Perhaps the most important court decision in the country last year was one you probably didn't hear much about. The New York Times buried the news deep inside the business section. The Washington Post gave it 138 words. But it is likely to have long-lasting implications -- for state courts and legislatures and for the regulatory process at all levels of American government.
The case at issue was Rhode Island v. Lead Industries Association, Inc., et al. The Rhode Island Supreme Court ruled that paint manufacturers can't be held liable for physical harm caused by lead paint in houses constructed more than three decades ago. In making that ruling, the court overturned a jury verdict that would have forced the manufacturers to spend more than $2 billion repairing nearly 250,000 older homes around the state.
Rhode Island v. Lead Industries had dragged on nine years from its initial filing, and the four-month jury trial in 2006 was the longest civil trial in the state's history. But the high court seemed to have little trouble deciding what to do. It said the companies couldn't be held responsible because they had no control over the ingestion of the lead.
To many consumer advocates, it was an insensitive decision. Even the justices, normally on the pro-consumer side of the fence, seemed a bit apologetic. "We do not mean to minimize the severity of the harm that thousands of children have suffered as a result of lead poisoning," Chief Justice Frank Williams wrote. "Our hearts go out to these children." But he went on to say, in effect, that if an infant living in a 1920s bungalow eats old paint chips and suffers permanent brain damage, it's the fault of the landlord or the tenant, not the manufacturer.
Human sympathies notwithstanding, it's hard to see how the court could have ruled any other way. It was impossible to determine which company's paint coated the walls in which house, so the plaintiffs simply looked at market share, and assigned the blame proportionately. Moreover, they didn't try to nail the manufacturers for product liability; they brought the case under "public nuisance" law. Lead poisoning is worse than a nuisance -- it's a tragedy. But public nuisance law normally applies to situations where an entire community is affected by a single major irritant: a noxious odor, say, or the dumping of garbage into a lake. In fact, no product in and of itself has ever been declared a public nuisance in an American court.
The state resorted to the nuisance argument because it knew it couldn't win on product liability. The sale of lead paint has been against the law in the United States since 1978, and anybody who tried to sell it now would be committing a criminal act. But in the first half of the 20th century, when most of the paint in question was produced, it was not only legal but generally assumed to be safe. To win on product liability, the state probably would have had to prove that the companies knew the paint was dangerous, and put it on the market anyway. That would have been extremely difficult.
But it's the use of the public nuisance argument, and its ultimate rejection by the state Supreme Court, that makes this an interesting and important case. Had the court upheld the jury verdict, a flood of parallel cases almost certainly would have followed. If paint sold in good faith in 1910 could be declared a public nuisance in 2008, it's hard to think of any potentially harmful object that couldn't be. Before the decision in Rhode Island v. Lead Industries came down, some trial lawyers were talking about public nuisance as the new "super tort" -- a concept powerful enough to rewrite many of the rules of civil action in every state court.
Now, that's unlikely to happen. The week after the Rhode Island decision, the city of Columbus, Ohio, dropped a nuisance suit against paint companies, conceding that it was unwinnable. Later in the year, an appeals court in Wisconsin rejected the city of Milwaukee's argument that a paint manufacturer should be required to pay $52 million to remove the lead paint in 11,000 pre-1978 houses.
The argument isn't entirely over. Santa Clara County, in California, has filed a nuisance case against paint companies there, and courts in that state are vehemently independent and pro-consumer. It's still possible that we could end up with one standard in California, a different standard in Rhode Island, and a renewed interest among trial lawyers in testing the courts of some of the other 48 states. But the general consensus in the legal community seems to be that that's a relatively unlikely outcome.
THE WHOLE EPISODE begs the question of how these cases came to exist in the first place. To answer it, we need to look at some choices made over the years in Washington.
After Congress enacted a ban on the sale of lead paint in 1978, the legal climate remained relatively stable for more than two decades. Then, in January of 2001, the U.S. Environmental Protection Agency took matters a giant step further. It issued new standards identifying as a hazard "any deteriorated lead-based paint in any residential building or child-occupied facility." The date of construction made no difference. In essence, the EPA was declaring virtually all buildings built in the United States before 1978 to be out of compliance with the law.
But that wasn't the most remarkable thing about this sweeping directive. In issuing it, the EPA all but admitted that it had no intention of enforcing the new rules. It couldn't possibly do that without the help of thousands of new housing inspectors, even if it possessed the authority. Enforcement would be up to third parties -- meaning the courts. "It is likely," the EPA said, "that an indirect legal enforcement mechanism will develop through the threat of tort liability suits."
In other words, regulation by litigation. That's a term lawyers and political scientists use to describe an increasingly familiar situation. Laws are passed, regulations are issued -- and then it's the duty of citizens to sue each other to find out what the law really means.
I know some intelligent people who believe this is a reasonable way for government to proceed, and I realize that it sometimes results in benefits to the American consumer. More often, though, it just leads to marathon court cases, long periods of public confusion, and something akin to stalemate in the end.
It isn't always a matter of deliberate policy. Some of Wall Street's most egregious financial practices were regulated by litigation in the past decade because the federal Securities and Exchange Commission, paralyzed by idolatrous free-market faith, was unwilling to take action. Eliot Spitzer, as attorney general of New York State, realized that he could sue financial firms, extract fees and promises of future good behavior, and thus make financial life a little safer for the average investor.
But as all of us have learned over the past year, Spitzer's legal crusades were no substitute for the SEC. For every shady deal that was exposed through the justice system, dozens continued unabated until the 2008 market collapse. The system failed. If government at any level has decided that a product, service or industry needs to be regulated, it has a responsibility to perform that job -- not to abdicate it in the interest of free-market ideology or to dump it on the legal process.
That's true whether the administration of the moment is made up of New Deal-loving regulators or Milton Friedman acolytes. The government should either regulate an activity with diligence or set it free. It should never assume that the court system can clean up the mess. What courts generally do is make a bigger mess.
Those philosophical considerations aside, there are some other practical reasons why going straight to court is dangerous. Some of them are spelled out quite clearly in a new book, "Regulation by Litigation," written by scholars Andrew Morriss, Bruce Yandle and Andrew Dorchak.
Among other problems, these three authors point out, traditional rulemaking by government agencies normally gives the public a chance to make its views on the subject known. Sending a regulatory issue to court means that, for all practical purposes, only the judge, jury and litigants get any say in the matter. Not only is the public shut out, but there is little opportunity for the two sides to negotiate a deal without the threat of crippling court-ordered penalties hanging over the proceedings.
Moreover, the result is likely to be piecemeal and conflicting directions for others to follow. That's exactly what will be produced if the California court decides the lead paint case in a different way from the Rhode Island court. Other than the plaintiffs and defendants in the specific cases, no one would be sure exactly what the law was telling them to do.
All of this is important now because we are about to enter upon an era of re-regulation, in Washington and probably in a good number of states. When the Obama administration takes up the regulatory cause, it would be well advised to ponder some of the lessons of recent decades: An agency that fails to carry out its legal regulatory obligations is placing the country in jeopardy. An agency that makes rules it does not intend to enforce is scarcely any better. Thorough and effective regulatory oversight is expensive and hard to do, and it's harder at the federal level than in the states and localities. But in the end, it's the only kind that works.
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