Corp Reform - Not Tort Reform

Haven't U.S. Jury Verdicts Driven Manufacturers Out of Business and Put People Out of Work?

No.

Tort reformers often argue that large jury verdicts and the high liability insurance rates they bring have forced U.S. manufacturers to shut their doors, thus putting people out of work and abandoning markets to foreign manufacturers.

However, there's a problem with that theory: Any foreign corporation that does business in America has consented to be sued in American courts. Thus, foreign manufacturers are also routinely sued in American courts, under American law, and subjected to American jury verdicts.

So, why aren't foreign manufacturers being driven out of business - or at least out of this country - by American jury verdicts?

There are two possibilities as I see it. The first possibility is that foreign manufacturers just make better, safer products than their American counterparts. If this is true - and I doubt it is - then American consumers are better off.

The second possibility is that other factors have caused manufacturers to shut their doors. Between our high taxes on gas and the ability of foreign competitors to pay .10 per hour for labor, it's easy to see why American manufacturers can't compete with their foreign competitors. And those factors have nothing to do with our justice system.

The "Lawsuits put people out of work!" argument is flawed because foreign manufacturers are able to flourish in the U.S. market, despite their exposure to the same "runaway verdicts" that are supposedly putting American manufacturers out of business.

So I'm left to wonder - Why aren't foreign corporations going out of business because of "runaway jury verdicts," and why aren't foreign insurance companies raising their liability rates because of "frivolous lawsuits?"

Could it be that American corporations are going out of business because of a poor economic climate, and that American insurers are raising their rates because they made bad investments? You decide.

A Response To Bernie Marcus' Tirade About Tort Reform

Bernie Marcus, one of the founders of Home Depot, had a few things to say about why America needs tort reform. I felt the need to respond and point out the flaws in his argument. Below is a paragraph by paragraph response to his arguments. I would welcome a response by Bernie Marcus, but I won't expect one.

Excessive litigation has created a crisis in America. The time has come to recognize this crisis and demand that our elected officials work together to achieve a solution. I am astounded by the extraordinary increase in lawsuits filed in recent years. At one time, we were a people who took pride in our ability to work out solutions among ourselves. Now, the solution of first choice is to sue. The result is staggering: some 16.5 million lawsuits in a typical year. Class-action lawsuit filings rose more than 1,000 percent in state courts and 300 percent in federal courts during the 1990s.

I couldn’t find where you got your source for this figure, so I’ll assume that it’s the total of all lawsuits filed. When you consider that small claims suits, divorces, child support enforcements, debt collection actions, and business v. business suits fall into this category, 16.5 million lawsuits isn’t a lot.

The costs, too, have been staggering and are reflected in higher prices for products and services — about $233 billion a year, or $3,200 for every family of four.

American businesses will spend $248 billion on advertising this year, which means that using your logic, the average family of four spends $3,406 to support the out of control advertising industry.

That's just the tip of the iceberg. Excessive litigation is putting companies out of business. Some 60,000 jobs have been lost due just to bankruptcies caused by asbestos litigation, which ripple through state and local economies. For every 10 jobs directly lost due to these bankruptcies, another eight are lost in local economies.

By the end of the decade, over 200,000 people will have died from asbestos. Or put another way, over 200,000 jobs have been lost due to asbestos deaths. The tragedy isn’t that asbestos litigation has bankrupted corporations; it’s that over 200,000 people were killed in the name of corporate greed.

The crisis is taking its toll at every level of society. Americans are afraid to volunteer for charitable organizations because they have seen charity board members dragged into nuisance suits. Americans are seeing their profits and dividends dry up, and as a result are giving less to charities. Years ago, when you were at fault you accepted responsibility for your actions. Today, we blame someone else. Today we sue and the costs to state and local economies are staggering. Taxpayers end up carrying the burden.

As of 08/17/2004, your company, Home Depot reported “record sales,” with profit up 19%, on sales of $20 billion dollars, and profit of $1.5 billion dollars. Those figures puzzle me because you claimed that profits and dividends have been drying up. Perhaps drying up is slang for record sales? But what I’m really curious about is your claim that “taxpayers end up carrying the burden.” Filing a lawsuit doesn’t cost taxpayers anything – states charge for the privilege of suing in their courts. What does cost the taxpayers is the way in which your company uses a Delaware subsidiary to avoid paying millions of dollars in corporate taxes.

Doctors, meanwhile, have to charge patients more to cover insurance bills that have been driven through the roof by unfair punitive damage awards and settlements. An Institute for Legal Reform study found that 8 out of 10 physicians have ordered unnecessary tests because they fear malpractice lawsuits. It is shocking that 43 percent of doctors have considered leaving their medical practices.

I’ll be the first to admit that I don’t think “unnecessary” tests are unnecessary: If I’m ill, I want the doctor to find out what’s wrong with me, and not risk misdiagnosis. Honestly, I couldn’t care less if my HMO spends a million dollars to find out that I have cancer and cure it. Of course, that would be if I had an HMO – like millions of Americans, I’m uninsured. But even so, if a doctor suggested that an expensive test might help him diagnose me, I’d pay it out of my own pocket. And that’s because I can’t put a fixed price on my own health – it’s worth every penny I have. I suspect you feel the same about your health, and the health of your loved ones.

Before we lose more talented doctors, we need to admit that the justice system is broken and fix it. A big part of the solution is to put fair and reasonable limits on punitive damage awards. Many of these awards are excessive and out of control. In 2002, the top 10 jury awards alone totaled $32.7 billion. Again, that's the take from only 10 lawsuits. Reasonable limits could save as much as $44 billion.

I wondered why you chose 2002, instead of 2003, so I looked. It turns out that in 2002, there was one tobacco verdict of $28 billion in punitive damages, and a $2.2 billion award against the evil pharmacist who diluted cancer drugs to make a buck. The $28 billion award was reduced to $28 million, which Philip Morris accepted, even though under several United States Supreme Court holdings, a proper amount would have been $3-4 million. So your $32.7 billion figure just dropped by about $28 billion dollars. And since the $2.2 billion award against the pharmacist was purely symbolic, we’ll drop it, too. That means that in 2002, the top ten jury awards were really $2.5 billion dollars. Compare this with the $58.2 billion in total sales that Home Depot had in 2002, and it doesn't appear that juries are out of control.

In 2003, the top ten verdicts totaled $1.2 billion dollars, without any reductions. And for the record, the top verdict - $255 million – was a breach of contract case decided under German law. While those could be why you chose 2002 for your argument, I think the main reason was this quote taken from the web page detailing the top ten awards of 2003:

"If this year's Top Ten verdicts are any indication, the tort reform movement has taken root in the hearts and minds of American jurors.

After six years of surging upwards into the stratosphere, the nation's Top Ten verdicts to individual plaintiffs came crashing back to earth this year, with the lowest total since 1997.

To give you an idea just how precipitous that drop has been, the total of the Top Ten verdicts of 2002 was 20 times larger than the total for 2003. “

We also have to recognize that trial lawyers have spent millions to stack the deck in favor of abusive lawsuits — $470 million alone on federal campaigns since 1990. They also spend heavily in state and local elections. They're spending tens of millions for one reason only: To thwart meaningful legal reform.

Your $470 million figure, presumably from ecrets, includes all lawyer contributions. Or, stated another way, you claim that all lawyers who contribute to any political campaign do so only to stop tort reform. You argue that lawyers don’t contribute based upon whether the candidates agree or disagree with other issues important to the lawyer, such as abortion, gun control, or tax policies. And you argue that ALL lawyers, even corporate lawyers who support tort reform, only contribute to candidates that oppose tort reform.

They are against damage limits. They also desperately want to keep laws on the books that help them reap huge jury awards. One example is laws that prevent juries from learning that injured plaintiffs were not wearing seat belts at the time of an accident. Why hide that fact? Because a jury is much less likely to reward people who can't be bothered to fasten their own seat belt, and who is instead blaming someone else — often the company that built their car — for their injuries.

I defy you to name one case decided in the last thirty years in which a plaintiff successfully sued an automaker for injuries that could have been avoided or reduced if the plaintiff would have worn a seatbelt. You see, the seatbelt anecdote that tort reformers are fond of is based upon a rule of evidence that holds that evidence cannot be shown to a jury if it’s more prejudicial than probative. More simply, that means that if evidence will unfairly bias the jury and won’t help them decide critical facts, the evidence doesn’t come in. And while you talk about a hypothetical application of the exclusion rule benefiting a plaintiff, more often than not, that rule benefits the defendant. A good example would be an auto accident case in which a defendant had been drinking, but wasn’t at or above the legal limit. In such a case, evidence that the defendant was drinking may not come before a jury.

We will not end this litigation crisis until we recognize it exists. We need to get back to the American idea that we, as free and responsible people, can settle our differences without lawyers who will drive doctors out of business and harass people who serve on charity boards.

I’ll assume you want these laws to go into effect after you finish your $1 billion dollar lawsuit against Mastercard, right? It's funny how corporations will bemoan billion dollar jury verdicts until they want one.

I must admit that it would have been so much more difficult to start The Home Depot if the legal climate then were as unfair and abusive as it is now. I'm proud that The Home Depot employs more than 300,000 people and contributes greatly to the local economies of thousands of communities. But I shudder to think how many tens of thousands of new jobs have been lost because would-be entrepreneurs have decided against starting companies because of our unfair legal climate.

I wonder if by “unfair legal climate” you mean a climate in which both State and Federal government agencies keep suing Home Depot for race and gender discrimination, and a climate that forces Home Depot to pay hundreds of millions of dollars for implementing racist and sexist policies? I’m presuming you support tort reform that would eliminate these suits.

It's time to tell our elected officials that they need to fix the broken legal system before we lose any more doctors and good jobs. We should not elect politicians who pay lip service to the American dream while accepting contributions from trial lawyers to keep the deck stacked in their favor.

Now that's some innovative campaign finance reform: Don't allow those who disagree with you to contribute to political campaigns!

Bernie Marcus managed to build a multibillion dollar corporation on a shoestring budget, make himself incredibly wealthy, and become an icon of the business world - all during a time of "runaway jury verdicts." Isn't his success proof that the justice system works?

Lies

This link is to some comments that are, shall we say, less than truthful regarding the legal system. Excuse me while I pick apart some of the more egregious misrepresentations:

As we shall see, the lawsuit industry today is truly a behemoth, but—unlike the major corporations in our regular market economy—it remains financially opaque. Whereas public corporations must disclose their financials in 10-Ks according to SEC regulations, trial lawyers practice in private partnerships that, under the guise of attorney-client privilege, have shielded their financials from public scrutiny.

Gosh, last I checked all privately held companies aren't required to place their financials up for "public scrutiny".

Total tort costs today exceed $200 billion annually, or more than 2% of America’s gross domestic product—a significantly higher percentage than in any other developed nation.

"Total tort costs" is pretty broad. Let's look at some of 2002's highest verdicts:

IGEN International Inc. v. Roche Diagnostics GmbH S.D. (Breach of licensing agreement, unfair competition) - $505 million

Burns v. Prudential (Breach of Fiduciary Duty) - $261 million

Marvin Lumber and Cedar Company v. PPG Industries, Inc. (Breach of Warranty) - $135 million

Atlantic Recording v. Media Group Inc. (Copyright infringement) - $136 million

Just a few big jury verdicts for corporate entities can sure tip the scales.

"While many Americans may understand that the lawsuit industry in America has run amok—most people could quote anecdotal examples of silly cases generated by our “lawsuit culture”—the public tends not to appreciate that the litigation industry is nothing but Big Business."

I agree wholeheartedly. Big business uses lawsuits as a strategic weapon all the time. They sue their competitors. They sue their suppliers. Hell, they even sue their customers from time to time. Of course, their lawsuits are "Strategic" and ours are "frivolous."

"Given that 19% of all tort costs go to plaintiffs’ attorneys, we can imagine a corporation called Trial Lawyers, Inc. which rakes in almost $40 billion per year in revenues—50% more than Microsoft or Intel and twice those of Coca-Cola."

The corrolary is that 81% of tort costs go to defendants, isn't it? Of course, let's look at that $40 billion figure in terms of perspective:

According to the huge ad company Universal McCann, big business spent around $466 billion last year. Dataquest reported corporate software sales in the neighborhood of $80 billion. Enron, that pantheon of corporate responsibility, had about a $50 billion bankruptcy filing. That poor pharmaceutical industry that's always being sued sold around $155 billion in prescription drugs in 2002. The trucking industry took in roughly $587 billion last year. Gosh, $40 billion isn't that big, is it? Especially considering that the other 81% of tort costs is about $160 billion.

Although not centrally organized, the plaintiffs’ bar tends to be dominated by tort kingpins who carve up their markets—a practice that in a non-litigation context would be called collusion, a violation of antitrust law. Just as corporations are organized around different “lines of business,” plaintiffs’ lawyers target different industrial sectors. These include: Traditional profit centers like asbestos, tobacco, pharmaceuticals, and insurance;

I find it extremely ironic that trial lawyers would be villified for purported antitrust violations, and just one sentence later, insurance is mentioned. Why is this ironic? Because of the McCarran-Ferguson Act, the bill that exempts the insurance industry from antitrust law.

"Although the trial bar likes to accuse corporations of having undue influence, the government relations and public relations arms of Trial Lawyers, Inc. are more powerful and focused than those of any other industry."

It's funny about lawyer contributions. According to ecrets.org, 19 out of the top 20 law firms who contributed money to political campaigns are defense firms, like, Skadden Arps, et. al. , a firm that brags about representing 60% of the top 25 companies in the U.S., and 40% of the top 25 global corporations.

One thing I'm left to wonder; If plaintiff's lawyers are so bad, then why do big companies turn to them when they need a competitor sued? Like when Joe Jamail - THE plaintiff's lawyer - got a $10 billion verdict for Pennzoil against Texaco?