Our own Jim Copland is in Chief Executive magazine with this article on Sarbanes-Oxley reform, based on his recent House testimony.
December 2006 Archives
Building on Ted's posting, today's Wall $treet Journal reports that the main plaintiff in a securities fraud suit in Dallas has asked the court to fire William Lerach and his firm, Lerach Coughlin Stola Geller Rudman & Robbins LLP, because its relationship with Lerach had "deteriorated" following the DOJ investigation of him and his former firm (Milberg Weiss).
The indicted law firm has been disqualified twice in the last two weeks from serving as lead counsel because of concerns over the effect of the indictment on their ability to try cases (including a scathing ruling by U.S. District Judge D. Brock Hornby of Maine); such concerns could well be self-fulfilling. Milberg's troubles may get worse before they get better; if Milberg adheres to the traditional end-of-year bonus and profit-distribution schedule for its attorneys, that means that they could be due for a rash of resignations in January. I'd hate to see Milberg wither away because of the indictment before they can be convicted in a fair trial.
Following up on the point Tamar Jacoby was making about the Swift meatpacking raids, and how employers get in legal trouble whether they are stringent or lax about checking applicants' papers, here's an excerpt from a news story that appeared last month in the Washington Times:
A Mississippi Democrat in line to become chairman of the House Homeland Security Committee has warned the nation's largest uniform supplier it faces criminal charges if it follows a White House proposal to recheck workers with mismatched Social Security numbers and fire those who cannot resolve the discrepancy in 60 days.
Rep. Bennie Thompson said in a letter to Cintas Corp. it could be charged with "illegal activities in violation of state and federal law" if any of its 32,000 employees are terminated because they gave incorrect Social Security numbers to be hired.
"I am deeply troubled by Cintas' recent policy change regarding the Social Security Administration's 'no match' letters," Mr. Thompson said in the Nov. 2 letter. "It is my understanding that hundreds of Cintas' immigrant workers have received these letters. I am extremely concerned about any potentially discriminatory actions targeting this community."...
Matthew Franck takes to task SCOTUSBlog's Lyle Denniston's caricature of then-Rep. Ford's argument for the impeachment of Justice Douglas. I think Franck has the better of it. Note espeically Alexander Hamilton's Federalist No. 81:
It may in the last place be observed that the supposed danger of judiciary encroachments on the legislative authority, which has been upon many occasions reiterated, is in reality a phantom. Particular misconstructions and contraventions of the will of the legislature may now and then happen; but they can never be so extensive as to amount to an inconvenience, or in any sensible degree to affect the order of the political system. This may be inferred with certainty, from the general nature of the judicial power, from the objects to which it relates, from the manner in which it is exercised, from its comparative weakness, and from its total incapacity to support its usurpations by force. And the inference is greatly fortified by the consideration of the important constitutional check which the power of instituting impeachments in one part of the legislative body, and of determining upon them in the other, would give to that body upon the members of the judicial department. This is alone a complete security. There never can be danger that the judges, by a series of deliberate usurpations on the authority of the legislature, would hazard the united resentment of the body intrusted with it, while this body was possessed of the means of punishing their presumption, by degrading them from their stations. While this ought to remove all apprehensions on the subject, it affords, at the same time, a cogent argument for constituting the Senate a court for the trial of impeachments.
It's remarkable to compare and contrast Hamilton's views of checks and balances against the popular wisdom that mere criticism of judicial overreaching threatens "judicial independence" (Oct. 4). And, indeed, the political consensus that judges are effectively untouchable for their judicial decision-making has removed the check in the Founders' intended constitutional structure, resulting in precisely the judicial usurpation of legislative decision-making that otherwise would have been the phantom danger that Hamilton predicted.
As I noted back in The Excuse Factory, one of the consequences of our age-discrimination law, specifically the prohibition on automatic-retirement policies at most workplaces, has been to entrench elderly incumbents who occupy some categories of highly desirable jobs, notably professorships at elite universities. As the lucky beneficiaries of the law continue to age in place, the controversy isn't going away:
"The aging of the faculty, caused in large part by the absence of mandatory retirement, is one of the profound problems facing the American research university," said Lawrence H. Summers , who as Harvard president pushed for the hiring and tenure of more younger scholars. "It defies belief that the best way to advance creative thought, to educate the young, or to choose the next generation of faculty members is to have a tenured faculty with more people over 70 than under 40, and over 60 than under 50."
Harvard's Faculty of Arts and Sciences, which includes the undergraduate college and the doctoral programs, has 186 tenured professors age 60 or above, and 156 under age 50.
Okay, so it looks like the mudslinging campaign from the ABA and People for the American Way is going to carry the day. But, wonders the Jackson Clarion-Ledger's Sid Salter, where does nominee Mike Wallace go now to get his reputation back?
Six meat plants run by Swift & Co. were shut down when immigration officials raided the plants and found over a thousand illegal aliens working there. (Kim Nguyen, AP/WaPo, Dec. 12). Except, as Tamar Jacoby of the Manhattan Institute writes, "When job applicants started showing up with what the company suspected were false papers, it tried inquiring into their backgrounds—only to be sued for discrimination by the Justice Department." Mickey Kaus also notes the effect of litigation on immigration issues from a different angle.
The genre has been around for quite a long time (see, for example, this 1999 post on Overlawyered) and this year made it into the animated greeting card of law firm Jenkens & Gilchrist.
Mickey Kaus asks whether Senator Barack Obama passes the "Joe Klein Piss-Someone-Off" test. I can think of one example—though it may be a better example of what Kaus calls a "Sister Faux-jah" trumped-up contrarianism.
In one of his first votes, Obama voted for the eminently sensible Class Action Fairness Act. This hypothetically annoys the litigation lobby (though they can be expected to support Edwards in 2008) and the cast of usual suspects who opposed the bill; one can also find various members of the lunatic left thoughtlessly buying the litigation lobby hype that this minor procedural reform protecting against abusive forum shopping by the plaintiffs' bar had much larger consequences, and thus expressing outrage against Obama for voting for it. One ill-informed website looks at contributions to Obama from his Harvard Law classmates and Chicago Law students at various defense firms and concocts a conspiracy theory that the defense bar bought him off; one wishes the same skepticism was aimed at anti-reform politicians and plaintiffs' bar contributions.
So Obama may have annoyed the lunatic left with his vote for CAFA. As a reform supporter, I'm far from convinced that this makes him someone willing to cross the plaintiffs' bar. Eighteen other Democrats also voted for CAFA. CAFA would have passed the previous Congress, except for its unfortunate timing arising just as Edwards had been named the vice-presidential nominee; Democrats fell into line and filibustered the bill to avoid having a civil justice reform pass at the same time, which might remind people of Edwards's unsavory means of acquiring his fortune on the backs of pregnant mothers and obstetricians. Obama didn't participate in the negotiations to get Democratic support, and he voted for every Democratic attempt to eviscerate the bill with amendments (Vote Record Numbers 5 through 8, February 9, 2005). Obama didn't break with the Democrats on any seriously contested tort reform measures: he filibustered medical malpractice reform, and was one of the votes to kill the asbestos reform bill (which effectively failed by one vote). (I was not a great fan of the flawed asbestos reform bill, either, but Obama's opposition does not seem to have been based on the grounds that the bill did not go far enough to rein in abusive litigation.) Obama claimed to support medical malpractice reform in his Senate campaign (or, at least, made pro-reform swing voters think that he did), but, then, so did Kerry and Edwards in their 2004 presidential campaign.
Obama co-sponsored the MEDiC bill with Hillary Clinton; it was a federally-funded variation of the so-called "Sorry Works" proposal that the plaintiffs' bar has elsewhere proposed as an alternative to medical malpractice reform. Data is limited on the question of whether this would be an effective reform on either the question of liability expense or patient safety (much less taxpayer expense), but, so long as state governments are deadlocked on issues of substantive reform, a pilot program such as MEDiC may be worth trying, as its success or failure would provide answers on the legitimacy of measures such as caps. But it's hardly the move of someone daring to flout the trial lawyers who dominate the Democratic Party these days.
In Tyler v. Carter, 151 F.R.D. 537 (SDNY 1993), a probably deranged plaintiff alleged a fantastic conspiracy among Ross Perot, Jimmy Carter, Bill Clinton, and NASA to murder ten million black women and sell their bodies for meat. The court dismissed the case sua sponte, and it's been one of those cases law students joke about amongst themselves ever since.
A California state jury began deliberating Wednesday after a month and a half of Vioxx trial in the cases of Lawrence Appell and Rudolph Arrigale. The plaintiffs have had good luck here: not only did Judge Victoria Chaney consolidate wildly unrelated cases (a 2000 heart attack after 18 months of use and a 2002 heart attack after 4.5 months of use), maximizing the chance of jury confusion, but jurors are notoriously more likely to be charitable to plaintiffs in the week around Christmas. A verdict is likely today, because jurors will not want to have to worry about this case over Christmas.
�These cases are very different except for one thing: both of these plaintiffs were at increased risk for heart injuries regardless of whether they were taking VIOXX,� said Thomas Yoo of Reed Smith, a defense lawyer representing Merck. �Mr. Appell had significant risk factors prior to his heart attack, including hypertension, cholesterol problems, obesity, as well as a family history of heart attacks at relatively young ages.
�Mr. Arrigale suffered a cardiac arrest in March 2002 that was caused by advanced coronary heart disease. Mr. Arrigale had serious vascular disease for more than 25 years, a family history of heart problems, and suffered a heart attack caused by coronary artery disease in the early 1980s.�
Press coverage has not seen fit to examine why Appell, who is from Scottsdale, Arizona, is getting to try his case in a Los Angeles courtroom.
The New Jersey Law Journal (via Law.com) reports that two law firms (from Alexandria, VA and San Francisco) have filed a couple of suits in plaintiff-friendly New Jersey concerning Plavix.
Among the plaintiffs is Eloise LaBarr of Bonifay, Florida, whose husband Edward began taking Plavix with aspirin after bypass surgery with a stent placement to repair a blocked artery in November 2002. In December 2004, he collapsed after suffering a serious intracranial bleeding injury and died two days later, with a subdural hematoma and "Plavix therapy" listed as the causes on his death certificate, according to the complaint.
The suit claims that Bristol-Myers Squibb and Sanofi-Aventis US marketed Plavix in disregard of risks to patients with "multiple risk factors", defined as smoking, high blood pressure, high cholesterol, and diabetes.
Plaintiffs' lawyers promise that more suits are on the way, and that many plaintiffs were in their 40s and 50s, implying that this will make cause-in-fact easier to prove.
Back in March, at the annual meeting of the American College of Cardiology,one study found that Plavix treatment increased risks for certain patients. Of patients with high cholesterol and blood pressure, 3.9% of Plavix users died vs. 2.2% on placebo. [For those without "multiple risk factors", the study found, Plavix works, especially if the patient had suffered previous heart attacksor strokes.]
I have been told that the Plavix warning sheet prominently mentions risks for "multiple risk factor" patients. This is why I think the plaintiffs' lawyers have emphasized "overmarketing" -- they claim that massive advertising of the drug led physicians to overlook the risks of prescribing Plavix.
Josh Gerstein in the New York Sun has been doing some reporting on the $2.5 billion settlement over financial misstatements by Time Warner's America On-Line subsidiary, as well as the course of opt-out litigation:
In a little-noted ruling in October, the federal judge overseeing the class settlement, Shirley Kram of Manhattan, awarded $147.5 million in fees and $3.4 million in expenses to the lead attorneys in the case, Heins, Mills & Olson [alas, no relation -- W.O.]. The Minneapolis firm represented the plaintiff found to have the most at stake in the litigation, the Minnesota State Board of Investment.
However, one of the holdouts in the overall deal, the state of Alaska, has obtained an unusually rich settlement for itself, raising uneasy questions for those who signed onto the deal. Meanwhile, Cardozo Law School ethicist Lester Brickman (an occasional adviser to this site)
said he remains skeptical of the value of such suits. "They're transferring the assets of current Time Warner shareholders to prior Time Warner shareholders, with a substantial transaction fee charged by the lawyers," he said. "If you look at the totality of most securities litigation, it involves transferring money from your left pocket to your right pocket, subject to a transfer fee of as high as 30% or 35%."
More: Adam Savett also covered the story at Lies, Damn Lies, and Forward Looking Statements.
Following a decision by the Nebraska Supreme Court determining that municipalities can be held liable for users' injuries in public recreation areas, towns across the state have been closing or restricting skate parks and sledding areas, reports the Associated Press. And the city of Spokane, Washington, is also at pains to discourage sledding in public areas, with you-know-what on its mind (via Common Good).
As expected, the $32 million award granted to Lionel Garza's family by a Texas jury for his fatal heart attack, allegedly caused by Vioxx, has been slashed under state law, down to $7.75 million. The reduction comports with Texas's statutory requirement that punitive damages -- the bulk of the initial award -- cannot exceed 2x economic damages, plus $750,000 over noneconomic damages. In this case, Garza was retired and suffered no economic damages; the jury gave his family a $7 million noneconomic award, and the $750,000 is on top of that.
A couple of observations: first, as Ted pointed out at length in analysing the initial verdict, this is a case in which liability should never have been found. Garza's family offered no hard evidence that he had EVER taken Vioxx, and only alleged that he had taken the drug for less than a month. In addition, he was 71 years old, with high cholesterol, overweight, a smoker, had previously suffered a heart attack, and had undergone a quadruple bypass. Wow. (See our full, extensive prior coverage here.)
The second observation is how punitive damage caps without noneconomic damage caps can be skirted by runaway juries. $7 million in noneconomic damages. Again, wow.
Merck is appealing alleging that one of the jurors had a financial relationship with the widow Garza.
The New Jersey Law Journal reports that an abusive attorney has been suspended from practice.
When a client hesitated over paying his bill, Richard Ledingham threatened her with criminal prosecution for "theft of services." He also warned that she might lose her business, her home and her professional license.
According to the New Jersey Disciplinary Review Board, Ledingham billed his client $52,742 for representing her in the purchase of a Sylvan Learning Center franchise in 2003. When Ferwerda retained him, Ledingham agreed to send monthly invoices, but never did do until the purchase closed.
Ledingham's work for Ferwerda was not extensive, the DRB found. He reviewed documents for a Small Business Administration loan for which she was approved but did not pursue. He reviewed a lease agreement but did not negotiate the terms. And he looked over the Sylvan franchise agreement, which was presented to her as a "take-it-or-leave-it" deal. The major part of his fee was 47 hours for studying a four-page section of the Internal Revenue Code �197, which deals with amortization of intangibles. Yet Ledingham is a CPA as well as an attorney...
In addition to a Executive Deputy Attorney General for Criminal Justice (Robin Baker), incoming New York Attorney General Andrew Cuomo has named an Executive Deputy Attorney General for Economic Justice (Eric Corngold) and an Executive Deputy Attorney General for Social Justice (Mylan Denerstein).
Those latter two job titles are, well, let's call them evocative. They might almost be taken as suggesting that the new deputies are going to be in charge of deploying the office's considerable powers of legal coercion in pursuit of "economic justice" and "social justice", both rather vague concepts. Are the titles newly coined, or did predecessor Spitzer also employ them in his deputies' job titles? I haven't been able to find out for sure, but a Google search on "Deputy Attorney General for Economic Justice" turns up no results from the offices of Spitzer or any other state AG; ditto for the same search with "Social" replacing "Economic".
Entertaining update: Michael Krauss notes that Obbie has updated his post to account for Whelan's critique, though Obbie throws in a churlish slam of Whelan suffering from the same sort of discounting of conservative views that Whelan criticizes. Is biased coverage better than no coverage? Depends on your bias, I suppose. It would be nice to see a news analysis addressing the fact that the conservative justices have a generally coherent view of the constitution, while the liberal wing of the Court has an ad hoc approach that turns the judicial branch into a superlegislature.
Update to the update: Ed Whelan expands his critique.
Weinstein Cogan credit: he's taking steps to enforce his protective order in the Zyprexa MDL (Dec. 18; Dec. 19). (Bill Childs post with order; Julie Criswell, "Court Orders Lawyer to Return Documents About an Eli Lilly Drug", NY Times, Dec. 20). The culprit who fed James Gottstein the documents? Dr. David Egilman, which, if he's found to have violated a court order, wouldn't be the first time he's done so (Dec. 9, 2005). Gottstein himself will be under investigation for aiding and abetting a violation, and is under orders to retrieve documents he distributed and preserve his communications with Egilman.
Update: While the Zyprexa MDL is before Weinstein, the injunction was issued by Judge Cogan on an emergency basis because Weinstein was out of town.
Utpal Bhattacharya (Indiana U.), Neal Galpin (Texas A&M) and Bruce Haslem (Florida State) have a forthcoming paper in the Journal of Law and Economics entitled "The Home Court Advantage in International Corporate Litigation". Abstract:
Using a comprehensive sample of 2,361 public U.S. corporate defendants and 715 public foreign corporate defendants in U.S. federal courts in the period 1995-2000, we find that the market reaction at the announcement of a U.S. federal lawsuit is less negative for U.S. corporate defendants. We find that this market reaction is rational; U.S. firms are less likely to lose than foreign firms controlling for year, industry, type of litigation, size and profitability. This may still reflect a sample selection bias. We control for this bias, and the results remain. We thus cannot rule out that U.S. firms have a home court advantage in U.S. federal courts.
The paper is available at SSRN here. Profs. Bhattacharya, Galpin and Haslem are kind enough to cite in their introduction my account of the infamous case of O'Keefe v. Loewen, which I wrote up back in 1996 for the WSJ. The Irish financial site FinFacts also summarizes their findings.
They "worked like a charm", say their supporters. "According to the West Virginia Board of Medicine, the cost of malpractice settlements dropped from about $172 million in four years before the act to about $139 million in four years after the act"; insurers have been cutting rates. KevinMD has more.
That's the idea behind a proposed DC law propounded by ex-felon and current City Council member Marion Barry. Even the Washington Post is opposed. Hans Bader notes that the D.C. Employment Justice Project and the Washington Lawyers� Committee for Civil Rights have the chutzpah to criticize the bill for not going far enough. The vote is today; if it passes, DC firms may be in the situation where they're liable for negligent hiring for employing convicted criminals who commit crimes, but subject to discrimination lawsuits if they attempt to protect themselves from such litigation.
Eighty out of 123 products liability suits brought so far over Bausch & Lomb contact lens solution infections have been consolidated in a federal court in South Carolina before Judge David C. Norton. Though there have been only 300 infections tracked worldwide out of 5 million users, plaintiffs' lawyers claim that they will bring a thousand suits.
Federal health officials have concluded that MoistureLoc had "unique properties" that may have contributed to the outbreak, but said the solution was not contaminated. A study by the federal Centers for Disease Control and Prevention suggested that the outbreak "may have been caused by a complex and undetermined interaction" between MoistureLoc, fusarium and, possibly, the lens case or contact lens itself.
(Ben Rand, Rochester Democrat & Chronicle and Ben Dobbin, AP, "Cases vs. B&L start to move", Dec. 14).
I've previously written on the problems bound to be caused by the Scruggs Katrina litigation in Mississippi, the chickens are coming home to roost; State Farm, which apparently has lost confidence that Mississippi courts will enforce insurance contracts in hurricane territory, will stop insuring for wind damage and may leave the Gulf Coast counties entirely. (AP/Insurance Journal, "State Farm to Begin Excluding Wind Coverage in Miss.", Dec. 18). Earlier Katrina coverage.
The W$J reports that, following Milberg Weiss�s indictment for allegedly sharing legal fees with class-action clients, the firm has just been disqualified from serving as lead counsel in an antitrust class action. The suit claims that automobile manufacturers tried to prevent cars purchased relatively cheaply in Canada from entering the United States.
Here is the ruling on the disqualification motion. Melvyn Weiss says his firm has invested three years and $2.3 million in fees and expenses in the case. He downplayed the judge's decision: "Judge Hornby �is not an expert on the future of my firm,� Weiss asserted. �Courts all over the country are keeping us in as lead counsel and even appointing us as lead counsel.�
We shall see...
[T]he Times failed to mention that these leaked documents are a tiny fraction of the more than 11 million pages of documents provided by Lilly as part of the litigation process. They do not accurately portray Lilly's conduct. As part of Lilly's commitment to patients and healthcare professionals, many high-level Lilly physicians and researchers -- along with researchers from outside Lilly -- were engaged for a number of years to study the issue of Zyprexa and diabetes. Leaked documents involving these discussions do not represent an accurate view of company strategy.
And, finally, Lilly deplores the illegal release of select confidential documents. Our concern is that this illegal and selective disclosure of incomplete information will cause unwarranted concern among patients that may cause them to stop taking their medication without consulting a physician. This is the unfortunate result we saw when plaintiffs' lawyers aggressively advertised about Zyprexa in recent years while searching for clients.
Lilly also notes that the labeling does warn about weight-gain and the incidence of diabetes adverse events, and further argues that studies have not shown a causal link between the drug and diabetes. Earlier: Dec. 18.
Daniel Finkelstein, who's one of the guestbloggers over the holidays at Andrew Sullivan's, has published his own list of "10 Things I Love About America". He's described as "author of Comment Central, a weekly Times of London columnist and soccer statistician. He's been an adviser to both a Conservative Prime Minister and a leader of the Opposition."
Number 2 on Finkelstein's list of things he loves about America is "The Constitution and the Bill of Rights". Number 3 is Walt Disney, and Number 8 is the steaks at Morton's. And Number 9? "The Manhattan Institute".
A critical part of medical training is the "residency", when medical students literally reside in the hospital, not too long ago putting in hours that put BigLaw junior associates to shame.
In the famous Libby Zion medical malpractice case, plaintiffs' lawyers alleged that resident fatigue caused Zion's death; while a jury believed the hospital's argument that Zion was responsible for her own death because of cocaine usage and limited damages to $375,000, Libby's father Sidney Zion continued fighting for medical safety. In 1989, in response to lobbying from Zion and other patient-safety advocates, New York state passed laws limiting the number of hours medical residents could work, and started enforcing those laws in earnest in 1997; in 2003, the Accreditation Council on Graduate Medical Education followed suit, an event recently commemorated in a glowing WaPo profile. This may be an improvement in medical care and medical safety: a 2004 NEJM study found that eliminating extended work shifts improved the attention span of interns; a Journal of the American College of Surgeons survey found a large majority of residents complain that sleep deprivation affects their work. But the resulting shortages of medical staff during night shifts might have offsetting tradeoffs that make care even worse:
This Sunday, the New York Times ran a standard "plaintiffs' lawyer feeds to the Times a cherry-picked set of documents and opening statement alleging a heinous conspiracy that we repeat credulously with a one-line disclaimer saying the defendant denies it" story, this one about Lilly and weight-gain from the anti-schizophrenia drug Zyprexa. Because the Times only gave one side of the story, we can't evaluate it; the evidence adduced seemed much more to me like 20/20 hindsight rather than a smoking gun. But we noticed a striking procedural detail that the Times elided; so did the two defense attorneys behind the new Drug and Device Law Blog. To wit, Lilly claims that the documents were released in violation of a protective order. It's far from clear that this is necessarily so, as James Beck & Mark Herrmann acknowledge, but they note:
Doesn't this happen in virtually all of the mass torts? Courts enter protective orders; defendants produce documents subject to the protective orders; documents are leaked to the press; night follows day.
What surprises us is how infrequently courts seem to care about this. Although documents are often leaked in violation of mass tort protective orders, courts rarely conduct full-scale investigations to find and punish the person who violated the court's order. Why not?
We'd like to see an academic (who might have the time to pursue this) research the mass tort cases (since about 1985 or so, when modern mass torts sprung into being) to determine the percentage of cases in which protective orders have been violated and the number of times courts have tracked down and punished the violator. If, as we suspect, protective orders are routinely ignored, but violators are rarely punished, that fact should influence how courts conduct future cases.
Let me further note that if there is an academic out there interested in studying this empirical question, they should contact me at the AEI Liability Project; I'd be interested in hearing their proposal and possibly funding and/or co-writing a paper.
In an earlier post, I had written: "Public Citizen and others in the litigation lobby successfully persuaded the California Supreme Court to review Pfizer v. Superior Court; the plaintiffs' bar is asking the Court to gut the reliance requirement that that initiative added to California's infamous � 17200, and returning California to the abusive pre-Prop 64 world."
Law student Matthew Butterick writes in response:
This is incorrect. Prop 64 altered the standing requirements for plaintiffs bringing s.17200 claims. The lower Pfizer decision interpreted Prop 64 as also adding a substantive requirement (showing actual proof of reliance vs. presuming reliance).
If the Calif Supreme Court reverses Pfizer, it will roll back the substantive requirement but leave the Prop 64 standing requirement intact. In other words, we won't be going back to the "pre-Prop 64 world".
True, 17200 will continue to be a different law if the California Supreme Court overturns Pfizer. The de facto result of eliminating the reliance requirement does, however, gut the substantive "actual injury" requirement of 17200. Take for example Kasky v. Nike. Pre-Prop 64, activists could sue Nike over advertising just because they felt like it. If the reliance requirement is overturned, the activists can still sue Nike over advertising just because they feel like it: the only effect of reliance-less Prop 64 is to require the activists to buy a single pair of sneakers before filing suit (and meet commonality requirements, though those are rarely enforced strictly in California (e.g., Jan. 7, Jun. 29, 2004), even if they already know they dislike Nike's advertising. I think my characterization is fair, though others may disagree whether being able to bring harm-less lawsuits notwithstanding an "actual injury" requirement is a "gutting" of that requirement, or whether such lawsuits are abusive.
NB that in the original "No on Prop 64" site, the litigation lobby argued that Prop 64 would "only allows cases by injured individuals after someone has lost money or property - not for other types of loss, such as environmental degradation, loss of health, or for being deceived." Public Citizen is now arguing in Pfizer that Prop 64 does allow suits "for being deceived" even if there was no reliance.
The California courts website has taken the original appellate decision down, but it's worth reading for its excellent analysis; here is the Google cache. Jonathan Wilson wrote a good post on the subject Jul. 19 when the intermediate court opinion first came down.
Florida voters may have thought they were voting to slap a limit on the contingency fees lawyers could charge in medical malpractice cases, but the state's supreme court in September agreed to pull the teeth from that reform, ruling that the lawyers could simply get the customers to sign waivers agreeing to pay the old higher rates after all. (Try to imagine the reaction in consumer-law circles if, say, finance companies asserted a similar logic and started getting consumers to sign waivers of legislated curbs on payday-loan fees). So now organized medicine in Florida is resorting to quaint humor to make its point:
using the very waiver form approved by the Supreme Court as a template, the FMA [Florida Medical Association] has developed its own waiver form that would allow patients to waive their right to unlimited economic damages and provide a cap of $250,000 for such damages.
It can be safely predicted that such a waiver form, unlike the one proffered by the lawyers, won't be upheld as binding when it reaches the Florida Supreme Court, but that itself is much of the educational point. For two different views of the Amendment 3 waiver issue, incidentally, see this one (angry at court's majority for ignoring electorate's views) and this one (suggests that the new law is having a significant effect despite availability of waiver).
One of the major continuing legacies of Ralph Nader -- and one of the more significant allies of the Litigation Lobby -- is the PIRG (Public Interest Research Group) empire. Those who follow PIRG finances know that the empire's steady access to funds has been built on some remarkably sleazy fund-raising practices, including, on college campuses, access to student activity fees or per-student fees charged to student bills although neither the students nor their families ever volunteered to pay them. Now a series of articles in In These Times/MyDD exposes the underside of the door-to-door canvassing operations done by an outfit called the Fund for Public Interest Research on behalf of PIRG and other activist groups, in particular the shabby treatment of canvasser/employees. A highlight: a California hearing officer's ruling (PDF) that FPIR broke labor law by underpaying for work breaks. The MyDD comment thread is an article in itself. And the whole affair brings back unfond memories to Megan McArdle, who once worked as a PIRG canvasser and recalls the treatment of employees as even worse than the series makes it sound. One highlight: manipulating salespeople out of their jobs just before they were due substantial balloon commissions.
Total (direct) tort costs of $261 billion; up in total, but down slightly per capita and as a percentage of GDP. The greatest failing of the Towers Perrin study, of course, is its failure to measure indirect tort costs (e.g., Aug. 8; Jun. 28, 2005; see also WSJ Mar. 13), which by far outweigh the direct costs, but it's a good proxy for the direction of growth. The release of the study will result in sniping from the usual litigation lobby suspects; for refutations of those tired arguments, see May 26, 2005; Jan. 19, 2005; and Jan. 9, 2004. NB that the old link to the Towers Perrin May 17, 2005, rebuttal is broken; that document can now be found here.
Despite peals of outrage from opponents, Ohio's legislature has passed two significant lawsuit reform measures in the waning days of its session. One would prohibit the use of municipal public-nuisance theories against former makers of lead paint, as pursued in lawsuits under the tutelage of Motley Rice; the bill would not restrict more conventional (and less promising) product-liability theories. Acting in what it said was response, the city of Columbus has filed its own suit against lead paint companies, joining Toledo, East Cleveland and Lancaster (h/t Genova). (P.S. The measure is not retroactive, so lawsuits already filed on the bill's effective date would not be dismissed.) The second bill would limit, to $5,000, the damages for non-economic damages consumers could receive under the state's unfair-practices statute; the availability of economic damages would be unaffected. The Ohio Supreme Court recently alarmed business defendants by ruling that non-economic damages were available under the act. Incumbent Republican Gov. Taft is considering whether to sign the legislation; lawmakers acknowledged that his successor, incoming Democrat Ted Strickland, would be less likely to view the measures favorably.
Update: Cincinnati and Canton have now filed suits as well.
The Georgia Supreme Court invalidated a provision in a 2005 law requiring plaintiffs in pending asbestos cases to meet specific medical criteria before being able to pursue damages in Georgia courts; refusing to sever an evidentiary provision it held unconstitutionally retroactive, all of the procedural requirements in the bill have fallen as applied to the thousands of forum-shopping asbestos plaintiffs, the vast majority of whom have suffered no injury, much less injury in Georgia. [DaimlerChrysler v. Ferrante; AJP Alert; Chamber of Commerce amicus brief; NAM brief; earlier: Sep. 29, 2005; related: Mar. 6]
Gary Albright had multiple risk factors for a heart attack including a 30-year history of hypertension, diabetes, obesity and untreated high cholesterol. An Alabama state-court jury took 90 minutes to decide Vioxx wasn't the cause of his 2001 heart attack. Merck pled a statute of limitations defense, but AP press coverage is unclear how that played out. (h/t) The Merck press release appears to be misdated, since the verdict came today. That's nine out of thirteen jury verdicts for Merck (with one such victory overturned by Judge Higbee).
This AP report makes me wonder whether people have too much leisure time.
The mother of a Providence, R.I., high school senior who posed in chain mail with a medieval sword for his yearbook picture sued after the school rejected the photo because of its "zero tolerance" policy against weapons.
The school's principal refused to allow the portrait as the student's official yearbook photo because he said it violated a policy against weapons and violence in schools, according to a lawsuit filed Monday by the Rhode Island branch of the American Civil Liberties Union.
The lawsuit against principal Robert Littlefield and the members of the Portsmouth School Committee seeks an order that would prevent the yearbook from being published without the photo being included.
The principal said there has to be a line drawn somewhere as to what material can and cannot be included in the yearbook, and that the responsibility for deciding ultimately falls to him. He said the yearbook editorial board and its adviser had agreed with him.
Note to student and mom: chill out!
Alex Pollock writes in today's American. A unanimous bipartisan vote of the SEC proposed guidance to reduce the costs of Sarbanes-Oxley compliance.
The news from the SEC wasn't all good; in yesterday's American, Peter Wallison takes issue with the SEC's failure to act on a Delaware court's request for clarification on proxy material inclusion rules. "The prospect that annual shareholder meetings in 2007 will become politicized by contests between shareholder activists and corporate managements has become very real." (Update: Larry Ribstein comments.)
They're a journalistic staple this time of year, as with the W.A.T.C.H. ("World Against Toys Causing Harm, Inc.") list, publicized at places like Boing Boing and Consumerist. Unless you read Bill Childs' blog, you may not have realized that
the group putting the list together was founded and is directed by Edward Swartz, who is a plaintiff-side products liability lawyer who specializes in (among other things) child safety suits. I don't know if he has any suits pending related to the toys identified on the list.
And regarding a second and separate "bad toy" list, Trevor Butterworth at STATS doesn't think PIRG has its facts straight relating to soft plastics.
Speaking of Lerach, his firm was recently fired by its client, the lead plaintiff in a securities suit against Halliburton; the former client wishes to hire Boies Schiller, but Lerach Coughlin is refusing to withdraw, demonstrating precisely the disregard so many class action attorneys have for their putative clients. Speaking of which:
Lerach got involved in the case in 2005 after three other law firms withdrew amid fierce criticism of a $6 million settlement they negotiated without consulting the AMS Fund, which was supposedly in control of the litigation. The law firms would have received more than half the proceeds in fees, while an investor with 100 shares would have received as little as 62 cents.
(Daniel Fisher, "Battle Of The Class-Action Titans", Forbes, Nov. 28).
Via David Lat: Justin Scheck, at
newish CalLaw blog Legal Pad (hey, isn't that name taken?) has some speculation about possible financial reasons for the timing of the Milberg Weiss partner's resignation (see Dec. 8), and also about the question of whether the feds are going to flip him (Schulman, that is). Specifically (to borrow some language from Ted, who also noticed this story) under Schulman's contract with the firm a resignation before year-end allows him to have his severance pay based on 2005 (pre-indictment) profits rather than 2006 (post-indictment) profits, something that could be worth an additional $5 million to him. Scheck further notes that Schulman recently switched defense attorneys, and that he "very well could" agree to a plea deal, which would almost certainly require him to testify against co-defendant Weiss and the so-far-unindicted Lerach.
P.S. On the question of "Legal Pad" timing, Brian McDonough, who edits the CalLaw blog by that name, corrects my misimpression and is a good sport about it:
Thanks for linking today to Justin Scheck�s item about Brad Schulman, but I must take issue with you over your good-natured shots at us regarding the name �Legal Pad.� We�re actually not as �newish� as you think. You compared the Oct. 8 debut of that CNN blog to our current blog, where you found the earliest post to be Oct. 31. In fact, our initial post was November 8 � 2005! We initially launched our blog on another host, and that version is still up, at http://legalpad.wordpress.com. It never occurred to us to link backward to the pre-migration version, so there was nothing there on Typepad to tell you that we beat CNN by nearly a year.
Of course, �Legal Pad� is such an obvious and common term, it�s no surprise that it shows up multiple places, but when we chose the name, a cursory Google search had failed to turn up any other blog using it. If you�re motivated to update your item, we would appreciate it. Regardless, though, we�re pleased your forum linked to us.
I feel illiterate at having somehow overlooked this CalLaw blog, which, as a check of its URLs will confirm, has been publishing all sorts of good stuff -- this on the Lemelson patent litigation, for example -- for more than a year now.
Alvin Lurie, the ERISA expert and former Assistant Commissioner of Internal Revenue, wrote a great column for us November 12 on the insane defined benefit rulings out of the Southern District of Illinois, eventually reversed by the Seventh Circuit in an opinion by Judge Easterbrook. The plaintiffs' bar, however, never gives up on this sort of parasitical lawsuit, and simply forum-shopped for friendlier environs, and seem to have found them in the Southern District of New York, where two Clinton appointees, Judges Scheindlin and Baer, have issued rulings refusing to let the Seventh Circuit opinion in Cooper v. IBM bind them and letting similar suits go forward. Congress passed reform earlier this year to shut down future versions of these lawsuits, but, perhaps thinking that Cooper ended the matter, failed to make the Pension Protection Act of 2006 retroactive. The executive branch could have fixed the problem years ago, but Congress somehow allowed Socialist Rep. (now Sen.) Bernie Sanders block funding for the Department of Labor to issue clarifying regulations. (Jerry Geisel, "Judge says cash balance plans discriminate", Business Insurance, Dec. 13; Paul Secunda, Nov. 1; BenefitsBlog, Oct. 31; Nevin Adams blog, Oct. 7; In re JP Morgan Chase Cash Balance Litigation (Baer, J.)).
The Dedrick case Michael mentions is the fifth jury victory for Merck in six cases, but, of course, when juries are allowed to award tens of millions of damages, trial lawyers can profitably bring meritless cases if juries get it wrong 15% of the time.
Of the seventeen cases that have been tried or scheduled for trial and are no longer pending, only four have resulted in a plaintiff's verdict. In my opinion, all four plaintiffs' victories suffered from reversible errors at trial, particularly in the admission of conclusory expert evidence. Juries have decided in Merck's favor in eight cases (one of which was overturned and will be retried) and five cases have been dismissed.
Another five cases, previously scheduled for trial, have been withdrawn from the trial calendar by the plaintiffs before the claims could reach trial. More than eleven hundred other plaintiff groups' claims have been dismissed with prejudice. [Bloomberg; WSJ; Merck press release]
Note that Dedrick sought only $200,000 in damages. In "bellwether trials", plaintiffs and defendants each pick their preferred cases to try, and, given the unsavory criminal past of the plaintiff (he had been convicted of bouncing checks) this was likely a case that Merck picked. The comparatively modest damages request was likely an attempt to get a victory so plaintiffs could stem the momentum Merck seems to be obtaining in these cases, a momentum that will only accelerate when appellate courts start ruling on the few plaintiffs' verdicts obtained to date. The question is where the tipping point is when plaintiffs start asking for nuisance settlements for their inventory of increasingly worthless Vioxx cases—or whether plaintiffs can get a jackpot verdict in a state-court jurisdiction that turns the tide.
This AP report summarizes another Merck victory. A Tennessee man's claim that the maker of the withdrawn painkiller should compensate him for his 2003 heart attack has been rejected by a federal jury in New Orleans, the company's fourth victory in five federal trials.
The seven-member jury answered "no" on a verdict questionnaire when asked if evidence showed that Merck failed to adequately warn Anthony Dedrick's doctors of any known risk posed by Vioxx, or that the lack of such a warning was a cause of Dedrick's heart attack.
Merck lawyers had attacked the credibility of Dedrick, 50, of Waynesboro, Tenn., who was seeking $200,000 from the company. Dedrick's own lawyer acknowledged in his closing statement that Dedrick had other risk factors for his heart attack, including tobacco use, high blood pressure, high cholesterol, diabetes and cocaine use...
Merck has reserved nearly $1.6 billion for legal costs related to Vioxx, but has resisted setting aside money to pay jury awards or settlements with plaintiffs. This reminds me of the Bendectin litigation, won by the defendant but nonetheless leading to withdrawal of the product because of the costs of successfully defending it. Stronger arguments for loser-pays rules are pretty hard to come by.
I originally posted on Overlawyered about a $31 million South Carolina verdict to highlight the personal-responsibility issues of holding the auto manufacturer liable for an accident where an unbelted child was hurt when the driver turned around to argue with the kids in the back seat. But there are also larger public policy implications to the entire class of litigation:
Per Josh Gerstein's coverage in the New York Sun, a federal judge has indicated that he is inclined to dismiss a case seeking to hold Wal-Mart liable for conditions and practices at its suppliers' plants in Bangladesh, China, Indonesia, Nicaragua, and Swaziland. The judge pointed out that legal rights if valid would naturally run against the supplier companies, rather than the retailer where the goods were eventually sold, and is said to have called some of the plaintiffs' claims in the case "reality-bending". The litigation is being pursued by a union-backed legal center; among plaintiffs, along with selected foreign workers, are U.S.-based supermarket workers who say their jobs are not as remunerative because Wal-Mart outcompetes their employers through its access to the inexpensive foreign suppliers.
Asbestos-suit impresario Fred Baron has dropped $1.7 million into Texas Democratic coffers over the past two years. Among the results: the stunning Democratic takeover of the Dallas judiciary in last month's election, with all 42 incumbent Republicans in contested races losing their seats. The Austin American-Statesman has a profile which is almost entirely incurious about Baron's history as a poster boy for legal ethics in the asbestos-suit area. Texas Shark Watch has more as well.
At least when it comes to stepping into the role encouraged for them by the Class Action Fairness Act, of intervening in class action settlements that steer benefits to lawyers rather than consumers. Are they suddenly cautious about treading on defendants' toes? Or could it be someone else's toes they are less than eager to tread on?
The legislature in Columbus is wrangling over a proposal to cut off municipal suits by statutory means (h/t Genova). And the New York Law Journal profiles the litigation's real driving force, which of course is not any of the nominal governmental plaintiffs but the law firm of Motley Rice.
I've long said that if trial lawyers really believe their own propaganda, they should open their own insurance companies and take advantage of the supposed "gouging" to undercut prices and make profits. Now, the former president of the Illinois Trial Lawyers Association, Kim Presbrey, is doing just that, with a new malpractice insurance company, Doctors Direct, focusing on neurosurgeons and heart surgeons. His main competitor, doctor-owned ISMIE, is highly skeptical:
ISMIE Chairman Harold L. Jensen says rivals pulled out or went bankrupt in recent years after "grossly underestimating the complexities of the business." New entrants may be selective about specialties and territories covered, he says in a statement.
"ISMIE applauds the fact that more competitors are dipping their toes back into Illinois' turbulent and litigious environment," Mr. Jensen says. "We're still waiting to see if these competitors are serious about truly taking care of Illinois physicians and patients."
"If they think they can make money and make big money ... they're going to be really surprised," said Dr. Harold Jensen, ISMIE's chairman and an internist in Frankfort.
Time will tell, and someone—either reformers or trial lawyers—will be eating crow. Someone remind me to check back on this guy in 2011 when Doctors Direct's first claims start maturing. (Mike Colias, "Suddenly insurers covet Illinois docs", Crain's Chicago Business, Nov. 25; Ryan Keith, Southern Illinoisan/AP, Dec. 11; Dugger, who links to the identical AP story (but on a site with a loud and obnoxious pop-under ad) and whose co-blogger had previously criticized me for suggesting that lawyers open insurance companies).
Adam Scales of Washington & Lee Law—no reflexive insurance company defender, to be sure—has a piece in Findlaw today finding Judge Duval's opinion (Dec. 1; Nov. 30) "actually succeeds in transforming the caricature of judicial activism into reality. Left to stand, it represents a high-water mark in creative insurance interpretation, which New Orleans residents will be free to ponder as insurers withdraw from a market they are judicially forbidden from defining. Within days of the ruling, St. Paul Travelers announced it was getting out of the commercial insurance business in New Orleans. Travelers has stated this move is unrelated to Judge Duval's opinion, and perhaps this is correct. However, insurers will not fail to see that uninsured natural catastrophes become privately insured judicial catastrophes in New Orleans."
Prof. Robert Leflar spent a year at the University of Tokyo's law school studying the response of Japanese law to medical error. There is, as everyone knows, far less medical malpractice civil litigation there; peer review and professional discipline structures also turn out to be weak. A surprising counterbalance?
In Japan, injury or death due to medical error is often treated as a criminal matter. When medical error causes injury or death, patients or their family members call the police to investigate the incident. Arrests and prosecutorial decisions are based on results of investigations. In other words, medical error in Japan is considered a crime against the state. ... [Japan's] criminal code also contains sanctions for attempts to cover up mistakes by altering patients' charts.
Prof. Leflar's recent article (with co-author Futoshi Iwata) is entitled "Medical Error as Reportable Event, as Tort, as Crime: A Transpacific Comparison" and is available on SSRN. UPI also has a report.
Today's Washington Post has a must-read front-page story on how incoming Senator Majority Leader Harry Reid conspired with dairy-farmer-supported congressmen from both parties to deregulate Nevada milk sales in exchange for changing federal regulations to destroy a dairy competitor who was undercharging the federally-created cartel. The biggest losers are, of course, consumers in the non-Nevada states, who now pay higher milk prices, and taxpayers, who spend billions subsidizing these prices.
That's the headline atop the National Law Journal's story about last month's state court balloting, in which candidates backed by trial lawyers and labor unions beat business-backed candidates in several high-profile races. The story's lead sentence refers to special interests having donated large sums but "failed to defeat their opponents". For example, they failed to unseat incumbent Georgia Justice Carol Hunstein, who won handily after becoming "the first judicial candidate in Georgia to raise nearly $1 million in a campaign, mostly from trial lawyers." Nice to know who counts as a special interest and who doesn't.
Of course, we've been complaining about that for years, but Fred Baron only notes it now that the law firm he built is counter-suing him in an internecine dispute that threatens to also pull Mark Lanier into a discovery battle (Aug. 17, OL Sep. 4). Bad news for John Edwards, because Baron was rumored to have left the law firm so he could focus on his trial lawyer buddy's 2008 campaign. (Brenda Sapino Jeffreys, "Baron & Budd Alleges Ex-Shareholders Breached Duties by Planning Vioxx Venture With Lanier", Texas Lawyer, Dec. 11).
STATS, the statistics-and-the-media group, has a new analysis out. Its conclusion: current proposals for legislated asbestos compensation would do a better job of compensating claimants than many opponents are willing to admit, but are likely to prove a good deal more expensive than many proponents are willing to admit.
Indicted partner Steven Schulman has resigned his place at the embattled firm. The WSJ's Nathan Koppel in June published (sub-only) a profile of Schulman which mentions other controversies involving the lawyer, including allegations in two then-pending civil suits that he used complainants as plaintiffs without their consent.
Tom Kirkendall systematically lays out the case for Skilling's innocence.
There have been a lot of complaints about CEO salaries in the last few years (and newly elected Senator Jim Webb, judging by his incoherent Wall Street Journal op-ed, seems to plan to create an entire economic agenda around this issue), but one factor rarely mentioned is how 21st-century American CEOs are essentially being compensated ex ante for the ex post risk of life-ruining criminal and civil prosecution for business failure. Even aside from the procedural irregularities of the prosecution's tactics, every action that resulted in Skilling's conviction was vetted by accountants and attorneys, and this was deemed ultimately irrelevant.
Note that I am not saying that there was no fraud at Enron; CFO Andrew Fastow and others who worked for him were self-dealing with the company, and profited by millions as a result. The loss of market confidence in Enron's financial structure when Fastow's scheme came to light, combined with post-dot-com-crashes in the valuation of overoptimistic multi-billion-dollar Enron Broadband investments, was ultimately fatal to the company. But Fastow acknowledged that he had successfully hidden the self-dealing from Skilling and Lay.
Were Lay and Skilling bad, in the sense of poor-performing, executives? Almost certainly; like many others in the late 1990s, Enron prematurely made too-huge bets in broadband technology that ultimately turned disastrous, and shareholders who bought in at the markets' bubbly overvaluations of that future revenue stream took especially bad hits. But that doesn't make Enron much different than Lucent or Charter Communications or eToys or Priceline or even a biotech company like Celera that suffered a 93% stock drop when the bubble burst. Better executives would have preferred straightforward financial statements rather than condoning CFOs and accountants to push the limits of late 1990s GAAP; good executives try to increase shareholder value by running the business rather than by browbeating financial press reporting that recognize when the financial statements are being misread by the market. But were Lay and Skilling bad, in the sense of malicious, executives? The Task Force hasn't proven that. At least some of Skilling's conviction will be reversed by the Fifth Circuit, but I would be skeptical that the standard of review will be enough to reverse the conviction for his September 17, 2001, stock sale.
Educating the adversary on one's own weaknesses, or heading off unfounded suits before they begin? Or some of both? Philadelphia: "Doctors teaching trial lawyers the fine art of treating traumatic injuries could be considered akin to Andy Reid showing his game plan to opposing coaches. But that didn't stop Dr. David Stein and his fellow physicians from Drexel University College of Medicine from holding a mini-medical school for roughly 40 local lawyers last week."
I just came from a talk by an ATLA officer boasting of the "record number" of trial lawyers elected to the House and Senate, and return to read Alison Frankel in The American Lawyer announce "The power of the plaintiffs bar is on the wane in this country, and will be for a long time to come."
The story nicely catalogs a variety of reform victories in a relatively plaintiff-friendly way (e.g., "Business interests learned that if state judges didn't vote their way, they could replace those judges with others who would", ignoring that it was the plaintiffs' bar who put those judges on the bench in the first place, and financed an attack on reformer judges in Alabama), but
ignores underplays setbacks in Wisconsin and Louisiana courts, and the regrouping of the asbestos bar in Delaware. [Correction: Frankel correctly points out in an email that her piece did have a sentence reading "The relatively sleepy Wisconsin Coalition for Civil Justice Reform was just energized by a series of pro-plaintiff state supreme court rulings, and plans to campaign in nonpartisan judicial elections in April"; the piece mentions Delaware in passing, also. I regret the overstatement. Frankel's full e-mail is after the jump.]
Has the plaintiffs' bar peaked? Well, if in the sense that there will never be another fen-phen-like settlement that allows attorneys to steal billions of dollars, and that the defense bar is now warier of the most egregious abuses of the plaintiffs' bar. But fraud continues apace in the plaintiffs' bar in the Vioxx, welding, and asbestos litigations; the plaintiffs' bar is extraordinarily well-funded and seeking new entrepreneurial opportunities to create profitable new causes of action; ATLA is planning an aggressive counterattack with voters and all three branches of government, not to mention the law schools; and Congress, with Sarbanes-Oxley alone, has done about as much to abet the plaintiffs' bar in the last six years as it has to stymie it. Reformers have achieved a lot of success in the last ten years and eliminated a fraction of the worst abuses in the system. But contrary to the title of the piece, it's not "Over."
John Fund in the WSJ's OpinionJournal.com, on some of the evidence Gov.-elect Spitzer is at such pains to ignore or deny:
This year, Hong Kong is likely to end up as the No. 1 market for stock offerings world-wide....Henry Tang, Hong Kong's financial secretary, couldn't be more blunt on the good fortune Sarbanes-Oxley has brought his city. ... "Thank you, Mr. Sarbanes and Mr. Oxley," he said, referring to Democratic Sen. Paul Sarbanes and GOP Rep. Mike Oxley, the law's chief sponsors.
Other stock markets are doing all they can to avoid emulating U.S.-style regulation. Ed Balls, Britain's economic secretary, says that his government will continue "to safeguard the light touch and proportionate regulatory regime that has made London a magnet for international business." He recently traveled to Hong Kong to call for a "strengthened partnership" between the "two leading global financial centers."...
Last week Stephen Ross, one of New York's premiere developers, warned of a ripple effect: By pushing companies abroad, Sarbox could weaken New York's real estate market. That's why Rep. Gregory Meeks, a Democrat from Queens, is sponsoring legislation to ease Sarbox's audit burden for small companies.
From Stephanie Mencimer's blog, in the process of complaining that coal miners aren't able to bring lawsuits against mines in most instances:
[Coal industry reporter Ken Ward Jr.] dropped this staggering statistic: Over the past few years, the experts in the Mine Safety and Health Administration, in their rational and predictable way, fined coal companies a whopping $250 for every miner they killed by ignoring safety regulations already on the books.
Wow—$250/death is a staggering statistic. Too bad for Mencimer's argument that it is not remotely true.
While granting that it's possible that MSHA fines may be too low for optimal deterrence, in 2004, MSHA issued about $4 million in fines. For the $250 figure to be true, 16,000 miners must have died in 2004 from violations of existing safety regulations, which would have been the most unreported story in 21st century journalism. (The actual number of total mining deaths in 2004 was 24—and surely not every single one of those deaths was because of a safety violation.)
Are coal miners suffering because of the unavailability of civil liability? Coal mining is certainly a dangerous job, but the facts do not indicate that mining companies have entirely disregarded worker safety. Mining deaths are down dramatically in just the last quarter century. In the five years of Bush II administration where statistics are available, there were 132 mining deaths. In 1981, by itself, there were 142 mining deaths. Yes, part of that is because there is less coal mining, but even in terms of incident rates, the number has dropped from 0.08 to 0.02. (Indeed, the Bush II administration average is lower than the best annual result achieved in the Clinton administration.)
The facts contradict Mencimer: gigantic civil liability is not a prerequisite for gigantic improvements in worker safety. Mencimer titles her posts "Why 'experts' aren't enough," and apparently means to attack the idea of regulatory preemption, but she doesn't explain why jackpot damages awards are a desireable end in and of themselves, rather than a means to the results actually achieved by an agency that has had preemptive powers.
Minnesota lawprof and Volokh conspirator Dale Carpenter has an SSRN paper on a problem I've been following for a long time, namely the federal regs that require universities to empower Institutional Review Boards (IRBs) to prescreen and approve research on human subjects, to avoid unethical exploitation and the like. One can see the rationale as regards invasive experimentation such as is found in trials of new drugs and medical procedures, but IRBs also review (and often impede/discourage) social science research involving the administration of relatively innocuous surveys and questionnaires, observation of people in social settings, the taking of oral histories, etc. An excerpt:
While most law professors conduct their research in an almost unregulated environment - [poring] through cases, statutes, and each other's articles, all without the kind of human interaction subject to IRB regulation - their colleagues elsewhere in the university have been coping for decades with an increasingly intrusive bureaucracy that sometimes undermines basic academic values. ...
The reforms I propose broadly fall into three categories: IRB membership and structure, substantive IRB jurisdiction, and institutional liability. In the first category, IRB membership and structure, I propose that we should require basic First Amendment training for IRB members and include a First Amendment expert as a member of the IRB; that we should require that more than one, perhaps even a majority, of the members of the IRB have the expertise and competence to evaluate the risks and benefits of the particular research being reviewed; and that every research institution using IRBs should establish separate boards for biomedical and social science research. In the second category, substantive IRB jurisdiction, I propose that oral history and other interview-based research should be exempt from IRB approval; that IRBs should be permitted to prohibit or alter research in the social sciences only where the risks of the research substantially outweigh the anticipated benefits; that rather than have IRBs screen social science research before it is performed, they should review it (and enforce internal discipline on researchers, if necessary) only after ethical [breaches] cause some harm; and that social science researchers themselves, rather than IRBs, should determine at the threshold whether their research is exempt from prior IRB approval. In the third category, institutional liability, I propose that evidentiary rules in civil trials should exclude evidence of a university's failure to adopt the Common Rule for non-federally-funded research.
More: OL, Sept. 16, 2004 (Mark Kleiman criticizes regs).
The California Supremes today hear an important tobacco case, referred from the 9th Circuit. The issue is whether smokers may wait until they are sick to sue, even if years earlier they knew or should have known that tobacco had addicted them and was unsafe.
Basic legal rules would take the former route, and even the 9th Circuit had so held, in Soliman v. Philip Morris Inc., 311 F.3d 966, (2002) ruling that the statute of limitations "began to run not when [the plaintiff] was first diagnosed with injuries stemming from his tobacco use, but 'when he should have known of any significant injury from [the companies'] wrongful conduct.'" The court said that included when smokers realized they were addicted.
Since then, however, two state appellate court cases -- 2004's Whiteley v. Philip Morris Inc., 117 Cal.App.4th 635, and 2005's Boeken v. Philip Morris Inc., 127 Cal.App.4th 1640 -- have held that a manufacturer's fraudulent statements might be more important than a smoker's awareness under California law. A common-knowledge defense to fraud claims, the rulings held, raises a question of fact for a jury to decide. Even accepting that the tobacco companies insisted their product was safe (the actual evidence is much more ambiguous), every pack sold had a warning directly to the contrary.
The case had reached the 9th Circuit after a Los Angeles federal dictrict court dismissed Grisham's case as being time barred.
This case will decide a very important question in our largest state -- can one 'buy a lawsuit' if a product seller makes a claim you know or should know is false?
Dale Oesterle at Business Law Prof reports:
Australia does not permit lawyers to use contingency fees in class action and derivative litigation. The Australian High Court has legitimized a new wrinkle however. Companies, called "litigation funding companies," can purchase a share of a lawsuit, paying litigation expenses and lawyer's fees, in exchange for a percentage of the recovery (usually one-third to two-thirds). Hedge funds, including some in the United States, back the funding companies. We allow the limited assignment of some debt claims in the United States but do not allow full-scale claims sales by injured private plaintiffs. The Australian experiment will be worth watching.
While on the subject of contingency fees, Prof. Bainbridge has a post on the traditional British naval custom of "prize money", that is to say, letting captains keep for themselves a share in the booty of hostile merchant ships they capture. It's a practice with numerous parallels to that of letting lawyers take contingency fees in the lawsuits they file, and, not surprisingly, resulted in problems getting the incentives of the captains properly aligned with those of the nation (for example, they had reason to engage the richest and least defended enemy vessels, rather than the most militarily significant). For much more, see chapter 2 of The Litigation Explosion (PDF).
The Wall Street Journal's Kimberly Strassel has a big article today on the tangle of lawyer deceit exposed when one defendant obtained court permission to delve into the (multiple, inconsistent) earlier claims brought on behalf of a single mesothelioma claimant, Harry Kananian. And over the weekend lawprof Lester Brickman, in the Journal's "Rule of Law" column (sub-only), tackled the problem of fraudulent health screening intended to generate compensable diagnoses, which has been important not only in the asbestos mess but also in fen-phen and other mass tort areas.
The New York City board of health is set to vote today on its coercive proposals to dictate the choices of the city's restaurant-goers and chefs as regards trans fats. At Cities on a Hill, Harry Siegel found the witnesses who testified at the city's October hearing a self-selected bunch. Earlier coverage here, here, here, here and here.
Stanford historian Robert Proctor, an expert witness in anti-tobacco lawsuits, was given op-ed space in the New York Times on Friday to use the Alexander Litvinenko spy poisoning case as a news hook to inveigh against the demon weed, which he claims poses a radioactive hazard to users. Russell Seitz and Tim Worstall, however, don't find his numbers impressive.
Justinian Lane, a frequent writer in opposition to tort reform, wrote an extended column opposing the loser-pays rule here. I responded on my own site, and the debate has since exploded on the comments pages of Lane's other site.
The heart of Lane's original argument was that enacting a civil loser-pays rule would require the simultaneous adoption of a criminal loser-pays rule. Lane's proposed criminal rule would require the state to reimburse the attorneys' fees of a vindicated criminal defendant.
That argument, I believe, mis-reads not only the intention of loser-pays advocates but also conflates several factual and theoretical points that support the civil loser-pays rule.
Mark Obbie, at Syracuse University's S.I. Newhouse School of Public Communications, has launched LawBeat, a new blog on media coverage of law for the school's Carnegie Legal Reporting Program. Sandy Szwarc, who comments often on the politics of compulsory nutrition, has a new blog entitled Junkfood Science. And Robert Bork Jr., son of the judge and head of his own litigation communications consultancy in Washington, D.C., has begun LegalPRBlawg to cover public relations issues related to law and litigation.
On the corporate governance beat, Financial Executives International has a blog on the effects of Sarbanes-Oxley Section 404. Bruce Carton's Securities Litigation Blog, often linked in this space, has been folded into the ISS Corporate Governance Blog. And as noted on Overlawyered the other day, "Not only is Prof. Bainbridge back blogging, now split into three avatars, but Beldar is back, too."
Ted isn't the only one who found the committee's actual policy recommendations to be rather weak tea, given the report's alarming diagnosis of flagging U.S. financial competitiveness. (Given that Floyd Norris and Stephen Labaton at the Times are going to blast you anyway, why not go for what really needs doing?) The New York Post, in an article given the sprightly title "Sarbox Detox Now: Panel", says "some criticism of [the] report" for not going far enough "came from the venture capital business":
"This is a step in the right direction, but it does not go nearly far enough to address the deep roots of the problem," said Bob Grady, a partner at Carlyle Venture Partners. "There were way too many 'established company' guys on this committee, and not enough people who think about job creation."
Grady, who is also chairman of the National Venture Capital Association, said that the cost for small companies to comply with Section 404 is the same as for large companies.
"It is insane that a start-up with a handful of employees has to pay the exact same amount to comply with the law as Wal-Mart," he said. "We won't see a sustained expansion of U.S. listing activity until this is addressed."
Thanks to the many blogs that linked my London Times column of last week on the subject, among them InstaPundit, Stephen Bainbridge, Wired GC, D and O Diary, TigerHawk, Cities on a Hill (more here), and (guestblogging at Lies, Damn Lies and Forward-Looking Statements) Werner Kranenburg.
ATRA has released a report on consumer class action abuse:
Consumer protection lawsuits have strayed from their intended purpose. Rather than provide assistance to ordinary people who are duped by a seller's fraudulent conduct into making a purchase, today, consumer protection laws are the new tool-of-choice of plaintiffs' lawyers and special interest groups. The potent combination of a vague definition of illegal conduct (unfair or deceptive), availability of large monetary awards and attorneys' fees, and lax proof requirements and class certification standards make them particularly attractive to lawyers. Special interest groups have come to view consumer protection statutes as a means to achieve regulatory objectives through the courts that they could not obtain through the legislative or regulatory process because they lack public support—a fundamentally undemocratic result. Courts and legislatures can and should restore the consumer-to-consumer protection laws. They can do so by ensuring that those who lose money because they were deceived are made whole, while eliminating the lawyer and interest group-generated lawsuits that are brought for profit and politics.
As reported in the National Law Journal, the American Legislative Exchange Council (ALEC) is pushing model legislation, similar to the successful Prop 64 in California, that would eliminate the ability of plaintiffs' attorneys to seek damages for class plaintiffs who have not suffered injury. (Meanwhile, in California itself, Public Citizen and others in the litigation lobby successfully persuaded the California Supreme Court to review Pfizer v. Superior Court; the plaintiffs' bar is asking the Court to gut the reliance requirement that that initiative added to California's infamous � 17200, and returning California to the abusive pre-Prop 64 world. (E.g., Overlawyered, Nov. 1, 2004.) Public Citizen's Brian Wolfman discusses that case on his blog.)
While the legislation explicitly permits private lawsuits for consumers who "reasonably relies upon an act or practice declared unlawful" and suffers a monetary or property loss as a result, this is not enough for Ira Rheingold, who objects on the Public Citizen blog.
Victor Schwartz, writing in the Kansas Law Review, puts forward the argument for the ALEC reforms. Relatedly, Moin Yahya explains in a paper posted to SSRN why the benefit of the bargain theory behind so many injury-less class actions is bad economics and bad law. See also the oft-mentioned Michael Greve, Harm-Less Lawsuits? What's Wrong with Consumer Class Actions.
"Insurers are doing more accurate underwriting, which is, like, so unfair, and someone should make them stop it". Prof. Grace and George Wallace at Decs & Excs engage in some eye-rolling about the California paper's coverage.
P.S. While on the subject of media critiques, Joe Weisenthal at DealBreaker doesn't think much of the Associated Press's coverage of payday-loan controversies, even making allowances for the low expectations one has of AP.
A Federal judge in the Eastern District of Louisiana held that cases against certain insurers could proceed to trial for whether the plaintiffs' homeowners insurers are responsible for flooding resulting from the New Orleans levee breaches. A basic issue is what the policies' flood exclusion actually excludes. The court made a distinction between flooding caused by a natural event (hurricane--presumably covered) and one from a man made event (levee breach --not covered).
David Rossmiller makes interesting points. In addition to commenting on the length of the 85 page opinion, he notes that
[i]n a reach of logic that is difficult to swallow, the court then categorizes the New Orleans flooding as caused by human negligence -- the collapse of canal and levee walls due to human design or construction faults -- rather than by Hurricane Katrina. One could also say the flooding was caused by people building a city below sea level, but is that sound logic or mere reductionist technique?
The opinion also relies more on dictionary definitions than law or common sense. For example, no insurer offers flood insurance in anything resembling a standard homeowners policy. All insurer's attempt to exclude it. Were consumers really misled given that the Federal Flood Insurance Program has been around since 1968 and there probably hasn’t been a significant private market flood claim payout since 1968? The court used the so-called reasonable consumer expectations argument to rule that when the term is ambiguous, one should look to cover the loss consistent with the reasonable policyholder’s expectation. This is the wrong standard when the judge could take notice of the presence of the exclusion in just about every insurance policy written in the last forty years and that the Federal program was deigned to cover these types of risks.
The opinion can be found here. Rossmiller and Grace have additional commentary. Also see extended commentary in the comments on the the bigger issue of how we pay for these losses at Marginal Revolution.Please also see Ted Frank's earlier post which I missed in all of the excitement.
My new column in the Times (UK) Online is up this morning, and discusses yesterday's issuance of the much anticipated Paulson Committee report on the need to revive flagging U.S. competitiveness in international capital markets by reforming the workings of our securities and class-action law. (Dec. 1). For more on the work of the Committee on Capital Markets Regulation, see PoL Oct. 19, Nov. 30, Dec. 1, etc. (cross-posted from Overlawyered).
P.S. Some other reaction to the committee's report: D and O Diary (and here), Wired GC, Kirkendall, TigerHawk, and (rounding up opponents' reactions) WSJ Law Blog. The Economist adds its views, and my Manhattan Institute colleague Julia Vitullo-Martin has this new commentary on the New York vs. London city rivalry more generally.
- Committee-members Glenn Hubbard and John Thornton write on the subject. [WSJ @ AEI]
- Though there were rumblings of a major overhaul, highlights show only minor, obvious, reforms are being proposed. This isn't stopping knee-jerk complaining by Spitzer et al. [WSJ Highlight Summary; WSJ]
- NY Times coverage.
- Lyle Roberts starts his analysis.
And Peter Lattman has a great quote from the report itself:
Excellent essay in Hoover's Education Today on school finance lawsuits, by Josh Dunn and Martha Derthick (via the Manhattan Institute's urban policy blog, Cities on a Hill). Final paragraph:
The successes of the adequacy movement in state courts thus are to be seen as stepping stones to the broader arena of national legislation and litigation. If the adequacy-cum-equity advocates succeed -- wedding centralization and judicialization in a regime of a federally guaranteed right to education and federally prescribed school spending -- transformation of the traditionally local and democratic governance of schools in the United States, already far advanced, will be complete.
Center for Legal Policy at the