On October 23, I attended the Institute for Legal Reform's (ILR) 14th Annual Legal Reform Summit to listen to right-wing columnist Peggy Noonan and a gang of corporate lawyers frighten each other into believing that there's an approaching tsunami of frivolous lawsuits.
The theme of this year's summit was “Healing the U.S. Lawsuit System,” with panels ranging on topics from class action litigation to the spread of “U.S. style litigation” abroad, and speakers representing multinational corporations and some of the biggest law firms in the country. The keynote speaker for this event was conservative Wall Street Journal columnist Peggy Noonan. It was not entirely clear why Noonan was selected for this task -- though she is a reliable conservative ally, she hasn't written extensively on tort reform. In fact, she didn't make much of an attempt to tie her remarks into the theme of the event at all. Instead, she spent most of her speech complaining about Obamacare (problems with the healthcare website are “deeply IT-related. Deeply, federally, IT-ly related” ), and making suggestions on how the Obama administration might “enhance its mystique” (don't go on TV so much). The closest she came to talking about tort reform was when she told a joke about a lawyer whose arm fell off after getting hit by a truck (the lawyer, naturally, was more concerned with losing his Rolex than his arm).
The ILR, an off-shoot of the U.S. Chamber of Commerce, is deeply troubled by the apparent onslaught of “frivolous lawsuits,” and its stated goal is to “restore balance, ensure justice, and maintain integrity within the civil legal system.” For ILR, this means advocating for federal and state-level “reforms” that make it more difficult for consumers to access civil justice and make it easier for corporations to avoid liability. The Chamber seems particularly disturbed by lawsuits, which is why, 15 years ago, it founded ILR. According to ILR President Lisa Rickard, back then “jackpot jurisdictions dominated the landscape,” but thanks to reforms proposed by ILR, there have been positive changes in some of the nation's “worst jurisdictions.”
For a group so concerned with lawsuit abuse, none of the attendees seemed disturbed by the fact that the Chamber itself brings a significant amount of lawsuits every year -- not just against the federal government, but regular people who just happened to piss them off. During Chamber President Tom Donohue's speech, he admitted that the Chamber has sued the federal government 170 times this year alone -- that works out to about three lawsuits a week. Despite all those (completely non-frivolous, I'm sure) lawsuits, Donohue insisted, “what we're doing is right. What they're [plaintiffs' lawyers] doing is wrong.” Donohue continued, “What we do protects corporations from advancing their interest without being sued for trying to do their best” but still insisted that the Chamber “support[s] the truly wronged from being compensated.” Donohue didn't stop there. “This is a war of attrition,” he said. “The group with the most money will come out on top, and it better be us.”
And the Chamber has thrown considerable amounts of money and resources at lawsuits that may have advantageous outcomes for business. The Chamber has had unprecedented success in getting cases in front of Chief Justice John Roberts' business-friendly Supreme Court. According to a report by the Constitutional Accountability Center, the Chamber has been involved in nearly 24 percent of the decided cases on Supreme Court's docket since 2010. Not only that, but the Chamber has won nearly 80 percent of its cases since Roberts took over as Chief Justice in 2006. No other group has had a winning streak quite that impressive.
But as far as Donohue is concerned, lawyers who bring suits on behalf of injured people don't care about anything but money -- but the motivations of huge companies like FedEx, Sanofi, and CVS (all companies who sent counsel to present as panelists at the summit) should be protected from civil actions because their motives are pure. In other words, lawsuits are terrible and frivolous and without merit, and plaintiffs are money-grubbing opportunists -- unless that plaintiff happens to be the U.S. Chamber of Commerce.
A private pro-business powerhouse, the Chamber is almost singularly focused on insulating corporate wealth. In 2012, the Chamber spent more than $370,000 a day on lobbying, typically on such conservative pet issues like union-busting and blocking healthcare reform. According to Mother Jones, the Chamber's commitment to "extreme rhetoric and obstructionist tactics" led big companies like Apple and Nike to drop out.
None of the attendees or panelists spent much time worrying about the hypocrisy inherent in the Chamber's approach, however, because they were all pretty busy preparing their “plaintiffs' lawyers are evil” jokes.
Victor Schwartz, author of one of the most widely-used torts textbooks in the country and one of the summit's panelists, joked that a group of plaintiffs' lawyers was akin to a coven of witches, and that they would “come in like banshees” to oppose legal reforms. The phrases “that's terrifying” and “that's disturbing” were used more than once to describe stories about litigation trends across the country. Jurisdictions that appear “friendly” to plaintiffs are deemed “hellholes.”
Now that I think about it, “House of Horrors” may have been a more appropriate theme than “Healing the U.S. Lawsuit System.” The cover of the ILR's Free Enterprise newsletter on “frivolous lawsuits” included the headline “The New Lawsuit Nightmares,” arranged underneath a full harvest moon, surrounded by bats. Inside, an illustration of a cemetery is transposed in front of the Supreme Court building.
The scary stories continued: “You cannot be pro-growth and anti-legal reform at the same time,” insisted Rickard. “Legal reform is the difference between a business opening or a business closing.” Panelist Ken Daly, partner at Sidley Austin LLP, went further: “The U.S. system is broken. It doesn't deliver for corporations, the economy, or consumers.” Moderator Kim Brunner, former chief legal officer of State Farm Insurance, lamented, “We have seen [the legal] profession tilt towards what's good for attorneys, not what's good for the public interest.”
The fact that this concern is entirely overblown didn't really seem to matter. Only 10 percent of injured people ever file a claim against the person who injured them. But that didn't stop another lawyer-panelist, Becca Wahlquist, from imagining a scenario where she could take advantage of such a situation: “I could quit my job, stay home, and make a lot of money, because that's what people are doing,” she said.
The fright-fest wasn't backed up with many facts. One panelist told a story about a “beer distributor in California” that was being sued for violating wage and hour laws because they didn't include the value of free cases of beer the distributor gave to employees ( “incentive pay” ) when calculating overtime. “That's truly terrifying,” said the moderator. What the panelist failed to mention was that the “beer distributor in California” was Anheuser-Busch, a multinational, billion-dollar company.
Eventually, there were some suggestions for actual reforms. Nearly every panelist cheered the Class Action Fairness Act (CAFA), a sweeping piece of legislation (signed into law by George W. Bush) that significantly expanded federal jurisdiction over class action lawsuits and made it more difficult for consumers to bring such suits in state courts. But CAFA could go further, said lawyer John Beisner, a speaker on the “Stitching the Loopholes: Exploring the Spectrum of Class Action Solutions” panel.
Currently, CAFA allows for the distribution of leftover class funds to third-party charities -- what's known as a cy pres class action settlement (pronounced “see-pray” ). According to Beisner, though, cy pres settlements are little more than a way for attorneys to inflate their settlement awards. “Plaintiffs' attorneys 'see' money and 'pray' they get some of it,” said Beisner.
In a report circulated at the summit co-authored by Beisner, this kind of distribution is “unfair” because "cy pres class action settlements ... benefit plaintiffs' lawyers to the detriment of class members." Beisner continued:
[C]y pres is employed primarily to justify attorneys' fees by inflating the size of the “award,” even though the award goes to charity, not the class members. Cy pres awards thus undermine the fundamental goal of civil litigation: to provide compensation for allegedly aggrieved plaintiffs.
Some jurists, including Judge Edith Jones of the Fifth Circuit, have categorically rejected cy pres for these reasons, requiring that any unclaimed funds be returned to the defendant.
Beisner's argument that cy pres class action settlements serve no purpose other than to fatten the wallets of plaintiffs' lawyers is just silly. A recent report in Bloomberg Law highlighted some of the ways cy pres class action settlements can be quite valuable and equitable:
Cy pres distributions provide a practical method for dealing with unclaimed settlement funds and can provide indirect compensation to the class through, for example, future price reductions or distribution of funds to entities that provide services to the class. In cases where the recovery for each class member is so small that the class members may not take the time to make a claim against a settlement fund, or distribution is otherwise impractical, some courts have found that cy pres distributions can provide a compensatory remedy to the class. Cy pres distributions can also serve the purpose of deterrence and voluntary compliance where, for example, parties cannot agree on a beneficiary of settlement funds. For defendants, cy pres awards can provide compensation that simultaneously operates as a charitable contribution -- a tax deduction in disguise. Further, courts and parties resort to cy pres distributions when they wish to avoid (i) returning the funds to a defendant who has been found liable, or who agreed it was liable; and (ii) increasing the pro-rata share of the class members who file claims, potentially giving those class members a windfall.
Cy pres distributions also can serve to fund important charitable and social causes. Cy pres distributions to such diverse organizations as community development projects, the American Red Cross, legal aid entities, and other charitable groups and organizations have been approved. Several states specifically provide for legal services programs, among others, to receive cy pres distributions, either by court rule or statute.
In other words, adopting Beisner and Jones' proposal of returning excess funds to defendants makes absolutely no sense - why would you give money back to a defendant who was found liable for the plaintiff's harm? Especially if that defendant is a billion-dollar corporation?
Participants offered plenty of other “reform” ideas that would ultimately make it nearly impossible for injured people to bring lawsuits -- like expanding CAFA or adopting a "loser pays" system, which would force the losing party in a civil action to pay the winner's legal fees. Yet no one suggested what seemed like the most obvious reform: rather than making lawsuits more difficult to bring, why won't corporate defendants just comply with the law? All of the panelists - some representing the biggest law firms in the country -- were concerned with the costs of litigation, yet none suggested reducing their own fees related to representation.
The fact that actual human beings are harmed physically, emotionally, or financially by corporate defendants was hardly mentioned at all. By the end of the day, it wasn't clear at all who might meet Donohue's definition of “the truly wronged.”
It was altogether too predictable when one panelist (finally!) brought up the infamous McDonald's “hot coffee” case, in which a 79-year-old McDonald's customer spilled hot coffee on herself and won a $2.9 million settlement. In a panel on “the rapid spread of U.S.-style litigation around the globe,” one panelist feared that European Union regulators would adopt what he considered the worst aspects of the U.S. civil justice system. “EU regulators think about hot coffee -- they think that's the extent of the U.S.'s problem -- just a few, fringe, lunatic cases.”
I thought about Donohue's earlier speech and I wondered why Stella Liebeck, the plaintiff in the hot coffee case, didn't count among “the truly wronged.” The New York Times' Retro Report produced a short documentary film on Liebeck, detailing the real facts of her injuries and her suit:
Narrator: Stella Liebeck was a 79-year-old widow, sitting in the passenger seat of a parked car when she was burned[.]
The severity of the burns caused Stella Liebeck to go into shock, and her grandson immediately took her to the emergency room.
Medical bills were $10,000, so Stella reached out to McDonald's, and asked to be reimbursed.
In response to Liebeck's letter asking for reimbursement, McDonald's offered Liebeck $800, according to Liebeck's daughter. It turned out Liebeck was far from the first McDonald's customer to be burned by their coffee, which her lawyer discovered was brewed at a temperature was at least 20 degrees hotter than home brewing machines. Although a jury awarded Liebeck $2.9 million, a judge later reduced the award to just $650,000, and was later settled for less than $500,000. Even though Liebeck suffered burns over 16 percent of her body, some of which were third-degree, she is apparently not included in the class of the “truly wronged.” Instead, her case is looked as a quirk of the American legal system; dismissed as a “fringe, lunatic” case by ILR panelists.
That is truly terrifying.