Corp Reform - Not Tort Reform

A Response To Bernie Marcus' Tirade About Tort Reform

Bernie Marcus, one of the founders of Home Depot, had a few things to say about why America needs tort reform. I felt the need to respond and point out the flaws in his argument. Below is a paragraph by paragraph response to his arguments. I would welcome a response by Bernie Marcus, but I won't expect one.

Excessive litigation has created a crisis in America. The time has come to recognize this crisis and demand that our elected officials work together to achieve a solution. I am astounded by the extraordinary increase in lawsuits filed in recent years. At one time, we were a people who took pride in our ability to work out solutions among ourselves. Now, the solution of first choice is to sue. The result is staggering: some 16.5 million lawsuits in a typical year. Class-action lawsuit filings rose more than 1,000 percent in state courts and 300 percent in federal courts during the 1990s.

I couldn’t find where you got your source for this figure, so I’ll assume that it’s the total of all lawsuits filed. When you consider that small claims suits, divorces, child support enforcements, debt collection actions, and business v. business suits fall into this category, 16.5 million lawsuits isn’t a lot.

The costs, too, have been staggering and are reflected in higher prices for products and services — about $233 billion a year, or $3,200 for every family of four.

American businesses will spend $248 billion on advertising this year, which means that using your logic, the average family of four spends $3,406 to support the out of control advertising industry.

That's just the tip of the iceberg. Excessive litigation is putting companies out of business. Some 60,000 jobs have been lost due just to bankruptcies caused by asbestos litigation, which ripple through state and local economies. For every 10 jobs directly lost due to these bankruptcies, another eight are lost in local economies.

By the end of the decade, over 200,000 people will have died from asbestos. Or put another way, over 200,000 jobs have been lost due to asbestos deaths. The tragedy isn’t that asbestos litigation has bankrupted corporations; it’s that over 200,000 people were killed in the name of corporate greed.

The crisis is taking its toll at every level of society. Americans are afraid to volunteer for charitable organizations because they have seen charity board members dragged into nuisance suits. Americans are seeing their profits and dividends dry up, and as a result are giving less to charities. Years ago, when you were at fault you accepted responsibility for your actions. Today, we blame someone else. Today we sue and the costs to state and local economies are staggering. Taxpayers end up carrying the burden.

As of 08/17/2004, your company, Home Depot reported “record sales,” with profit up 19%, on sales of $20 billion dollars, and profit of $1.5 billion dollars. Those figures puzzle me because you claimed that profits and dividends have been drying up. Perhaps drying up is slang for record sales? But what I’m really curious about is your claim that “taxpayers end up carrying the burden.” Filing a lawsuit doesn’t cost taxpayers anything – states charge for the privilege of suing in their courts. What does cost the taxpayers is the way in which your company uses a Delaware subsidiary to avoid paying millions of dollars in corporate taxes.

Doctors, meanwhile, have to charge patients more to cover insurance bills that have been driven through the roof by unfair punitive damage awards and settlements. An Institute for Legal Reform study found that 8 out of 10 physicians have ordered unnecessary tests because they fear malpractice lawsuits. It is shocking that 43 percent of doctors have considered leaving their medical practices.

I’ll be the first to admit that I don’t think “unnecessary” tests are unnecessary: If I’m ill, I want the doctor to find out what’s wrong with me, and not risk misdiagnosis. Honestly, I couldn’t care less if my HMO spends a million dollars to find out that I have cancer and cure it. Of course, that would be if I had an HMO – like millions of Americans, I’m uninsured. But even so, if a doctor suggested that an expensive test might help him diagnose me, I’d pay it out of my own pocket. And that’s because I can’t put a fixed price on my own health – it’s worth every penny I have. I suspect you feel the same about your health, and the health of your loved ones.

Before we lose more talented doctors, we need to admit that the justice system is broken and fix it. A big part of the solution is to put fair and reasonable limits on punitive damage awards. Many of these awards are excessive and out of control. In 2002, the top 10 jury awards alone totaled $32.7 billion. Again, that's the take from only 10 lawsuits. Reasonable limits could save as much as $44 billion.

I wondered why you chose 2002, instead of 2003, so I looked. It turns out that in 2002, there was one tobacco verdict of $28 billion in punitive damages, and a $2.2 billion award against the evil pharmacist who diluted cancer drugs to make a buck. The $28 billion award was reduced to $28 million, which Philip Morris accepted, even though under several United States Supreme Court holdings, a proper amount would have been $3-4 million. So your $32.7 billion figure just dropped by about $28 billion dollars. And since the $2.2 billion award against the pharmacist was purely symbolic, we’ll drop it, too. That means that in 2002, the top ten jury awards were really $2.5 billion dollars. Compare this with the $58.2 billion in total sales that Home Depot had in 2002, and it doesn't appear that juries are out of control.

In 2003, the top ten verdicts totaled $1.2 billion dollars, without any reductions. And for the record, the top verdict - $255 million – was a breach of contract case decided under German law. While those could be why you chose 2002 for your argument, I think the main reason was this quote taken from the web page detailing the top ten awards of 2003:

"If this year's Top Ten verdicts are any indication, the tort reform movement has taken root in the hearts and minds of American jurors.

After six years of surging upwards into the stratosphere, the nation's Top Ten verdicts to individual plaintiffs came crashing back to earth this year, with the lowest total since 1997.

To give you an idea just how precipitous that drop has been, the total of the Top Ten verdicts of 2002 was 20 times larger than the total for 2003. “

We also have to recognize that trial lawyers have spent millions to stack the deck in favor of abusive lawsuits — $470 million alone on federal campaigns since 1990. They also spend heavily in state and local elections. They're spending tens of millions for one reason only: To thwart meaningful legal reform.

Your $470 million figure, presumably from Opensecrets, includes all lawyer contributions. Or, stated another way, you claim that all lawyers who contribute to any political campaign do so only to stop tort reform. You argue that lawyers don’t contribute based upon whether the candidates agree or disagree with other issues important to the lawyer, such as abortion, gun control, or tax policies. And you argue that ALL lawyers, even corporate lawyers who support tort reform, only contribute to candidates that oppose tort reform.

They are against damage limits. They also desperately want to keep laws on the books that help them reap huge jury awards. One example is laws that prevent juries from learning that injured plaintiffs were not wearing seat belts at the time of an accident. Why hide that fact? Because a jury is much less likely to reward people who can't be bothered to fasten their own seat belt, and who is instead blaming someone else — often the company that built their car — for their injuries.

I defy you to name one case decided in the last thirty years in which a plaintiff successfully sued an automaker for injuries that could have been avoided or reduced if the plaintiff would have worn a seatbelt. You see, the seatbelt anecdote that tort reformers are fond of is based upon a rule of evidence that holds that evidence cannot be shown to a jury if it’s more prejudicial than probative. More simply, that means that if evidence will unfairly bias the jury and won’t help them decide critical facts, the evidence doesn’t come in. And while you talk about a hypothetical application of the exclusion rule benefiting a plaintiff, more often than not, that rule benefits the defendant. A good example would be an auto accident case in which a defendant had been drinking, but wasn’t at or above the legal limit. In such a case, evidence that the defendant was drinking may not come before a jury.

We will not end this litigation crisis until we recognize it exists. We need to get back to the American idea that we, as free and responsible people, can settle our differences without lawyers who will drive doctors out of business and harass people who serve on charity boards.

I’ll assume you want these laws to go into effect after you finish your $1 billion dollar lawsuit against Mastercard, right? It's funny how corporations will bemoan billion dollar jury verdicts until they want one.

I must admit that it would have been so much more difficult to start The Home Depot if the legal climate then were as unfair and abusive as it is now. I'm proud that The Home Depot employs more than 300,000 people and contributes greatly to the local economies of thousands of communities. But I shudder to think how many tens of thousands of new jobs have been lost because would-be entrepreneurs have decided against starting companies because of our unfair legal climate.

I wonder if by “unfair legal climate” you mean a climate in which both State and Federal government agencies keep suing Home Depot for race and gender discrimination, and a climate that forces Home Depot to pay hundreds of millions of dollars for implementing racist and sexist policies? I’m presuming you support tort reform that would eliminate these suits.

It's time to tell our elected officials that they need to fix the broken legal system before we lose any more doctors and good jobs. We should not elect politicians who pay lip service to the American dream while accepting contributions from trial lawyers to keep the deck stacked in their favor.

Now that's some innovative campaign finance reform: Don't allow those who disagree with you to contribute to political campaigns!

Bernie Marcus managed to build a multibillion dollar corporation on a shoestring budget, make himself incredibly wealthy, and become an icon of the business world - all during a time of "runaway jury verdicts." Isn't his success proof that the justice system works?

Trial Lawyers Under Attack by U.S. Chamber of Commerce

It's kind of sad, really. The United States Chamber of Commerce was founded by Edward Filene, (Of Filene's Department Stores fame) a great businessman who advocated minimum wage for women, paid leave for employees, and human rights in general. He eventually quit the Chamber because it became, in his opinion, a bastion of right-wing conservatism dedicated to corporate tax evasion.

Now the Chamber has focused its attention on trial lawyers:

The billionaire chairman of an insurance company describes members of the group as "terrorists." To the head of a national wholesalers group, they seem like "predators." The US Chamber of Commerce is cosponsoring a $10 million advertising campaign to "educate voters about the devastating impact" these people are having on the American way of life.

The target of these attacks is not Al Qaeda or some new pestilence sweeping the nation. It's trial lawyers.

Seems to me like trial lawyers need to counterattack with a $20 million campaign.

I’ve heard that a “tort tax” costs a family of four about $3,200 a year in higher prices for products and services.

Ever hear that there are lies, damn lies, and statistics? Well, that $3,200-for-a-family-of-four statistic is based upon a study that found that about 2% of America’s GDP is related to the legal system. Tort reformers use the study to argue that if we could get rid of those expenses, it would be like giving an extra $800 to every American, or $3,200 to a family of four. On its face, that sounds logical, but it really isn’t.

For example, why stop with the legal industry? Since America spends $248 billion a year on advertising, let's gut the ad industry, too - giving another $3,400 to a family of four. And since we’re on a roll, let’s just get rid of the other 96% of the GDP, which would give a family of four over $200,000 per year! That's just silly, and so is the "tort tax" argument.

But there’s another flaw in the “tort tax” argument, too. My doctor recently finished paying off his copier, which was almost $700 a month. But instead of lowering his fees to pass the savings on to his clients, he’s taking that $8,400 a year home to his family, like most people would.

The “tort tax” argument asks you to believe that every time a business reduces its expenses that it will lower prices by the same amount instead of enjoying a higher profit.

Do you?

Don’t frivolous lawsuits “drown out” lawsuits with merit, and end up hurting everybody?

No.

Due at least in part to the high crime rate and high divorce rate in this country, our courts have become proficient in disposing of a large number of cases without a trial, through summary judgments, mediation, and other mechanisms. In fact, they’ve become so proficient that a much lower percentage of cases go to trial today than did 40 years ago: During the 1960’s, about 11% of federal lawsuits went to trial, but today that number is about 2%. I’ve seen numerous studies about state courts, and they all found that less than 2% of lawsuits ever make it to a jury trial. The American Bar Association is studying the reasons for the decline, but the only thing they’ve found for sure is that trials are on the decline. If frivolous lawsuits were really clogging our justice system, trial by jury wouldn’t be the rarity that it is today.

Here's an excerpt from a great article:

Between 1962 and 2002, the number of federal civil cases resolved by trial plunged from 11 percent to 1.8 percent, according to a January ABA report, "The Vanishing Trial." And the number of trials per year showed a net drop of more than 20 percent over the same period, starting at 5,802, peaking to 12,529 in 1985 and falling to 4,569, the report concluded. The decline occurred despite a fivefold increase in cases resolved, from about 50,000 to almost 260,000. Federal criminal trials fell from 15 percent to 4.7 percent.

The article concluded by stating that defense attorneys today just don't get the same experience they did 20 years ago, and their clients may not be getting the same good results. Maybe that's a reason why corporate America is lobbying to make it harder for a plaintiff to take a case to trial.

Don’t frivolous lawsuits waste a great deal of time and money for the court and for defendants?

No.

There are two legal mechanisms that quickly and inexpensively resolve frivolous lawsuits. The truly frivolous lawsuits are often “thrown out of court” when the defendant files a motion to dismiss. If that fails, a defendant may still file a motion for summary judgment, which requires the plaintiff to present actual evidence that he or she “has a case” and that there are no laws that prevent the plaintiff from winning.

Motions for summary judgment are decided by judges – not juries - so any lawsuit that makes it past a summary judgment has some merit. Motions to dismiss and motions for summary judgment quickly and inexpensively weed out lawsuits that don’t have any merit. And often, a plaintiff on the losing end of either motion is ordered by the court to pay the defendant’s legal fees, thus discouraging people from filing frivolous suits in the first place.

Learn more about summary judgments and frivolous lawsuits here.

Quick Questions and Answers

Whenever I discuss tort reform with nonlawyers, I always hear the same questions. So, I figured that those must be common questions, and I've decided to make a Q&A category with quick answers to those questions, along with links to more detailed answers.

The Q&A section would be a great place to point your friends.

We've Already Had Punitive Damages Reform

One of the reasons often cited as a need for tort reform is punitive damages awards that run into the hundreds of millions, and sometimes even billions of dollars.

But the United States Supreme Court already implemented punitive damages reform in 1996, and again in 2003. This article explains how a $3 billion dollar punitive damages award is being reduced to $50 million dollars, pursuant to two Supreme Court decisions.

In a nutshell, the Supreme Court held that only in the most extreme cases should punitive damages be more than 4-5 times the amount of compensatory damages, and that punitive damages of 9 times compensatory damages nears the outer edge of constitutionality.

Since the Supreme Court already implemented punitive damages reform, it's needless to pass laws that are duplicative of their efforts.

The part of the article that I found most disturbing was this:

"$50 million is less than four days' profit for Philip Morris," he said in a prepared statement. "This fine will not punish it or deter its future conduct that imperils the health and lives of our citizens."

It seems odd that we'll let a jury take the remaining years of a man's life - or even kill him - but we'll only let a jury take a few days profit from a corporation, even if that corporation caused and continues to cause people to die.

And for the record, I'm against most tobacco suits; if cigarettes are so god damned bad, make them illegal.

Frivolous Lawsuits Can't Be Stopped

One point that I think needs to be made is that no tort reform proposal has been made that would actually stop frivolous lawsuits. One of our Constitutional rights is to sue anyone we want, for anything we want. No matter how frivolous our suit may be. Hell, an attorney could even bring a class action suit against Santa Claus on behalf of every person who didn't get a pony as a kid.

So how could we stop suits from being filed? Would we have court clerks evaluate every lawsuit to determine if it should be filed? That won't happen for two reasons. First, nonlawyers aren't allowed to give legal advice: It's called unauthorized practice of law, and it's illegal. Second, it would be unconstitutional - and scary - to have a nonelected official be able to pick and choose which lawsuits he or she would allow to be filed. What if the clerk refused to let lawsuits against friends or family be filed? The potential for abuse is too great. Ultimately, there's no way to prevent people from filing whatever lawsuit they wanted to - no matter how frivolous it may be.

For example, take a look at this pdf I created as an example of a frivolous lawsuit. Change the names of the parties and the name of the court, and you could file this in any court in America:

TO THE HONORABLE JUDGE OF SAID COURT:

NOW COMES Greedy Plaintiff, complaining of Deep Pocket, and would show unto the Court as follows:

1: Greedy Plaintiff is envious of anyone with more money than him. He has nothing better to do than file frivolous and vexatious lawsuits to try and force rich Defendants into paying him a settlement for nuisance value.

2: Deep Pocket has committed no wrong against Greedy Plaintiff. Greedy Plaintiff’s suit is brought solely to vex, harass, badger, pester, annoy, irritate, terrorize, blackmail, extort, anger, worry, bullyrag, bother, bedevil, and beleaguer Deep Pocket.

3: Upon information and belief, this is a frivolous and vexatious lawsuit, with no basis in law or fact, and is brought solely because Deep Pocket has more money than Plaintiff.

PRAYER
WHEREFORE, PREMISES CONSIDERED, Greedy Plaintiff, respectfully prays that Deep Pocket be cited to appear and answer herein, and that upon a final hearing of the cause, judgment be entered for Greedy Plaintiff against Deep Pocket for economic, noneconomic, and punitive damages in the amount of one hundred billion dollars ($100,000,000,000.00) and such other and further relief to which the Plaintiff may be entitled at law or in equity.

Once you filed this frivolous lawsuit, you could have the defendant served with a copy of it, and the defendant would have about 30 days to hire a lawyer and file an answer. If the defendant ignored the suit, you could obtain a default judgment - winning by default because the defendant didn't show up to contest it.

Sure, if the defendant answered, the suit would be dismissed. You'd probably even be ordered to pay the defendant's legal fees. And in some states, you could even be charged with a crime for knowingly filing a frivolous lawsuit.

But all of those things happen after a defendant is forced to spend time and money to respond to a frivolous lawsuit.

Make no mistake - tort reform will not and can not stop frivolous lawsuits. All it will do and can do is protect corporations from being held accountable when they cause injuries.

I Thought All Lawyers Were Kerry Supporters?

If I had a dollar for everytime I've heard that lawyers are trying to buy the presidency for Kerry and Edwards, I'd buy tons of swag from the Corpreform store.

But since I don't, I thought I'd share this article that shows the top corporate lawyers in America are giving more money to Bush than to Kerry, and even gave more money to Gore than to Kerry!

"Among the 50 best-paid GCs [General Counsel] in the country, 22 have contributed money directly to Bush's re-election effort during the 2004 election cycle. Only four members of this elite group have written a check for Kerry. (Two GCs covered their bets and gave to both.)"

"Bush has received $43,000 from this group; Kerry, $6,000. "

Corpreform Gets Its Google On

Corpreform should start popping up a bit more in Google now.