I have been researching "The Litigation Explosion". Below are some of the articles I intend to blog about in greater detail later this week.
(emphasis mine) [my comment]
The Litigation Explosion
It has been estimated that 50,000 lawsuits are filed in this country every day of the week. This has come to be known as the "litigation explosion." Whatever the causes—a breakdown of traditional values, the loss of a sense of community, too many hungry lawyers, wasteful insurance companies—the impact on each of us is significant. When patients sue doctors, the cost of healthcare rises. To compensate for products liability claims, manufacturers add a premium to the price of their products. Litigation cripples business. It is time consuming, expensive, and emotionally charged. It detracts from our ability to focus on productive matters, as attention is directed away from matters of efficiency and innovation. Parties to a lawsuit spend so much time meeting with lawyers and fighting with the other side that nothing gets accomplished. As businesses are dragged under by the burdens of litigation, our whole society suffers.
If you are engaged in any business activity or if you have a professional practice, chances are that sooner or later you will be sued. And if you are sued, everything that you have worked hard to create will be placed in jeopardy. The costs of defending even a frivolous suit can easily reach $50,000 to $100,000. Once you get to court, you will find that the system is heavily weighted toward the sympathetic plaintiff, as judges and juries play Robin Hood with your money. These judges and juries are continually expanding theories of liability, and stratospheric damage and punitive damage awards are now routine. It is no longer uncommon for awards in negligence cases to exceed $1 million.
Our legal system should hold people responsible for their acts. If someone causes injury, that person should be required to fairly compensate the victim for his loss. Not many people would seriously object to this principle. The problem is that this general principle bears no relationship to what is actually occurring in the legal system today.
The Ability to Pay
The reality of our legal system is that people are named as defendants in lawsuits not because of their degree of fault but because of their ability to pay. When an attorney is approached by a potential client who is claiming injury or economic loss, the attorney will consider whether a theory of liability can be developed against a party who can pay a judgment. This is called the search for the "Deep Pocket Defendant." The Deep Pocket Defendant will have substantial insurance coverage or significant personal assets. The measure of an attorney' s skill is his ability to create a theory of liability which will connect a Deep Pocket Defendant to the facts of a particular case.
Here is an example of what might happen in a particular case. Mr. Woodrow is driving in his car. Mr. Fishbrain runs through a stop sign at an intersection, smashing into Woodrow' s car and causing Woodrow severe injury.
From his hospital bed, Woodrow looks through the Yellow Pages and calls the first attorney he sees, the famous Alan Aardvark. He is what is known as a "contingent fee" lawyer. He works for a percentage of the ultimate recovery and determines whether to invest his time and money in a case based upon what his expected return will be. Since the time and expense of preparing for litigation can be considerable, an attorney cannot afford to take a case that is not likely to pay off. Remember—no recovery, no fee. Usually the attorney advances all costs and expenses, and in exchange, he recovers these costs plus 30 percent to 40 percent of any amounts which he can get from the defendant.
Before Aardvark decides to take Woodrow' s case, he will want to do some serious research to determine the merits of the case. Not the legal merits—the financial ones. He will want to know whether Fishbrain has substantial assets in order to make the case worthwhile.
Aardvark runs a financial search and determines that Fishbrain has no insurance and no significant assets such as a home or a retirement nest egg. What happens? Is that the end of the case? As for Fishbrain, it probably is the end of the case. Aardvark is not going to waste his time suing someone who can' t pay. But Aardvark is not going to give up so easily. He has a client with substantial injuries and that means a large damage award—big bucks. But first he has to find someone who can pay.
Here is how a good lawyer would analyze the case to try to draw in a Deep Pocket Defendant:
1. Was Fishbrain on an errand for his employer at the time of the crash? If so, the employer can be sued.
2. Did Fishbrain have any alcohol in his system? The restaurant that served him may have liability.
3. Was Fishbrain on any medication? The pharmacist, drug company, or physician may have potential liability for failure to provide proper warnings, or for writing or filling the prescription improperly.
4. The stop sign Fishbrain ran through was in a residential neighborhood in front of someone's house. Did the homeowner properly maintain his property and clear his foliage to provide an unobstructed view of the stop sign? If not, there is a case against the homeowner for negligence.
5. Did the municipality take due care in the placement of the stop sign? Should it have used a traffic light instead? There may be a case against the city or county.
6. The driver's side door of Woodward's car collapsed on impact. There is a possible case against the manufacturer for not making a more crash resistant frame.
Do you see how far we are moving away from Fishbrain—the person responsible for the accident—in an effort to tie in a remote Deep Pocket Defendant? In any rational legal system, Fishbrain would be regarded as the wrongdoer—he disobeyed the traffic law and he caused the injury. Instead, we have an attorney trying to force the blame onto someone else—who wasn' t at the scene and doesn' t even know the people involved. The example that we just gave you is taken from a real case. Guess who ended up as the defendant.
In the actual case, the defendant was Fishbrain' s ninety-two-year-old widowed great-aunt Ellen. As it turned out, she had purchased the car for Fishbrain as a gift to him. Aardvark' s private investigator searched the assets of Fishbrain' s relatives and found that Aunt Ellen had a house that she owned and some savings in the bank. She was named as the defendant in the case and was found liable on a theory called Negligent Entrustment. The jury found that she should not have bought the car for him. She should have known that he was a careless driver and might cause an accident. She caused the accident by buying him the car. The verdict was for $932,000, and Aunt Ellen lost nearly everything she owned. [The American legal system is sick]
The point of all this is that the foundation of every lawsuit is a defendant who can pay. Once such a defendant is located, it is easy enough to construct a theory of why that defendant should be responsible. Judges and juries often act on their emotions—not on the law. And when the contest is between an injured or a sympathetic plaintiff and a wealthy or comparatively wealthy defendant, the plaintiff will win virtually every time, regardless of the defendant' s actual degree of fault.
As a result, the plaintiff' s attorney will search for a party who can pay a hefty judgment. In the old days, it was said that " He who has the gold makes the rules." Now the saying goes: "He who has the gold pays the plaintiff." The fact is that no matter how remote your connection to an injury, if you have even modest assets, an attorney for the injured party will attempt to show that you are somehow legally at fault and you will be named as a defendant in the case.
Not Enough Good Cases
It used to be that people thought of Deep Pockets as a bank, insurance company, or other big company with billions of dollars to pay claims. Unfortunately, that' s no longer the case. There are nearly 1 million lawyers now, and each year another 100,000 come out of law school and set up a practice. There are not enough good cases to go around.
A good case involves a serious injury with clear negligence by a company with significant assets or insurance. The problem for the lawyers is that most of the good cases go to a relatively small group of established trial lawyers with a history of multimillion dollar verdicts.
This makes sense. If you are seriously injured by an Exxon gasoline truck crashing into your house, you want the best trial lawyer you can find. You want a lawyer who has won large jury awards. The ability to argue successfully and convince a judge or jury of the merits of a claim is a unique and specialized talent. Few attorneys possess these skills, and those that do often earn millions of dollars each year. Since all contingency fee attorneys charge the same one third or 40 percent of the award, why not hire the best trial lawyer in the country? It doesn' t cost you any more.
And if your case is a good one, any attorney would love to work for you. You can get the top trial lawyer in the country to handle your case, and he won' t charge you a penny more than your niece' s brother-in-law who has never been inside a courtroom. This is democracy in action. The poorest of the poor can hire the richest and smartest trial lawyer in the nation to fight for his rights. All it takes is serious injury or death and a defendant with deep pockets.
The Legal Extortion Racket
What are the rest of the lawyers going to do? What about the other 95 percent of trial lawyers who are not so great and not such good lawyers? How is a lawyer who is not at the top going to feed his family? His chances of getting your case against Exxon are about the same as hitting the lottery. Many of my close friends are personal injury attorneys. They think and dream about the one good case that will earn them enough to be on easy street. But the one good case never seems to come. Instead most lawyers make a living by looking for somebody to sue and filing bad cases with bad facts. As long as a lawyer can find a potential defendant with even modest assets, he will attempt to make his case. If he doesn' t have a good case, he has to go with what he has. That' s how he makes a living.
The lawyer is willing to gamble that by filing a case he will be able to squeeze a settlement or play "lawsuit roulette" with the jury. Just like the population in general, from whom they are drawn, jurors can be confused and misled by emotional and irrational arguments. Experiments in human behavior show that most of the time individuals are unable to distinguish the truth from a lie. When asked to distinguish truthful from untruthful testimony based upon the demeanor and expression of the witness, in a majority of cases, the subjects in the experiment incorrectly identified the lie as the truth and the truth as the lie. The conclusion of the study has frightening implications. Jurors are more likely to believe a witness who is lying than one who is telling the truth.
This phenomenon has been understood and exploited for years by political leaders and others with a message to sell. A lie which is repeated forcefully and with conviction becomes accepted as truth. Think of the Nazi propagandists and the McCarthy type demagogues who convinced millions of people of the truth of their cause. Advertising messages repeated often enough are believed, regardless of the merits of the product and despite overwhelming evidence to the contrary. That' s the foundation of the multibillion dollar advertising industry and is the basis on which political leaders present their programs.
In the same manner, a lawyer attempts to "sell" his case to the jury. Facts are distorted. Lies, half truths, and perjured testimony are zealously advanced on behalf of the "injured" plaintiff. If things go right and the lawyer gets lucky or knows what he is doing, the jury will reward these efforts with a judgment for several hundred thousand or maybe a few million dollars. Every day in court a sympathetic plaintiff prevails against a wealthy or comparatively wealthy defendant— even in those cases which appear to be absurd, illogical, and utterly without merit. [it is true]
Any lawyer who is still in business after a few years of practice has learned that the unpredictability of human behavior can be used to his advantage. The uncertainty of the outcome creates a potential risk of loss for even the most "innocent" defendant. Lawyers know that for most people the risk of financial loss also creates a highly uncomfortable level of emotional strain. If you have ever been sued—no matter what the cause—you understand that the unpredictability of the result and the possibility of economic loss can generate a severe degree of stress and emotional charge.
The Appeal of Settling
When a lawyer threatens to sue you, he is exploiting all of these facts about human nature. He knows that the outcome of the case will be uncertain regardless of the merit of the case. He knows that if you have reachable and collectible assets, the risk of loss will cause you extreme worry and stress. Finally, he knows that if you choose to fight the case, your time and your privacy will be violated and your resources will be depleted or exhausted by tens or hundreds of thousands of dollars in needless legal fees and costs. Doesn' t settling the case sound much more appealing and logical?
Settling is more appealing, and that is exactly what you should do. As unfair as it sounds, if you fight the case, you may well lose. You will certainly spend much more money and time, and you may never recover from the emotional toll, the damage to your personal relationships, and the impact on your business.
If you have available and reachable assets which can be uncovered in an investigation, then the lawyers hold the leverage. They know that you are vulnerable, and you are better off settling the case. They want some easy money from you, and then they will move on to the next case. That' s how the legal extortion racket works.
The Easy Cases Are Gone
Over the last few years, as the number of lawyers and lawsuits have increased, the insurance companies have adopted a policy of not settling cases. In the past, insurance companies routinely settled virtually every claim for a multiple of the injured party' s medical expenses. A slip and fall or auto accident case was worth approximately six times the amount of the medical expenses incurred by the client.
When an individual went to an attorney claiming injury from an accident, the attorney would send the client to a cooperative doctor for extensive medical care and therapy. The doctors (and chiropractors) billed wildly for every imaginable treatment and procedure—almost all of which was unnecessary and was performed solely to inflate the amount of the medical bill. The physician would get paid out of the proceeds of the eventual settlement. The lawyer had a nice fat medical bill—multiplied by six under the standard formula—which he could then present to the insurance company. The insurance company paid the inflated claim then raised the rates on all its policyholders to cover these costs.
At least several generations of personal injury attorneys have made handsome livings by playing this game. But unfortunately for them, in most states, this game is over. Starting in the early 1990s, many insurance companies adopted a policy of no settlement. When the attorneys offered up the medical expenses, the claims adjusters were required by their companies to reject the claim. The policy was to litigate every claim all the way to trial. It was understood that this strategy would be more expensive in the short run as the companies incurred huge legal bills fighting even the smallest claim. The upside was that the personal injury lawyers, deprived of their bread and butter fast settlements, would be driven out of business as their cash flow disappeared. Most attorneys can' t wait two, three, or five years to get paid. And they certainly don' t want to shell out all of the costs of bringing a case to trial, including depositions, expert witnesses, and discovery. Even worse is that after putting up all the money and going to trial, the case could be lost. Years of hard work and lots of money down the drain. That result means financial disaster and one more overeducated short order cook.
The insurance companies were like a pack of big goofy elephants. They had no idea that they had the power to step on and crush their lawyer adversaries. Once they decided to use their great strength—virtually unlimited capital—they were successful beyond their expectations. Lawyers stopped taking the "slip and falls," the bogus auto accidents, or any other insurance case without a big potential payoff. The insurance companies were the big winners. The lawyers, their incomes and lifestyles seriously impaired, looked around for new groups to target—an easier and softer prey not so willing and able to fight back.
The New “Deep Pockets”
The new targets or the new Deep Pockets are those who have saved up some money for retirement, those who operate a successful business, and those who own a home or have some rental property with any equity. [I know this to be true] That describes a lot of people in our country. They are vulnerable because their savings are valuable to them. There are 100 million adults in the population, and 30 million have mutual funds, savings, or equity in their home. That' s 30 million people with something valuable to lose, and 1 million lawyers who are aggressive and motivated. They want to move some of that money to their side of the table. One million lawyers file 19 million lawsuits each year, picking out the easy targets and causing great personal suffering and hardship.
A lawyer' s job is to tie a party who has some money into a case so that he will get paid. A good lawyer is one who can create a clever new theory of liability so that someone with money or insurance will be found legally responsible. Even if our common sense tells us that this Deep Pocket had nothing whatsoever to do with the injury, a judge or jury or court of appeals will decide a case based upon their own view of what is fair and rational.
A doctor prescribed antihistamines for a patient with an allergy. The patient ignored the warning label about driving while taking the medication and caused a serious auto accident. The patient had little insurance and few assets, so the doctor was sued. The plaintiff' s lawyer successfully argued that the doctor should have known that the patient might drive his car while on the medication. The jury found the doctor liable for $6.2 million in compensatory damages. The doctor' s malpractice insurance didn' t pay a nickel of the claim since the policy only covered claims by a patient—not those injured by a patient.
Was the doctor really at fault here? [No] He lost everything he owned, and he didn' t do anything wrong. The mistake he made was not realizing that as a physician, and as someone who had a home and some savings, he was an inviting and vulnerable target for a lawsuit.
The Property Owner
Anyone who owns rental property is an excellent candidate for a lawsuit. In any measurement of potential liability, we would rank the property owner at the top of the list. [My grandmother owned rental property and was sued by a tenent last ]
Let' s assume you own a small apartment building. One evening a female tenant returns home from work and parks her car in the enclosed parking garage. As she gets out of her car, she is robbed by an assailant. Under these circumstances, you can expect a lawsuit against you as the owner of the property, for negligently failing to provide the proper level of security.
Regardless of the actual safety measures which you employ, the plaintiff' s attorney will allege that you should have taken additional steps, such as installing video cameras, floodlights, or hiring security guards to protect the safety of the tenants. In essence, as a property owner and a Deep Pocket Defendant, you become a guarantor of the safety of your tenants, to the full extent of your available net worth.
-- A tenant was shot and killed in the alley behind the apartment building. It was found that the owner of the property should have provided better lighting for security in the alley. The jury awarded $27 million to the relatives of the tenant.
-- A fire in an apartment building killed one tenant and injured nine others. The owner had complied with all building code and safety requirements. He was sued for $5 million.
In these and similar cases, the owner of the property paid the claim or the judgment even though he had done nothing wrong. And that' s where the problem lies. Under our current legal system, it doesn' t matter whether you are really negligent or whether you do anything that is wrong. You can maintain your property in perfect physical condition, taking every imaginable safety precaution, and yet something can still go wrong. If a tenant is injured on the property—no matter the cause—it will still be your fault.
Having insurance on the property does not provide a guarantee that you will be free from personal exposure. Insurance is written with a long list of exclusions and exceptions and generally won' t cover a lawsuit for undisclosed defects. Furthermore, it will be difficult to obtain an amount of insurance which is adequate to cover the full amount of the potential liability associated with injuries to multiple tenants. Even $1 million in coverage will not be sufficient if someone is seriously injured on your property. If several people are hurt in a fire or earthquake or other disaster, there may be $5 million—$25 million or more in potential damages.
Whatever amount is not covered by insurance will be your personal obligation. A judgment against you will be satisfied from your personal assets including your home, savings, and retirement funds. If something goes wrong at the property, everything you own can be lost. Any real estate—whether or not you have any equity in the property—represents an enormous source of liability to you and poses a danger to all other assets that you have accumulated.
Officers and Directors
Officers and directors of publicly traded companies are also popular Deep Pocket Defendants. All companies whose shares are publicly traded must file quarterly and annual reports with the Securities and Exchange Commission. These reports are known respectively as the 10—Q and 10—K filings. The purpose of these filings is to make information concerning the business and finances of the company publicly available. The law requires that public companies provide full disclosure of all material information which may influence the price of its stock.
A number of law firms employ young MBAs and attorneys to scrutinize each of the required filings made by these companies. If the stock of a company rises or falls sharply in response to some news item affecting the company, a law firm may attempt to show that the company' s filings failed to adequately disclose certain material information. If any possible claim can be made, a class action lawsuit will be filed on behalf of current or former shareholders. The company, its officers, and its directors will be named in the suit. The defendants will fight the lawsuit or settle it, but in either event, the cost will be substantial and the only likely winners will be the lawyers who filed the action.
All physicians are acutely sensitive to the risk of lawsuits. A recent study found that between 70 and 80 percent of all obstetricians had been sued, and the percentage of neurosurgeons and other medical specialists is equally as high. It seems that the public now perceives doctors, like auto mechanics, as capable of fixing any problem with the right tools and a good supply of parts. When these unreasonable expectations are not met—when a surgery or procedure is not successful—the patient and his family conclude that the only explanation is that the doctor must have been at fault. It is not fate, nature, or an act of God that is blamed for the misfortune. (It is much too difficult to collect a judgment from these parties.) [I like the humor. Lawyers would sue god if they thought they had a chance to collect] As a result, many doctors have been forced to significantly narrow the scope of their practice to eliminate even modestly risky procedures. This type of defensive medicine inevitably drives up healthcare costs for everyone.
Real Estate Developers
Real estate developers and construction companies are another group with potentially significant personal liability. When a project is developed and sold, there may be liability to purchasers and subsequent purchasers for many years to come. Damages caused by latent (unseen) construction defects may be either uninsurable or may surface only after a policy has expired. As an example, California law states that a builder remains legally responsible for latent defects for up to ten years after the completion of the building. With potential liability having a "tail" of up to ten years, no builder is immune from a crippling lawsuit which may have been caused by the faulty workmanship of a subcontractor who has long since disappeared.
During periods when real estate prices are declining, lawsuits against developers and general contractors will be inevitable. Homeowners who lose a significant amount of equity due to depressed market conditions often attempt to recover their investment by filing lawsuits, alleging construction defects against everyone involved in the project. That includes the geologists, engineers, architects, and the building tradespeople as well as the developer. These types of cases are enormously costly and time consuming to defend, and unless there is an insurance company involved to pay the costs, it is difficult for all but the largest companies to survive such lawsuits.
Another problem faced by developers is that each project requires a significant amount of cash, most of which is borrowed from a lending institution. The developer puts up the land as security and must also sign a personal guarantee for the entire amount. If the project is not successful, the developer must repay the loan out of his own pocket. As a result, one bad deal can wipe out many years of hard work.
Because of the high degree of lawsuit risk from these activities, the owners of these businesses are placing their entire net worth in jeopardy every single day. Each time a doctor performs surgery, he is literally betting the house on a successful outcome. Anytime something goes wrong, someone will sue. Every patient, client, or customer is a potential legal adversary.
In addition to risks faced by professionals and business owners, it is important to understand the particular types of liabilities that arise out of various commercial and personal relationships.
Dangerous Oral Contracts
A contract is formed any time two people make an agreement to do, or not to do something. Certain types of contracts, involving commercial transactions, must be in writing in order to be valid. But most contracts do not have to be written. A promise that you make is considered to be a contract if the other party relies on your promise. Recently, we have seen girlfriends and boyfriends claim that they were promised certain things by their former mates. These alleged promises called for lifetime care and support or a specific dollar amount to be paid at the end of the relationship. Since, by its nature, an oral agreement has no visible trail, these cases come down to one person' s word against the other. Claims of a contract based upon an oral agreement are difficult to defend against. It is simply not practical to write out a contract, specifying the terms of the relationship with each person you meet. Everyone faces enormous potential liability for these kinds of claims.
One interesting case involved the ownership of a California lottery ticket. George and Sarah lived together but weren' t married. He was eighty-five years old and she took care of him. They kept some spare change and a few dollars in a coffee can in the kitchen. Sarah would take out a dollar every few days to buy a lottery ticket. Over the years, there were a few winning tickets worth $20 or $100 and she would put those winnings back into the coffee can to finance future tickets.
One day they hit the grand prize of $12 million—twenty annual payments of $600,000, less taxes. Soon after the celebration was over, human nature being what it is, George claimed that the money in the coffee can was really his money and he was the sole owner of the ticket. Sarah, shocked and hurt, claimed they had always treated the coffee can money as joint property and that she was justifiably entitled to half of the winnings. Both sides hired lawyers, and George refused to settle the case.
The case went to trial in San Diego, and the jury found for George. They believed his story that the money to buy the ticket belonged to him and that there was no legal agreement between them to share the winnings. George got to keep it all.
We certainly do not know who was telling the truth, and that' s exactly the point. Nobody ever knows for sure who is telling the truth in these situations. That' s why anyone with whom you are involved, in any kind of business or personal relationship, can claim that you broke a promise and that they are entitled to some amount of compensation.
An employee can claim that you promised him a job for life. Let' s say that you own a medical practice and you decide that the work of Dr. Jones, a physician who works for you, is no longer satisfactory. If you fire Jones, there is an excellent chance that he will sue you. In the lawsuit he will claim that he is entitled to a percentage of ownership in your practice based upon an oral agreement which you made. That is all he needs to do. He doesn' t need any other evidence. He simply claims that you made certain promises about sharing the practice with him. Now you have to defend yourself and risk losing a portion of your business. It is now your word against his, and the jury can decide who they believe. These types of claims are made every day in our courts, and many employers end up making huge settlements with the fired employee in order to avoid the expense of litigation and the risk of loss.
In addition to liability for contracts, individuals and businesses face potential lawsuits for negligence. You will be considered to be negligent if a party is injured or his property is damaged because of your failure to exercise reasonable care. This is known as direct negligence. You may also be sued when you are legally responsible for the wrongful acts of others, such as a child or an employee. This type of liability is known as imputed negligence.
Direct negligence is exemplified by hitting someone while driving your car in an unsafe manner. The death of a patient due to a physician' s diagnosis which falls short of the advice of the hypothetical "common physician" is another example of direct negligence. …
In certain situations, you may be held liable for an injury even if you are not directly at fault. Imputed negligence means that the law will hold you responsible for the negligence of someone else. A negligent act by an employee, conducted in the scope of his employment, will be imputed to the employer. If you ask your secretary to pick up some sandwiches for lunch, she is acting within the scope of her employment when she drives to the deli. If she is at fault in an automobile accident, her negligence is imputed to you. You are responsible for the damages caused by her acts.
In recent years, courts, state legislators, and clever trial attorneys have dramatically expanded traditional theories of negligence. As stated, negligence means a failure to exercise the proper degree of care. The question is what is the proper degree of care? How careful must we be?
Several years ago a famous rock group was sued by the parents of a teenage boy who was terribly injured when his suicide attempt failed. The parents claimed that the boy had been encouraged to commit the act by listening to certain lyrics on a record album. Although it was ultimately determined that the group was not liable for the boy' s death, the case did make it all the way through trial. The members of the group sat through countless hours of depositions and testimony and surely spent several hundred thousand dollars in legal fees. All of this time and money were wasted, because an attorney for the boy' s parents attempted to connect a remote Deep Pocket Defendant to the case in order to obtain compensation for this unfortunate, but blameless event
Excerpt from The Litigation Explosion
By Walter K. Olson
Medical Economics, September 16, 1991
America has deregulated the business of litigation. In a series of lamentable legislative and judicial changes over the past few decades, we have encouraged Americans to sue each other. The changes amount to a unique experiment in freeing both the legal profession and the litigious impulse from their age-old constraints.
The experiment has been a disaster-an unmitigated failure. The unleashing of litigation in its full fury has done cruel, grave harm and little lasting good. It clogs and jams the gears of commerce, sowing friction and distrust between the productive enterprises on which material progress depends and all who buy their products or work at their plants and offices. It seizes on former love and intimacy as raw materials to be transmuted into hatred and estrangement. It sets parent against parent, doctor against patient. It exploits the bereavement that some day awaits the survivors of us all and turns it to an unending source of poisonous recrimination. It torments the provably innocent and rewards the palpably irresponsible. It devours hard-won savings and worsens every animosity of a diverse society. It is the special American burden, the one feature hardly anyone admires of a society that is otherwise envied the world around.
Medicine falls victim
Personal injury litigation was first to be transformed. New York officials have estimated that payouts in suits against doctors and hospitals in their state have risen 300-fold in a generation-not 300 percent, but 300-fold. By 1990 many New York obstetricians with good records were paying liability insurance rates of $ 100,000 and more a year. Miami neurosurgeons with good records paid $ 220,000.
Most malpractice lawsuits have nothing to do with genuine negligence. Preliminary figures from a new and exhaustive study by Harvard researchers indicate that in four out of five lawsuits filed, the care given was not in fact negligent. And as the legal firestorm sweeps through the profession, patients as a group are being left worse off, not better. A recent National Institute of Medicine study found that "defensive medicine" had seriously compromised the quality of care, leading, for example, to thousands of unnecessary Caesarean sections. The study also found that one in five rural doctors had stopped delivering babies in the past five years, with liability the overwhelming concern.
By 1990 litigation over birth defects had emerged as a source of immensely profitable business for trial lawyers. Some of those lawyers had responded by learning one of the classic techniques of the expansion-minded business: the cold call. They gain access to registries of handicapped children, approach the families, and propose filing a lawsuit.
A drag on the entire economy
No other country's legal system operates remotely like ours. A study in the 1987 Duke Law Journal concluded that America had almost three times as many lawyers per capita as Great Britain, with American tort claims running at least 10 times higher, malpractice claims 30 to 40 times higher, and product claims nearly 100 times higher, in each case per capita.
Another survey found that America spends five times as much as its major industrial competitors on personal-injury wrangling as a share of its economy, and that the gap is widening. The survey concluded that over the last two generations the cost of injury litigation rose 14-fold after inflation, while the size of the real U.S. economy rose only three-fold.
The mushrooming litigation is also taking an economic toll on individuals. It used to be that mostly doctors among professionals had to worry about buying liability insurance. Now it's a crushing expense for many accountants, nurses, amateur sports umpires, and local charity volunteers. Most hairdressers and veterinarians reportedly buy it. It is the coming thing among social workers, school counselors, and the clergy, who have been sued in much-publicized cases for giving wrongful advice. Lawyers pay dearly for their own coverage, and judges have been added to the list in the wake of rulings that they may now be sued in some circumstances for handing down wrongful decisions.
How the beast broke loose
Yesterday's lawyers were specifically forbidden to "stir up litigation." Unlike ordinary tradesmen, they were expected to sit passively waiting for clients, smothering any entrepreneurial urge to drum up business; they might sometimes be the instruments of suspicion and contentiousness, but they were not to be its instigators. Social pressure backed up these restraints. So did tough laws.
The overthrow of the old barriers began with a simple idea. Squinted at from a distance, litigation would appear to have a brighter side. When successful, it brings some benefit ("relief") to the instigator: money, rights to visit a child, the cessation of some local nuisance. So it might be seen as a generous sort of social welfare program, by which people who crave an infusion of money or some less tangible commodity can get it from other people who (perhaps) could well afford to give it up.
By the same token, those who get sued and lose must (in a court's view) have done something they oughtn't: broken a promise in business dealings, practiced medicine below a certain standard of care, held on to a child that would be better off in someone else's custody. Maybe litigation is also a tough form of punishment and example-setting, which teaches those who misbehave an emphatic, not-soon-to-be-forgotten lesson.
By the 1970s the climate in the law schools had turned around on the subject of litigation, first to ostensible neutrality and then to admiring support. America's lawyers began breaking free of the humdrum role of hired middleman--much as Wall Street's investment bankers were doing at around the same time-to become "players" who thought up the deals, or in this case courtroom fights.
The evil of the contingency fee
By itself, the new enthusiasm for litigation might have given out. What has kept it alive and propelled it to dangerous heights is the contingency fee.
In virtually every other nation, it's assumed that lawyers face many temptations to misbehave in order to improve their clients' chances of winning a lawsuit; that no direct means of policing such misconduct is likely to be even halfway effective; and that the first line of ethical defense for lawyers is therefore to insulate them from a direct stake in the outcomes of their suits. The tradition of the English common law, the French and German civil law, and the Roman law all agree that it's unethical for lawyers to accept contingency fees. In 1975, British judges strenuously opposed even a closely regulated version of the fee, in which a contingency suit could go forward so long as leading lawyers verified its reasonableness. They explained that lawyers would no longer make their cases "with scrupulous fairness and integrity."
Why is America the glaring exception? What has emboldened our lawyers to accept this sort of fee?
The American exception seems to have developed naturally and inevitably from a more profound novelty, one that is central to understanding the problems of our legal system. America is the only major country that denies to the winner of a lawsuit the right to force the loser to pay his legal expenses. In other countries, the promise of a fee recoupment from the opponent gives lawyers good reason to take on a meritorious case for even a poor client. The obvious result of not allowing recoupment is that clients must find some other way to compensate their lawyers. Unless the client has independent sources of cash, the only place for the fee to come from is out of the recovery itself.
The case against the contingency fee has always rested on the danger it poses not to the one who pays it but to the opponent and more widely to justice itself. As other nations recognize, it can yoke together lawyer and client in a perfectly harmonious and efficient assault on the general public. There are things lawyers will do when a fortune for themselves is on the line that they won't do when it's just a fortune for a client.
An endless cash wave
Contingency-fee law has made more overnight millionaires than just about any business one could name. Forbes magazine surveyed the richest lawyers in America and found that the big fortunes were overwhelmingly made in contingency-fee work, not the corporate law and transaction planning that have long represented the zenith of prestige legal practice. Among the top scorers on its list were a Detroit lawyer whose thriving practice takes in an estimated $ 100 million a year in settlements; a Brooklyn Law School grad who specializes in suing doctors and carts home an estimated $ 12 million a year; a Wichita attorney who sues vaccine makers and has made more than $ 5 million in each of the last 10 years.
Tucson's Richard Grand didn't make the list, but Laurence Bodine of the trial lawyers' newsletter Lawyers' Alert reports that Grand has collected $ 200 million in verdicts and settlements over his career, with 60 cases exceeding $ 1 million. At a one-third contingency, that would add up to $ 67 million. Harry Lipsig, czar of lawsuits against New York City, has "been earning well into the seven figures every year for as long as anyone can remember," a spokeswoman for his office was quoted as saying in 1988. South Carolina asbestos-litigation king Ron Motley admits to earning a meager $ 1.5 million a year, but that is still reportedly enough to make his 255-employee firm the third-biggest employer in his section of the state, following a nuclear power plant and a large textile mill.
These men (very few are women) seldom seem to favor sober, understated ways of spending their new-found wealth [ie: they are crooks]. One has turned lawsuits against doctors into a villa in the south of France and a $ 2 million Paris apartment. A list of their known holdings is spangled with the ranches, jets, and exotic cars that befit tycoons riding a cash wave with no end in sight. And indeed, no end is in sight. Something about today's contingency-fee system has made these lawyers very much richer than most of the doctors, hospital administrators, and corporate CEOs whose decisions they second-guess, and incomparably richer than the defense lawyers who oppose them.
As lawyers have discovered how very profitable this kind of practice can be, more of them have gotten over their scruples. the contingency fee is coming to be seen as the basis of an industry boldly and openly run for profit, as an enthusiastic first resort for the general case rather than a troubled last resort for the special. Even big-name firms like Washington's Williams & Connally and Arnold & Porter are now reported to take work on contingency. And in a trend that is full of implications for the future, the fee is spreading to litigation over employment matters, child support, will contests, copyrights, taxes, and, perhaps most ominously, divorces.
Rationalizing the winnings
There is a funny thing about this brand of lawyering: the more opulent it becomes, the more cloying an odor of sanctity it gives off. Self-righteousness is an occupational disease in several sectors of the legal profession, but injury lawyers top all. A spokesman for Morris Eisen had no apologies when he was indicted on charges of massive claims-faking [There is nothing more despicable, dangerous, and damaging than a self-righteousness con artist. They will never, EVER admit to doing anything wrong.]. Just the reverse. The charges, he said, were "a brazen effort to cripple the advocates of the men, women, and children who have been crippled and maimed." Suing people for a share of the proceeds has become, like one or two famous television ministries, a venture in hellfire-preaching and unctuous hand-wringing that enables its practitioners to live in the luxury of Babylon.
What is supposed to make all this ethical is that it's done in the name of persons of modest means. Injury lawyers carry on endlessly about how their favored-fee arrangement provides the "key to the courthouse" for the widow and orphan. But they seldom much care for the method all other countries use to provide that key: an hourly fee paid by the losing opponent. And it turns out that they happily charge contingency fees to middle- and upper-income clients and businesses that could easily afford to pay on an hourly basis. A group of companies stymied in efforts to build a coal-slurry pipeline hired the big Houston firm of Vinson & Elkins on a contingency basis to file antitrust charges against several railroads for allegedly blocking the project. The law firm reportedly pocketed nearly $ 200 million in contingency fees from the resulting settlements.
In fact, mysteriously, the contingency fee has become the only way most individual clients can get a lawyer for injury cases, even if they would rather pay an hourly fee. Some clients suspect that a phone call or two from a lawyer, or a letter on his stationery, may be all they need to get a satisfactory resolution of their problem. Giving him a third of the amount won in such a case, they might feel, would be an undeserved windfall. But they're out of luck. A report from the Federal Trade Commission showed that 97 percent of lawyers took injury cases only on contingency, refusing to consider hourly rates, however generous. Lawyers seem to have come to the conclusion that a good injury case is a pot of gold, and, damn it, they have a right to a share [This is sick]. They are also loath to undercut the "going rate" fee percentage, even when success in a case seems virtually assured. In some cities, the going rates over the years have been reported to run at 40 and even 50 percent. [sick, sick, sick]
Enter the "experts"
Until fairly recently, formal legal rules had tended to keep the need for experts to a minimum by side-stepping the knottiest factual inquiries and hinging entitlements on factors relatively easy to ascertain. But then came a pernicious trend toward a thoroughgoing effort to consider the totality of each litigant's circumstances. This calls for a ton of factual input, not all of which lay persons can readily provide. [This is represents the death of common sense]
Lawsuits charging that a product was defective, for example, used to be handled by asking the sorts of simple questions courts could resolve without specialized help: Was the product delivered in its intended form? Where had the two sides agreed the risk of accident should fall? Now the prevailing "risk-utility test" calls on the jury to carry on a global cost-benefit balancing of all the pluses and minuses of the company's decision to put a given product on the market. Trials soon demanded a traveling caravan of engineers, statisticians, consumer psychologists, economists, and more.
As experts piled and tumbled into the courtrooms in such disconcerting numbers, some rational way might have been found to elicit their massed opinions. One old idea is to combine the experts with the judges or juries by assigning tariff, patent, and suchlike recondite matters to special courts or boards, or empaneling a body of merchants or doctors to decide whether one of their peers had breached a professional standard of competence or ethics. More practical for the run of ordinary lawsuits, in which a new kind of expertise is needed every day, is for the judge to pick an outside expert or a panel of experts to testify on a technical matter, as is commonly done in European courts.
Visiting European lawyers are often dumbfounded to learn that in this country most experts are recruited, sent into courtroom battle, and paid by the contending litigants themselves. Credentials are nice, but partisan reliability usually has to come first. "I would go into a lawsuit with an objective, uncommitted, independent expert about as willingly as I would occupy a foxhole with a couple of noncombatant soldiers," former American Bar Association President John Shepherd has said. Frequently the lawyer writes the testimony for the expert to deliver on the stand.
This elite technical corps in the ranks of the partisan armies, like some other high-tech military establishments, does not come cheap. Medical experts are reported to charge around $ 15,000 to $ 20,000 a case for malpractice testimony. A leading witness who testifies for plaintiffs in pollution-illness suits has reportedly charged a flat $ 20,000 per complainant, and the number of complainants in those cases can run into the dozens or hundreds.
Mainstream scientists who venture into the courtroom often come away disgusted and unwilling to return. Some are put off by cross-examinations that strike them as aimed more at making them look foolish than at engaging the issues. Others lack the stage presence and knack for simplicity needed in a good witness; more than one genuinely eminent physician or engineer has blown a client's case by seeming like a know-it-all or drawing so many careful distinctions that the jury's eyes glazed over.
The expert who does enjoy the courtroom and scores a few victories is likely to be asked back again, picking up what you might call frequent-testifier bonus points. The Association of Trial Lawyers of America's ATLA Law Reporter, which keeps injury lawyers apprised of major new victories, lists the name not only of winning lawyers but also of winning experts, who get new business that way. Hence the rise of the professional witness who works closely with lawyers and knows what they want. Some travel around the country and have testified at more than a thousand trials. "An expert can be found to testify to the truth of almost any factual theory, no matter how frivolous," notes federal Judge Jack Weinstein.
Of course, opponents counter the more eccentric claims by calling their own scientists to give the mainstream side of the story-leading to the "battle of the experts." All too often the bewildered jury concludes that even the pros can't agree on the science and proceeds to decide the case on sympathetic or other grounds.
Why countersuits fail
Leona Serafin had come into Detroit's Outer Drive Hospital for what was supposed to be a routine kidney-stone removal. Instead, uncontrollable hemorrhaging set in on the operating table and she died a few days later. An autopsy found the cause of death to be thrombotic-thrombocytopenic purpura, a rare and nearly always fatal blood disorder whose origin is unknown.
Two years passed, and a pair of lawyers representing the Serafin family filed malpractice suits against the hospital and three doctors. After another three years the case went to trial in Wayne County circuit court. The lawyers could not offer testimony that the doctors or hospital had fallen short of any accepted standards in recommending or conducting the surgery. Upon hearing their case the judge promptly ordered a verdict for the defense. There was an appeal, but without success, and the Michigan Supreme Court denied review.
Defendants in a case like this are supposed to go back to practicing medicine and try to forget what happened to them. One of them, Dr. Seymour Friedman, couldn't forget. He filed a lawsuit against the two attorneys, who he said had good reason to know their action was groundless. Because of it, he said, he had been put to direct expense: He would have to pay higher insurance rates for as long as he practiced; he had lost two young associates who could not afford to pay the higher liability premiums being charged to his office; his professional reputation had been defamed; and he had been put through intense personal embarrassment and anguish.
The Supreme Court of Michigan declared that the doors of the state's courts would be locked against him. It said Friedman could not get anywhere even if he could not get anywhere even if he could prove the lawyers knew the claim was false: The authoritative Second Restatement of Torts explains that a lawyer can't be sued for malicious prosecution even if he "has no probable cause and is convinced that his client's claim is unfounded," so long as "he acts primarily for the purpose of aiding his client in obtaining a proper adjudication of his claim." That these lawyers were alleged to be angling for a settlement, not an adjudication, part of which would go to them on contingency, did not seem to matter. The majority's 33-page opinion could not agree on reasoning-in fact it was split four ways-but it all came down to one sweeping assertion: A lawyer has no "duty of care" to avoid hurting the person he litigates against. [sick…]
With rare exceptions, other doctors who have tried to fight back against groundless malpractice suits have learned the same lesson. Some sought relief under defamation law, taking hope from cases in which employees successfully sued former employers for giving them bad references. They were thrown out of court. Others argued it was high time lawyers acknowledged a duty not to inflict easily foreseen harm on named, known opponents. That didn't work either.
An Illinois doctor invoked a clause in the state's constitution instructing its courts to provide a remedy for every wrong. He was told that the wrong done by litigation would just have to remain an exception. Allowing redress to the targets of wrongful lawsuits, he was told, might deter someone somewhere from launching a rightful lawsuit. The state's high-minded policy was to encourage the universal seeking of redress, and so the seeking of redress would just have to be forbidden to him.
There is some hope in a relatively recent reform called Rule 11. In brief, the rule requires that a suit be well-grounded in fact and law. This means an attorney must not ignore readily available proof that his suit is unfounded. Unfortunately, many states have not adopted versions of Rule 11 at all, or enforce it only with great laxity, making it hard to get relief for misconduct in litigation however egregious. And of course trial lawyers are trying hard to get the rule drastically weakened.
Taming the monster
Civil law, when it works well, can protect us from many, if hardly all, of the wrongs done to us in the outside world. It should also protect us from the wrongs that can be done in the courtroom itself: false accusation and false resistance to just legal claims. Fee shifting--forcing the losing side to pay for the opponent's legal expenses--is the ultimate answer to the problem of hit-and-run accusation. But a truly humane legal system could go further to avoid what might be called the vice of oversensitivity. The most useful burglar alarms aren't those that go off at the smallest vibrations; the law might well seek to absorb rather than transmit some of the inevitable shocks and stresses of living in a world full of other people.
One familiar way the law can install padding around its coercive machinery is by heightening its standard of proof. The customary standard for proving a civil case is a mere "preponderance of the evidence," or 50 percent plus a smidgen. Imposing a tougher standard across the board is unrealistic, but it can be done for specific types of cases. Michigan, for example, citing the need to keep children from being put through needless court fights, has provided that whoever wishes to reopen a settled custody case must prove by clear and convincing evidence that the child would benefit. Many states have raised the standard of proof in punitive claims, and at least one, Colorado, has set it where it belongs; at "beyond a reasonable doubt," the standard of criminal law.
A disinterested prosecutor sworn to public norms, not a contingency-fee lawyer, should be the one to press punitive charges. And complaints that don't specifically inform the defendant of the charges from the start should be out of bounds.
America is the litigious society it is because our lawyers wield unparalleled powers of imposition. No other country gives a private lawyer such a free hand to select a victim, tie him up in court on undefined charges, force him to hire lawyers of his town at dire expense, trash his privacy through discovery, wear him down on the perpetual-motions treadmill, libel him grossly in documents that become permanent public records, and keep him scrambling to respond to self-anointed experts. Other countries let lawyers or litigants do some of these things, but never with such utter impunity.
No great abuse was ever ended without a struggle. The industry that has sprung up around contention and accusation is powerful. It will not lightly give up its control of the machinery of judicial compulsion [Happily, you don' t need to worry about]. As individuals and as members of larger associations, we are most of us terribly vulnerable to the perils of litigation. Yet as a society, we're in no sense helpless to move against its evils. All it takes is will. The will may not be here yet, but it is coming. When it arrives, we will again make litigation an exception, a last resort, a necessary evil at the margins of common life.
How greedy can you get?
[excerpt on class actions from The Litigation Explosion]
By Walter Olson
Across the Board, July, 1991
* * *
The brief Associated Press item seemed like just another routine business-litigation story. It reported that the management of CBS, while admitting no wrongdoing, had agreed to pay $ 6 million to settle a claim by a disgruntled stockholder named Roger Minkoff, a resident of the U.S. Virgin Islands. Minkoff had sued the giant broadcaster, charging that its management had harmed stockholders' interests by repelling a 1985 takeover bid from the cable magnate Ted Turner and by paying too much for some of the magazine operations of the Ziff-Davis group in the same year.
Routine, yes, but just below the surface of the story were some odd angles. In the first place, rank-and-file CBS stockholders wouldn't be getting any checks in the mail; the bulk of the settlement, $ 4.5 million, was going into the CBS corporate treasury rather than, as one might expect, coming out of it. (In fact, the settlement was being paid by an insurance policy, not by the corporation itself.) The next surprise was that the aggrieved shareholder was not, as one might expect, an investor with enough of his own money in CBS stock to make such a fight worth pursuing. Minkoff actually owned a mere 15 shares, hardly enough to pay the postage in a lawsuit like this. As recompense for having gone to the trouble of suing, he was to receive $ 15,000 from the settlement, not bad for a holder of 15 shares (valued at $ 184 each) but only a sliver of the $ 6 million that was changing hands.
What happened to the other $ 1.5 million? Why, that went to Minkoff's lawyer, Richard Greenfield of Haverford, Pennsylvania, as legal fees per the terms of the settlement. And that explained everything. Greenfield is very, very well known in America's boardrooms. His firm has turned up as attorney of record in scores of other suits against American corporations whose common feature was that the legal fees billed vastly exceeded the sums recovered for the named clients.
* * *
For a long time people tended to see lawsuits as private quarrels between private parties for private gain. To the extent that the wider public had an interest in them, it was mostly in laying them to rest by clarifying responsibilities, so that the disturbance of the peace might end and life get back to normal.
This point of view was not very conductive to the emergence of an industry devoted to stirring up lawsuits for profit. But a new and much more suitable ideology now arose. Lawsuits (it now began to be urged) should be seen not just as ways to clarify the bounds between two private rights that might have come into conflict, but as campaigns to liberate people whose rights had been insolently trod on. In fact, even more important than to liberate existing victims was to deter future treadings-on of rights. The enforcing of good conduct through fear of being caught and punished was an acknowledged aim of the publicly enforced criminal law. Why not the privately enforced civil law as well?
You might call it the invisible-fist theory. In Adam Smith's famous account, the butcher and baker are led in their self-seeking as if by an invisible hand to further the general welfare: Private striving leads to public benefit. The bold new twist was the idea that private quarrels also lead to public benefit; the more fights you get into, the better a place you make the world for everyone else.
All this provided a sorely needed moral basis for the sue-for-profit industry, a basis that was to prove amazingly powerful in overcoming all sorts of nagging misgivings and lingering doubts legal entrepreneurs might feel about intensifying their efforts. If to litigate was to do the world a favor, then late-night lawyering ads were not at all in the same league as crass come-ons for vocational schools or wrinkle creams, but were more like public service announcements that broadcasters should probably be running for free. Direct solicitation? An even more commendable outreach program, providing door-to-door service. Just the same, the demand for litigation services still fell a long way short of what farsighted promoters knew it could be. No matter how well the persuasive apparatus might be honed, most persons with gripes still declined to fight, for the same varied reasons that people decline to fight with their fists: scruples, continuing relations with the designated adversary, disdain for the sport itself, or lack of stomach for its grueling ordeal. If the cannon fodder was not volunteering in the desired numbers, one option was to offer sign-up pay.
The contingency fee had already promised to take care of the client's major financial risk here, by assuring him that the biggest expense of a lawsuit, the lawyer's time, was nothing he had to worry about paying out of pocket. ("No fee unless successful.") Officially, clients are still responsible for the other miscellaneous expenses of a losing lawsuit. But all sides understand that in many of today's suits the lawyer is covertly gambling the expenses, as he is openly gambling the fee.
The next logical step is to pay the client cash on the barrel to sue or keep a suit going. Like so many promising promotional strategies in the litigation business, this one has been illegal under English common law: Furnishing money in exchange for all or part of someone's right to sue was a criminal offense called "champerty." The law sometimes permitted outsiders to buy and enforce an obligation where the obligated party had consented in advance to make it assignable. But experience with that process tended to confirm the mistrust. Dunning agencies that buy up overdue accounts and try to collect them are widely seen as several notches less scrupulous than the in-house billing departments of established merchants with good will to protect. There was little enthusiasm for extending the assignability idea to, say, divorce, libel, child-support, or car-crash claims.
And yet the logic of legal entrepreneurship points in that direction. Once lawyers feel comfortable taking a one-third share in a suit in exchange for forgiving their fee, why should they stick at taking a two-thirds share purchased by way of a direct payment to the client? After all, such a payment might enable the client to resist the otherwise seductive settlement offers of the opponent. Champerty has not yet been made lawful, but anecdotal evidence suggests that it is widespread.
Comparatively routine are fee-splitting arrangements in which the law firm that lands a client sells him to a second firm for a share of the eventual fee. This allows a division of labor between lawyers who are good at inciting litigation and those who are good at waging it. More creative financial techniques are on the horizon, as speculative legal practices find ways to secure outside financing for their inventory of grievance. A Los Angeles bank has joined with the local trial lawyers' association to offer a "client cost acount program" to fund the costs of lawsuits. The line of credit is nominally taken out in the client's name but the lawyer is the one who guarantees it; in exchange for fronting the money, the bank gets a lien against any recovery.
West Coast entrepreneurs have also been pioneering something called the syndicated lawsuit, in which venture capitalists chip in to build a war chest for a lawsuit in exchange for shares of any recovery. Such syndicates have spread especially fast in the world of patents, where they appear only a slight novelty: If it is proper to buy the full rights to an invention, why not buy just the right to sue people for selling allegedly patent-infringing products?
The syndication format is adaptable to many other types of lawsuit. Its most spectacular success thus far has come in a commercial suit. A syndicate bought a promissory note that the ComputerLand Corporation had issued in its start-up days and sued the company on the theory that the note was really intended to be convertible to vastly more valuable ComputerLand common stock. It convinced a jury of this theory and won a $ 125 million jackpot as well as a big equity stake in the successful retailer. Shares in the syndicate that had been offered originally at $ 10,000 skyrocketed to a trading value of $ 750,000. The organizing lawyer, rather like a Viking clambering aboard a rich merchant ship, even got to join ComputerLand's board of directors.
These trends have a logical culmination: unlimited public trading of lawsuit shares. Although a New York Verdict Exchange has not yet been set up to handle this new type of commerce, it may be closer than we think. For a while, investors who bought shares in Pennzoil were mostly buying a legal claim against Texaco to which a collection of refineries and miscellaneous assets happened to attach.
A stroke of legal innovation in the 1960s promised to go yet further in dislodging many inhibited claims.
The old law had long recognized an obscure type of lawsuit known as a bill of peace. It could be used when many persons had been harmed in the same way by the same offender. One of the earliest English cases, which perfectly illustrates the principle, was allowed against a shipowner accused of cheating a returning crew of its wages. The law could have handled the charges by holding a hundred (or however many) trials, and if the owner had lost the first cases he might not have fought to the bitter end. But why hold so many trials when the underlying issue was the same each time?
By the time the bill of peace had evolved into what we now know as the class action, it had some peculiar attractions for the aspiring drummer-up of litigation. Class actions permit recruitment and solicitation not just by ones and twos, but by carloads and counties. A client with some smallish complaint walks in, having seen the lawyer's flashing sign or matchbook cover; he turns out to be a human Klondike, because his injury is the same as that of a host of others with whom he can be joined in a class. But the rules made it hard to organize class actions. And so the rules had to be changed. A 1966 round of Federal reforms made it easier to organize actions involving very large groups. In 1974 the Supreme Court did away with a rule that had required the organizing lawyer to show a significant chance of winning on the merits. Group suits began to burgeon in the antitrust, employment, environmental, and welfare-benefits fields.
The American class-action lawyer can represent thousands or millions of people who have never seen or dealt with him, or one another, in any way: All the soldiers who fought in an overseas war, all the buyers of a certain car, all the consumers who might not have bought Perrier water had they known it contained infinitesimal traces of benzene, and so forth.
Under modern rules, members of a class are given a chance to opt out of the suit in their name by sending in a postcard, in the sort of "negative check-off" familiar to members of book and record clubs. Unlike other club members, however, members of the suit-of-the-month club do not save any money by opting out of the latest selection, and not many usually do so, especially since their own withdrawal would do nothing to prevent the suit from going forward in the name of everyone else. Like voters in one-party states, a few scratch the designated name off the ballot, and the rest get counted as client/supporters for no better reason than inertia.
The class-action lawyer does not of course have to pick as a client the first member of the outraged collectivity who happens along. In the age of legal solicitation, he can search out just the right one. Of the many class members, at least one may turn out to be the wonderfully obliging sort of client who leaves the case's management entirely in the lawyer's hands. It might be a cousin, an old college chum, or a colleague on the class-action circuit for whom the lawyer once did a similar service. The client may also have the grace to be qualified to sue in the state of judicial district that the lawyer considers most favorable to this kind of suit or hostile to this defendant. And through the miracle of the class action a million complainants who have never set foot in that sympathetic state or court district can also be brought in to benefit from its brand of justice.
Most notable was the class action's treatment of lawyers' fees. If the suit makes good, the lawyer can't very well (so the theory goes) negotiate with a hundred sailors or a thousand shareholders for his fee. Instead, he asks the court to deduct an appropriate sum from the total award or settlement before it gets distributed among the plaintiffs.
Judges are not as well situated to watch meters as paying clients, and when the fee request is presented to them at the end of the suit many feel uneasy about trying to reconstruct, without benefit of adversary process, how much lawyering should have been done in a case that may have lasted for years and has gone on mostly outside the courtroom. Once lawyers figure out what a court will tolerate, they somehow tend to pitch their fee requests around that level, and the effective contingency fee is complete. A substantial literature in the law reviews urges courts to move to an open percentage or bounty system.
Like many innovations making it easier to sue, class actions were recommended as a way to cut court costs. They soon grew monstrously expensive and complicated. As plaintiff groups got bigger they got more motley, and it got harder to pretend that the members had the same interest at all. Some lawyers began collecting on cases where thousands of claimants had only a few dollars at stake apiece, and law school visionaries began working on techniques to lump into a viable action nationwide claims of a penny or two per person. The reductio ad absurdum was reached when a court allowed a lawsuit against a labor union to go forward as a class action although every single member of the class except the named plaintiff objected to it.
Under the old taxi-hire conception, where the point of litigation was to protect the legitimate interests of the named client, outright disloyalty to that client's interests was a high sin. As lawyers increasingly became the real players in class and batch litigation, as clients came to seem a bothersome obstruction, a new ideology was needed to justify what was going on. The invisible-fist theory fit the bill perfectly by shifting the focus to the need to chastise the opponent and deter future misbehavior by those in a similar position. A defendant who ponied up a stiff settlement, after all, was just as effectively chastised and deterred whether or not the named client ever saw much of the money. Litigation where the lawyer or his friends kept much or all of the proceeds could thus be idealistically reconceived as a new and higher form of litigation, on behalf of the interests of future victims in general rather than any one past victim.
Before long it was being argued that the legal entrepreneur was really a new kind of public servant, the "private attorney general," who represented the interests of the citizenry at large (without being subject to any actual public account or control, of course) and who should thus be free, like the elected or appointed public prosecutor, to file his civil charges without the prompting or perhaps even the permission of injured persons. Not all charges would pan out, but even a losing suit had its virtues; it showed a sort of police presence in a doubtful area, and the act of stopping and frisking this defendant showed others that they were being watched.
The notion of awarding attorneys' fees to prevailing opponents is enough to trigger anxiety attacks in many American litigators, even those who are otherwise most hardboiled (especially in them, in fact). It reminds them uncomfortably of the distinctive, peculiar American exception on lawsuit costs. Other civilized countries, with few if any exceptions, agree that the winner of a lawsuit deserves to be reimbursed by the loser for much if not all of the costs of the suit. Everywhere else it would be considered astounding and insupportable to afford no relief to the person or organization dragged into a civil lawsuit for years, made to unveil its internal secrets, and then vindicated on all issues.
Only America fails to recognize this right of redress. Both prevailing plaintiffs and prevailing defendants suffer from this injustice. Because attorneys' fees are normally unrecoverable in this country, plenty of valid, airtight claims trade at much less than 100 cents on the dollar on the settlement market, and others cannot economically be pressed at all: reportedly in Manhattan it is hard to get some contingency-fee firms to look at claims below $200,000. One leading commentator sardonically observes that under the "American rule" it is always irrational to pay a debt or carry out an obligation in full once the other side has finished its performance. The imbalance creates a field day for the chiseler or defaulter in any line of work where money is pocketed before service is provided or vice versa: the sloppy building contractor, the flyby-night insurer, the crooked mail order house, anyone who lacks for one reason or another the strong aversion to being sued that most productive members of society share.
The contrary, "English" rule on costs, as it is called— though it might just as well be called the rest-of-the-world rule—seems so intuitively appealing that there must be another side to the story. If the American rule is so patently unjust, why did it ever take hold at all? And why has it lasted for more than a century?
Two arguments sometimes made for the American rule fail to impress on inspection. First, fee-shifting might appear to raise the stakes in a lawsuit by widening its range of possible financial outcomes, thus intensifying the combat and making litigation even more of a terror to private planning. Second, it might encourage the running up of lawyers' bills, given a case of preordained size, since clients may not watch a meter closely if they know for sure that the opponent will be the one who pays it.
It is hard to get observers from other countries to take these arguments seriously, since American lawyering is known around the world as hard-fought, uncertain, and expensive. The arguments are flawed theoretically as well. European systems typically hinge their finding of whether a litigant has "prevailed" on how close he came to achieving his demands. This furnishes a strong reason for litigants not to demand ten times more than they think the court is likely to give them. The resulting moderation of demands and sobering-up of exaggerations means that litigation inflicts far less financial uncertainty in Europe than here even when fee shifts are factored in. Fee padding is more of a potential problem, but allowing the losing opponent to litigate against the fee request sets up very heavy pressure against that abuse, and as we shall see below European systems arrange their fee-shift formulas so that even clients who prevail tend to be on the hook for many of their lawyers' marginal expenditures, giving them good reason to watch the meter.
What now may seem the most perverse feature of the American rule—its denial of fees to winning plaintiffs—may account for its original evolution. A rule against fee recovery hampers the pressing of claims that are not at all speculative, that are sure to win at trial; it hampers, in short, the pressing of valid claims. And that was apparently its foreseen and intended effect in early America. The backers of the original American rule were in large measure farmers and frontiersmen who wanted to stave off the enforcement against them of debts and mortgages about whose face validity there was no real doubt. Depending on how stringently the English rule was enforced in those days, the debtors might have had a point. Shifting all the costs of enforcing a valid claim can be almost unimaginably harsh. Debt collection is the classic example. A borrower has stalled or fallen behind, the lawyers swing into action, and before long they get a judgment against him for his two-hundred-dollar debt plus another eight hundred dollars in attorney fees. If every last dime in legal costs is recoverable from an opponent, lawyers can do a nice little business turning minor obligations into crushing burdens.
But European courts have found better ways to control such abuses than refusing fee recovery altogether. Their solution seems to be to low-ball the fee awards, so the winner can get back much but not all of what he paid his lawyers. In France some categories of costs cannot be recovered; in Britain the "taxing masters" (as the officials in charge of feeshifting are known) are relative pinchpennies; and so forth. Leaving a portion of costs to fall on the winner sacrifices some of the fairness and incentive considerations that make feeshifting so compelling in the first place, but the unpalatable alternative would seem to be the gross overkill of small claims. And in fact stinginess on winners' fee awards fits rather neatly into the view that litigation is an evil that should be discouraged. If courtroom strife is a costly and hurtful way of composing human differences, it makes sense to repress it to at least a small extent even for causes of undoubted merit.
Back in an era when most suits were predicated on a firm likelihood of success, the American rule probably cut down on the number of suits filed. What today seems strangest about it—that it actually encourages people to file doubtful and speculative suits—probably seemed like a relatively minor failing back then, if it was given much thought. An elaborate set of nonfinancial barriers still faced the feckless claimant, if not always the feckless claim-resister. In an age when pleading was strict, privacy until trial protected, home jurisdiction sacrosanct, legal solicitation forbidden, and so forth, the absence of one more major barrier to long-shot suits must not have seemed as significant.
But times have changed, of course, and the old barriers now lie flat on the ground. Rule 11, welcome as it is, does not in itself provide a comprehensive deterrent to wrongful litigation, or compensate all of its victims. And so the pressure to expand winners' fee recovery will inevitably grow.
In point of fact, it cannot be said that American law still hews to the principle of making each side pay its own costs. Feeshifting of one kind has already caught on in a big way, and now dominates wide tracts of the legal landscape. Unfortunately, it is a kind of feeshifting that shares the logic and neutrality of neither the English nor the American rule, while borrowing the litigation-stoking features of both. It is "oneway" shifting: the award of fees to winning plaintiffs but not to winning defendants.
The one-way fee, although perfected recently, was actually invented some time ago. A few such provisions were enacted in the last century, aimed at very rich and unpopular defendants: railroads and trusts. For many years the Supreme Court kept striking down these one-way laws, saying that they violated the constitutional rights of their targets and warning that once the principle was established a few wealthy institutions would not remain its only victims. Later it changed its mind and began upholding such rules. All its earlier warnings were then borne out.
Starting in the 1930s, picking up speed in the 1960s, and then going at feverish pace since the 1970s, lawmakers have loaded the statute books with these heads-I-win, tails-we're-even provisions. The usual practice was to proclaim a lopsided fee shift in new laws that were said to involve the "public interest." When you think of it, however, just about all the products of the legislation mills can be shipped under that self-congratulatory label. With the RICO law, to take one notable example, one-way fee shifts became available in many routine commercial disputes between businesses. Some have argued that the device is a suitable means of vindicating congressional policy in each and every law, the only practical problem being how to identify which side should be favored in each kind of case.
Courts have learned other creative ways to put just the right amount of English on the fee ball. One common interpretation is that a plaintiff has prevailed and should get fees if he wins on any issue or claim on his list, however minor, or drops his suit after the defendant alters his conduct in any way that could be interpreted as a concession. The defendant can prevail (without of course deserving fees) by stonewalling on all concessions and then winning on all contentions. "The determination of whether a litigant is a prevailing party," note the authors of one leading treatise, ". . . is guided by standards which differ markedly depending on whether the fee petitioner is a plaintiff or a defendant." Some courts began ruling that plaintiffs should get back attorneys' fees even when they lose, on the ground that by suing they had done a public service in helping to clarify legal issues, provide reminders of accountability, and so forth [INSANITY]. The Supreme Court decided in 1983, amid much gnashing of molars from the "publicinterest" bar, that that idea went too far.
All sides agree that one-way fee shifts to plaintiffs are meant to encourage litigation, and of course they have done just that. In the meantime, their widespread adoption has quietly undercut the chief practical argument against full, two-way fee shifting, namely that American courts are not used to calculating fees. Courts can no longer be thought to lack competence at setting proper fee levels; they do it all the time for victorious (and even hemi-demi-semi-victorious) plaintiffs. The only remaining step is to begin doing it for defendants as well.
The good news: A parasite dies with its host. When America suffers complete economic collapse, there will be no one left to sue.