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Reconsidering Suit Ability

There's a longstanding impression that something is seriously out of control in the civil justice system.


Alan Ehrenhalt

Alan is a Governing senior editor.

One evening a few years ago, on a reporting trip to Charleston, West Virginia, I noticed a nice-looking restaurant right across the street from my hotel. I walked in, found a table, picked up a menu -- and practically fell out of my seat. The entrees started in the $30 range and drifted upward from there. I mumbled an apology to the hostess and looked for somewhere else to go.

But the next morning, in the governor's office, I asked politely how such a place could possibly stay in business charging Park Avenue prices in a blue-collar town such as Charleston. The governor himself gave me an immediate answer. "That's where the trial lawyers eat," he said.

Lots of us have heard stories about trial lawyers, the money they make and the civil justice system that has made many of them and a small number of their client plaintiffs very rich. Some of those stories are true; others turn out to be apocryphal or embroidered. But taken as a whole, they reflect a longstanding impression that something is seriously out of control in one large segment of the nation's legal process.

Just how accurate is that suspicion? For somebody like me, with no emotional stake in the issue, it's not a simple question to answer. So many of the fundamental facts are in dispute. Large punitive awards handed out by civil juries are either costing the American economy billions annually in corporate-liability expenses or saving the consumer billions a year by keeping greedy corporate predators in check. It just depends on whom you ask.

If you consult the National Association of Manufacturers and its president, John Engler, you learn that excessive court judgments in civil cases may be robbing the U.S. economy of as much as $200 billion a year. "The health of a state's civil-justice system," Engler wrote last year, is a key indicator of its economic vitality. Éstates that fail to enact civil justice reform remain at a significant economic disadvantage to their more progressive neighbors."

Engler knows something about this subject. As governor of Michigan in the 1990s, he pushed through comprehensive tort reforms that reduced the liability exposure of the state's businesses, made it difficult for plaintiffs to collect huge awards, and exempted the pharmaceutical industry from exposure in many cases altogether. Engler expressed his pride that Michigan now ranks among the most tort-protected of all the states in the studies done annually by the reform-minded Pacific Research Institute.

Thanks to its decade-old system of tort controls, one could confidently expect Michigan to be enjoying a resurgence of economic vitality that greedy trial lawyers and plaintiffs previously denied it. Yet this is not the case. Michigan is in an economic crisis. It has been hemorrhaging jobs and corporate headquarters for the past decade. One might argue, of course, that things would be much worse there had it not been for the Engler reforms. But there is the troubling fact that at least one major drug company, all but freed from liability concerns by the laws of the Engler era, has left Michigan to set up shop in other states where no such protection exists.

In a similar way, it would be reasonable to assume that Alabama, notorious for its swashbuckling trial lawyers and juries who listen to them, would be seeing an exodus of businesses. In the Pacific Research Institute study, Alabama ranked 40th in the fairness and moderation of its civil justice system.

But all this makes it somewhat awkward to explain how, just a few months ago, Alabama landed the prized $3.7 billion ThyssenKrupp steel plant that other states, most of them with less plaintiff-friendly tort systems, had been scrambling hard to obtain. The ThyssenKrupp deal came on top of the successful decade-long manufacturing partnership between Mercedes-Benz and Alabama. Of course, there are arguments one can make: Torts are not everything. Alabama may have a few runaway juries, but it also pays relatively low wages and doles out big economic favors -- for ThyssenKrupp alone, a $400 million package, not counting tax breaks.

It isn't just competition between states that adds to the confusion on this issue: it's conflicting opinion among people on the same side of the fence about whether a state has a "clean" civil justice system or a corrupt one. Consider Texas. In the past five years, it has passed some of the strictest tort-reform legislation in the United States. There is a $250,000 cap on non-economic damages (so-called "punitive damages") in most civil suits. There are strict limits on medical malpractice awards. And indeed, there seem to be clear results. According to one study, the number of malpractice suits has decreased by half. The number of doctors applying to practice in Texas has been going up by an average of about 50 a year. The Pacific Research Institute ranked Texas as having the single least burdensome tort system of any state in the country.

That study came out just a few months after another group with similar priorities, the American Tort Reform Association, published a study identifying two substantial areas of Texas -- the Gulf Coast and the Rio Grande Valley -- as the leading "judicial hellholes" in the United States. ATRA defines "hellholes" as jurisdictions where juries are instinctively biased in favor of plaintiffs and against corporations, where judges approve dubious legal theories not grounded in established jurisprudence, and where class-action suits are routinely approved in court even when it isn't clear what, if anything, the members of the "class" have in common.

The ATRA side of the story gained some credence a short while later when one Texas trial lawyer, Anthony Buzbee, was taped giving a speech in which he claimed that trying a case in Starr County, one of the Rio Grande jurisdictions, "probably adds about 75 percent to the value of the case."

There is, of course, room for factual disagreement about civil-justice conditions even among those who share the same goals. But there's no way Texas could be the most tort-friendly state and the most tort-hostile state at the same time. What these discrepancies suggest is that we may be looking at the entire subject in the wrong way. Perhaps the problem with torts isn't the size of the awards or the effect on a state's economic vitality. Perhaps something else is fundamentally wrong.

One analysis of what that something might be turned up recently in a new book by Thomas Geoghegan, the eloquent and iconoclastic trial lawyer from Chicago who has written provocatively in the past on labor unions, criminal courts and American citizenship. Geoghegan agrees the civil justice system in America is a mess, but not for the reason most of its critics do.

The problem, Geoghegan argues in his new book, See You in Court, is not that the tort system is capricious -- although that's often true -- but that it's being asked to perform a role never asked of it in American history. Through most of the 20th century, most employees, for example, worked under strictly defined contracts prescribing in clear terms what they were supposed to do and how corporations were supposed to treat them. When there was a disagreement, the case went to arbitration, where it was solved quickly, one way or the other, and at relatively little cost.

But in the past three decades, as union representation has plummeted, contract law has declined along with it. Today, fewer than 9 percent of all workers in the private sector are under any form of binding contract. They are "employees at will."

That has had profound effects on civil jurisprudence. Workers with grievances now have to pursue them individually under civil rights laws or other anti-discrimination statutes, state or federal. More often than not, they must show some form of malicious intent on the part of the employer. Cases proceed through endless rounds of deposition and discovery that can take years, cost a fortune and increase the overall level of hostility. "Instead of civil servants," Geoghegan says, "we look to vigilantes."

The result is that an arbitration case that Geoghegan's firm would have handled for $2,500 a couple of decades ago now results in $150,000 worth of fees before the proceedings are seriously underway. This is fine for Geoghegan's business -- he sues people for a living, after all -- but he is honest enough to admit some sympathy with the businesses that are burdened by it. "When a trial lawyer's fee breaks $1,000 an hour," he writes, "I feel sorry for the businesses that pay them. Obviously it is terrible for the employer, and he or she is often right to complain."

In the end, though, Geoghegan insists, they are complaining about the wrong thing. What has gone haywire isn't the huge awards (which are famous largely because they are comparatively rare) or the effect on a state's economy (which is virtually impossible to prove) or even the $40 steaks at restaurants in West Virginia. What's gone haywire is that "a white-hot, subjective tort-based law has replaced a cooler, more rational contract-based law, which was modest and cheap and best of all, kept us from peering into each other's hearts."

None of this will be easy to fix, but one way to start might be admitting to ourselves that any stable system of civil justice has to be based to a large degree on contract, not on individual plaintiffs and gunslingers seeking to portray their opponents as moral outcasts. The real hellhole of the current system isn't West Virginia, or South Texas, or any other place where juries are occasionally found running wild. The hellhole is the system itself.

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