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April 2006 Archives

Are tort filings down?

"And actually, over the last 10 years, tort filings are down."

I keep hearing this, (for example, in this comments section on the medical-malpractice debate) so I looked it up (via Childs). When we talk about liability reform, it's product liability that gets the crux of attention: that's where the billions of dollars get sapped out of the economy, where innovation gets squeezed and punished, where plaintiff fraud is most common.

Federal non-asbestos product liability suits, 1990: 5,812
Federal non-asbestos product liability suits, 1995: 21,310
Federal non-asbestos product liability suits, 2005: 29,052

That 1995 number is unusually high because that's the year that most of the breast implant cases were filed.

Even gerrymandering it to the last ten years, it's not true that tort filings are down, but if you change the baseline to 1990, it's not even close to true. The asbestos number has some impact: in 1990, there were 13,809 asbestos cases; in 1995, 7,187; in 2002, 26,818 new asbestos cases; but only 1,243 in 2005—a lump influx that distorts the debate in each direction, depending on how you choose your baseline. (I'm quite confident we'll see a lot of anti-reform studies in the next decade that use 2002 as a baseyear, and announce that litigation is going down.) It may just be that "one year" is not a good time period to use to measure litigation trends. It's not even clear that "cases" is the appropriate measure: the $80,000 product liability case of a single plaintiff is grouped in with the consolidated ten-plaintiff Vioxx case filed in the southern district of Illinois where each plaintiff will seek millions of dollars as a single case each.

Updated to add: Of course, not all product-liability suits are federal filings; most are originally filed in state court. While defendants will normally remove suits if there is a colorable argument to do so (thus adding to the federal statistics, even though many of these cases are remanded back to state court), a good number of cases are filed in state court and stay in state court without a removal being attempted. (E.g., cases filed in the defendant's state of domicile; cases with a reasonable same-state co-defendant such as auto-accident cases.) State court data doesn't break these out.

Even asbestos cases don't distinguish between cases with one defendant and cases with 106 defendants.

In the posting immediately below I discuss the role of defamation law regarding critical blogs. Here's a blogger guilty of violating a prosecutor's duty not to "publicly" comment about a pending case. As reported in Law.com, the judge declined to throw out the entire case, as the defense wanted, since no prejudice was shown. But the judge still came down hard on ex-prosecutor Jay Kuo, calling his conduct "juvenile, obnoxious and unprofessional." the judge also stated his intention to send his written ruling to the State Bar.

According to his ruling, Kuo at various points in his blog called his opposing counsel "chicken" when she asked for a continuance, directly alluded to her with some posting titles obscene enough that the judge did not repeat them, and also mentioning a prior conviction that had not yet been deemed admissible at trial.

The attorney, who had been a "prosecutor on loan" from the law firm of Keker & Van Nest, left his job at Keker in January to write and compose musicals, he said. His current production is called "Insignificant Others."

Libel. etc. and the Blogosphere

A Maine-based blogger has been hit with a million-dollar suit for copyright infringement, defamation, and libel for posting complaints about a Maine tourism campaign.

Warren Kremer Paino Advertising filed a suit against Dutson in federal court in Portland for defamation and copyright infringement. Dutson writes a blog called Maine Web Report in which he has posted comments critical of the tourism office�s Web site marketing strategies.

The defamation count of the suit may prove to be a real stretch. As Wikipedia helpfully points out, the Cherry Sisters cases is often quoted here:

"The Odebolt Chronicle wrote in 1899: "The mouths of their rancid features opened like caverns and sounds like the wailings of damned souls issued therefrom". When the Des Moines Leader reprinted the review two weeks later, the sisters sued for libel and damages for $25 000. The suit was dismissed but the sisters took it to higher court. In 1901, the Iowa Supreme Court ruled in the paper's favor. The case Cherry v. Des Moines Leader became a precedent that gave art critics the right to criticize acts to the point of ridicule."

The gist of Dutson's criticism was the way the agency employed taxpayers' money to enhance web traffic through the purchase of keywords at Google AdWords and Overture. He has argued that the state�s payment of premium rates for keyword placements outbids smaller business owners that wish to utilize the search engines to draw traffic to website, forcing all Mainers to pay more.

The draft ad Dutson reproduced was pulled by him directly from the Maine Tourism site, where it was apparently available as a PDF file. The draft had given a dummy phone number to call, but it turns out that number was a phone-sex number instead of the correct number for the Maine Department of Tourism.

Not a great lawsuit, sez me, not only in law but also as a matter of PR. I think the plaintiff is quickly going to learn what kind of a public relations problem the blogosphere can create for a business which doesn�t understand the medium. A PR firm should know better. The defendant has secured good quality pro bono legal representation, and the plaintiff may get more publicity this way than it bargained for.

For Motley Rice, chicken every Sunday

Assisting Oklahoma Attorney General Drew Edmondson in his legal battle over pollution runoff damage against Tyson Foods and seven other poultry companies with operations in Arkansas (see this post from last year) is none other than the S.C.-based law firm of Motley Rice, of tobacco, asbestos and lead paint fame, to name only the highlights. The Arkansas Democrat-Gazette in February profiled the firm, which Edmondson has cut in for a finger-lickin' one-third contingency share of the state's recovery. The percentage formula appears a little bit touchy as an issue: "Edmondson said he was disturbed in 2003 when attorneys received $7.3 million of a $7.5 million settlement in the city of Tulsa's lawsuit against Arkansas poultry companies and the city of Decatur over pollution in the Eucha-Spavinaw watershed." Attorney General Mike Beebe of Arkansas has suggested that Edmondson's use of Motley Rice will make it harder to resolve the conflict between the two states: "as long as it's monetary, it's much more difficult for farmers, the people in Arkansas and us to solve the environmental concerns. The more the South Carolina law firm is involved, the more difficult it is for us as a state, the more it's about the money and the less it's about the environment."

More on Edmondson here, here and here.

Update: AEI's AG Watch has more on the story, including links to national news coverage.

Howard Vogel has pled guilty to perjury for falsely representing he hadn't been paid kickbacks to serve as a lead plaintiff in securities class action litigation; his plea agreement acknowledges receiving $2.5 million from "a New York law firm." Vogel and family members were Milberg Weiss's clients and lead plaintiff in forty securities class actions, and the firm confirms to the Times that it's the one in the agreement. According to Vogel, kickbacks were funneled through an intermediary law firm or distributed with envelopes of cash (in which case the firm would pay him less because he could hide the cash from taxes). (Nathan Koppel, "Ex-Client Ties Old Milberg Firm In Kickback Plea", Wall Street Journal, Apr. 29; Julie Creswell, "Case Turns Toward Law Firm", New York Times, Apr. 29).

Global Warming in the Courts

Eliot Spitzer has just sued to get a judge to force the federal government to enact regulations limiting "global warming."

In brief, Spitzer, along with ten state AG's and the Mayor of Washington, have concluded that Global Warming is a Clear and Present Danger, and that Washington is not doing enough about it. It wants CO2 regulations of power plants. The EPA reasonably (in this writer's opinion) holds that Carbon Dioxide (CO2) is not a "pollutant," and therefore that it has no power under the Clean Air Act to limit it by regulation. It won a similar suit filed by Spitzer et al concerning automobilie emissions.

Trying to change the underlying legislation would, of course, require public debate about the global warming "myth" [I use that term in its scientific sense]. I welcome a national debate on global warming, instead of taking it for granted. I'm not sure the DC Circuit is the right place to have that debate, however. [edited at 2:25PM]

Some Shameless Self-Promotion

I am supposed to be on NPR ("All Things Considered") today to give a sermon on gasoline prices, profiteering, and Beltway blather. Check your local listings.

May the spirit of Adam Smith be with me.

A one-sided piece in the April 28 National Law Journal singles out the Institute for Legal Reform's advertising campaign and notes ATLA's response. It discusses the reformer's tactics, and the substance of anti-reformer's responses. Thus, an ATLA ad responding to the Chamber's poll ranking civil justice systems "debunk[s]" it without any response from the Chamber. But recent Wisconsin Supreme Court decisions (Mar. 10, Jan. 21, Jan. 4) are only "allegedly anti-business," and the discussion of them features a rousing defense that fails to mention how unprecedented they are together with the uncritically repeated argument that the complaint is "politics rather than law." And need I mention that ATLA is the most successful lobby in the nation that regularly outspends its opponents, but the story describes it as an underdog that "has plenty of catching up to do" with the Chamber?

The ruling, by U.S. District Judge L.T. Senter, Jr. of the Southern District of Mississippi, denied a motion by plaintiffs Elmer and Alexa Buente for partial summary judgment in their suit demanding that Allstate cover storm-surge damage from Katrina. It sounds wholly unremarkable as a matter of insurance-law precedent, but must come as a jolt to those who've been taken in by the (itself somewhat hurricane-like) spin put out in the press by some hyperactive Gulf Coast lawyers, such as Richard Scruggs, who represents the Buentes (Chicago Tribune; Insurance Journal). After the ruling, Mississippi Attorney General and Scruggs ally Jim Hood proceeded to compare insurance companies to "Nazis locking arms, coming at those people down there on the coast", a sentiment which proved a mite controversial (AP/Insurance Journal).

"The Coordinated Attack on Scalia"

John McIntyre and Ronald Cass on the "offensive" media attack on Justice Scalia and how it threatens the independence of the courts.

RICO and illegal-alien-hiring, cont'd

At oral argument, Supreme Court justices gave the impression (Tony Mauro, Legal Times; see also Marcia Coyle, National Law Journal) that they might view the Mohawk case as a way to clarify RICO's murky application generally, rather than as a way to wade into the politically charged issue of illegal-hiring. Encouragingly, Justice Breyer called attention to the danger of RICO-izing garden-variety business and economic disputes. For our earlier coverage, see here and here.

Jay Greene, a scholar at the Manhattan Institute and now also at the University of Arkansas, has an op-ed today at the WSJ/OpinionJournal about judges' increasing propensity to seize the legal reins on school finance:

...the fact that per pupil spending has doubled over the past three decades while student achievement has remained stagnant ought to give us a clue that simply spending more won't fix schools. The shortcomings of schools are not generally attributable to the lack of resources, but to a lack of incentives to use resources effectively.... In Arkansas, as in too many other states, elected leaders have ceded control over the size of education budgets to unaccountable courts.

More on school finance litigation: Apr. 11, Mar. 28, etc., etc. (Fixed shortly after posting to correct error on Greene's position).

I am perpetually behind the news cycle, but I see that the California Supreme Court ruled recently that sexual banter in the workplace at times is not verboten, but acceptable and even necessary. That is the essence of the recent ruling in the hostile environment lawsuit against the producers of the TV sitcom Friends, in which a former writers' assistant claimed that the crude bantering among the writers exchanging ideas for the show---the culture, so to speak---created an environment deeply offensive to her, or something. Throwing the lawsuit out, Justice Marvin Baxter ruled that "Most of the sexually coarse and vulgar language at issue did not involve and was not aimed at plaintiff or other women in the workplace."

Really? Sorry, but I am confused; I am, after all, a lowly economist. Is that now the standard for infringement of free speech in the workplace? If I have in my office a large poster photo of a gorgeous starlet giving a speech on Iraq, in the nude, does that "involve" or is it "aimed at" other women in the office? What if I decide to test the color and sharpness of my new flat-screen monitor by downloading some of the finest porn that the world wide web has to offer? What if my door is closed?

I think I know the likely response of the plaintiff attorneys. And so my conservative/libertarian legal friends---whom I really do respect greatly---have it wrong, I think, in their applause for this decision. Some workplaces now are more equal than others. What would a reasonable person say, and then whom does the offensive speech involve or at whom is it aimed? This looks to me like a decision designed to increase the full-employment prospects of attorneys.

I suspect as well that the judges did not want to bear the criticism that would have proven attendant upon a decision that a jury might well decide that writers on a sexually-themed sitcom may not exchange sexual jokes. And that is the problem: We cannot get rid of bad law until we enforce it in all its absurd glory. This decision may be fine in a narrow sense, given the broader context of hostile environment law, but that is the point: It is that broader context that must be attacked.

Explaining corporate agency costs

In this TCS Daily column, Stephen Bainbridge lucidly explains corporate agency costs and why shareholders deserve protection from theft, but not from risk-taking.

"Consumer disadvocacy"

That's Prof. Grace's felicitous term for the activities of supposed consumer advocates who labor to restrict the range of marketplace choices that will in fact be available to consumers. In the latest instance, they're doing their best to disrupt a functioning market for hurricane insurance in the state of Florida.

Forbes: "My Kingdom for a Casino"

As regular readers know (OL Apr. 14, etc.), I've long taken an interest in the injustices that have been visited on innocent landowners in New York, Connecticut and many other states by lawsuits seeking to revive long-defunct Indian land claims. I've got a guest column in the latest Forbes ("On My Mind", May 8, reg) briefly summing up a few of the things wrong with this litigation. A sample:

Until lately Anglo-American law sought a careful balance between the goal of restoring wrongfully taken property to its rightful owners, on the one hand, and the equally valid goal of securing everyone's property against the danger that a claimant will show up some day to assert a speculative defect in title. Hence doctrines aimed at preventing old disputes from staying alive indefinitely: statutes of limitation, adverse possession, "acquiescence" in unchallenged political boundaries.

In a series of rulings over the past 30 years, however, the U.S. Supreme Court has decided that Indians are wholly different from other land claimants. Law professors have cheered: What cause is more romantic than that of dispossessed Indians? (Somehow owners of small farms in upstate New York never seem to merit the underdog label.) The rulings also constitute a stunning victory for a scrappy cadre of Legal Services lawyers; a few of these antiestablishment types have found themselves, over the arc of a career, gradually transmuted through their tribal connections into highly paid casino promoters, in a transformation worthy of a Balzac or Stendhal novel.

(cross-posted from Overlawyered)

The May 8 Forbes prints my letter critical of their earlier story on Serevent/Advair litigation. Press coverage of the Forbes story is being criticized for causing undue panic. (Liv Osby, "Advair story causes alarm among some asthma sufferers", Greeneville News, Apr. 7).

RI lead paint verdict

The defendant companies last week moved to overturn it in a 208-page filing which can be found here (PDF).

Vioxx guesswork, times billions

AEI's Jack Calfee:

The jury simply had no way to determine whether the plaintiff (77-year-old coronary artery disease and diabetes sufferer John McDarby) would have had a heart attack if he had used a different pain reliever. Relying on an unpredictable mix of intuition and emotion, the jury simply guessed....

Analysts expect tens of thousands of cases roughly similar to Mr. McDarby's. Juries will continue to guess at the central issues, getting it wrong as often as right but charging Merck $10 million or $20 million or $40 million every time they're wrong. A thousand mistakes is $10 billion to $40 billion. And a lot of states make it easier than New Jersey does to award punitive damages.

(via sister site Medical Progress Today)

The Worst Disease

An important op-ed today in the Wall Street Journal: 'Litigosis.' It details the expansion of the silicosis lawsuits into a potentially hazardous area-- suits against the makers of N95 masks, disposable respirators. These masks work, and they preserve the public health. And now the plaintiffs' bar has set its sights on their makers. Read the whole thing here ($$$).

Head I Win Tails You Lose

Out here in the Land of the Free Lunch---I refer to California, the Golden State---the Spirit of Brezhnev breathes free. Surely you remember the great philosophic truth that the Great Leonid Ilyich bequeathed mankind for all the ages: What's Mine Is Mine and What's Yours Is Up For Grabs. (I translate loosely from historical editions of Pravda.) Well, in the wake of rising gasoline prices in california, we now hear loud calls for "windfall profit" taxes to be imposed upon oil producers and refiners.

Perhaps old age has affected my memory, but I simply do not recall arguments for windfall loss subsidies for those same producers when market conditions were weak. Moreover, to the extent that high prices for refined products stem from increases in the world market price of crude oil, refiners (as opposed to oil producers) are losers. And let us not ignore the past efforts of the very same interests now calling for such taxation at thwarting investment in new refining capacity. Moreover, the ethanol mandate---by the way, little evidence supports the notion that oxygenation with either ethanol or MTBE improves air quality---has reduced gasoline supplies because too little ethanol production capacity exists to satisfy total regulatory needs now that Congress has refused to exempt MTBE producers from lawsuits over groundwater leakage, even though those producers have little or nothing to do with leaking gasoline storage tanks.

So: Tax 'em when prices are high, let 'em lose money when prices are low. That means automatically that over time the production/refining sector cannot earn competitive returns, because upside potential is limited while downside risk is not. That Governor Arnold Schwarzenegger has signed on to this mendacity even as he sings the praises of Milton Friedman---"We must not rule out the possibility of market manipulation, price gouging or unfair business practices employed by oil companies."---is appalling.

There are five amazing panels scheduled this Thursday and Friday at AEI by the Federalism Project there. Registration is "sold out," but there will be web-casts.

"Rude Awakening at the SEC"

In the latest American Spectator, Peter Wallison explores why the SEC enforcement division seems to be running amuck lately, and suggests procedural reforms.

The problems are discussed here. Too bad the SEC isn't (yet) subject to SOX.

Scalia's Mistake

Brian Fitzpatrick argues (persuasively, I think) that Justice Scalia should not have recused himself in the pledge of allegiance case. "There is nothing wrong with Supreme Court justices expressing their views on issues pending on the court's docket." Via Markel, who is soliciting comments.

Martin Grace and I have written a Liability Outlook for AEI looking at the last several years of CJD/AIR studies on medical malpractice. The conclusion? "In many ways, the problem with AIR�s reports is a perfect microcosm of what doctors find most distasteful about the liability system: a trial-lawyer mentality that cherry-picks facts and twists data to reach knee-jerk conclusions under the guise of a false science." See also Jim Copland's dissection of one such study Jul. 8.

We look forward to Kevin Drum giving this paper the same deference he credulously gave AIR's last bogus report.

One flaw of the paper is that we didn't include the story of "Bob," the dummy literally used to scapegoat insurance-company executives by CJD at an ATLA conference. For other CJD shenanigans, see OL Dec. 23, 2004 and Mar. 19, 2004. (Cross-posted at Overlawyered.)

Reductio Ad Absurdum

Out here in the land of Intellectual Rigor---California---various pieces of legislation enacted over time have required that K-12 education cover the "roles and contributions" that the respective interest groups, oops, ethnic and cultural defenders, have demanded, as public education in the Golden State sinks ever deeper into the feel-good/self-esteem/multicultural cesspool of identity politics. These laws also proscribe teaching and textbooks that cast any of the groups in a negative light. The latest effort in this context is a bill introduced by the ineffable state Senator Shiela Kuehl (D-Santa Monica), which would add as a protected class "people who are lesbian, gay, bisexual or transgendered."

And so I have a question for my legal-beagle colleagues: Are whites not entitled to equivalent treatment under the 14th Amendment? If so, does that mean that education about the history of slavery would become illegal, as it would depict whites negatively? Would it be illegal to point out that most modern-day terrorist acts are perpetrated by Muslims? Anything about black crime, illegal immigration by Hispanics, ad infinitum? Can air brushing of photos be far behind?

The Saga of Cipro
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It truly is an honor for me to have this opportunity to guest-blog on PoL this week, at the invitation of Wally Olson, a gentleman and a mensch, whom I have known for many years. It appears that Wally invited me to do this and then promptly left town; plausible deniability remains high on the agenda of any sound legal thinker. I on the other hand am a lowly economist---a senior fellow at the Manhattan Institute---with many theories and mounds of data, always anxious to publish yet another paper showing that water flows downhill. So: Where to begin? The landscape of legal and regulatory abuse, after all, is a target-rich environment.

Well, it seems that pharmaceuticals have dropped off the immediate news cycle radar screen, but do not be fooled: Eternal vigilance, as Pravda used to put it, remains necessary. After all, with the new Medicare drug benefit, future spending is likely to exceed current projections, and in any event bureaucrats and politicians have powerful incentives to constrain spending by limiting formularies, and if the medicine that you need is not covered, well, feel free to write a strongly worded letter to your Congressman. But the problem of legalized theft is worse than that, because public officials with short time horizons---the next election is never more than a few years away---constantly are confronted with opportunities to transfer wealth to their constituencies at the expense of someone else.

And emergency conditions are not salutary in terms of resistance to such temptations. So let us begin with Saga of Cipro. (Actually, let us begin with a full disclosure: The Pharmaceutical Research and Manufacturers Association supports a substantial part of my work in defense of capitalism.) Cipro is an antibiotic effective against airborne anthrax. When the potential terrorist use of anthrax became a serious concern in 2001, the Centers for Disease Control and Prevention asked Bayer Pharmaceutical (the producer of Cipro) to obtain Food and Drug Adminstration approval to label the drug for the treatment of anthrax. Bayer did so at its expense, and then donated 4 million doses to the federal government.

The feds then demanded another 1 million doses at a discounted price. When Bayer resisted, the government threatened to suspend the patent on Cipro, thus forcing Bayer to sell the additional doses at one-quarter of the then-market price. Other major purchasers of Cipro then demanded that same price; and Bayer enjoyed no liability protection against potential lawsuits stemming from any side effects attendant upon use of the drug. Inside the Beltway, it is no mere cliche that no good deed goes unpunished.

This government theft, by the way, was orchestrated by those pro-business, pro-free enterprise, pro-capitalism Republicans, in the person of then-HHS Secretary Tommy Thompson. Would anyone like to venture a guess as to the ensuing effects upon research and development incentives in the context of bioterrorism threats? Government compassion yet again rears its ugly head.

The Next Wave

Alex Berenson, writing in Sunday's New York Times, comments on the rising tide of drug lawsuits-- aimed at AstraZeneca's antipsychotic Seroquel, Johnson & Johnson's birth control patch Ortho-Evra, Wyeth's Prempro, a hormone treatment for women, and Merck's osteoporosis drug Fosamax. As Berenson observes, these drugs have annual sales of nearly $7 billion. It's not hard to imagine why the plaintiffs' bar is so eager to tap into this rich vein. And they have an addition to their arsenal, now: 'In each case, plaintiffs' lawyers are trying, at least rhetorically, to link their suits to the Vioxx litigation..."

Berenson also notes that while drug lawsuits don't necessarily spell financial doom for a drugmaker, they are damaging nonetheless, econmically and otherwise. He cites the PR catastrophe that Merck experienced when one of its intenral emails-- in which then-chief scientist Edward M. Skolnick derogated the FDA-- was leaked to the press. This is to say nothing of the damage done to a company's stock prices over the course of such a suit.

Looks like it's going to be a long summer.

In today's ($$$) Wall St. Journal, an interesting autopsy is done of the Vioxx cases thus far litigated.

The lawlessness of it all shines right through. Thus, until the McDarby case, the conventional wisdom had been that a person with the fewest cardiovascular risk factors would make the best plaintiff. The more risk factors in the mix -- age, gender, cholesterol level, smoking, hypertension, family history -- the harder it would be to finger Vioxx. This is what is known as the "cause in fact" requirement -- if the plaintiff would probably have suffered the same fate with or without the defendant's product, there can be no "abreaction" recovery. But the McDarby's case represented a new approach by Plaintiffs. McDarby was a diabetic who was 75 at the time of his heart attack, atherosclerotic and a former smoker. His lawyers embraced their client's health profile and declared that he was "the last person who should've been on Vioxx." This is an invitation to substitute negligence (by whom? the physician, presumably, as Merck cannot identify all who use its products) for causation.

The fact that someone like Mr. McDarby could get to the jury changes the equation about litigation strategy, lawyers say. That he could prevail is extremely troubling.

Piling on...

Please allow for a bit of venting regarding the Gilbert Heinz affair, alluded to by Ted here.

If the WSJ article is accurate, the GH firm claims Congoleum waived any conflict. Let's see, GH was suing Congoleum and defending Congoleum at the same time.... As a professor of legal ethics, I would fail any student who did not see that such conflicts are not "waivable." How GH's lawyers could have failed to see this most fundamental of conflicts is simply beyond me.

Gilbert Heintz in the WSJ

Judge Kathryn Ferguson entered an order last week authorizing a committee of Congoleum's bondholders to sue Gilbert Heintz for malpractice in the conflict-of-interest scandal over asbestos claims and pre-packaged bankruptcy (Feb. 20; Oct. 18 and links therein). The firm is already subject to a $9 million fine that might drive it under—though perhaps it could sell its $2.5 million plane. (Nathan Koppel, "Asbestos Ruling, $13 Million Fine Buffet Law Firm", Wall Street Journal, Apr. 24).

Sundays with Gretchen

I again fisk the ever-dependable Gretchen Morgenson. She continues her obsession with Pfizer. Before you wrap the fish with her column, pause a little and let me help you reflect on what she is saying, and not saying.

I'm moderating a panel with this title Monday afternoon at 3 at AEI.

The U.S. Senate has announced that it will be debating new legislation to reform America�s medical malpractice law in early May. Is the Senate likely to pass useful reforms? What types of reform should they consider? What is the appropriate role of the federal government in addressing the issue and what are the potential conflicts between the federal government and the states?

At this AEI event, a distinguished group of panelists will discuss the questions surrounding federal medical malpractice reform. The panel will include Michael S. Greve, the John G. Searle Scholar at AEI and director of the institute�s Federalism Project; George L. Priest, the John M. Olin Professor of Law and Economics at Yale Law School; and Dr. Stuart Weinstein, the current chairman of Doctors for Medical Liability Reform and the Ignacio V. Ponseti Professor of Orthopaedic Surgery at the University of Iowa.

Admission is free.

If you've been relying entirely on AP or national press coverage of the Garza case, you perhaps do not realize what a giant miscarriage of justice it is.

Not just that, by the Garza's own theory of the case, Leonel Garza had been taking Vioxx for under a month.

Not just that Leonel Garza was a 71-year-old smoker who was overweight, had high cholesterol, and previous had both a heart attack and a quadruple bypass, yet was awarded $7 million in "compensatory" damages.

But the fact of the matter is that there is no documentary evidence that Garza was even taking Vioxx. Garza never had a prescription for Vioxx. Garza's widow testified that Dr. Michael Evans gave her husband an eight-day sample of Vioxx in a brown vial, and that then Dr. Juan Posada gave her husband two vials filled with fifteen pills each and told him to return in 30 days. (Conveniently, Garza's son testified he threw away the brown vials—though he said precisely the opposite in his deposition.) In turn, Posada testified that he never gave out thirty days worth of Vioxx, and never gave Vioxx to Garza; Evans testified he gave out samples only in eight-pill blister-packs. (Not only that, the widow's testimony contradicted her deposition testimony; she claimed at trial her memory was better now.) (Brittney Booth, "Garza�s widow ends plantiff testimony in Starr County Vioxx trial", The Monitor (McAllen), Apr. 11; Brittney Booth, "Sons take stand in Merck trial", The Monitor (McAllen), Mar. 16). Even if Evans gave Garza an eight-day sample, Vioxx takes only five days to be completely removed from the bloodstream; it would have been physically impossible for the Evans samples to have caused Garza's heart attack.

None of the post-verdict press coverage has explicitly mentioned how damning the evidence was against the Garzas' case; only Alex Berenson's New York Times article even hinted at it.

Mr. Garza's family was well-known in Starr County, where the case was tried; a huge percentage of the jury pool indicated they knew his family. But Merck failed in its efforts to remove the case to a federal court where the case could be tried fairly, because the plaintiffs had fraudulently joined the two doctors as defendants, even though they dropped them from the case.

The family tried other measures to inflate damages: "Garza�s daughter from his first marriage, Gloria Rendon, was included in the lawsuit, but the judge did not include her in the jury charge based on her testimony. Rendon had only met her father a few times and told the jury she participated in the lawsuit only to support his family, and was not interested in the verdict." (Brittney Booth, "Jury rules in favor of Vioxx plaintiff", The Monitor (McAllen), Apr. 22).

Cases like Garza show that Merck's potential liability goes far beyond the people who took Vioxx. Out of the six people whose cases have been tried so far, two of them reasonably appear to have substantially exaggerated their Vioxx usage for trial purposes.

Merck now faces 11,500 personal injury lawsuits over Vioxx involving 23,300 separate plaintiffs.

Garza and Hamby v. DaimlerChrysler are both cases where the evidence was overwhelming against liability, but a hometown jury awarded millions to a plaintiff on the scintilla of evidence or absurd theory needed to defeat the stringent standards for summary judgment. Cases like that make me despair: are there any folks out there who want to claim that these verdicts represent the jury system working well? (There comes a point where they stop being "outliers" when two Texas Vioxx juries in a row disregard the evidence and two Texas judges in a row disregard the state's Daubert rules.) Perhaps they'll be reversed on appeal between the overwhelming evidence in both cases plus the junk-science testimony in Garza. But they shouldn't have to be, and a defendant shouldn't have to lay out hundreds of thousands (if not more) to defend themselves in flimsy cases like these, much less be at risk for outrageous damages.

Update, April 25: Welcome, Volokh readers. This post is only one of a series of posts on the Vioxx litigation by the Point of Law authorship. Check also my AEI working paper (and Part II) from December, which has more factual and legal background, especially on the question of Texas expert evidentiary standards.

In Jones v. City of Los Angeles, a panel of the 9th Circuit Court of Appeals ruled 2 to 1 last week that the city had gone too far in letting police remove the homeless from its streets.

Six homeless individuals, unable to obtain shelter on the night each was cited or arrested, filed an Eighth Amendment challenge to the enforcement of a City of Los Angeles ordinance that criminalizes sitting, lying, or sleeping on public streets and sidewalks at all times and in all places within Los Angeles's city limits. Appellants sought limited injunctive relief from enforcement of the ordinance during nighttime hours, i.e., between 9:00 p.m. and 6:30 a .m., or at any time against the temporarily infirm or permanently disabled.

The court said the city's policy violates the Constitution's Eighth Amendment, but only if the arrested person is homeless. Unless you find them beds in a shelter, the court said, arresting or removing homeless people from the street is both "cruel and unusual" -- even if they're a threat to public safety. So there is a constitutional right to use the streets as one's home, even if one's presence endangers others.

Just checked my dog-eared copy of the Constitution -- I must have missed the last loose-leaf update. And I'm not alone. Complained Investor's Business Daily (IBD):

"The court's decision has no constitutional basis and undermines cities' ability to deal with a growing problem on their streets. It also suggests that the court -- not voters or their duly elected political representatives -- has the right to decide how the problem should be solved."

The Jones case is just another in a long line of bizarre decisions handed by the out-of-control 9th. Among them:

In 2002, in Newdow v. U.S. Congress, the 9th declared the Pledge of Allegiance unconstitutional because it contained the word "God."

In 2003, a three-judge panel temporarily halted California's recall election, in response to a spurious complaint from the ACLU about voting methods and despite having no legal justification or precedent for doing so.

In 2005, in Fields v. Palmdale School District, the court allowed schools to give first, third and fifth graders sexually explicit questionnaires, despite angry objections from parents.

See the IBD editorial, "The New Untouchables," April 18, 2006, here (subscription required):

At a University of Maryland School of Law Roundtable on Criminalization of Corporate Law I participated in yesterday, David Anders, former prosecutor in the WorldCom and Quattrone cases, had interesting comments on the new business of America � helping prosecutors put corporations� former employees in jail. Here�s my depressing summary of the talk.

Merck Found Liable

The WSJ reports ($$$) that in Texas today, a jury found Merck liable for the death of Leonel Garza, a 71 year old man who died of a heart attack a month after beginning to take Vioxx. Garza had a history of heart disease, undergoing quadruple bypass surgery in 1989. He was a smoker. And Vioxx increases risk of heart attack only after 18 months of use. As Merck attorney Richard Josephson put it: "He had every single risk factor that you can have...The idea that Mr. Garza was in good health and only had a 1% chance of having a heart attack is science fiction..."

Merck has been ordered to pay $7 million in damages.

A South Texas jury has found Merck liable for the death of a 71-year-old with a long history of heart disease who never took more than a week's worth of Vioxx in samples, and that weeks before his death. More details on Garza this weekend. Peter Lattman is reporting $7 million compensatory and $25 million punitive, though the latter number will be reduced to under a million dollars. The stock market rather quickly mostly shrugged it off.

Peter Pham and I discuss the value of originalism in resolving a widely misunderstood and vitally important legal dispute, over the juridical status of the land known as Judea and Samaria [or "The West Bank"], here.

Guest Blogger Benjamin Zycher

Point of Law is very pleased to welcome guest-blogger Benjamin Zycher, who will be with for a week beginning today. Benjamin Zycher is a Senior Fellow at the Manhattan Institute�s Center for Medical Progress, and president of Benjamin Zycher Economics Associates. In addition, he is an adjunct scholar at the Pacific Research Institute and the Cato Institute and a member of the advisory boards of the quarterly journals Regulation and Consumer Alert.

Vioxx: thoughts on the Blevins statement

Sam notes a discouraging word from a plaintiffs' attorney. If you read enough articles about Vioxx, you'll notice a regular theme of plaintiffs' lawyers insisting that shareholder pressure on Merck will force Merck to settle. (Or, perhaps, unmerited bravado about future rulings.) There's a reason for this: they want to create shareholder pressure on Merck that will force Merck to settle. If they repeat it often enough, maybe the financial writers repeat it, then maybe the shareholders start to believe it, and then it happens. A global settlement guarantees billions of dollars of easy profit to the plaintiffs' bar, with lots of money for meritless cases like Cona's and Garza's. The refusal to settle might mean that Merck is saved by appellate court rulings that kill thousands of pending cases.

More Merck

In a piece in the National Law Journal, Peter Geier notes that Peter Bicks and John Brenner, litigators with no connection to the Vioxx case, both seem to agree that Merck's strategy-- continuing to address the cases one-at-a-time-- appears to be working, and that the recent verdict in McDarby was not as damaging as one might think. But as plaintiff's lawyer Brian Blevins observes in the same piece, Merck's stock price suffers with each plaintiff win. How long, Blevins wants to know, before it stops making economic sense to fight rather than settle? Kind of a grim question.

Peter Lattman, of the WSJ's Law Blog, who's been watching the Enron trial, discusses "one of Skilling�s main defenses � that the government has criminalized corporate agency costs." Here's more on this "defense," how the government gets around it, and the "corporate crime lottery."

Classroom! Behave!

"It seems clear that counsel are more interested in annoying each other than in advancing meritorious positions," wrote senior U.S. District Judge John P. Fullam, chiding Allstate and its lawyers for taking seemingly "pointless and unnecessary" as well as "frivolous" positions, while also not sparing the insurer's adversaries from critical scrutiny in ruling on motions in a bad-faith lawsuit. Also, per a publicly posted memo (PDF) from his chambers, "Judge Fullam commonly observes the following deficiencies in proposed pretrial memoranda: (1) too much useless, repetitive, boilerplate information; and (2) a reluctance by counsel to concede any issue, even though concession by the end of trial is inevitable." Shannon P. Duffy of Philadelphia's Legal Intelligencer has much more on the case.

"Punitive damages" + "Japan"

Your search yields no results. Would you like to try "punitive damages" + "Harris County, Texas"?

Maryland lead-paint legislation

In their campaign against companies that once made lead paint, trial lawyers have adapted a tactic used earlier in the tobacco and gun campaigns, namely to push for legislation making it retroactively easier to bring liability claims against manufacturers. Such legislation was floated a few years ago, unsuccessfully, in Massachusetts; this year the campaign has made a particular target of Maryland, a state notorious (with Florida and Vermont) for having in the 1990s passed retroactive liability-expanding bills to strengthen the hand of state AGs suing the tobacco industry.

There is, however, good news to report: the Judiciary Committee of the Maryland House of Delegates has voted thumbs down on H.B. 1392, a bill that would establish backward-looking "market-share liability" so as to make it easier to extract dollars from FDR-era paint makers. Still pending is a companion bill, H.B. 1441 HB 1447, that would open up "public nuisance" theories of the sort that recently proved successful at trial in Rhode Island. Jane Genova has details on both bills (and also some kind words for my work, for which thanks)(& thanks to David Thomasson for correcting the bill number).

The Tobacco Wars

After RJR and Lorillard set aside $756 million in disputed tobacco settlement claims on Monday (as Michael Krauss noted yesterday), the long negotiations between the industry and state attorneys general to resolve the payment issue 'fizzled', according to Nancy Zuckerbrod of the Associated Press. Connecticut attorney general Richard Blumenthal is not happy: "We're continuing to review our options, but certainly a lawsuit looks likely this week." It looks like another round of tobbaco lawsuits are headed our way (I wonder if Blumenthal et al. will farm out their work to private firms, as the Rhode Island AG did in the lead paint suit), even without Philip Morris's participation in witholding.

Merck sued over Fosamax

Lawsuits are getting under way following reports linking the osteoporosis drug, Merck's second biggest seller, to cases of necrosis (tissue death) of the jaw. Kevin Pho (first, second post) has been covering the story, as has PharmaGossip.

Lawyer Lead-ership

Early this morning, Walter pointed readers to Philip K. Howard's article "Making Civil Justice Sane" in the new edition of the Manhattan Institute's City Journal. Readers may also be interested in my brief Soundings column in this issue, "Lawyer Lead-ership," which covers the recent Rhode Island decision against the paint companies alleged to have caused a "public nuisance." More information about the lead paint cases is available here at Point of Law and at Overlawyered.

Fisking Gretchen Morgenson

Our own Larry Ribstein is promising to make it a continuous project.

Consent-decree reform

Sens. Lamar Alexander (R-Tenn.) and Mark Pryor (D-Ark.) have introduced legislation that would limit the use of federal-court consent decrees, under which private advocates sometimes tie the hands of state and local governments for decades and courts wind up micromanaging school systems, prisons, welfare agencies and so forth. Per an editorial in today's WSJ:

One part of the Alexander-Pryor solution is term limits -- either four years for a decree, or the expiration of the term of the highest elected official who signed his name to it. Their legislation also sensibly shifts the burden of proof for modifying or ending the decree to plaintiffs from state and local governments.

The legislation endorses the view of a unanimous Supreme Court, which in 2004 called for limiting decrees. It warned in Frew v. Hawkins that federal consent decrees could encroach on state and local power. They may "improperly deprive future officials of their designated and executive powers," the Court said. They may also lead "to federal court oversight of state programs for long periods of time even absent an ongoing violation of the law."

Tobacco Tales, Ctd

As reported in the Wall St. Journal [$$$] RJR Reynolds and Lorillard Tobacco have now formally withheld over $750 million that the states' AG's claim is due as part of the cartel (whoops, I mean settlement) agreement signed between the tobacco manufacturers and the states.

RJR believes it doesn't have to pay the money because of a provision in the deal that allows cigarette makers to pay less if they have lost market share to smaller companies that weren't part of the settlement.

An economic-consulting firm concluded last month that the agreement, which set marketing limits on the companies and required payments to states, was a "significant factor" contributing to the loss of market share, which has fallen from 99% to 92% since the agreement was inked.

The states' attorneys general say the companies would be entitled to a reduction only if states didn't adequately enforce laws requiring cigarette makers outside the settlement to put money in escrow for future legal obligations. The AG's have behaved like good cartel (sorry, settlement) enforcers, trying to force non-settling (in most cases startup) firms to deposit the equivalent of the arranged per-pack settlement award as an interest-free advance against possible liability. But firms that market entirely in-state are apparently immune from this interstate pact, so the AG's enforcement of the arrangement has been forcibly limited. So a court battle looms about the proper interpretation of the agreement.

Philip Morris has not yet withheld any money from the states (the withheld money must be deposited into a "Disputed Payments Account", so it doesn't help the tobacconists' cash flow), and when it does, the stuff will really hit the fan.

"Making civil justice sane"

Philip K. Howard of Common Good, in the new issue of the Manhattan Institute's City Journal:

...a private lawsuit, we seem to have forgotten, is a use of state power against another private citizen. Filing a lawsuit is just like indicting someone � it's just an indictment for money. Without the protection of a disinterested prosecutor and a grand jury, the defendant needs the protection of the judge to decide whether the claim has legal merit, leaving the jury to decide disputed facts.

Marshall Law

Marshall, Texas-- pop. 24,000-- has become, in the course of the last three years, the hot new venue for multimillion-dollar patent lawsuits. TiVo, Amazon, Texas Instruments, Motorola, Cisco: all have fought patent battles there. According to the Austin American-Statesman's Chuck Lindell, Judge T. John Ward's fast-track system, designed to shave months off the patent lawsuit process, has worked quite well. So well, in fact, that Justice Antonin Scalia has called the town a 'renegade jurisdiction.' It's not hard to see this place becoming the next Madison County, Illinois.

Norm Pattis shares another tale of disillusionment from his experience with Gerry Spence's Trial Lawyers College.

As the SEC's Advisory Committee on Smaller Public Companies gets ready to issue the final version of its report seeking a small firm exemption from SOX, the opposition is lining up. I respond to their arguments.

VH1, the cable entertainment channel known for its music videos, is running a feature news special on the problem of shakedowns and borderline-to-real extortion aimed at Hollywood celebrities. The channel interviewed me on camera to talk about some of the ways law can be used both as a remedy for shakedowns and as, itself, a weapon in the hands of the would-be shakedown practitioner. Producer Robin Edgerton tells me that several bits of the interview wound up making it into the finished program. It's scheduled to air this evening under the title "VH1 News Presents -- Hollywood Blackmail" (cross-posted from Overlawyered).

There are those who think that the SEC's questionable proposal to mandate more disclosure of executive compensation does not go far enough. The NYT's Gretchen Morgenson and Vanguard founder John Bogle believe the proposal should also cover compensation of mutual fund managers -- even (indeed especially) the managers of index funds. I criticize this idea.

Litigation-driven studies

Legal Affairs recently hosted a debate between Michael L. Martinez of Crowell & Moring and Jay P. Kesan of the University of Illinois on the question of how courts should treat "litigation-driven scholarship", that is to say, studies and research projects that may have been undertaken with a mind to influencing legal outcomes. Prof. Childs takes note of a "curious" aspect of the debate's introduction, namely its premise that only research commissioned by defendants is potentially problematic in this way. He writes: "My work (see the current article on SSRN) suggests that, while defense-funded studies are not unheard of, most such research is performed on behalf of plaintiffs' counsel." Peter Nordberg also comments, here and here.

The Great Waste

Following up on Larry Ribstein's earlier post regarding the Kimberly Strassel/Opinion Journal interview of former AIG chairman Maurice "Hank" Greenberg, this post examines the enormous costs attributable to the increasing trend of government to criminalize bad business judgments in the context of the Greenberg interview and the ongoing Lay-Skilling trial. By the way, for those without time or the inclination to keep up with the Lay-Skilling trial on a daily basis, I have been posting weekly summaries of the trial each Friday, which can be reviewed here.

While we're looking for new and more intrusive ways to regulate securities disclosure, our regulators are also looking for new ways to curb a powerful engine of market efficiency -- short selling. I discuss a roundup of the latest news.

Kimberley Strassel has an interesting interview with Hank Greenberg, formerly of AIG, recently a victim of Eliot Spitzer, in today's WSJ. I discuss the interview.

"Do it for Mr. Incredible, Dad"

A six-year-old urges his parent to stay the course on liability reform. More on "The Incredibles" here, here and here at Overlawyered.

Reason #427 why the courts are making California unlivable: I defy anyone to read Judge Rymer's dissent and tell me that judicial activism is a rhetorical invention. (Jones v. Los Angeles (via Bashman)).

How I beat the EEOC

In January a California federal judge awarded Pasadena attorney Robert L. Reeves more than $1 million in sanctions against the Equal Employment Opportunity Commission, which had been suing Reeves' law firm over alleged pregnancy discrimination (see OL Feb. 6). Now attorney Jack Schaedel, who represented Reeves, tells how it happened.

Vanished doctors: the human costs

The Health Coalition on Liability and Access has collected a few stories of patients who lost out when ob/gyns, neurosurgeons and emergency room physicians fled liability-exposed places, jobs and situations.

"The Cutter Incident" on C-SPAN2

Tomorrow's AEI event on The Cutter Incident will be broadcast live on C-SPAN2 at 10 am.

Two events which took place in the mid-1950s have exerted since then an extraordinary influence over health care. The first event was the development of an effective vaccine against polio, a scientific triumph over a fearsome communicable disease that had crippled or killed thousands of people annually, including future president Franklin D. Roosevelt. The second event was the litigation over an imperfectly prepared polio vaccine which caused injuries or death to hundreds of children�an event now known as the Cutter Incident. The Cutter litigation has played a pivotal role in changing the products-liability system to a liability-without-fault standard in which manufacturers must pay for damages, even in the absence of negligence.

In his book The Cutter Incident : How America's First Polio Vaccine Led to the Growing Vaccine Crisis (Yale University Press, 2005), Paul A. Offit provides a fascinating narrative of these two seminal events and concludes that this unfortunate turn in liability law has reduced today�s vaccine supply and, most importantly, has retarded the development of new vaccines. The author�s presentation will be followed by a discussion with Randy Bovbjerg of the Urban Institute and AEI resident scholar John E. Calfee.

Previous PoL coverage: Feb. 28; Apr. 3.

Pitt on what to do about SOX

Former SEC Chair Harvey Pitt, writing in today's WSJ, suggests among other things that Congress address problems with SOX by kicking them to the SEC � specifically, by making SOX part of the SEA of 1934 and thereby clarifying application of the SEC's rulemaking and exemptive power. I explain why it's a start, but not enough.

Reader W. Daniel Troyka of Ann Arbor, Mich.'s Conlin, McKenney & Philbrick, P.C. sends along the following case advisory:

Below is the summary of an unpublished opinion recently issued by the Michigan Appeals Court. The decision allows a case to go forward against The Coca-Cola Company based upon spray exiting a can of Diet Coke into the plaintiff's eyes. Althought the Court rejected the theory that the can was defective, it found that the company could be held liable for failing to warn consumers that "the beverage might exit the can at a high velocity upon opening." Expect to see a lot more language on your coke cans in the future.

The complete opinion can be found by going to http://www.michbar.org/e-journal/040506.html , scrolling down to e-journal no. 31151, and clicking on the Full Text Opinion link.

Online job applications, cont'd

George Lenard has some updates on this vexing topic (vexing to employers and their legal counsel, at least, even if everyone else ignores it), last discussed in this space in December and January.

The Sentencing Commission has reportedly deleted commentary to the Guidelines urging the government to require corporations to demonstrate cooperation by waiving attorney-client and work-product privileges in order to get more lenient treatment. This comment was significant backing for the infamous Thompson memorandum. The NLJ has the article, tip by Law Blog. Here and here are posts on the underlying issues.

A WSJ op-ed says no, no more than other products or services need this extra layer of governance to protect customers and clients. I'm also skeptical. Moreover, even if these directors make sense in this context, why should this be a federal matter? I've got more here.

State AGs and the tobacco cartel

Forbes (reg) piles on with some fresh reporting about how state AGs collaborate with tobacco majors to suppress smaller companies, so as to maximize settlement revenue, and about some of the antitrust constraints they may be tempted to dodge. More: And here's an opinion piece by Christine Hall for NRO.

Who outspends whom in ballot battles?

A group called the Institute on Money in State Politics has issued a report entitled Tort Laws on Trial: Lawsuit Liability Measures, 2004 (PDF), published March 21 and written by Rachel Weiss. The 20-page report contains a wealth of information on who spent what in state ballot battles; reader Beth Caucci directs our attention to a few noteworthy passages:

For their part, plaintiffs� lawyers claimed to be outgunned by the deep pockets of doctors, hospitals and insurance companies. A spokesman for the Association of Trial Lawyers of America contended that �the insurance industry, the drug industry, the hospital and nursing home industry have far more money than people injured by medical malpractice and their lawyers.� However, lawyers contributed $33.8 million to ballot committees in the five states, or 58 percent more than the $21.4 million the health-care sector contributed. All but $6,550 of the $33.8 million went to committees opposing limits, supporting limit repeals, or supporting measures that would retaliate for liability limits. The health sector includes doctors, hospitals and drug companies. Even when contributions from the insurance industry � mostly to committees in Nevada � are factored in, lawyers still contributed 24 percent more money....

Although insurance companies � part of the finance, insurance and real estate sector � often are accused of financing efforts to place caps on damages, the insurance industry contributed slightly more than $5.7 million, or just less than 8 percent of the total given in the five states with medical malpractice ballot measures. Committees in Nevada collected 94 percent, or $5.4 million, of this money. Nevada had one ballot measure that would increase regulation of insurance companies, as well as overturn medical malpractice liability measures.

From the Merck press release:

Merck is examining various bases for appeal, which include:
  • Improper restrictions on Merck's ability to present relevant evidence to the jury, including orders that:
    • prevented Merck regulatory experts from talking about FDA rules and Merck's compliance with FDA regulatory requirements;
    • limited Merck's ability to discuss the FDA's most recent findings;
    • forbade Merck witnesses to state that they personally used VIOXX in the face of false allegations that they believed the medicine was unsafe;
    • stopped witnesses from testifying about scientific studies performed by Merck regarding the cardiovascular safety of VIOXX;
  • Allowing unsubstantiated conclusions that were irrelevant and/or inflammatory to be presented to the jury by plaintiff witnesses.
  • Allowing opinion testimony to be given to the jury by witnesses lacking subject matter expertise.
  • Allowing opinion testimony that was not based on a reliable scientific basis as required by law.

Soundest to me is the argument that the $9 million punitive damages award was unsupported by New Jersey law, which allows punitive damages only where there is clear and convincing evidence that (1) Merck knowingly withheld or misrepresented (2) information required to be submitted to the FDA under the FDA regulations (3) which information was material and relevant to the harm in question. The Shapiro analysis on which plaintiffs rely flunks all three requirements; only the slimmest of evidence (a deposition slip by Edward Skolnick) supports the first prong, and the other two prongs are completely naked. Perhaps Higbee let the claim go to the jury out of an abundance of caution with the intent to overrule the jury only if they came to the wrong conclusion, but I don't see how an honest court allows the punitive damages to stand.

A platonically perfect court would toss the failure to warn and consumer-fraud claims as a matter of law. Merck's warnings were presumptively appropriate under the law because they were FDA-approved. Both plaintiffs' heart attacks occurred over a year after Merck changed the warning label, so any causal argument appears inappropriate.

Do medical malpractice caps affect care?

HealthGrades has released a report (via Day) on relative safety of hospitals across America, with a ranking of each of the fifty states and District of Columbia. I asked AEI research assistant Phil Wallach to cross-reference HealthGrades' grades against whether the states had caps. Recall that reform opponents argue that caps reduce the quality of care because doctors no longer fear malpractice awards. Reformers argue that malpractice litigation is so random that it deters the practice of medicine without any real effect on quality of care, because good doctors are almost as likely as bad doctors to be sued. The HealthGrades survey of quality should be especially useful for adjudging the effect of noneconomic damages caps, because it focuses on Medicare patients: precisely the class of potential plaintiffs who have low economic damages and therefore rely on noneconomic damages to make a suit worthwhile. What are the results?

HealthGrades Score Caps Limited Caps No Caps
"Above Average" 8 3 5
"Average" 12 3 10
"Below Average" 5 0 5

Can you detect the trend? If anything, states with caps are more likely to be above average. (The difference isn't statistically significant.) Of course, there are other variables to be considered; this is the simplest of statistical analyses. But if the effect of damages caps were so drastic on patient care, one wouldn't expect to see caps in some of the best performing states. It seems that caps affect attorneys and doctors, but not patients.

Merck Punitive Award

This just in: a New Jersey jury awarded John McDarby, Vioxx plaintiff, $9 million in punitive damages, in addition to the $4.5 million in compensatory damages he had already recieved. The jury concluded that Merck knowingly misled the FDA about the dangers of Vioxx. Full story (subscriber-only) here in the WSJ.

More on Merck Punitives

More news is emerging from the already-acrimonious punitive damages phase of McDarby. As Ted Frank noted yesterday, the jury adjourned without reaching a verdict. Today, Lisa Brennan of the New Jersey Law Journal reports that Merck lead lawyer Chirsty Jones has filed another mistrial motion, one alleging that Thomas Cona's lawyer, Mark Lanier, made inappropriate references to Raymond Gilmartin's salary, among other things. Judge Carol Higbee denied the motion.

But despite appearances, McDarby may have a silver lining for Merck. As Newark lawyer John Brenner points out in the article, Merck did win a long-term usage case: the jury awarded no damages to Cona.

A worker suffers an injury in the workplace. Six years later he takes his own life. The British Court of Appeal has just ruled that the injury "caused" the suicide six years later.

IBC Vehicles, which produces vans for Vauxhall Motors, admitted liability for the workplace accident but denied that its responsibility extended to the decedent's taking his own life six years later. This was accepted in the High Court when Deputy Judge Nigel Baker QC ruled against his widow, who had sued for 750,000 pounds in a wrongful death suit. The defendant's judgment was overturned by a majority ruling at the Appeal Court with damages to be agreed at a later date. Lord Justice Sedley said "all the evidence suggested there was no other cause of Mr Corr's suicide other than the injury he suffered at work, and he was previously a 'rational man'."

So much for free will! Professors Hart and Honor�, where are you when we need you?

"Courts flunk the civics test"

Ross Sandler and David Schoenbrod in the sub-only WSJ, discussing a New York appellate court's order, in the Campaign for Fiscal Equity suit, that Albany legislators appropriate "an additional $4.7 billion for operating the New York City schools, plus another $9.2 billion for construction":

Most people assume that the legislature must cough up the cash because courts have the power of contempt, which allows them to punish those who disobey their orders. In the school case, however, the courts can't punish anyone. State legislators are not defendants in this case, and even if they were, they can't be punished because they are immune from suit. The state's treasury is immune because the court lacks authority to appropriate more funds and can't fine the state for the legislature's unwillingness to do so. The remaining defendants are officials, including Gov. George Pataki. They can't be held in contempt for failing to produce the money because they are powerless under the state constitution to spend money the legislature has not appropriated.

The New Jersey high court, in 1976, tried a different tack: it "ordered state officials to close all the schools until the legislature equalized spending", and the legislature capitulated by instituting an income tax in the state. The problem here is that the New York courts have used the state constitution's mandate of an operative public school system as the whole basis of their decision.

If a New York court closed the schools, it would be the judges who violated the state constitutional right, by denying any education to all students. That would undercut the only leg the court has to stand on, the rule of law.

Michigan's FDA defense law

It's under attack at the moment, but eminently worth defending, argue Steve Hantler and State Rep. Roger Kahn (both PDF) in the Michigan Chamber of Commerce's publication Michigan Forward (via our sister Manhattan Institute website Medical Progress Today).

The jury adjourned at 8 pm without yet reaching a verdict. "To award punitive damages, the jury must decide whether Merck knowingly withheld from the FDA data regarding Vioxx's cardiovascular risks or misrepresented that data, that the information was material and relevant to the harm in question, and that Merck acted with a willful and wanton disregard of someone's rights." Mark Lanier, the attorney for Cona, who wasn't eligible for punitive damages, made the closing argument, asking for as much as $17.9 billion. The jury can award any amount, but New Jersey law will cap the award at quintuple the "compensatory" damages of $4.5 million. Merck made a total of $56 million of profit selling Vioxx in New Jersey, and all of that will be swallowed by attorney fees even before any damages are awarded. (Peter Loftus, Dow Jones Newswires, Apr. 10).

Granholm v. Heald aftermath

If there's a disadvantage to loser-pays rules, it's the expense and inefficiency of post-matter litigation over attorneys' fees. The aftermath of the Granholm v. Heald Supreme Court case over interstate wine sales shows what one such collateral litigation can look like. Because the case was a Section 1983 action, the victorious plaintiffs were entitled to attorneys' fees, but the attorneys couldn't initially agree amongst themselves what those fees should be. Loser Michigan (who wouldn't have been eligible for its fees had it won under the one-way 42 USC 1988) complains aptly that they shouldn't be on the hook for redundant expenditures that came about because of "intramural differences" between lawyers. (Tony Mauro, "Courtside: Grapes of Wrath: Lawyers Locked In Fee Fight", Legal Times, Apr. 10) (via Lattman).

Congoleum case in WSJ

Kim Strassel in the WSJ has a must-read piece on the Congoleum case. Strassel correctly notes that it's not enough to divest $9.6 million from Gilbert, Heintz & Randolph, and more needs to be done about this attempted theft of a billion dollars. (Kimberley A. Strassel, "The Great Asbestos Scam", Wall Street Journal, Apr. 10). See also Feb. 20, Oct. 18 and links therein.

Update: There's also a related WSJ editorial (via ICJL), arguing that the Congoleum case is another data point against passing a trust fund. My take on the trust fund was in the Liability Outlook last month.

Hollywood stars meet the SEC

Hollywood often bashes the capitalist pigs who run giant corporations. So you'd think the moviemakers would be lining up in favor the SEC's proposal to require more disclosure of how much the pigs are being paid. But, as discussed in this WSJ article, there's a catch: the proposal would require disclosure of compensation of high-paid non-executive employees � like movie stars, directors, and producers. No names � but the culprits will be obvious. I discuss here whether the SEC should distinguish the stars from the executives.

Next target: Glaxo and Serevent

Shelley Salpeter, a doctor who consults for plaintiffs' attorneys, argues that four out of five asthma deaths a year are caused by Serevent, one of two asthma drugs in asthma-inhaler Advair. That's a pretty sensational claim, since Serevent wasn't on the market in the US until 1994, but there's no evidence that asthma deaths have quintupled over the last five years, even as tens of millions of American asthma sufferers began using the drug. (In fact, American asthma deaths have been steadily decreasing, even as the vast majority of prescriptions for asthma are now for Advair or for Serevent alone.) Nevertheless, a story in Forbes, which should know better, argues that there is "growing evidence" that Serevent causes fatal problems, but fails to identify any of that evidence, other than conclusory allegations in a Beasley Allen lawsuit. (Robert Langreth, "Trouble Breathing", Forbes, Apr. 24).

A personal anecdote relating to the class action against the SAT, which Michael ably covered. I was once opposing counsel in a class action brought by the same attorneys who did the Pearson settlement; they regularly trumpeted their "multimillion dollar settlement" against Pearson in my case. (Pearson immediately caved after the class was certified; big payday for the plaintiffs' lawyers.) So I thought I'd do a little investigating: I telephoned the settlement administrator for the Pearson settlement, and asked how much money was actually distributed to the class. The administrator refused to say—which is quite telling, wouldn't you say? I left my law firm before I had the occasion to subpoena them to find out, but the Associated Press (and other reporters) ought to be a little more skeptical before simply repeating the nominal value of a class action settlement provided by attorneys' press releases.

Note that the purported plaintiff class for this lawsuit includes millions of students whose SATs were scored correctly, and suffered no cognizable injury. Just another harm-less lawsuit.

SAT gets sued
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You just knew this was going to happen: as this Newsday report attests, a Minnesota high school student has sued the nonprofit College Board and the for-profit Pearson Educational Measurement, which has offices in Minnesota's Hennepin County, in state court following reports of erroneous scoring of the tests.

4400 students were scored too low, while 600 were scored too high, following the October administration of the test. Students whose scores were made too low had their results corrected, but the College Board has declined (fearing lawsuits, perhaps?) to fix the inflated scores. The suit seeks class action status, of course ($$$ for lawyers) and asks for a refund of the test fee as well as a rescoring of the inflated grades.

Why a refund of the test fee? Are the students not currently using the paid-for scores? And what are the grounds for suit? Perhaps Minnesota is one of the few states that recognizes the dubious "negligent infliction of emotional distress"? [Johhny was so distraught when his test score was misstated!] Note that the plaintiffs' law firm has tasted blood before: it won a multimillion-dollar settlement from Pearson in 2002 for scoring errors in Minnesota that affected more than 8,000 students.

Jumpin' Joe Jamail

Christine Hurt over at Conglomerate points to this William Childs provided-video of an expert witness deposition that provides a glimpse into the well-known (at least in Houston legal circles) combative style of famed Houston plaintiffs lawyer, Joe Jamail.

This clip is a good example of why I require two video cameras during important depositions, one to videotape the deponent and the other to videotape the attorney asking the questions. Taking a video deposition in that manner allows you to provide to the jury or judge at trial a far more interesting video of each participant in the deposition rather than the typically-boring video of only the deponent. As the particularly contentious deposition in the above-linked video proceeded, it appears that about a half-dozen cameras would have been preferable.

A long time ago, the forgettable SEC Chairman Bill Donaldson launched a rule requiring mutual funds to have independent directors. Thanks to the US Chamber of Commerce's suit, the SEC has twice had to defend its procedures in adopting the rule in the DC Circuit. Yesterday the court struck down the rule for the second time and again sent the Commission back for justification. The whole thing, which is discussed here, is a fitting tribute to the Donaldson era.

The plaintiffs' punitive damages argument is even flimsier than I gave it credit for yesterday. The "smoking gun" is an October 2000 document titled "preliminary summary of data," by Merck biostatistician Deborah Shapiro. (Thomas Ginsberg, "Ex-CEO testifies in Vioxx trial", Philadelphia Inquirer, Apr. 7). Merck did submit the data to the FDA, but in a different format, and the FDA demonstrated that it thought the information was immaterial by not taking action on it. The plaintiffs are effectively asking for hundreds of millions of dollars for a manufactured dispute over layout (without even presenting any evidence that the difference in layout, much less the underlying data, is material), making it all the more outrageous that Judge Higbee did not shut down the punitive-damages proceedings in response to Merck's motion for summary judgment. Again, what home court?

Steve Westly's CalPERS capers

Those who've followed the Manhattan Institute's Trial Lawyers, Inc. series are aware of just how we feel about corruption in California's state employee pension funds, CalPERS and CalSTRS (see here; see also here). Now it looks like Steve Westly, the state controller and candidate for governor (whom we called out in Trial Lawyers, Inc.: California), is in a bit of hot water over his involvement in pushing CalPERS to invest in a company whose politically connected partners raised a half million for his campaign war chest. Looks like the trial lawyers aren't the only ones who can play this game. (Hat tip: Professor Bainbridge)

New Twist In Milberg Weiss

In the increasingly sordid saga of Milberg Weiss, which we have covered extensively, a new twist. While no indictments emerged for William Lerach and Melvyn Weiss, the original targets of the DoJ's investigation, two other partners at the firm have been under serious scrutiny. According to the Recorder's Justin Scheck, lawyers familiar with the investigation said Wednesday it's now likely that name partners David Bershad and Steven Schulman, and possibly the firm itself, will be indicted for payments to a former client and lead plaintiff in several class actions, real-estate broker Howard Vogel.

Those who followed our most recent featured discussion between Moin Yahya and Larry Ribstein on whether we should regulate plaintiffs' short selling the stocks they intend to sue are aware of Professor Ribstein's anti-regulation stance, spelled out in detail in his article with Bruce Kobayashi (here). Professor Bainbridge weighs in on Professor Ribstein's side, from a property rights angle, here.

Collateral estoppel, or issue preclusion, is the principle that a party that has lost an issue at trial doesn't get to relitigate the same issue at a future trial. Offensive collateral estoppel permits a plaintiff to use the doctrine against a defendant. Once upon a time, the doctrine only applied if it was possible for both parties to use collateral estoppel against one another from a previous trial, but a generation ago courts began to acknowledge the possibility of "nonmutual" collateral estoppel: if Y wins issue A against Z, X can seek to preclude Z from contesting issue A in a future trial.

In the wake of the Cona/McDarby verdicts, we see a number of plaintiffs' attorneys (faithfully reported by the press (also here)) and plaintiff-attorney bloggers suggesting that nonmutual offensive collateral estoppel will now apply to the next 4000 New Jersey Vioxx trials (not to mention the $12-billion consumer-fraud class action), with only the issue of causation and damages to be litigated.

Except that Merck can defend against any such motion for collateral estoppel by noting that there are conflicting jury verdicts out there, because Merck won every single issue (including a consumer fraud claim) in the Humeston New Jersey case.

In my mind, it's common sense that if there are inconsistent verdicts, nonmutual collateral estoppel cannot possibly apply. Any other result would mean that a defendant is essentially playing Russian roulette with every trial, because it could win twenty trials in a row, and then be precluded from defending itself if it lost the twenty-first. And courts agree: they don't grant collateral estoppel in such circumstances. As the Supreme Court noted in the landmark case of Parklane Hosiery, preclusion "may also be unfair" if the judgment relied upon "is itself inconsistent with one or more previous judgments." See especially Setter v. A.H. Robins Co., 748 F.2d 1328, 1330-1331 (8th Cir. 1984) and Hardy v. Johns-Manville Sales Corp., 681 F.2d 334, 345-346 (5th Cir. 1982), products-liability cases with just this fact-pattern, which denied collateral estoppel because the defendant had won some as well as lost some. So, honest question: has there ever been a case (much less a New Jersey case) where a court has imposed a Russian-roulette nonmutual-offensive-collateral-estoppel standard, and imposed collateral estoppel on a defendant who has had some success? And if not, why are attorneys treating it like this is even an outside possibility in New Jersey? And why can't reporters double-check with a single expert who can debunk these patently false legal arguments?

So it appears that Cynthia McKinney has apologized for her dust-up with the Capitol police, some eight days after the incident--with a pending grand jury investigation, no support among her fellow Democrats, and following some rather embarrassing television appearances. I hadn't paid much attention to this story, filing it away as a simple Diva-scuffle blown out of proportion by a notorious race-baiting, anti-Israel, 9/11-conspiracy-theorist (though I was interested and annoyed to read that she'd used taxpayer dollars to fly Darth Chef to a Georgia fundraiser).

What drew my attention were McKinney's repeated references in those television interviews to a 250-person class action by black police officers against the Capitol Police. So I decided to do some digging.

"Home court"?

Judge Higbee's courtroom isn't as bad as a south Texas or Alabama state court where the judges are directly elected by the plaintiffs' bar, but it's hardly Merck-friendly. She is a former plaintiff's attorney who has repeatedly made rulings unfavorable to Merck, including certifying a groundless fifty-state class action. Many of the cases involve out-of-state plaintiffs whose attorneys deliberately chose to file in New Jersey to guarantee that their case wouldn't be removed to federal court by Merck. So why do plaintiffs' attorneys keep referring to the New Jersey cases as being fought in "Merck's home court"? The answer is to make Merck's liability seem worse than it is, which will help (1) recruit plaintiffs and (2) create financial market pressure on Merck to settle and quantify its uncertain liability (though we know from Wyeth and fen-phen that settling defensible cases at an early stage only makes liability worse in the long run). Occasionally, you'll see the press or a stock analyst buy the hype, but you, gentle reader, now know better.

Stock analysts on the Vioxx verdict

Forbes has a round-up of reports as well as a summary of Ray Gilmartin's testimony. Dow Jones Newswires has more, including more Mark Lanier attempts to bend the rules, this time by using a loud voice at sidebars to argue to the jury.

The argument for punitive damages appears to be that a Merck scientist summarized data that was submitted to the FDA in a memo, but Merck didn't submit the summary itself. This is like saying that if John Smith submitted a 2003 tax return for $25,000 in income, a 2004 tax return for $34,000, and a 2005 tax return for $31,000 in income, he's guilty of tax evasion if he writes a letter to a friend saying that he averaged $30,000 in income from 2003-2005 if he doesn't also copy the IRS on that letter. (Update, April 7: it's worse than that.)

Some interesting thoughts on McDarby and Cona elsewhere on the blogosphere:

McDarby: Gilmartin to testify

Peter Lattman reports in the WSJ law blog, via Heather Won Tesoriero, that the plaintiffs' lawyers in the McDarby trial plan to call Ray Gilmartin, former Merck CEO (1994-2005), to the stand for the punitive damages portion of the trial. Gilmartin has thusfar not testified in any Vioxx trial.

The plaintiffs' strategy is to paint Merck under Gilmartin as a rogue company that "put profits before patient safety." To receive punitive damages under New Jersey law, the plaintiffs will have to convince the jury that Merck knowingly misled the FDA about Vioxx's safety profile.

As Tesoriero explains, punitive damages in New Jersey are limited to the greater of $350,000 or five times compensatory damages, so the extra damage for Merck in this case will be cabined. But how Gilmartin performs on the stand could dramatically affect expectations for future trials.

More on McDarby

As previously noted by Jim and Ted, Merck lost its second trial over the prescription drug Vioxx yesterday, the other being Texas�s Ernst v. Merck last summer. Notably, in spite of the loss, Merck seems unshaken in its resolve to fight the cases against it one by one. Chuck Harrell, a member of the Merck legal team, said that the split verdict "at least suggests that we need to look at these cases on an individual basis, as we have done in the past." Cold comfort, that. Especially in the face of the grim assessment delivered by WBB Securities healthcare analyst Steve Brozak: "This is death by a thousand cuts."

Turnstile certificates of merit

"Certificate of merit" laws are a popular reform proposal aimed at curbing the incidence of ill-grounded medical malpractice litigation. However, provisions of this kind vary greatly in strength, from the reasonably formidable to the hopelessly weak. In Colorado, there are proposals to strengthen the state's currently weak certificate-of-merit law. Here's a discussion in the Colorado Springs Gazette-Telegraph (PDF format, reprinted by Colorado Civil Justice League):

At present, that process is little more than a pass-through. It allows lawyers who file malpractice claims to tell the courts they've run the merits of a case by a "professional" for prescreening even if the professional never so much as looked at the case records and isn't credentialed to second-guess the medical specialist being sued.

HB 1305 would, among other things, ensure that the plaintiff's attorney reviews the merits of his claim with someone who meets the statutory standard of "expert witness" in the field in which the malpractice claim is being alleged. The bill also would make the lawyer give the court a list of all the medical records and other evidence that the expert reviewed, and the lawyer would have to back it all up with a sworn affidavit to the judge.

More on the issue here, here, here, and here.

Defunct or inactive legal blogs

3L Epiphany has compiled a list of them (via Cernovich); some are missed badly. As for us, we plan to be around for a good long time.

As Jim notes, we won't know for sure why the jury split on the question of causation until after they are interviewed, but one possibility is that they disbelieved the claims of Cona and Mark Lanier that the reason Cona's pharmacy records only showed three prescriptions for seven months' worth of Vioxx was that he had received fifteen months worth of free samples from his doctor.

Thomas Cona, 59, confirmed in New Jersey Superior Court that he had been 20 to 30 pounds overweight, had an elevated cholesterol level for which he was prescribed medication, and a history of sleep apnea, which can deprive the body of oxygen.

Under questioning from Merck attorney Mike Brock, Cona also disclosed he had drunk a small quantity of a high-caffeine drink by mistake on the day of his heart attack in June 2003, and had filled a prescription for a cholesterol-lowering drug only once.

(Reuters, Mar. 10). The Reuters story says that "almost 10,000 plaintiffs have sued Merck over Vioxx", but this is less than half the total: there are almost 10,000 lawsuits, but many lawsuits have multiple plaintiffs (and plaintiff groups).

Merck loses in McDarby case

As Ted noted just a while ago, even as Merck could breathe a sigh of relief when Ellis Diaz dropped his case, the jury was still out -- literally -- on the Cona/McDarby trial in New Jersey. Well, now we know: the jury split its verdict, finding liability for Mr. McDarby and his wife to the tune of $4.5 million, and finding for Mr. Cona on the consumer fraud claim but only awarding $45 in damages.

The winning plaintiff, John McDarby, was a 77-year-old arthritis patient who had taken the drug for 4 years. The other plaintiff, Thomas Cona, was a 60-year-old arthritis patient who had taken Vioxx for 22 months. We won't know whether the jurors' differing decisions hinged on the time differential until reporters interview them. Both Cona and McDarby had taken the drug longer than the 18 month span for which high-dose Vioxx use for the treatment of pre-cancerous intestinal polyps is associated with heart risk.

It should be noted that the jury has yet to consider punitive damages, nor is it clear to me whether Mr. Cona will be eligible. The punitives phase of the trial begins tomorrow.

Note: Edited for correction. Thanks to Ted Frank. More to follow.

Merck wins... another federal case

As the Cona/McDarby Vioxx jury continues to deliberate in New Jersey, the next federal trial, scheduled for June 12, will no longer feature plaintiff Ellis Maximo Diaz, who is dropping his case. Merck argues that this shows Diaz knew his case was weak, while plaintiff's attorney Bonnie Zakotnik claims that she couldn't prepare for trial by June 12. (AP, Apr. 5). If Zakotnik was telling the truth, and Diaz's case had any merit, she'd be guilty of malpractice for failing to refer the case to any of a number of plaintiffs' attorneys who would be ready to try the case, so one can draw one's own conclusions for the dismissal. (Update: Peter Lattman has more.)

Meanwhile, in New Jersey, the jury has requested to see Vioxx samples. The plaintiffs' attorneys want the jury to see individual blister packets, rather than the boxes given to medical offices complete with warnings. (Peter Loftus, "Vioxx Jury Asks to See Sample Packet of Drug", Wall $treet Journal, Apr. 5). Long-time Overlawyered favorite Benedict Morelli did the closing arguments along with Mark Lanier. (Heather Won Tesoriero, "Merck Vioxx Case Is Sent to Jury As Lawyers Give Final Arguments", Wall $treet Journal, Apr. 4).

Sam has already blogged about the New Jersey appellate court decision affirming certification of a third-party-payor class action, but Peter Lattman has more details, as well as a link to the court opinion. But this is as good a place as any to mention Michael Greve's Harm-Less Lawsuits? monograph.

Asbestos bill update

MarketWatch has the latest rumors (via Friable). One main obstacle appears to be a lack of legislative time on the floor.

Meanwhile, in Cuyahoga County, Ohio, over 4000 asbestos cases were thrown out in one swoop by judges who deemed them fraudulent. Another 30,000 cases where there is no evidence of injury have been moved to an "inactive docket." (Thomas W. Gerdel, "Asbestos litigation cases cut", Cleveland Plain-Dealer, Apr. 5).

Lead Paint Fights Back

The much-beleaguered lead paint industry is fighting back. According to the AP�s Eric Tucker, industry attorney John Tarantino went to court on Monday to prevent Rhode Island�where in a now-notorious decision the industry was found liable for creating a public nuisance�from paying a large contingency fee to two private firms the AG�s office hired to conduct the lawsuit. Tarantino argues that it�s unconstitutional for lawyers representing a government to have a financial interest in the outcome of the case. Fidelma Fitzpatrick, of Motley Rice, one of the firms contracted, predictably disagrees.

Based on recent remarks from SEC Chair Cox, it might be. As I discuss here, that may not be such a bad thing if it leads to more meaningful change, including reducing the excessive burdens of SOX 404 internal controls reporting for all firms.

The unraveling Nigerian Barge case

Last week, Larry Ribstein noted the Fifth Circuit Court of Appeals' extraordinary post-oral argument order commanding the release from prison of William Fuhs, the former Merrill Lynch executive who was convicted along with three of his Merrill colleagues of conspiring to assist Enron in improperly accounting for an asset sale in the so-called "Nigerian Barge case." This week, the other three Merrill Lynch executives are seeking release from prison pending disposition of their appeals.

The Nigerian Barge case is a case study in the dubious nature of regulating business through criminalization of ordinary business transactions and the appalling cost of that policy when four business executives get caught in the cross-fire of the government's demonization of a criminal target such as Enron. As Professor Ribstein and Henry G. Manne have pointed out many times in their writings, the use of criminal law as an in terrorem regulatory weapon is a reign of force that is contrary to the rule of law and is usually far more costly to society than the alleged evils that are the target of the prosecution.

Probably not well enough to keep from getting sued under it, and maybe losing. HRHero has a quiz that may help clarify your confusion (via Mike Harris at George's Employment Blawg; George Lenard, who runs that weblog, took the test and scored only 62.5% correct, missing three of eight answers).

State tort law profiles

Pro-reform American Justice Partnership has launched a series of resource pages on individual states' tort law situations, presumably intended eventually to encompass all 50 states. For Florida, for example, there is a general resource page with links to a tort law profile, state supreme court analysis, profiles of the state senate and house, links to local pro-reform groups, and numerous other resources. Other states posted thus far: Georgia, Illinois, Louisiana, Michigan, Mississippi, New Mexico, Ohio, Oklahoma, South Carolina, Texas, Virginia, and West Virginia.

The Case of Monopolies

Sam's post this morning--and related posts about the horrible 1998 Master Settlement Agreement in which the states set up cash cows for themselves and trial lawyers by formally cartelizing the tobacco industry--brings to mind for me The Case of Monopolies, a/k/a Darcy v. Allein, the 1603 decision from the King's Bench that is the first case studied for many beginning antitrust students. In that case, the court held invalid Queen Elizabeth's grant of a license to Edward Darcy to import all playing cards into England. As reported by Edward Coke, The Case of Monopolies is deemed significant for its early exposition of the advantages of competitive markets over monopolies. Classical economists, before the industrialization of the late nineteenth century led to today's antitrust law, focused their anti-competitive case on just such Darcy-style state-conferred monopolies.

Which is what makes the 1998 Tobacco Master Settlement Agreement so perverse: as we've pointed out on several occasions, our editor as far back as 1999 on overlawyered, the MSA effectively makes the states partners in a government-authorized and -enforced cartel. (See some of our earlier commentary and reporting here, here, here, and here.) Critics of the tobacco deal have become more outspoken, and include state leaders from Colorado and South Carolina, a former chief economist at the Federal Trade Commission, and even my old torts prof Guido Calabresi, certainly no strong antagonist of the plaintiffs' bar. The following exchange at oral argument, as relayed by Forbes, sums it up nicely:

Lawyer from New York AG's office: To believe the states had sold out to Big Tobacco, you would have to assume that 46 attorneys general are liars.

Judge Calabresi: That's tempting. It may be that when the states were offered a stake in a monopoly, they took it.

(Note: In the case in question, Freedom Holdings, Inc. v. Spitzer, the Second Circuit, in a decision authored by Judge Jacobs, affirmed the district court's denial of a preliminary injunction because the MSA nonsignatories could not show that they were irreparably harmed by placing payments into an escrow account pending the outcome of litigation on the merits. See 408 F.3d 112 (2d Cir. 2005). The case is now on remand.)

Because the cartel arrangement is porous, nonsignatories to the MSA have been able to carve out a growing market share, just as one would expect. How the states respond will be interesting to watch: Will they honor their contracts with Big Tobacco and accept reduced cash payments? Just how committed are the states to their golden geese, and how much, if at all, are they committed to the public health?

Welcome Huffington Post readers

Dal Lamagna, discussing the lawsuit filed against Rep. Jim McDermott (D-Wash.) by Rep. John Boehner (R-Ohio), cites our discussion of loser-pays. Per Lamagna's account, McDermott is faced with the unfairness of defending a suit which falls under one of the many "one-way" fee provisions: he pays his adversary's fees if he loses, but has no right to collect fees if he wins.

"The $22 Billion Gold Rush"

Forbes magazine has a must-read overview of the fen-phen litigation as its cover story this week, as well as the update that some 8000 additional claims have been settled. Wyeth has set aside $22 billion to pay out claims, most of which are fraudulent.

Hanging Tough

One more chapter of the tobacco litigation unfolds. The AP's Stephanie Stoughton reports that cigarette maker RJR, in the face of a looming payment deadline in the tobacco settlement, has refused to pay the full amount mandated.

RJR, Lorillard, and Philip Morris have collectively argued that the $6.5 billion award should be cut $1.2 billion, under a clause of the settlement allowing such reductions if the companies in the pact lose market share to those outside the pact. Philip Morris made its full scheduled payment, of $3.4 billion.

Beyond the Goliath myth

Law.com reports from New Jersey that plaintiff's lawyers in that state are dazzling juries with sophisticated video and computer-generated graphics that dramatize their side of the controversy. Meanwhile, defense lawyers often plod along with "Magic Marker, whiteboard, easel and maybe a projector for paper exhibits". Why the disparity? There are a number of reasons, but first in reporter Henry Gottlieb's list is the inveterate frugality of the insurers who so often foot the bills on the defense side: they are much more likely to keep their lawyers on a tight budget, refusing to authorize flashy new technology even when it holds out a promise of success.

All of this is very believable, and it suggests that the "David versus Goliath" mythos so beloved of our friends in the plaintiff's bar is way behind the times as regards a lot of personal-injury practice. If David is going to sport a fatter war chest and better access to the high-tech weaponry of the courtroom, then maybe it's time for the emotionally resonant imagery about underdogs and slingshots to be put to rest for good.

The language means what it says, writes Judge Easterbrook in Kolupa v. Roselle Park District (PDF). If pleading rules are to be toughened up, it's going to have to be by amending the federal rules of procedure, not stretching them (via Cernovich, who comments). Ted has more here about the low hurdle to filing a complaint under the FRCP.

The US as the new NJ

A century ago NJ was the leading US jurisdiction for incorporations. Then Governor Woodrow Wilson got the bright idea of trying to use the NJ corporation law as an antitrust law. The rest, as they say, is history.

More recently, the US has been the leading capital market in the world. Then somebody got the bright idea of passing Sarbanes-Oxley. I discuss the latest data on the flight of foreign firms from US markets here. It's not pretty.

The new battle cry on SOX: Remember New Jersey.

Collateral sources dept.: per the reformist-backed Madison County Record, "State Rep. Jay Hoffman (D-Collinsville), a member attorney of the Lakin Law Firm in Wood River, is the Illinois House sponsor of SB1911. He drove the bill through a House committee with an amendment that allows a plaintiff to recover damages for the amount of medical bills billed rather than the amount actually paid to health care providers." Illinois Civil Justice League president Ed Murnane says the measure would provide windfall benefits to injury claimants.

Vioxx Class Action

Merck & Co. has suffered a serious setback, according to the AP's Teresa Agovino. A New Jersey appeals court ruled that the nationwide class-action suit against the makers of Vioxx can proceed. (Merck has, to date, faced only individual plaintiffs in court.) The damage this decision could inflict on the company is made potentially even more severe by the fact that under New Jersey consumer fraud law, Merck would have to pay triple damages. Merck lawyer Ted Mayer said that the company plans to appeal.

Rhode Island lead paint

The New York Times has the first detailed (albeit not detailed enough) inside look at the Rhode Island public-nuisance suit against paint manufacturers that stopped selling lead paint thirty years ago. Most states have rejected expansive public-nuisance theories that override all the limits of product-liability law, but the Rhode Island precedent could become a dangerous problem to the American economy in the future. The defendants are also challenging the practice of contracting out state lawsuits to contingency-fee attorneys. One new detail: DuPont's $12.5 million settlement provides no money to the plaintiffs' attorneys. (Julie Creswell, "The Nuisance That May Cost Billions", New York Times, Apr. 2).

I've seen intelligent law professors and economists suggest that damages caps should not affect medical-malpractice insurance rates because most policies have limits anyway. A recent Pennsylvania court decision shows why this is overly simplistic. Dermatologist Paul G. Marcincin allegedly failed to diagnose Stephen Jurinko's skin cancer. Marcincin's insurance company, who held a $200,000 policy, apparently felt that Jurinko's claim wasn't valid, and refused to settle for more than a $50,000 nuisance amount. Jurinko won $2.5 million, and then settled with Marcincin in exchange for Marcincin assigning a "bad-faith" claim against the insurance company to Jurinko. And now Jurinko has won $7.9 million against the insurance company because it refused to settle a case for the $200,000 policy limit. Uncapped damages awards combined with the possibility of second-guessing "bad-faith" insurance lawsuits that multiply damages effectively abolish policy limits for medical malpractice insurers' actuaries. (Shannon P. Duffy, "$7.9M Bad Faith Verdict Upheld by Pa. Federal Judge", The Legal Intelligencer, Mar. 31).

One of the arguments for medical malpractice reform is that excessive liability serves to drive doctors out of the market for performing procedures with malpractice risk, and reduces access to health care. While this proposition makes sense as a matter of basic economics, there has been very little empirical study of the subject. On April 5, two economists who have previously done work in the area, David Dranove and Jon Klick, will be presenting new papers with their latest results. Randy Bovbjerg of the Urban Institute and I will be commenting; AEI's Jack Calfee will moderate. Register for the event here; the page will also eventually have a web-cast.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.