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Civil Justice Memo
No. 25 May 1996


Legal Reform: Learning from the Commonwealth

by David Bernstein

David Bernstein, assistant professor at the George Mason University School of Law, has been comparing the American tort system with those of other nations.  He performed the research for this piece while a Mellon Foundation Research Fellow in Columbia Law School's Julius Silver Program in Law, Science, and Technology.

By all reasonable measures, the American tort system is a disaster.  It resembles a wealth-redistribution lottery more than an efficient system designed to compensate those injured by the wrongful acts of others; it frequently gets factual and scientific questions badly wrong, as in a long series of drug and medical-device cases; and it casts serious and needless uncertainty over the planning of socially useful decisions such as the decision to introduce new products.

One way to find out how to reform our system is to examine the practices of Commonwealth nations such as the United Kingdom, Canada and Australia. Commonwealth legal systems share the underlying common-law basis of American law, but have managed to avoid our enervating litigation explosion for the most part.  For many years studies have consistently indicated that the cost of our tort system, as a share of our economy, is at least twice and probably at least three times as high as it is in other major English-speaking countries.

In my view, three primary factors account for these differences. First, the United States is the only country that still routinely uses juries for civil cases, including cases of great complexity. In other countries, judges alone hear the majority of civil cases. Second, the United States is the only country lacking some version of a loser-pays rule.  And, third, the United States, unlike most jurisdictions, allows unlimited use of contingent legal fees.

One way or the other, the systems are likely to influence each other in coming years.  Some attorneys in the other three countries, perhaps mindful of the riches their American counterparts have been earning, are pressing for reforms that would make their legal systems more like ours, and some commentators agree with them, often influenced by the American literature. American tort reformers should do the reverse, and seek to borrow from the sensible and highly workable rules that prevail in our sister countries.

Loser-pays, a substantial issue in itself, deserves separate discussion. This paper will focus primarily on the jury issue, and add a brief discussion of recent developments regarding contingent fees in the United Kingdom that deserve to be better known on this side of the Atlantic.

One can define a speculative claim as one whose settlement prospects depend not on its intrinsic legal merits but on fortuity. For example, in many product liability and toxic tort cases, the plaintiffs’ causation theory is contrary to the great weight of the scientific evidence. These cases nevertheless have a high economic value and are regularly brought. If there is only a one in five chance that they will prevail in any particular case but millions of dollars are at stake, the economics may favor the decision to file the claim as a plaintiff or to settle it handsomely as a defendant.

The use of juries encourages such speculative litigation for several reasons.  First, juries undermine certainty.  Juries do not and cannot officially explain the reasons for their decisions, and their verdicts have no precedential value in other controversies. Nor are juries bound by judicial opinions rejecting prior claims based on the same evidence.  Even if most of them get the facts right there can be profit in playing the litigation lottery by bringing the same dubious multimillion-dollar claim and waiting for the occasional random victory.

Such random victories are a particular prospect when a case involves complex scientific or technical evidence because jurors frequently do not grasp such evidence in its full intricacy (or at all). Making matters worse is the danger that even when jurors do understand the evidence put before them they may choose to ignore it, either because they sympathize with the injured plaintiff or because they wish to punish the defendant for perceived misbehavior whether or not it committed the specific harm charged.

Canada, the United Kingdom, and Australia can all trace their legal systems back to ones that used juries much more extensively, but all have evolved to present-day systems that reduce or eliminate the role of the civil jury and place responsibility on judges.  The advantages of using judges are numerous and cumulatively compelling.  First, judges further certainty and predictability by relying on precedent.  For example, once one Commonwealth court issues a careful opinion rejecting a claim based on dubious science, related litigation dries up because other courts will follow the first court’s opinion. Second, judges are less likely to be overwhelmed by scientific evidence because they are better educated than jurors and can consult neutral experts if necessary.  Finally, judges do not feel as free to indulge their personal views because they must write out the reasons for their rulings.  These reasons are subjected to public scrutiny and can be reviewed on appeal by a higher court.

One might propose simply following the other common-law (and civil-law) countries and abolishing civil juries. But the Seventh Amendment blocks this course.  It guarantees the right to civil jury trials in federal cases; most state constitutions have analogous provisions that govern cases in their courts. 

The dangers juries pose can nonetheless be limited in many ways that pass constitutional muster. Some scholars have sensibly called for empaneling special expert jurors to serve on complex cases. Courts can also limit the scope for juries to go wrong by tightening rules on the admissibility of scientific evidence.  The Supreme Court’s 1993 decision in Daubert v. Merrell Dow Pharmaceuticals is a step in the right direction.

A more ambitious and far-reaching measure legislatures could take would be to reserve the issue of damages calculation, as distinct from liability, to judges. Damage calculations show the civil jury at its worst. Jurors are given almost no guidance about how to make damage awards, aside from what the attorneys on both sides tell them.  Sympathy and anger factors are at a height. These factors inflate awards, and inflated awards fuel speculative litigation.

Two distinct types of damages reform are called for. One is to constrain damage calculation by distinct formulas and rules, so that it is not done lawlessly and arbitrarily no matter who is doing it. The other is to remove it from the hands of the jury to those of the judge so as to secure the advantages of written explanation, precedent, visibility, experience, and greater ease of appeal.

On the former front, some states have placed explicit limits on the amounts that may be awarded for some of the most notoriously subjective categories of damages, such as pain and suffering and punitive damages.  On the latter, state legislatures have taken some initial steps toward assigning responsibility to judges.  Some have tightened judicial review of punitive damage awards. Three states, Ohio, Connecticut, and Kansas, have passed legislation that continues to allow juries to decide whether punitive damages are appropriate but gives judges the responsibility of setting the amount of those damages.

Legislatures should now push forward and place the issue of damages solely in judicial hands.  Almost no one thinks it remarkable, let alone unconstitutional, that in criminal cases juries decide guilt or innocence and judges then take sole charge of sentencing.  Analogously, judges should determine the amount of damages civil defendants owe if they are found liable.

In recent years some lawyers and other commentators in the United Kingdom have pushed for a more “American-style” system of civil litigation, one that would water down or eliminate the loser-pays principle and permit entrepreneurial legal practices like those in the United States, where lawyers effectively become part-owners of grievances.  (No calls for the reintroduction of jury usage have surfaced yet, apparently.) On the loser-pays issue, despite hopeful encouragement from some on this side of the Atlantic, a consensus appears to have held in favor of the indemnity principle and against moving to the American alternative.  On the contingency fee issue, on the other hand, there has been a distinct step toward American practice (as also in Canada, where most provinces have legalized some form of the fee.) Ironically, however, the British experience may itself offer a useful model to American tort reformers.

The United Kingdom recently instituted a compromise plan which might appear to split the difference between its historic policy of banning contingency fees entirely as unethical and the current American practice of leaving them unlimited. Attorneys may now enter into agreements with British plaintiffs that provide for fees to be waived if a claim is unsuccessful — one of the most familiar features of the American way of litigation. If the plaintiff does recover damages, however, the successful British attorney will not simply be entitled to cash in a piece of the action by taking 33 or 40 percent of the award. Instead, he collects up to twice his reasonable and ordinary fee as a deduction from the award.  U.K. lawyers have taken to calling these “conditional fees”, to distinguish them from American-style contingency fees, which remain banned.

The most notable features of the conditional fee are the things it does not do.  Since the marginal dollar still belongs to the client, not the attorney, the lawyer has no personal stake in exaggerating a solid medium-sized claim into a lottery-sized one, as in the United States.  The incentive to take speculative cases differs as well.  Given the allowable fee uplift of 100 percent, the British attorney might have an incentive to take a case with at least a 50 percent chance of leading to an adequate settlement.  It would be a losing game, though, to press to trial five cases each with a 20 percent chance.  Thus the U.K. conditional-fee scheme discourages speculative litigation while furthering access to the courts for claims with a solid basis but some degree of unavoidable uncertainty.

Adopting the conditional fee in this country would require a considerable change in the way our legal profession does business.  Most American plaintiffs’ lawyers neither maintain hourly work records nor charge a standard hourly fee for tort cases because they accept such cases only on a contingent basis. There are a number of ways of dealing with this problem so as to obtain some or all the benefits of the British rule.  All would require plaintiffs’ lawyers to keep hourly records of time spent, as most other lawyers already do, with greater or less provision for judicial review after the fact if clients challenge the claimed number of hours.  As for hourly fee rates, lawyers would presumably have to begin setting them and disclosing their amount at the time of retainer.  Such a system would offer the substantial additional advantage of encouraging more “comparison shopping” and control of lawyers by plaintiffs.

Such reforms will appear “radical” only so long as we remain unfamiliar with practices in our sister common-law jurisdictions.  As the examples of those countries show, there is no reason America’s civil justice system should feel obliged to go on encouraging speculative litigation.

 


Center for Legal Policy.

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SUMMARY:
This Memo is adapted from an article Professor Bernstein wrote for Regulation magazine and from his remarks at the Manhattan Institute's recent conference on Junk Science and the Courts (transcripts available from the Institute). We hope it provides a much needed international context for the ongoing debate in the United States.

 


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