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December 2010 Archives

Around the web, December 30

  • The ten most interesting class-action articles of 2010. [Trask]
  • Robbins Geller (Bill Lerach's former firm) names client as plaintiff to lawsuit opposing merger that client says he supports. [Fisher @ Forbes]
  • Judge Diane Wood defends economic freedom. [Blackman]
  • California Supreme Court refuses to review appalling $21 million antitrust ruling against the SF Weekly; thus ensuring that the state's antitrust laws can continue to be used to eliminate competition. [SF Chronicle; TOTM]
  • I like Ohio's Richard Cordray more than the average Democratic AG, but an AG's office that says it won $7.6 million in consumer restitution in a state that big is sort of damning itself. [LNL]
  • Please note: I don't think the island of Manhattan is at any risk, and I didn't say anything that suggests otherwise. [NY Observer]

"The Costs of Heightened Pleading"

Alex Reinert's article in a forthcoming Indiana Law Journal finds that, from 1990-99, "thin complaints" had just as much chance of success as "bulkier" complaints. Thus, Reinert suggests, Twombly and Iqbal may be producing false negatives, and there may not be the benefits to heightened pleading we imagine: "the data here suggest that the costs imposed by heightened pleading may be substantial and may not create the assumed benefits."

Reinert thanks fifteen people and two workshops in his opening footnote, and it is frustrating to think that perhaps not one of them pointed out to him that this is a complete non sequitur. Leaving aside problems with the dataset (which Reinert acknowledges), there are two issues that completely obliterate any ability to infer causality.

First, Reinert measures "success" to include settlements. But, as Twombly itself points out, once a case gets past the pleading stage, the expense of litigation may force a defendant to settle a meritless suit. A "thinly pleaded" suit that resulted in a settlement pre-Twombly, but in a dismissal post-Twombly, may be a meritorious suit, but it's much more likely to have been a nuisance settlement. Reinert pooh-poohs this possibility by arguing that someone inclined to make a nuisance settlement isn't likely to move to dismiss and defend an appeal, but that's a poor understanding of how litigation works: discovery is far more expensive (both in terms of legal expense and non-pecuniary distraction to the defendant) than dismissal and appeal. The fact that these cases would have been dismissed under Twombly is likely a feature, rather than a bug. Reinert has no access to the amounts these cases settled for (more or less than litigation expenses?) and has made no qualitative assessment of the merits of the cases.

Second, Reinert necessarily falsely assumes that a pleading that was thin pre-Twombly would be thin post-Twombly. That static assumption ignores how attorneys respond to incentives. Pre-Twombly the thinness of a pleading was a matter of a stylistic choice. An attorney could choose to draft a thin complaint to avoid accidentally making a concession that would adversely affect the case, and count on it surviving a motion to dismiss. As Judge Posner has written, "A plaintiff who files a long and detailed complaint may plead himself out of court by including factual allegations which if true show that his legal rights were not invaded." The fact that a plaintiff filed a thin complaint may just mean that the lawyer was being prudent, not that the complaint could not have been more detailed should courts require more. Again, this would require a qualitative assessment of the cases that Reinert does not perform.

The paper suffers from a fundamental problem of empirical studies of the legal world: the existing quantitative data, no matter how arduously compiled, does not provide the qualitative data necessary to draw public-policy conclusions, because much of what happens in the legal system is never recorded in court.

Around the web, December 29

  • No class certification in light cigarette class action in Maine. [Jackson; In re Light Cigarettes Mktg. Sales Pract. Lit. (D. Me. 2010)]

  • The silly Happy Meal lawsuit; meanwhile, South LA's "temporary" fast-food ban has turned permanent. [Olson @ NYDN; Reason]
  • Mississippi court reverses one of the few welding plaintiffs' verdicts on statute-of-limitations grounds. The mass tort—which apparently featured more than its share of mass tort fraud—has petered away as the defendants put up a firm defense instead of settling. [Wajert]
  • "The dangerous allure of behavioral economics." [Richard Epstein @ TOTM]
  • Unintended consequences and the incandescent bulb ban. [Carney @ Washington Examiner]
  • Vioxx MDL awards plaintiffs' committee $315 million, which isn't unreasonable for a $4.85 billion settlement. [American Lawyer; opinion]
  • In a Wisconsin case, the Brady Center does a very good job in finding a distasteful defendant to promote a legal theory of nuisance and liability for selling guns illegally. [WSJ]
  • Federalist Society debate on the constitutionality of healthcare reform, featuring Barnett, Cordray, Fried, and Rivkin. [Fed Soc]

Annals of personal responsibility

Thomas Galloway walked into a bar. And, yes, this is the beginning of a joke, or at least a joke of a lawsuit. Galloway had brought a gun with him into the New Kensington, PA bar "Envy"—but so had another patron. The two found themselves in a gunfight, and Galloway spent five days in a hospital recovering from his wounds before he was convicted for being a felon in illegal possession of a weapon. This was, Galloway said, the bar's fault for not searching its patrons for weapons. Thankfully, a federal court threw out the case; at least it was pro se. [Valley News Dispatch; AP/law.com]

"Lawyering unto perdition"

A Washington Times editorial opines on ATRA's "Judicial Hellholes" report—and singles out the A.G. Edwards class action settlement that the Center for Class Action Fairness challenged earlier this year. Judge Angela Quigless is often mentioned as a candidate for the federal bench. [St. Louis American]

CCAF's appellate brief will be filed early next year.

Randy Barnett argues in the Wall Street Journal that Obamacare goes to far in threatening to withhold money from the states. Given the space limitations of a newspaper op-ed page, it is perhaps understandable that the discussion does not quite persuasively distinguish the 7-2 South Dakota v. Dole decision. The Governor Tim Pawlenty amicus brief (filed by CEI's Hans Bader and Sam Kazman) in the McCollum litigation does a better job, arguing that South Dakota and Pennhurst State School and Hospital v. Halderman require more concrete terms than the PPACA provides, and thus courts are not given the "clear and informed choice" between participation and non-participation that the Supreme Court says it requires. I haven't seen any other discussion of Pennhurst in the context of health-care reform, so CEI's outlier position is either brilliant or crazy.

Around the web, December 28

  • Ten most significant class action decisions of the year. [Trask]
  • And another one to come: Janus Capital v. 1st Derivative Traders is a replay of Stoneridge. [WSJ ($); SCOTUSblog argument recap; briefing and transcript]
  • The partisan crocodile tears and misleading ethics charges of the Constitutional Accountability Center. [Adler @ Volokh]
  • Trial lawyers in BP case strike back at Ken Feinberg; meanwhile, the Gulf doesn't seem to have suffered long-term damage. [WSJ Law Blog; Weekly Standard via Kir]
  • I imagine it's bad luck when your toxic tort case has Daubert problems and your plaintiff is named "Junk." [Wajert; Junk v. Terminix (8th Cir.)]
  • [Cass] "Sunstein's own mental constitution is one of many minds." [Claremont Institute]
  • Device lag at the FDA—and manufacturers afraid to say anything about it. MR
  • Obama's immigration strategy is in conflict with his anti-inequality strategy. [Kaus]

Trolling for 9/11 compensation act cash

From The New York Daily News, "9/11 litigators grabbed 'Zadroga' website name in bid to lure compensation cases":

WASHINGTON - The law firm that pocketed more than $100 million suing the city over Sept. 11 is trying to cash in on the just-passed Zadroga 9/11 health bill.

The hunt was on even before the House put its final stamp of approval on the $4.3 billion James Zadroga Health and Compensation Act last Wednesday - and long before President Obama signs it next week.

Ads began popping up touting Zadroga-Act.com with the tease: "WTC Compensation Fund: Free Consultation. Call Us Today." Clicking on that link, though, doesn't take you to a do-gooder advice site. It leads to the website of Worby Groner Edelman & Napoli Bern, the lawyers who represented most of the 10,000 9/11 plaintiffs and grabbed the bulk of the $150 million in contingency fees - about 25% - from the $625 million settlement.

The trial lawyer hunt was on, yet the newspaper never reported it.

The New York Daily News ran an old-fashioned tabloid campaign in support of H.R. 847, the James Zadroga 9/11 Health and Compensation Act, cheering on the legislation and blasting opponents in editorials and news columns alike. The self-interest of trial lawyers in the legislation was rarely if ever mentioned. If this story had run before final passage of the bill, the legislation might have looked significantly different -- perhaps the 10 percent cap on lawyer fees would have been reduced to 8 or 5 percent.

(Hat tip: Rob Port, Sayanythingblog.


President Obama declared his support for the non-binding UN resolution, which declares "indigenous peoples have a right to lands and resources they traditionally occupied or otherwise used." As I tell WND (in a story with an unrealistically scary headline), one can expect tribes to use such a resolution in an attempt to relitigate long-resolved land disputes. Walter Olson's excellent forthcoming book, Schools for Misrule has a chapter on such litigation.

As we discussed in July, the California Supreme Court upheld an arrangement where Santa Clara hired contingent-fee attorneys to bring a public nuisance case against ARCO. ARCO has appealed to the U.S. Supreme Court (No. 10-546) on the theory that the use of private prosecutors who have a pecuniary interest in the outcome of governmental prosecutions violates the Due Process Clause. The Chamber (in a brief with Victor Schwartz as lead counsel) and NAM, inter alia, have weighed in in favor of certiorari. Sean Wajert discusses.

"Is it time to revisit loss causation?"

That's what Lyle Roberts asks in the wake of the economically nonsensical Ninth Circuit opinion in the Apollo Group case (which we covered in July). NAM has filed an amicus brief in support of certiorari.

Liability for snowstorms in Massachusetts

In Papadopoulos v. Target Corp., 457 Mass. 368 (2010), the Massachusetts Supreme Judicial Court explanded liability for property-owners for injuries caused by a "natural accumulation" of snow or ice. With snowstorms hitting the state this weekend, property owners risk liability if they're not ensuring well-shoveled walkways. "Besides potentially more work for shovelers, the July ruling could lead to more lawsuits, according to David White, a Boston attorney and former president of the Massachusetts Bar Association." [Boston Globe]

A major fix to the original H.R. 847, the James Zadroga 9/11 Health and Compensation Act, was the placing of a hard, 10 percent cap on fees that trial lawyers can charge clients drawing on the compensation fund.

We submit that Ted Frank deserves a measure of credit for these new and very welcome provisions. On March 31, 2009, Ted testified before a House Judiciary Committee hearing on the legislation, raising the issue of excessive compensation for the trial lawyers.

From his testimony:

The original VCF [Victim's Compensation Fund] was established before trial lawyers had a large inventory of clients, and made clear that the process was designed to generously compensate September 11 victims in a nonadversarial fashion, often with the assistance of Fund officials in maximizing recovery. As a result, the vast majority of claimants were able to receive free legal assistance pro bono; axpayer money allocated to compensation went to victims, rather than to trial lawyers. (On the rare occasion when it became known that an attorney charged a contingent fee, publicity was harsh.)

In contrast, many of the intended beneficiaries of H.R. 847 are already engaged in litigation, with contingent-fee agreements with attorneys likely providing as much as 40% to 50% of recovery. This bill keeps the VCF's original structure of providing resolution within 120 days. If the VCF is to be continued as a non-adversarial program without need to prove causation, then it would be unconscionable to victims and to taxpayers to permit attorneys to charge substantial contingent fees for the ministerial task of submitting claim forms. Even if the VCF is restructured to permit
appropriate independent scrutiny of claims, the streamlined administrative procedure combined with legal ethical requirements suggest that contingent fees may need to be limited by Congress where representation contracts were designed in contemplation of a lengthy litigation process. Fees should be limited to a reasonable hourly fee for necessary work; there should be provisions to maximize victim recovery and ensure that money is paid to victims, rather than attorneys. Otherwise, billions of dollars would be diverted to trial lawyers at taxpayer expense.

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The House of Representatives stayed in session long enough Wednesday to approve the Senate-amended version of H.R. 847, the James Zadroga 9/11 Health and Compensation Act, by "a vote of 206-60, with 168 members not voting. At National Review Online's The Corner, Duncan Currie pays tribute to Sen. Tom Coburn (R-OK), whose persistence and refusal to be cowed produced a bill that reins in the worst excesses of the original legislation. From "Tom Coburn's Achievement":

The idea of boosting medical and financial aid to heroic Ground Zero workers was never controversial. But the proposed legislation needed serious fixes. Indeed, various aspects of the 9/11 bill -- the cost, the duration, the lack of adequate oversight mechanisms, the loopholes for trial lawyers -- were deeply problematic. Unfortunately, Republicans who suggested as much were pilloried for their "callousness" and "cowardice."

Well, guess what? On Wednesday afternoon a compromise version of the 9/11 bill passed by unanimous consent. Had Coburn simply folded? Quite the opposite. He had succeeded in obtaining major revisions that greatly improved the final product.

Originally, the ten-year cost of the legislation would have been either $7.4 billion (House-passed version) or $6.2 billion (amended Senate version). The ten-year cost of the compromise will be only $4.2 billion. Originally, the bill would have cost billions more beyond the ten-year window. Those added costs were jettisoned entirely from the compromise. Originally, the re-opened 9/11 Victim Compensation Fund (VCF) -- which closed in 2003 -- would have stayed in operation through 2031. Now the VCF will be shuttered -- permanently -- in 2016. Originally, legislative loopholes would have permitted certain attorneys to gobble up a massive chunk of 9/11-related settlements. The compromise imposes a rigid ceiling on trial-lawyer fees, limiting them to 10 percent of the total amount awarded and giving the VCF "special master" authority to slash fees that he considers disproportionate. Originally, the bill suffered from a dearth of accountability controls. The compromise includes muscular safeguards against waste and abuse.

Sen. Coburn issued a news release detailing the agreement. (UPDATE, Dec. 26 -- Before the compromise, Sen. Coburn's office released a seven-page critique of the legislation.)

As we commented below, Sen. Mike Enzi (R-WY), also demanded fixes to the legislation, which made him the target of organized attacks. (Casper Star Tribune, "Media continues to target Enzi on 9/11 bill.")

The text of the final bill is here.

"Final" in this case is subject to revision. According to The New York Observer's report on a news conference, Sen. Kirsten Gillibrand (D-NY) wants another shot at the legislation.

[She] said that once the program was in place, backers could go back to the Senate and try to get it extended.

"We can go back to the drawing board in four years and fight for the next five years, but it was far more important to set up the program and deliver the care now," she said. "Once the program is created we can prove how effective and efficient it is at delivering the care, and so that will give us the momentum and the argument to push for further funding later. Ultimately we want to cover these people forever."

UPDATE (11:20 a.m. Sunday): In an interview on NPR's Sunday Edition, "Sept. 11 Responder Bill A Good Start," 9/11 responder and bill supporter, Glen Klein affirmed plans to extend the bill after five years.

More ...


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In 1974, an attorney wrote to the Cleveland Browns threatening personal-injury litigation if fans were injured by the practice of fans throwing paper airplanes that might cause "serious eye injury and perhaps an ear injury." If more judges and lawyers took the attitude of the response of the Browns' general counsel, we'd be in a much happier society today. (via Deadspin)

The EEOC has brought a lawsuit in the Northern District of Ohio against favorite Obama Administration whipping boy Kaplan Higher Education Corporation. Kaplan investigates and uses credit history in employment decisions, and the EEOC alleges impermissible discriminatory impact.

Somebody should tell the Transportation Security Administration, which also performs credit checks: they reject job applicants if they have more than $5000 in overdue debt. Many other employers find using credit histories helpful in hiring; if the EEOC makes hiring employees riskier and more expensive, we can expect less hiring to happen, which can't be good for the unemployment rate.

Top ten lists

  • A poll of the ten most ridiculous lawsuits of the year. [Faces of Lawsuit Abuse]
  • The ten worst drug and device law decisions (with the ten best to come) [Beck]
  • The year's ten most significant insurance decisions. [Maniloff @ Mealey's]

More fraud in Lago Agrio?

On a voice vote, the Senate this afternoon passed a modified H.R. 847, the James Zadroga 9/11 Health and Compensation Act, after a compromise that reduced the costs of the legislation and capped attorneys' fees. The House is expected now to pass the bill and then adjourn.

The New York Daily News, which mounted an old-style newspaper campaign for the legislation, reported in "Senators approve James Zadroga 9/11 health bill after months of partisan bickering", that the bill had been reduced by $2 billion to $4.3 billion after negotiations among its chief Senate sponsors, New York Democrats Chuck Schumer and Kirsten Gillibrand, and Republican critics, Sens. Mike Enzi of Wyoming and Tom Coburn of Oklahoma. Excerpt:

Besides cutting the price from $6.2 billion, the new bill covers up to six years, instead of 10.

And rather than create a $3.2 billion health fund, it will be $1.5 billion.

The compensation portion is $2.8 billion, some of which will be paid out relatively soon, with the final payment in six years.

Other concessions negotiators had to make to Coburn and Enzi included capping all lawyers' fees at 10%, with no exceptions, and even stronger reporting requirements and Government Accountability Office reviews than were already in the bill.

Although people who took money from the recent 9/11 lawsuit were already accounted for in the Zadroga bill, Republicans insisted on stronger language ensuring they could not double-dip.

Their legal settlements will be subtracted from any Zadroga bill payments.

Those are major concessions from the supporters, many who've spent recent weeks excoriating anyone who criticized the legislation. It would be gracious for them to say to Sen. Enzi and others, "Yes. You had a point about giving the bill a deliberate review. Thank you."

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Senate supporters of H.R. 847 the James Zadroga 9/11 Health and Compensation Act, believe they are close to attaining a vote on the legislation after offering changes to make the measure less objectionable to Republican critics. New York's two Democratic Senators, Kirsten Gillibrand and Chuck Schumer, issued a news release on Sunday, Dec. 19, declaring, "The Finish Line for 9/11 First Responders is in

They report, "Instead of relying on the House-passed offset that closed foreign tax loopholes, the new Senate bill would impose a 2-percent excise fee on certain foreign companies that receive U.S. government contracts. This raises roughly $4.5 billion over 10 years." In addition, a fee on H-1B and L-1 Visas set to expire in September 2014 will be extended to 2021; the Travel Promotion Act's fee on visitors to the United States would be extended from 2015 to 2021. (Never believe a sponsor who claims: "This is only a temporary fee.")

We have not seen the text but would guess the new language will continue to funnel tens of millions of dollars to U.S. trial lawyers for filing claims on behalf of first responders and others who report illness based on exposure to Ground Zero contaminants. In addition, compensation funds are created to establish a measure of legal finality and predictability to costs, and this bill undermines those principles by reopening the 9/11 compensation fund.

Opponents of the bill were hit by another wave of organized obloquy last week, highlighted by Jon Stewart devoting an entire show to the issue and Fox News' Shepard Smith railing against Republicans who blocked the bill . On Fox News Sunday, Chris Wallace interviewed  Sen. Dick Durbin (D-IL) and Jon Kyl (R-AZ) about the legislation, a rare example of getting both sides of the issue. Kyl said:

KYL: I don't know if that bill is going to come before us, but Dick tells me just a moment ago that he thinks that it will. First question is, is it amendable, or is it a take it or leave it proposition? The bill hasn't been through committee. There are problems with it.And I think the first thing Republicans will ask is do we have a chance to fix any problems that may exist with it. And it's a lot of money, and so I -- my early response is that I am skeptical about that bill.

If the Senate passes the revised legislation, it would have to go back to the House for approval of the changes, but the House may have already adjourned sine die by then.

News coverage ...

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AP reports: "WASHINGTON -- After a monthslong blockade, Senate Republicans have agreed to let at least 19 of President Barack Obama's non-controversial judicial nominees win confirmation in the waning days of the congressional session in exchange for a commitment by Democrats not to seek votes on four others, according to officials familiar with the deal."

The AP only cites Goodwin Liu, nominated to the Ninth Circuit Court of Appeals. Sen. Sheldon Whitehouse (D-RI) last week identified the other three to The National Law Journal: Edward Chen, nominated to the U.S. District Court, Northern District of California; Louis Butler Jr., nominated to District Court for Wisconsin; and John "Jack" McConnell, the Motley Rice partner and Democratic contributor nominated to the District Court for Rhode Island.

Robert Chatigny, nominated to the Second Circuit, has not been reported out of the Senate Judiciary Committee.

UPDATE (Tuesday, 10 a.m.): News coverage:  

The deadline was Friday, Dec. 17, for submitting comments in response to the Securities and Exchange Commission's proposed rules to implement the whistleblower provisions of the Dodd-Frank Act, i.e., the financial regulatory reform legislation [Release No. 34-63237; File No. S7-33-10]. As the Federal Register summarystates:

The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted on July 21, 2010 ("Dodd-Frank"), established a whistleblower program that requires the Commission to pay an award, under regulations prescribed by the Commission and subject to certain limitations, to eligible whistleblowers who voluntarily provide the Commission with original information about a violation of the Federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action.

In its comment letter, the American Association for Justice objected to the proposal because to qualify, a whistleblower's information would had to have "significantly contributed to the success of the action" and the information "would not otherwise have been obtained and was essential to the success of the action." AAJ writes:

The pro-business Supreme Court myth

As the New York Times documents, a Lee Epstein/Landes/Posner study found that the Roberts court ruled in favor of business 61% of the time. Does that mean that it's pro-business?

Hardly. Remember that the Court is a reviewing court. All a 61% "pro-business" rate tells us is that the Supreme Court is more pro-business (or less anti-business) than the courts it is reviewing. Thus any of the following scenarios may be true:

  • The Supreme Court is pro-business;

  • Lower courts are anti-business, and the Supreme Court is neutral; or

  • Lower courts are anti-business, and the Supreme Court is also anti-business, but not as anti-business as the lower courts.

For example, a perfectly neutral Supreme Court might rule in favor of business 80% of the time out of the cases that were on its docket. We simply can't know if the Supreme Court's rulings are "biased" from the quantitative count unless we also make a qualitative judgment how often business should win in front of the Supreme Court; Adam Liptak seems to assume that that number should be somewhere in the 50% range (or even lower in the instance of employment discrimination cases, when he points out accusingly that the Rehnquist court ruled in favor of plaintiffs 64% of the time), but there's no reason that should necessarily be so.

This is before we get to the problem I have frequently raised in the past of what constitutes a "pro-business" decision. For example, Exxon Shipping technically "won" the Exxon Shipping v. Baker case by having its punitive damages reduced from the excessive amount imposed by the Ninth Circuit--but the decision loosened the circumstances in which punitive damages could be imposed, and was hardly a plus for business.

The fact that the number of business cases on the docket has increased from 21% under Rehnquist to 27% under Roberts similarly only demonstrates relative preferences; I predicted as much in 2005, simply because of Rehnquist's apparent distaste for the Supreme Court getting involved in business cases. The increase is significant, but hardly evidence of a pro-business bias; virtually every Supreme Court practitioner in Washington, DC, can point to a cert petition in a business case that they felt was unjustly denied.

See earlier Jonathan Adler.

The American Tort Reform Association this week released its latest Judicial Hellholes report, identifying civil courts in Philadelphia, California's Los Angeles and Humboldt counties, West Virginia, South Florida, Cook County, Ill., and Clark County, Nev. as some of the worst in the nation. The report represents a compilation of many of the judicial excesses readers will already be familiar with, but there's always something new and it's a well-written document.

Philadelphia's transgressions are definitely noteworthy. Incredibly, there's an actual strategy to encourage more litigation as a form of local "economic development." From ATRA's news release:

Philadelphia is a source of great concern due to the philosophy and trial practices of its Complex Litigation Center, as well as the area's reputation for excessive verdicts. The judicial leadership is engaged in a campaign to draw in massive personal injury lawsuits from around the country, viewing the increase in lawsuits and out-of-town lawyers as a boost for the court's revenues and the local restaurants and hotels. Controversial practices, such as "reverse bifurcation," unfairness in multiple trials against the same defendant at the same time, and combining multiple cases into a single trial provide incentives for plaintiffs' lawyers to bring their claims to the City of Brotherly Love. Punitive damage awards over $1 million have reportedly tripled in Philadelphia courts. State tort law that is out of the mainstream further encourages lawsuits.

Pennsylvania's new governor is a Republican, Tom Corbett, and with Republicans also in control of both chambers of the Legislature, the likelihood of tort reform rises.

ATRA also announced the launching of a Judicial Hellholes website, allowing regular updates, and a Twitter feed, as well - @JudHellholes.

As is its wont, the American Association for Justice responded to the report -- prebutted, in this case -- by attacking ATRA's presumed funders as corporate malefactors. The statement is hack lamework that makes no attempt to persuade.

But to end on a positive notes, here are ATRA's Points of Lights:

  • The Florida Legislature addressed three practices that contributed to the state's poor litigation climate: the lax standard of proof for slip-and-fall cases, the inability of parents to sign waivers of liability so their children could participate in activities with some inherent risk of injury, and the need for transparency in the hiring of private lawyers to represent the state;
  • West Virginia Judge Arthur Recht, after reflecting on recent instances of documented fraud in asbestos litigation, put in place various safeguards for cases filed in his court; and
  • The Maryland Court of Appeals upheld the state's statutory limit on subjective pain and suffering awards applied in personal injury cases, providing an example for other courts and legislatures.

Senate Majority Leader Harry Reid (D-NV) has pulled the $1.1 trillion, 1,924-page omnibus spending bill after Republicans withdrew their support because of the now politically noxious earmarks. But we think it was Hans von Spakovsky's report that sealed the legislation's fate. Thursday afternoon, the Heritage Foundation's legal maven posted this at National Review Online, "In the Omnibus Bill, a Treat for the Litigation Industry":

Only God and Harry Reid know all of the goodies and unpleasant surprises tucked into the 2,000-page omnibus spending bill being crammed through Congress, but there's at least one gift for community organizers and ambulance-chasing tort lawyers: pages 199-200 of the bill, which contain funding for the Legal Services Corporation.

For years, liberals used the semi-government corporation to pursue lawsuits advancing their political and social causes, until a 1996 reform put a stop to most of the abuses. Lawyers funded by the LSC were prohibited from pursuing class-action lawsuits; engaging in political activities; challenging welfare reform and abortion restrictions; or representing illegal aliens.

However, as the "Explanation" accompanying the spending bill explains at page S9399 of the Congressional Record, Title V of the omnibus lifts the ban on class-action lawsuits and will "permit the use of funds" to file such actions.

It was the final straw!

Even without the omnibus, there's plenty of opportunity for legislative mischief as Congress winds up within the next week. There's a continuing resolution to fund the government, which one assumes will be clean, but maybe not. Sen. Reid this morning stressed his desire to move on nominations, again citing Deputy Attorney General nominee James Cole as a priority. Many judicial nominations have also been approved by the Senate Judiciary Committee and could receive floor action, including controversial candidates like Goodwin Liu, Edward Chen, Jack McConnell and Louis Butler Jr. (Robert Chatigny, nominated to the Second Circuit, never did get a committee vote.) The closing hours of a session often see the approval of a long slate of nominees.

Congress' departure is no guarantee of calm on the civil justice front, either. With Republicans in control of the House, the plaintiffs' bar is expected to turn to the Executive Branch to achieve its goals. Tax breaks for trial lawyers? As The Washington Times reported this week in a Page One story, "Changes on Hill bode ill for trial lawyers":

Tiger Joyce, president of the Washington-based American Tort Reform Association, said the trial lawyers group still has support from congressional Democrats who survived the midterm elections, but he thinks industry lobbyists will shift their "liability expansion" efforts toward "friends throughout the executive branch."

Mr. Joyce noted that the group has started a campaign through the Treasury Department to get a tax break that will allow trial lawyers to deduct costs advanced to clients immediately. Repeated attempts to persuade Congress to enact the tax break, valued at an estimated $1.6 billion over 10 years, have failed.

Frank on Dukes

I have an op-ed in today's Washington Examiner on the Wal-Mart v. Dukes case.

Of course, this all comes down to what the Supreme Court will do, but the finding of Virginia v. Sebelius that the individual mandate "exceeds the constitutional boundaries of congressional power" is a big first step. No injunction was issued, in part because the provision doesn't take full effect until 2013.

Judicial nullification of capital punishment

"In March 1988, Altion Maxine Walker offered to pay her nephews, James Lawhorn and his brother Mac Lawhorn, $100 in exchange for murdering her boyfriend, William Berry. The Lawhorns accepted. After they ambushed Berry, Mac Lawhorn shot him, causing him to fall. James Lawhorn (hereinafter Lawhorn) then heard Berry making 'gurgling noises' and shot him repeatedly 'to make sure he was dead.'"

Lawhorn, whose guilt was undisputed, was sentenced to death in Alabama. Today, over two decades later, Justice Scalia (joined by Justices Thomas and Alito) makes a persuasive case that an Eleventh Circuit court acted lawlessly by improperly using the federal habeas statute to throw out the sentence. Allen v. Lawhorn, 562 U.S. __ (2010) (dissent from denial of certiorari). As Scalia notes, this is a persistent problem in the lower courts, where judges are refusing to apply the law as Congress wrote it.

The Eleventh Circuit opinion was issued by Judges Birch, Barkett, and Wilson. Those with long memories may recall that Rosemary Barkett's confirmation was held up in 1993-94 because of concerns she would not apply the death penalty. Judge Birch, however, was a George H.W. Bush appointee.

We had to mail it to the court rather than electronically file it so it may not immediately show up in the docket, but today the District of New Jersey will receive my objection to the $0 settlement in Ercoline v. Unilever, No. 10-cv-1747, over "Breyers Smooth & Dreamy" ice cream. Earlier at CCAF and Jackson. (CCAF is not affiliated with the Manhattan Institute.)

The chutzpah of Justice Stevens

Retired Justice John Paul Stevens complains about "a disappointing departure from the ideal that the court, notwithstanding changes in membership, upholds its prior decisions" in Booth v. Maryland. This is remarkable chutzpah, given the number of 5-4 decisions Stevens joined that reversed prior decisions after changes in court composition, such as Roper v. Simmons and Lawrence v. Texas.

Sen. Mike Enzi (R-WY) has been excoriated by New York City-area members of Congress for preventing passage of H.R. 847, the James Zadroga 9/11 Health and Compensation Act. Today's New York Daily News -- which has been campaigning for the bill in its news and editorial pages -- gives Enzi space to defend his arguments in a column, "Why I'm against the Zadroga 9/11 health bill: Sen. Mike Enzi explains his concerns with legislation. Excerpt:

There are serious concerns about the existing programs to help 9/11 first responders, and it is not clear that this bill fixes current problems.

Congress has funded numerous programs to provide care and compensation to 9/11 victims, spending several billion dollars on extraordinary and unprecedented efforts. Congress will continue to support these individuals. However, current program administrators have failed to account for much of the previously allocated money.

Before we create a new program, we need the basic facts about what worked and what did not work over the past nine years.

For example, the National Institute of Occupational Safety and Health has sent $475 million in grants to NY-area health care providers but "have failed to tell Congress where that money has gone," Enzi argues. He also raises procedural objections, noting the Senate committees of jurisdiction have not voted on the legislation.

In response, the Daily News editorialists just ratchet up the invective: "It's hard to say which of the ideas expressed on the opposite page by Republican Wyoming Sen. Mike Enzi are the most offensive and the most deceitful."

Dodd-Frank crimes

According to Tiffany M. Joslyn's "Criminal Provisions in the Dodd-Frank Wall Street Reform & Consumer Protection Act," Dodd-Frank creates a lot of new criminal liability.

The American Association for Justice's annual "Weekend with the Stars" seminar and CLE festival is under way in New York City. The brochure promotes:

Weekend with the Stars is a premier AAJ Education program, featuring the who's who of trial lawyers. You will network and gain unparalleled insight from the experience and expertise of the nation's preeminent trial lawyers. Top trial lawyers will share their winning strategies and case-tested techniques that attendees can then apply in their own cases. This is one weekend in New York City you don't want to miss!

The agenda reveals what's on trial lawyers' minds, if not dockets, these days. Among the items:

  • Navigating the World of Multidistrict Litigation to Hold Pharmaceutical Companies Accountable
  • The Voice of the Jury Does Improve Health Care: Getting the Jury to Deliver Justice Through Its Verdict
  • Maximizing Damages in Industrial Agriculture Nuisance Suits
  • Establishing Recklessness in Pool Drowning Cases
  • Recovering for Mental Anguish and Winning Punitive Damages When the Insurance Company Behaves Badly
  • Storytelling in Bus Accident Cases to Engage Your Audience
  • The Crucible in the Courtroom: A 27 Year Odyssey of Bringing Help, Hope, Power, and Justice to Survivors of Clergy Sexual Abuse--All Roads Lead to Rome
  • Morality-Based Closing Arguments That Persuade in Trying Times

The faculty list is here.

Around the web, December 10

  • Thorogood v. Sears, Roebuck & Co.—the Seventh Circuit case that keeps giving us good opinions, this one the fourth in a series. [LNL; NLJ; Courthouse News; SBM Blog; ABAJ; Wisconsin LJ] (Update: and Drug and Device Law later this morning.)
  • Radio story about ADA filing mill. [This American Life via CJAC]
  • Will $189 million Hurricane Ike settlement be opened to the public? [Austin American-Statesman via ABAJ]
  • Bad idea division: Washington Supreme Court abrogates economic loss doctrine. [Jackson via OL]
  • Wal-Mart v. Dukes case features intersection of two conflicting strains of Justice Ginsburg's jurisprudence: distaste for procedural shortcuts of class actions and friendliness to gender discrimination claims. [Lahav]
  • Dumb syllogism department: "I think reproductive rights are important. There are some important reproductive rights cases. Therefore all law students should be required to take courses in reproductive rights law." [ATL]
  • When will SEC run afoul of the First Amendment? [Bainbridge]
  • Dog bites man department: Dahlia Lithwick not especially entirely intellectually honest in characterizing conservative legal arguments. Again. [Kerr @ Volokh; Bernstein @ Volokh]
  • I stand corrected. ("Forget" was definitely the wrong verb.) [Ribstein @ TOTM]
  • Actor who played the Johnnie Cochran parody on "Seinfeld" very impressed with himself; thinks hot-coffee case was silly. [Abnormal Use]

By a vote of 57-42, the Senate has just failed to invoke cloture on H.R. 847, the James Zadroga 9/11 Health and Compensation Act.

Sens. Chuck Schumer (D-NY) and Robert Menendez (D-NJ) both made floor statements earlier in the morning, arguing that a vote against the bill's considerations was a vote against American heroes.

Thwarted House members from the NYC-area are now pushing to have the provisions added to whatever measure carries the White House-Republican tax compromise. (See also New York Daily News blog, "Reps. Back Plan to Add 9/11 Bill to Tax Deal.")

Earlier posts.

UPDATE (1:20 p.m.): Here's the roll-call vote. Senate Majority Leader Reid changed his vote to no, a parliamentary maneuver that will allow him to move for the bill's reconsideration.

UPDATE (1:33 p.m.): Mayor Mike Bloomberg tweets: "Today's failed vote on the 9/11 Health & Compensation Act is a tragic example of partisan politics trumping patriotism http://bit.ly/hVDyKt." Alternatively, it might be a principled vote against a "9/11 bonanza for trial lawyers." As National Review's editors concluded:

[We] would favor a sensible bill narrowly tailored to assist the Ground Zero responders who developed an injury or illness while courageously risking their lives. But the 9/11 Health and Compensation Act is deeply flawed, and Senate Republicans should hold out for something better.

Around the web, December 9

  • Toyota isn't going to be able to win its sudden acceleration litigation at the motion-to-dismiss phase. [NLJ] This means the case proceeds to tens of millions of dollars worth of discovery as plaintiffs search for documents that they can take out of context to "prove" an otherwise nonexistent problem.
  • Brooklyn lawsuit: because they offer keyless ignition, it's Toyota's fault that 79-year-old plaintiff forgot to turn off his car and died of carbon monoxide poisoning. [NYDN via ABAJ] It's almost as if Toyota should require a surcharge for elderly drivers.
  • It doesn't necessarily mean much legally if a wealthy criminal defendant appeals a criminal conviction—the cost-benefit analysis is to seek every level of appellate review possible—but Conrad Black might have a point in his en banc petition objecting to the Seventh Circuit's "harmless error" analysis. [Bashman link roundup; Earlier at POL] (Update: see now Elwood @ Volokh.)
  • More tapes the Ecuador plaintiffs don't want you to see in the Chevron case. [Am Law Daily]
  • One of the collateral tragedies of Richard Nagareda's death is that he was one of the few law professors willing to take a common-sense stand on Twombly and Iqbal. Compare the nonsense from Arthur Miller.
  • Fisherman on the Gulf Coast are doing pretty well under the BP compensation scheme. [FrumForum]
  • Speaking of the Gulf Coast, the opinion is unpublished, but the Fifth Circuit got around to affirming the rejection of a class certification in Katrina litigation against insurers. [Jackson]
  • A new blog on originalism.
  • It's behind a subscription wall, but the story is titled "Legal Activist Ted Frank Cries Conflict of Interest, Forces O'Melveny and Grant & Eisenhofer to Modify Apple Securities Class Action Deal." [Litigation Daily ($)]

The end (?) of Pelman v. McDonald's

It took years more than it should have after the Second Circuit improperly reversed a dismissal, but the foregone conclusion that class certification was not possible in the largest obesity class action to date was finally reached. [Wajert; Jackson]

Christopher T. Sheean is a partner in the Chicago office of Swanson, Martin & Bell, LLP, and the chair of the firm's Class Action Practice Group, as well as co-chair of its Commercial Litigation Group. He is an active member of the Defense Research Institute's Commercial Litigation Section. Chris writes us about the latest class action against Google:

Scott Greenfield details the disturbing Wisconsin Supreme Court case of State v. Smith, where Wisconsin extended its sex-offender registration requirement to the case of a non-sexual felony false imprisonment of a minor stemming from a 17-year-old boy's dispute over a drug debt with another 17-year-old boy.

A respectful debate

Debate is expected to begin Wednesday in the Senate on H.R. 847, the James Zadroga 9/11 Health and Compensation Act, after Senate Majority Leader Harry Reid filed a cloture motion on Monday. Senate Republicans had also vowed no action on legislation until the pressing tax issues were settled, and the Obama-GOP agreement appears to accomplish that prerequisite.

The debate will no doubt provide more edification along these lines:

  • Sen. Kirsten Gillibrand (D-NY), statement, Dec. 5: "Let's put politics aside, engage in a thorough and respectful debate, and then let each senator decide for themselves."
  • Matt Canter, Gillibrand spokesman, quoted in New York Post, Dec. 7: "Right now, Republicans are holding health care for 9/11 workers hostage to deliver Bush giveaways to millionaires and billionaires."

An informed and respectful debate would consider issues raised in this New York Post column, "9/11 junk science," by Jeff Stier*, associate director of the American Council on Science and Health, who reported: "[There] is no credible evidence in the medical literature that exposure to Ground Zero dust can cause any chronic disease or condition. That is, the central claim in the suits has no real scientific basis." (See also Stier's follow-up column.)

News coverage ...

From the American Tort Reform Association, a news release, "National Study Documents Abuse In Contracting Practices of Certain State Attorneys General":

WASHINGTON, Dec. 2, 2010 /PRNewswire-USNewswire/ -- Today the American Tort Reform Association (ATRA) released a study documenting inappropriate uses of contracts between certain state attorneys general and political campaign contributors who stand to make millions by being selected to litigate cases on behalf of state governments. Some state attorneys general, in contrast, operate at the highest ethical standards, according to the report's research by ATRA's AG Agenda Watch project.

The study, entitled Beyond Reproach? Fostering Integrity and Public Trust in the Offices of State Attorneys General, examines ethical, fairness and conflict issues related to state attorneys general hiring private attorneys. It reports the findings of campaign finance research linking large donations by plaintiffs' firms and lawyers to some attorneys general who subsequently handed out state contracts potentially worth millions of dollars in fees to those same lawyers.

The study highlights Alabama, Louisiana, Mississippi, New Mexico, New York and West Virginia. As ATRA's adviser, former Virginia Attorney General Jerry Kilgore, says, ""At the top of the 'to-do' list for attorneys general should be setting policies that engender stronger public confidence in the office of the attorney general - particularly in those special circumstances when the hiring of private lawyers to litigate on behalf of the state is justified. In those cases it should be done on a competitive, transparent, accountable and value-driven basis."

Sherman "Tiger" Joyce, ATRA's president, also gives a post-election rundown on civil justice issues in The Metropolitan Corporate Counsel, "Trial Lawyer Lobby's Focus Likely To Shift To Executive Branch In 2011-2012."

Nicholas & Butler is the California law firm that launched the suit against AT&T Mobility seeking to abrogate their arbitration agreement as "unconscionable." Their successful attack on freedom of contract is now before the U.S. Supreme Court.

But, according to a former client of theirs, Nicholas & Butler, like other plaintiffs' lawyers, recognize the value of mandatory arbitration provisions in reducing their own expenses; thus, they require their clients to agree to mandatory arbitration of disputes pursuant to a form contract.

Just further evidence that the anti-arbitration movement in Congress and the courts is purely about protecting trial-lawyer income, and has nothing to do with consumers. We'll believe that the trial lawyers really think arbitration hurts consumers when they start passing legislation banning mandatory arbitration clauses in attorney-client contracts.

Cert grant in Wal-Mart v. Dukes

Don't believe the hype; as James Beck points out in his able guide to the cert grant, it's not about "the size of the class"—but it's still the biggest class action case before the Court in a decade. More from Trask, SCOTUSblog, and Batten. Cert briefing available at SCOTUSblog.

Good news that the Supreme Court has granted certiorari over the wrong-headed Second Circuit global-warming nuisance decision, but Jonathan Adler expects a narrow decision.

Pigford fraud?

A report by Gary Hewson, Peter Schweiser, and Andrew Breitbart alleges widespread fraud in the billion-dollar Pigford settlement paid for by taxpayers.

Similarly, on a much smaller scale, Ed Whelan notes an example where the Internal Revenue Service conceded a $250,000 attorneys' fee award to Gay & Lesbian Advocates & Defenders—in a case where federal law would normally preclude fee-shifting.

Is the Obama administration using settlements in litigation to feed taxpayer money to preferred interest groups by failing to zealously represent taxpayer interests?

9/11 compensation bill nearing a vote

Editors of The National Review Online have written a concise summary of H.R. 847, the James Zadroga 9/11 Health and Compensation Act of 2010, and all that is wrong with the legislation. From NRO's editorial today, "A 9/11 Bonanza for Trial Lawyers":

The Senate will soon vote on legislation that would establish a new government-run health-care program with insufficient oversight controls, create a bonanza for trial lawyers, cost a minimum of $11.6 billion, and be funded primarily through a significant tax hike on U.S.-based companies.

Of course, that's not how the 9/11 Health and Compensation Act is being sold.

Supporters of the bill have countered the substantive policy objections with the the powerful political formula of emotion and patriotism. Last week, for example, they unveiled an exhibit in Washington of 29 replica police badges from officers who died after clean-up work at or near Ground Zero.

Sen. Kirsten Gillibrand (D-NY) says Majority Leader Reid intends to file cloture on the bill with debate to start Wednesday. In a statement, she said: "Let's put politics aside, engage in a thorough and respectful debate, and then let each senator decide for themselves whether the heroes and victims of September 11th deserve quality health treatment and appropriate compensation for their tremendous loss and sacrifice."

Quite the rhetorical trick, there: Let's put politics aside, and if you vote against the bill, you're voting against heroes and victims who made a tremendous sacrifice.

So will critics be allowed to observe that Officer Zadroga's death was NOT the result of exposure to 9/11 debris, or is that not respectful?*

* The New York Times, Sept. 7, 2008, "New Doubts That Dust Killed a 9/11 Rescuer," which also reports:

Mr. Barasch, the lawyer, said the Zadrogas had no plans to file a lawsuit against the city. They merely wanted recognition that Detective Zadroga was a victim of 9/11, he said, and were satisfied when the mayor and the police commissioner added his name to the Wall of Heroes at 1 Police Plaza, recognizing him as a victim of the trade center attacks. ''The Zadrogas want nothing more except to allow their son to now rest in peace,'' Mr. Barasch said.

"Run-of-the-Mill" justice

Those car-accident personal-injury attorneys: As in the case of class action settlements, it turns out that defendants (in this case insurance companies) and plaintiffs' lawyers tacitly collude to overcompensate the relatively meritless claim and undercompensate the meritorious claims in the interest of maximizing attorneys' fees and minimizing defense costs with the least amount of work and risk. [Fisher @ Forbes]

However, unlike the case of class action settlements, disciplinary committees go after these unethical attorneys. The Nora Freeman Engstrom article that Fisher discusses details the cases of two separate Louisiana law firms whose lawyers were disbarred for their cookie-cutter operations—because they used a legal assistant to do the negotiating or paid kickbacks to runners, rather than because of their shoddy representation. In other words, at the end of the day, the bar association was more concerned about nickel-and-dime lawyers taking actions that increased competition, while ignoring the wealthier attorneys whose business model is not all that different.

"Beyond a Reasonable Doubt"

Tux Life's tale of jury duty in a criminal case is meant as an example of "the system working," but I saw the opposite. A slight 17-year-old African-American was charged with participating in an armed robbery of a traveling sneaker salesman when he was 16. The best evidence was circumstantial, and the jurors were troubled by the harshness of the charges and the consequences of a guilty verdict. As the jury threatened to hang, the prosecution settled for a plea on lesser charges. "[A]t the end of the line there is something like justice," the blogger concludes.

But was there?

The reason for the harshness of the charges was surely because prosecutors were hoping to get the teen to flip on his two more dangerous criminal compatriots. The teen refused to cooperate—either because his implausible alibi and case of mistaken identity was actually true (in which case an innocent boy was railroaded) or because he subscribed to the "no snitching" ethos (in which case a plea bargain where he received lesser charges anyway notwithstanding the lack of cooperation means the bad guys got away). One can't be happy with the results in either scenario, especially with the police's indifference towards the robbers' African-American victim.

Federal district court judge David Bramlette seems potentially receptive to the request (he's asked for detailed billing records rather than simply deny the request out of hand), but if it's denied, it means that the defendant will come out behind for challenging the lawyers who effectively stole over $200 thousand in settlement money by failing to disclose their clients' double-dipping, even after punitive damages. [Legal Newsline]

"The English vs. The American Rule on Attorneys Fees: An Empirical Study of Attorney Fee Clauses in Publicly-Held Companies' Contracts" abstract (h/t J.S.):

We study attorney fee clauses in a data set of 2,350 contracts contained as exhibits in Form 8-K filings by reporting corporations. Because 8-K filings are required only for material events, these contracts likely are negotiated by sophisticated parties and, therefore, provide evidence of efficient ex ante solutions to contracting problems. The American Rule for compensating attorneys requires each party to pay its own attorney, win or lose; the English Rule (applicable rule in most of the world) requires the losing party to pay the winner's reasonable fees. Adoption of the English Rule or other loser-pays arrangements has frequently been proposed as a solution to perceived U.S. litigation problems. But the vast theoretical modeling literature on fees has reached no consensus. Empirical reality should help assess the models and provide new insights. Because contracting parties can opt out of the American Rule and into a loser-pays rule at low cost, we expect such opt-outs to occur frequently if the English Rule more efficiently compensates counsel. Our data show, however, that the American Rule is preferred about as often as the English Rule (or similar loser-pays rules). Choosing the American Rule is associated with the following contractual features: specific kinds of contracts, the presence of a non-U.S. party, the absence of arbitration clauses and jury trial waivers, selection of New York law in contracts other than underwriting contracts, and a likely long-term relation between the parties. It is inversely associated with an increasing degree of contract standardization. Sophisticated parties thus often perceive the American Rule to be value-enhancing compared to loser-pays systems but contracting parties that opt out of U.S. courts through arbitration clauses, or eliminate jury trials through jury waiver clauses tend to reject the American Rule. The findings suggest that theoretical models should resist the assumption that a single attorney fee rule is most efficient in all contexts and that models should strive to account for real-world factors associated with fee clauses.

Released today, "The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform," includes specific recommendations for medical liability reform. A one- to three-year statutes of limitation and replacing joint-and-several liability with a "fair share" rule? That's substantive.

The recommendations come under Section III, Health Care Savings:

3.12 Medical malpractice reform.
(Saves $2 billion in 2015, $17 billion through 2020)
Most experts agree that the current tort system in the United States leads to an increase in health care costs. This is true both because of direct costs - higher malpractice insurance premiums - and indirect costs in the form of over-utilization of diagnostic and related services (sometimes referred to as "defensive medicine"). The Commission recommends an aggressive set of reforms to the tort system.

Among the policies pursued, the following should be included: 1) Modifying the "collateral source" rule to allow outside sources of income collected as a result of an injury (for example workers' compensation benefits or insurance benefits) to be considered in deciding awards; 2) Imposing a statute of limitations - perhaps one to three years - on medical malpractice lawsuits; 3) Replacing joint-and-several liability with a fair-share rule, under which a defendant in a lawsuit would be liable only for the percentage of the final award that was equal to his or her share of responsibility for the injury; 4) Creating specialized "health courts" for medical malpractice lawsuits; and 5) Allowing "safe haven" rules for providers who follow best practices of care.

Many members of the Commission also believe that we should impose statutory caps on punitive and non-economic damages, and we recommend that Congress consider this approach and evaluate its impact.

UPDATE (1:40 p.m.): A quick response from the American Association for Justice condemns the radical proposals and dangerous ideas. Or is it dangerous proposals and radical ideas?

"Extenze" class action settlement

It's not surprising that there was a consumer-fraud class action over the obvious scam of Extenze "male enhancement" pills; it's almost a public service if the lawyers do anything to get their obnoxious commercials off the air. It's never clear to me that anyone is ever actually defrauded by the product; perhaps there are purchasers who are that gullible, but it always seemed to me that these sorts of things are purchased as prank gifts for friends. In any event, I learned through Twitter that a class action settlement is being advertised on television on the same shows that had the original commerical. (I might be the only human being who tapes the Daily Show to fast forward through it for the class action settlement commercial.)

Alas, the settlement is as much as a rip-off as the product itself. Consumers can get up to $7.50 per pack of pills with proof of purchase, a fraction of the $50 cost of the product with shipping and handling. And Extenze is only funding the settlement with $6 million in cash—of which the lawyers and settlement administrators look to be taking well over $2 million. (That last fact is buried in the settlement website in the fine print of a 33-page PDF. It's inexcusable that the court approved such a poor and uninformative notice to the class.) Claimants can choose to instead ask (without proof of purchase) to receive packages of "Extenze Racing Merchandise," i.e., clothing advertising the company with the Extenze product logo. And naturally there's a cy pres component without any indication to the class who's going to get their money.

Sadly, the lawyers are likely to get away with it; who's going to admit to purchasing the product to object to the newest rip-off?

Debt purchasers

The Wall Street Journal documents debt buyers' new strategy of resorting to the courts rather than standard collection techniques, with thousands of cases this year in the Bronx alone. This is not surprising—debt collection costs money and is fraught with potential liability if done wrong.

Larry Ribstein notes that the problem of debtors having no representation in courts is a function of lawyer licensing regimes that limit the supply of legal assistance. Indeed, this is true; he forgets, however, the public-choice aspect of the legal cartel's response to the problem: rather than end the cartel that is causing the problem, the legal community is rallying behind the idea of taxpayer subsidization of lawyers in these civil cases, i.e., "civil Gideon." Hearings are being held on the latter (without regard to the enormous direct and indirect costs of such a public policy) with no one mentioning the basic market reforms that could solve the problem.

Another irony is that the legal community is fighting against systems of alternative dispute resolution such as mandatory arbitration that would both reduce costs to consumers and improve the results for unrepresented debtors. As Sarah Cole and I documented in 2008, arbitration rules require scrutiny of creditors' claims even when the debtor defaults on the legal process; as a result, while debtors nearly invariably lose in claims court, a substantial number win reductions in debt even when they default. And because creditors save money through mandatory arbitration because they have less worry of frivolous lawsuits, consumers win with lower interest rates and higher benefits. Alas, Dodd-Frank includes provisions for regulation that will almost certainly ultimately bar mandatory arbitration in credit agreements, making consumers—and debtors—worse off.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.