How a Business Lobby Plans to Stick It to Plaintiffs' Lawyers

Curious about what corporate interests hope to change in the civil justice system? A good place to find out is the annual state legislative conference of the American Tort Reform Association (ATRA), which is wrapping up today in San Diego.

The highlights—or lowlights, I suppose, if you’re a plaintiffs’ attorney—include reining in “phantom” medical-malpractice damages, rolling back an unusual liability law in New York much despised by building contractors, and gaining more influence within a low-visibility advisory body that produces “restatements” of the law cited by judges.

The overall theme of the conference was straightforward. By “tort reform,” ATRA and its corporate constituents mean fewer lawsuits against manufacturers, hospitals, and other employers. According to the Washington-based group, excessive litigation inhibits legitimate business, costs jobs, and drives up consumer prices.

ATRA’s opposite number, the American Association for Justice (AAJ)—formerly known, until it was rebranded, as the Association of Trial Lawyers of America—argues that tort reform is a cover for insulating corporate wrongdoers. According to AAJ, lawsuits alleging product defects, negligent medical care, and job discrimination merely seek compensation for victims who’ve been harmed.

The dispute won’t get resolved soon or probably ever, given the clashing interests: trial lawyers’ desire to collect big contingent fees, and corporate defendants’ aspiration to avoid big awards and settlements. Often lost in the heat and dust of this perennial fight is the true interest of consumers, but that’s a topic for a longer dispatch than this one.

At the tort reform meeting in San Diego, many attendees represented state-level activist groups with some version of “Citizens Against Lawsuit Abuse” in their name (as in California Citizens Against Lawsuit Abuse). These corporate-backed affiliates of the national ATRA want to see citizens of their states suing less and getting smaller damage awards when they do sue. Other participants represented big corporations frequently targeted in court—companies such as Exxon Mobil, Ford Motor, General Electric, Georgia-Pacific, Merck, and Pfizer, to name just a few. (Disclosure: In addition to taking notes wearing my Bloomberg Businessweek hat, I donned my independent author’s chapeau to give a talk about my new book, Law of the Jungle.)

The mood at the gathering was upbeat, reflecting Republican success in the recent midterm elections and the expectation that plaintiffs’ lawyers, who typically back Democrats, will have to play defense for at least the next couple of years. Here are some of the goals ATRA members discussed:

• Influencing the American Law Institute: The ALI, little known outside of elite legal circles, is an influential body of law professors and practicing attorneys who generate “restatements” of large areas of law. For example, ALI restatements provide overviews of contract law, tort (or injury) law, and even the law governing lawyer conduct. ALI seeks to simplify and clarify the evolution of legal principles, and its publications are frequently cited by judges—not as binding precedent, but as persuasive authority to reinforce judges’ analyses of particular cases.

Victor Schwartz, ATRA’s general counsel and a partner with the law firm Shook Hardy & Bacon, gave a talk in which he exhorted tort reformers to get more active in ALI as a way of shaping judge-made common law. A life member of ALI, Schwartz explained that historically, practitioners and scholars sympathetic to the plaintiffs’ side have dominated the advisory group’s proceedings. “We have to catch up,” he explained in an interview. “I need more help at ALI if we’re going to counterbalance the trial lawyers.”

&bull: Curtailing “Phantom Damages”: Hospitals commonly bill patients at inflated rates, knowing that insurance companies will impose drastic discounts. When calculating damages in medical malpractice cases, some judges refer to the larger figures on hospital bills rather than the amounts insurers actually pay out. The difference—the “phantom damages”—inflate awards for intangible harms such as “pain and suffering,” Lee Mickus, a partner in Denver with the Snell & Wilmer law firm, said in another talk. Larger awards in the tiny minority of cases that go to trial pump up the value of settlements in the vast majority of disputes that settle out of court, he added. By his count, 21 states and the District of Columbia permit phantom damages.

Mickus urged his listeners to lobby state legislatures to ban the practice. “This is the single biggest opportunity to make a real practical difference” in the area of medical malpractice, he said.

• Dismantling New York’s “Scaffold Law”: Unique among the 50 states, New York has a 19th-century statute on the books that allows building contractors to be sued and held strictly liable for worker injury, regardless whether the employer was actually at fault. While plaintiffs’ attorneys, allied with certain unions, have fended off attempts to curtail or repeal this so-called scaffold law, the ATRA audience was told that contractors expect to make a legislative breakthrough in 2015.

In what was indisputably the most lively presentation of the entire conference, the Reverend Jacques DeGraff of the Alliance for Minority and Women Construction Businesses said that tearing down the scaffold law constituted an opportunity for small companies owned by nonwhites to cooperate with larger white-owned concerns. “We’re here because we want to make some money,” said DeGraff, who is African American. He said he’d been branded a sellout in black and Democratic political circles for allying himself with the Associated General Contractors of New York and the Lawsuit Reform Alliance of New York. “I’ve never taken a dime,” DeGraff said with evident emotion. Opposing the scaffold law was an opportunity for racial “bridge-building,” he argued, adding: “The people who defeated apartheid in South Africa and apartheid in America are not afraid of some trial lawyers.” That line elicited a loud ovation.

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