Thanks to Gina for sending us the following article...Myrl
Tackling Tort Reform
President Bush is on his way to the first major legislative victory of
his new term.
http://www.nationalreview.com/comment/priest200502111122.asp
By George L. Priest
By a resounding bipartisan margin of 72-26, the Senate passed on
Thursday the Class Action Fairness Act. The legislation would transfer
class actions out of state courts into federal courts if a significant
number of class members are from states other than the defendant's.
Endorsed by President Bush, the act is expected to pass quickly through
the House, and it will constitute the president's first major
legislative victory of his new term.
Tort-reform opponents have attacked the legislation as unnecessary.
Senator Russ Feingold has called the class-action reform "a solution in
search of a problem."
To make this case, Feingold and others have pointed to a study
published last March by two law professors, Theodore Eisenberg and
Geoffrey P. Miller. Eisenberg and Miller's study, which primarily
examined the relation****p between attorneys' fees and class-action
recoveries, also made the subsidiary finding that the magnitude of the
average class-action recovery had remained largely constant over the
ten-year period they examined, 1993-2002.
On the basis of this finding, the New York Times ran a story on the
front of its business section entitled, "Study Disputes View of Costly
Surge in Class-Action Suits." The president of the Association of Trial
Lawyers of America proclaimed, "This empirical study comes out and says
the system is working correctly."
But this interpretation of the Eisenberg-Miller study is deeply flawed.
As I describe in more detail in a paper just released by the Manhattan
Institute, rather than undermining arguments for class-action reform,
Eisenberg and Miller's data strongly sup****t the need for reform.
The Eisenberg-Miller data show that the average class-action recovery
over the ten-year period they examined was $138.6 million. This figure
is huge for any single case, not to mention as an average of all cases
in a large sample. Moreover, the study shows that the average recovery
of the top 20 percent of cases was $613 million, and the average for
the top 10 percent equaled $1.08 billion. Again, these extraordinary
numbers represent averages.
The principal concern about the class-action mechanism is that mere
certification of a class - prior to the introduction of any evidence
addressing the merits of the claim - will bludgeon a defendant into a
settlement rather than risking the survival of the company on a verdict
rendered by six lay jurors. A good example is the
silicone-breast-implant litigation - one of the cases in the
Eisenberg-Miller sample - that settled for $4.2 billion despite
predominant scientific evidence showing no relation****p between
implants and the ailments claimed by the plaintiffs.
The numbers revealed by the study - an average $138.6 million
recovery - show the operation of the bludgeon. The authors imply,
though the study is not clear on the subject, that most, if not all, of
these recoveries represent settlements prior to trial. Many of them may
well be meritorious, but we will never know because the cases settled
prior to any judge or jury evaluation of the claim.
The Eisenberg-Miller numbers also show that class-action litigation is
big business, worthy of resolution in the federal courts. Looking only
at cases in their sample, class-action recoveries averaged over $5
billion per year over the ten-year period - again, a huge number.
And it is undeniable that the Eisenberg-Miller figures, huge though
they are, are significant underestimates of the magnitude of
class-action litigation overall. Eisenberg and Miller only re****t data
taken from published opinions that discussed attorneys' fees, and their
data are highly skewed toward securities class-action litigation, which
constitutes over half their sample.
Various other categories of cases appear in the data in such small
numbers that one can only conclude that their sample is highly partial,
seriously underestimating the magnitude of class-action litigation. For
example, their data include only nine civil-rights class actions, 23
employment class actions, 22 ERISA class actions and a miniscule seven
mass tort-class actions. It is simply implausible that, over the
ten-year period of study, these low numbers represent the full volume
of class-action litigation in state and federal courts together.
The claim that the system is working "correctly" is based on the
finding that the average class-action recovery did not increase
dramatically over the ten-year period. But an average $138.6 million
recovery stable over ten years shows that the problem with class
actions is deeply engrained and that reform is long overdue. If, as I
suspect, the magnitude of total class-action recoveries is five, ten,
or 20 times the Eisenberg-Miller study's showing of $5 billion per
year, class-action litigation is imposing extraordinary costs on
American society.
Class-action litigation has proven a problem in this country because of
the conflation of three separate changes in our civil-justice system:
the adoption of very loose procedural requirements for class
certification; the acceptance of vastly more lenient substantive
standards for allowing claims to reach juries; and the expansion of
liability standards since the mid-1970s based on vague and unproven
ideas about how liability judgments can improve societal welfare.
****fting some number of class actions from state to federal courts may
tighten up in modest ways the requirements imposed for class
certification. It would also prevent plaintiffs' attorneys from
shopping their cases to local judges in backwater jurisdictions, and
permit clear and immediate avenues of appeal after cl***** of
plaintiffs are certified. These are modest changes, but im****tant ones
and in the right direction.
Real tort reform, however, requires a fundamental rethinking and
redesign of both our substantive and procedural rules of law. Until
that happens, America's problem with excessive litigation will persist.
- George L. Priest is the John M. Olin Professor of Law and Economics
at Yale Law School and blogger for PointOfLaw.com.
|
