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.
That's ATLA lobbyist Linda Lipsen, talking about the next Congress:
The change in Congress means that "instead of being on the defense, we will be on the offense," said [Lipsen].... Some ATLA issues were very close to passage when the Democrats last controlled Congress, she said, noting the proposed Patients' Bill of Rights, elimination of the antitrust exemption for the insurance industry and enhanced monitoring of federal agencies' enforcement of safety regulations.
Meanwhile, the John Conyers-led House Judiciary Committee is likely to push "civil rights legislation to reverse recent U.S. Supreme Court restrictions on gender, disability and age discrimination lawsuits"; Conyers also favors legislation that would authorize the filing of stateside antitrust lawsuits against OPEC oil producers notwithstanding the governmental nature of that international cartel. Wouldn't it be fun if trial lawyers' urge to insert themselves into disputes between sovereign nations got us into an actual war one of these days? For much more, see Marcia Coyle's NLJ roundup.
Colleen Flood and Lorian Hardcastle of the University of Toronto take a look at New Zealand's non-lawsuit compensation system:
In New Zealand, you can't sue for personal injury including injury as a result of negligence on the part of a doctor, hospital, nurse, etc.
A person injured by medical error receives some income compensation and rehabilitative services including treatments in private hospitals and clinics, home care, prescription drugs, physiotherapy, all things not covered by New Zealand's equivalent of medicare.
The good news for both injured patients and their doctors is that patients don't have to prove negligence on the part of their doctors.
The Kiwi no-fault system has many appeals. Many more patients will receive some assistance after injury including income supports and coverage for rehabilitation services right when they need them most.
Claims are processed within an average of 15 days as opposed to five years or more in the tort system.
In addition, the claims process is user-friendly — you can easily make your claim without a lawyer — as opposed to the cost and complexity of litigation. New Zealand's scheme seems manageable in terms of total cost; it covers 4 million people for less than $30 million per year or just over $7 per person, per year. ...
There is no evidence at all from New Zealand that there are higher rates of error because patients can't sue. ...
Although New Zealand has a no-fault system, there is still anecdotal evidence that doctors are reluctant to admit mistakes. This may result from fear of professional discipline or concern with reputation.
On the other hand, the New Zealand system has come under criticism because the size of awards is not generous (and has been eroded over time) and because some see it as arbitrary that ailments caused by medical misadventure are compensable yet similar ailments caused by illness itself are not.
"The cost of our audits was never built for insuring the capital markets," said William G. Parrett, chief executive of Deloitte Touche Tohmatsu, the international arm of Deloitte & Touche. "I don't think we're saying we shouldn't have any liability, but it has to be in proportion to our participation in any problem."
The firms also say they can't get sufficient insurance because their liability is almost unlimited, encompassing in a worst-case scenario the total stock-market value of the companies they audit. So they are forced to settle lawsuits rather than risk a trial.
A study for the European Commission, released in September, said the total costs of judgments, settlements, legal fees and related expenses for the U.S. audit practices of the Big Four firms had risen to $1.3 billion in 2004, or 14.2% of revenue, up from 7.7% in 1999. In addition, according to a study by insurer Aon, there were 20 claims outstanding against U.S. auditors as of September 2005 where damages sought or estimated losses topped $1 billion. Accounting firms say they couldn't survive an award of that size.
Advocates of liability caps frame the issue around the broader debate over U.S. market competitiveness.
"I think the whole issue of liability is one of the major reasons why foreign companies aren't coming here" to list their stocks on U.S. exchanges, said Hal S. Scott, a Harvard Law School professor and a founding member of the Committee on Capital Markets Regulation, the group formed with [Treasury Secretary Henry] Paulson's blessing to study market competitiveness.
("Booming Audit Firms Seek Shield From Suits", Wall Street Journal, Nov. 1). See also Larry Ribstein, who comments on the idea of permitting auditors to resolve the matter contractually.
The New York Times article has some remarkable good news: the Bush administration is looking into sweeping moves to reform securities law, including paring Sarbanes-Oxley (Mar. 6); limiting the aggressiveness of the Thompson memo; federal limits on overzealous state attorneys general; and, notably, ending the judicially-created civil enforcement of 10b-5, which has led mostly to strike-suit mischief and left-pocket-to-right-pocket wealth transfers taxed by attorneys (e.g., Jun. 26). But the headline tells it all: "Businesses Seek New Protection on Legal Front." As even the left-leaning Slate notes, "The story has the usual he said-she said, with several experts pointing out that scaling back regulations would be a mistake. But what it lacks is a good analysis of Sarbanes-Oxley's effect on business and the economy. While it may be tempting to toss this all off as the Bush administration seeking to help out buddies in the business world, there's a lot more at stake here." That analysis is present in the Wall Street Journal, where Glenn Hubbard and Brookings Institute chair John Thornton discuss rationalizing securities regulation.
Update, Oct. 31: See also Larry Ribstein today.
Williams and Mona Raymond ran a horse farm in Connecticut. Before offering a horseback riding lesson to Jessica Reardon, they had her sign paperwork, where she represented that she was an experienced rider, that she had ridden horses frequently, and that she would not turn around and sue the Raymonds for negligence. So assured, the Raymonds agreed to give Reardon a lesson; Reardon was thrown from a bucking horse; Reardon went ahead and sued. The Connecticut Supreme Court held that the waiver was "unconscionable," and, while Jessica Reardon is perhaps better off because she'll get to try to persuade a jury that it was the Raymonds' fault that she fell off a horse, the rest of Connecticut consumers are now considerably worse off. Vendors of goods and services can no longer offer Connecticut customers goods and services that they could only afford to offer with the promise that the customers would not sue. Other Connecticut vendors will raise their prices to account for the risk that their contracts, too, will be called "unconscionable" after the fact because of this sort of ex post instead of ex ante analysis.
Nor could the Raymonds defend themselves by pointing out that the experienced Reardon had assumed the risk. The court's reasoning, as reported by the Insurance Journal, is appalling:
The court acknowledged that there are certain risks that are inherent to horseback riding as a recreational activity, one of which may be that horses move unexpectedly. However this "does not change the fact that an operator's negligence may contribute greatly to that risk." For example, the defendants may have negligently paired the plaintiff with an inappropriate horse given the length of time since she last had ridden or negligently paired the plaintiff with an instructor who had not properly been trained on how to handle the horse in question. The court said both of these scenarios "present factual questions that, at trial, may reveal that the defendants' negligence, and not an inherent risk of the activity, was to blame for the plaintiff's injuries."
("No Horsing Around, Conn. High Court Tosses Liability Waiver", Insurance Journal, Oct. 26; Reardon v. Windswept Farms LLC). Such questions are expensive to determine, but the Raymonds did not charge their customers for the expected price of having to litigate; Reardon took advantage of these lower prices and then demanded the extra service anyway, and the court rewarded her disingenuousness. I wrote about this basic unfairness in a recent washingtonpost.com column.
With so many trial lawyers claiming that they're innocent for recent increases in insurance rates, and that the rates actually reflect problems with the insurance industry that can be solved only by ending their antitrust exemption, and so many policymakers apparently listening, it's worth revisiting this 1992 Regulation article by Wharton Professor Patricia M. Danzon:
Continue reading McCarran-Ferguson and liability insurance
Nina Totenberg has a piece on National Public Radio's Morning Edition today on the South Dakota initiative known as "Jail for Judges" that we covered earlier. (Nov. 15, 2005) At the time, I called the initiative "one of the worst reform ideas ever."
It seems I'm not entirely alone. Among the sources cited by Totenberg, one is a blogger, DakotaWarCollege, who has exposed some of the nuttier ideas behind the proponents of the Jail-for-Judges initiative.
While the Jail-for-Judges initiative seems to be headed for defeat, recent polls show the initiative failing by a little more than ten points. From where I sit, that's still a little too close for comfort, especially on an initiative that is so far outside of the mainstream.
Via Childs, Boalt Hall 3L Jenny Miao Jiang has an interesting proposal for a sentencing-guidelines-style approach to punitive damages. One can certainly quibble with the particulars (the hypothetical Jiang uses is awfully loose with upward adjustments), and there is a danger that the framework Jiang proposes would be obviated in a world without non-economics damages caps, but the idea is intriguing for its pursuit of uniformity in what has been a random-number-generating process to date.
Virginia and Florida already have such funds, and now South Carolina is considering joining them (via Common Good).