The Civil Justice Reform War and Its Impact upon Business and Individual Rights
Wander, Lawrence A., Review of Business
There is a political war raging between the business coalition and the consumer/ legal lobby. Tort reform is making significant strides at state levels, and the time seems ripe for federal tort reform measures. This article discusses various areas of enacted and pending tort statutes both on a state and federal basis and their economic impact upon business and individual rights.
Civil justice reform, known as tort reform, has become a war between certain powerful coalitions over the past several decades. This struggle is aimed at influencing the U.S. Congress and state legislatures. A coalition of corporations and their insurance companies (including giants in the pharmaceutical, tobacco, automobile, oil, chemical and health care industries) is pitted against consumer groups, unions and lawyers. The underlying issue of this war is whether to limit the business entity's (the alleged wrongdoer's) liability to pay damages to victims by limiting their right to sue . This paper discusses various areas of enacted and pending tort statutes both on a state and federal basis and the economic impact upon business and individual rights.
Torts are civil wrongs, which in the United States are compensable through the award of money damages for economic and noneconomic losses. These laws permit persons to recover damages for harms or injuries caused by the wrongful actions of others. Economic losses would include out-of-pocket losses (such as lost wages) and non-economic losses such as pain and suffering. Noneconomic damages often make up the bulk of awards to non-wage earners such as children, homemakers and the elderly [1,4]. The purpose of tort laws is to provide compensation or remedies for the invasion of protected interests such as one's personal safety, property, privacy, family relations, reputation and dignity. Society compensates those who have suffered injury as a result of the wrongful conduct of others . The numbers of fact patterns upon which corporations and businesses can be sued in tort are infinite. "They include, but are not limited to, defective consumer products, assault and battery, invasion of privacy, negligence, defamation, unsafe work environment, interference with business rights, unfair competition, false imprisonment, infliction of emotional distress, environmental harm, appropriation, fraud, conversion, trespass and strict liability .
The risk of liability in tort is a crucial consideration in business planning and risk management. American tort lawsuits and actions in other countries can and do have significant economic international ramifications. Foreign corporations are often sued in U.S. Courts for product liability and other types of tort actions. In the current global business economy, businesses conduct transactions, involving goods and services, internationally. It is imperative that business managers be aware of the tort laws of other nations, the application of which may vary among the other nations of the world. For example, the European Union has a product liability directive (law), which holds producers liable for damages caused by defective products [6,14,17]. Product liability laws are emerging hi countries such as Japan, Australia and the Philippines and have been proposed in Malaysia. Other Asian countries grant rights under contract and tort law, as well as a developing body of consumer law. Businesses manufacturing, importing or exporting, on an international scale, must become aware of the changing laws in the Asian Pacific region .
Tort Reform or Tort Abolition
Tort reform proponents allege that the American civil justice system is out of control. They claim that this has been caused by lawsuit abuse, which raises file costs of consumer goods and services, lowers the quality of healthcare, decreases the availability of affordable insurance, eliminates jobs and discourages new technology [9,24]. The opponents of tort reform contend that business and insurance are using campaigns of misinformation, exaggeration and propaganda to restrict the legal rights of innocent victims and consumers, taking away significant power and authority from civil juries and judges. Further, if victims are not fairly compensated they will become wards of the state, paid by taxpayers as opposed to the wrongdoers (corporation) .
Despite the significant gains achieved by the tort reform movement, (since 1986 forty-five states and the District of Columbia have enacted tort reforms , and by mid-year in 2003 twenty states have enacted new reform legislation ) lobbies are favoring giving federal agencies more authority to regulate industries by preempting state claims. Examples include the Federal Insecticide and Rodenticide Act and the Medical Devices Act. These laws prevent many tort actions in these industries . An important issue involves the large number of federal laws proposed to alter the way lawsuits are handled under state law. The National Rifle Association is pressing for the passage of a tort reform law that would protect gun dealers and manufacturers from civil liability when guns they sell are used in a crime [10,23]. This raises the question of federalism and states' rights. Does Congress have the power to legislate in an area traditionally governed by the states ?
Tort reform proponents criticize the U.S. jury system claiming that verdicts are random inconsistent and are rendered, at times, contrary to the scientific evidence. Another complaint is based upon a study that jurors may not be able to comprehend complex evidence and may ignore expert testimony. It is argued that juries may award damages based upon sympathy, ignoring the evidence. It is their conclusion that judges are better educated, can request written arguments, consult outside experts, must justify their rulings in writing and are better equipped to handle civil trials .
Several common law countries such as the United Kingdom, Canada and Australia limit civil trials, as personal injury cases are handled by judges . Studies have shown that the American tort system imposes higher costs than in other countries . The problem with trying to eliminate any trials is that the U.S. and most state constitutions require civil juries if requested by any party to an action . The civil reformers' solution has been to limit damages by placing caps on jury awards for pain and suffering and by restricting punitive damage awards. However, State Supreme Court Judiciaries such as Ohio have held that limitations on punitive damages are an unconstitutional violation of the right to a jury trial . Several states whose legislatures enacted tort reform found such laws to be unconstitutional in whole or in part by the judiciary, as violating the separation of powers between the courts and the legislature . As a back door approach in the war on tort reform, the business coalition is now supporting judicial and state legislature candidates whose position is favorable to business and who would not easily overturn future tort reform laws.
Many common-law countries have adopted a loser-pay role where the losing party pays the fees and expenses of the prevailing party. The rule's purpose is to discourage the filing of speculative claims. The contrary argument is that it will reduce access to the civil justice system, especially for middle-class and low-income individuals. One possible solution is the use of insurance plans which would pay the costs of opponents' fees in losing cases .
Another area under attack involves attorney's contingent fees. The reformers call the tort system a lottery or strike-it-rich system as opposed to one designed to compensate innocent victims caused by wrongdoers' actions. They claim that lawsuits make a few layers wealthy while forcing safe products off the market . England and most other major countries do not have contingent fees .
President George W. Bush and the business and insurance lobbies continue to hammer away at their theme that many civil actions involve frivolous claims [8,15]. There are websites which list such frivolous actions . Further, the business coalition has used media coverage of any "frivolous claim" or excessive jury verdicts to mold public opinion and advance their goal of tort reform. The opposition asserts that their claims are exaggerated and often overturned by trial or appellate courts. Most states have enacted statutes which regulate the filing of frivolous lawsuits with penalties and sanctions . Lawsuits are usually a last resort with juries deciding what, if anything, a client merits.
One area under attack is punitive damage awards where juries award large sums of money against businesses. Proponents claim that these huge verdicts along with the fear of large punitive awards produce excessive caution by businesses, and this, in turn, hampers our free market system. Producers such as pharmaceutical companies may keep certain new drugs off the market due to such awards. One such example, commonly relied upon, is the reduction in the number of football helmet manufacturers. A counter position is that such large verdicts send a message to companies and punish companies for unusually outrageous conduct. Further, it is a message to others in the future not to use similar conduct. Some scholars believe that the fear of punitive verdicts keep products safer than government regulation . Public interest groups rely upon lists of products, such as Ford Pintos, which exploded upon rear contact or infant's sleepwear, which are now manufactured with non-flammable fabrics. Several states such as Florida, Georgia and Kansas have passed laws wherein plaintiffs receive only part of the punitive award. The balance goes into a State victim's fund. The Ohio Supreme Court, on its own, ordered that part of a punitive damages award would be paid into a charitable cancer research fund. The constitutionality of this remedy has been questioned . Business claims that lawsuits are destroying the value of investments and shareholder value. Punitive awards have been blamed for causing bankruptcies and forcing manufacturers out of business because angry juries have been provided with limited instruction . Finally, the United States Supreme Court has apparently attempted to rein in the increasing size of punitive awards. On April 7, 2003 the United States Supreme Court in the matter of State Farm Mutual Automobile Insurance Co. v. Campbell, No 01-1289, overturned a punitive damages award of 8145 million when the compensatory damages totaled $1 million. They ruled that the verdict violated the due process clause of the 14th amendment of the Constitution. While the justices refused to set a maximum ratio, the Court appeared to suggest a single-digit ratio between punitive and compensatory damages . European nations generally limit damages to compensatory damages with punitive damages virtually unheard of .
The most heated issue is the battle over the capping of awards for pain and suffering, punitive damages, and in the case of medical malpractice verdicts. Damage caps limit the amount of damages a jury can award. In Israel, non -economic damages are limited to cases of intentional conduct or gross negligence . Courts in countries such as Switzerland and Turkey may reduce damages if an award of full damages creates a hardship. In some Northern African nations, the amount of damages varies depending upon the type of tort and the degree of intent . In me U.S., the President and the Republican-controlled Congress have pushed for a $250,000 cap in medical malpractice cases, which was narrowly defeated in the Senate in recent months .
Other legal reforms which have been enacted, proposed, repealed, vetoed or found unconstitutional by the courts include limiting venues for lawsuits, product liability, joint and several liability, class actions, mass torts/asbestos claims, the collateral source rule, alternative dispute resolution and statutes of limitation. Venues for lawsuits or forum shopping limit the place where a person can bring a lawsuit against the business.
The following is a list of tort reforms:
Collateral Source Rule: Payments made to or on behalf of an injured party from sources unrelated to the party causing the harm, such as health insurance payments of the injured party's bills cannot be considered by juries to reduce the amount of the judgment .
Caps on Damages: Limited the amount of money an injured party can receive at trial (i.e., a general $250,000 limit; or using a formula such as a victim's life expectancy in years, multiplied three times by a sum such as $8,000 or a limit of 4 times the amount of the compensatory damages [1,4]).
* Caps on non-economic damages (i.e., pain, suffering, disfigurement, blindness, loss of fertility, loss of limb)
* Caps on punitive damages (to punish and deter outrageous, deliberate or harmful misconduct) [1,4].
Limiting Attorneys' Contingency Fees: A contingent fee agreement is a contract where the client pays nothing up front and the lawyer's fee, a set amount, usually a percentage of the net recovered, is paid only if a settlement or verdict amount is recovered . Proposals address sliding scales or capping amounts if settled within a specified period [4,20]. Contingent fees are typically 20% to 30% of the settlement or award.
Joint and Several Liability: Allows an injured party to recover from multiple tortfeasors collectively or individually. If three defendants are sued and two are bankrupt, the victim could recover the full amount from the solvent party regardless of the party's negligence .
Loser Pays: The losing party pays the costs and fees of the prevailing party .
Prejudgment Interest: Payment on the amount of interest which accrues to an injured party during the period from filing of an action to the date of the final award .
Product Liability Laws: Product liability law, common law or judge-made body of laws holds manufacturers, sellers and other parties strictly liable for defective products placed into the stream of commerce. Defenses have been created such as a presumption that a product is not defective if it complies with government standards, or compelling the victim to prove that an alternative design existed which is economically feasible to the cost of the malfunctioning product (i.e., installing a safety device would not cost more than the cost of the product itself). Also, protection is recommended for retailers who have done nothing to the product .
Statutes of Limitation: Laws which cut off the liability of manufacturers or sellers of defective products, medical personnel and other wrongdoers after a set period of time (i.e., 10 years) .
Structural Settlements: Laws allowing defendants to pay some or all of an award to injured parties over a long period of time, as opposed to the immediate lump sum payment .
Alternative Dispute Resolution: Allowing certain cases to go to binding arbitration before panels of judges, lawyers or experts in lien of the right to a trial by jury. In countries like Japan, where there are no contingent fees or class actions, most disputes are resolved by private arbitration and mediation .
Frivolous Claims: Sanctions and penalties paid by clients or attorneys who have tiled claims with no merit .
Venue Shopping: Limit the county or city where an injured party can file a lawsuit. In a product liability case, an injured party would not be able to sue a defendant manufacturer or drug company in a plaintiff-friendly county or city where the only defendant located there is a retailer [8,15].
Mass Torts: Laws to insulate or protect businesses and industries (such as the asbestos industry) by introducing federal legislation, controlling where to file, pretrial discovery, limiting attorneys' fees, scientific issues, and possibly, eliminating court adjudication .
Class Actions: Allow defendants to move major class action suits from plaintiff-friendly state courts to more restrictive federal courts . (Class actions are law suits in which one or more people sue on behalf of a larger group.)
Attorney "Sunshine" Legislation: Involves recoupment litigation (i.e., states suing the tobacco companies) where attorneys are paid huge contingent fees, hired without competition and who reinvest funds into the political process .
Appeal Bond Reform: States require huge bonds as a condition to appealing verdicts, some of which will be overturned or reduced on appeal and possibly forcing companies into bankruptcy .
Jury Service Reform: Making it more difficult for professionals and many jurors from excusing themselves from jury service .
According to the American Tort Reform Association's guide to civil justice reform as of June 2003, thirty-eight states have modified the rule of joint and several liability; twenty-five states have modified or abolished the collateral source rule; thirty-four states enacted punitive damage laws; twenty-two states have modified the rules for awarding non-economic damages; fourteen states have changed prejudgment interest; eighteen states have enacted product liability laws; five states have reformed laws pertaining to class actions; five states have adopted attorney "sunshine" legislation; twenty states bare adopted appeal board waiver legislation and three states have enacted laws reforming jury service .
Businesses must be aware of this political war between the business coalition and the consumer/legal lobby, especially with a Republican-controlled Congress and President. It is especially significant in light of a period of economic downturn, with low interest rates and rising unemployment. While civil justice reform continues to make great strides on state levels, clearly the time is ripe for federal tort reform measures such as class actions, asbestos and medical malpractice. Another area of national concern would be product liability protections.
With the emergence of the economically powerful European Union, business managers must become familiar with EU tort law. Also of great import is the change in the global marketplace. Former communist and non-market economies are changing to market economies and developing product liability, consumer and contract law.
(1.) American Tort Reform Association, web site, http://www.atra.org/June2003.
(2.) Audres, G.C. "Mutant Tort Bills," The Washington Times, July 24, 2003, http://www.washington times.com/oped/20030723-093859-4721r.htm.
(3.) Bernstein, D.E. "Procedural Tort Reform: Lessons from Other Nation," http:// www.Cato.org/pubs/regulation/reg19n 1e.html, 1997.
(4.) Center for Justice and Democracy website. http:www.centerjd.org/free/mythbusters-free/MB_glossary.htm.
(5.) Cheeseman, H.R. Business Law, 5th Ed., Pearson Education, Inc., N.I: 2004, 96.
(6.) Clarkson, K.W., R.L. Miller, G.A. Jentz, and F.B. Cross. West's Business Law Text and Cases, Thomson, 2004, 1055-1058.
(7.) Coyle, M. "New Battles to Come Over Punitive Ruling," The National Law Journal, April 16, 2003. http://www.law. com/jsp/article.jsp?id=1049943515993, The Cato Review of Business, Regulation, 1996 Vol 1.
(8.) Eilperin, J, "Curbs on Class Action Lawsuits Urged," Washington Post, http:// www.washingtonpost.com/ac2/wpdyn?pagename=article&node=&contentId=4A669, June 12, 2003.
(9.) Gasaway, R.R. "The Problem of Tort Reform: Federalism and the Regulation of Lawyers," Harvard Journal of Law and Public Policy, Summer 2002, Vol. 25, i3, 953 (11).
(10.) Gerber, M.S. "NRA Using Tort Reform to Fight Gun Controls," The Hill, http:// www.hillnews.com/business/012903_nr a.aspx, January 29, 2003.
(11.) Hofmann, M.A. "20 States Establish Tort Reform: Study," Business Insurance, July 14, 2003 http://www.businessinsurance. com/cgi-bin/news.pl?newsId=2602&bt=.
(12.) Hunt, A.R. "The Bogus Tort Reform Case," The Wall Street Journal, March 6, 2003, A13.
(13.) Inselbuch, E. "Contingent Fees and Tort Reform: A Reassessment and Reality Check," Duke University, School of Law, Spring-Summer 2001, v 64i2-3, 175.
(14.) Kellam, J. "Producer Liability in Asia Pacific," Ace Asia Pacific Insurance, Ltd. web site, http://www.linktoace. com/riskmanagement/pl_in-se _asia.htm.
(15.) Liptak, A. "Shot in the Arm for Tort Overhaul," The New York Times, Nov. 17, 2002, Sect. 3, 1.
(16.) Loeb, B.M. "Abuse of Power: Disregarding Traditional Legal Principles to Invalidate Tort Reform," Defense Council Journal, October 2000, v 67i4, 501.
(17.) Meiners, R.E., A.H. Ringleb, and F.L. Edwards. The Legal Environment of Business, 7th Ed., Minnesota, West Legal Studies in Business, 2000, 245.
(18.) Miller, R.L. and G.A. Jentz. Business Law Today, West Legal Studies in Business, 5th Ed., Minnesota: 2000, 111.
(19.) Nader 2000 Web site. "Tort Reform, In Great Detail," http://www.votenader. com/issues/tort.html.
(20.) National Center for Policy Analysis web site. http://www.napa.org/pd/law/lawb. html, 1996
(21.) Page, P. "Ohio Court Creates Charity Funded by Punitives," The National Law Journal, January 6, 2003, http://www.law.com/jsp/article.jsp?id=1 039054539840.
(22.) Sebok, A.J. and J.C.P. Goldberg. "The Coming Tort Reform Juggernaut: Are There Constitutional Limits on How Much the President and Congress Can Do In This Area," May 19, 2003, http://www.findlaw.com/sebok/200305 19.html,
(23.) Tierney, J. "A New Push to Grant Gun Industry Immunity from Suits," The New York Times, April 4, 2003, A 12.
(24.) United States Congress Joint Economic Committee website. "Improving American Legal System: The Economic Benefits of Tort Reform," http://www.house.gov/ jec/tort/tort/tort.htm.
(25.) Widener, R. and G.J Vogler. "Court Sanctions for Frivolous and Improper Litigation," http:www.acpronet.org/ pn/vol6-no2.html.
Lawrence A. Wander, The Peter J. Tobin College of Business, St. John's University…
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: The Civil Justice Reform War and Its Impact upon Business and Individual Rights. Contributors: Wander, Lawrence A. - Author. Journal title: Review of Business. Volume: 24. Issue: 3 Publication date: Fall 2003. Page number: 52+. © 2009 St. John's University, College of Business Administration. COPYRIGHT 2003 Gale Group.