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June 2013 Archives

The Supreme Court's five-to-four decision in favor of the landowners in Koontz v. St. Johns River Water Management District counts as a victory of sorts for the property rights movement. The case involved an all-too common exercise of state permit power. Koontz had applied for a permit to develop some 3.7 acres of his waterfront property and for that privilege he was prepared to offer the state a conservation easement that would make it impossible for him to develop the remaining 11 acres of that parcel. The official reply was that the permit would be denied unless Koontz acceded to one of two conditions. By the first, he had to agree to cut down the site development to one-acre and to make other costly modifications to his project. By the second, the District requested that he hire, for an uncertain sum, contractors to replace culverts or fill in ditches on other parts of the land. Koontz balked; the District stuck to its guns, and nothing happened. In his subsequent law suit, Koontz claimed that the exactions imposed by the District offended the various tests for an appropriate nexus between the permit and condition that had been developed in the important Supreme Court cases of Nollan v. California Coastal Commission (1987) and Dolan v. City of Tigard (1994).

Harms v. Benefits One unfortunate aspect about this case was that Koontz, bending to the current legal realities, had been prepared in his application to deed over some portion of his land to the Water District to get the permit in the first place. But the antecedent question is why he should be required to make any such concession in the first place. In dealing with this issue, Dolan put the right framework on the question by insisting that the condition in question be linked to either a benefit that the state provided or to a harm that the developer's project would create--in that instance additional runoff into public waters.

The implicit subtext of the Koontz application was that the failure to mitigate so-called environmental damage counts as a harm which the Water District is entitled to redress without compensation. But there is no reason why that should be the case. In dealing with the harm/benefit distinction in other private law contexts, it is clear that the operative distinction runs as follows. The defendant engages in harm to the world when he pollutes it. The state demands a benefit from the landowner such as insisting that the land be used as a nature preserve. It ties the English language into impossible knots to say that the defendant harms any plaintiff to whom he does not supply a benefit. That would mean that all landowners harm their neighbors by refusing to allow them to graze their cattle in the fields or to bed down at night on the front lawn. And it would mean that every person in the world has conferred a benefit on all individuals whom they do not summarily execute or rob. It is only if the terms "harm" and "benefit" are placed within a coherent framework of preexisting property rights that they can be used in a coherent sense that makes legal intervention the exception for a targeted case, not a universal imperative in any case where any landowner attempts any development at all.

Yesterday, the U.S. Court of Appeals for the D.C. Circuit issued an important opinion regarding a rulemaking by the Commodity Futures Trading Commission. The Investment Company Institute and the U.S. Chamber of Commerce had challenged new CFTC rules that would force some mutual funds and other investment companies that had previously been exempt from registration to register with the CFTC. The court's decision in favor of the CFTC is an unfortunate validation of the CFTC's poor rulemaking practices.

Ted Frank has already briefly discussed this important decision, and I thought it might be useful to elaborate a bit here. I want to summarize the facts, the holding, the dissent, and the implications of the decision as I see them.

1. The underlying facts and the legal issue on appeal

-In 1978, the FDA approved a nonsteroidal antiinflammatory pain reliever (NSAID) called "sulindac" under the brand name Clinoril. When Clinoril's patent expired, the FDA approved several generic versions of sulindac, including one manufactured by Mutual Pharmaceutical.

-In a very small number of patients, NSAIDs--including sulindac (Clinoril®, etc), ibuprofen (Advil®, etc.), naproxen (Aleve®), and Cox2-inhibitors (Celebrex®, etc)--have the rare serious side effect of causing hypersensitivity skin reactions characterized by necrosis of the skin and the mucous membranes: toxic epidermal necrolysis (Lyell's Syndrome) in more or less severe form. This rare, life-threatening skin condition consists of the top layer of skin (the epidermis) detaching from lower layers of the skin (the dermis) all over the body.

-In December 2004, New Hampshire resident Karen Bartlett was prescribed Clinoril for shoulder pain. Her pharmacist dispensed a generic equivalent manufactured by Mutual Pharmaceutical. Ms. Bartlett soon developed an acute case of toxic epidermal necrolysis. The results were horrific. Sixty to sixty-five percent of the surface of her body was burned off or turned into an open wound. She spent months in a medically induced coma, underwent 12 eye surgeries, and was tube-fed for a year. She is now severely disfigured, has a number of physical disabilities, and is nearly blind.

-Bartlett sued Mutual Pharmaceutical for compensation for her injuries, on the grounds that the sulindac it manufactured was defective and unreasonably dangerous. Bartlett complained about two things: the warning on the defendant's sulindac (what I call "informational defect" in my book on Products Liability, and the chemical composition of its drug ("design defect").

-At the time respondent was prescribed sulindac, the drug's label did not specifically refer to toxic epidermal necrolysis, but did warn that the drug could cause "severe skin reactions" and "[f]atalities." However, Stevens-Johnson Syndrome (a lesser form of Lyell's Syndrome) and Lyell's Syndrome (aka toxic epidermal necrolysis) were listed as potential adverse reactions on the drug's package insert. In 2005, after Bartlett was already a victim, the FDA recommended changes tothe labeling of all NSAIDs, including sulindacs, to more explicitly warn against toxic epidermal necrolysis.

-the federal District Court that heard the case dismissed Bartlett's failure-to-warn (informational defect) claim because her doctor, to whom the duty to warn is owed where prescription drugs are concerned, had admitted "that he had not read the box label or insert." [In other words, a more thorough warning on the label would have made no difference.] But he let the design defect claim go to the jury, and after a 2-week trial, it granted over $21 million in damages to Ms. Bartlett. The First Circuit Court of Appeals affirmed, and Mutual appealed the design defect liability to the Supreme Court.

-The Supreme Court, in PLIVA, Inc. v. Mensing (2011), had previously held that state failure-to-warn (informational defect) liability of generic manufacturers are pre-empted by federal law: to wit, by the Food, Drug and Cosmetic Act (FDCA)'s prohibition of any changes to generic drug labels as compared with the branded drug label. But Bartlett argued that her design defect claim was not covered by the logic of Pliva, since generic manufacturers could escape liability for producing a defective drug by simply choosing "not to make the drug at all." This was the issue before the court: does the logic of Pliva apply to design defect claims?

2. The Court's holding

-A bare majority of the court held that the logic of Pliva does indeed extend to design defect claims. In this case, however, redesign of the drug was not possible for two reasons. First, the FDCA requires a generic drug
to have the same active ingredients, route of administration, dosage form and strength as the brand-name drug on which it is based. Second, because of sulindac's simple composition, the drug is in any case chemically incapable of being redesigned.

-The label is part of the design of a drug, but as Pliva held, "[f]ederal drug regulations, as interpreted by the FDA, prevented the Manufacturers from independently changing their generic drugs' safety labels."

-Of course, no law actually forced Mutual to manufacture any sulindac at all. It could have complied with federal and state laws by closing up shop. But this was also the case for the manufacturer in Pliva, and the Court there was unimpressed with the argument that federal law did not preempt state law because a manufacturer could comply with both by ceasing to manufacture. Thus, the logic of Pliva compels that it be extended to design defect cases.

-Justice Breyer, in dissent, found the FDA's work on this issue to be insufficiently studied, and therefore decided to accept the claim that Mutual could have satisfied both federal and state law by going out of business. He would not have accepted the claim had he approved of the FDA's work.

-Justice Sotomayor, also in dissent, claimed that Pliva only addressed failure-to-warn (informational defect) claims, not design defect claims. According to her, "nothing in Mensing, nor any other precedent, dictates finding ... pre-emption here." How so? Because Mutual could have made its product with the same warning and the same composition as the branded drug, as required by law, and then "compensate consumerswho were injured by an unreasonably dangerous drug." Thus Mutual was not forced to violate either state or federal law.

3. Analysis

-Justice Sotomayor's dissent is clearly specious, and the majority was correct to gently chide her for in actuality saying that Bartlett should recover because she was grievously injured. Sympathy for an injured party is not sufficient for tort liability, President Obama's exhortations to the contrary notwithstanding. Indeed, Justice Sotomayor's dissent makes a mockery of Pliva, for there too the generic manufacturer could have published the required warning and then paid liability damages. The only competent way to read Sotomayor's dissent is as a repudiation of Pliva, without the honesty of saying so. It is embarrassing that Justice Ginsburg joined this lawless opinion, and it is, I suppose, perversely comforting that Justices Breyer and Kagan repudiated it by insisting, pragmatically, that they would evaluate each FDA action according to their own second-guessing of its thoroughness, following the logic of Pliva or not depending on their sovereign discretion.

-It is clear now that only manufacturing defect (i.e., the generic drug was not made correctly, was diluted or contaminated, etc) is available to those suing the manufacturers of generics. Perversely, this gives more rights to plaintiffs suing brand-name manufacturers than to those suing off-patent producers. The former remain liable for manufacturing, informational and design defects, while the latter are only liable for manufacturing issues. Clearly, this is a weird equilibrium, as it reduces the brand-name manufacturer's profits relative to the generic maker's. The former of course bears all development and testing costs, while the latter "free-rides". At the margin, this may encourage drug makers to select generic manufacturing instead of R and D. Sooner or later, I think, either Pliva and Bartlett will have to be repudiated, or (much more likely) the logic of their protection will have to be extended to informational and design defect cases against the makers of brand-name drugs, repudiating cases such as Wyeth v. Levine.

The Supreme Court of the United States issued two 5-4 opinions today to clarify provisions of Title VII of the Civil Rights Act of 1964.

In Vance v. Ball State University, the Court ruled that for an employer to be held vicariously liable in a Title VII hostile work environment claim, the employee accused of the harassment must be one empowered by the employer to take tangible employment actions against the plaintiff.

Justice Alito writing for the majority:

Under Title VII, an employer's liability for such [workplace] harassment may depend on the status of the harasser. If the harassing employee is the victim's co-worker, the employer is liable only if it was negligent in controlling working conditions. In cases in which the harasser is a "super- visor," however, different rules apply. If the supervisor's harassment culminates in a tangible employment action, the employer is strictly liable. But if no tangible employment action is taken, the employer may escape liability by establishing, as an affirmative defense, that (1) the employer exercised reasonable care to prevent and correct any harassing behavior and (2) that the plaintiff unreasonably failed to take advantage of the preventive or corrective opportunities that the employer provided. Under this framework, therefore, it matters whether a harasser is a "supervisor"or simply a co-worker.

It is important to note and reiterate the above quotation that a victim of workplace harassment can still sue an employer under Title VII for harassment by a co-worker rather than a supervisor. The effect of this decision is that the employer will not be strictly (automatically) liable in such a case, but instead will have an affirmative defense available to prove that they, the employer, were not negligent in responding to the complaint of harassing behavior when it was brought to their attention.

In University of Texas Southwestern Medical Center v. Nassar, the Court held that an employee alleging retaliation under Title VII must prove "but for" causation, not the lessened causation test that could be met by proving mixed motives which include retaliation.

Justice Kennedy writing for the majority:

In sum, Title VII defines the term "unlawful employment practice" as discrimination on the basis of any of seven prohibited criteria: race, color, religion, sex, national origin, opposition to employment discrimination, and submitting or supporting a complaint about employment discrimination. The text of §2000e-2(m) mentions just the first five of these factors, the status-based ones; and it omits the final two, which deal with retaliation. When it added §2000e-2(m) to Title VII in 1991, Congress inserted it within the section of the statute that deals only with those same five criteria, not the section that deals with retaliation claims or one of the sections that apply to all claims of unlawful employment practices. And while the Court has inferred a congressional intent to prohibit retaliation when confronted with broadly worded antidiscrimination statutes, Title VII's detailed structure makes that inference inappropriate here. Based on these textual and structural indications, the Court now concludes as follows: Title VII retaliation claims must be proved according to traditional principles of but-for causation, not the lessened causation test stated in §2000e-2(m). This requires proof that the unlawful retaliation would not have occurred in the absence of the alleged wrongful action or actions of the employer.

The two decisions have already prompted angry reactions characterizing these decisions as the Court taking the side of business against the American worker. However, as Walter Olson, senior fellow at the Cato Institute's Center for Constitutional Studies, explains, if SCOTUS came out the other way in these decisions, compliance would be impossible. The Supreme Court seems to have provided clarification where it was sorely needed and like Justice Ginsburg wrote in her dissent in Vance, "the ball is once again in Congress' court" if Congress thinks the Court's interpretation is incorrect.

We were critical of the First Circuit decision in Bartlett v. Mutual Pharm. Co., and called for Supreme Court review. The Supreme Court today reversed the horrifically bad decision—but disturbingly, did so only on a 5-4 vote. [Scotusblog page]

Drug and Device Law Blog is sure to have interesting commentary, as they consistently have had during the case's pendency.

While there are those who complain that generic manufacturers get protection that other pharmaceutical companies do not, the problem arises because Wyeth v. Levine was wrongly decided. Unfortunately, the only legislative movement to correct the discrepancy would go in the opposite direction, resulting in a wealth transfer from consumers and government to wealthy trial lawyers, raising the cost of healthcare dramatically.

To recap the latest criminal investigation of a football player that has been leading sports news: 23-year-old New England Patriots star tight end Aaron Hernandez was seen with his 27-year-old friend (and boyfriend of his girlfriend's sister) Odin Lloyd Sunday night and early Monday morning. Later Monday, Lloyd was discovered dead of a bullet to the head near a rental car rented by Hernandez. When the police investigated and searched Hernandez's home, both his security system and his cell phone had been smashed into pieces. Also, he'd hired a cleaning crew on short notice.

Meanwhile, his attorney, Michael Fee, issued an odd statement: "It has been widely reported in the media that the state police have searched the home of our client, Aaron Hernandez, as part of an ongoing investigation. Out of respect for that process, neither we nor Aaron will have any comment about the substance of that investigation until it has come to a conclusion." That sort of attorney statement disserves the client and is worse than no statement whatsoever: you can make a statement, but you can't even bring yourself to say "My client didn't shoot his friend in the back of the head"? It would be different if Fee had said "I have a policy of never speaking to the press about ongoing investigations." But that isn't what he said, and Fee does speak about investigations of other clients notwithstanding respect for the process. What should we infer from that? (We can infer that Fee isn't willing to lie for his clients. Good for him for observing ethical rules rarely enforced, but then be more quiet.)

Reported rumor has it that police are about to issue an arrest warrant for "obstruction of justice" against Hernandez, presumably over the smashed security system. ESPN's legal analyst Roger Cossack stated "There's a federal statute in every state that you cannot knowingly destroy evidence" and that soundbite has been quoted for three days of ESPN coverage. Except it may not be that simple.

We'll start off by noting that Cossack probably misspoke. There's no such thing as a "federal statute in every state"; there's a federal statute, or there isn't. And while there's a federal statute for obstruction of justice, 18 U.S.C. §§ 1501 ff., it only applies to federal investigations, so has no bearing on the investigation by local police in Massachusetts. We need to look to Massachusetts state law.

In 1997, the Massachusetts Supreme Court interpreted the scope of criminal law with respect to obstruction of justice in the case of Commonwealth v. Triplett, 426 Mass. 26. Triplett had told a witness not to speak to the state police or the Attorney General's office, and was indicted and convicted for obstruction of justice. The Supreme Court reversed, holding that the common-law crime of obstruction of justice only applied to a witness at a criminal trial. In the absence of a statute, one couldn't go beyond that—even if the defendant did something like "remov[e] fingerprints from a knife."

As best I can tell, Triplett is still good law; as best I can tell, there is still no specific statute for destruction of evidence as an independent crime. If so (and I might have missed something, though I haven't seen any commentary basing "obstruction of justice" on something else), then no legal arrest warrant can issue against Aaron Hernandez for obstruction of justice. He may be guilty of a crime, but it isn't obstruction of justice.

That isn't to say that Hernandez could have destroyed the security tapes with impunity. Destroying security tapes is pretty damning circumstantial evidence, and the maids who cleaned Hernandez's house will likely remember if they were picking up itty-bitty pieces of skull. If it turns out a mutual friend killed Lloyd, Hernandez could be charged with being an accessory after the fact. And when Lloyd's next of kin inevitably sues Hernandez for millions in a civil suit, as they have every right to, they can ask a jury to draw the adverse inference from his conduct.

(Disclosure: I've played poker with Cossack, though he probably doesn't remember me.)

Tired of waiting for the SEC to issue regulations that will open the door to interstate crowdfunding under the JOBS Act, the North Carolina House of Representatives has passed a bill that would permit securities-based crowdfunding on an intrastate basis in North Carolina.

If the bill becomes law, North Carolina would join a small but growing number of states that are adopting intrastate crowdfunding provisions in light of the delays at the federal level.

Today, the Supreme Court decided American Express v. Italian Colors (PDF) (holding, 5-3, that the fact that necessary expert-witness costs exceed the expected return on low-value individual claims, premised on federal law, does not, under the judicially created "effective vindication" doctrine, mean that arbitration clause class-action waivers are unenforceable). (The justices here lined up in the "usual" way -- with Justice Scalia writing for the majority and Justice Kagan for the dissent; Justice Sotomayor, who considered the case below on the Second Circuit, recused.)

See Ted's earlier posts on the case here (at cert stage) and here (after filings of merits briefs). We also hosted a featured discussion on the case between Ted and Cardozo law professor Myriam Gilles here. And see Ted's Manhattan Institute paper on arbitration-clause waivers of class-action remedies here, and reaction here (Greve) and here (Wood).

Because, as Ted has noted, "the litigation lobby has already beat the bushes to create unfair animus against arbitration clauses," it's important to emphasize what the decision says and what it doesn't. Justice Kagan's very well-written dissent to the contrary, the majority opinion does not suggest that companies can invoke any and every arbitration provision to preclude the vindication of federal rights.

Would-Be Whistleblowers
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Last Wednesday, the Securities and Exchange Commission made its second award determination under its Dodd-Frank whistleblower program. Three whistleblowers will get five percent each of whatever monetary sanctions are ultimately collected in connection with the SEC's enforcement action against Audrey C. Hicks and Locust Offshore Management. The SEC alleged that Mr. Hicks and Locust stole over $2.7 million from investors and the court ordered the defendants to pay more than $7.5 million. A fourth whistleblower attempted to get a share of the bounty, but was turned down by the SEC and may now be headed to federal appeals court. If this case is representative, the whistleblower program--even if it produces some good leads--also could end up costing the SEC a lot of time and trouble.

Under Dodd-Frank's whistleblower program, anyone who provides original information about a securities violation that leads to a successful SEC enforcement action resulting in monetary sanctions of more than $1 million is eligible for an award. The SEC must award between ten and thirty percent of monetary awards collected from the wrongdoer. As in this case, sometimes multiple whistleblowers share the award.

Whether a whistleblower gets an award depends on a number of factors, including the nexus between the information provided and the success of the SEC's action. In this case, according to the SEC's order, the rejected whistleblower provided "vague or insubstantial" information about "securities fraud committed by many brokers/dealers/traders involved with naked shorting" of a company's securities. The SEC's Division of Enforcement did not act on this tip or two subsequent tips. None of them related to the Hicks and Locust Asset Management matter, a case that did not involve naked short selling claims.

As people realize how potentially lucrative SEC whistleblowing can be, they are likely to submit broad, useless tips in the hopes of cashing in on future SEC cases. There's not much of a cost for the would-be whistleblowers. The SEC will try to deny invalid claims, but it will require a lot of work on the SEC's part and will divert the agency's resources from the many better things it could be doing.

(This post is co-authored with Adam Schulman of the Center for Class Action Fairness.)

Sullivan v. DB Investments, the Third Circuit en banc decision affirming a class action settlement certification, was troubling, for reasons noted by Andrew Trask last year. Class members who had no cause of action were grouped with class members who did have a cause of action in a single settlement class, and got identical relief. The Third Circuit found no intra-class conflict, despite the obvious wealth transfer. As Judge Scirica's concurrence reads:

[O]bjectors contend some class members do not have a valid cause of action, but these class members with non-repealer state law claims have lost nothing through inclusion in the class. Objectors speculate inclusion of non-repealer state law claims necessarily diminishes the settlement accrued to class members whom they contend have undisputedly valid claims. But they provided no support for their assertion.

Objectors contend they seek to protect absent class members, but fail to explain how absent class members--all of whom claim injury--are harmed by the defendants' willingness to settle all potential claims.

Judge Jordan had the obvious rejoinder:

The problem here is not that some absent class members who deserve compensation are left out by the settlement. The problem is that some class members who deserve nothing are included in the settlement and hence are diluting the recovery of those who are entitled to make claims. That harm is real, and the cause of it, the overbreadth of the class, is akin to the problem in Amchem.

Now, over a year after the decision, checks have been mailed, and, surprise, surprise, class members' claims have been diluted to near nothing: a Consumerist poster, Laura Northrup, notes that a class member with a $3000 claim (which would be trebled under the antitrust laws), received a mere $48. (This is hardly surprising, given that there were 67 million class members splitting about $200 million. If anything, $48 is surprisingly large. Of course, Ms. Northrup's friend might be in the $0 cross-subsidizing subclass, rather than the subclass whose recovery was diluted.) Meanwhile, the attorneys who won this nuisance settlement of pennies on the dollar were compensated more than in full: $73 million.

The DC Circuit rejected a similar challenge in Cobell v. Salazar; cert petitions were rejected in Cobell and voluntarily dismissed in Sullivan, so the Supreme Court has not yet addressed appellate courts' disregard of its precedents and the circuit split, but the issue is likely to arise again in some pending megasettlements.

Equal Pay Act redux
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Diana Furchtgott-Roth reminds us that the premise behind the Paycheck Fairness Act is absolutely bogus, and that its implementation would cost jobs. Related; earlier. (h/t T.T.)

I accept Paul Ryan's challenge
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Rep. Paul Ryan says he will debate anyone who calls the Schumer-Rubio bill "amnesty." I accept his challenge, and will be happy to debate him at the time and place of his choosing (though I'm booked on June 27 and 28). Does Ryan realize the "path-to-citizenship" provisions he thinks preclude an appellation of "amnesty" are riddled with loopholes and opportunities for executive-branch waivers? If he thinks that the Obama Administration DHS is not going to turn this proposed law into de facto amnesty, he is getting rolled by Senator Schumer; if he's aware of it, he's selling out conservative principles for cynical reasons that are almost certainly political miscalculations.

Last Friday, U.S. District Judge Beryl Howell handed down a second opinion in the Commodity Future Trading Commission's favor as the agency spars with the industry over its Dodd-Frank rules. (Judge Howell's first opinion was a ruling last December against the Investment Company Institute and the U.S. Chamber of Commerce, which are challenging a CFTC rule governing mutual funds.) Last week, she ruled against Bloomberg in its challenge of a CFTC rule that Bloomberg contends will affect the business prospects of its swap execution facility, an electronic trading platform for swaps. The Bloomberg case is a temporary victory for the CFTC, but it's not necessarily a long-term win for the agency as it remakes the swaps markets under Dodd-Frank.

SEC Settles on Poor Cases
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There has been much discussion recently of the merit of the SEC's no-admit settlement policy. Companies and individuals routinely enter into enforcement settlements with the SEC that include a detailed rendition of the facts as the SEC sees them and a disclaimer that the company or individual is settling without admitting or denying the allegations. The practice has allowed the SEC to be very sloppy in constructing its enforcement actions.

Sears v. Butler GVR'ed
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We discussed the case of Sears v. Butler, and I expanded on it at Forbes.com. The Supreme Court chose not to put it on the oral-argument calendar, but asked the Seventh Circuit to reconsider in light of Comcast v. Behrend. [Fisher; see also Olson]

Andrew Trask thinks this shows that Comcast v. Behrend is having "real effect," but I think it's too soon to tell whether lower courts will give the decision narrow or broad reach. I think at least one of the three remands given will result in reaffirmation of the pre-Comcast decision.

Every plaintiff's and every defendant's attorney know that, for any given alleged tort, damages determined by a jury are likely to be higher, ceteris paribus, if the defendant is a corporation than if the defendant is a human person. [There are lots of scholarly confirmations of this jury bias: see, for example, Hammitt, Carroll & Relies, Tort Standards and Jury Decisions, 14 J. LEGAL STUD. 751 (1985).] This is in no small part because compensatory damages include "pain and suffering", which have no explicit market evaluation, thus allowing for much subjective leeway against juries, who may well conclude that a "deep-pocketed" corporation will not itself feel "pain" by having to compensate a plaintiff more fully.

The Alabama Supreme Court this week tackled a very interesting ethical issue arising from this commonly held belief in jury bias against corporations. The issue, in a nutshell, was the following: if a plaintiff's attorney sues a human being, but negligently fails to sue a corporation that would have been held jointly and severally liable with that individual, and if as a direct result of this failure the plaintiff receives less money than he otherwise would have received, is the plaintiff's attorney liable (for malpractice) for the difference?

The facts in Hand v. Howell et al. were, in essence, as follows:

-Tommy Hand, driving a truck as part of his own employment, was struck and injured by a vehicle negligently driven by the personal auto of Julie Bennett, who "was on-duty and working within the line and scope of her employment with the Montgomery Advertiser" at the time.

-Hand consulted the Howell law firm, which sued Bennett BUT NOT the Montgomery Advertiser (or its parent, Gannett). By the time Hand fired the Howell firm and hired new attorneys, the statute of limitations had run against the Advertiser.

-Hand suffered severe back injuries. His economic damages alone were about $872,000, and of course he also had "pain and suffering" damages.

-Bennett's personal auto insurance limit was the state minimum $25,000 (and Bennett was manifestly insolvent). However, fortunately for Hand, the Advertiser's $5 Million liability policy actually named Bennett as being insured.

-After complicated proceedings, Hand settled with Bennett for approximately $625,000, of which $25,000 was paid by her personal liability policy and the rest by the Advertiser's insurer.

-But Hand's new attorneys produced evidence that the settlement value of the suit HAD IT BEEN FILED AGAINST THE ADVERTISER would have been between $1 million and $1,200,000. This amount would have recoverable, of course, since the newspaper's liability limit was $5 million

Against this backdrop, the plaintiff sued the Howell law firm for the difference between what he recovered (which was not even enough to pay for his economic costs) and what he would likely have recovered had the employer been sued.

A bare majority of the Alabama Supreme Court approved granting summary judgment to the Howell firm. According to the court, the only reason the settlement value of a suit against the employer was greater than the settlement value of a suit against the negligent employee is jury bias against corporations. But, stated five of eight Justices (this number included one concurring Justice), such bias may not be considered as a matter of law. The three dissenting Justices noted that negligence, causation and damages had been properly alleged and prima facie proven, thus entitling the plaintiff to pursue his legal malpratice case to a jury.

Crucial, of course, was the fact that the newspaper's liability policy personally covered the defendant -- otherwise there would have been damages aplenty as plaintiff would have recovered only $25,000. The dissenting Justices are clearly correct that plaintiff had offered proof of negligence, causation and damages. Only the refusal to acknowledge the truth of jury bias precluded recovery against the negligent law firm.

Should the majority have prevailed? Should plaintiff benefit from anti-corporate jury bias if his case is properly pleaded to a jury, but not benefit from it against his lawyer if the latter negligently failed to avail himself of it? Of course, in the former case no judge ever admits that there is bias -- the judge merely issues a judgment on the jury verdict. In the latter case, for the plaintiff to prevail against his lawyer, a court would have had to officially acknowledge jury bias. That is one thing the Alabama court (and, we think, most courts) would be loathe to do. The emperor remains fully clothed!



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.