Friday, February 25, 2005

During the 2004 presidential campaign, one principal plank of George W. Bush's domestic platform was reforming tort law, which includes class action lawsuits, asbestos liability, and medical malpractice liability. President Bush believes that tort law as it now stands permits trial lawyers to take advantage of good companies, driving up the costs of doing business for everyone. Others believe that existing tort law allows consumers to protect themselves against bad companies. Which is it? And should President Bush be given the tort reforms he wants? Peter Robinson speaks with David Davenport and Alan Morrison.

Recorded on Friday, February 25, 2005

Peter Robinson: Today on Uncommon Knowledge: having your tort and eating it too.

Announcer: Funding for this program is provided by the John M. Olin Foundation.


Peter Robinson: Welcome to Uncommon Knowledge, I'm Peter Robinson. Our show today: tort reform. During the last presidential campaign, one of the principal planks of President Bush's domestic platform was tort reform. Tort is simply a word that means harm and when the lady sued McDonald's for serving her coffee that was too hot and collected a huge amount, the law under which she did so was tort law. President Bush believes that tort law as it now stands permits trial lawyers to take advantage of good companies, driving up the costs of doing business for everyone. Others believe that tort law as it now stands permits consumers to protect themselves against bad companies. Which is it? And should President Bush be given the tort reforms that he wants?

Joining us today, two guests. David Davenport is a professor of law at Pepperdine University and a Fellow at the Hoover Institution. Alan Morrison is a senior lecturer in law at Stanford Law School and a cofounder with Ralph Nader of the Public Citizen Litigation Group.

Title: Tort and Retort

Peter Robinson: Journalist Eamon Javers, "There are those who say people are taking advantage of good companies with lawsuits and others who say suits with million dollar penalties are the last best hope for people to get companies to stop taking advantage of consumers." Tort law in the United States as it now stands, consumers taking advantage of companies or companies taking advantage of us? David?

David Davenport: The balance has shifted toward consumers taking advantage of companies.

Peter Robinson: Alan?

Alan Morrison: The other way around.

Peter Robinson: Other way around. All right. Well that's as simple a disagreement as we could ask for. Now let me ask two men while they're versed in the law to give me a laymen's education in this matter. What's a tort?

David Davenport: A tort is a wrong that someone commits to another. It's usually some kind of harm or some kind of injury that is caused to you by a person or product.

Peter Robinson: Why do we use such a strange word as tort?

Alan Morrison: The word tort is a French word for wrong.

Peter Robinson: Right.

Alan Morrison: So David and I at least agree on something.

Peter Robinson: Exactly. Now do we know roughly what proportion of tort cases are tried in state courts as opposed to federal courts?

Alan Morrison: Very heavily in state courts.

Peter Robinson: Very heavily in the state courts. All right now…

Alan Morrison: That's because in general, our tort law is state based law and all the proposals to change that law are being debated now. Our federal government would change state law.

Peter Robinson: Right. You are anticipating me slightly here. So if we're talking about a branch of law that arose centuries ago in English common law and under which most cases today are tried in state courts, David Davenport, I ask you what makes the President of the United States think he has any right to intervene or that he can fix anything?

David Davenport: Well the federal government reserves power over state courts in a couple of ways. Under Article II of the Constitution, congress has a fair amount to say about court jurisdiction and under the commerce clause; the federal government has opportunities to take action when they feel things affect interstate commerce.

Peter Robinson: Okay, the President wants tort reform in three areas: class action lawsuits, asbestos liability and medical malpractice. Now let's take each of these in turn and I promise you'll get a chance to make your larger points as we discuss each of these. He has one of the three. Passage in February of the Class Action Fairness Act of 2005. Now let me ask you for the brief laymen's education. What's a class action and what did the Class Action Fairness Act of 2005 do about it?

Alan Morrison: A class action is a device by which a large number of individuals typically with very small claims and by the way, almost none of them are tort claims in the kind that David and I have been speaking about. These are mostly consumer fraud cases. Tort cases typically involve personal injury cases.

Peter Robinson: So we call it tort reform, are you speaking of…

Alan Morrison: The President likes to use that term.

Peter Robinson: Loose sense?

Alan Morrison: Loose sense, yes.

Peter Robinson: All right.

Alan Morrison: He calls it lawsuit abuse. And so it comes in the back door. But basically a tort--a class action is a device that enables a large number of individuals to join together in a lawsuit that would be economically impossible to bring as individual cases because the amounts at stake for consumers perhaps 50, 100, $200, against a large corporation--nobody could afford to have a lawyer and no lawyer would take the case unless you could aggregate all the claims together.

Peter Robinson: And the act--the 2005 Class Action Fairness Act does what?

Alan Morrison: It basically takes all of those cases that were brought in state court--these are state law cases--federal law cases, for example, under the Federal Securities Act are already in federal courts. These are state law cases that have always been tried in state court and they move them wholesale into the federal courts.

Peter Robinson: Does a conservative like David Davenport really want the federal government taking all these cases out of state courts?

Title: Make a Federal Case Out of It

Peter Robinson: Plaintiff's lawyer Al Meyerhoff, "The Class Action Fairness Act will federalize most class actions taking," just as Alan explained, taking them away from local courts and juries, "already overburdened, federal courts will be required to resolve complex issues of state law while many victims may kiss justice goodbye." In other words, what you have here is a massive usurpation by the federal government of powers that belong to the states and an overburdening of the federal judiciary system with cases it is ill-equipped to address.

David Davenport: Well, that's assuming lawyers don't change their strategy. I would assume that now many of these will be brought as individual cases in state courts. Still class actions can be brought state by state. So a lawyer can file multiple class actions in multiple states. But, of course, part of the strategy is that there would be a reduction of some of these cases, which are viewed to be, in many cases, frivolous and excessive.

Peter Robinson: I see. Okay. So you get around the problem of overburdening the federal judiciary by saying no, no, no, no, no, now that we've changed the law, trial lawyers aren't going to be bringing cases like this.

David Davenport: We're going to have far fewer of these cases.

Peter Robinson: Okay.

Alan Morrison: Just a point of the law.

Peter Robinson: Right. And you'd agree with that?

Alan Morrison: Most certainly is at this point of the law.

Peter Robinson: Okay.

Alan Morrison: It's unabashedly the point of the law. The defense bar believes that it will win more cases by having these cases heard in the federal court. They make no bones about it. I want to be clear that there are some of these class actions, nationwide ones in particular or cases that are filed--overlapping cases in multiple state courts which perhaps should be brought into the federal courts.

Peter Robinson: Right.

Alan Morrison: And I've supported and others have supported a much more limited bill that would do that. What's wrong with this bill, I mean, aside from some other technical things, is it essentially reverses everything and all of these cases with very few exceptions and the--and I'm not even sure that even the local state based class actions could stay in the state court--they're all going to be in the federal court. And the federal judiciary is not very happy about this. Obviously they have to stay out of…

Peter Robinson: Alan, here's the reason. I'm quoting the Wall Street Journal: "The trial bar has perfected the legal art of forum shopping." That is to say they go from here to they--end up--apparently there's a county in Wisconsin, I believe, one county which is especially notorious as a good place to…

Alan Morrison: Illinois.

Peter Robinson: Illinois?

Alan Morrison: Madison County.

Peter Robinson: Madison County, Illinois, exactly. One county in Illinois where all the--from around the country, they try to file as many class actions there as they. These--I'm continuing the Wall Street Journal, "these mass tort claims have become a source of legalized extortion that rewards lawyers with cash but plaintiffs with coupons and pennies." And incidentally I read that and thought yeah, oh so that's what that coupon was all about when I got five bucks from some airline or something like that, a coup--okay. So the notion here is that this is just out of control and that something had to be done.

Alan Morrison: Yes, perhaps something had to be done but whether they had to go as far as they went here is a completely different question. And it's obvious that they weren't talking about just the Madison Counties of the world because you could have written as I drafted, a much narrower bill and they weren't interested in that. They wanted the home run and that's what they got.

Peter Robinson: Was the bill overbroad? If you had your druthers, would you have gotten in there and drafted it slightly differently?

David Davenport: Well no, because I still think that creative lawyers will bring these class actions in state courts.

Peter Robinson: Oh, you're a hard line man. This bill was just what was needed.

David Davenport: Well I think it's up to the federal government to decide these procedural matters. And I think it's good that they did. Yes.

Peter Robinson: Next: tackling the asbestos mess.

Title: Asbestos Case Scenario

Peter Robinson: Asbestos: substance widely used for insulation for much of the twentieth century. Turns out that it causes the lung ailment, asbestosis, and a terrible form of cancer, mesothelioma. In over thirty years of litigation, what happens first is that the major manufacturers of asbestos are sued, Johns-Manville, Raybestos, couple of others--they go bankrupt. So suits begin to be filed against construction companies, steel makers, virtually any company, any corporation that used asbestos ever for any purpose whatsoever. Professor of Law, Lester Brickman, journalist Harvey Shapiro, "There is little doubt that after thirty years of lawsuits, the biggest beneficiary of the asbestos mess has been the plaintiffs bar to the tune of twenty billion in fees so far and counting. Just as asbestos has been removed from buildings around the country, the bulk of asbestos litigation should be removed from the legal system." Of course, they're correct are they not?

Alan Morrison: It's time for the asbestos litigation to largely get out of the court system. The problem is finding a way to do it without substantively injuring the victims and without creating a mess that is even worse than we have now. One of the major problems is that everybody agrees that there ought to be--well not everybody--a large group of people agree there ought to be a fund created. The problem…

Peter Robinson: You'd agree with that?

Alan Morrison: I think now it's time for a fund to be created. The problem is who is going to pay what into the fund? We have fights between the insurers, the re-insurers, the companies, the various levels of companies involved. What do you do about the bankruptcies and then the question is who gets paid what out of the system. And there has been inability to reach any kind of agreement on these big dollar and cents issues. So talking about an alternative system is fine but you have to get to the details and that's where it's broken down somewhat.

Peter Robinson: Well, you know, you make--so the proposal that gets surfaced in the press over and over again--republicans in congress want to--and but as far as I can tell the administration has not embraced this. They smile upon it but this is not the President's proposal yet. Republicans in congress want to establish a 140 billion dollar industry backed fund to settle all the claims in exchange for ending all litigation. But Alan makes a very good point does he not? How is it that congress can legislate the kind of extremely detailed negotiated settlement that this would certainly entail?

David Davenport: Well I think there are hard questions of federalism here but the particular one you've asked I don't think is so hard.

Peter Robinson: Really?

David Davenport: I think a legislature is in far better position to state and negotiate details than fifty state courts, which is kind of what we have now. And so I think congress is in good position to work out the details. I think there are two or three hard questions. How much money should go in? A hundred and forty billion some think is high, some thinks not enough. Secondly, I agree with Alan, a hard question as to what does insurance pay in, what do companies pay in. The third hard question, which is what I struggle with, is they still aren't doing much in the bills that I've seen to change the standards for recovery. I think the standards for recovery in these cases have been much too loose. And I think under federal legislation, they may still be. So there are hard questions.

Peter Robinson: So what you're saying is that there are hard questions involved but even at that, what congress is considering doing is striking a deal, not really reforming tort law, the underlying…

David Davenport: I think in the case of asbestos, that's a fair sentiment.

Alan Morrison: Yes, I think everybody understands that.

Peter Robinson: You'd agree?

Alan Morrison: That's what's going to have to be done if they're going to be able to do anything.

Peter Robinson: Onto the third target of tort reform: medical malpractice liability.

Title: A Ploy Named Sue

Peter Robinson: President George W. Bush, "What's happening all across this country is that lawyers are filing baseless suits against hospitals and doctors. They know the medical liability is tilted in their favor." Is medical liability tilted in favor of plaintiffs' lawyers?

David Davenport: Well, in some jurisdictions it is. Some states have stepped in and made changes to prevent it but in some jurisdictions it is and that's caused malpractice insurance to go sky high and have had many, many implications on the healthcare system, including it's one major reason you're paying a lot more for health insurance.

Alan Morrison: Several answers to that. First, the data I've seen and admittedly they're not really good data in the sense of being scientifically validated--about fifty percent of the cases that go to trial, at least are won by the doctors--at least. Second thing is many of the worst cases against the doctors are settled before they go to trial. Third the notion that everybody is ripping off the system completely forgets about the fact that many people are being very seriously injured. A person loses a leg or a woman loses her right to reproduce or a child is born with birth defects and is going to be essentially unable to do anything the rest of their lives, the notion that they should be not fairly compensated is quite unfathomable to me. But that's what this bill that the President's supporting would do.

Peter Robinson: 2004, Medical Malpractice Reform Act which fails but it seems reasonable to suppose that the administration will introduce something like it.

Alan Morrison: They have.

Peter Robinson: Oh they have. All right. Centerpiece of that act is capping non-economic damages at a quarter of a million dollars. Actual damages and medical costs to remain uncapped but damages for--what in popular culture the pain and suffering is capped at a quarter of a million dollars. Why does it make sense to remove from juries the ability to make the payment fit the suffering?

David Davenport: Well, because juries have a bad track record at doing that. Jury verdicts are all over the map. Similar injuries receive--can receive widely differing amounts of compensation. And so a cap is one way to deal with that in terms of reform. Another might be to take that away from the jury and once they've decided that there are punitive damages to be involved, for example, the judge assigns that. You could also say that the non-economic damages can't be more than two times the actual medical damages. So there are several ways to…

Peter Robinson: Are you pleased with a cap?

David Davenport: To be honest with you, I think the cap is sort of a crude tool and I'll again be honest and make a little gesture toward my colleague Alan.

Peter Robinson: Not too much honesty. It's bad for television.

David Davenport: I'm not sure $250,000 is high enough for some of the cases. I agree there's some very bad cases. What I want to do is to weed out the frivolous and non-meritorious cases so that the people who are truly injured can get an appropriate recovery. 250,000 may not be enough.

Peter Robinson: How do you weed out the friv--oh, oh, you just adjust the number. That's all you're interested in doing or…

David Davenport: I would like to limit--put caps on punitive damages but I would make them a multiple of the actual damages that are suffered as opposed to putting a $250,000 cap or something.

Peter Robinson: Oh I see. So you fix that--actual damages…

Alan Morrison: Actually the bill that's introduced…

David Davenport: …is non-economic.

Alan Morrison: It says punitive damages are twice the actual damage. I should just say in--or 250,000, whichever is greater.

Peter Robinson: I see.

Alan Morrison: Cap on it.

Peter Robinson: Why is 250 a bad idea? 250,000 is a bad idea?

Alan Morrison: The first place is it penalizes mostly women because by and large women have fewer economic damages…

Peter Robinson: Oh I see.

Alan Morrison: …because they work less.

Peter Robinson: Right. Right.

Alan Morrison: They stay home and take care of their children.

Peter Robinson: Economic damage is usually…

Alan Morrison: The second is in many medical malpractice cases, women's reproductive systems are what is being malpracticed and the result is that when you're told that you can't have a child, the most you can ever get is $250,000 for non-economic damages. The same with a child. A child who was injured has no earnings and hence--no earnings history--and hence can't prove economic loss in the future. The only thing that child will have--losing a leg or being brain dead is $250,000 plus the medical expenses.

Peter Robinson: So how would our guests reform medical liability?

Title: The Doctor Is In…Trouble

Peter Robinson: We agree that medical liability needs to be addressed. We agree that the current…

Alan Morrison: No.

Peter Robinson: …oh you'd leave it alone?

Alan Morrison: I don't think if I…

Peter Robinson: So if I say to you reform--medical liability reform according to Morrison you'd say leave it as it is.

Alan Morrison: No, I have two things but they're not this kind of reform. The first thing I would do is I would start getting bad doctors out of the business. There is almost no doctor discipline for doctors. Second thing that happens is that doctors do not pay increased malpractice insurance when they commit malpractice. Five percent of the doctors commit fifty percent of the malpractice.

Peter Robinson: And there's no way for insurers to punish them?

Alan Morrison: No, the insurers chose not to raise their rates. If you and I get in a car accident, we raise our rates. Insurers don't do that. Seems to me if you're going to talk about tort reform and trying to help the victims, you would be thinking about doing something different from what they're doing here.

Peter Robinson: David?

David Davenport: I would do…

Peter Robinson: That make sense?

David Davenport: I would do the class action reform and the asbestos reform at the federal level.

Peter Robinson: Just about as the President has done in the class action…

David Davenport: Although I might do even more. I might also say at the federal level that unless a business is actively set up and doing business in the state, that you can't bring an action in that state. Now what I would do at a state level is I would do the actual tort law reform including the medical malpractice reform at the state level because I agree with Alan, tort law is essentially state law. It's not largely federal. And I think there would be a variety of tools that states might experiment with so we could get some data and experience.

Peter Robinson: Now you're making the federalist argument. Now you're saying that we really do need these fifty states around as laboratories to experiment…

David Davenport: And I--yes I agree with that. I believe it's the federal government's role to deal with the procedural questions, which I think includes class action. I think occasionally you'll get an asbestos-like case where the federal ship has run aground and we're going to have to have another solution. But other than that, I would do the malpractice reforms and the other kinds of reforms at the state level and let's see what works.

Peter Robinson: And you get a kind of torquing of the political system whereby a state that does enact an effective tort reform becomes friendlier to a business climate.

David Davenport: Precisely.

Peter Robinson: And so neighboring states…

David Davenport: Instead of paying money in Mississippi for tort damages, they'll go pay taxes in a state that has more appropriate laws.

Peter Robinson: Okay. So in some way you ought to be able--you ought to be able to rely on the political system of the fifty states to respond to this problem.

David Davenport: Right.

Peter Robinson: All that make sense to you?

Alan Morrison: He is surely right that the states are the places to do this. The business community has lots of power in the states. The doctors have lots of power in the states. There are experiments going on. Some of them are sensible. Some of them are very bad. For example, here in California the tobacco lobby persuaded the legislature to make it impossible to sue on cigarette smoking for a period of about ten years. Suddenly the legislature woke up and said wait a second, that's a terrible idea and they changed it. If we do this kind of change at the federal level, it will be centuries before we'll be able to do anything about it.

Peter Robinson: Finally the politics of tort reform.

Title: Elephants on Stampede

Peter Robinson: Who wants tort reform, industry, doctors, insurance companies, all important supporters of the Republican Party? Who gets hurt? Trial lawyers, a key constituency of the Democratic Party. So David, what's going on is not genuine legal reform. It's politics. At this moment the GOP is triumphant and it is moving against its political enemies.

David Davenport: Well, I believe in the burning platform theory of change, which is until the platform is on fire; you're not going to jump off. And so I think it's because business and other constituencies see the platform as on fire. We're spending as much as $250 billion a year, two to three percent of gross domestic product on tort and related product and service insurance. And so the platform's on fire. That's when we jump…

Peter Robinson: The political component of this doesn't bother you at all. That's just the way politics works.

David Davenport: Well, I think that's part of the system is pressure is brought to bear when change is needed.

Peter Robinson: All right. David Bernstein, law professor at George Mason University, Alan, ordinary Americans will "care that they're ordinary Americans," not industry, "care that their local doctor is more likely to stay in his or her practice if tort reform takes place or that when they go to Home Depot, the ladders will cost twenty percent less because people aren't falling off them and suing for millions. Scaling back the tort system probably won't have any effect on the ordinary Americans' health or safety but it probably will save them some money." So tort reform represents a large transfer of wealth from the tiny coterie of super rich trial lawyers to the vast numbers of ordinary Americans. And for that reason alone we ought to embrace it.

Alan Morrison: One of the features of the Bush tort reform proposal is to put caps on the amount of fees that lawyers can be paid in tort cases. Aside from the affront to federalism, the notion that the federal government is now going to be controlling state law, they're now going to be regulating--in effect, regulating what lawyers can do. Leaving aside those things, the claim is of course, that if we lower contingent fees that the victims will get more money. But a hundred percent of nothing is still nothing. And if the contingent fee is so low as it is in many of these cases and the cases are extremely difficult to try, complicated, lots of expert witnesses required, the answer's going to be very simple which is largely the answer here in California now--nobody is bringing medical malpractice cases unless they're very, very seriously injured and very large economic damages. Now that…

Peter Robinson: Yeah but you know what, since 1970 malpractice premiums in the State of California have risen only a third as high as most of the rest of the country. We should rejoice.

David Davenport: Tort reform.

Peter Robinson: We should rejoice. And why? Because in 1970 California capped non-economic damages.

Alan Morrison: Well it hasn't been reflected…

Peter Robinson: Because hard cases make bad law. Right?

Alan Morrison: Maybe. It also is not reflected in our health insurance premiums, which have continued to skyrocket. The transfer is occurring from the people who are injured and who have to pay for these injuries themselves or just simply suffer in silence. Those are the people who are being injured. These are not people who are not injured. They may not have any legal claims, although in many cases they do. But the question is what's happening to them?

Peter Robinson: Final question to you before we close out the show here, David. You may argue until you're blue in the face that the large proportion of these cases are frivolous and then every so often you come across somebody who doesn't get enough oxygen at birth and is brain damaged for--I mean, you do come across these crosses which are heart rending, what do you do? How do you grapple with that?

David Davenport: To me the part of tort reform is to carve out as much of these frivolous cases as possible and take them off the table so that there will be adequate money to compensate the people who are correctly injured. As you've pointed out, in our present system with all of the money we spend on torts, both on the insurance side and the legal side, over half of that ends up either in lawyers' hands or in administrative costs. It's not going to the victims. So tort reform, I think, creates new possibilities for seriously injured people.

Peter Robinson: Last couple of questions here. As we noted at the top of the show, President Bush wants three kinds of tort reform and he got one in February with the passage of the Class Action Fairness Act of 2005. Before George W. Bush leaves office, is he also going to be able to sign into law asbestos liability reform, which he wants, and medical malpractice reform, which the two of you say he shouldn't want but he wants nevertheless? Is he going to get asbestos reform?

David Davenport: I think that's almost a coin toss. I would say he will get it but the forces have gone back and forth so often that I'm not confident.

Peter Robinson: Alan?

Alan Morrison: Very difficult to say because the principal combatants in this are the industry--various parts of the industry and the insurance industry and they have to reach agreement on the division of the payment and the money makes it very hard to imagine it's going to happen. But it might.

Peter Robinson: Medical malpractice reform. Is he going to get a federal malpractice reform?

David Davenport: I think he probably is going to get a bill. As you heard me say earlier, I would prefer to let the states work on this one.

Peter Robinson: What do you think?

Alan Morrison: I think he will not get a bill. I think the people will realize and independent studies have shown that ninety percent of the malpractice activities at doctors--doctors and hospitals--never are the basis of the lawsuit. The leading cause of malpractice litigation is malpractice and that's not going to change.

Peter Robinson: Alan Morrison, David Davenport, thank you very much.

Alan Morrison: Thank you, Peter.

Peter Robinson: I'm Peter Robinson for Uncommon Knowledge. Thanks for joining us.