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March 2006 Archives

Here Comes The Sunscreen Suit

Our San Diego friends at Lerach Coughlin have branched out from their securities suit business to jump on the consumer fraud bandwagon. Their new class-action target: the makers of sunscreen. Lerach partner Samuel Rudman, as quoted in today�s Los Angeles Times, claims that "Sunscreen is the snake oil of the 21st century," and called commonly-applied terms like "sunblock," "waterproof" and "all-day protection" forms of false advertising--notwithstanding that the use of such terms by sunscreen manufacturers is regulated by the federal Food and Drug Administration.

As with similar "harm-less" lawsuits--see Michael Greve's paper on the topic, as well as our coverage of the state and federal lawsuits over the allegedly false advertising of "low tar" cigarettes--this suit does not seek damages for physical injuries caused by allegedly less-than-adequate sunscreen. Rather, Lerach Coughlin's suit seeks to force sunscreen to give up earnings from the sales of any falsely advertised product. Schering-Plough and Johnson & Johnson company Neutrogena Corporation are named in the suit, along with other sunscreen and cosmetic makers. That, and the fact that the $445 million of sunscreens and tanning products are sold every year, means that this suit packs potentially a major economic punch.

The emerging prosecution scandal

A big scandal may be emerging out of government misconduct in prosecuting corporate misconduct. Recent indications include comments by a federal judge in a hearing on criminal charges against KPMG defendants, and a looming Fifth Circuit opinion in the Enron Nigerian Barge case. The former involves government pressure on corporate defendants to sacrifice their employees as the price of staying in business. The latter involves keeping possible witnesses under threat of indictment so they can't testify for defendants. Now that business has been on trial for four years, maybe it's the prosecutors' turn.

Al Gore's Voodoo Economics

Earlier this week I wrote elsewhere about Al Gore's proposal, in the pages of the Wall Street Journal, to change our system of generally accepted accounting principles so that businesses were required to recognize the "negative externalities" they create in the form of pollution and so on.

For many reasons (only the most obvious of which I recounted earlier) it would be both illogical and impracticable to actually implement the change Gore proposed.

But as I wrote then, "Gore is not stupid." So why did he propose such an outrageous change in corporate accounting rules?

Pay-for-play AG operations

Last month the Columbus Dispatch reported that the FBI is probing the office of Ohio Attorney General Jim Petro over allegations that he based the award of state litigation business to outside law firms on support for his political campaigns. Pay-for-play isn't anything new in the world of state AGs, of course, but getting caught is (via AG Watch).

"Inventors have rights, too"

In the sub-only WSJ, Nathan Myhrvold offers the case for continuing to give patent owners, whether or not they produce their inventions, the right to seek injunctions against alleged infringers.

Low-Tar Cigs Class Action Suit

From the Wall St. Journal (subscription required), a nice summary of the Schwab case. This amusing (or sad, depending on one's perspective) case claims that low-tar cigarettes are, in fact, just as harmful as regular cigarettes, because smokers searching for nicotine take more and stronger puffs from them than they do from more potent models. Thus, the suit alleges, lo-tar smokers were induced to buy the "healthier" alternative because of false advertising. The plaintiffs are not making health claims, but seeking their money back on fraud counts.

Wait a second -- if they hadn't smoked the lo-tar cigs, what would they have done? Smoked hi-tar brands? Do the latter cost less? My feeble, insensitive mind doesn't quite grasp the logic of this latest tobacco suit.

The case is now pending in the Southern District of N.Y. before Senior District Jack Weinstein, who, in 1984, oversaw and "strongly encouraged" a $180 million class action settlement involving Agent Orange. Shortly after "encouraging" the settlement, Judge Weinstein rejected the suits of those who had opted out of the class on causation grounds. [I guess the judge forgot to tell defendants that plaintiffs' class suit was just as groundless while he was 'encouraging' settlement.]

$886 a person ($997 in W.V.)

The legal-reformer-backed West Virginia Record covers the new Tillinghast report.

Texas med-mal savings

Now it's insurer The Doctor's Company, announcing an 18 percent rate cut.

Lipitor Lawsuit

According to the Wall Street Journal�s John Wilke and Scott Hensley ($), the New Jersey Teamsters insurance fund filed suit late Monday against pharma giant Pfizer. The claim at issue: that, beginning in 2001, Pfizer launched a wide-ranging Medicaid fraud by marketing the cholesterol drug Lipitor to patients whose low risk of heart attack did not merit it. No subpoenas have yet been issued. Lipitor is the world�s bestselling prescription drug, which gives this suit potentially huge repercussions. For more, check out Peter Lattman on the WSJ�s Law Blog.

A tobacco "protection racket"

Colorado state treasurer Mark Hillman is back (see Oct. 14) with more criticism of the AGs' tobacco deal (as well as an argument for "securitizing" his own state's booty therefrom). Jacob Sullum has more.

Congress' insider trading

Congress is thinking about regulating its trading on nonpublic information about legislative activities. This is a good thing. But as I discuss, we shouldn't get carried away. Trading on nonpublic information is not necessarily bad, and may be socially productive. Moreover, we shouldn't go overboard in discouraging legitimate share ownership by legislators. It wouldn't be such a bad idea if they thought like shareholders rather than politicians.

From the Pittsburgh Post-Gazette, further details on why you should consider having your brain injury in a state other than Pennsylvania. More here.

eBay's Patent Woes

The intricacies of patent law achieved unprecedented notoriety last winter, with NTP�s infringement suit against RIM, the maker of the near-ubiquitous Blackberry. RIM settled for $612 million. Now online auction house eBay has come under the gun. On Wednesday, the US Supreme Court will hear eBay v. MercExchange. MercExchange, a small online electronics merchant, claims that one of eBay�s services infringes on a patent they own. Nicolas Varchaver, in Fortune, quotes GE intellectual property honcho Todd Dickinson: "You could even say it's the most important commercial law case before the Supreme Court so far this century."

School finance litigation watch: E.J. McMahon, who directs the Manhattan Institute's Empire Center for New York State Policy, tells us exactly what he thinks about last week's 3-2 appellate ruling concerning Judge Leland DeGrasse's decision to order billions in state tax moneys redirected to New York City schools:

As dissenting judges at earlier stages in this case have pointed out, the CFE [Campaign for Fiscal Equity] lawsuit is designed to spawn "limitless litigation" by subjecting New York's statewide school-aid formula to perpetual second-guessing by the courts. That goal is now well within the plaintiffs' reach. With his gift for ambiguity, Judge Buckley has done his part to ensure that all the lawyers involved in this case will be busy for years to come.

For more on the CFE New York suit, see Thomas O'Brien's paper for this site, as well as here, here, etc.

Should prosecutors be able to give companies the choice between indemnifying accused employees or facing ruinous criminal penalties? Today's WSJ reports on recent events, and I discuss the issue. Of course this could undermine deterrence. But, then, if that's the goal, maybe we should just dispense with costly trials.

Politics and mutual fund voting

According to an article in today's WSJ, it looks like an SEC rule requiring disclosure of mutual fund votes is having the predictable effect of giving activists -- particularly including labor unions -- another point of leverage to politicize corporate voting. The possible result is confused investors. Here's my further discussion of the issue.

Profiles in Mediocrity

Pennsylvania Governor Ed Rendell (D.) vetoed a tort reform bill that would have reformed that state's law of joint and several liability.

The measure, Senate Bill 435, was intended to repair defects found in a 2002 reform that was struck down by the Pennsylvania Supreme Court before it was ever enforced.

What is especially galling, however, is the mealy-mouthed criticism the Governor leveled at both the bill and the common law rule in the context of the Governor's refusal to accept any improvement over the status quo. He was quoted to say:

It has become apparent in our industrialized society that this doctrine [the common law doctrine of joint and several liability] has produced inequitable and unfair results that have had a detrimental impact on businesses.

For these reasons, I said in my campaign for Governor that I believed Pennsylvania must enact some limits on the doctrine of joint and several liability to protect Pennsylvania businesses from such unfair and inequitable results.

[But, he continued] Just as our businesses have given me telling examples of the unfairness and harm that is caused to them by the current law, consumer organizations have given me just as telling examples of how victims � many times the children of parents killed by negligent actions � would be left without adequate compensation for their loss.

I believe we must find a better way � a law that will balance the equities between our businesses and the victims of negligence.

So the Governor believes that joint and several liability is unfair and harmful to business but he also opposes a reform like S.B. 435 that would provide for proportionate liability among joint tortfeasors, except that a tortfeasor with more than 60% culpability could be liable for 100% of a plaintiff's damages?

Are we to believe that the common law rule -- in which a defendant with 1% culpability may bear 100% of the plaintiff's damages -- is preferable to the rule of S.B. 435, even if that reform is less than perfect?

It is difficult to take the Governor's endorsement of reform seriously in the face of this veto. If the Governor truly believed that S.B. 435 was less-than-perfect, the better outcome would have been to accept piecemeal reform and plan to for further improvement, rather than allow the common law rule to stand.

Is a National League position player who cannot throw "totally disabled"? Such will be the question facing courts after the Houston Astros' insurance claim on Jeff Bagwell was denied.

"The Astros took the position that [Jeff] Bagwell was totally disabled in January 2006 even though he played in September and October 2005," a lawyer for Connecticut General Insurance Company said. "Connecticut General determined that there had been no adverse change in Mr. Bagwell's condition between the end of last season and the date the policy terminated on Jan. 31, 2006."

The Astros DH'd Bagwell in the World Series (in those games played under American League rules), and he got one hit in 8 tries. Interleague play could afford him a few more at-bats this season. Could it be that those eight at-bats have cost the 'Strohs $15M?

The Boston Herald was waxing so self-righteous in criticism of Justice Scalia's giving the "finger" to one of its meek reporters. But as reported in the Seattle Post-Intelligencer, the Justice did no such thing. The reporter was clearly harrassing the Justice, confronting him as he was leaving Church and asking him if he took much flak related to his conservative Roman Catholic beliefs.
"You know what I say to those people?" Scalia said before making a gesture with his hand (not his finger), cupping the hand under the chin and flicking the fingers like a backward wave. "That's Sicilian."

The paper said that Scalia also said: "This is my spiritual life. I shall lead it the way I like."

I can understand why the Herald was in a tizzy. The very idea of a Justice attending Church!

Maybe some cultural diversity training is in order for the over-sensitive Herald reporter. And maybe an apology from the paper itself...

Today in the Supreme Court

Via Will Wilson, here's an interesting opinion today from Justice Scalia, joined by Justice Alito, in the case of Fidelity Federal Bank & Trust v. Kehoe:

Gregory Kasich does a think-piece on class-action law in today's Portland Press-Herald in the wake of the recent big verdict against plaintiffs' firm Hagens Berman for abandoning clients and scuttling a settlement for a potentially more lucrative class action. I'm quoted, though my affiliation has been inadvertently moved 2.3 miles to the east-southeast. (Also, I believe I told Kasich that the Class Action Fairness Act now requires courts in new class actions to evaluate coupon settlements in terms of the actual value to the class, thus destroying the incentive behind future coupon settlements, but I apparently failed to convey that idea adequately, as it doesn't make it into the story.)

First West Coast Vioxx Cases

Courtesy of Law.com: According to Amanda Bronstad in the National Law Journal, Vioxx cases on the West Coast are nearing trial. Of the 9600 suits failed against Merck nationwide, nearly 1900 were filed in California. The first of these is set to begin in Los Angeles on June 21st, but LA Superior Court Judge Victoria Chaney has not ruled out the possibility that more than one case will go to trial.

Welcoming Sam Munson

We here at Point of Law are continuing to work to increase our site's depth and breadth of coverage. With Larry Ribstein and Tom Kirkendall graciously signing on as contributors, we have significantly expanded our ability to bring you insightful commentary on all sorts of corporate and securities issues, among others.

I'm pleased today to welcome Sam Munson, MI's new associate editor, who will also be blogging at Point of Law. Sam will be looking through the top legal news of the day to bring you links you need. A graduate of the University of Chicago, Sam served as research associate at Kudlow and Company from 2003 to 2005. Previously, he held editorial and research positions at Commentary, Policy Review, and the New York Sun, and worked as a freelance journalist. His articles and criticism have been published in The New York Times, Commentary, the New York Observer, the Weekly Standard, Policy Review, the Jerusalem Post, and other publications.

Rolling back the FLSA

A few weeks ago I publicly wished Congress would repeal or at least curtail the antediluvian Fair Labor Standards Act, which has served as the basis for countless "overtime" lawsuits on behalf of salaried managers and salespeople. Michael W. Fox (Jottings of an Employer's Lawyer), however, doesn't think that's likely to happen:

In the 30 years I have been doing this, I have yet to see an employment statute rolled back by Congressional action. Given the nature of modern day politics, I don't think that is going to change.

Historian Paul Johnson, at Forbes, offers a view from Britain.

The Empire State, hurricane-proof?

"If you were Allstate," asks Martin Grace, "who would you rely upon for your weather advice?" The chief forecaster of the AccuWeather.com Hurricane Center, who's warning that the "Northeast is staring down the barrel of a gun" and that its coast is "long overdue for a major hurricane"? Or Sen. Chuck Schumer (D-N.Y.), who declares such concerns "bogus" and is flaying the prominent insurer for its refusal to underwrite such coverage in any quantities New Yorkers happen to demand?

Ironies of the Times

Jonathan at his blog notes that the New York Times' editorialists nod their approval at patent reform, but not class action reform, even though the two kinds of reform share many similarities in their aim to curb baseless litigation. Could it be that different oxen get gored? More: OL Mar. 24, etc.

Mississippi curbs forum-shopping

In a series of cases, the Mississippi Supreme Court has emphatically announced an end to the wide leeway it once gave plaintiffs to drag defendants and controversies into a few favored rural county courts even when the underlying disputes bore little relation to those counties. One of the latest cases involves insurance agents from Claiborne, Amite, Lauderdale and Rankin Counties who all wanted to sue insurers in plaintiff-friendly Claiborne County; per an AP account, the Court said only the agent who actually lived in Claiborne County could sue there, and the others would have to go back to their home counties to file.

"Indentured employertude"

"Coyote" (Warren Meyer) coins a new term to describe European-style labor laws that replace employment at will with employee rights of tenure (see Mar. 20 on the Paris labor-law riots). Actually, it's worse than that -- "indentured" would suggest that the employer can hope some day to graduate out of the servitude, but the hapless French employer would seem to be on the hook forever.

Meyer also asks a question about workers' comp laws: since they were intended to resolve workplace injuries without lawyers, why exactly have lawyers managed to muscle their way back in, especially in states like Florida?

Attorney general slush funds, cont'd

Skip Oliva notes a case in which California AG Lockyer is dishing out funds from a settlement over the chemotherapy drug Taxol. "If the state isn't going to use settlement funds to compensate alleged victims, then the state legislature should decide where the money goes, not an inferior officer of the executive branch," he says. More on litigation slush funds here.

Dabit and federalism

Larry Ribstein suggests here and here that pro-business conservatives praising the opinion (is he talking about me?) may not be so happy with the opinion, and some of Stevens's language, down the road. I disagree.

Our intrepid upholders of the law

A Mississippi Attorney General Jim Hood press release begins:

Attorney General Jim Hood announced today that his office is looking for a few more good insiders to help in the investigation of the insurance industry's fraudulent denial of claims on the Coast. Hood said, "The time is now for insiders to come forward and be a confidential informant and/or witness. If you have information regarding these crimes and do not come forward, you may later become a criminal defendant.�

(h/t C.D.) More on Katrina litigation.

Ropes & Gray, a prestigious Boston law firm, has dropped Catholic Charities (CC) as a client. CC has long been a provider of adoption services in Boston , but recently stoppped providing these services because Mass. threatened to sue over CC's decision to stop placing children with same-sex couples.

The interesting aspect from a legal ethics perspective is whether Ropes & Gray acted appropriately when it dropped Catholic Charities as a client. The firm responded, at least in part, to pressure from a group of Harvard Law School students. I don't think lawyers are common carriers, but once one has taken on a client, Is it appropriate to drop the client because that client is politically unpopular with a group the firm tries to impress?

See details in The Boston Globe.

Attempted SLUSA loophole closed

The Private Securities Litigation Reform Act created stricter standards for bringing securities litigation claims; plaintiffs' attorneys attempted to evade the restrictions by bringing cases in state courts, and Congress passed the Securities Litigation Uniform Standards Act of 1998 in response. Never underestimate the creativity of the plaintiffs' bar; hundreds of class actions were filed with a gerrymandered complaint that purported to avoid SLUSA. In Kircher v. Putnam Funds Trust, 403 F.3d 478 (2005), Judge Easterbrook struck down one such suit (filed in Madison County no less): "Our plaintiffs� effort to define non-purchaser-non-seller classes is designed to evade PSLRA in order to litigate a securities class action in state court in the hope that a local judge or jury may produce an idiosyncratic award. It is the very sort of maneuver that SLUSA is designed to prevent."

The Second and Third Circuits disagreed, and permitted plaintiff-created exceptions to SLUSA. Today, the Supreme Court reversed in an 8-0 decision, Merrill Lynch v. Dabit. The Court reaffirmed the principle that because "[e]ven weak cases brought under the Rule may have substantial settlement value... because '[t]he very pendency of the lawsuit may frustrate or delay normal business activity,'" private litigation should be "cabined" to minimize such adverse effects.

In an attempt to rescue Georgia�s offer of judgment rule from an assault by trial lawyers and sympathetic judges, Republicans in the State House of Representatives have passed a bill that would reform the 2005 offer of judgment rule.

H.B. 239 modifies the 2005 version of the rule to clarify that a defendant can recover its attorneys fees only if the plaintiff rejects an offered judgment and recovers less than 75% of the amount offered.

This reform addresses one of the criticisms leveled by a Georgia trial court in late 2005 (Muenster v. Suh) in striking down the law as unconstitutional. That decision was subsequently settled and not appealed, leaving the law to stand in other courts in the state.

Among other concerns, the trial court claimed that the rule�s language was unclear and could have been interpreted to prevent plaintiffs from making an offer in settlement. The court also correctly noted that the language of the rule (which spoke in terms of a final judgment that was at least 25% greater than the offered judgment) was confusing and difficult to apply.

H.B. 239 keeps the spirit of the 2005 rule alive but uses language far more precise than the original:

(b)(1) If a defendant makes an offer of settlement which is rejected by the plaintiff, the defendant shall be entitled to recover reasonable attorney's fees and expenses of litigation incurred by the defendant or on the defendant's behalf from the date of the rejection of the offer of settlement through the entry of judgment if the final judgment is one of no liability or the final judgment obtained by the plaintiff is less than 75 percent of such offer of settlement.

(2) If a plaintiff makes an offer of settlement which is rejected by the defendant and the plaintiff recovers a final judgment in an amount greater than 125 percent of such offer of settlement, the plaintiff shall be entitled to recover reasonable attorneys fees and expenses of litigation incurred by the plaintiff or on the plaintiff's behalf from the date of the rejection of the offer of settlement through the entry of judgment.

Importantly H.B. 239 does not address one of the other criticisms made by the court in Muenster v. Suh: that the offer of judgment rule applies only to tort cases and not contract cases.

The Federalist Society is sponsoring a debate today on this topic at Ave Maria Law School (being webcast live now), featuring AEI scholar Michael Greve, former FDA General Counsel Dan Troy, and Professors Peter Hammer and Lars Noah.

Overlawyered down again

Walter and I are having webhost problems at Overlawyered, and are unable to post new entries. But we have some doozies of cases to tell you about when we get access again.

Quattrone conviction overturned

Occasional Point of Law bloggers Larry Ribstein and Tom Kirkendall comment on the Second Circuit's reversal of the conviction of Frank Quattrone for sending an e-mail telling employees to clean up their files, which was characterized as the government as an obstruction of justice.

In the Washington Post, University of Texas law professor Henry Hu is quoted as saying "This kind of thing will undermine the deterrence idea of white-collar crime prosecution." I'm trying to remember the last time a law professor suggested that a law school's capital-crime defense legal clinic undermined the deterrence idea of violent crime prosecution.

The Wall Street Journal has a surprisingly one-sided account (h/t J.M.) of a discovery dispute between KPMG and one of its clients. A CFO at Targus embezzled millions of dollars before pleading guilty; Targus seeks to hold its auditors responsible. During the litigation, an Orange County judge sanctioned KPMG for failing to produce documents "in a full and timely manner."

At least one state attorney general doesn't seem to share the enthusiasm of Spitzer, Lockyer and the NAAG for the multistate tobacco settlement:

"It's another lunacy of this program," said Trey Walker, spokesman for South Carolina Attorney General Henry McMaster [referring to the negative impact on state budgets of falling cigarette sales]. "(Attorney General McMaster) finds himself the tobacco regulator in South Carolina, and put in a position where he has to prop up big tobacco to make sure they sell enough cigarettes to make payments to the states.

"That shouldn't be the role of government. (McMaster) has said this is one of the most disgraceful abuses of the legal system that he's ever seen."

French student riots

Alex Tabarrok fills us in on the labor law background:

The students are protesting a new labor law which would make it easier to fire workers under the age of 26. Of course, this would also make it easier to hire young workers who currently have an unemployment rate of 23 percent. You cannot have it both ways; raise the cost of firing and you raise the cost of hiring. In my opinion, the Sorbonne students need a little less Foucault and a little more Bastiat.

Nick Gillespie at Reason "Hit and Run" makes some of the same connections.

This survey of the obesity/Big Food controversy by AP writer J. M. Hirsch doesn't slant the analysis in favor of the litigators and business-bashers, which makes it a refreshing change from a lot of AP coverage.

Defibrillator detractions debunked

A recent study out of the Cleveland Clinic brought good news for many heart patients worried about their implanted devices: "No Increased Death Risk Detected From Recalled Heart Defibrillators" was the WSJ's headline on Wednesday (sub-only). According to Greg Conko of the Competitive Enterprise Institute, it was also embarrassing news for Eliot Spitzer, who'd gone on the warpath against manufacturers for not issuing earlier warnings.

The quotable Scalia

From his Wednesday speech at New England School of Law: "What is a moderate interpretation of (the Constitution)? Halfway between what it says and halfway between what you want it to say?"

...or at least so says the Georgia Supreme Court (PDF), ruling that individual plaintiffs cannot claim punitive damages against tobacco companies over conduct covered by the global settlements negotiated by Georgia and the other 49 states in the late 1990s. Bill Childs has details.

In response to numerous inquiries: my other website, Overlawyered.com, has been suffering outages all day (after an Instalanche from Glenn Reynolds crashed the server). Email has now been restored, after bouncing for several hours, but for the moment only the top page of the site is accessible to visitors. Update: fixed Friday morning.

[picked up from the AP wire today]
Man Hits His Own Car Then Sues Himself
Mar 16 7:17 AM US/Eastern

A dump truck backed into Curtis Gokey's car in Lodi, Calif. Curtis, a town employee, was driving the dump truck. That didn't stop him from suing the town for $3,600 because the "town's employee" was a fault.

After the city denied that claim because Gokey was, in essence, suing himself, his wife Rhonda, sued under her name. [They jointly own the car.]

Rhonda's claim is for a larger amount, $4,800. "I'm not as nice as my husband is," she said.

Lessons from Refco about SOX

Bloomberg is reporting more trouble at Refco Inc., now including the possibility of as much as $525 million in fake bonds held offshore accounts. More here. Significantly, all this is after SOX, and after Refco had gone through the intensive scrutiny involved in an IPO. If all this is true, it's yet another indication that no amount of regulation can prevent fraud by the most determined fraudsters. It can, though, catch law-abiding firms in a spiral of regulatory costs.

Nasdaq, LSE and SOX

The WSJ says that shares of the London Stock Exchange, which have nearly doubled in response to the NASDAQ acquisition proposal, may rise still more to reflect the "growing listings businesses for companies that want to sell their shares outside the U.S., where they aren't subjected to tough U.S. Sarbanes-Oxley financial-reporting rules." More here.

So the value of the LSE depends partly on SOX. Maybe good for LSE, and for NASDAQ if the acquisition goes through, but not necessarily for the rest of the US securities industry.

The WSJ discusses moves by shareholder activists to get firms to adopt requirements that directors be elected by majority vote. Basically these are moves by unions, and they have a lot to do with using executive compensation to gain union leverage in corporate governance. Proposed new rules on disclosure of executive compensation would help these groups. Can this be good for ordinary shareholders? I don't think so.

Viscusi vs. Eisenberg on punitives

"Two widely respected Ivy League academics, Harvard Law School's W. Kip Viscusi and Cornell Law School's Theodore Eisenberg, have spent years crunching the numbers" on punitive damage awards, The American Lawyer reported recently. "Their scholarship represents the gold standard of empirical work on punitive damages. The two scholars, however, come to wildly clashing conclusions." Why? Well, one main reason is that Viscusi chooses to emphasize, while Eisenberg chooses not to emphasize, the role of "outlier" cases with unusually big dollar numbers. Arizona State lawprof Michael Saks, whom we've met before in these pages, contributes the following quote to the piece: "As [Saks] says, Viscusi's concern is with the 'tip of the tail of the elephant [of punitive damages] whereas Eisenberg's concern is with the 'whole elephant.'"

Congratulations, Prof. Saks: you may have come up with the worst and most tendentious analogy in the history of the liability debate. The tail of an elephant is an outlier, sure enough -- it's noteworthy for being a relatively slender portion of an animal the remainder of which is known for its hugeness. So it's exactly the reverse of an analogy that would aptly account for the spectrum of punitive damage awards, which consist of a larger number of $10,000 awards (which, as Eisenberg might point out, are unlikely to be inflicting much trauma by themselves on the U.S. economy) and a much smaller number of awards in amounts like $1 million, $10 million or $100 million (which, as Viscusi might point out, play a crucial role in scaring defendants into altering behavior and in providing leverage for settlements that redistribute wealth). It takes a sort of genius to look at the few cases that loom far larger than the rest and come up with a mental picture of them as the tail of an elephant.

Since we're trading in analogies, here's a different one. Profs. Viscusi and Eisenberg can be compared to seismologists debating whether the phenomenon of West Coast earthquakes has been overblown. Eisenberg triumphantly demonstrates that the great majority of seismic events recorded in Pacific fault zones are very minor -- so minor they won't even rattle your teacups. Viscusi chooses instead to focus on the impact of a few infrequent events like Northridge and Loma Prieta that make up an almost infinitesimal percentage of all seismic occurrences. Who makes the more useful guide? Well, it depends. If you're wondering whether watching the needle on a Cal Tech seismograph is likely to prove an exciting or entertaining way of passing your time on a random Saturday, Eisenberg's way of looking at the data is actually more helpful. If, on the other hand, you're seeking to ascertain the effects of earthquakes on construction and insurance practices in California, or on people's willingness to live in the state, more likely Viscusi's your man.

Defensive medicine in the ER

In Physicians' Weekly, David A. Katz pulls together some of the evidence of its effects.

At City Journal (published by the Manhattan Institute), Theodore Dalrymple reviews Paul Offit's "enthralling" new book The Cutter Incident, and the story it tells of a medical catastrophe and resulting lawsuit with far-reaching consequences: "The plaintiffs' lawyer was Melvin Belli, then the most famous and flamboyant tort lawyer in America. The trial outcome was in a sense a draw, rather than an outright victory for the plaintiffs, but it established a principle that would be nearly fatal to the production of vaccines." For more on The Cutter Incident, see Feb. 28. (& welcome Kirkendall readers).

Silicosis doctors take the Fifth

As a WSJ editorial reported on Monday (sub-only), three doctors who have been central figures in the scandal over assembly-line diagnosis of silica injury were summoned to a Congressional hearing last week, but took the Fifth Amendment against self-incrimination. Rep. Ed Whitfield, who heads the House Energy and Commerce Committee's oversight and investigations subcommittee, "is far from done. His committee has sent letters to 13 law firms seeking information about their financial arrangements and interactions with doctors and screening companies. It'll be instructive to see if they too exercise their right against self-incrimination." David Stone has additional pointers to coverage in the Mobile Register and Madison Record. According to the Mobile Register, businessman Heath Mason, co-owner of the Pascagoula-area screening company N&M Inc., said the law firm of Campbell Cherry, which hired his firm to screen x-rays, paid only when a result positive for disease was found. More coverage: NAMIC; statement by committee chair Joe Barton.

[ Edited 3/16 to fix misapprehensions arising from the AP coverage.]

As reported in the San Jose Mercury News, Exxon Mobil may be held liable for harm inflicted on victims abroad by a foreign army....

Doing business in a third world country often requires "hiring" the local armed forces to provide "protection." That's what Exxon did in the Indonesian province of Aceh. It is alleged that Indonesian soldiers committed atrocities on eleven local citizens. The latter sue, not in Indonesia, but in US district court.

Exxon executives have said the Indonesian military deployed at least 3,000 soldiers during the conflict in Aceh to guard a natural gas field and pipeline operated by the company on behalf of Indonesia's state-run Pertamina energy conglomerate. How Exxon can control these soldiers, and why a US forum is appropriate (the Aceh civilians claim to fear for their lives, perhaps quite reasonably, if their identities are revealed - but does that make US law and fora applicable?), are perhaps issues to be dealt with on appeal. Clearly, no respondeat superior doctrine I have ever seen holds that a company can control the armed forces of a sovereign power.

"There was evidence that the Indonesian (military) considers anyone killed by its forces in conflict areas to be an armed rebel," the US State Department says in its latest report on Aceh. "The [Indonesian] government largely failed to hold soldiers and police accountable for such killings and other serious human rights abuses in Aceh and Papua." OK, the Indonesian government may be liable for atrocities (though it was recently praised by Secretary of State Rice), but tort liability for Exxon? Vicarious liability for a foreign government's actions? I didn't see any accusation of direct involvement by Exxon in the alleged atrocities in the District Court ruling [thanks to Hofstra prof. Julian Ku for the link]. Even if there were an allegation that Exxon officials were truly complicit in a murder the hypothetical complicity would have to be somehow a company policy, not a "frolic and detour."

District Judge Louis Oberdorfer found that �[u]ltimately, the United States � has an overarching, vital interest in the safety, prosperity, and consequences of the behavior of its citizens, particularly super-corporations conducting business in one or more foreign countries.� With great respect, this sounds like an encouragement to re-incorporate in Bermuda...

Sarbanes-Oxley at AEI

Henry Butler and I made our pitch for repealing SOX at the AEI on March 13. The event, the papers, the PowerPoint presentation and other materials are here, and some more thoughts here.

Good Samaritan liability

Trial lawyers are thumping the tubs trying to block a Delaware proposal that would protect doctors who volunteer care at the scene of emergencies. Kevin Pho notes a couple of overripe examples of their (that is, the lawyers') rhetoric.

Subtly courting Springsteen

According to Mickey Kaus, "it would take more than a few lunches at the Manhattan Institute, but maybe not that much more".

Whereas the literature evaluating the effect of tort reforms has focused on reported incurred losses, this paper examines the long run effects using a comprehensive sample by state of individual firms writing medical malpractice insurance from 1984-2003. The long run effects of reforms are greater than insurers' expected effects, as five year developed losses and ten year developed losses are below the initially reported incurred losses for those years following reform measures. The quantile regressions show the greatest effects of joint and several liability limits, noneconomic damages caps, and punitive damages reforms for the firms that are at the high end of the loss distribution. These quantile regression results show stronger, more concentrated effects of the reforms than do the OLS and fixed effects estimates for the entire sample.

Patricia Born, W. Kip Viscusi, Tom Baker, "The Effects of Tort Reform on Medical Malpractice Insurers' Ultimate Losses", NBER Working Paper No. 12086, March 2006.

Lawprofs' Solomon rout, cont'd

Howard Bashman finds it "a bit unfair" to chide liberal law professors (see Mar. 8) for advancing arguments "of questionable validity" which the Supreme Court rejected by an 8-0 margin. After all, the arguments had convinced some judges in lower courts, and the professors did gain considerable attention in public discussion for the points they wished to make. Meanwhile, the Times's Adam Liptak in his Sunday retrospective quotes Yale lawprof Peter Schuck:

"There is often a feeling that if something is morally wrong it must be legally wrong and that clever arguments can bring those two things into alignment," Professor Schuck said.

The elite law schools have for decades been overwhelmingly liberal, Professor Schuck said, and that may have blinded professors to problems with their arguments.

The Wall St. Journal has a nice report on the latest Tillinghast study of the total cost of Tort law in America today.

The study puts the cost of tort at $260 billion, about the same amount as Wal-Mart's annual sales. It includes frictionless transfer payments (you negligently rear-end me, and one day later your car insurance company cuts me a check for my damages), but does not include "the cost to society of a medical student who chooses not to become an obstetrician because malpractice insurance in that field is getting more expensive," or "the loss to society when a company decides not to roll out a new product because its executives are afraid of potential liability claims if something goes wrong." Nor of course are any of tort law's benefits (the compensation to legitimately wronged parties, the appropriate care that might otherwise perhaps not have been taken in certain cases) accounted for -- Tillinghast is very clear that its goal is not to evaluate tort law, just to account for its costs. That, it turns out, is a very difficult thing to do.

Most useful, perhaps, is the direction of the cost figure, not its absolute value. And that direction is steadily, unfailingly, upward.

Surowiecki on asbestos

Years ago the New Yorker did as much as any publication to advance the cause of asbestos litigation when it ran the series of articles by Paul Brodeur later published as the book Outrageous Misconduct, a straightforward morality play about wicked businesspeople, unsuspecting workers and heroic plaintiff's attorneys. A couple of decades later, it's obvious to nearly everyone that the situation has gotten rather more complicated than that, as the magazine's business correspondent, James Surowiecki, makes clear:

Gradually, though, courts came to accept more expansive definitions of both liability and harm; people who had been exposed to asbestos but were currently, in legal parlance, "unimpaired" were able to collect millions in damages, and any company that had sold a product containing asbestos became a potential target....

Because billions of dollars have been paid to people who were not seriously injured, and because court dockets are overwhelmed with cases, it�s become harder for people who are really sick to get what they deserve. ...Meanwhile, the expanded definition of corporate liability has meant that companies with only a tangential connection to asbestos have been harshly punished.

ABA vs. health courts

Philip Howard detects a pocketbook influence in the bar group's opposition.

While Washington remains perennially paralyzed on the topic, states like Texas, Georgia and Mississippi have been moving strongly to protect doctors, notes Randolph W. Pate of the Heritage Foundation (Fox News, Feb. 17). On Mississippi, see also TortsProf, Feb. 25, on this Natchez Democrat piece.

Department of Coercion

One of the common subjects covered on my humble blog over the past couple of years has been the increasing regulation of business through criminalization of risk-taking. Accordingly, it's appropriate that my first post on this more esteemed forum should reference John Hasnas' superb WSJ ($) op-ed and my further thoughts on the perverse effects that a company's "cooperation" with the Department of Justice has on the company's sacrificial lamb-employees who are served up in the course of the company hedging the risk of an Arthur Andersen meltdown. I appreciate Ted Frank's kind invitation to contribute to this fine forum, and I pledge to uphold the high standards of this excellent resource.

Sykes rebukes Wisconsin high court

Judge Diane Sykes of the Seventh Circuit, who for five years herself sat as a member of the Wisconsin Supreme Court, gave a Hallows Lecture at Marquette March 7 (PDF) rebuking that court for its recent and unprincipled lurch into pro-plaintiff activism. In particular, Sykes analyzes -- and finds wanting -- the court's decision to strike down legislated limits on medical malpractice awards (in the process, inventing a completely novel mutation of the "rational basis" test) and its embrace of market-share liability in suits against lead-paint manufacturers, a theory that no other state has seen fit to adopt (via Althouse).

IRBs vs. free inquiry

Under federal regulations, most university professors and students must submit for preapproval to Institutional Research Boards (IRBs) before conducting research on human subjects -- not only medical or otherwise invasive research, but even, say, a survey of political opinions. In fact they must ask advance permission of these federally mandated bodies before embarking on inquiries that it would otherwise be within the ordinary rights of any citizen to conduct. Does this conflict with the First Amendment? Why, now that you think of it, it does sound as if it might do that. An important SSRN working paper from Chicago's Philip Hamburger explores the issue.

AEI research assistant Phil Wallach writes, catching the Center for Science in the Public Interest red-handed, if not red-faced:

The overtime-classification wars have reached Wall Street, with the result that $400,000-a-year stockbrokers are claiming with a straight face that they're really hourly employees, contends Littler Mendelson's Allan G. King:

In a spate of class action lawsuits against Merrill Lynch, Morgan Stanley, Prudential and other brokerages, filed principally in New York, securities brokers -- who earned billions in commissions annually -- now claim they were just hourly "wage earners," who were misclassified by their employers to thwart the Fair Labor Standards Act and the California Labor Code.

Could we please, please get Congress to revisit the antediluvian FLSA and start preparing to repeal parts of it that make no sense today, or never made sense in the first place?

Health Wonk Review

It's a new blog carnival highlighting notable recent posts on health policy, it's being hosted this time by Matthew Holt at Health Care Blog, and it includes a link to Martin's post earlier this week on malpractice insurance trends.

Lessons from bankruptcy fees

Kirkland & Ellis is asking for $100 million in fees for its work on the United bankruptcy. Is this too much? Well, it depends on what we think about bankruptcy and Chapter 11. And this topic has some implications for executive compensation and disclosure of same. Here's my thoughts on these subjects.

OpinionJournal points out that, incredibly, only one law school chimed in with the legal view that was upheld by a unanimous Supreme Court concerning the right of the federal government to condition funding of law schools on decent treatment of its military recruiters.

To quote Jim Taranto, "Only one law school, George Mason in Arlington, Va., filed a brief on the winning side. Given that not a single justice agreed with the views put forward by profs at Harvard, Yale, Columbia, Cornell, NYU, Chicago, Penn, etc., it seems fair to say that George Mason has the most competent professors of any law school in the nation."

There more crying about the decline of securities research -- and the consequent threat to market efficiency -- over at the WSJ. How can we get more research? How about less regulation and litigation, and more opportunities to make money from research. I've got more on that here.

Supreme Court ignoring lawprofs

Not only did it (in the FAIR/Solomon case) unanimously reject the position taken by law school faculty in serried ranks assembled, but Chief Justice Roberts is hinting that he'll follow his predecessor Rehnquist in favoring arguments based on "authoritative" materials, such as statutes and precedent, over arguments relying on, say, law review articles. David Barron (LawCulture) is writing as if this is a bad thing, while Prof. Bainbridge takes a contrasting view. A commenter at Prof. Barron's writes:

I don't intend to sound too flip, but is it surprising that the court didn't rely upon outside sources such as law review articles, treatises and such, when the "scholars" who produce those materials were, in essence, the same people who were so clearly wrong on the constitutional and statutory issues in this case? Is there a reason why the court should rely upon politics disguised as scholarship?

The direction of legal scholarship has veered so far from what is helpful to courts that it is no wonder that it is ignored by actual decision-makers.

Also: Orin Kerr, Ethan Leib. And here's George Will, with guns blazing:

The institutional vanity and intellectual slovenliness of America's campus-based intelligentsia have made academia more peripheral to civic life than at any time since the 19th century. On Monday its place at the periphery was underscored as the Supreme Court unanimously gave short shrift to some law professors who insisted that their First Amendment rights to free speech and association were violated by the law requiring that military recruiters be allowed to speak to the professors' students if the professors' schools receive federal money.

Althouse, however, differs.

Lead paint follies

Coming soon to New Jersey, if Motley Rice has its way. More here, here, etc.

ISP's and defamation
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An interesting bill has just been proposed in New Jersey that would force Internet service providers (largely immune from defamation liability due to federal legislation) to make sure posters used identifiable email addresses.

If the bill were to pass, it would have fascinating implications. Here are two:

1) If a town were to require that citizens clearly identify themselves before posting messages on the bulletin board at the town square, would this violate the 1st Amendment? Recall that many revolutionary tracts, including of course the Federalist Papers, were anonymous. Is an ISP like a "town"?

2) That aside, assuming hypothetically that the Supremes would confirm Fourth Circuit court rulings immunizing ISP's from defamation liability, would the New Jersey law be seen as pre-empted?

AIR Study on Medical Malpractice

Last week Americans for Insurance Reform (AIR) released a "study" claiming the med mal crisis is over. AIR examined the number of rate increase requests for a small number of states with damage cap limitations and a small number of states without damage cap limitations and concluded that tort reform was a waste because neither group of states saw any recent increases in premiums. This conclusion is as faulty as if a physician told a patient to take two aspirins for a headache — which later turned out to be something more serious.

Raising the minimum wage

Megan McArdle ("Jane Galt") reviews the state of the discussion.

NPR on silicosis scandal

All Things Considered does a good piece on the silicosis scandal, though one wishes they didn't let go unchallenged the plaintiffs' lawyer who excuses the fraud in the overwhelming majority of cases as "isolate[d]" and a "few example cases." (Via Evan Schaeffer, who recycles the excuse, which seems to be the official trial-lawyer talking point.)

Welcome Cornell Law Library readers

Via Ben Cowgill (who on his legal ethics weblog has just named us his "Legal Site of the Week") comes word of the latest edition of the Cornell Law Library newsletter "InSite" (Mar. 6) which includes an extended description of Point of Law as a resource in legal research. The newsletter is especially enthusiastic about our Articles section:

Legal researchers and students will appreciate the site's "Articles" section, which contains a selection of articles chosen as useful introductions to issues of tort law. These articles are not necessarily introductory to tort law generally, but are designed to provide greater exposure to articles and issues not well known or easily accessible.
"Unnatural Selection"

A setback for Georgia tort reform?

Last month the Georgia Supreme Court struck down one section of the state's comprehensive tort reform bill, enacted last year. In our newest featured column, a Point of Law exclusive, site contributor Jonathan B. Wilson shows why this shouldn't be interpreted as a landmark win for trial lawyers, and doesn't signify that the Georgia court harbors any general hostility to liability reform. Jonathan's home site can be visited here.

An op-ed in the St. Paul Pioneer Press, by the Attorney General of Minnesota, indicates that his state is about to invoke Product Liability law against manuracturers of ephedrine and pseudo-ephedrine-based decongestants. How, you ask, are these products defective? Glad you asked. Here is the AG's explanation:

"Minnesota, like all other states, imposes liability on manufacturers of unreasonably dangerous products regardless of whether the products are legal. If the design of a legal product is defective and thereby poses an unreasonable risk of harm to consumers or third parties affected by the product, the manufacturer is liable for the damages the product causes. In deciding whether a product is defective, courts look to factors such as the availability of safer alternative designs and the overall utility of the product in comparison to its risks. The manufacturers of pseudo-ephedrine/ephedrine products knew for years there was a safer design for their cold tablets made from phenylephrine. Unlike pseudoephedrine/ephedrine, phenylephrine cannot be converted into meth. The manufacturers have been selling this alternative product in Europe for years. Pfizer finally just released such a safer product in the United States. Minnesota law clearly authorizes the state to sue these manufacturers for selling a defective product when they knew a safer alternative was available."

In brief, then, the products are defective and unreasonably dangerous because they can be misused. [So can guns, so can cars, so can knives.] But phenylephrine (like a gun-lock? like a car with a speed-limiter? inapposite analogies, you say? read on.) is apparently safer, and should have been used instead.

Except that a voyage to my beloved Wikipedia finds the following mention:

"Oral phenylephrine is extensively metabolised by monoamine oxidase, an enzyme which is present in the stomach and liver. Therefore, compared to orally-taken pseudoephedrine, it has a reduced bioavailability, and is less effective as a nasal decongestant."

And this:

"Some popular cold remedies containing phenylephrine: Canada's hot lemon Neocitran, Britain's Lemsip, and the United States' Alka-Seltzer Cold Effervescent formula and DayQuil Capsules.

I get it. Pfizer is liable because it marketed a more effective decongestant than Alka-Seltzer! It turns out the analogy to the locked gun (less effective in an emergency than one ready to use) is more apposite than I thought.

Blawg Review #47

"Eh Nonymous" at Unused and Probably Unusable, hosting Blawg Review #47, salutes as "excellent" our just-concluded Featured Discussion between Moin Yahya and Larry Ribstein on insider trading by suit-filers. And last week's Blawg Review #46, hosted by Sean Sirrine at BlogDeNovo, spread the word about Ted's coverage of the speech by Justice Scalia at AEI.

A SOX amputation won't work

Bob Greifeld, head of Nasdaq and self-styled "consistent supporter of the principles of Sarbanes-Oxley," now sees that something must be done about it. Writing in today's WSJ, he's worried that the burdens imposed by SOX are forcing foreign companies to leave US capital markets. His solution is to support the recommendations of the SEC's Advisory Committee on Smaller Public Companies to exempt small public firms from 404.

As I write here, this attempt at cure by amputation won't work. Congress needs to revisit, and possibly repeal, the Act. Possible spurs to action include the suit over the Constitutionality of the PCAOB and the groundswell to exempt small firms -- which the SEC may not be authorized to do.

More on this Monday at the AEI.

Last May 10 we reported on the questions that were being asked about a sealed settlement of Kentucky fen-phen claims which had included (along with vast sums in legal fees) the quiet diversion of $20 million into a mysterious new charitable entity called the Kentucky Fund for Healthy Living. Now the mystery has turned to scandal: the judge who approved the settlement, Joseph F. ("Jay") Bamberger has resigned after allegations surfaced that he was serving as a director of the fund, receiving $5,000 a month (three of the plaintiff's lawyers were also paid directors). The state's Judicial Conduct Commission said Bamberger's actions "shock the conscience" and he faced possible removal had he not resigned. Particular attention is being focused on Bamberger's close ties to Mark Modlin, a trial consultant in the fen-phen case who has had co-investments with the judge. The alleged closeness between Bamberger and Modlin had led to protests from litigants in a number of earlier cases, including a high-profile priest-abuse case against the Catholic Diocese of Covington.

The commission's reprimand (PDF) revealed a startling fact. "The attorney fees approved were at least $86 million and perhaps as much as $104 million" -- well exceeding the $74 million that was split among the 431 claimants in settlement. A lawsuit continues on behalf of some allegedly victimized clients against four plaintiff's lawyers involved in the settlement, including big-league Cincinnati operator Stanley Chesley. (Beth Musgrave, "Fen-phen lawsuit judge resigns", Lexington Herald-Leader, Feb. 28; Jim Hannah, "Judge quits amid allegations", Cincinnati Enquirer, Feb. 28; "Investigation of Bamberger warranted" (editorial), Cincinnati Enquirer, Mar. 1; "A blistering rebuke" (editorial), Cincinnati Post, Mar. 1; Peter Bronson, "Hold this judge in contempt", Cincinnati Enquirer, Mar. 2)(cross-posted at Overlawyered).

Site outage

Point of Law was down for much of today (Sunday), but was operational again by early evening. Our apologies for the inconvenience.

Update: Sir Roy Meadow reinstated

Latest in the case (see Aug. 3, etc.) that helped crystallize the debate in Britain on unreliable scientific evidence: "Sir Roy Meadow, whose evidence helped to send three innocent mothers to jail for killing their babies, today successfully appealed against being struck off the medical register." (The Times; also Telegraph and, in The Times, Camilla Cavendish).

Still more on dumping and suing

For those hungry for deeper analysis of some issues underlying the "dumping and suing" controversy Moin Yahya and I debated on the PoL Featured discussion, Bruce Kobayashi and my article, Outsider Trading as an Incentive Device, is now up on SSRN. Here's a summary of some of the other issues discussed in the article.

Our bottom line: trading on nonpublic information that one has obtained without theft can be useful in many different contexts and shouldn't be subjected to broad regulation.

The first edition of the AEI Liability Outlook is out today, and features my analysis of pending asbestos legislation:

The AEI Liability Project hereby inaugurates its Liability Outlook series, designed to guarantee a paper trail to exclude any of its authors from Article III appointments. This Outlook examines the congressional attempts at asbestos liability reform. The eventual cost of asbestos litigation is estimated in the hundreds of billions of dollars, the majority of which will end up in the hands of attorneys, thus affecting thousands of corporate defendants with little or no culpability and costing tens of thousands of jobs. The trust-fund approach is a congressional attempt to reach a compromise on the liability problem, so long as nationwide reform is not politically feasible. While a trust fund has the potential to save tens of billions of dollars, the current legislation suffers from dangerous flaws that could make the cost of the asbestos litigation crisis far worse.

Other POL coverage of S. 852.

Even Madison County juries have their limits it seems.

Anita O'Connell claimed that her mesothelioma came from asbestos from washing her husband's and children's laundry. Perhaps. But none of her three sons who worked for her father whose clothing she washed would testify in support of that. Instead, a fourth son, Michael O'Connell, who didn't work for her husband's plastering business, sought to blame Bondex International and Georgia-Pacific.

The plaintiff claimed the joint compound caused Anita O'Connell's asbestos exposure because she shook her son's clothes before laundering them.

The supplier for the O'Connell plastering business testified that only plaster was sold to the O'Connell business, not joint compound. The supplier also testified that he never carried the Bondex brand.

Michael O'Connell testified he remembered seeing silver Georgia-Pacific cans of joint compound, but that company's cans were not silver during the period O'Connell claimed to have worked with drywall.

Adding chutzpah upon chutzpah, plaintiffs' attorney Charla Aldous of Baron & Budd asked for $10 million in damages for the 84-year-old plaintiff. The jury awarded nothing. (Brian Brueggemann, "Madison County jury rejects woman's plea", Belleville News-Democrat, Mar. 2; Steve Gonzalez, "Jury reaches defense verdict in Madison County trial", Madison County Record, Mar. 2; Friable Thoughts blog, Mar. 2).

Long-time readers may nod knowingly and think of the infamous Baron & Budd witness-coaching memo, which I have posted in full on the Liability Project's "Documents in the News" page (see Feb. 10 entry).

Many many more links after the jump.

Short 'em, then sue 'em

A reminder that our Featured Discussion between Moin Yahya and Larry Ribstein has been proceeding through the week. Their topic: what if anything should be done about the phenomenon of lawyers' or their confederates' selling short the stocks of target companies before the announcement of a lawsuit. The exchange has prompted links and discussion at Reason "Hit and Run", 10b-5 Daily, Crime and Federalism, Kirkendall, RiskProf, Ideoblog first and second, and Overlawyered.

Last fall the U.S. Chamber's Institute for Legal Reform published a paper entitled "Expanding Private Causes of Action: Lessons from the U.S. Litigation Experience", co-authored by John Beisner of O'Melveny & Myers, well known to readers of this site, and Charles Borden of the same firm. Here are the first and last paragraphs of the paper's executive summary:

Approximately forty years ago, American policy-makers undertook a variety of efforts to expand opportunities for private individual and group litigation, including the creation of the modern American class action device. In so doing, however, they unwittingly facilitated the onset of widespread litigation abuse. In the intervening decades, the amount of mass litigation in the United States against corporate defendants increased exponentially, as a growing plaintiffs� bar exploited class actions, lax discovery rules, and other procedural mechanisms to leverage frivolous claims into large settlements. It has only been in the past few years that the United States has taken meaningful steps to curb litigation abuses. But as one door begins to close, another threatens to open. Over the past few years, there have been relatively dramatic changes in European law � changes that have made European legal systems far more similar to their American counterpart and that have created the potential for American-style litigation abuses. Indeed, if European policy-makers do not heed the lessons of the American litigation experience, it may only be a matter of time before litigation abuse in Europe is as prevalent as it is in the United States....

The threat of litigation abuse in European legal systems is therefore palpable. Indeed, prominent American plaintiffs� firms are already establishing a presence in Europe with the expectation that Europe will shortly follow down the American path. It therefore vital that European policy-makers exercise caution � and be mindful of the U.S. litigation experience � in making further changes to European legal systems. If they fail to do so, there is a distinct possibility that within a very short time, European nations will descend into the litigation morass from which the United States is just beginning to extricate itself.

For a related paper by Beisner, check out Jim's post of Jul. 22, 2004.

But the "nuisance" theory by itself, if upheld, could cost the defendant companies hundreds of millions or even billions of dollars, per AP. Warren Meyer at Coyote Blog says last week's jury verdict may prove to be "one of the worst and most destructive jury verdicts of the decade". During its long deadlocked period, the jury had reportedly been leaning 4-2 in favor of the defense (Jane Genova). The WSJ's Monday editorial is subscriber-only, but here are a few snippets:

"The fact that the conduct that caused the nuisance is lawful does not preclude liability," Judge Silverstein said....

[Motley Rice] marketed its lead-paint strategy to the state government, which agreed to pay the trial lawyers 16 2/3% of whatever settlement is reached....

There is also the not-so-little matter of public policy, and who has the authority to make decisions about the 300,000 or so buildings in Rhode Island that contain lead paint. Judge Silverstein's abatement orders are likely to be in direct conflict with the guidelines set down by the U.S. Centers for Disease Control, the Department of Housing and Urban Development, the Environmental Protection Agency and the state Health Department....

In the wake of the Rhode Island verdict, the Boston Globe reports that the Massachusetts and Connecticut attorneys general are considering copycat lawsuits. Similar cases in New Jersey and Wisconsin [on behalf of cities, not states] are already moving toward trial.

More coverage: Feb. 17, OL Feb. 23, etc.

And more: Jane Genova interviews the jury foreman who says he and his colleagues were swayed on the nuisance issue by the judge's instructions, as well as by the tender age of the youngsters exposed to old paint deposits. Of the expert witnesses called by the plaintiffs' side, the medical experts, who "seemed to be concerned with the children's welfare", made a better impression than the two historians, Professors Markowitz and Rosner, who "seemed to have a vendetta against the paint companies".

"[V]ictims of severe accidents who blamed themselves for the accident were coping more successfully eight to twelve months afterward than those who did not, and... victims who blamed other people (as opposed to some nonspecific external cause) displayed especially low coping scores."

–"Hedonic Adaptation" by Shane Frederick and George Loewenstein.(Via Caplan via Cowen.) If true, lawyers are making thousands of people unhappy through Vioxx litigation.

Cona and McDarby Vioxx juries picked

Almost 300 people called to jury duty answered 167 questions on a 25-page screening form; ten have been selected. And the AP reports that five of the ten jurors are casino workers. You may recall that the one dissenting juror in the Humeston defense verdict was a resort worker (New Jersey state juries, unlike federal juries, need not be unanimous), and that Merck has had more success with educated jurors with experience with business documents. (Jurors may drop out throughout the trial, and the case could be decided by as few as six.)

You may also recall that Judge Higbee consolidated two plaintiffs' cases in a single trial, to the detriment of Merck (Dec. 8, Feb. 24), who expressed concern that the jury would be less likely to consider individualized issues of causation. And there are individualized issues in this case. 59-year-old Thomas Cona had high cholesterol and blood pressure; moreover, Merck argues that his pharmaceutical records don't support his claim that he took Vioxx for more than eighteen months. (Moreover, he continued to take Vioxx after his 2003 heart attack.) 77-year-old John McDarby had health issues including hardening of the arteries and diabetes. Both suffered non-fatal heart attacks. (Jeff May, "Jury Will Get Twice The Vioxx", New Jersey Star-Ledger, Feb. 28).

Opening arguments are Monday, and the case should go to the jury in late March. See also our previous Vioxx litigation coverage.

"Congress, the antitrust enforcement agencies, and most economists have all reached the conclusion that a patent does not necessarily confer market power upon the patentee. Today, we reach the same conclusion." –Justice Stevens, for an 8-0 Court, in Illinois Tool Works v. Independent Ink (04-1329).

Earlier this week, the Supreme Court, in Texaco v. Dagher, again by an 8-0 vote, reversed the horrendous Judge Reinhardt Ninth Circuit opinion calling a joint venture illegal price fixing (Jan. 20). Josh Wright summarizes.

Pre-dispute jury waivers

A bill submitted in the California legislature would restore the right of contracting parties to opt out of the uncertainties of full-dress trial before a dispute arises. The Civil Justice Association of California explains:

Senate Bill 1386 (Morrow) would restore the ability to agree by contract to settle future legal disputes before a judge without a jury. The California Supreme Court ruled last year in Grafton Partners v. PriceWaterhouseCoopers that state law does not permit pre-dispute "jury waivers," and ruled them invalid in existing contracts, including those involved in pending litigation. The decision makes California one of only two states (Georgia is the other) that forbids this contractual option that would allow both parties to agree to have a judge decide their case rather than a lengthy and costly jury trial.

Justice Ming Chin "reluctantly" concurred in the Supreme Court�s decision but urged the Legislature to reverse the situation.

The Supreme Court�s ruling removes a useful option for people who want to settle legal disputes fairly and swiftly. In a commercial setting, this decision is especially unfortunate. Companies in California will not be able to agree to a lower-cost option that lets them solve a dispute and more quickly get on with their business. An increased drain on court resources will be an additional undesirable result.

On the positive side, the Supreme Court�s opinion reinforces the validity of agreements to submit future disputes to arbitration. This too is an important option for California businesses and consumers.

Pour encourager les autres

That seems to be why the Justice Department killed Arthur Andersen, notes Tom Kirkendall.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.