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July 21, 2004

On Babies and Bathwater

By Michael Krauss

Dear Wally,

Well, this is getting interesting. Our conversation will illustrate, I think, how true allies in the global Tort war may nonetheless disagree strongly on their vision of the Constitution. As you requested, I'll try to highlight our disagreements – though I do hope that in subsequent installments areas of agreement do emerge.

You are right that I am not now predicting that the Supreme Court would overturn federal legislation nationalizing gun liability law in particular, or product liability law in general. I don't even think the current Supreme Court would overturn federal legislation nationalizing medical malpractice law (after all, to reprise the hackneyed phrase, folks do cross state lines to go see their doctors). But I very firmly believe that the law is not "whatever the Supremes say it is." Every branch of government has the duty to ensure that their activities do not cross the constitutional line, and therefore every branch of government must reflect upon where that line is.

My own reflection is that private ordering, juridical relations among citizens, is the quintessence of state rule in these United States. I have written about private ordering extensively (Krauss, Tort Law and Private Ordering, [1992] 35 St. Louis University Law Journal 623, here downloadable as a pdf file) and will be brief here. Juridical relations among citizens (embodied by contract, tort, property and family law), as distinguished from relations between citizens and the state (criminal law, administrative law, etc.) are of a particular nature and have always belonged to the states. [State and federal government properly compete in the public law sphere.] Washington could federalize contract law (after all, contract is the essence of commerce, isn't it, Wally?). It could federalize family law (those pesky inter-state divorces and separations make different legal regimes so annoying…). It could in essence cause the states to wither away on the grounds that we are now one big commercial e-market whose state lines are nothing but transaction costs. For all sorts of sound reasons it should not do this, whether or not a Supreme Court would connive to accept it. It should leave tort law to the states. Michael Greve is a great guy, and a true friend of mine, but he is not a jurist and I fear he does not have a complete sense of the constitutional structure of the country. Robert Levy and I expand on this in our 2004 essay, Can Tort Law and Federalism Coexist?, and I shall therefore now cease and desist on that subject.

Now, I agree with you wholeheartedly that current product liability law is often a beggar-thy-neighbor event. "Let's bring money into the state" is the shark plaintiff's battle cry – a cry the shark could not have uttered 100 years ago, when most products used in a state were actually made in that same state. Today the market for products is an interstate market, as you rightly note. But let me point out that the 19th Century also had its version of this beggar-thy-neighbor plaintiffs' tort behavior – tort suits against railroads. As every student of tort law knows, much of our current tort doctrine emerged from legal rulings in suits against railroads. Why? Because railroads always lost tort suits if they got their case before a jury ("let's bring money into the state, and soak those "cosmopolitan" "bankers,""etc.), so they desperately petitioned courts to find failings of law that would allow the judge to refuse to submit the plaintiff's case to a jury. Federal courts heard these cases (because of "diversity" rules), though these courts were of course obliged to apply state tort law. Congress did not create a federal tort law for railroads – similarly, they have no reason to create a federal tort law for guns or other products, unless (see my earlier posting) a federal constitutional right (such as that of the Second Amendment) is in clear and present danger.

So, hint #1: proper use of diversity jurisdiction, preserving federal courts for out-of-state products defendants, is one tool in reconciling federalism and private ordering. Currently, federal courts decline to exercise jurisdiction unless there is "complete" diversity, which means plaintiffs' lawyers can join a local defendant to an out-of-state manufacturer and thereby ensure the jurisdiction of the in-state court. There is no constitutional requirement for the complete diversity rule, as I'm sure you would agree, Wally. Congress can and should modify that rule forthwith – this would in no way diminish state sovereignty when it comes to private ordering, but would go a long way to eliminating procedural bias.

Hint #2: product liability need never be a beggar-thy-neighbor area of law. It would be quite easy to preserve state tort law while forcing states to internalize the costs of their product liability decisions. In a nutshell, this can be done by allowing companies to price-discriminate – to charge a different price for their widgets in State 1 than in State 2, to reflect different liability expectations. Currently, price discrimination is not possible, because state choice-of-law rules (which are followed by federal courts in diversity cases) allow a consumer to buy a product in State 1, then avail himself of the (hypothetically more plaintiff-biased) tort law of State 2. Imposition of federal choice-of-law rules (requiring, for example, that the state products liability law of the place of retail purchase of a widget be the applicable law to that widget) is both feasible and constitutional, and preserves entire state sovereignty over products liability while allowing price discrimination and eliminating the beggar-thy-neighbor issue. I show exactly how this could be done in a recent Brigham Young Law Journal article; here is a link to a pdf version of it.

To recap – Tort law is currently, in many cases, dirty bathwater. Our constitutional structure is a beautiful baby. We can clean up the one without sacrificing the other!


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Products Liability



Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.