Attack of the Trial Lawyers

With tort reform on hold in Washington, Corporate America finds itself on the defensive in the states

On the issue of tort reform, last year's Presidential candidates presented a stark contrast. Al Gore was against it and got almost every dime contributed by plaintiffs' attorneys. George W. Bush was for it and raked in millions from powerful litigation targets such as Big Tobacco, drugmakers, and insurers.

Since Corporate America bet on the right guy, you'd expect it to be winning the war to cut down on lawsuits. But that's not the way things are turning out. While Bush is still committed to tort reform, the issue is all but dead on Capitol Hill this year. What's more, it looks unlikely that in the near future W. will be able to push through any legislation that seriously tilts the balance of power in courtrooms in favor of big companies.

Meanwhile, as tort reform languishes in Washington, plaintiffs' lawyers are on the verge of winning an important victory in the states. Feeding off outrage over last year's Firestone tire debacle, they are expected to win legislation in California barring companies from striking secret settlements with injury victims and making it harder to preserve the confidentiality of corporate documents turned over in litigation. Similar proposals are under consideration in 12 other states. Defense attorneys are worried that the legislation will make it tougher for companies to shield sensitive internal information, giving their opponents a huge tactical advantage in the courtroom.

Bottom line: The plaintiffs' lawyers are winning the battle over tort reform at a time when they were supposed to be on the defensive. This turn of events is causing consternation in executive suites across the country. It's also leading to some soul-searching about why tort reform doesn't have wider public support. "We have not done a good enough job making the case for legal reform," says Steven B. Hantler, assistant general counsel at DaimlerChrysler. He argues that clamping down on litigation would lower corporate costs, thereby helping consumers. But he acknowledges that "the trial lawyers have done a better job of convincing people that [tort reform is] just a coverup for companies that want to escape responsibility" for misdeeds.

This pessimistic mood is quite a change from last year. When Bush was on the campaign trail, execs hoped far-reaching tort reform would be just a matter of time if he won. High on the wish list was legislation forcing the losers of tort lawsuits to pay for the other side's legal expenses--known as "loser pays," making it riskier to take on giant defendants. Corporate lobbyists also wanted caps on punitive damage awards.

At the moment, these proposals seem impossibly out of reach. In fact, the only reforms that seem attainable in the next couple of years are marginal changes in rules governing class actions. Companies hope to win support for laws that would make it easier for them to move class actions that have been filed in state courts into federal courts, which are generally friendlier to large corporate defendants. But that measure doesn't do much to excite executives. "It's a modest reform at best," says Robert W. Pike, executive vice-president of Allstate Insurance Co.

LOST PALS. The main reason the prospects for federal tort reform are so gloomy is the Senate. Last year, some of the chamber's most ardent crusaders on the issue lost their reelection bids. With the Senate split 50-50, the GOP is far short of the 60 votes it would need to break a Democratic filibuster.

But the Senate isn't the only problem. For one thing, grassroots support for major tort reform isn't as widespread as Corporate America might have hoped. The Ford-Firestone tire debacle is only part of the reason. Many of the industries targeted by plaintiffs' lawyers, including tobacco, HMOs, and drugmakers, are not especially popular with voters. Whenever a particular reform is proposed, tort lawyers counterattack by portraying it as an industry bailout. For legislation to pass, says Robert E. Litan, director of economic studies at the Brookings Institution, "it can't be seen as pro-tobacco or pro-gun industry."

Anger at Big Business is also driving the California legislation. Some state lawmakers believe the Firestone tire problem would have come to light much sooner if the company hadn't reached secret settlements with victims who filed the first lawsuits. Legislators also remember that insurers struck confidential deals with some homeowners who suffered property damage during the 1994 earthquake in Northridge, Calif.--thereby preventing other policyholders from discovering they could make similar pacts. So there's broad support for banning secret settlements.

Most companies say they can live with that. But they are dismayed by a proposal tort attorneys have piggybacked on it. The provision would make it harder to obtain protective orders, which companies seek to keep opponents from publicizing documents handed over in litigation. Specifically, defense lawyers would have to prove that their clients have an "overriding interest" in keeping the material private. That's tougher than the current standard, which only requires them to show they have "good cause" for secrecy.

REARGUARD ACTION. The proposed California law, companies say, would make it more difficult to protect the confidentiality of marketing documents, pricing data, long-term strategic plans--everything but clearly proprietary trade secrets. "It is an unfair edge," claims Los Angeles litigator Michael K. Brown. "For $194, you can go to the courthouse, file a complaint, allege something is wrong, and then all this information becomes public."

Supporters of the bill, including the California Newspaper Publishers Assn., don't see anything wrong with that. If an embarrassing document surfaces in litigation, they argue, then it shouldn't be suppressed. Rather, the company should offer up more documents to put it in perspective. "What are they so afraid of?" asks Bruce Broillet, president of the Consumer Attorneys of California. "The lawsuits they're worried about aren't the frivolous ones. They're worried about the serious cases that involve people's lives and well-being."

Corporate lawyers dispute that point, but right now they appear to be losing the battle in California. Moreover, they're in a rearguard action to block similar laws elsewhere. That's hardly the position they thought they'd be in when Bush took the White House.

By Mike France in New York, with Dan Carney in Washington

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