FLEXING THEIR NEWLY ENHANCED influence in the U.S. Congress, corporations are seeking an unprecedented reform of the U.S. civil justice system to restrict the legal rights of the victims of corporate violence and escape punishment for their wrongful acts.
Big and small businesses have joined forces in a sweeping drive to limit a vast array of civil litigation in the state and federal courts - including product liability, medical malpractice, civil rights and environmental litigation. Proposals they back would make it harder for victims to bring suits known as product liability cases against manufacturers of products that injured them, limit the size of the verdicts that juries could award and immunize many producers from suits. The proposals also would eradicate one of the most important U.S. checks on corporate power - the right of juries to award punitive damages in amounts that they believe will adequately punish a wrongdoer.
The business wish list for "legal deform" is known as the "Common Sense Legal Reform Act" in the Contract with America promoted by House Speaker Newt Gingrich and other Republicans. "Common sense" in the Contract includes enactment of "loser pays" laws, "reasonable limits" on punitive damages and product liability "reform." Taken together, these proposals would limit the ability of victims to seek redress for their injuries and would diminish the unpredictable nature of jury awards. Predictability would help businesses calculate when it is "rational" to choose to injure people because the expected litigation costs of an unsafe product come in under the cost of making a safe product.
Outrageous claims
Business lobbyists and their congressional allies have heaped together distorted anecdotes, inaccurate statistics and wild exaggerations in their efforts to make the case for undermining core precepts of the U.S. justice system. Those that want to dismantle this system argue that the United States is the victim of, in the ContractÆs words, an "endless tide of litigation" that undercuts U.S. competitiveness.
The product liability litigation explosion is a myth. Tort suits (civil actions to recover for wrongful acts, injury or damages) comprise just 9 percent of all state court filings and product liability suits account for just 4 percent of tort cases, according to the Williamsburg, Virginia-based National Center for State Courts. Moreover, the number of non-asbestos product liability suits in the federal courts has declined almost 40 percent since 1985, reports University of Wisconsin law professor Marc Galanter.
Similarly, the claim that product liability suits undermine U.S. competitiveness is fatuous. The total cost of U.S. product liability lawsuits is equal to one-fifth of one percent of total retail sales, a recent study by the Arlington, Virginia-based National Insurance Consumer Organization found. The insurance companies of product manufacturers paid fewer than 56,000 people for product injuries over the past decade, the study revealed. The average payment in those claims was $3,767. Total product liability verdicts and settlements average less than $4.1 billion a year.
"According to a Rand Corporation study, only 10 percent of people who are injured ever use the tort system to seek compensation for their injuries," consumer advocate Ralph Nader says. "The problem is not one of too few claims but one of not enough claims, given the 90 percent or more of wrongfully injured persons who receive no compensation."
"As demonstrated by our countryÆs recent experiences with silicone breast implants, asbestos, the Dalkon shield, defective motor vehicles and medical devices, medical malpractice, toxics and hazardous pharmaceuticals and drunk-driving epidemics, Americans need more protection - not less," he adds.
The litigation explosion myth is just part of the tort deformersÆ grab-bag of lies and distortions. Rather than carefully examine the merits of the reformersÆ claims, however, the Republican House leadership rammed extensive tort deform legislation - contained in bills H.R. 10, H.R. 917, H.R. 956 and H.R. 988 - through the House floor in early March.
One way the tort deformers plan to limit the ability of injured parties to bring suit is through "loser pays" requirements. The so-called Attorney Accountability Act, H.R. 988, contains a "loser pays" provision for all federal diversity litigation - suits that are brought in federal court because the parties are citizens of different states. Under the billÆs loser-pays rule, a plaintiff who refused a settlement offer and later received less than the settlement offer at trial would be responsible for paying the defendantÆs attorney fees. Similarly, a defendant would be required to pay a plaintiffÆs attorney fees if the plaintiff received more at trial than the defendantÆs settlement offer. The House passed this bill on March 7, 1995.
Loser-pays advocates tout it as a paragon of fairness and efficiency. "The beauty of the proposal is that [significant] savings will result from reduced litigation costs and reduced counsel fees in settled cases," claimed Michael Horwitz, a fellow at the business- backed Hudson Institute, at a February House Judiciary Committee hearing. "Under the proposal, no claimant rights will be abridged or reduced."
Evenhanded appearances notwithstanding, the bill would dramatically tilt the field in favor of corporate defendants. It is much easier for corporations with deep pockets to absorb the legal fees of their victims than it is for their victims to pay the cost of corporate legal teams. Under loser pays, corporate wrongdoers would be encouraged to offer low settlements and to reject higher counter-offers from plaintiffs. This is what happens under the loser-pays rule in England, according to University of Wisconsin law professor Herbert Kritzer. Kritzer told the House Judiciary Committee that " ærepeat playerÆ defendants take advantage of the risk aversion of privately funded plaintiffs by engaging in what one writer describes as æhard bargaining;Æ the defendants either refuse to make offers at all, or make offers considerably under the true value of the case."
If the loser-pays provision is enacted, many potential plaintiffs will be intimidated from bringing suit at all. Under the current contingency fee system, an injured party - regardless of his or her income - can file a suit with no up-front investment. Many plaintiff lawyers take cases on a contingency-fee basis, accepting a percentage of what they win for clients as their fee. But under the loser-pays system, if the plaintiff lost, he or she would be liable for a potentially staggering corporate legal bill. This would convert filing a lawsuit into a high-stakes gamble, deterring many injured parties from filing suit.
Corporate impunity
Several provisions of H.R. 956, the Product Liability Act, which the House approved March 10, 1995, protect corporate wrongdoers from suits by product injury victims.
The first prong of the push for wrongdoer protection is the elimination of joint and several liability. Under the joint and several liability principle, if multiple parties contribute to the injury of a victim, the victim can recover all of his or her damages from any of the wrongdoers, irrespective of the extent of any particular wrongdoerÆs share of culpability for the injury.
Business lobbyists deride the joint and several liability concept as illogical. It does not make sense "to require someone who is only one percent at fault to pay 100 percent of damages for pain and suffering or other such non-economic compensatory losses," argues long-time tort reform advocate Victor Schwartz, a Crowell & Moring law partner and counsel to the Product Liability Coordinating Committee, a coalition that claims more than 800,000 business members, mostly small businesses. Schwartz told the House Commerce Committee in February 1995 that "it is intriguing to me to hear those who generally support the jury system magically ignore a jury finding that someone is, for example, 40 percent at fault, and argue that the person should pay 100 percent of damages when it comes to joint liability."
Joint and several liability rightfully puts victims first, counters Larry Stewart, president of the Association of Trial Lawyers of America (ATLA). "Joint and several liability says that we will first and foremost compensate the injured party who suffered their harm through no fault of their own," he says. "Joint and several liability then says that once that individual is compensated we will take them out of the system and then allow those defendants who have been found to have caused the harm to properly apportion damages amongst themselves." Eliminating this liability principle would force injured parties to absorb part of the cost of negligent or intentional harms when one or more of the wrongdoers cannot be located or lacks the assets to pay a jury verdict.
Businesses claim that they are awash in joint and several liability suits, but the facts suggest otherwise. A 1995 study of product liability cases by the State Bar of Wisconsin, for example, found that only 2.6 percent of product liability cases in that state involved joint and several liability.
Just as corporations despise giving juries carte blanche to determine how much to award in punitive damages for product liability, businesses hate joint and several liability because it throws off their ability to calculate the cost of damages that may arise from producing unsafe products. The fear that an unsafe product may subject them to unexpected damage suits through joint and several liability provides a strong incentive for corporations to manufacture safe products.
Something for GM
The second prong of the legislative hustle to protect corporate wrongdoers is the establishment of a 15-year statute of repose on all products, unless the product caused a chronic illness. This provision would completely bar lawsuits against certain products - such as DES, the anti-miscarriage drug that causes birth defects and cancer - that cause serious, though perhaps not chronic, illnesses that can take more than 15 years to appear.
Many businesses claim that they are unfairly subjected to suits for old products that met existing safety standards at the time they were built. "My company has been manufacturing machine tools for over 100 years," testified Charles Gilbert, president of Gilbert Machine Tool Co. in Cincinnati, Ohio, before the House Judiciary Committee in February 1995. "Many of these machines are still in use today. Although they were built decades ago to safety standards of their day and although they are likely to have passed through several owners - each of whom are likely to have made their own modifications to accommodate their needs - they are still the subject of over one-half of our industryÆs lawsuits and all of my companyÆs lawsuits." Gilbert, who spoke on behalf of the Association for Manufacturing Technology, complained of the high legal costs of defending these suits. Yet he acknowledged that his company almost always wins the suits, many of which presumably lack merit.
The failure of non-meritorious suits to succeed and the lack of motive for plaintiffs or plaintiff attorneys to bring such suits suggests that something else may underlie the drive for a 15-year statute of repose. The fact that General Motors (GM) is a leading proponent of this provision suggests an explanation. GM knows the proposed 15-year repose would partially relieve it of liability for the pick-up trucks it built with explosively defective side- saddle gas tanks, some of which are now more than 15 years old. GM could have installed protective shields for as little as $23 per vehicle.
Buyer beware
Other provisions of the Republican tort deform bills that would shield wrongdoers include liability limits for those who sell dangerous and defective products. These provisions would weaken the laws of 46 states that currently hold retailers responsible when they sell dangerous products that injure or kill consumers.
The existing system is unfair because "a product seller is in most states treated in the same manner as the manufacturer of the product, even though it has no hand in designing or building the product it sells," testified James Anderson, Jr., a lobbyist for the National Association of Wholesaler-Distributors, before the House Commerce Committee. "Although a judgment may be obtained against the product seller, the seller almost never ultimately pays the judgment because he is not, in fact, responsible and is able to shift the cost of liability to those who are. Nonetheless, when he has been sued, he must defend in court with the attendant costs of such a defense."
ATLAÆs Stewart disagrees. He says the liability of sellers of harmful products provides an important incentive for them to act responsibly. "Product sellers are a vital link in the chain that brings products to our citizens," he says, and they should "be held accountable."
Limiting seller liability would have sweeping consequences. It would, for example, immunize: taverns that serve alcohol to obviously intoxicated customers; gun dealers who sell guns to customers who are underage, intoxicated or felons; stores that make implied warranties that a product is suitable for children by selling their products to kids; and retailers that fail to convey known dangers about the products they sell. The House passed this provision in the flurry of tort deform legislation that it passed in the second week of March.
Blame the government
Another protection of corporate wrongdoers would exempt producers of drugs and medical devices from normal product liability rules. This provision would bar punitive damages if a dangerous drug or medical device had been approved by the Food and Drug Administration (FDA). Government approval of a product, manufacturers argue, signals that the producer acted with sufficient care and should not be subject to punitive damages.
This argument ignores U.S. regulatory history and the role manufacturers play in winning regulatory approval of products. First, the FDA has often failed to protect consumers in the past, approving, for example, the Copper-7 intrauterine device (IUD) and the Bjork-Shiley Heart Valve. Second, proposed exemptions for these products ignore the fact that drug makers in the U.S. regulatory system conduct their own scientific safety testing. FDA approval may not mean that a drug is safe, but that its manufacturer has withheld information from regulators.
Using the FDA as a cover for liability exemptions is particularly ironic since advocates of the exemption also are pushing Congress to weaken the FDAÆs authority to issue and enforce drug and medical device regulations. Enactment of an FDA-linked exemption would be especially harmful for women, since they are the primary users of products that have prompted large numbers of medical device and drug lawsuits - including the Dalkon Shield, DES, Copper-7 IUD and silicone breast implants. The Product Liability Act the House passed on March 10 contained the FDA-exemption amendment and an amendment to cap punitive damages.
Damage control
The crown jewel of the corporate tort deform movement is a cap on punitive damages - the awards juries approve to punish those who injured a victim. The Product Liability Act limits punitive damage awards in product liability cases to the higher of $250,000 or three times the amount of economic damages. The bill would impose this cap on all civil actions in state and federal courts, including environmental, civil rights, drunk driving and commercial cases.
Corporations hate punitive damages because juries may issue a large punitive verdict in cases where corporate behavior is particularly egregious and especially because they are unpredictable. "We need reasonable predictability that will separate the bad from the good," business lobbyist Schwartz told the House Commerce Committee.
The unpredictability of punitive damages means corporations cannot write off the human costs of their profit-seeking activities by easily figuring them into their cost-benefit analyses. "It is only the indeterminable nature of punitive damages which makes it impossible for a cynical actor from making calculations weighing safety against the cost of compensating injuries," ATLAÆs Stewart says. Thus, though punitive damages are rarely awarded, they exercise a powerful deterrent effect over corporate misbehavior. In the most comprehensive study of punitive damages ever conducted, Professor Michael Rustad of Suffolk University Law School in Boston, Massachusetts found that, between 1965 and 1990, only 355 punitive damages were awarded in state and federal product liability lawsuits - an average of 14 per year.
Contract with whom?
Perhaps the ultimate indictment of the Republican backers of tort deform legislation is how they are abandoning the purported principles of the Contract with America. Despite the fact that the Republicans have been claiming to advance statesÆ rights, their tort legislation would federalize some 200 years of state law in this area. The Conference of Chief Justices and the National Conference of State Legislators have vociferously opposed the tort reform legislation on these grounds. Similarly, despite Republican property rights rhetoric, tort deform would limit the ability of individuals whose property is damaged by defective products to recover losses.
Finally, notwithstanding their claims to work to empower individual citizens, the Republicans have not advanced legal reforms to protect consumers. For example, there is no provision in these bills that would bar the use of secrecy agreements in liability lawsuits; secrecy agreements hide the dangers of deadly products from consumers and waste time and money by forcing attorneys to duplicate earlier efforts.
Such contradictions, says Nader, "Reveal that the RepublicansÆ real contract is with corporate wrongdoers against American citizens, entrepreneurs and consumers."
Consumer advocate Ralph Nader described the relevant facts in testimony before the House Judiciary Committee in February 1995. What follows are excerpts of that testimony:
"In February 1992, while sitting in a non-moving car, 80 year-old Sheila Liebeck suffered third degree burns over six percent of her body, including her genital and groin areas, after the cup of coffee she was holding spilled into her lap. As a result, she was hospitalized for eight days and underwent skin grafting. Ms. Liebeck sought to settle her claim for a mere $20,000, but McDonaldÆs refused.
"During extensive discovery, Ms. LiebeckÆs attorney discovered that more than 700 claims had been filed against McDonaldÆs by people burned by its coffee between 1982 and 1992. In addition, McDonaldÆs admitted that it kept its coffee at temperatures almost 40 degrees higher than most food establishments. The jury awarded Ms. Liebeck $200,000 in compensatory damages, which was reduced to $160,000 because the jury found Ms. Liebeck 20 percent at fault for the spill. The jury also awarded Ms.Liebeck $2.7 million in punitive damages, the equivalent of two days of McDonaldÆs coffee sales. The trial court subsequently reduced the punitive award to $480,000 - three times the compensatory damages.
"Notwithstanding the hysteria surrounding the McDonaldÆs coffee case, the facts demonstrate that punitive damage awards are not awarded arbitrarily or without just cause, and that awards are subject to review and reduction by trial judges."
- J.B.