation Explosion, the contingency fee lies at the heart of the lawsuit abuse problem in America: "The ethical rules of many professions share a common underlying principle: if temptations are allowed to get out of hand, many will yield. To put it in raw dollar terms, if under system A people can grab a thousand dollars by telling a lie, and under system B they can grab a million by telling the same lie, more people-not all, but more-will tell the lie under system B." (Walter's entire chapter on the contingency fee from The Litigation Explosion is available at PointOfLaw.com here. For a condensed version, see our overview under "Attorneys' Fees and Ethics," here.)
Over the years, various proposals have surfaced to deal with the contingency fee problem. Ten years ago, Professor Brickman co-authored a Manhattan Institute proposal along with Virginia Law School's Jeffrey O'Connell and Michael Horowitz, then with the Manhattan Institute and now with the Hudson Institute (online version of proposal forthcoming). The proposal, in essence, would require contingency fees to be based on "value added" by attorneys, i.e., that above early offers to settle a case by defendants. As our editor noted last week, the proposal has recently attracted support from many highly regarded academics and thinkers.
A few years later, Jim Wootton, then-President of the U.S. Chamber of Commerce's Institute for Legal Reform, offered a different proposal for contingency fee reform, "The New American Rule." His idea, in essence, was to permit attorneys to charge their clients contingency fees only up to a pre-agreed limit (i.e., a fee based on comparable dollars billed per hour, contracted at the outset of the attorney-client relationship), and to force attorneys to disclose prior fees charged to other clients before the agreement was reached. Professor Painter described the attractions of this reform in a Civil Justice Report authored for the Manhattan Institute in 2000.
Thus, each professor we will feature next week has been a strong supporter of contingency fee reform, even though each comes at the problem with a different approach. We look forward to their exchange, and we hope you will join us.
Another medical malpractice insurer is closing its doors, this time the Hospital Casualty Co. of Oklahoma, according to this Insurance Journal report. The company "was placed in voluntary receivership with the Oklahoma Department of Insurance after the department's board determined the company's reserve deficit had grown to $57.9 million at the end of June. ...The closure will leave 63 hospitals and 231 nursing homes scrambling for insurance coverage. ...Hospital Casualty Co. is a subsidiary of the Oklahoma Hospital Association and was founded in 1977 by 12 Oklahoma hospitals." As we noted last week, the state of Oklahoma has the unenviable distinction of having racked up the highest per-capita cost of medical malpractice defense last year, at $24.47 per head. "Earlier this year, the Physicians Liability Insurance Co. was placed under formal supervision of the Insurance Department because the company didn't have money to pay anticipated claims. PLICO, owned by the Oklahoma Medical Association, is the state's largest physicians medical malpractice insurance carrier."
Martin Grace, who wrote on the subject of doctor-owned med-mal mutuals in June here and here, follows up with a Jul. 30 post here summarizing an article by Michael J. Moody in Rough Notes (more). One of the dilemmas faced by such mutuals is that their operating and cost efficiencies tend to be greatest if they stick to their original mission, which is generally that of insuring medicine within one state; and yet such an eggs- in-one-basket approach leaves them maximally vulnerable to the risks associated with nondiversification.
Auto-insurance rates in California are extremely high, especially in the litigious big cities, and a few years ago the state introduced a pilot program which compels insurance companies to provide steeply discounted basic liability coverage to low-income drivers in the state's largest cities. Minimal coverage under such a policy runs at only $347 per year. "That's pretty cut-rate when you consider that a bare-bones policy for a single man in Compton can be as high as $3,762 per year, according to the Department of Insurance," notes the Los Angeles Times. The idea is to reduce the number of drivers who illegally go uninsured; that in turn would relieve upward pressure on the price of uninsured-motorist coverage (which people buy to insure against the risk that an uninsured driver will collide with them). It would also benefit the plaintiff's bar by increasing the chance that there will be an insurance policy for them to proceed against after a crash. Since the state does not itself subsidize the program, presumably insurers are expected to make up the losses on the mandate by raising prices on their other customers.
But there is a serpent in Eden. Despite every effort to make the lunch temptingly close to free, relatively few poorer drivers are availing themselves of the coverage. "A pilot program was established in Los Angeles and San Francisco, with the idea that if it succeeded, lawmakers might consider expanding it elsewhere in the state. ...So far, only 6,000 people have taken advantage of the cheap policies. ... 'The sale and distribution of the product has not worked at all,' said state Insurance Commissioner John Garamendi".
And that could lead to great sadness in Sacramento: "If more don't sign up, state insurance officials will have no ammunition when they return to the Legislature in two years to ask that the program be expanded." What a loss that would be! The answer: Garamendi "later this month will launch a campaign in Los Angeles advertising the low-cost insurance." (Sharon Bernstein, "Making Insurance Less of a Financial Roadblock", Los Angeles Times, Aug. 10).
Well, this should be interesting: "Plaintiffs lawyers have said that, because of that unusual corporate structure, those assets [of individual Oregon schools and parishes] are fair game. And [David] Slader, the plaintiffs lawyer suing the Portland Archdiocese, says canon law is irrelevant. 'Canon law is an internal corporate policy book,' he says. 'If it's inconsistent with the law of the land, it goes in the garbage can.'" (Marie Beaudette, "Churches Weigh Going Bankrupt to Escape Suits", Legal Times, Jul. 28). For more on the Oregon situation, see RoguePundit, Jul. 15; on other church bankruptcies, see Overlawyered, Aug. 23-24, 2000 (Canada: Indian residential schools).
Great comparative law resource: the CIA Fact Book includes a page describing each country's legal system, sometimes tersely ("Latvia: based on civil law system") and sometimes with quirky or newsy details ("Chile is in the process of completely overhauling its criminal justice system; a new, US-style adversarial system is being gradually implemented throughout the country with the final stage of implementation in the Santiago metropolitan region expected in June 2005"; Lebanon follows an eclectic "mixture of Ottoman law, canon law, Napoleonic code, and civil law"; the Solomon Islands profess "English common law, which is widely disregarded").
When Mary Corcoran's husband, Michael, was struck and killed by a railroad train in Chicago, she negotiated a $1.4 million settlement offer with Metra and Union Pacific. But Corcoran decided to see if a lawyer could do better. She went to see Joseph Dowd of Des Plaines, Illinois; Dowd, who lists his practice areas as bankruptcy, divorce, and real estate, recommended that she see a personal injury lawyer. Corcoran suggested the well-known firm of Corboy & Demetrio because of a family connection, and Dowd scheduled a meeting.
Corcoran signed a contingent fee contract: 25% of any sum recovered from settlement or judgment to the Corboy firm, and a 40%-of-attorneys-fees referral fee for Dowd. Corboy & Demetrio litigated the case for two years before deciding that they couldn't do any better than the offer still on the table from Union Pacific. Corcoran settled for the original $1.4 million offer, and the Corboy firm waived the fee.
But Joe Dowd didn't, insisting on a $140,000 payment: the 40% of the 25% of the $1.4 million. A trial court and Illinois appellate court agreed, holding that Corcoran should have negotiated a better fee arrangement for herself: it was her own fault, in other words, that she relied upon her attorneys to protect her interests and ended up with a contract that permitted her lawyers to recover without actually accomplishing anything to improve her situation. Illinois rules (134 Ill. 2d R. 1.5(g)) permit a referral fee disproportionate to the services actually performed. As Professor Lubet points out, the organized bar opposes reforms that would disallow contingent fees where the attorney has not achieved tangible benefit for the client.
The total in settlements dipped last year for the first time in a long while (to $2 billion), but the latest Stanford Law School/Cornerstone Research study on volume of securities litigation otherwise confirms many widely noted observations and trends: the size of settlements keeps rising; the plaintiff's bar has adapted to the 1995 Private Securities Litigation Reform Act by coordinating its activities with big public pension funds and other institutional investors, in line with the act's intentions; Milberg Weiss and its offshoot Lerach Coughlin have if anything expanded their dominance; and suits that survive the motion to dismiss/summary judgment stage are highly likely to be settled for substantial sums. (Michael Bobelian, "Drop Seen in Settlement Totals for Securities Class Actions", New York Law Journal, May 13).
Via David Giacalone (Jul. 16) comes word of a seldom-seen phenomenon: a personal injury law firm (Pennock, Breedlove and Noll LLP of Saratoga County, N.Y.) actually promoting itself as offering fairer and lower fees than other law firms. The firm's website, at FairFeePromise.com, describes in detail how its fees are tiered and says, "we will never charge the standard 33 1/3 contingency fee even at the last stage". Competing for clients' business by offering them a better deal -- who knows where it all might lead?
In the early 1990s, any publicly-traded corporation that had a sizable drop in stock price found itself a defendant in a shareholder class action lawsuit with some concocted allegation that previous disclosures to the public were misleading. Corporations were hesitant to make public forecasts; if something went wrong, and the forecast was missed, they would be forced to prove that the erroneous forecast was a good-faith mistake rather than an attempt to defraud the public. Nuisance settlements to avoid expensive and time-consuming litigation were common. One of the important provisions of the Private Securities Litigation Reform Act of 1995 was the adoption of a safe harbor for forward-looking statements that are accompanied by "meaningful cautionary language."
A recent Seventh Circuit opinion, Asher v. Baxter International, Inc., has interpreted this safe harbor quite narrowly by holding that a court, in most circumstances, cannot determine whether cautionary language is "meaningful" in the procedural posture of a motion to dismiss. In the words of Lyle Roberts, "the safe harbor may just be a safe puddle." While the PSLRA continues to provide some limits on discovery, in courts that follow Asher, only plaintiffs unable to draft a complaint to fit within the Asher loophole will not be allowed to conduct "fishing expeditions" into defendants' documents--and the end result may well be a return to the pre-PSLRA equilibrium of nuisance settlements. If so, it would be a good example of the potential ineffectiveness of piecemeal reform.
David Furbush and I have a short article analyzing the case on the O'Melveny website. ("Court revives investors' lawsuit over Baxter financial projections", Bloomberg News, Jul. 30).
I don't expect to post again until Monday, so here's some reading material to keep you occupied while I'm away:
* Robert Sirico, "Liability Matters", National Review Online, Jul. 29: religion may have insights to offer about the role of personal responsibility, contrition and vengeance in civil lawsuits;
* R. Glenn Hubbard, "Let's Put the 'Litigation Tax' on Trial", Business Week, Aug. 9, reprinted at AEI: litigation reform as an element of macroeconomic policy;
* Jon Kyl, "The case for tort reform", TruthNews, Aug. 2: views of Senator from Arizona;
* Lowell Ponte, "John Edwards: A Workingman's Nightmare", FrontPage, Jul. 28: investigative piece on the senator and his backers.
The latter two pieces are also kind enough to quote me.
Martin Grace, through his Center for Risk Management and Insurance Research at Georgia State, has access to data on liability insurance that seems to be hard if not impossible to find elsewhere. The other week he posted a commentary based on http://xeff.gsu.edu/mt/tort/defense.pdf">this highly fascinating state-by-state table of defense costs per capita in liability insurance generally ("all lines") and in medical malpractice claims specifically (PDF).
My eyes flew automatically to my own state of New York, which I was not surprised to find among the most costly, ranking 2nd highest of the 50-plus-D.C. overall and 3rd highest in malpractice. Per capita, according to the table, insurers incurred $145.45 in defense costs last year for every New Yorker -- an astounding $581.80 for each family-of-four -- of which $23.54 per capita, or $94.16 per family-of-four, went toward med-mal defense costs. (Again, these numbers, according to the people at Georgia State, are entirely separate from amounts laid out in actual verdicts and settlements, and from other underwriting and administrative costs). Other large states that lived up to their litigious reputations were Illinois (6th in both all-lines and med-mal), Pennsylvania (10th in all-lines, 8th in med-mal), New Jersey (3rd all-lines, 14th med-mal) and Florida (11th all-lines, 5th med-mal). Again, the table (PDF) is here.
Prof. Grace himself, in his commentary, points out that the numbers provide some evidence for a view which seems plausible to me, namely that a state's environment for med-mal litigation often diverges markedly from its environment for other litigation. This is clearly seen in the case of some otherwise litigious states with laws restricting medical litigation, such as California (5th highest all-lines, but only 24th highest on med-mal), Colorado (16th highest all-lines, 34th highest med-mal) and Louisiana (8th highest all-lines, 19th highest med-mal). Even aside from the presence or absence of doctor-protective legislation, the environment for M.D.s often seems to differ markedly from the environment for other groups.
Another interesting set of comparisons is between high and low states. On med-mal defense costs, for example, there's more than a 10-to-1 difference between the highest-outlay state, which I was surprised to learn was Oklahoma at $24.47 per capita, and the lowest, Minnesota at a mere $2.05. A nearly 3-to-1 ratio separates Illinois at $14.04 from nearby Wisconsin at $4.97. And if these figures correlate roughly with a state's degree of litigiousness -- though it's not entirely clear that they can be employed for that purpose without further study -- should we be surprised that states like New Hampshire and Arizona, with relatively pro-business reputations, score higher in the expense department than states like Maine, Rhode Island and Maryland?
The blogosphere continues to discuss the 1994 Stella Liebeck McDonald's coffee case. Overlawyered's August 3 entry has prompted a couple of responses, prompting an August 4 entry. "Beldar" (Aug. 3) is reminded of similarly frivolous cases he defended against on behalf of the old Houston Lighting & Power, and provides an entertaining recounting of a typical such case. Beldar suggests Liebeck is an aberration; similarly, "PG" of Blog de Novo (Aug. 3) wonders why Liebeck is used to attack trial lawyers, rather than, say, the jurors or plaintiff. (PG omits the judge who let this case get to a jury; as McMahon v. Bunn-O-Matic shows, that was hardly inevitable.)
It would be one thing if Liebeck were just an aberration. Unfortunately, ATLA doesn't put forward the colorable proposition "Stella Liebeck was the beneficiary of a runaway jury and judge, and should not be considered typical of the tort system or more than anecdotal evidence for reform." Rather, ATLA tells the public that not only did Stella Liebeck recover, but she should have recovered, and that anyone who says otherwise is part of a conspiracy to deprive people of their rights.
So, yes, let's criticize the jurors who let emotion prevail over reason and common sense, let's criticize the plaintiff who sought to take money from McDonald's to compensate her for her own carelessness, and let's criticize the judge who didn't put a stop to this nonsense before it got to trial. But let's not forget that the most powerful lobby in America wants to make cases like Liebeck a regular state of affairs--and that that problem is a far bigger problem than the aberrant plaintiff, jurors, or judge.
One will note that noone screamed bogeyman tales about the fact that Bill Clinton was a lawyer, or that Hillary Clinton or Joe Lieberman or John Ashcroft are lawyers, or even that John Kerry is a lawyer. John Edwards isn't the subject of criticism because he's a lawyer. John Edwards is the subject of criticism because he's the personification of a lobby of a subset of lawyers that have sucked billions out of the American economy and are actively seeking to do more damage. It's not that tort reformers are worried that John Edwards is unduly influenced by the millions of dollars he's received from the plaintiffs' bar; it's that the plaintiffs' bar has given Edwards millions of dollars because they, like us, know that John Edwards is a true believer and, in a Kerry administration, will have a great deal of influence in seeking to appoint judges who find Liebeck and its like an admirable precedent.
As we reported Jul. 20, Florida doctors have successfully qualified for the ballot an initiative which would limit lawyers' fees on malpractice cases, and plaintiff's lawyers have struck back by qualifying three "revenge initiatives" aimed at making life more difficult for the docs in various ways. Medical blogger Blogborygmi (Jul. 19) engages in a bit of snarkiness regarding one of the lawyer-sponsored initiatives, which would direct that a doctor's license to practice medicine be revoked if he or she were found to have committed three instances of malpractice:
...you can't deny they're doing the public a big favor here, by taking negligent doctors off the wards. Removing physicians with three suits against them is not even in the lawyers' best interests -- they're selflessly depriving themselves of future clients! But if you liked defensive medicine before, wait until you see how many diagnostic tests are ordered by a doc with two strikes.
Maybe the trial lawyers heard that, in many specialties, the average doctor is sued two or three times over the course of a career. So if voters pass the new ballot initiative, all surviving docs will be above average (or, fresh out of residency). ...
At least now it's the in voters' hands. And things always work out swell when Floridians go to the polls!
We would add that, across many states and specialties, the average doctor would be doing very well to be sued only two or three times over a career. In Pennsylvania (see Overlawyered, Jul. 16) a survey of doctors in high-risk specialties found 47 percent had been sued at least once over the previous three years.
It might be added that any "three-strikes" scheme faces the problem of whether or not to deem it a "strike" when a physician and his insurer pay to settle a claim before a jury's verdict. If yes, then a doctor's incentive to agree to a settlement is drastically undercut and a large volume of now-settled cases will instead be held out for trial, with drastic consequences for many of the players involved. If no, then the "three-strikes" feature will not be very effective since few doctors lose as many as three trials and those who fear that they will do so can simply make their settlement offers more attractive.
From the WSJ: "Jeffrey Eischeid, a onetime star at accounting giant KPMG LLP, is bracing for possible criminal charges that could land him in federal prison for more than two decades. His offense? Marketing tax shelters that KPMG said were legal....
"Until recently, the accounting firm staunchly supported both its tax shelters and Mr. Eischeid, whom it sent to Congress to defend the shelters. But this year the firm, which like Mr. Eischeid is at risk of a fraud or conspiracy indictment over the tax shelters, switched strategies. It placed Mr. Eischeid, a 46-year-old partner, on leave, then asked him to resign. And it refused to pay his legal costs unless he agreed to cooperate with the prosecutors, where anything he said could be used against him."
Why did it pull the rug out from under him? New federal sentencing guidelines menace companies with huge penalties unless they cooperate with prosecutors in a variety of ways. Critics, including attorneys who represent employees under investigation, say recent changes in the sentencing rules "encourage companies to break faith with their own employees, making it harder for them to avoid self-incrimination. The critics say that companies, to avoid facing charges themselves, now sometimes feel obliged to fire people, snitch on them, refuse to pay their legal fees, and withhold documents they need." ("Prosecutors switch tactics, turning firms against workers", Wall Street Journal/Toledo Blade, Jun. 13).
Evan Schaeffer at Legal Underground thinks he can substantiate Fred Baron's New York Times assertion that the drug, chemical and insurance industries have spent $200 million on ad campaigns to make plaintiff's lawyers look like villains. Keep reading on into the comments section, and you'll see why I don't think Schaeffer's arithmetic comes anywhere near substantiating Baron's claim.
The eight state AG's' "public nuisance" suit, last week, against America's five largest utilities has arguably shown them to be fatally addicted to junk law suits. This time, junk science (the unproven greenhouse warming thesis) is added to the mix. Here please find an op-ed by yours truly and Fred Singer in the Aug. 3 edition of the Wall St. Journal (subscription required).
Derek Bok and Mary Ann Glendon of Harvard, Roger Cramton of Cornell, and others have endorsed a proposal associated with Jeffrey O'Connell of the University of Virginia and the Hudson Institute that would hold contingency-fee lawyers to fiduciary standards and require them to base fees on the value they add to offers already on the table. The current state of injury law "requires both sides to pay absurdly high transaction costs in routine cases �- passed on, of course, to the consumer. This reality was well captured by a recent Joint Economic Committee finding that legal fees in automobile cases alone �- where more than 99% of claims are settled without trial and where almost all cases involve routine processing � exceed $16.7 billion per year. Sorely pressed victims of highly regressive and rapidly rising auto insurance premiums should hardly have to finance a fee system that exceeds the gross national product of half of the countries in the United Nations." (Jeffrey O'Connell (Univ. of Virginia) and Brent Tantillo (Hudson Institute), "Bringing the Rule of Law to Lawyers", Austin Review, Jun. 30). For more on the prevailing level of contingency fees, see David Giacalone, Feb. 23 (discussing Lester Brickman's findings).
More coverage, this time in the insurance trade press, of that House Judiciary Committee hearing last month (see Jul. 21) in which our friend Prof. Lester Brickman of Cardozo Law School explained in detail how "pre-packaged" bankruptcies permit some plaintiff's lawyers to conspire with asbestos-company managements against the interest of both truly sick claimants and insurance companies ("U.S. Probes 'Pre-Pack' Scandal", Insurance Day, Jul. 23).
The steps in the process: 1) under 1994 revisions to federal bankruptcy law, a bloc representing 75 percent of claimants can seize control of a bankruptcy, even if its claims are not the largest or strongest; 2) lawyers representing large numbers of unimpaired asbestos claimants are thus in a good position to seize control of such bankruptcies; 3) these lawyers negotiate with incumbent managers to strike deals which leave the managers in control of most operating assets in exchange for giving the lawyers a claim against insurance coverage and guaranteeing high payments to the lawyers' unimpaired clients; 4) the gains from rigging the process in this way come at the expense of nonasbestos creditors of the bankrupt companies, seriously ill asbestos claimants, and insurers.
On July 30, Bristol-Myers Squibb Co. announced that it had agreed to pay $300 million to a group of plaintiffs (including the Teachers' Retirement System of Louisiana and the General Retirement System of the City of Detroit) who had launched a class action against the pharmaceutical giant for accounting fraud.
So far, no surprise, right? But BMS had obtained a dismissal of the class action suit, with prejudice (i.e., the plaintiffs could not refile or amend their complaint, which was deemed fatally defective). Plaintiffs had appealed.
Gosh, I wonder what BMS would have paid had they lost at the District Court level! This trial court "defeat" sure turned into a cheap (didn't even need a trial...) victory for plaintiffs' lawyers....
The Federal Trade Commission's Office of Policy Planning has announced that the commission in conjunction with the Georgetown Journal of Legal Ethics will be hosting a public workshop on "Protecting Consumer Interests in Class Actions" Sept. 13 and 14 in Washington, D.C. The commission has lately been taking a welcome interest in the protection of class members against overreaching behavior by the attorneys representing them, and the workshop page includes a variety of resources on the commission's activities in class action reform, including amicus briefs, the text of speeches by FTC commissioner Thomas B. Leary and former Office of Policy Planning director Ted Cruz, the agency's "Need a Lawyer?" brochure, and its comments on proposed revisions to Fed. R. Civ. Pro. 23.
At the annual convention of the Association of Trial Lawyers of America last month, at which Supreme Court Justice Stephen Breyer was a featured speaker, press credentials were offered to "mainstream publicly available news media". However, that description turned out not to include Insurance Journal, the very staid and well-established insurance trade publication. The magazine reprints the full exchange between its own Andrew G. Simpson, Jr. and ATLA's public spokesman, Carlton Carl ("America's Trial Lawyers to Insurance Journal: Drop Dead", Insurance Journal, Jul. 26).