Web exclusive 8/30/02
Re-examining tort law
By Michael Barone
If politics were focused on how government channels large flows of money, one of the biggest political issues in the nation would be tort law. For the rules of tort lawthe substantive law and, even more, the procedurehave been responsible for what is probably the greatest redistribution of capital assets going on today, the transfer of billions of dollars of corporate capital from the shareholders of large corporations to a small handful of trial lawyers. This redistribution of capital assets has occurred largely outside the political spotlight. It has been accomplished mostly through rulings trial lawyers have been able to get from some sympathetic judges and juries, and from laws passedor because contrary laws were not passedby trial-lawyer-friendly legislatures. The pace of redistribution is accelerating, as courts approve fee agreements for trial lawyers in tobacco cases and as the number of asbestos lawsuits continues to accelerate, even though the use of the material was banned more than 20 years ago (related story).
But in recent years there has been a counterforce. The U.S. Supreme Court in a number of cases has ruled that the U.S. Constitution sets limits on the tort law made by state courts and legislatures. In the term starting this October, the Supreme Court will consider one and perhaps two cases that might seriously change tort lawand limit the huge economic redistribution it has been producing.
The first of these cases, which the court has already agreed to hear, is State Farm Mutual Insurance Co. v. Campbell. It's an appeal from the Supreme Court of Utah, which upheld a judgment for plaintiffs in which the economic damage was assessed at $911.25 and punitive damages were awarded in the amount ofget this$145 million. There are a number of grounds on which State Farm and the several amici curiae are challenging the case. One is that the Utah court failed to apply the Supreme Court's 1996 ruling in BMW v. Gore, a case in which an Alabama doctor was awarded huge damages because BMW touched up the paint of his new car. Another is that a different mathematical formula for punitive damages should be used. Another is that the Utah court was extending too far its jurisdiction over those outside its territory.
The most profound argument comes from Common Good, the organization recently founded by New York lawyer Philip Howard and others to do something about the proliferation of lawsuits (www.ourcommongood.com). (Related story)
In the Common Good brief, Howard argues that, because punitive damages are increasingly common and are utterly unpredictable, the constitutional guarantee of due process of law requires that trial courts should "scrutinize punitive damage claims for legal sufficiency as they do other claims and causes of action" and "the presumption must be against such claims." Howard also directs the attention of the Supreme Court to the practical effect of the current law on punitive damages: an in terrorem effect, which pressures defendants to settle cases for large sums for fear that a jury may impose a penalty far greater. Reviewing punitive damage awards only on appeal, Howard argues, means that most cases never get that far; few executives want to bet the company on an unpredictable jury and a hard-to-predict appeals court.
And Howard gets philosophical as well. Trial lawyers like to talk about every citizen's right to sue. Howard points out that the right to sue for punitive damages is not a constitutional right like freedom of speech. "A claim for punitive damages is a use of state power"courts are government institutions, after all"against another free citizen." In punitive damages cases this state power is used to transfer money from one defendant to a trial lawyer and, presumably, his client. (Presumably, because in many class action suits, the putative clients get very little recovery, if any.) Trial lawyers claim that punitive damages are a disincentive to bad conduct. But since they're unpredictable and arbitrary, they are more of a disincentive to do anything but settle a case. And whom do they really penalize? Plaintiffs' lawyers in the State Farm case argue that they deter State Farm from abusing its policyholders. But State Farm is a mutual company, owned by its policyholders. The Utah courts deprived State Farm's policyholders of $145 million on a $911.25 claim, a sum minimized as "only 0.26 percent of State Farm's wealth as computed by the trial court." Only lawyers could suppose that to deprive people of $145 million of their money is to benefit them.
The fact that at least four Supreme Court justices decided to hear the State Farm case suggests that there is a good likelihood that five or more want to put some serious limit on punitive damages claimsperhaps as stringent a limit as Howard suggests. If so, that would change not only the results in cases in which huge punitive damage awards are made. It would also tend to reduce the incentive for defendants to settle and to reduce the number of punitive damage claims filed. It would slow down the redistribution of economic resources from productive parts of the economy to trial lawyers.
The Supreme Court has not yet decided whether to hear another case which has similar potential, Mobil Corp. v. Adkins. This is the challenge by Mobil Oil and other defendants to the West Virginia Supreme Court of Appeals' decision to consolidate in one trial the asbestos claims of some 8,000 plaintiffs (no one knows exactly how many) against some hundreds of corporations. The West Virginia court did so without any inquiry as to what the claims of the plaintiffs and defendants had in common, if anything. Mobil asserts that it is a defendant only because it used "small amounts of encapsulated asbestos as a component in a line of heat-resistant coating products manufactured between 1963 and 1980" and that when asbestos is encapsulated there is "no release, certainly no significant release, of asbestos fibers in either working areas or general air"in other words, that there was no conceivable chance anyone could be harmed. But, Mobil says, there is no way under West Virginia's procedure it can assert these claims which, if true, should justify it from being dismissed from the litigation altogether.
It is interesting that Mobil's case is being argued by Walter Dellinger, longtime Duke University law professor and acting solicitor general during the Clinton administration, widely considered one of the ablest Supreme Court litigators of Democratic leanings of his generation. But Dellinger doesn't just argue legal theory or doctrine. He, like Howard, puts before the justices the practical effect of tort law as it is. He points out that after the Supreme Court's 1997 decision in Amchem Products Inc. v. Windsor, in which the court decried an "asbestos-litigation crisis," called on Congress for a legislative solution (none has been forthcoming) and imposed procedural rules, the hugely rich plaintiffs' lawyers who have filed asbestos claims for multiple clients have largely avoided the federal courts and brought actions in sympathetic state courts instead. One such state, as is obvious from the rulings challenged here, is West Virginia. Once again, there is an in terrorem effect; as Dellinger points out, the West Virginia ruling seems designed to produce settlements by deep-pockets defendants like Mobil, settlements whose primary effect will be to transfer economic resources from Mobil shareholders to trial lawyers.
Interestingly, lawyers representing plaintiffs with the asbestos-related disease mesothelioma have joined this case, on Mobil's side. In the West Virginia case, as in most recent asbestos litigation, trial lawyers bundle together a relatively small number of plaintiffs who have asbestos-related disease with a much larger number of plaintiffs who do not have such disease but have been allegedly exposed to asbestos (as probably every American alive before 1980 has been). This tactic means a much bigger payoff for trial lawyers but means that it takes much longer for those with asbestos-related diseasethe people who have suffered real damage and deserve generous compensationto get their money.
The legal vices of West Virginia's ruling, Dellinger argues, are that it prevents defendants from asserting legitimate claims, bundles together unlike cases and, by including defendants who may never have done asbestos-related business in West Virginia, imposes on the whole country the friendly-to-trial-lawyers asbestos law of West Virginia. One can never predict what the Supreme Court will do. But the egregiousness of the West Virginia court's ruling, and the persuasive brief of an advocate like Dellinger, suggest that the court may very well choose to hear this case, too, and make it a vehicle for changing tort law and slowing down the redistribution of economic resources from shareholders to trial lawyers.
Forty years ago, America got along very well without huge punitive damage awards and without class action lawsuit procedures designed to bludgeon large sums from corporations and transfer them to trial lawyers. Perhaps it can again.