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Trial Lawyers, Inc.: K Street -- Federal Government Relations (II)



My last post showed some of the major legislative efforts that trial lawyers have successfully pushed through Congress in the last 2 years. But as Carter's post last month on the trial lawyers' legislative "agenda" shows, they're hardly slowing down. Trial Lawyers, Inc.: K Street focuses on five of the most significant efforts currently underway to increase the litigation industry's profits: loosening pleading standards, expanding securities litigation, rolling back federal preemption, limiting private arbitration, and cutting taxes on plaintiffs' litigation.

  • Pleading standards. Point of Law readers are already familiar with the Supreme Court's recent decisions to limit the outer boundary of notice pleadings in Ashcroft v. Iqbal (2008) and Bell Atlantic v. Twombly (2006) (see postings for each, here and here, respectively), as well as the Congressional effort to reverse the two decisions. What's most important to keep in mind about the legislation purportedly designed to overturn Twombly and Iqbal (S. 1505, H.R. 4115) is that it would do far more; as the K Street report notes, it "would likely interfere with statutory pleading requirements well beyond the scope of the Court's recent decisions." (See also Michael Dorf's comments here; Gregory Garre's testimony here).
  • Securities litigation. In another bill designed to overturn a Supreme Court decision, Arlen Specter's Liability for Aiding and Abetting Securities Violations Act (S. 1551) would undo the Supreme Court's 2007 decision in Stoneridge v. Scientific-Atlanta. In Stoneridge, as our readers will recall, the Supreme Court considered a class action lawsuit filed by a cable company's shareholders against other companies that had done business with their own and thus, the shareholders alleged, "aided and abetted" the company's accounting frauds. Finding no evidence of Congressional intent to authorize third-party securities through private rights of action, the Court determined that to do so would "expose a new class of defendants," raise "the costs of doing business," deter "[o]verseas firms . . . from doing business here," "raise the cost of being a publicly traded company under our law," and "shift securities offerings away from domestic capital markets." Senator Specter's bill would do just that.
  • Federal preemption. A fourth Supreme Court decision in the trial-lawyer lobby's crosshairs is Riegel v Medtronic (2008), in which the Court, by a vote of 8 to 1, determined that the 1976 Medical Devices Amendments to the Food, Drug & Cosmetic Act expressly preempted state tort lawsuits for Class III medical devices that had gone through the FDA's extensive premarket approval process. (For an extensive discussion of the preemption issues in this and related cases, see this report that I authored with my Manhattan Institute colleage Paul Howard last spring.) As the K Street report notes, the proposed legislation (H.R. 1346, S. 540) would "permit suits to proceed that stem from injuries that originated long before the law's effective date, if otherwise valid under state law."
  • Private arbitration. As I noted in my last post, discussing the Franken amendment, the trial lawyers are doing their best to push federal legislation that broadly bars private arbitration agreements in hosts of contexts. Pro-litigation legislators have introduced bills that would limit or eliminate arbitration clauses in nursing home agreements (The Fairness in Nursing Home Arbitration Act, H.R. 1237, S. 512), for mortgage loans or home-equity lines of credit (The Mortgage Reform and Anti-Predatory Lending Act, H.R. 1728), for payday loans (The Payday Loan Reform Act, H.R. 1214), for tax-refund loans (The Taxpayer Abuse Prevention Act, S. 585), in consumer contracts (The Consumer Fairness Act, H.R. 991), and in all employer, franchise, and consumer contracts (The Arbitration Fairness Act, H.R. 1020, S. 931).

  • Contingent-litigation taxation. Finally, Senator Specter has also introduced a bill (S. 437) that would give contingent-fee lawyers a $1.6 billion tax break. Traditional prohibitions against champerty and maintenance precluded what today is commonplace -- trial lawyers fronting their clients' expenses. As the K Street report explains, "the personal-injury bar's financing structure -- the 'contingent fee,' the share of the proceeds that a winning client pays his attorney, who has fronted the cost of the litigation -- runs afoul of the historical understanding of champerty. Therefore, expenses in contingent-fee cases have been treated by courts not as support of litigation per se but rather as loans to clients, to be repaid upon a winning lawsuit's resolution." Senator Specter's legislation would, for federal taxation purposes, change the status of contingent-fee litigation costs from loans to expenses -- thus allowing plaintiffs' lawyers working on contingency an immediate deduction of all costs against their taxes. Specter argues, in essence, that lawyers should be treated no different than any other business (a telling statement on the evolution of the legal "profession" into an industry). However one views this question as a theoretical matter, there's no question that Specter's legislation would pour lots of new money into the trial bar's coffers -- and lots of new lawsuits onto judges' dockets.

Those keeping count will note that the above legislation includes efforts to overturn four different Supreme Court decisions (Iqbal, Twombly, Stoneridge, and Riegel). A fifth piece of legislation (H.R. 1478), mentioned only briefly in the K Street report, would overturn a 60-year-old Supreme Court decision, Feres v. United States, 340 U.S. 135 (1950) (holding that the United States is immune from liability suits by active duty personnel under sovereign immunity principles). And of course, two of the recent bills already signed into law also reversed recent Supreme Court decisions (The Lilly Ledbetter Act, overturning Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007); and the Fraud Enforcement and Recovery Act, overturning Allison Engine Co. v. United States, 128 S. Ct. 2123 (2008)).

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.