by Paul A. Holmes
Astronomer Carl Sagan learns that Apple Computer is using his name as the codename of a new personal computer, and asks the company to desist, whereupon a junior executive with a slightly juvenile sense of humor changes the code-name to "Butt-Head Astronomer." Sagan sues for libel. Throwing out the case, a U.S. District Court judge rules that: "It strains reason to conclude that defendant was attempting to criticize plaintiff's reputation or competency as an astronomer. One does not seri­ously attack the expertise of a scientist using the unde­fined phrase 'butt-head."'
During a blackout, a young man takes an aerosol can of lighter fluid and empties the contents into a bowl, setting a match to the liquid in an attempt to generate some light. The fluid explodes and he is badly burned. He sues the manufacturer. Although there was a clear warning notice on the can, he says, he was unable to read it in the dark.
A woman purchases a cup of coffee at a McDonald's restaurant and attempts to open the drink while dri­ving by holding it between her legs. The coffee spills, scalding her so badly that she requires skin grafts and more than a week in hospital. She sues McDonald's and is rewarded with a $2.9 million punitive damages award from a sympathetic jury.
A construction worker stands on a closed hatch door and falls through, injuring himself severely. He sues not the construction com­pany, nor the manufacturer of the hatch through which he fell, but rather the manufacturer of a stronger, safer hatch that was not used by the construction company. His claim: that the company that manufactured the safer hatch did not advertise heavily enough in the state where the accident occurred.
Stories like these, culled from the head­lines of the past several months, are recounted with a combination of amuse­ment and horror by those who would overhaul the way the American legal process—and particularly the law of prod­uct liability—operates. The cumulative image is of a system out of control, a sys­tem in which the first reaction of any citi­zen injured or insulted is to find some­body to blame, file suit, and then sit back and wait (with his or her attorney) for the windfall.
"America is in the midst of a new civil war," says former Democratic Presidential candidate George McGovern, who has become an active spokesperson for tort reform. "A war that threatens to undercut the civil basis of our society. It is a war of lawsuits. We need more hard information on campaign contributions and lobbying by the trial lawyers. I have no hesitance in asserting that this lobby is one of the most potent and selfish bands in Washington." The trial lawyers, of course, decry any attempt to overhaul the system, charging that corporate America is simply attempting to undermine the only process that provides meaningful protection for consumers, employees and communities.
"Corporations are trying to subvert the only means that the con­sumer has of getting any kind of justice," says ATLA's Barry Nace. "Look who's calling for reform of the laws: the people who are breaking them. It's like the Medellin cartel lobbying for lighter drug sentences."
So is the current system truly out of control, encouraging frivo­lous and malevolent lawsuits and resulting in capricious jury awards, or does it simply offer an affordable recourse to individuals who otherwise would have no means to fight back against powerful, care­less corporations? Two recent cases, involving McDonald's and Exxon, offer an insight into the mindset of each side in the debate.
This August, an 81-year-old New Mexico woman who suffered third-degree burns after spilling coffee she bought at a McDonald's franchise won a $2.9 million award, $2.7 million of which was in the form of punitive damages. The woman's lawyer charged that the company served its coffee at 180 to 190 degrees, compared to coffee at home, which is generally served at 135 to 140 degrees, thus mak­ing the product "defective".
Tort reformers were swift hold up the verdict as an example of how the current system is misguided. First, they say, the coffee spill resulted from the woman's own actions. It should have been appar­ent that placing a hot cup of coffee between one's legs while driving at high speeds might result in an accidental spill. And second, the jury's award was excessive, in effect rewarding the woman for her misguided actions.
Advocates for the plaintiff, mean­while, point to the substantial evidence offered in court: expert witnesses included the chairman of the depart­ment of mechanical engineering at the University of Texas and the editor-in-chief of the Journal o f Burn Care and Rehabilitation; McDonald's admitted in court it had known about the risk of serious scalding for ten years; between 1982 and 1992, McDonald's coffee has burned 700 people including infants; the company did not warn con­sumers that its coffee was served at such an unusually high temperature; and the company testified that it did not intend to change its policy and turn down the heat in the future.
"In short, the evidence established that a consumer, though no fault of his or her own or following a momentary inadvertence or mistake, can wind up with an excruciatingly painful, disfig­uring, expensive and possibly life threatening injury," says S. Reed Morgan, a Houston attorney who represented the victim "Why did the company ignore what it knew? Why had it not studied this risk?"
Morgan also pointed out that far from plucking the amount the company should pay in damages out of thin air, the jury used a sim­ple formula in deciding what the company should pay: McDonald's generates an estimated $1.3 million a day from sales of coffee, and thus the jury's award thus amounted to just two days' gross coffee sales.
In September, a trial court refused to grant a new trial, finding that McDonald's behavior was "callous," but judge Robert Scott announced in court that the punitive award would be reduced to $480,000. This illustrates another point often made by trial attorneys: that anecdotal evidence showing "excessive" damages is frequently misleading, since most jury awards are later reduced on appeal.
"Most Fortune 500 companies have not had a single punitive damage award against them," says Professor Michael Rustad of Suffolk University. "I think companies have nothing to worry about in terms of punitive damages as long as they act responsibly."
A study by the General Accounting Office under the Bush admin­istration, found the same thing—that plaintiffs won fewer than 50% of cases and that jury awards were neither erratic not excessive. And the RAND Institute of Civil Justice discounted the notion that Americans are quick on the legal trigger, finding that only one in ten of the 23 million individuals injured each year considers filing suit.
RAND also found that while civil rights cases and filings involv­ing a single product, asbestos, increased over the past few years, the number of product liability suits filed in federal court against Fortune 1,000 companies dropped from a high of 3,500 in 1985 to 1,500 in 1991, and has remained at around that level since. (Reformists argue that the figures are misleading because the majori­ty of claims are filed in state courts.)
Terry Spence, a prominent trial attorney based in Wyoming, argues that industry is distorting reality: “The fantasy Las Vegas provides us confirms the notion that people win big at casinos. Similarly, when we read of sensational verdicts in the evening paper, we tend to believe that not only does the system deliver justice, if anything it has gone wild. As in Las Vegas, we never see the great mute heard trudging homeward with their pockets empty."
Exxon, having recently been on the receiving end of a record $5 billion punitive damage award (in addition to the $3.5 billion it had already spent on clean-up efforts, fines and compensation) resulting from the disaster in Alaska's Prince William Sound five years ago, knows more about this subject than most.
Conservative critics of the cur­rent judicial system, including Theodore Olson, former assistant attorney general in the Reagan administration, say punitive damages are misdirected, since the money will come from shareholders "who did nothing wrong, and warrant no punishment or deterrence."
Those who believe it is as important to prevent corporate crime as it is to prevent street crime argue that the shareholders, the own­ers of the corporation, are exactly the people who should be pun­ished, if only to encourage them to improve their oversight of the activities conducted in their names, and from which they stand to benefit. Moreover, they argue that punitive damage awards will have the effect of communicating to other companies that the kind of cal­lous disregard for both the environment and public opinion that Exxon demonstrated in the wake of the Valdez spill is no longer acceptable corporate behavior.
Says Gerry Spence: "One of the most stag­gering statistics to be revealed in modern times is that every year the dollar cost of corporate crime to America, as estimated by the Bureau of National Affairs, is over ten times greater than the combined larcenies, robberies, burglaries and auto thefts committed by individuals. That corporate America knowingly, cheerfully barters the lung tumors of its asbestos workers for profit, trades the toxic chemical contamination of whole popula­tions for gain, diminishes the likes of Charles Manson to a prankster at a Sunday school picnic."
Another concern is that suits are being filed in the belief that, however little merit they may have, companies will settle rather absorb the cost in time and cash of fighting in court. Over the past three years, for example, eight per cent of the companies listed on the New York Stock Exchange, including almost all major technology firms, have faced shareholder lawsuits, including almost all major technology firms.
"High-tech companies are in such fast-moving, competitive indus­tries that their performances are difficult to predict. When surprises occur and stock prices change dramatically, a group of law firms sues on the grounds that management knew, or should have known, what was happening before it was disclosed to the public," says James J. Mitchell, business editor of the San Jose Mercury. "The fil­ing of such lawsuits allows the lawyers to begin extensive fishing expeditions that involve company executives and customers and sup­pliers. To avoid the expense, the hassle and the faint possibility of loss at trial, firms often settle."
According to a study of 334 such cases by National Economic Research Associates, 281 (84%) were settled out of court, 45 were dismissed, and of the eight that actually came to trial seven were judged in favor of the plaintiff.
Even more objectionable to corporate attorneys, some lawyers are requiring companies, as part of settle­ment, to agree that the action was filed in good faith and with an adequate basis in fact, thus undermining companies' ability to justify the need for new legislation. Some judges include this demand in the "standard settlement terms" they impose once financial terms have been agreed.
Needless to say, not everyone views these suits as abusive. There are those who argue that they are necessary to keep companies honest. "If you saw the kind of fraud that I see, you would know that these companies deserve to be sued," says William Lerach, whose New York law firm, Milberg Weiss Bershad Hynes & Lerach has filed 200 such suits in the last three years.
The Securities & Exchange Commission, which is charged with polic­ing companies that mislead their investors, has joined the fray against frivolous law­suits (while insisting that many of the law­suits filed by investors do have merit) as has the California Public Employees Retirement System whose interim ceo Richard Koppes says that abusive lawsuits are "beginning to affect the companies' bottom lines, and therefore our return as shareholders."
There can be little doubt that tort actions have an economic impact in other ways. Peter Huber, author of Liability: The Legal Revolution and Its Consequences, describes legal fees as "one of the most ubiquitous taxes we pay, now levied on virtually everything we buy, sell and use." Liability expenses account, he says, for 30% of the cost of a stepladder, 95% of the price of childhood vaccines, and a third of the price of a small airplane.
"The tax has curtailed Little League and fireworks displays, evening concerts, sailboard races, and the use of public beaches and ice-skating rinks," Huber says.
The American Tort Reform Association claims, in a study con­ducted by the Philadelphia economics firm of AUS Consulting, that so-called "scapegoat litigation" against accountants and other pro­fessionals connected with the savings-and-loan debacle could shave as much as 1.3 points off the gross national product over the next five years, eliminate as many as 224,000 jobs and add three-tenths of a percentage point to the nation's inflation rate.
Advocates of the current system answer this criticism by pointing out that most of the costs attributed to the liability system would exist anyway—the costs of hospital treatment, lost work time, decreased productivity—and that the liability system merely ensures that those responsible for accidents factor all the societal costs of their products into their pricing decisions. In other words, Huber's "liability tax" is really a safety tax.
A second impact may be more insidious. "Our product liability sys­tem discourages innovation because of unforeseeable potential liability costs," says FMC Corp. CEO Robert Malott, who has chaired the Business Roundtable's product liability task force. The Liability Maze, pub­lished in 1991 by the Brookings Institution, studied the impact of product liability suits on innovation and found that uncertainty over damage awards "has probably reduced innovation." The report also found that litigation was not generally the driving force for safety.
Under the circumstances, it is perhaps surprising that it has taken so long for corporate America to get four-square behind this issue, but if tort reform was a relatively minor agenda on most companies' public policy agenda two or three years ago, it is much closer to the top today, and 1994 was the most difficult year to date for the duopoly of trial lawyers and consumer activist groups who stand in defense of the status quo.
Lined up to fight for tort reform is an alliance of unlikely bedfellows that includes the American Medical Association and the tobacco industry, the California Public Employees Retirement System and IBM, the National Governor's Association, the National School Boards Association and almost every major corporation in the country.
On the opposite side of the issue, however, is the Association of Trial Lawyers of America (ATLA), regarded by many as the single most powerful lobby in Washington.
ATLA was formed in the late-'40s to disseminate legal opinion and other information to trial lawyers, and did not establish a Washington presence until the early-'70s, when a proposal for nationwide no-fault auto insurance surfaced, threatening the livelihood of many members. By the time the proposal was killed at the end of the decade, the Association has emerged as a powerhouse player in the nation's capital.
Today, ATLA is a mighty fundraiser, in large part because its members benefit so much financially from the current liability situa­tion, and are prepared to spend freely to protect their franchise. It gives generously (and intelligently) to Political Action Campaigns, and many individual members are vigor­ous fund-raisers on behalf of individual candidates, to the extent that the The American Tort Reform Association (ATRA), in a study published in September and reprinted almost verbatim in the October 24 issue of Forbes magazine, describes ATLA as "America's Third Political Party."
Examining political contributions, ATRA says that in three states alone—California, Texas and Alabama—plaintiff's lawyers con­tributed more than $17.3 million to candidates for state office over the past four years. The nation's five largest oil companies, by com­parison, between them contributed less than $2 million in the same time period. The report is particularly critical of contributions to the campaigns of State Supreme Court judges, the very people before whom trial lawyers will argue most of their cases, in the few states where judges are elected rather than appointed.
The contributions ATLA makes carry even more weight because it is a single-issue organization, able to focus all its energies on fight­ing tort reform. Moreover, it is working to protect the status quo, at a time when gridlock in Congress makes any changes to current leg­islation almost impossible to pass. And, like the National Rifle Association, it has always refused to compromise even slightly, a position that fuels the myth of its invincibility, although critics say that reasonable members of Congress find this intractability increas­ingly frustrating and that ATLA is alienating even longtime support­ers with its lack of flexibility.
Finally, the trial lawyers have benefited from representation by some of the most powerful figures in the Washington policy-making arena, Democrat Thomas Hale Boggs Jr. of Patton Boggs & Blow and Republican Tom Korologos of the lobbying firm of Timmons & Co. are its chief outside lobbyists, while in-house lobbyist Alan Parker was chief counsel to the House Judiciary Committee and executive director Thomas Henderson is a former head of the justice Department's public integrity section.
While the political power of the plaintiff's bar can be explained by its generous spending and single-mindedness, its contin­ued influence in the media and in the realm of public opinion involves a more complex set of relationships.
For the most part, the public holds lawyers in contempt. Its feel­ings are apparent in everything from lawyer jokes—"What do you have when you have two lawyers buried up to their necks in sand?" "Not enough sand."—to portrayals on television: even Fox's animat­ed comedy The Simpsons recently featured a personal injury attor­ney who paid off an alcoholic physician to testify that young Bart's injuries were more serious than they really were. It's an image that goes back to Walter Mathau's performance in The Fortune Cookie and beyond, one that troubles the American Bar Association so much that it last year launched a major public relations offensive. But ATLA's greatest success in the media debate has been to maintain its invisibility. When the case against reform is pressed in the media, its spokesperson is unlikely to be an attorney, but rather a representative of the consumer activist movement. That many of these apparently independent activist groups are in fact kept afloat through the financial contributions of trial lawyers is seldom men­tioned in reports that catch the public eye.
"In a lot of articles, it's me against Ralph Nader," says Bill Fay, executive director of the Product Liability Coordinating Committee, a business coalition. "I always ask reporters why they don't go directly to the trial lawyers, or to Tommy Boggs, but the reason is that these people don't talk as openly. Nader is their primary spokesperson."
Al Geduldig, a management consultant specializing in communications issues, describes the alliance between the trial lawyers, the activist community, the media and the political world as "an Iron Cross" and worries that the com­bined power of these institutions is overwhelming corporate America.
"Each of these groups is intensely aware of the others' activities and deadlines, and they use each other for mutual benefit. Lawyers fund activists. Activists (including some within government) raise the issue. Media eagerly amplifies it. Politicians adopt it to win votes or avoid criticism. Lawyers close in for the kill. All aimed at affecting public opinion. And who is their target of choice? Big corporations, of course. They have deep pockets. And they're vulnerable to public opinion."
Bill Fay says he has challenged Ralph Nader to discuss the reveal the sources of funding for his consumer activist groups, and offered to reciprocate by revealing who provides the funding for PLCC. Nader has not responded.
ATLA works through a number of tax-exempt affili­ates, including the Civil Justice Foundation, which has contributed an estimated $600,000 over the past eight years to 75 consumer groups, focusing on issues like lead poi­soning in children, cancers believed to have been caused by anti-mis­carriage drugs, and auto safety. These groups in turn become lobby­ists for ATLA's agenda, their consumer interest agendas being more credible than ATLA's more obviously economic motivation.
When ATLA does find itself in the spotlight, it seems to sound like part of the activist community. "Keep in mind that the people really under siege are the people we represent, the consumers," says Barry Nace. The organization's slogan is "ATLA for the People."
If the trial lawyers have taken every advantage the system gives them, the pro-reform movement has a number of inherent weakness­es, and has also been guilty of some misjudgments that have slowed its progress.
The most obvious problem is that while ATLA is a single-issue organization, most major companies have other equally pressing concerns, and have not put the issue at the top of their public policy agenda. Last year, for example, most of them expended more ener­gy, and called in more favors, on issues such as health care reform and the North American Free Trade Agreement.
Increasingly, however, big business is making tort reform a prior­ity. Earlier this year, a number of major companies including Ford Motor Co., General Motors, Exxon, AT&T, Aetna and International Paper came together to form the Civil Justice Reform Group, which will provide cash, research and lobbying support to a number of reform groups around the country, and particularly at the state level.
Another problem for the advocates of change has been that their proposals were initially so extreme that they would have effectively gutted consumer protection laws. The product liability reform bill that first surfaced in 1982 would have eliminated strict liability, which allows plaintiffs to win damages for injuries even if they can­not prove the company involved was negligent. A later version would have required litigants to pay companies' legal fees if they refused a settlement offer and then received less at trial.
The 1994 version was the most moderate to date, with the more modest objective of restricting punitive damages in cases of products cleared by federal regulatory such as the Food & Drug Administration, of disallowing suits when a claimant's use of alco­hol or illegal drugs was the primary cause of any accident, and of reducing damage awards if they misused or altered a product in a way that helped cause an accident. It does not create a defense for manufacturers of products that are "unavoidably unsafe," nor does it contain caps on punitive damage awards.
"The original tort bills of the early-'80s were extremely one-sided," says Ben Zingman, senior vp in the Washington, D.C., office of public relations firm Fleishman-Hillard, which works with the Product Liability Coordinating Committee, a group that has been pushing reform at the federal level. "It received support only in very pro-business circles. Today, I think, most of the people running business have more mainstream values. They recognize the need for consumer protec­tion, but they differ over where to draw the line."
While a more favorable Congress will allow reformers to reinstate some of the measures they removed to make the bill more palatable—a ceiling on punitive damages is likely, as is a loser-pays pro­vision—they realize that there is a dan­ger in going too far. "The business community is mature enough to know not to get greedy," says Bill Fay. "But there are clearly opportunities to strengthen regulation."
Still another problem is that while the trial lawyers are united and single-minded in their focus, the various business groups involved in this issue have been involved in strange, internecine struggles: small business against larger corporations; advocates of a single, federal bill to overhaul the system against those who believe the most effective way to achieve change is at the grass roots, state level.
Having said all that, there are clear indications that even before the recent GOP takeover of Congress, widely expected to accelerate the reform process, the momentum was on the side of the reformers. he heat on trial lawyers has already been turned up to the point that many commentators were predict­ing that 1994 would be the toughest year yet for ATLA. Manufacturers and small businesses were pushing legislation that would protect them from product liability lawsuits. Makers of small airplanes enlisted labor unions, aircraft owners and pilots in a quest to limit their liability in the event of accidents. The American Medical Association was fighting to ensure that restrictions on puni­tive damages found their way into any healthcare reform package. Technology companies were attempting to derail shareholder law­suits based on unpredicted market shifts. And the accounting profes­sion was attempting to put an end to suits alleging that accountants should have spotted anomalies in savings and loan clients' books before the industry's problems became a full-blown scandal.
Some of this pressure was more apparent than real. When the Clinton health reform package was announced, the President was quick to assure people that it demanded sacrifices from everyone, including attorneys, whose fees would be capped at one-third of any damage award. Some plaintiffs’ lawyers made noises of protest, but that fact was that the proposal set fees at precisely the level most of them already charged and did not touch any of the issues that would have truly threatened the profession.
Other proposals soon surfaced which were far more threatening, however. In March a key House subcommittee passed a plan that included a non-economic damages cap, but by May there was talk of a deal to cede the tort reform jurisdiction to the House Judiciary Committee, whose chairman Jack Brooks (D-Tx) made no secret of his support for the status quo.
In July, the Senate Finance Committee amended its plan to include a damages cap, but House majority leader George Mitchell (D-Me.) stripped those provisions and insisted on a preemption that was intended to supercede state laws that went further than Congressional reforms, but could also mean that if Congress rejected a damages cap, state caps could be preempted.
In the end, of course, health care reform itself withered and died, and with it any hope of reforming the liability laws in that session of Congress.
At the same time that the Mitchell was securing a victory for the trial lawyers in the health reform debate, a separate tort reform bill was making its way through the Senate. Senator John D. Rockefeller IV, the moderate Democrat who had led the tort reform battle, was confident he had more than enough support to override a filibuster. But again a last ditch assault by lawyers and consumer groups pre­vailed.
A microcosm of the debate could be found outside the Senate Chamber on the morning of June 28: on the one side, business lob­byists with their "Product Liability Reform Now" buttons; on the other, a group including 24-year-old Marlo Mahne, disfigured in a crash involving the Ford Mustang, and Pamela Gilbert, director of Ralph Nader's consumer interest group Congress Watch.
General Motors lobbyist Alfred Cortese Jr. tossed Gilbert a quar­ter, telling her it was for her "sideshow." Cortese says he was registering his distaste for the way the reform bill's opponents were "exploiting the victims." Nader says Cortese's comment was "worth votes for us." It cer­tainly did not help to dispel the image of callousness that big business seems to cultivate in Washington.
As usual, the trial lawyers had been able to build a powerful alliance. Women's groups were active in the debate, claiming that had the bill been in existence two years ago, women who were injured by silicone breast implants would not have been able to receive adequate compensation, because of a provision protecting companies whose products have won approval by the Food & Drug Administration. (The bill's sponsors say that simply was not true, because implants were never approved by the FDA.) Their most powerful ally was House Member Patsy Mink (D-Hi.), herself a vic­tim of the anti-miscarriage drug DES.
An even smarter strategic move was the trial lawyers' ability to persuade New Jersey Senator Frank Lautenberg to draft an amend­ment to the bill that would hold gun dealers liable for selling to minors and mentally impaired persons who then hurt others, and the tobacco industry to pay for federal health expenses stemming from tobacco use. That brought the National Rifle Association and the tobacco lobby into the fray on the side of the plaintiffs’ bar, and although the amendments were never offered, they are credited with swaying at least two votes.
On another front, however, a victory was being won, as the Supreme Court ruled seven to two that juries cannot have the last word on punitive damages and that states must make some sort of judicial review available. In so ruling the justices set aside a $5 mil­lion punitive damages award won against Honda by an Oregon man who was injured when his all-terrain vehicle flipped over. Oregon was at the time