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July 22, 2004

"Home cooking" off the menu?

By Walter Olson

I’ve held off from agreeing the way a bel canto singer holds off from taking a new breath, but I can stand it no longer. I agree that a strong loser-pays rule would be desirable in itself and would have tended to forestall the gun litigation (or at least forced its sponsors, such as the Brady Center, to write a big check to their vindicated opponents, a sight it would warm my heart to see). I agree that the Constitution is not a mandate for the courts or Congress to “perfect” society or correct every bad state law so long as the erring states are not exerting a redistributive or otherwise coercive effect on residents of other states. I agree that the improvement you propose in federal diversity jurisdiction, which would give out-of-state defendants a more robust right to have their cases heard in federal rather than state court, would be worthwhile in itself and would also have discouraged the gun suits. And finally, I agree that federal choice of law legislation would be clearly constitutional under both your and my criteria and, as you say, “would go far to making sure states did not externalize their havoc”.

There, I feel better. Let me expand a bit on this last question of choice of law, a topic that has fascinated me ever since my colleague Peter Huber called my attention to its importance long ago. (I gave it a chapter of its own in The Litigation Explosion.) The scope for abuse afforded by modern choice-of-law developments can be seen in the gun cases. Let’s say activists organize a suit seeking to force gun makers to pay for the costs of gun crimes in New York City, a place where few guns are sold (because gun control laws are so strict) but plenty of bad guys commit shootings. The guns were originally sold by dealers in states like Virginia and after changing hands (often many times) arrived illegally on Gotham streets. The suits contend that it was legally wrongful for the manufacturers to ship the Virginia dealers all the guns they asked for. And in determining the merits of this claim, the suits will probably ask New York to apply not Virginia’s relatively business-protective law, but New York’s relatively pro-plaintiff law.

Plaintiff’s lawyers love this sort of ploy because it lets them shop around for favorable laws, but it’s grossly unfair both to the company getting sued and to Virginia itself, which stands to lose its right to establish the legal rules governing its own commerce. As you point out, Article IV, Section 1 of the Constitution gives Congress a sweeping grant of power to remedy matters, in the second sentence that follows: “Full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state. And the Congress may by general laws prescribe the manner in which such acts, records, and proceedings shall be proved, and the effect thereof.” In other words, Congress may instruct courts in New York’s position to give effect to Virginia law regarding manufacturer liability for sales. It has often occurred to me that the final clause, empowering Congress to specify the “effect” one state’s laws must be given in other states, could be the basis for not just the drawing up of a federal choice of law scheme on product liability (as you propose) but also for various other helpful interventions, such as a federal law prescribing that states refrain from imposing global punitive damages against a nationwide course of conduct by a defendant that would not have been subjected to equally severe punishment under the laws of other states.

Enthusiastic as I am about reform of jurisdiction and choice-of-law, I still have doubts as to whether a combination of those two kinds of reform will fully suffice to end state courts’ motive and opportunity to siphon wealth from distant shareholders and corporate treasuries. In some of the notorious courts of Alabama, Mississippi and Gulf Coast Texas, they don’t call the solicitude for local claimants and lawyers “cost externalization”, they call it “home cooking”. Think about the wildest cases from the Jackpot Belt -- you wrote a great article about the $500 million Loewen verdict in Mississippi -- and I think you’ll agree that not all of them arose from ambitious assertions of jurisdiction or applications of an inappropriate state’s law.

On another note, I’m not sure I agree with the contrast you draw between the supposedly ravaging effects of a gun pre-emption bill -- “destroying the dual sovereignty that underlies our republican system of government”, as you somewhat hyperbolically put it -- and the putatively respectful and kid-glove handling of state sovereignty embodied in your own preferred reform proposals. By expanding federal diversity jurisdiction, you’re proposing to grab many or most of the salient cases entirely away from the state courts; and by fixing mandatory choice of law rules, you’re telling them that they also can’t get their law applied. I guess the message to the state courts is that we’re taking the crust and we’re taking the filling, but you can still have the pie. It seems to me that the pre-emption bill in certain respects represents a less drastic entrenchment on the state courts: it leaves them hearing the cases, even (too indulgently!) leaves them applying their own law to other states’ transactions, but merely instructs them not to put into effect wholly novel decisional rules that if adopted would have an immediate and grossly unwelcome effect on a large number of citizens of other states.

You know what? We still haven’t talked much about the Second Amendment, although we both regard it as a crucial element in our respective analyses. I promise to get to that in my next (and final) round.

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Regulation Through Litigation



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