James R. Copland, director of the Manhattan Institute’s Center for Legal Policy, has started a week of posts at PointofLaw.com on the Institute’s new contribution to its series on the excesses of the litigation industry, “Trial Lawyers, Inc. — K Street .” This edition focuses on the political and lobbying clout of the litigation industry and how it achieves its policy goals.

From Copland’s post today, he answers the question, why should we care? Quoting from the report:

The annual direct cost of American tort litigation–excluding much securities litigation, punitive damages, and the multibillion-dollar settlement reached between the tobacco companies and the states in 1998–exceeds $250 billion, almost 2 percent of gross domestic product. The indirect costs of excessive litigiousness (for example, the unnecessary tests and procedures characterizing the practice of “defensive” medicine, or the loss of the fruits of research never undertaken on account of the risk of abusive lawsuits) are probably much greater than the direct costs themselves.

Of course, tort litigation does do some good, and it does deter some bad behavior. The problem is that it deters a lot of good behavior, too. Indeed, the legal system does such a poor job of distinguishing between good and bad behavior that the high cost of litigation is effectively a “tort tax” paid by every American. The share of America’s economy devoted to lawsuits is far higher than that of other developed nations such as Germany and Japan. Yet America is hardly safer as a result.

See also Copland’s Wall Street Journal op-ed, “How the plaintiffs bar bought the Senate.”

The Manhattan Institute’s Center for Legal Policy has released another in its series of reports on the litigation industry, “Trial Lawyers Inc., K Street.” From the Message for the Director, James R. Copland:

With business groups now fighting back against Trial Lawyers, Inc.’s longtime grip on state judiciaries, the litigation lobby has turned its attention to state legislatures, where it is not only blocking tort reforms but working to expand its portfolio of litigation opportunities. Among other things, state legislators are authorizing new kinds of lawsuits, raising damage caps, and giving private lawyers authority to sue on behalf of the state.

Of course, the growth in federal regulation and law has made it necessary for Trial Lawyers, Inc. to lobby Congress as well. Thanks to large contributions, both to the Democratic Party and to individual legislators, lawyers have not only blocked most federal efforts at tort reform but are also working to coax goodies from Congress that pad their bottom line. Such efforts include:

• Lengthening statutes of limitations in employment law to make it easier to file discrimination suits;
• Spurring securities litigation by allowing suits to be filed against the vendors of corporations accused of fraud;
• Cutting contingent-fee lawyers a tax break worth over a billion dollars;
• Gutting arbitration contracts designed to encourage resolution of disputes that are too expensive to take to trial; and
• Allowing state juries to override federal regulations.

The full report is available here as a .pdf file (3MB). The Center’s “Trial Lawyers, Inc.” series is especially valuable as a thorough introduction to the political power and economic clout wielded by the trial bar — and the harm it does. The authors provide history, big picture, footnotes and economic analysis.

In a Feb. 8 op ed in The Wall Street Journal, “How the Plaintiffs Bar Bought the Senate,” Copland also put the U.S. Supreme Court’s decision in Citizens United v. FEC in the context, explaining why the trial lawyers were so incensed by the decision upholding First Amendment rights.

[For] those, like me, who view factions as inherent in democracy, the decision was welcome. Labyrinthine campaign-finance laws serve mainly to entrench incumbents and empower those special interests either exempted from regulation (i.e., the institutional media) or best able to navigate the maze of rules. Among the latter group, no lobby has been more empowered than the legal profession—specifically the trial lawyers.

More: John O’Brien, Legal NewsLine, Blog of Legal Times.

House Speaker Nancy Pelosi last Thursday unveiled the latest health care reform bill, the Affordable Health Care for America Act (H.R. 3962), with floor consideration possible even as early as Friday. Jennifer Ruben at Commentary reports the legal element, “A Gift for Lawyers“:

A friend points out a little nugget of absurdity and political mendacity in the Pelosi health-care bill. Remember Obama’s effort to try a “test” for tort reform? (We don’t actually need a test, since it has worked to lower medical malpractice coverage and help increase access to doctors in states that have tried it.) Well, Pelosi’s bill has an anti-tort-reform measure. On pages 1431-1433 of the 1990 spellbinder, there is a financial incentive for states to try “alternative medical liability laws.” But look — you don’t get the incentive if you have a law that would “limit attorneys’ fees or impose caps on damages.”… [This] will go a long way toward ensuring that tort lawyers remain rich, malpractice insurance remains high, and unnecessary defensive medicine remains a fixture of the health-care system.

• The Hill, “House healthcare bill cuts incentives to states that cap attorney fees, damages.”
• James Copland, Manhattan Institute, New York Post, “Tort-Bar Treat”
• Stanley Goldfarb, M.D., Weekly Standard, “The Malpractice Problem — We can’t have health care reform without tort reform.”
• Lawrence McQuillen, Pacific Research Institute, Wall Street Journal, “CBO Underestimates Benefits of Malpractice Reform.”
• Dennis Prager, “A Society that Venerates Lawyers More than Doctors”

Walter Olson of the Manhattan Institute summarizes the many deleterious affects of the Consumer Product Safety Improvement Act in the prime editorial spot, the Wall Street Journal’s opinion pages. The news peg is last Thursday’s hearing by a subcommittee of the House Energy and Commerce committee, where only Inez Tenenbaum, chairman of the Consumer Product Safety Commission, was invited to testify.

From “A Destructive Toy Story Made in Washington“:

This law has saddled businesses with billions of dollars in losses on T-shirts, bath toys and other items that were lawful to sell one day and unlawful the next. It has induced thrift and secondhand stores to trash mountains of outgrown blue jeans, bicycles and board games for fear there might be trivial, harmless—but suddenly illegal—quantities of lead in their zippers and valves or phthalates in their plastic spinners. (Phthalates are substances that add flexibility to plastic.) Even classic children’s books are at risk: Because lead was not definitively removed from printing inks until 1985, the CPSC has advised that only kids’ books printed after that date should be considered safe to resell.

Olson also follows up on the underreported angle of the law’s depredations, the product label requirements.

(The) law’s latest shock hit businesses on Aug. 14. That’s when the law’s tracking-label mandate went into effect, requiring that makers of childrens’ goods “place permanent, distinguishing marks on the product and its packaging, to the extent practicable.” The idea is to facilitate recalls and make it easier to trace safety problems. The result will be to capsize yet more small businesses.

In an opening statement at the committee hearing, Chairman Henry Waxman (D-CA) could only bring himself to say that implementation of the CPSIA had been “uneven”:

Now that we are a year away from the recalls, and the most dramatic stories have left the front pages, some suggest that we didn’t really need to enact such a strong law. But the fact remains that the system we had in place was a failure. This law was necessary to protect kids and families across the country.

To retreat now from the proven consumer protections achieved under this law would be a huge mistake.

Is there any wonder that the public is suspicious of other major “reforms” a la health care? In the case of the CPSIA, we have members of Congress and their allies among the “consumer activists” who are so ideologically attached to the legislation that they refuse to countenance any changes to fix the law’s overrreach or to save businesses.

Sen. John Cornyn (R-TX) held a Senate Republican Conference (i.e., partisan) hearing Monday, “Protecting Main Street Jobs From Lawsuit Abuse,”  highlighting the absence of any serious consideration of legal reform during the 111th Congress. From Cornyn’s opening statement:

As the president talked today about his efforts to help small business, it’s important to acknowledge that litigation costs can have a disproportionately high impact on small businesses and their ability to retain and hire new employees. Large corporations usually carry significant insurance and have robust budgets to cover the litigation costs, but smaller businesses may find that one lawsuit can result in legal fees approaching a year’s revenue. And that’s even if you win the lawsuit in the end.

Small entrepreneurs who are netting $100,000 a year after taxes and payroll are prospering and likely creating jobs, but that $100,000 can easily be destroyed by legal fees from even one lawsuit. Too often for American Main Street businesses, the costs of being sued, even if the suit lacks merit, can be tantamount to a death sentence for their business.

Nevertheless, the leadership of this Congress seems oblivious to these facts and determined, to reward political allies and benefactors in the trial bar by passing legislation designed to not decrease but rather increase the number of lawsuits in America.

We have three posts on the hearing over at the Point of Law website sponsored by the Manhattan Institute.

• “Senator Cornyn: Expect attack on Class Action Fairness Act“
• “Testimony from the Senate GOP hearing on legal ref.rm”
• “Philip Howard: Bills to watch for (watch out for!) in Congress“

Ted Frank of the American Enterprise Institute, who testified, wrote about the hearing at Overlawyered.com, “On C-SPAN tonight: ‘Protecting Main Street From Lawsuit Abuse’”

Both Frank and Howard’s statements provide excellent summaries of the economic and personal harm caused by meritless and frivolous lawsuits. Highly recommended.

Walter Olson of the Manhattan Institute joins host Mike Hambrick on “America’s Business” radio program this week to talk about the legal and regulatory headache that is the Consumer Product Safety Improvement Act.

We’ve linked to Walter’s Overlawyered.com posts quite a few times in recent days, as he covers the grassroots reaction from entrepreneurs and others — toy makers, clothing manufacturers, even thrift stores — who discover that the CPSIA’s testing requirements are onerous and expensive and will force the removal of many items from shops. (Stock up now for your child’s First Communion, because the products are going away.)

For the full interview as an .mp3 file, click here. And marvel at the excesses that result when Congress legislates in excited response to “consumer groups” stirring up a media frenzy.

We’ll have the full America’s Business program up later this evening.

Marie Gryphon of the Manhattan Institute is a guest on this week’s NAM-sponsored radio program, “America’s Business with Mike Hambrick,” discussing her new paper, “Greater Justice, Lower Cost: How a ‘Loser Pays’ Rule Would Improve the American Legal System.”

From the executive summary:

Loser pays, sometimes called the “English rule” but actually, in essence, the rule in place in the rest of the world, refers to the policy of reimbursement by the parties who lose in litigation of the winners’ legal expenses, including attorneys’ fees. This study argues that loser pays could be an important part of a larger effort to reduce litigation costs, better compensate prevailing litigants, and better align tort law with its goal of deterring socially harmful conduct. A loser-pays rule would discourage meritless lawsuits, but because any such rule should also ensure plaintiffs of modest means but strong legal cases access to justice, our proposal calls for:

1. A robust litigation insurance industry similar to those that now exist in other loser-pays countries; and
2. A cap on recoverable fees to eliminate the incentive that large litigants might have to attempt to “buy a verdict” under loser pays.

This study explores in depth how a loser-pays rule would change litigation in America. It includes key findings about the likely effects of loser-pays reform and evaluates previous experiments with loser pays in America.

We’ve uploaded Marie’s interview into a separate soundfile, which you can listen to or download here.

New to us was the argument that the system has already worked in the United States in two states, Alaska and Florida:

In Alaska, which has always had a loser-pays rule, tort suits constitute only 5 percent of all civil legal matters—half the national average.

The asbestos litigation machine hit a major obstacle last week thanks to a ruling in Michigan by Wayne County Circuit Judge Robert Colombo. Judge Colombo threw out medical evidence and expert testimony from Dr. Michael Kelly, a Lansing internist and occupational medicine doctor who has diagnosed thousands of patients with asbestos-related ailments.

Acting on a motion by the company, Sure Seal, Colombo’s ruling affects puts into doubt 2,131 asbestos lawsuits on his docket. As reported the Detroit Free Press, it could also have national ramifications, according to asbestos expert Lester Brickman, a law professor at the Benjamin N. Cardozo Law School at Yeshiva University in New York: “It is the first time in the history of the biggest litigation ever that a judge has excluded the diagnoses of a physician on the basis that they did not meet the standards of reliability set by the U.S. Supreme Court for expert testimony.” An earlier Detroit Free Press article covers the arguments, “Asbestos diagnoses defended.”

The Wall Street Journal editorialists also examined the Wayne County litigation involving the asbestos-diagnosing Dr. in a November 10 editorial, “Michigan Malpractice”:

Of the 91 asbestos cases Judge Colombo was set to oversee this month, Dr. Kelly provided a diagnosis in 80. In addition to giving the judge a broad picture of Dr. Kelly’s work, defense attorneys also retained two respected pulmonologists to review specific cases. Jack Parker, who spent years at the Centers for Disease Control, provided the court with a blind study in which independent X-ray readers found an abnormality in only one of 68 (1.5%) X-rays that Dr. Kelly read. Dr. Kelly had found abnormalities in 88% of those X-rays.Judge Colombo, who has been the state’s asbestos judge since the early 1990s, initially balked at diving into this medical evidence — suggesting he preferred a quick and easy settlement. But in the face of evidence that up to 90% of the cases in front of him were fraudulent, he ultimately relented and last week agreed to a hearing on Dr. Kelly. At which point something astonishing happened. Within 24-hours of the judge’s decision, the plaintiffs attorneys voluntarily pulled all but one of the suits. They clearly have no interest in subjecting their “doctor,” and his methods, to judicial scrutiny.

The asbestos litigation machine has long depended on things like mass diagnoses and a few favored doctors to stack up absurd legal claims.

Sometimes, the machine even invents them. The American Justice Partnership’s latest issue of “Legal Shakedowns and Scandals” examines the case of Dr. Oscar Frye, who diagnosed a West Virginia employee of CSX with asbestosis.

The phantom Dr. Frye seems to be the concoction of Chambers, who submitted the fraudulent medical report to his lawyers.5 The attorneys failed to verify the authenticity of the report before filing suit against CSX.

The personal injury firm that filed the Chambers case, Robert Peirce & Associates, reacted to the allegations by claiming no knowledge of the fraudulent acts and by withdrawing from its representation of Chambers.

Highly recommended on this topic: The Manhattan Institute’s “Trial Lawyers Inc. Asbestos” report, “A Report on the Asbestos Litigation Industry, 2008.”

Yes, the asbestos litigation machine has bankrupted scores of companies. But it’s important to remember that all the scams, false diagnoses, billing excesses and plain fraud do a profound disservice to those who have suffered from illness and even death from real cases of asbestos exposure.

Over at Walter Olson’s Point of Law site, we mark the 10th anniversary of the tobacco master settlement agreement, the agreement between the state attorneys general and the tobacco companies to pay the states billions of dollars, limit advertising and otherwise accede to government control in exchange for limits on litigation. The focus of the week’s worth of posts is the vast transfer of wealth and political power the agreement made to the country’s trial lawyers, with a commensurate arrogation of the legislature’s policymaking authority by the attorneys general.

• Master & Settlement: Coughing at the 10th anniversary
• Master & Settlement: The many related issues
• Master & Settlement: General Tobacco sues AGs, competitors
• Master & Settlement: Budgets, bonding and bailouts
• Master & Settlement: Tobacco foes want even more money
• Master & Settlement: Ten years of advocacy and more litigation

Olson, a senior fellow at the Manhattan Institute, makes the tobacco settlement a major theme of his book, The Rule of Lawyers.

In a post Monday, “Buck Up, Lads,” we took note of reports that British manufacturers are discouraged, with their confidence level at the lowest point since 1980.  Back then, unemployment, labor unrest, the lack of even basic provisions following years of radical Labor leadership had driven the productive sectors of the economy into despair and disrepair.

But then Prime Minister Margaret Thatcher, elected in 1979, moved forward with deregulation, privatization and market-oriented reforms, which, when accompanied with a clear vision in foreign affairs, restored not just the British economy but British pride, too. (A rough outline, to be sure.) So much of that progress involved taking back control of the economy from the trade unions. Lessons to be learned, we suggested.

Claire Berlinski, writing at the Manhattan Institute’s City Journal, also recognizes the parallels with today’s financial crisis and describes in more details the steps taken by Thatcher’s government to revive Britain’s economy. From “Here Come the Unions“:

For obvious reasons, Thatcher put reform of the trade union law at the top of her agenda. Among the key provisions of Britain’s 1980 Employment Act was a change in the way government would recognize unions. At the time, workers voted to join unions—or not—in public, by voice vote. Dissenters suffered harassment and physical intimidation. Henceforth, Thatcher decided, new union membership agreements would require approval by means of a secret ballot in order to protect rank-and-file workers from bullying by union organizers. If allowed to vote secretly, she believed, ordinary workers would not vote for policies against their long-term interests—such as pay raises so incommensurate with production as to render British businesses uncompetitive, or strikes so prolonged as to make even the Soviets unwilling to buy British goods.

Thatcher was right. As soon as the secret ballots were introduced, many workers began defying the trade union leadership and rejecting the unions’ ruinous policies. When she had taken power, Britain was the second-poorest nation in Europe. Her reforms led to the longest sustained period of British economic expansion of the postwar era. In the past decade, as a direct consequence of her augmentation of labor-market flexibility—in layman’s terms, her smashing of the trade unions—the Organisation for Economic Co-operation and Development has ranked Britain at the top in both output and inflation stabilization.

And now U.S. organized labor seeks to destroy the secret ballot through enactment of the Employee Free Choice Act, the greatest power grab by labor since the Wagner Act of 1935. The passage of card check legislation is seen as the first of many steps: Expand union membership, used the increased income from membership dues for political purposes, and push for more legislative victories – legalizing secondary strikes, banning right-to-work laws, and more.

It will be hard to undo the damage. Berlinski:

The long-term consequences of EFCA passage are perfectly predictable: some companies will go out of business or relocate overseas. Some of the workers whom the legislation is designed to protect will lose their jobs. Nor will it be easy to undo the law once it’s passed, since no one who acquires power gives it up easily. In Britain, during the 1984 miners’ strike, wresting power from the unions nearly led to civil war. Thatcher ultimately crushed the National Union of Mineworkers, but the human and economic costs of the strike were staggering, and the violence of the conflict stunned the British public.

Coming to the United States if the Employee Free Choice Act is passed.