Scott Lemieux

The Bait and Switch at the Heart of “Tort Reform”

In evaluating public policy, it's never terribly useful to consider the flaws of Option A without considering what Option B is. One of the many political (if not intellectual) strengths of the "tort reform" lobby is to obfuscate what the effective alternative to the American system of torts would look like. Very few Americans would advocate a system in which corporations could knowingly and unnecessarily injure consumers with impunity, in which doctors faced no consequences for egregious malpractice, etc. As with all policy solutions, tort law is not a perfect vehicle to address these problems. But what is the alternative? And even if it might be preferable, is it politically viable in the United States? No profitable discussion of the politics of litigation can ignore these questions.

As McCann and Haltom demonstrate at length, the most common problem with attacks on the American tort system is their general lack of rigor: the most common arguments and popular books rely on individual stories (some true and some not) that take on a near-mythical significance that pre-empts rational discussion. Another strategy of "tort reformers," as Tom Baker has shown with respect to medical malpractice, is to make assertions about the cost of litigation that are plainly false: in that case, blaming litigation for cost increases that are largely the result of other factors while underestimating the serious problem of malpractice. Many readers of this blog will be familiar with the rejoinders to the more common problems with "tort reformers." The reason why corporate advocates for "tort reform" prefer to leave questions about the comparative merits of the American system unanswered, however, can be seen in Robert Kagan's sober-minded critique of the American system of litigation, Adversarial Legalism

Unlike the books written by "tort reform" advocates like Walter Olson and Phillip Howard, Adversarial Legalism is not a shoddy collection of random (and often empirically dubious) anecdotes thrown together to make a crude political point. He is open about the potential benefits litigation, balancing a story about litigation bogging down the dredging of Oakland's harbor with an explanation of how litigation led to the reform of Alabama's prison system. (For more about the latter case, see Feeley and Rubin's wonderful Judicial Policy-Making and the Modern State.) But most importantly, Kagan is candid about the alternative to the American system of law: the more autonomous regulatory state model generally found in Europe. It is true that the European legal system is much less expensive and litigation somewhat less extensive - but this difference comes with a major price. Not only does state regulation provide much of the constraint on corporate power that in the U.S. is provided by the court system, but government officials act with much broader discretion than is the case for their American counterparts.

We can debate which model is superior - as Kagan points out, both systems have clear strengths and weaknesses. The American system trades some inefficiency and expense to obtain greater accountability from the state, while the European system is willing to live with some risk of government officials abusing their discretion or of overweening regulation to obtain greater efficiency and equality in their regulatory outcome. But what we can be sure of is that most proponents of "tort reform" are not likely to be candid about the fact that the only reasonable alternative to the (often exaggerated) alleged "litigation crisis" is the significant expansion of the regulatory state, with bureaucrats given considerably more power to act. And perhaps more importantly, to talk about bringing the more statist European model to the United States is the kind of proposal that should come with the phrase "and a pony" attached. Because of the greater distrust of government generally inherent in American political culture, as well as the Madisonian separation of powers, importing the European regulatory model to the U.S. is simply not viable. For this reason, even in the rare cases when critiques of the American civil justice system are relatively measured and careful, the only reasonable alternative is simply not an option. As such, "tort reform" proposals that focus primarily on broad restrictions on access to the courts or on capping damages are not serious solutions, unless one thinks that incentives that inhibit damaging behavior by powerful corporations and individuals should simply be removed. There is no realistic means of regulating harmful actions in the U.S. that does not involve civil litigation as a large piece of the puzzle. Pretending otherwise is an unhelpful evasion, generally designed to serve interests that would prefer to be able to act against the public interest with fewer consequences.

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Posted at 11:45 AM, Sep 28, 2006 in Civil Justice
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"Very few Americans would advocate a system in which corporations could knowingly and unnecessarily injure consumers with impunity, in which doctors faced no consequences for egregious malpractice, etc."

That doesn't sound like tort reform, that sound like tort elimination. Is there a serious movement out there that would, say, say that doctors face no consequences for egregious malpractice? If so, I haven't come across it. Have you, Scott Lemieux? If so, then post a link. There is a difference between wanting "loser pays" and caps on damages (to name two central aims of the tort reform movement) and wanting to eliminate torts.

Posted by: Drew Drytellar | September 28, 2006 3:42 PM

Both both of these remedies, of course, would 1)greatly reduce incentives to sue, and 2)are premised on the (false) claim that there is too much "frivolous litigation." The last remedy you mention is particularly instructive because it applies only to meritorious suits, and it also reduces the ability of the tort system to supplant a larger regulatory state by creating large positive disincentives.

Posted by: Scott Lemieux | September 29, 2006 9:41 PM

Lemieux's response incorrectly assumes that all "successful" suits are "meritorious" suits. The two sets are not equivalent. Caps affect all suits, not just the meritorious ones.

Posted by: Ted | October 1, 2006 4:03 PM

Actually, all successful suits are meritorious suits - at least in the judge's opinion...

I appreciate the subtle distinction you're attempting to make, but I may be misunderstanding something. You say caps affect all suits; how do caps affect suits that are dismissed or suits in which the defendant(s) prevail? Or was your usage of "all" not inclusive of those suits?

Posted by: Justinian Lane | October 1, 2006 5:46 PM

One of the most profound affects of damage caps in general is that they reduce the number of suits in general. Caps on damages deter plaintiffs attorneys who work for contingency fees, since their return on the investment in the litigation is less favorable.

"Loser pays" rules subject a potential plaintiff to the possibility of paying corporate legal fees, which could reach into hundreds of thousands of dollars. A blue collar worker will often balk at the risk, even if their suit is meritorious.

Where, exactly, is the benefit to an injured consumer?
Where is the benefit to ANY consumer?

Posted by: john | October 1, 2006 9:12 PM

Caps affect suits where the defendant prevails, because in a world without caps, the plaintiff may be able to use the in terrorem effect of unbounded indefinable non-economic damages to leverage a settlement against a defendant that doesn't wish to take the risk of the court system getting it wrong. Defendants facing less downside are more willing to defend themselves against non-meritorious claims; plaintiffs' attorneys know this in advance, and are thus less willing to bring non-meritorious claims in the first place.

Posted by: Ted | October 1, 2006 10:57 PM

So, the defendant benefits because injured consumers are less likely to bring a law suit (let's, for the moment, disregard whether or not the complaint is meritless or not.) The defendant is shielded from liability imposed by damages, the plaintiff is barred from recovery, and the public at large is denied it's opportunity to serve on a jury and hold corporate entities accountable for wrong doing.
This massive distrust of "runaway" juries and "unconscionable" judges is alarming.
Are corporate lawyers and officers really so superior to the common person, the average consumer, and the "greedy" plaintiffs attorneys? Is the only solution to rising insurance and litigation costs achievable by imposing damage caps, enhancing barriers to the courts, and imposing severe penalties for losing?

I have a better idea: Let's pass legislation capping the hourly rate that can be charged by defense counsel. There should also be a statutorily imposed limit on billable hours per case...this will save the corporations a great deal of money,,,which can be passed on as savings to the consuming public.

Posted by: John | October 2, 2006 1:08 PM

Let's pass legislation capping the hourly rate that can be charged by defense counsel.

The reason defense counsel can charge so much is because plaintiffs' lawyers are given the power to steal billions of dollars in meritless claims unless counteracted by highly skilled professionals that are in short supply. Defense counsel fees are a symptom of the problem that requires liability reform, not a separate problem in and of itself.

Posted by: Ted | October 2, 2006 9:31 PM

That's certainly a viable point.

However, in my limited legal experience I have seen, on a regular basis, insurance companies handing out checks in the amount of 4-7K on a regular basis to settle claims for soft tissue damage rather than dealing with discovery and litigation. As a medium sized business owner for several years...I have been involved in several forms of litigation ranging from employment issues to premises liability. In each case, I believe the complainant wa taking advantage of the system to make a buck.

Now, before you jump up and scream that i am making an argument for tort reform, consider the following:

Is it possible that ALL of the claims are valid? No, I don't think so. However, those that are valid certainly do deserve compensation, while the meritless should be weeded out through diligent discovery, which, as you have pointed out is costly and burdensome.

I propose we pass legislation capping the rates charged by defense counsel. We can seperate cases into cateogories ranging from minor PI to major PI, wrongful death, or PL with commesurate reasonable rates and billable hours.

The cost benefit will be felt immediately. Highly skilled defense lawyers will be able to focus their time on defeating mertless cases and holding the complainant and h/her attorney accountable, rather than making recommendations for settlement amounts.

We will achieve the goal of weeding out meritless cases, lowering costs, and preserving the day in court for a righteous complainant.

What's the problem with that???

Posted by: John | October 3, 2006 6:57 AM

Ted: Then why don't defense counsel fees decrease (and in some cases even increase) for work in which there are no trial lawyer bogeymen to blame, such as M&A work, contract drafting & review, IP work, SOX compliance, etc.? David Boies, for example, charges around $750 an hour. And I don't see him fighting car wrecks.

John: I've seen soft tissue cases with $1,000 - $1,500 in medical bills get final offers of $400 - $800. And I've seen them go to trial. Each insurer is different, and some will take any questionable case to the mat.

Posted by: Justinian Lane | October 3, 2006 9:46 AM

John, the problem with that is that the current high rates reflect a shortage of defense attorneys given the volume of litigation plaintiffs bring. If defense fees are capped without resolving the underlying problem of litigation volume, defense attorneys will, at the margin, switch to become plaintiffs' attorneys, and the problem you describe will become even worse, because there will be fewer defense attorneys to litigate the meritless claims.

The problem is that there's no penalty and plenty of reward for bringing meritless claims. Your proposal does nothing on the penalty side, and increases the expected reward for bringing meritless claims. That's an equation for increasing, rather than decreasing, such claims.

In the alternative, the Coase Theorem teaches us that if one caps hourly rates paid to defense counsel, defense counsel will simply charge more for other services: raising the rates paid for paralegal or secretarial services or even photocopying. The rates defense counsel are paid reflect the market demand for defense counsel; that market demand isn't going to disappear if one changes the fee structure. The only way to attack the market demand is to reduce the level of litigation. Again, the problem you describe is one for liability reform, rather than price controls.

Posted by: Ted | October 3, 2006 10:01 AM

That was not the response I was expecting!

If we apply non-economic damage caps, the bargaining position of the corporate entity would be enormous.

Tort remedies are not only intended to compensate victims, but to punish and deter wrong doers. Caps, it would seem, handicap this valuable function. Before we send tort law to history's dung heap, we need to discuss how these important functions can be preserved.

Your reference to Cosean bargaining is probably on point. However, inversely applied, the same inneficiency should result from the imposition of damage caps.

Finally, my proposal is intentionally unilateral. It seems highly inneficient to severely restrain one parties access to adequate representation while allowing the other to proceed with the daily routine.

Damage caps will decrease litigation, since contingency based attorneys will find that their return on investment does not justify bringing an action even in the most meritorious cases.
Sure, there are cost benefits to corporations that will trickle down in some way to consumers, but at the same time consumers are left without a sword or shield against the less ethical and responsible product/ service providers.

Posted by: john | October 4, 2006 12:07 AM

Hi Justinian,

I guess that's part of the bargaining process isn't take 1/2 your cost of medical bills, less the contingency fee, in order to avoid the hassle and work of further conflict?

$400-$800 going to trial??? That would barely cover the cost of parking during the trial here in Boston.

Do you propose a better resolution than a trial?

Posted by: john | October 4, 2006 12:14 AM

John: The district in which this occurred was a district notorious for returning low jury verdicts. Sadly, it wasn't uncommon for juries to return verdicts of less than undisputed economic damages. I recall one juror in a post-trial interview explained that they didn't feel the plaintiff should have been reimbursed for a rental car, as he could have taken the bus or borrowed a friend's car to go to work.

I think a better resolution than a trial would be for the insurers (these are mostly car wreck cases, btw) to offer reasonable settlements in cases in which liability isn't an issue. Does somebody need $10k in pain & suffering for a soft tissue injury? No. But they certainly need to at least have their medical bills paid for.

Just as insurers in Plaintiff-friendly districts will settle questionable cases rather than go before a jury, insurers in defense-friendly districts will lowball reasonable cases because they know a jury will, too.

Unfortunately, I don't believe there is a way to eliminate jury bias. Rural juries tend towards returning low verdicts, urban juries tend towards returning high verdicts. Just another difference between the country mouse and the city mouse, I suppose.

Come to think of it, one solution could remedy such injustices: Set a minimum dollar value of all cases at 40% more than economic damages. If a jury returns less, the plaintiff would get the higher figure. I'm sure Ted will come up with at least a half-dozen reasons why this is a bad idea... and I'm sure I'd agree with at least three of them.

Posted by: Justinian Lane | October 4, 2006 8:24 AM

"Your reference to Cosean bargaining is probably on point. However, inversely applied, the same inneficiency should result from the imposition of damage caps."

This doesn't seem correct to me; non-economic damage caps increase certainty and reduce variance in expected litigation outcomes, making settlement more likely. It seems like an efficient improvement to me ex ante. In any event, if your argument is true, it's far from obvious that it can just be asserted. Please e-mail an explanation, and we can discuss over e-mail; this really isn't a good site for intelligent discussion.

Justinian asks: "Then why don't defense counsel fees decrease (and in some cases even increase) for work in which there are no trial lawyer bogeymen to blame, such as M&A work, contract drafting & review, IP work, SOX compliance, etc.?"

Litigators and corporate attorneys get the same training and come from the same pool of law schools. Increased demand for litigators makes corporate attorney supply scarcer, so salaries have to keep pace. Reduced level of litigation would reduce demand for litigators, which would increase supply of corporate attorneys, which would reduce corporate attorney fees.

This isn't a complete explanation: increased regulation (especially via SOX), has increased demand for corporate attorneys at the same time that litigation has become more expensive.

By comparison, trust & estate attorney fees haven't increased dramatically, to the point that many large firms have gotten rid of their trust & estate departments because they drag down the profitability of the firm as a whole.

Posted by: Ted | October 4, 2006 12:29 PM

Hey, I am not going to get into offending or isolating myself from anyone I don't know without reason, but the opportunity to discuss these issues with you is definately something worth pursuing from my end.

"non-economic damage caps increase certainty and reduce variance in expected litigation outcomes, making settlement more likely."

Yes, I see that now. Does it really reduce the variance in outcomes, or the variance in awards? I think the latter, and I think the difference is of monumental importance.

My comment regarding Cosean bargaining reflects my belief that the effects of non-economic caps will change the amount of litigation in a way that is counter-intuitve to your belief.
( A quick google search has led me to believe that I may be proven wrong in at least one study but I have not read it yet so I am unsure if the date separates punitive and non economic caps: Browne and Puelz, "The Effect of Legal Rules on the Value of Economic and Non-Economic Damages and the Decision to File.")

Until there is a basis for zero transaction costs, application of the Coase Theorem is impossible.
We cannot ignore the externalities upon which the coarse theorem is based. For example, although damage caps may reduce the amount paid in a settlement or through adjudication, there are other societal costs.

What we are left with is a Revised Coase Theorem that, by it's meaning, mandates inneficiency in bargaining, investment, or both.

IN fact, "polluter pays" was the original proposition put forth under this theory. To spimplify, greatly and perhaps with some injustice: having the polluter pay for the effect of pollution, no matter how difficult it is to ascertain the actual "amount" of pollution, creates the most efficiency even if that cost is passed on to the consumer in full.
The full cost is distributed amongs all the members of society, and economic efficiency is achieved even if some businesses get bankrupted.

For example, say Joe is injured in the amount of $10,000 by Allied. Allied knows that no matter the cost of the litigation for Joe, he cannot recover more than this amount. It would cost $1 million to fix the problem that caused the injury.

It think you see where I am going with this. Consider the Ford Pinto of a couple decades ago.

Now, consider Allied's response where punitive damages are available to punish and deter.

Even if the coarse theorem were one hundred percent applicable to increasing the efficiency of the system, it leaves other important aspects of tort law, public policy, and liability untouched.

Posted by: John | October 4, 2006 2:03 PM

"Consider the Ford Pinto of a couple decades ago."

Yes, let's consider the Ford Pinto. I recommend Gary Schwartz, The Myth of The Ford Pinto Case, which refutes many of the urban legends about the Ford Pinto the plaintiffs' bar pushes.

"For example, say Joe is injured in the amount of $10,000 by Allied. Allied knows that no matter the cost of the litigation for Joe, he cannot recover more than this amount. It would cost $1 million to fix the problem that caused the injury."

I don't understand why you view this as a bug, rather than a feature. If we keeping spending a million dollars to fix $10,000 problems, we'll all be broke pretty quickly.

Posted by: Ted | October 4, 2006 3:04 PM

1) I am familiar with the late professors "demystification" of the Ford Pinto case.

Guess what? I think he is right. The media portrayal was typically biased and deplorable. Johny Carsons jokes were mistakenly perceived by the common public as being based on fact, newspaper articles exagerated the hundreds of previous car fire deaths into thousands of previous car fire deaths, and "Pinto madness" indeed prevailed.

Guess what else? That has no impact on Ford's liability. The article concedes and proves on several counts that the design was defective in many ways, all of which acted in concert with the location of the gas tank to kill it's passengers upon impact hundreds of times.

The fact that other cars used a similar tank placement only proves custom and is hardly persuasive of due care. Whether the care was travelling 30MPH or 50 MPH is weak routinely travelled at over fifty miles per hour and the potential impact involving high speeds was readily foreseeable.

If I remember...GS also cites evidence that the fatality rate in Ford Pintos was comparable to that of other models. Perhaps you take issue with the fact that a jury held one company accountable for the dangerous custom observed by an entire industry?

Well, punishment and DETERRENCE are key components of tort law that serve the public well.

As far as my example goes...I was referring to defect that would continue to cause injuries amounting to 10K. I can see how my wording was misleading.
In any event, it becomes more economical to allow injuries to occur than it is to invest in being as safe as possible.

The cost presented to society by litigation is justified by empowering the public to protect themselves against corporate entities.

Posted by: Anonymous | October 4, 2006 5:17 PM

FYI, Ted the ananymous post was my response to you.

Posted by: john | October 4, 2006 10:27 PM