Results matching “bankrupt asbestos”

WSJ on Grace asbestos strategy - PointOfLaw Forum

The paper enthusiastically backs the company's unprecedented effort to get a bankruptcy judge to declare most of the claims against it nonmeritorious. Some background here and here.

Around the web, March 4 - PointOfLaw Forum

  • Riegel v. Medtronic reactions: "Michigan's innovative drug shield law turns out to be ahead of the curve, now that the U.S. Supreme Court has signed on to the concept." [Detroit News editorial]; "There are reasons to cheer" [Washington Post editorial]
  • Anti-protective-order bill proposed in Congress by Wis. Senator Kohl would mount scary assault on business privacy [CJAC]
  • West Virginia mulls creating chancery courts, which exist in several other states [WV Record]
  • In novel strategy, W.R. Grace wants bankruptcy judge to declare many of the asbestos cases against it invalid [Washington Post]
  • Long Island ob/gyns and neurosurgeons squirm at their high insurance rates (respectively $177,000 and $275,000 a year)] [Newsday]
  • That $501 million stent patent verdict against Boston Scientific? Yes, now that you mention it, it was in Marshall, Texas [AP/Law.com]
  • New blog about juries [called, yes, Juries; Anne Reed recommends]

The Public and Private Faces of Peace for Mass Torts - PointOfLaw Columns

By Richard A. Nagareda

Tort law is traditionally labeled a species of "private" law, a sibling of such things as the law governing contracts and corporations. To be sure, much of tort law, such as the everyday automobile accident case, retains much of this private dimension in practice. Mass torts diverge from this familiar pattern, however. In a new book, Mass Torts in a World of Settlement (University of Chicago Press), I trace how mass tort litigation has given rise to an uneasy combination of private and public institutions; and I discuss what the law should do about it.

The evolved response of the civil justice system to mass torts has been to shift from litigation on the private-law model of tort law to something much more like public administration. Simply put, the endgame of mass tort litigation today is not trial but some form of comprehensive settlement—what lawyers on both sides describe, with only a smidgen of exaggeration, as "global peace." Whatever the vehicle chosen, the peace terms are broadly similar. Instead of continued costly litigation, peace in the mass tort world substitutes a miniaturized, privatized version of workers' compensation for the affected claimants. Debates over matters of pretrial procedure—say, over whether a class action will be certified or whether the plaintiffs' expert scientific evidence will be deemed admissible—comprise crucial sparring points, precisely because they affect dramatically the ultimate price of peace. The interesting questions for the law are: Who are the peacemakers, and what means may they wield to make peace?

The peacemakers here consist of private lawyers—in practice, an elite segment of well-capitalized plaintiffs' lawyers with nationwide practices and an equally elite segment of the "big firm" defense bar. No one seriously believes that Congress can or should step in to set the peace terms for every mass tort of the future. Peace for mass torts thus necessarily means relying primarily on private lawyers as peacemakers.

This is not an ignoble or unimportant enterprise for the private bar. Structuring the kinds of business transactions to make peace in mass torts—and transactions they most certainly are—involves just as much savvy and creativity as the most complex corporate mergers. And the transactional dimension of peace here has the potential to advance the same social objective: to create wealth by bringing into being resources that would not otherwise exist through the reduction of litigation uncertainty. This is why the means chosen for peace take on such critical importance. Only by offering closure—only by exercising a considerable measure of coercive authority—can the dealmakers unlock the value-creating potential of peace. Yet the need for coercion is also what nudges private dealmaking into a matter of public concern.

Since the Supreme Court's 1997 decision in Amchem Products, Inc. v. Windsor, the law has witnessed a halting search for some legitimate means to make peace in mass tort litigation. The means employed have ranged broadly, from the poles of private contract (legitimized by notions of individual client consent, as in conventional civil settlements) and of public legislation (of the sort seen in the federal 9/11 victim compensation fund). Between these two poles rest a variety of means that are problematic precisely because of their hybrid, private-and-public nature—things like aggregate settlements in consolidated litigation, class action settlements (as in Amchem itself), and corporate reorganizations under the Bankruptcy Code.

Moves to tighten to the point of unviability things like class action settlements—as Amchem quite arguably does—cannot slay the mass tort monster. They merely force peacemaking efforts over to surrounding territory—to bankruptcy and to private contracts. In the asbestos area, the Amchem Court's clampdown on class settlements unleashed a deluge of asbestos-related bankruptcies in which both courts and the business press have documented even more problematic self-dealing and conflicts of interest than were voiced against the Amchem deal. On the opposite side of the spectrum, the recent $4.85 billion deal in the Vioxx litigation seeks to reinvigorate private contracts—there, a contract not as one might expect between the defendant Merck and plaintiffs, but literally between Merck and the key plaintiffs' lawyers whose client inventories include the bulk of extant Vioxx claims.

The law would benefit from seeing each of these means not in terms of traditional procedural categories but, rather, as much more contiguous and overlapping in character. Whatever the means chosen, what the peacemaking plaintiffs' lawyers seek to do is to exercise a form of leverage: to use mass inventories of existing claims to assert a broader power to bargain with the defendant to set the peace terms for the future. What is needed for mass torts is a corresponding legal response that would turn this leveraging into its own source of constraint—that would bestow the coercive authority needed to make peace, but only coupled with measures to link the interests of the peacemakers to the long-term viability of the arrangements they create. Such measures might include the overriding of existing lawyer-client retention agreements so as to link the fees to be obtained from clients by plaintiffs' lawyers to the peace terms that they fashion for non-clients who are otherwise similarly situated.

This is a good deal less sweeping or radical than it might sound. Lawyer-client retention agreements grounded in conventional notions of the autonomous individual client and a lawyer loyal to her alone are strikingly out of line with the reality of aggregate representation in the mass tort setting. Overriding the fee terms in such contracts precisely when plaintiffs' lawyers seek to move beyond individual client representation and into the realm of peacemaking would merely expose to the clear light of day the leveraging that undergirds the dynamics of peace negotiations. It would bring the law into closer alignment with the practical reality of peacemaking in the aggregate, rather than rail against it in the manner of Amchem. And, not incidentally, it would be grounded in notions of public governance.

It is not easy to let go of the profession's old ideal of individualized client autonomy, or its old ethical strictures against attorney control of litigation. Yet new times call for new measures. If legal institutions are to advance the aggregate good, they need to develop new ways to tie the interests of the real decision-makers in litigation to the interests of those whom they purport to govern. No less is needed for peacemaking as a form of governance in mass tort litigation.

Richard Nagareda is Professor of Law and Director of the Cecil D. Branstetter Litigation & Dispute Resolution Program at Vanderbilt University Law School.

"A line in the dust" - PointOfLaw Forum

Forbes's Daniel Fisher profiles efforts of lawyer David Bernick, representing W.R. Grace, to persuade a federal bankruptcy judge to assess at zero tens of thousands of asbestos claims where product-exposure or medical evidence is in Grace's view lacking. It's not just a question of whether Grace winds up paying money to the marginal claimants; it's also a question of whether their lawyers will be allowed to retain veto power over Grace's plan of bankruptcy reorganization, which must pass muster with 75 percent of claimants, a flimsy case getting the same vote as a strong one.

Asbestos and the federal fisc - PointOfLaw Forum

As has been noted on more than one occasion, there are some not-implausible arguments to be made for the federal government's shouldering the cost for a goodly chunk of the asbestos litigation mess, simply because exposure to asbestos during the building and use of World War II Victory Ships accounts for such a big share of later asbestos illness. As is equally well known, the general sense in Washington is one of unwillingness to shoulder any such responsibility, leaving the financial burden instead to fall on private companies whose degree of guilt on the matter varies considerably, to say the least.

Do not imagine, however, that the feds have managed to dodge the financial fallout entirely. A news item from the Lancaster, Pa. New Era (courtesy Chamber's ILR) discusses one of the consequences of the bankruptcy of locally based Armstrong World Industries, a long-celebrated name in flooring and other building supplies, which was forced into Chapter 11 in 2000 by asbestos suits. By creating a trust valued at $1.8 billion, the firm handed over a majority stake in itself to asbestos claimants and their legal representatives. "The expense of funding the trust pushed Armstrong into tax net operating losses, which it could carry back over 10 years, triggering $180 million in tax refunds from those years." In addition, it expects further federal tax write-offs to come. Multiply those sorts of sums by dozens of large firms on the bankruptcy lists, and it turns out after all that the federal government is probably worse off by at least many billions from the litigation, in the form of forgone and refunded tax revenues. All of which would be one thing, of course, if the costs consisted mostly of payments to claimants seriously ill from asbestos exposure, and is quite a different thing given the central role in the litigation of 1) middlemen of various sorts, and 2) claimants with little or no impairment reasonably attributable to asbestos.

Mass tort bankruptcies under scrutiny - PointOfLaw Forum

Byron Steir at Mass Tort Litigation Blog notices an article by Margaret Graham Tebo at the ABA Journal which we can't find (here's their general link). Relevant excerpt:

Much like the housing bubble, the days of huge class action settlements providing millions in attorney fees may be ready to burst, at least in one fed�eral circuit.

The Philadelphia-based 3rd U.S. Circuit Court of Appeals is starting to take a hard look at settlements that provide for huge attorney fees while leaving in�surance companies stuck with the bill�and some�times leaving plaintiffs claiming they got less than their fair share.

For years, critics say, it worked like this: Plaintiffs lawyers would file mass tort class actions�such as those for asbestos, tobacco and other products found to cause grave harm. Then, when the company allegedly responsible for damages filed for bankruptcy protection in the face of the claims, plaintiffs lawyers would settle for an amount that provided millions of dollars in attorney fees, while leaving individual claimants with a relatively small recovery. The company was then absolved of further liability and could reorganize and emerge relatively unscathed.

But recently that structure has begun to show cracks. In some instances, insurance companies�which usually pay the bulk of these settlements�have cried foul. The companies are seeking to intervene in cases where they face huge liabilities, sometimes joining forces with unhappy claimants who feel their lawyers didn�t have their best interests at heart when they agreed to the settlements.

In one case, the 3rd Circuit revived a suit last Octo�ber that had been filed by a group of asbestos workers alleging their former lead attorneys had breached their fiduciary duty in negotiating a settlement. Huber v. Taylor, 469 F.3d 67.

Another Congoleum ruling - PointOfLaw Forum

A New Jersey court absolved insurers from liability for asbestos claims from a collusive prepackaged bankruptcy. Nathan Koppel in today's WSJ:

Middlesex County Superior Court Judge Nicholas Stroumtsos Jr. concluded that the agreement was the result of collusion between Congoleum's former bankruptcy lawyers and lawyers representing asbestos claimants. The agreement "contains no meaningful provisions to ferret out fraudulent claims," he wrote.

See also the WSJ Law Blog (with additional links), the decision, and the Mass Tort Litigation Blog. Our earlier coverage: Feb. 13, Jun. 7, and other articles. Roger Parloff did a comprehensive expose in 2004 for Fortune ("Welcome to the New Asbestos Scandal", Sep. 6, 2004), which we had previously reported as subscriber-only.

Asbestos bankruptcies, cont'd - PointOfLaw Forum

Per a W$J editorial, judges have dealt defeats recently to the asbestos plaintiff's bar in two bankruptcy cases. In the W.R. Grace case, a judge ruled -- contrary to scare stories that have been in circulation for a while -- that vermiculite attic insulation that contains some asbestos does not in itself pose an unreasonable risk of injury to homeowners or others. And in the Congoleum case, a judge refused to approve a reorganization plan that protected the interests of management and asbestos lawyers at the expense of insurers. For more on asbestos bankruptcies, see, e.g., here, here and (Congoleum:) here.

Update: Ohio court finds fraud in asbestos case - PointOfLaw Forum

"Ohio Judge Finds Calif. Firm Submitted Fraudulent Asbestos Claim Forms" is the headline in Matthew Hirsch's January 19 Recorder story.

After reviewing internal e-mails from the Brayton firm and other privileged documents, [Judge Harry] Hanna concluded that [plaintiff's attorney Christopher] Andreas' statements from a hearing last spring "were patently false and could only have been designed to deceive this court and Lorillard."

But Hanna said the improper conduct didn't stop there. The judge concluded Andreas also encouraged an asbestos trust to resist a court subpoena, then withheld materials used to prepare bankruptcy claim forms that Hanna ordered released in discovery.

The judge's only sanction was against the attorney, however. Plaintiff Harry Kananian's case was permitted to go forward, notwithstanding the fraud; Andreas moved to withdraw from the case when the allegations came to light. (If, indeed, the client was an innocent in the matter, that should go to whether the client can recover against the attorney, rather than the victim of the fraud.) Andreas will appeal. We noted press-coverage of the double-dipping allegations May 16 and Dec. 5.

A snapshot of asbestos litigation - PointOfLaw Forum

I was reading the 10-Q of a mid-sized business for some consulting work I was doing, and it provided a fascinating snapshot of how asbestos litigation is affecting the thousands of tertiary innocent-bystander defendants under the plaintiff-bar's entrepreneurial model of cookie-cutter lawsuits suing 100 defendants hoping for nuisance sums from most of them to fund larger speculative ventures against deeper pockets—at the cost of generating tremendous uncertainty in American business investment, not to mention fundamental fairness:

David Egilman on asbestos screenings - PointOfLaw Forum

Not new, but an evergreen worth memorializing: in 2002 the American Journal of Industrial Medicine published a letter from David Egilman MD, of the Brown University Department of Community Health, on the consequences of mass attorney-directed asbestos screenings. Dr. Egilman, who himself has testified extensively for plaintiffs in asbestos and other toxic tort litigation, was critical of attorneys who paid x-ray readers if they obtained desired results but not otherwise, "shopped around" x-rays until they found a radiologist willing to play ball, and in other ways massaged the files of unimpaired claimants so as to develop asbestos lawsuits. The result was to divert huge sums from the coffers of bankrupt companies to unimpaired claimants, even as genuine victims of mesothelioma and other asbestos-related ills were sent away with inadequate sums. Dr. Egilman's letter -- cited by, among many others, by Sen. Hatch, by plaintiff's lawyer Steven Kazan in Senate testimony, by Eddie Curran of the Mobile Register in that paper's landmark series -- is available here. Incidentally, for what it's worth, Egilman has since then come in for criticism from Ted, here and here, on unrelated issues.

Asbestos double-dipping - PointOfLaw Forum

Must-read coverage how asbestos plaintiffs "double-dip" into billions of dollars of asbestos bankruptcy trusts run by plaintiffs' lawyers (like Baron & Budd, the namesake of John Edwards's money man, Fred Baron) through making boldly inconsistent claims of exposure. (Daniel Fisher, "Double-Dippers", Forbes, Sep. 4). Courts are cracking down for the first time, though the only people suffering consequences so far are clients, rather than the unethical attorneys—the shareholders who lost their money and the workers who lost their jobs in the fraud are out of luck. The Friable Thoughts blog comments:

This story on how plaintiff's lawyers are filing claims with asbestos bankruptcy trusts shouldn't come as a big surprise to many defense lawyers. With the settlement amounts confidential and claims records hard to get, who wouldn't have expected plaintiff's lawyers to make exposure claims that were inconsistent with claims they would make in litigation against non-bankrupt defendants?

Gilbert Heintz in the WSJ - PointOfLaw Forum

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).

The law firm was simultaneously representing the bankrupt Congoleum and numerous asbestos plaintiffs who had sued it. (Henry Gottlieb, "Conflicts Cost Firm in Congoleum Case $13 Million in Fees", New Jersey Law Journal, Feb. 21). Lester Brickman testified to Congress about these conflicts, and we covered the Third Circuit opinion Oct. 18, with lots of links therein to similar conflicts, where courts have been more willing to treat bankrupt companies as asbestos plaintiff attorneys' piggy-banks.

(My former firm, O'Melveny & Myers LLP, represented insurers who successfully objected to Gilbert Heintz's role. I had no role in the case.)

What Did Those Asbestos X-Rays Really Show? - PointOfLaw Columns

By Lester Brickman

This is an updated version of an article that ran as a "Rule of Law" column in The Wall Street Journal on November 5, 2005. The Senate is set to begin debate on asbestos legislation shortly.

In the mid 1980s, court decisions dramatically enlarged insurance companies' liability for asbestos-related injury. At the same time, defendants and their insurers began to pay asbestos claims without demanding much in the way of proof of injury or liability. Plaintiffs' lawyers responded opportunistically.

As a consequence, asbestosis litigation, which had previously focused on malignancies and other debilitating injuries, shifted radically from the traditional model of an injured person seeking a lawyer to an entrepreneurial model. Lawyers spent millions to sponsor mass screenings of upwards of 750,000 industrial and construction workers. Of the 850,000 asbestos claimants that have so far brought suit against over 8,400 different defendants, about 600,000 have been recruited by these mass screenings.

Most of these 600,000 plaintiffs claim a mild form of asbestosis (a scarring of lung tissue), or other nonmalignant condition, but suffer no symptoms or lung impairment. They have no asbestos-related injury recognized by medical science and no significant probability of manifesting an asbestos-related malignancy in the future. Nevertheless, lawyers charging 40% contingency fees have extracted tens of billions of dollars in settlements, after hiring a comparative handful of doctors who consistently read X-rays and "diagnose" disease in 60% to 80% of those screened.

According to medical science, however, asbestosis is a "disappearing disease" and only 2% to 4% of claimants now generated by screenings have an actual nonmalignant condition resulting from asbestos exposure. This led me previously to conclude that the X-ray readings and "diagnoses" of these litigation doctors were a function of the millions of dollars paid to them by the lawyers. Overwhelming evidence in support of these conclusions about asbestos litigation has recently come to light in the not-unrelated litigation based on exposure to silica or sand.

Silicosis, like asbestosis, is a scarring of the lungs but is caused by the inhalation of large quantities of fine sand dust. Once a scourge, it is a disappearing disease because of strict government regulations and employer practices. Deaths attributable to silicosis have dropped over 80% in the past 30 years. But beginning in 2002, claim filings in state courts, mostly in Mississippi, reached "epidemic" proportions.

The reasons for the "epidemic" are that key states began to adopt comprehensive asbestos litigation reform and Congress took up consideration of a fund (paid for by defendants and insurance companies) to pay claims, as a way of taking asbestos litigation out of the tort system. Worried about the future of their enterprise, lawyers, doctors and screening companies abruptly shifted gears from ginning up claims based on asbestosis to claims based on silicosis. As one lawyer acknowledged, "why reinvent the wheel?"

This all became clear when 10,000 of the 35,000 pending silica claims were centralized into a federal multi-district litigation (MDL), presided over by U.S. District Court Judge Janis Jack, a Clinton appointee. During the course of the MDL, one of the doctors recanted all 3,617 of his diagnoses of silicosis, provoking Judge Jack to observe that "it's clear this . . . [diagnosing] business is fraudulent." She issued an unprecedented order allowing defendants to cross-examine, in her presence, every doctor who had provided a silicosis diagnosis, as well as the owners of the screening companies.

It turns out that 6,000 of the plaintiffs had previously filed asbestosis claims. Nevertheless, pulmonary experts testified at a U.S. Senate hearing that, while it was theoretically possible to have both asbestosis and silicosis, they had never seen a single dual disease case during their extensive practices. Moreover, many of the X-ray readings on which the silicosis diagnoses were based were made by the same doctors who had previously read the X-rays as "consistent with asbestosis"—but who had never mentioned silicosis.

Judge Jack concluded that "the lawyers, doctors and screening companies" were "all willing participants" in a "scheme [that] manufactured [diagnoses] for money"—the equivalent of a finding of pervasive fraud. If the same level of discovery were permitted in asbestos suits, I have no doubt of the outcome. The same screening companies, X-ray readers and diagnosing doctors excoriated by Judge Jack have been involved in asbestos litigation for almost 20 years. As Judge Jack observed, the "evidence of the unreliability of the [X-ray] reads performed for this MDL is matched by evidence of the unreliability of [X-ray] reads in asbestos litigation." The asbestos lawsuits have resulted in billions of dollars in settlements.

Sitting in Judge Jack's courtroom during the cross examinations was an assistant U.S. Attorney from the Southern District of New York. He was there because a federal grand jury had been convened in mid 2004 to consider possible criminal charges arising from claims of exposure to silica and asbestos, and the use of witness-coaching techniques to implant false memories about product exposure.

Asbestos litigation, meanwhile, prevented the creation of 500,000 jobs because of the diversion of capital in over 70 asbestos-related bankruptcies. Plaintiff lawyers have exercised undue influence over the bankruptcy process, essentially obtaining ratification of the claim-generation process that Judge Jack condemned. Here too, the worm appears to be turning. In a series of decisions, the Third Circuit Court of Appeals, echoing the exact words I used to describe the ongoing Congoleum bankruptcy proceeding, stated that to approve a reorganization plan tainted by lawyers' engaging in conflicts of interest and securing preferential treatment for their clients to generate additional fees, "would be a perversion of the bankruptcy process."

The next shoe to drop may be in federal court in New York. If indictments are forthcoming—and lawyers who sponsored the mass screenings and collected billions of dollars in fees are among those indicted—the ensuing process could shine a floodlight on a fraudulent scheme so massive as to qualify non-malignant asbestos litigation for entry into the pantheon of such great American frauds as Enron, WorldCom, OPM, Cr�dit Mobilier and Teapot Dome.

Lester Brickman is a professor at Cardozo Law School, Yeshiva University, and a contributor to Point of Law.

A Business, Not a Profession - PointOfLaw Featured Discussion

Bill (or should I say Dr. Sage?),

I�m belatedly getting around to discussing what�s really at the core of the Trial Lawyers, Inc. project: the fact that trial lawyers today operate much more as a business than as a profession. I don�t think that this basic fact is really much in dispute, and I can hardly go into the point here in the depth that my colleague Walter Olson did some 14 years ago in The Litigation Explosion, or even in the depth that we went in the original Trial Lawyers, Inc. report. But let me try to give a synopsis of what I call the �business model� of the plaintiffs� bar. I�ll then turn to drug products liability, and finally I�ll touch on some of the medical malpractice liability proposals you�ve endorsed.

Law Goes From a Business To a Profession

Let�s begin with the underlying history and premises. Law historically, like medicine, has been a �profession.� That is, as opposed to general businesses, lawyers (and doctors), operate under special ethical rules of conduct (rules that, for better or worse, are typically set by the professionals themselves). There are important reasons for doctors and lawyers to be professionals. First and foremost, both professions represent patients/clients who are often unsophisticated in assessing the services being offered, so the professionals have to be scrupulous in providing a duty of care consistent with the patient�s/client�s interest. Doctors shouldn�t sell snake oil or unneeded surgeries. Lawyers shouldn�t bilk their clients with billable hours for unneeded work. And patients and clients need to be able to be totally honest with their doctors and lawyers, so they�re owed a duty of confidentiality.

Now, I think that these basic points should be relatively uncontroversial � as should the important counterpoint: the professionalism of medicine and law need not imply that there�s no place for market-based approaches, because incentives obviously do matter. Approaches that force medical patients to foot more of their own bill, as opposed to shifting their costs to a third party, will inevitably put downward pressure on costs. Aligning lawyers� incentives with those of their clients � as the contingency fee does � will keep attorneys from wasting time that they otherwise might.

When it comes to the legal profession, there�s a significant additional point to keep in mind � one that differs from the medical profession and all others. Practitioners of law, uniquely among those not in the government itself, have the power to take property from parties without their consent. Lawyers, through the courts, have unique access to the government�s monopoly over the use of force. Now, other businesses and professions can dupe people through fraud. The medical profession has some limited ability to take people�s freedom (e.g., by forcing people into psychiatric wards). Still, in general, law is the only American business, apart from crime, where the fruits of one�s labors are directly tied to one�s ability to take others� property without their consent. Crime, of course, is something we try to stop. But the ability to take property through the law is something the American system facilitates, in a manner unlike any other country.

A few features make American law unique. First, we have the contingency fee itself. Although some other countries are opening up to the idea, historically, the contingency fee is an American innovation. Its salutary effect is that it opens access to the courts to the less affluent and it aligns lawyers� incentives with their clients�, as noted above. Its downside? The contingency fee creates a direct, and powerful, incentive for lawyers to take as much property as possible. In the course of representing a single client, this effect is less pernicious (though, as Olson notes, the incentive to cheat, manufacture evidence, etc. � unbecoming an officer of the court, as those in the �legal profession� are supposed to be � is far greater when you have a vested interest in the outcome). But what we�ve seen in the plaintiffs� bar is the wholesale solicitation of clients (more on that later), many of whom aren�t really injured; and in the course of aggregative litigation (dramatically expanded since the 1960s by changes in Rule 23, which governs class actions), lawsuits where there isn�t really a client at all (if you doubt this, ask securities lawyer Bill Lerach, who once said he had the greatest legal practice in the world because he didn�t have any clients). The contingency fee is a direct inducement to litigate � and thus to take property by force. Olson analogizes the practice of enabling invading armies to keep whatever they plunder: it may help troop morale, but the consequences are predictable.

In addition to the contingency fee, the United States (apart from Alaska) has the �American rule,� i.e., the system wherein a party who unsuccessfully brings litigation doesn�t have to bear the other side�s costs. Low-value, good claims are discouraged, as I noted earlier in this discussion: lawyers working on a contingency fee don�t want to bear costs they�re unlikely to recoup. But the inverse is true, too: low probability cases are encouraged because the defendant�s litigation costs are sufficiently high that they�re willing to settle even very weak claims.

The latter incentive is significantly muted when defendants face repeated, similar claims; as game theory would suggest, to discourage low probability claims, a rational defendant would only settle repeat claims where the plaintiffs� lawyer had a positive expected value, i.e., where the expected verdict exceeds the plaintiffs� expected legal bills.

But in the American legal system, even for low probability claims, the expected value of a claim from the plaintiffs� lawyer�s perspective can be quite high � because juries regularly make erroneous findings of fact, and because they can slap defendants with exceptionally high punitive damages and difficult-to-review noneconomic damages. Contingency fee lawyers, with sufficient ability to disperse risk, can play a game with a positive expected return. It�s a gamble, but they have the house odds.

America�s decentralized federal system also creates a lot of opportunities for overlitigation. In general, federalism is a salutary American feature: it disperses power, and as Brandeis noted, can let states serve as �laboratories of democracy� with competing policy packages. Such varying policies generally create incentives that drive states toward efficient rules over the long run, since labor and capital are mobile. But as our nation�s experience with the Articles of Confederation showed, the devolutionary principle has its limits. Where states have incentives to impose costs on their neighboring states � say, by dumping their refuse in a river that flows next door � the federalist premise breaks down. As Tabarrok and Helland�s research on state judges shows, states (or, more precisely, elected state judges) have incentives to adopt loose liability laws so that they can impose costs on out-of-state defendants to the benefit of in-state plaintiffs. The absence of a federal choice of law regime means that states (like West Virginia) or localities (like Madison County, Illinois) can make litigation a cottage industry. When venues are easily shopped � as in products liability cases and, at least until this year, class actions � plaintiffs� lawyers can exploit these �magnet courts� to great benefit.

Finally, American lawyers today are able, in a rather �unprofessional� way, to hawk their services. Prior to the late 1970s, the basic American norm on lawyer solicitation generally was in accord with Lincoln�s suggestion that we �discourage litigation.� But by 1977, the Supreme Court called the �underutilization� of lawyers in America a problem, Bates v. Arizona, 433 U.S. 350, 376 (1977) � and upheld lawyers� right to advertise the availability and price of their services. By 1988, the Court extended that right to direct-mail solicitation. See Shapiro v. Kentucky Bar Association, 486 U.S. 466 (1988). I tend to be a free speech purist, but it�s hard not to acknowledge that the ability to advertise is directly related to the de-professionalization of the plaintiffs� bar and the litigation explosion in America.

The Trial Bar's Business Model

These incentives all matter. And they�ve led to a plaintiffs� bar that to a significant extent works as a sophisticated business, not as a profession. How so?

Marketing. To be successful, any business must attract customers. The plaintiffs� bar of course lacks traditional customers: the people who pay plaintiffs� lawyers aren�t willingly parting with their money, but rather are being forced to do so. That captive customer base is the key feature that makes the plaintiffs� bar so successful. To get at those customers, however, the plaintiffs� bar must attract clients. That�s something the plaintiffs� bar is able to do today with a very high level of sophistication:

o Television, radio, and print ads. One day when you�re home sick, just check out the ads that run during those annoying daytime talk shows. Or turn on BET for a while. You�ll see scores of plaintiffs� lawyer advertisements, going after the trial bar�s attractive client base.

o Internet-based solicitation. There are increasingly targeted banner adds, sites where you can sign up �for the money you may be due,� and targeted emails (have you gotten a Vioxx solicitation lately?).

o Automatic clients. While advertising is the bread and butter of the mass tort bar, the class action bar has it easy � they just need to find a name plaintiff (sometimes itself a dubious task: just ask Milberg Weiss), and everyone else comes in, automatically, under Rule 23, unless they bother to �opt out� of the class.

In the health care context, we see all these methods of gathering clients. When Scruggs and Boies, and later Milberg Weiss, sued HMOs under civil RICO, they developed a class action. Ditto for Scruggs�s suits against nonprofit hospitals. TV, print, and internet client solicitation for pharmaceutical mass torts are ubiquitous. Internet ads seeking clients whose babies were born with cerebral palsy shout, �Your child's cerebral palsy may be the result of a medical mistake. Don't get mad. Get Even!�

Division of markets and labor. Some �trial lawyers� make their wares without ever pretending to go to trial � they�re client grabbers. They round up folks and sell off their claims. Other lawyers are negotiators, and others actually go to trial. Such division of labor in and of itself isn�t troublesome, and increases efficiency. The problem is that trial lawyers, at least in much mass tort litigation, don�t really �compete� for customers in the traditional sense. They work with the client aggregators to gobble up as many clients as possible � clients who aren�t really picking their lawyers based on any real criteria at all. There�s to a significant extent a division of the market � you get yours, I get mine � and the process creates a major barrier to new entrants. Of course, an enterprising plaintiffs� lawyer can join the big boys� club by winning a landmark case: but it�s a long-shot, and the existing players have sufficient capital to carve up much of the market for themselves. There�s a lot of rivalry, but not a lot of price competition: contingency fees are essentially standard, as Lester Brickman has shown.

Product development. Lawyers don�t make products, but they do try to develop successful lines of business. Anyone with a deep pocket is a potential target. As Trial Lawyers, Inc.: Health Care shows in significant detail, in health care, every market segment has been in the trial bar�s crosshairs � doctors, hospitals, and nursing homes; drug and device makers; HMOs. �Developing� a product line is an expensive process, but one lawyers spend a lot of time and money on. Conferences on various types of litigation are abundant. ATLA makes information on various �litigation groups� available on its website. Now, many of these techniques relax the barriers to entry already mentioned. But the key for the trial bar is to share knowledge and score wins � because wins beget settlements. The competition to gather clients is the only real rivalry in town.

Business Analysis

If you were to do Michael Porter�s �Five Forces� industry analysis of the litigation market, Trial Lawyers, Inc. would score big:

Buyers (i.e., defendants) have no power, apart from imposing costs on plaintiffs under the American rule.

� Since expert witnesses willing to prostitute themselves for money are readily available, the only supplier power the trial bar faces comes from the West/Lexis electronic legal research duopoly, which itself is weakening in the internet era.

� The trial bar faces no real substitutes, since its access to the courts is unique.

Competition among plaintiffs� lawyers is fierce, but only for initial client solicitation, and then not on price . . .

� . . . owing in significant part to the substantial barriers to entry in the mass tort/class action market, already discussed.

Now don�t get me wrong � being a plaintiffs� lawyer per se isn�t necessarily an easy road. There are a lot of lawyers who have a hard time squeaking by. What Trial Lawyers, Inc. is about is those market leaders � the guys who are able to dominate the class action and mass tort bars � and they have a pretty lucrative business indeed.

The Problem of Law as a Business

So what�s the problem? I�m a supporter of free markets � you even characterize me as a �shill� for �big business.� What�s wrong with lawyers acting more like businesses? Well, as I�ve already suggested, the problem is that the lawyers� business, unlike others, doesn�t inherently generate value but rather redistributes through force. If I sell you a product or service, we both benefit, assuming there�s no fraud or duress and that we�re both able to assess our self-interest. I value your money more than the product or service I sell, and you value the product or service more than the money you pay. Redistribution by force doesn�t work that way. Party A, the plaintiff, takes from party B, the defendant. Party A is better off, but party B is worse off. And there�s a net social loss in that the scarce resources spent taking from party A and giving to party B could have been spent elsewhere, i.e., generating goods or services of value.

So the real question we should use to evaluate litigation is whether it adds any value apart from redistribution itself, and whether that value added, if any, exceeds the extremely high transaction costs and opportunity costs inherent in the system. There�s nothing wrong in principle with lawyers making a lot of money. The problem presented in the litigation context is (a) whether that money is reflective of real value added for the client, and (b) whether that money should have been redistributed in the first place � i.e., whether a real harm that �should� be compensated occurred, as judged from the standpoint of either fairness or efficiency. (Ultimately, in the world of tort, I think that the fairness and efficiency criteria for (b) wind up the same: even if we buy into the notion that you advance in your last post that the way society treats its weakest members matters � and I agree to some extent � the tort system is about as inefficient a means of general redistribution as we could possibly devise.)

The problem with the plaintiffs� bar today, for critics like me, is that it often exploits its clients and that it taxes society with litigation that it shouldn�t, leading to substantial dead weight loss today and perverse incentives not to invest and innovate for tomorrow. Though the tort system in its classic form did offer a means of redress for injured parties whose injuries were wrongly caused by others, the system is ill-equipped to be a general insurance scheme, Prosser, Traynor, et al. be damned. And though the classic common law tort system was generally efficient and served to deter harmful behaviors, the system is ill-equipped to be a general, comprehensive regulatory regime, Calabresi, Posner et al. notwithstanding.

But today, the perverted tort system is what we have. Far from its roots as a profession representing clients and owing a general duty to the public, the plaintiffs� bar is a big business tapping into the American legal system�s unique rules that enable it to feed at the trough. The trial bar�s business success owes not to natural monopoly but to its rule-enabled abuse of lawyers� unique access to the government�s monopoly on the use of force. And perhaps the most sophisticated part of the lawyers� business model � their government relations and public relations efforts, which we detail at length in our Trial Lawyers, Inc. report � are geared specifically toward protecting the rules that make their government-enabled monopoly so valuable: unregulated contingency fees, the lack of a loser pays rule, maximum jury discretion, loose evidentiary requirements, loose aggregation requirements, unlimited damages, and easy venue shopping, to name a handful already discussed.

Torts for Drugs and Medical Devices

OK, so now that I�ve gone on at length about the business model of the trial bar, I�ll move into the other, specific element I said I�d cover: the mass tort problem as it relates to drug and medical device litigation, and my preferred response (preemption). Americans� health care has been radically improved in the past generation or two in large part due to dramatic innovations in the development of pills and products that prolong life or make our lives easier to live. Bacterial scourges that once wrecked havoc have been all but eliminated, as Huber noted in the article I cited in my last post. Drugs and medical devices constitute only 11 percent of health care spending � most still goes to doctors and hospitals � but they�ve revolutionized health care. People who were bedridden and needed full-time care are now able to walk and function without assistance; people who were institutionalized can now take a pill and interact in normal society; people who would have dropped dead prematurely of a heart attack can keep their cholesterol down with a host of medications.

The medical innovations that have so changed our health care have occurred regardless of the litigation explosion, but let�s not pretend that lawsuits don�t matter on the margin. And the marginal impact on companies� incentives is sizable. As I point out in my director�s message in Trial Lawyers, Inc.: Health Care, the estimated liability costs of Vioxx and Fen Phen, alone, are roughly ten times their respective companies� research and development budgets. On an annualized basis, the cost of those two mass torts comes to roughly ten percent of the entire U.S. pharmaceutical industry�s revenues (the percentage would be lower if we account for the time value of money, but these aren�t super-delayed torts like asbestos). That�s a punch that packs quite a wallop.

And the punch is also, far too often, below the belt. We�ve seen lawsuits bankrupt companies with billions in liabilities over products that aren�t unsafe (e.g., the breast implant litigation). We�ve seen lawsuits force useful drugs from the market that aren�t unsafe (e.g., Bendectin). We�ve seen lawsuits saddle companies with far more liability than their products actually caused by flooding the system with bogus claims generated by fraudulent screening systems that are mass production systems �that would be the envy of Henry Ford� (e.g., Fen Phen). We develop these and other examples in much more detail in Trial Lawyers, Inc.: Health Care.

The point? Just as our system of adversarial trials before juries makes a mess of med-mal cases, it gets it wrong an awful lot in products liability cases. That�s the biggest problem with the stylized law and economic models that Calabresi, Posner and their successors developed for tort law: they assume that trial outcomes, on average, get it right. What we see is that trial outcomes, on average, get it wrong. Let me stress that when I say �on average,� I don�t mean that most juries get it wrong. They don�t have to for the expected return of trials to be way off base. You just need the odd jury to produce outlandish results, with outlandish dollar verdicts, to throw off the average verdict � and the expected return from litigation � dramatically.

The law-and-economic theory of tort regulation in essence tries to make the courts a regulator of choice � despite the fact that trial outcomes don�t come close to approaching a proper cost-benefit analysis and that the administrative costs of running the system are exceptionally high. The system lacks the fundamental principle of the rule of law, that is, predictable outcomes.

In criticizing �regulation through litigation,� I don�t mean to ignore the trenchant critique of regulation. Adopting overly strict ex ante rules can stifle innovation. There�s something to be said for setting up clear overarching guidelines � simple rules, in Epstein�s terms � and punishing harms ex post.

But for ex post penalties to work, we have to have some confidence that they will be rationally related to the harms they penalize, so that actors appropriately internalize their costs. When it comes to mass tort drug and medical device litigation, I simply lack confidence that the penalties will make sense. In addition to the aforementioned examples, take the Angleton, Texas verdict recently levied against Merck when a 59-year-old man with clogged arteries died of a heart arrhythmia (a condition no scientific testing has shown to be linked to Vioxx), after taking Vioxx for 8 months (10 months less than the length of time for which scientific testing has linked Vioxx to heart attacks), in moderate doses (notwithstanding that Vioxx has only been linked to heart attacks when used in heavy doses as an experimental treatment for precancerous intestinal polyps). Carol Ernst, the deceased�s wife of one year, scored a verdict over $250 million. Will that verdict be substantially reduced? Yes, largely due to Texas�s punitive damage caps � but the $24 million in �mental anguish� damages aren�t capped, and they will prove difficult to review.

As my colleague Peter Huber noted in Liability, �jurors, who generally can reach sensible judgments about people, perform much less well when they sit in judgment on technology.� In part, jurors� failings are due to a lack of technical expertise. Jurors also fail because they �face accidents up close� without the �broader vision, dominated by the individual case.� In addition, jurors are particularly prone to hindsight bias, �the natural human tendency after an accident to see the outcome as predictable � and therefore, easy to affix blame,� which �makes the defendant[s] appear more culpable than they really are,� Steven Hantler, The Seven Myths of Highly Effective Plaintiffs� Lawyers, Manhattan Institute Civil Justice Forum 42, at 13 (April 2004). Finally, jurors tend to penalize the new while accepting the old, which clearly threatens innovation. Aspirin and ibuprofen kill 16,500 people a year due to gastrointestinal side effects � the very problem Vioxx and other Cox-2 inhibitors are designed to avoid � but you�ll never see Bayer getting slapped with aspirin liability.

Compounding the inherent problems jurors have in assessing drug liability are the many structural elements of the American legal regime that enable lawyers to game the system. Widely used drugs wind up as mass torts, and lawyers can flood the system by recruiting thousands of claimants, some of whom have an actual injury caused by the drug but many of whom do not. Lawyers and defendants both know that jurors will occasionally be duped, so the cases will have settlement value, and the lawyers will only get burned if a thoughtful and energetic judge takes the time to really look into the pool of claimants, as has recently happened in Fen Phen and silicosis cases.

What jurors often fail to realize, at least for new medications, is that pharmaceuticals that save or help most people, but kill or injure some small subset of users, are often drugs that nevertheless should be on the market. To get through the onerous FDA review process, drugs must go through substantial testing for both safety and efficacy. The point of the federal regulatory regime � which is far from perfect, admittedly � is to perform a basic cost-benefit analysis. The safety-effectiveness trade-off is a function of the magnitude of effects � the harms prevented and the harms caused. A drug that kills 1 in 100 users but is the only treatment for an otherwise fatal illness, and increases the likelihood of survival from 0 to 50 percent, is clearly a drug that should be on the market. Any rational consumer afflicted with the fatal disease would choose to take the drug. Any doctor would recommend that his patient afflicted with the disease take the drug. If the disease being treated is 99 percent likely to cause death, the calculus doesn�t change.

Of course, in the real world, choices are rarely so black and white. Ailments aren�t necessarily fatal, and they often vary in degree, and side effects vary depending on patient profile. The job of the FDA is to determine if a drug, on balance, is sufficiently safe and effective to be on the market at all; and to determine what warnings and other information on the drug should be presented, and how, so that consumers � in reliance on their doctors � can make reasoned decisions about whether taking a medication is for them worth the risk.

That drug liabilities should be �known� and �reasonable� so that patients and doctors make informed decisions to assume risk was classically a key feature of how tort law handled drug liability � as long as the risks of using the product were known, drug makers were traditionally insulated from liability for their products unless they had been faultily manufactured (i.e., they�d made a �bad batch�). See Restatement of the Law 2d, Torts, � 402A comment k (American Law Institute 1965) (asserting that the manufacturer of drugs �is not to be held to strict liability for unfortunate consequences attending their use merely because he has undertaken to supply the public with an apparently useful and desirable product, attended with a known but apparently reasonable risk�). Paradoxically, though, even as the federal government developed a comprehensive regime to regulate drugs on the market � with the aforementioned safety and efficacy testing, as well as tediously precise dissemination of warning labels and information � the protection for drug manufacturers whose products were �apparently useful� but had a �known but apparently reasonable risk� came to be gutted by the courts.

The Solution: FDA Preemption

Hence my call for FDA preemption. Let me clarify exactly what I mean. If the FDA approves a product, and the drug manufacturer was not fraudulent in its FDA submissions, the manufacturer should not be held liable for harms caused by its products that were known to the FDA and, at the FDA�s discretion, publicized in labeling or otherwise as the FDA best saw fit to require. The FDA permits the drug on the market that kills 1 in 100 people but saves half of the 99 percent who otherwise would die? Those 1 percent killed have no claim. Likewise with any other person injured by a drug if such injury is a side effect known and publicized at the time the drug was prescribed.

Now, what about those claims � like Vioxx and Fen Phen � in which an initially unobserved side effect becomes evident through subsequent testing? We may not want to foreclose all potential for redress here. I�d be worried then about too much FDA Type II error � i.e., if the FDA knew that anyone injured by a drug it had approved had no recourse whatsoever if an undiscovered side effect cropped up, it would face that much more institutional pressure to order larger, and longer, tests. The public would suffer, as good drugs were kept off the market for too long.

So for those classes of injuries that cropped up in later testing, post-FDA approval, we might well want a compensation scheme for injured parties who took the drugs. But the claims shouldn�t be in tort! Remember that the traditional tort rule was merely that a drug be �apparently� reasonable. A drug manufacturer who complies with the FDA process but subsequently discovers a defect hasn�t committed a �wrong,� even though its product has caused injury to some individuals who weren�t fully aware of their own risks at the time they took the drug. Acknowledging that patients who are injured by drug side effects unknown at the time of FDA approval need not imply that we muddy our tort system with these claims and process them in the administratively expensive and imprecise way that the litigation process necessarily involves.

Fortunately, we have a pretty good template for handling drug claims outside the courts in the Vaccine Injury Compensation Program, which Congress established in 1986 after lawsuits threatened to wipe out vital children�s vaccines. (Vaccines present a special case: we want people to take them, because we�re all better off if they do. But there�s an inherent free rider problem in that if everyone else is vaccinated, you lose some of your incentive to assume the costs � and the risks � of taking the vaccine yourself.) The VICP operates efficiently, at 9 percent administrative cost. It effectively weeds out bad claims but generously compensates good claims. A comparable program could handle all drug claims, rejecting outright any premised on harms that were disclosed by FDA requirement at the time the drug was prescribed, and allowing claims to go forward for injuries actually caused by side effects that were unknown at the time of prescription. And if the FDA decided to add a new side effect warning to a drug, while permitting it to still stay on the market, suits by individuals who subsequently took the drug would of course also be barred.

The key caveat to the FDA preemption I propose is that the drug manufacturer was not fraudulent in its FDA submissions. If the manufacturer did in fact lie to the FDA, it should lose its statutory safe harbor � because it did do a �wrong,� and its drug was not �apparently reasonable� as the FDA had assumed. But lawyers shouldn�t be able to circumvent the statutory preemption merely by making this claim, which would be routine in all drug lawsuits and gut the regime�s whole effectiveness. Rather, the FDA � or another independent body � should have to make a ruling that the company had been fraudulent. Only then would the company lose its safe harbor protection.

Getting Back to Medical Malpractice

So that�s my take on drug liability. I�m very interested in your thoughts. Though this post is already some 5,000 words, I do want to spend a little time getting back to medical malpractice, and addressing your specific points raised in your prior post, because I don�t want us to �talk past each other.� I�ll also comment briefly on a couple of other ideas, at least one of which you�ve backed in the past.

Before I get specific, let me make a comment on my earlier invocation of Philip Howard and Common Good: I mentioned him not to imply wholehearted endorsement of his approach to medical malpractice liability but to show that the Manhattan Institute Center for Legal Policy has given a lot of attention to alternative approaches to medical malpractice reform � and relatively little to damage caps. Philip is a friend, and I think he�s done a lot both to show the problems with the American legal system and to think outside the box about solutions, but by saying that we�ve featured him in events I didn�t mean to suggest that his preferred solution gets it all right. (I would take a little issue with your statement, though, that �a genteel business lawyer like Philip is not generally perceived as moderate by groups that aren�t naturally sympathetic to tort reform� � his Common Good board of advisors includes folks like George McGovern and Bill Bradley, whom I wouldn�t call big business shills or right-wing extremists.)

Your Plan for Health Courts: Thoughts and Questions

Now let�s get to the IOM-endorsed administrative compensation scheme you outline. To begin with, I�d agree that to the extent we can take medical malpractice compensation outside the adversarial tort system, it�s a goal worthy of experimentation. The adversarial system stifles real disclosure and safety improvement in medicine, as I noted before (and as you agree, at least to some degree).

I also agree that in general it could make sense to leverage existing regulatory mechanisms as much as possible � much like I propose building from the existing FDA and VICP in handling drug liability. But note that the case here is different than for drugs, from the standpoint of one who�s interested in torts (you, admittedly, are more interested in health policy outcomes, not the overarching tort regime). I don�t think most drug lawsuits belong in tort because the mere fact that a drug causes a harmful side effect doesn�t mean that manufacturers have done anything wrong. Unless drug makers have lied to the FDA, they haven�t committed a products liability tort that should be actionable.

In contrast, doctors are negligent all the time. That doesn�t mean they�re bad people, or even bad doctors, but they�re often at fault for patient injuries. When doctors are at fault, they do commit what those of us who are interested in that area of the law would call a tort. So Philip�s notion of a more traditional legal regime � based in tort, but with specialized decision makers � is in some ways more attractive to tort scholars. When you start carving out special exceptions to tort, as with workers compensation, there may be unintended side effects over time. That doesn�t mean we shouldn�t do so; I just flag the issue.

And I think to make myself more open to your idea, I might interpret it as follows: we�re setting up a regulatory regime at the state level, much like the FDA functions at the federal level, that in itself is designed to screen medical provision to reduce injury. Presumptively, even if individual mistakes are made that cause harm, a provider that�s been compliant with the regulatory regime isn�t at fault in the tort context. Injuries, even avoidable ones, are an �apparent risk� in today�s health care world, and aren�t really torts in the traditional sense in that people assume those risks when they go to the hospital in the first place � at least if the hospital is complying with an adequate regulatory regime that ensures that on balance it�s not making more mistakes than it should. That doesn�t mean people injured � if such injuries are �avoidable� � shouldn�t receive any compensation; but it means the injuries don�t belong in tort, at least in most instances. I�m not sure if that�s a legitimate read of your idea, but such a rationale would make me a bit more comfortable that simply saying, �health care�s special, and we should carve it out of tort because it�s special.�

There are a couple of salient points to your approach as I understand it that I�d like to comment on � and if I�m off-base in my understanding of your proposal, let me know. First, as I read your idea, it�s optional to the health care provider, not mandatory. Such a feature is important, because if the proposal were to get mucked up � either in the legislature or by the regulators � providers could always stick with the status quo.

I think by now you probably have guessed that I�m very skeptical of the legislative process. Public choice theory suggests I should be. The more complicated proposals become, the more politicians can mess them up. Jeff O�Connell found this out the hard way with automobile no-fault, and your comments on Pennsylvania�s treatment of Phil Howard�s health courts idea suggests more of the same. Part of the appeal of �traditional� tort reforms � damage caps, elimination of joint-and-several liability, and the like � is that they�re simple; you�re either for them or against them, but you can�t come up with a beast that�s worse than the problem you�re trying to fix. Those who are critical of the Congress�s proposed fix on asbestos � a fix that�s as necessary as any in tort � have just that argument, i.e., that the complicated trust fund mechanism that�s made its way through the judiciary committee is worse than what we have now. I�m not saying those critics are right, but the current example is a good one in showing just how easy it is for complicated reform schemes, which are elegant in theory, to get messed up when our actual political actors get their hands on them. In any event, a proposal that gives providers an option, as I read yours to do, has that as a major plus at the very outset.

I also tend to like your reform�s emphasis on what seems to be an �early offer� mechanism: �Providers would have strong incentives to engage the patient in mediated discussions, and to offer prompt, fair compensation.� As I read your idea, in your post and in other variants I�ve seen, providers who opt into the system would be immune from suit but in turn would have to make an early offer to pay patients reasonable economic damages and noneconomic damages (according to a workers-comp-style schedule based on type of injury). Disagreements would be resolved administratively, in a process that avoided a lot of the nonsense we see in the regular courts.

I tend to like the �early offer� mechanism of your approach, because it mirrors a lot of the ideas we discuss in the tort reform community. In general, our tort system mistreats victims of injury not only through its cost but also through the length of time it takes individuals to collect. Jeff O�Connell�s new reform idea for medical malpractice uses just such an early offer mechanism, though it goes a bit further (Jeff�s idea is that early offers to compensate economic damages in full immunize doctors and hospitals from suits over basic negligence). Other tort reform ideas tap into early offers, too � often functioning as client protection mechanisms; e.g., Lester Brickman�s idea, developed about a decade ago with the Manhattan Institute, calls for attorney contingency fees to be collectible only for �value added� above a defendant�s early offer of settlement. And those of us who think that offer of judgment rules offer the best opportunity to introduce loser pays principles into American jurisprudence also welcome attention paid to early offer mechanisms.

Now I fully realize that the early offer mechanism in your approach is just a part of the overall safety regime providers would have to opt into to qualify for immunity. But I like it, and in part I like it because I think it dovetails with other ideas that are important to the broader discussion over civil justice reform. Since that�s my primary focus � not just civil justice that affects health policy, but all civil justice � it�s a relevant consideration for me.

I�m not sure exactly how the idea would work in all respects. Let�s say someone claims he was harmed in an �avoidable injury,� but the provider never approached him about it or offered to pay. I�m guessing he�s still preempted from tort, as long as the provider has generally been compliant with its regulators? He still has to go through the administrative process � but perhaps the provider is socked with a penalty if the administrative tribunal determines that there was indeed an avoidable injury and the patient should have been informed and made an offer. Is that a reasonable reading of your approach?

I�m a bit more skeptical of your preferred implementation mechanism, namely Medicare, but more for reasons of political reality than anything else. If there�s a lobby more powerful than the trial bar, it�s the seniors� groups, and the AARP and ATLA tend to be tight. Any reform that the AARP might possibly view as lowering seniors� protections � and the trial bar would sell any change to the status quo as a lowering of seniors� protections � would be a non-starter politically. If you could persuade the AARP that it�s in seniors� interest to adopt a non-tort, administrative-law-judge approach to medical malpractice claims, I�m afraid that you could only do so by making the system exorbitantly costly. I may be overly cynical, but I do have concerns. (Note that my concerns with Medicare as a fulcrum for reform are more practical than theoretical. Indeed, as a purist, I�d much rather federal damage caps be imposed specifically on Medicare and Medicaid recipients, not preempt all state regimes, for reasons of federalism. But politically, such an approach wouldn�t wash.)

I tend to be more enthusiastic about employer-initiated approaches, i.e., letting employers offering health coverage through ERISA push their covered employees into an administrative plan. If the �big business� you accuse me of shilling for has any concern that�s bigger than litigation, it�s the cost of health insurance, and I think you might get business really motivated for such a reform if you could persuade business leaders it would actually work. Of course, ATLA might get labor to side with it in opposition, which could stifle reform, but I�m not totally sure that they would, especially if labor leaders were convinced they�d get some benefit back in lowered deductibles or higher wages.

Remaining Questions

A couple of other points before I sign off. First, I think that binding alternative dispute resolution could be a tenable reform. In theory, the Federal Arbitration Act enables such an approach, but in practice, state judges tend not to enforce arbitration and ADR provisions. What are your thoughts?

Also, I�d love to hear a bit more about your thoughts on enterprise liability, which I understand was once a major project of yours. To me, it seems as if private parties probably could contract for such a solution now, to a significant extent, but they don�t. Is that true, and if so, why do you think that is? How would legislation make a difference?

Anyway, at long last, I�m ready to catch up on my sleep (in anticipation of a big Thanksgiving meal). I think we�ve moved well beyond damage caps � and any accusations of who�s a �shill� for whom (though I really never meant to imply you were a �shill� for the trial lawyers!). I think I�ve given you quite a lot to chew on, and I look forward to hearing from you sometime after you�ve recovered from your turkey.

Jim

ASARCO bankruptcy - PointOfLaw Forum

Another recent asbestos bankruptcy to add to the list: ASARCO, one of the nation's oldest mining concerns (the old American Smelting & Refining), which is primarily a copper-mining company but has operated in asbestos as well. A union strike didn't help matters, but environmental-cleanup and asbestos exposures were a crucial factor; Merrill Lynch has estimated the company's liabilities at $300 million. That sum could easily be an underestimate, since the company is facing about 95,000 asbestos-related personal-injury claims, per the Seattle Post-Intelligencer.

Asbestos: Congoleum law firm had conflict of interest - PointOfLaw Forum

The New York Times reports: a Third Circuit panel has ruled that bankrupt floor coverings maker Congoleum should not have hired to advise it on resolving asbestos claims the Washington, D.C. law firm of Gilbert, Heintz & Randolph (GHR), which suffered a rather drastic conflict of interest in the matter since it already represented asbestos claimants with interests adverse to Congoleum's. The ruling appears to add fuel to suspicions that plaintiff's law firms sometimes get cut into favorable positions in asbestos bankruptcies at the expense of other affected parties (more, more, more (PDF)). For an earlier case in which asbestos plaintiff's counsel came in for criticism for profitably working both sides of the street, see OL Mar. 15-16, 2003 (South Carolina's Joe Rice cut deal for $20 million personal fee payable by an asbestos defendant, the Combustion Engineering subsidiary of ABB).

And: Shannon P. Duffy at Philadelphia's Legal Intelligencer has much more, including extensive quotes from our own Prof. Lester Brickman, the number one expert in this area.

Social Injustice: Trial lawyers woo social conservatives - PointOfLaw Columns

By Ramesh Ponnuru

Ramesh Ponnuru and the National Review have graciously allowed us to reprint his article "Social Injustice," which discusses the inroads trial lawyers are making with the political right, through socially conservative populists among their midst. We've also been allowed to attach an exchange in the letters-to-the-editor section of the magazine, in response to the column (download PDF).


The website for the Center for a Just Society, a new social-conservative group in Washington, has a lot of the items you would expect to see: denunciations of embryonic-stem-cell research; calls for an end to the filibustering of Bush's judicial nominees. The quality of the writing at ajustsociety.org is a cut above what you would find from most social-conservative organizations, and the range of issues is slightly wider. The Center attempts to bring "Judeo-Christian perspectives" to bear on topics that social conservatives have traditionally ignored. Thus it makes a moral case for Social Security reform. What most sets the Center's website apart from the sites of other conservative organizations, however, is what it has to say about tort reform. Or, rather, "tort 'reform.'"

In one of the statements on its website, the Center writes: "[T]here is a widespread effort underway to take away our right to a trial by jury. Those pushing this wrong-headed agenda claim that it will reduce the costs of healthcare and eliminate 'frivolous lawsuits.' . . . [T]ruth be told, the agenda behind the agenda [emphasis in original] has less to do with lowering the cost of healthcare and eliminating frivolous suits and more to do with immunizing wrongdoers from the consequences of their behavior."

This perspective reflects the views of the Center's chairman, Ken Connor. He is best known as a social-conservative leader. He was president of the Family Research Council, and he represented Florida governor Jeb Bush in the Terri Schiavo case. (The Center was in the thick of the Schiavo fight as soon as it set up shop, back in March.) But he has also had a long career as a trial lawyer suing nursing homes for what he calls "elder abuse."

The Center is in its infancy. It does not even have an office yet. Its advocacy of tort reform has not received much attention. The most impact it has had came when Focus on the Family, James Dobson's much larger and more influential conservative organization, publicized its description of the Republicans' medical-liability reform bill as an attack on the sanctity of life. But the Center may represent an emerging trend. There are some signs that social conservatives and the trial bar may be making common cause—which means that on litigation reform, the social and economic Right may be headed for a split. Whether that split occurs will depend on whether the social Right can see through the misleading slogans of the trial bar.

ALLIANCES IN FLUX

In the weeks between Justice Sandra Day O'Connor's announcement that she will retire from the Supreme Court and President Bush's nomination of John Roberts to replace her, there were reports of tensions between Bush's social-conservative and business supporters. Social conservatives didn't want a new justice in O'Connor's mold. They were fond of originalist jurists such as federal appeals-court judge Michael Luttig. Business lobbies worried, however, that Luttig was less likely than O'Connor to impose limits on punitive damages in lawsuits against corporations.

Harry Reid, the leader of the Senate Democrats, seemed to pick up on this tension. He said that several Republican senators would make fine replacements for O'Connor: Mike Crapo of Idaho, Mike DeWine of Ohio, Lindsey Graham of South Carolina, and Mel Martinez of Florida. His list omitted two Republican senators who had more frequently been mentioned as possible nominees to the Court: Jon Kyl of Arizona and John Cornyn of Texas. When asked about the omission of Cornyn, Reid said that he had already listed his picks. All six of the senators have socially conservative voting records. Walter Olson, the author of several of the most important books making the case for tort reform, spotted the distinction among them: Kyl and Cornyn have taken the lead on tort reform, while the other four have often voted with the plaintiffs' bar against most of their Republican colleagues. Crapo, Graham, and Martinez are, indeed, former trial lawyers.

In the end, however, Bush ignored Reid's advice. By choosing Roberts, he was able to mollify both business and social conservatives. Neither constituency knows that he will vote with it, but each has some reason to think that he might. The conservative coalition did not split.

At least, it hasn't yet. But that list of senators who used to be trial lawyers suggests one of the reasons that tensions will persist: There are socially conservative trial lawyers. The profession abounds with politically talented, rich, and influential people. While conservatives have not tended to regard the courts as instruments of social change—as much of the tort bar reflexively does—there are bound to be some outliers. With the Republicans in charge of Washington and threatening the livelihoods of trial lawyers, it stands to reason that the latter would, as the lobbyists say, "reach out" to the Republican party. Connor recently spoke at a convention of the Association of Trial Lawyers of America urging the group to do just that. He says he was received "extraordinarily well."

Connor argues that while some Republicans—the "bluebloods" at the "apex" of the party—have an economic interest in fighting trial lawyers, the "blue collars" at the "base" of the party are against trial lawyers only because the trial lawyers have allied themselves with the Democrats. If the trial lawyers end that alliance, he thinks, common ground could be found.

THE MORALITY OF LAWSUITS

Connor's organization argues that the tort system is valuable because it holds corporate wrongdoers accountable. It thus affirms the value of responsibility and, when injuries or fatalities result from corporate misconduct, the sanctity of human life. In certain respects, this claim is obviously true. But tort reformers are not composed exclusively of corporate wrongdoers, their flacks, and their dupes. As Olson puts it, "Much of the popular success of the litigation-reform side has come precisely from people's feelings that the outcomes of litigation don't track our moral sentiments very closely, and seem to track them less well over time."

Take nursing-home litigation. Until 2001, Connor's native Florida had a "resident's rights" law that allowed plaintiffs to recover damages from nursing homes without proving negligence. Nursing homes were often sued over bedsores—even though they are hard to avoid for invalid patients. Ted Frank, who runs the American Enterprise Institute's Liability Project, points out that "Christopher Reeve, who had the finest medical care money can buy, died from a bedsore infection." And the nursing homes faced a Catch-22: They were not allowed to restrain patients who suffered from dementia, but were liable if those patients hurt themselves in a fall. Frank concedes that some lawsuits involved "really substandard care," but says that too many attempted to "hold companies responsible for things they had nothing to do with."

The law forced many nursing-home companies into bankruptcy, causing a shortage. By 1998, one out of every four Medicaid dollars spent on nursing homes in the state was going to pay liability costs. Connor's partner, Jim Wilkes, the lead attorney on most of Connor's nursing-home cases, spent more than a million dollars trying to block limits on liability. The Florida chapter of AARP actually supported the 2001 reform, perhaps swayed by the thought that elderly Floridians needed nursing homes more than the trial lawyers needed the money.

Or take asbestos litigation, which has done more to reward wrongdoing than to punish it. Asbestos claims have soared in recent years even as the incidence of asbestos-related diseases has declined. Lester Brickman, a professor at the Cardozo School of Law, credibly alleges that the explanation is that 80 to 90 percent of recent claims are fraudulent. Lawyers have coached witnesses to make false testimony and get false diagnoses, and then sued companies that played the most minor of roles in the asbestos industry. Not all trial lawyers are, of course, guilty of these tactics. Many trial lawyers, especially those who represent clients whom asbestos actually made ill, are appalled by the false claims. But it is hard to avoid the conclusion that the system has strayed rather far from holding wrongdoers accountable.

The Center for a Just Society is certainly right to say that not everything that travels under the name of tort reform deserves support. It argues, correctly, that federal tort reform can trample on state prerogatives. If a state has lawsuit laws that lead doctors to leave it, it ought to be the responsibility of the state's voters and politicians to change those laws. On the other hand, frivolous product-liability lawsuits can't be avoided by skipping the border. No state can shield a drugmaker or medical-device manufacturer located in its jurisdiction from abusive lawsuits filed in other states. In such cases, it's up to the federal government to protect interstate commerce by restraining the states. The Republicans' medical-liability bill should be amended so that it touches only interstate commerce. But the trial lawyers, and the Center, oppose the whole thing.

LIFE AND LITIGATION

The Center opposes the bill on the theory that it is "pro-abortion" because it provides immunity to the makers of RU-486 (the "abortion cocktail"), and prescribing doctors, from lawsuits by the families of women who die as a result of the drug. But this immunity is partial. What the bill says is that if a product or treatment complies with federal regulations, the people who made the product or supervised the treatment can't be sued for punitive damages if something goes wrong. They can be sued for compensatory damages, including damages for causing pain and suffering. But if they're compliant with FDA regulations, for example, the courts shouldn't punish them. The makers of RU-486 already enjoy some legal immunities thanks to Bill Clinton. But even if they didn't, the Center's argument would be faulty. Just as conservatives would not favor raising corporate-tax rates in order to drive companies involved in abortion out of business, they should not oppose efforts to improve the legal environment for corporations because they might help companies involved in abortion.

John Edwards illustrates the bankruptcy of the "pro-life" case for pro-plaintiff medical-malpractice laws. Suing obstetricians for causing cerebral palsy by failing to do C-sections was one of his most profitable lines of litigation. He has boasted about how he swayed jurors by assuming the voice of an unborn child pleading for help. But the evidence strongly suggests that cerebral palsy is usually genetic in origin, and almost never the result of a botched delivery. (One piece of evidence: C-sections have grown more common over the last few decades, while the incidence of cerebral palsy has stayed the same.) Lawsuits, and the resulting malpractice-insurance premiums, have driven obstetricians away from some areas.

In a forthcoming paper for the Journal of Legal Studies, law professor Jonathan Klick and economist Thomas Stratmann provide reasons to believe that such lawsuits result in infant deaths. Specifically, they find that caps on punitive damages in medical-malpractice lawsuits bring infant-mortality rates down. More doctors practice in states that adopt them. The health benefits flow primarily to black infants in rural areas. Klick thinks that federal legislation might have a positive effect on infant mortality, too (although he is careful to note that he does not endorse the legislation). The study undermines the claim that medical-malpractice reform is anti-life.

When John Kerry picked Edwards as his running mate and Republicans attacked the latter for being a trial lawyer, Connor rushed to his defense. But if Connor is concerned about the bad name trial lawyers have in some circles, perhaps he should have blamed lawyers such as Edwards rather than their critics. Connor says, "Trial lawyers should be viewed as stewards of the civil justice system." They will not be viewed that way, however, if a sizable number of them are not acting as such.

The right to a jury trial, meanwhile, isn't nearly as threatened as the Center—and the tort bar—would have you believe. There are, it is true, some proposals floating around to handle medical-malpractice cases through the kind of administrative compensation schemes that long ago took over workers' compensation. But legislated caps on damages aren't an affront to the jury system, any more than are statutes blocking juries in criminal trials from imposing life sentences for shoplifting (to borrow a comparison from Olson). The historical value of the jury was as a brake on the power of the courts. Their role has not been to enable the courts to take actions that the legislature refuses to authorize.

The issues involved in tort reform are complicated, and people can disagree about them in good faith. The Center for a Just Society might well lead social conservatives to make a contribution to this debate (among others). Connor says that the Center will come out for making the losing party pay for civil litigation—a potentially far-reaching reform. If the Center does that, it will be hard for anyone to argue that it is merely a front for the trial lawyers.

But social conservatives ought to keep in mind that the current system features, and even encourages, all kinds of squalid behavior. Lawsuits are filed as fishing expeditions. Firms that have not done anything wrong are targeted because of their deep pockets. Simple fraud is more than occasionally perpetrated through the courts. All of these are forms of bearing false witness. And "Judeo-Christian perspectives" on that have not been positive.

  1 2 3 4