Tag: tort reform

Legally Insane: Trial Lawyers Abuse the System on the Gulf Coast

The American public does not hold attorneys in high esteem. For every one Ben Matlock, there are at least two Lionel Hutzes or Saul Goodmans.

And perhaps nowhere do real-life attorneys come as close to their pop-culture caricatures than in Louisiana. The bayou is a breeding ground for enterprising trial lawyers who don’t let facts get in the way of a multimillion dollar jackpot. Their nicknames say it all: “The King of Torts,” “The General” and, of course, “Alligator Mick.”

The tort bar feeding frenzy has now set its sights on BP, which has diligently made amends following the Deepwater Horizon oil spill three years ago. So far, BP has paid more than $10 billion to satisfy claims of individuals, businesses and government and more than $14 billion for clean up.

Nevertheless, there are those who want to abuse the system and collect money they don’t deserve. Due to an egregious misreading of BP’s agreement settling claims against it, businesses that were not harmed by the spill have rushed to empty the company’s pockets.

For example, one rice mill 40 miles from the cost earned more in 2010—the year of the spill—than it did in the previous years. It received $21 million from the settlement administrator under this absurd interpretation of the agreement.

An alligator farm received almost $17 million, a sum that assumes the company would have tripled its profits.

Even businesses that have a tenuous (at best) connection to the Gulf are getting a piece of the action. A car dealer 100 miles from the coast collected $1.45 million. A law office in central Louisiana made more in 2010 than it did in previous years; it still got $3.3 million for its “losses” as a result of the spill.

And the list goes on.

Considering that there are injured parties who actually deserve compensation, you might think there would be widespread outrage about bad actors cutting in line. You’d be wrong.

Says one Lousiana attorney in Businessweek recently (in the appropriately titled piece, “How BP Got Screwed on Gulf Oil Spill Claims”):

“This is Louisiana, after all,” says Danny Abel, a longtime New Orleans plaintiffs’ lawyer not involved in the case. “A big foreign company with deep pockets and you’re surprised there’s a feeding frenzy? Come on, man.”

That’s just not right.

BP is now going to court to rectify this situation and fix the injustice, and there’s more at stake than just the company’s bottom line. When individuals abuse our tort system, everyone loses.

Not only is it unfair to deserving victims, it also drags down our economy. Tort costs drag down our economy—to the tune of about 2 percent of GDP—and make our country less competitive, hurting manufacturers from Baton Rouge to Bar Harbor.

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Threat of Frivolous Lawsuit Only Hurts Our Competitiveness

Today in Seattle the Sierra Club and several other environmental groups announced they intend to file a lawsuit against BNSF Railway and several coal companies over the unprecedented claim that they spill coal into Washington state waterways as a violation of federal law. The continued transportation of our nation’s energy resources is vital to the competitiveness of manufacturers and supports jobs. Lawsuits like this continue to jeopardize our nation’s competitiveness and drives up the cost of manufacturing in the United States.

The Associated Press spoke to Dr. Roger McClellan, past chairman of the Environmental Protection Agency’s clean air scientific advisory committee made the following statement regarding on the issue:

Dr. Roger McClellan, a past chairman of the Environmental Protection Agency’s clean air scientific advisory committee, said “the mere presence of coal by a railroad track or in the water is not a health hazard.”

BNSF said in a statement they are committed to preventing coal dust from escaping while in transit and that the company has safely hauled coal throughout Washington for decades without a single complaint. It is very peculiar that the groups made this announcement of their intent to sue as debate heats up over coal export terminals in Washington state, which would create thousands of construction jobs and help export energy resources. It’s clear that today’s announcement is another way to try to impact the review process of the export terminals.

Manufacturers are committed to protecting the environment and are leaders in sustainability. Threats of lawsuits such as this just make it harder for manufacturers to compete, drive up energy prices and ultimately hurt our economy and jobs.

 

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Interesting Consensus in Texas

Texas Governor Rick Perry has signed legislation intended to deter frivolous lawsuits–so-called loser pays legislation.

Usually, this kind of thing gets trial lawyers riled up, and this occasion was no different.  The Wall Street Journal‘s Law Blog reports,

Texans for Lawsuit Reform, a pro-business group, hailed the measure, saying in a statement that it was “bitterly opposed by the Texas Trial Lawyer Association until the last minutes of deliberation.”

But what about those last minutes of deliberation?  It turns out that the final bill received the support of both the legal reform group and the trial lawyers.  The Texas Lawyer explains,

Groups that previously fought on opposing sides — Texans for Lawsuit Reform and the Texas Trial Lawyers Association, among others — lined up in support of Committee Substitute House Bill 274….

Speaking in interviews before the Senate passed the bill, Mike Gallagher, past president of Texas Trial Lawyers Association and Alan Waldrop, outside counsel for Texans for Lawsuit Reform, shared their views on the committee substitute.

“It’s obviously much better than the House version,” said Gallagher, who said he participated in “heated negotiations” over the substitute bill. He said he thought the Senate would not pass loser pays without trial lawyers’ input.

It’s not often you see those two groups joining hands.  Nevertheless, tort reformers seem optimistic.  See here for example.  And here’s a more tempered view of an earlier, less watered down version of the bill.

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Tort Costs, a Competitive Disadvantage

The House Judiciary Subcommittee on the Constitution held a hearing Tuesday, “ Can We Sue Our Way to Prosperity?: Litigation’s Effect on America’s Global Competitiveness.” The testimony by Paul J. Hinton, vice president of NERA Economic Consulting, proved the answer to be, “No. No we cannot sue our way to prosperity. But we can sue ourselves into a global competitive disadvantage.”

From Hinton’s prepared statement:

One NERA study I directed on Tort Liability Costs for Small Businesses shows that tort costs are not borne evenly throughout the economy. Small businesses bear a relatively larger share of tort costs than larger businesses. For example, businesses with less than $10 million in revenues in 2008 represented

Paul Hinton

only 22 percent of U.S. business revenues but incurred 83 percent of tort costs. This is economically important because small businesses generate the majority of net new jobs, 65 percent over the past 17 years.The costs of the U.S. tort system may have effects on businesses similar to an implicit tax. The economic literature on the effects of taxes on business activity is instructive in identifying the effects of higher costs of business on economic development. This literature as well as surveys of business attitudes describe how business decisions on where to make investments and add jobs are sensitive to local costs of doing business. Tort liability costs may also affect the growth of existing businesses within the 50 states.

In another NERA study, I worked with colleagues to examine how relatively higher tort costs in the U.S. affect international competitiveness. We compared the growth of productivity in the manufacturing industries affected by asbestos litigation in the U.S. since the late 1980s to productivity growth of the same industries in other industrialized countries. We found that productivity growth in the U.S. industries affected by asbestos litigation was 0.5 percent per year slower than their counterparts in other countries. Over the period of study from 1987 to 2000, the lower U.S. productivity growth amounted to lost GDP of over $300bn, with $51bn of that loss realized in 2000. (continue reading…)

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In Oklahoma, an Improved Business Climate via Tort Reform

Gov. Mary Fallin of Oklahoma has signed three major pieces of tort reform legislation to law, discouraging abusive and frivolous lawsuits and improving the state’s business climate. From her April 5 statement:

For too long, inflated legal fees have been an unnecessary cost-driver in the private sector and a burden on the medical community. As a result, we’ve seen businesses and doctors choose to locate in other states, depriving our citizens of good jobs, reducing access to medical care and driving up the costs for medical treatment.

I’m thrilled to be able to sign into law measures which will directly address skyrocketing legal fees, protect our doctors, and help to bring more jobs and businesses into Oklahoma while still protecting the rights of plaintiffs and those who have suffered injuries. This is a great day for anyone who is committed to building a more prosperous state and a stronger economy.

The three bills she signed: (continue reading…)

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States Pursue Tort Reform to Boost Economy, Jobs

Legislatures across the country are working to enact civil justice reforms to improve their business climates, attract investment and encourage job creation. A round-up:

TENNESSEE

Gov. Bill Haslam of Tennessee included a package of reforms in his legislative recommendations, calling for a $750,000 cap on non-economic damages, such as pain and emotional suffering, and limiting punitive damages to $500,00. The bill also discourages venue shopping.

The bill (SB1522) was heard in committee on Wednesday, and the media predictably highlighted the comments of former Sen. Fred Thompson, hired by the trial lawyers to lobby against the bill. A new business group, Tennesseans for Economic Growth, has formed to promote the reforms. From its release:

“Our current civil justice system in Tennessee is seriously flawed because it threatens current business owners and jobs creators with unlimited exposure to litigation,” said Doug Buttrey, who has been named Executive Director of TEG. “This flaw in our civil justice system also puts Tennessee at a competitive disadvantage when it comes to attracting new businesses and jobs, especially since our state is one of the few in the Southeast which has yet to rein in lawsuit abuse through tort reform.”

“Tennesseans for Economic Growth believes it is critical that every citizen has access to the civil courts and that medical expenses be fully compensated. It is equally critical that damage awards do not spin out of control and become beyond reason,” Buttrey continued.

Doctors are also advocates for the reforms.

WISCONSIN

Wisconsin Gov. Scott Walker made tort reform the keystone of his early legislative efforts, winning passage of a package of civil justice improvements during the special session. (Shopfloor, Jan. 28, “Gov. Walker Signs Tort Reform Package in Wisconsin.” However, union groups have turned the April 5th Supreme Court race into a referendum on Gov. Walker’s collective bargaining reforms, and the trial lawyers are joining in the hopes their hand-picked candidate will overturn the tort reform law from the bench. (See our Point of Law post, “Wisconsin Supreme Court election: a referendum on tort reform, too.“)

OKLAHOMA

In Oklahoma, long-frustrated reforms now appear headed for passage in the Legislature and signing into law by new Gov. Mary Fallin. Last week, the major measure, passed the House by a vote of 57-40, the State Chamber of Oklahoma reports: (continue reading…)

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Manufacturing in State of the State Addresses: Tennessee

Gov. Bill Haslam of Tennessee, a Republican elected last November, gave his first State of the State address on Monday in Nashville. Coming in the middle of a legislative session, the speech was heavy on budget and good government issues, with a productive emphasis on education as well. (Transcript)

Gov. Haslam’s inaugural address two months ago really provided a better sense of his vision for improving the state’s business climate. As the head of Pilot Corporation, a successful operator of the Pilot Travel Centers and now the Flying J truck stops, Gov. Haslam has a well-known record and pro-growth philosophy, and Tennessee is already a pretty good place to do business.

Tennessee boasts a strong manufacturing sector, too, which the Governor highlighted in a recent visit to the Chatanooga area, where a new Volkswagen plant will start producing passenger vehicles next month and eventually employee some 2,000 workers. (Video)

We appreciated his mentioning of tort reform, one of the first legislative priorities Haslam announced as governor.

At the Department of Economic and Community Development, I want to recognize the progress being made by Commissioner Bill Hagerty and his team in a top-to-bottom assessment of how to refocus the department’s assets to spread job creation from one corner of the state to the other.

Let me add, I hope that the changes we have proposed in tort reform will make our state even more competitive with our surrounding states in attracting and landing more high quality jobs.

Gov. Haslam speaks next Wednesday at the Tennessee Chamber of Commerce and Industry’s annual meeting in Nashville. NAM President Jay Timmons is also on the agenda.

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Circumnetting Civil Justice Reform and Other Legal Things

The House Judiciary Subcommittee on the Constitution holds a hearing this Friday on the major piece of civil justice reform legislation this Congress, the Lawsuit Abuse Reduction Act, which will amend the Federal Rules of Civil Procedure to discourage the filing of frivolous lawsuits. We have more on the legislation at Point of Law.

Bill McCollum, the former attorney general of Florida, argues in The Wall Street Journal for more transparency when state attorneys general hire outside legal counsel on contingency to sue people (mostly businesses) on behalf of the state. From “States and Lawyers’ Fees: Transparency Needed“:

Since the 2007 financial crisis, state attorneys general have stepped up consumer-protection enforcement and are well on their way to displacing federal authorities as the nation’s chief consumer-protection watchdogs.

As the former attorney general of Florida, I understand both the power and potential pitfalls of the job. This increased role and the increased visibility that comes with it mean that attorneys general must (and should) work that much harder to maintain public confidence in the integrity of their office.

The Supreme Court this week denied to hear the Competitive Enterprise Institute’s challenge to the 1998 tobacco settlement based on Congress’ failure to approve the deal as required by the Constitution’s compact clause. From CEI’s news release, “Supreme Court Declines to Hear Case Challenging Tobacco Settlement“:

“We regret the court’s decision not to take up a case of major constitutional and policy importance,” said Sam Kazman, CEI General Counsel. “The tobacco settlement imposed a massive national sales tax on cigarettes, without a single elected legislator at any level of government voting for it. This was a major power grab by state attorneys general at the expense of both citizens and our structure of government.”

Former Sen. Fred Thompson (R-TN) is lobbying for the Tennessee Justice Association against Gov. Bill Haslam’s legislative tort reform proposals. In the cover story for the Tennessee publication, CityView Magazine, he explains his reasoning and argues against damage caps in medical malpractice suits. We appreciated his comments about the misuse of the word “reform”:

I don’t know that there is a rush for tort reform but tort reform has kind of taken on an air of its own and you’re either for it or against it. There is no such thing as finance reform, there is no such thing as health care reform, there is no such thing as tort reform; it is only what is in the bill. It may be reform or it may just be change and not really reform. So everybody thinks all Republicans ought be for tort reform, and that if you’re not a Republican, than you should be against tort reform. I think both of those are fallacious. We ought to look at what’s being proposed.

And two interviews well worth reading

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Texas Gov. Perry: ‘I Don’t Want National Tort Reform’

During his briefing with bloggers today, Gov. Rick Perry of Texas repeatedly turned to the federalism and the 10th Amendment of the Constitution as core principles informing his approach toward domestic policy issues. Let states like Maryland or California experiment with high taxes or more regulations while Texas does the opposite, he argued. The American people can choose where they prefer to live.

We noted that several conservative Republicans on the U.S. House Judiciary Committee had expressed opposition to H.R. 5, the medical liability reform bill, on just those grounds.

“I don’t want national tort reform,” Perry said forcefully.

Let me tell you why. We have medical tort reform in the state of Texas. It works. We are a haven.  Twenty-six thousand doctors have applied to practice medicine in Texas since 2003 when our tort reform became the law in Texas. Here’s what disturbs me: If they pass a national bill, I would bet you dollars to donuts, it is weaker than what we’ve got in Texas. So our physicians would be in a less favorable position from the standpoint of protection from frivolous lawsuits. …

I don’t ever get confused that this issue’s about doctors. It’s about access to care, because what we’ve seen in Texas – and I don’t want to spend too much time on this — but what we’ve seen in Texas was that because of the proliferation of frivolous lawsuits that occurred in Texas in the ‘90s and the early part of the 2000s, you had particularly high risk for specialties like OBY-Gen, orthopedic surgeons.

And…

In the grand and global sense, anything in the constitution about tort reform? Leave that to the states. Come down and actually put the people on the border. Put the aviation assets in the air so we can have the protection for our citizens, and frankly, the Mexican citizens as well, and stop these drug cartels. That IS a federal responsibility that they are abject failures at, at present.

The first quotes are here as an .mp3 file, and the second cut is here.

The governor’s position, most directly applicable to caps on punitive damages, is not a popular one with House Republicans who view medical liability reform as an important element of their drive to control health care costs.

There are provisions H.R. 5 that clearly involve interstate commerce and are thus appropriate for federal legislation, specifically the treatment of drugs and medical devices that are approved by the Food and Drug Administration. See our post, “Why Medical Liability Reform Matters to Manufacturers.”

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Why Medical Liability Reform Matters to Manufacturers

The House Judiciary Committee continues to work on H.R. 5, the medical liability reform package, today in an afternoon mark-up session. We wish them well on the effort. Liability reform will help control the rising costs of health care, and this specific piece of legislation — called the HEALTH Act — contains important protections for drugmakers and medical device manufacturers. The language reflects the understanding that drugs and devices are sold into interstate commerce, approved and regulated by the federal Food and Drug Administration, and once demonstrated as safe should not be subject to trial lawyers’ efforts to use state courts to play litigation lottery.

Section 7 of the legislation, Punitive Damages, sets guidelines on punitive damage awards in health care lawsuits, including limits so punitive damages awards do not exceed the greater of $250,000 or twice economic damages.

Manufacturers of drugs and medical devices are most interested in paragraph (c), “No Punitive Damages for Products That Comply With FDA Standards.

(1) IN GENERAL-

(A) No punitive damages may be awarded against the manufacturer or distributor of a medical product, or a supplier of any component or raw material of such medical product, based on a claim that such product caused the claimant’s harm where–

(i)(I) such medical product was subject to premarket approval, clearance, or licensure by the Food and Drug Administration with respect to the safety of the formulation or performance of the aspect of such medical product which caused the claimant’s harm or the adequacy of the packaging or labeling of such medical product; and

(II) such medical product was so approved, cleared, or licensed; or

(ii) such medical product is generally recognized among qualified experts as safe and effective pursuant to conditions established by the Food and Drug Administration and applicable Food and Drug Administration regulations, including without limitation those related to packaging and labeling, unless the Food and Drug Administration has determined that such medical product was not manufactured or distributed in substantial compliance with applicable Food and Drug Administration statutes and regulations.

Trial lawyers have long sought to bring suits against drug and device makers into state courts, seeking venues and judges that favor the plaintiffs and huge damage awards. In the 2008 decision in Riegel v. Medtronic, the U.S. Supreme Court limited such state suits against manufacturers of medical devices that had received pre-market approval from the FDA. The court ruled that Congress had specifically preempted the devices from state regulation under § 360k(a) of the Medical Device Amendments to the Food, Drug and Cosmetic Act.

This decision was critical in affirming the principle of federal preemption, which provides effective protections for public health and safety. Congress has determined that the FDA is the proper authority with the available resources to regulate drugs and devices in interstate commerce.  Lawsuits in state courts in effect create a 50-state system of regulation for these devices and drugs, full of inconsistencies, capricious enforcement and unjustified damage awards. (No wonder the American Association for Justice and other trial lawyer lobbyists sought to reverse the Riegel decision last Congress with the so-called Medical Device Safety Act. Thankfully, they failed.)

The language in H.R. 5, Section 7, paragraph(c) draws on that general principle of preemption for its “safe harbor” language. It holds that companies that manufacture drugs and devices recognized as safe by the FDA have by definition gone through the careful development, testing and approval — the due diligence — that demonstrate the companies did not behave in a way to justify punitive damages. The legislation provides a measure of protection for companies so they can manufacture effective drugs and devices. It’s exactly the kind of medical liability reform that will reduce costs while ensuring a dynamic market that innovates and creates live-saving products.

UPDATE (4:50 p.m.): The House Judiciary Committee just voted 16-20 to defeat an amendment offered by Reps. Mike Quigley (D-IL) and Sheila Jackson-Lee (D-TX) to strike  Section 7. Rep. Franks (R-AZ) successfully opposed against the amendment, making a similar case as argued above.

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