Markets: Maintaining Our Lead in the 21st Century"
Testimony of James
R. Copland, Director of the Center for Legal Policy
at the Manhattan Institute for Policy Research,
before the United States House of Representatives
Committee on Financial Services
Subcommittee on Capital
Markets, Insurance, and Government Sponsored Enterprises
Good morning. My name is Jim Copland, and I am
the director of the Center for Legal Policy at
the Manhattan Institute. The Center for Legal
Policy has been studying the civil justice system
for 20 years, led throughout that period by my
colleagues Peter Huber and Walter Olson, both
senior fellows at the Institute. I took over directorial
duties at the Center in February 2003 after having
been a management consultant at McKinsey and Company.
I have a background in law, which I studied at
Yale Law School; finance, in which I concentrated
my studies at Yale School of Management; and economics,
which I studied at the undergraduate and masters
level. Since joining the Manhattan Institute,
I have led the Center for Legal Policy in new
and continuing initiatives, including:
- Publishing a series of reports, entitled
Trial Lawyers, Inc., that assess the legal industry
as a business. After publishing an initial
report in Fall 2003, we have subsequently published
industry- and state-focused reports and shorter
- Launching a web magazine, PointOfLaw.com,
that brings together information and opinion
on the U.S. legal system. Point of Law
publishes columns, sponsors regular discussions,
and has ongoing "weblog" commentary
from many of the nation's top legal scholars
in the field of tort law.
- Continuing efforts to assess empirically
the U.S. tort system. Among the Center's
works in recent years were a series of 4 reports
assessing the problem of forum shopping in class
action litigation, the problem that was the
focus of the recently enacted Class Action Fairness
Act. The Center has also been active in analyzing
various specific types of litigation, including
medical malpractice, asbestos, and "toxic"
- Formulating policy solutions to the problem
of overlitigation. Last fall, we convened
a policy working group with some of the nation's
leading academics and practitioners to consider
ideas for reform that deserve special emphasis.
One item of particular interest to emerge from
that conference is "loser pays"-the
rule in other developed countries whereby the
losing party in litigation pays the other's
expenses. We are currently developing an in-depth
look at how a loser pays mechanism might work
in the U.S.; that idea and others to come out
of last year's conference will inform the policy
portion of my comments.
My charge before you today is to discuss my views
on how regulation, litigation, and financial reporting
are affecting the global competitiveness of U.S.
capital markets. I will focus my comments on litigation,
since that is my area of expertise.
I do note at the outset, however, that the tendency
to criminalize corporate conduct in the wake of
the collapses of Enron and WorldCom adds substantial
new risks to directorship and basic business judgment.
Particularly pernicious in my view is the tendency
of state attorneys general, often aspiring to
higher office, using their broad prosecutorial
powers to regulate interstate commerce in the
financial arena. Such prosecutorial overreaching
tends to interfere with proper federal regulatory
authority vested in the Securities and Exchange
Commission and Commodity Futures Trading Commission,
and, inevitably, tends to make the United States
a less attractive business venue. I would urge
the committee to consider investigating to what
extent the broad scope of federal regulation under
the SEC, CFTC, and other pertinent federal agencies
should be clarified to preempt the prosecutorial
authorities of state attorneys general in certain
I also note briefly that new financial disclosure
requirements in the United States have been criticized
by some leading academic scholars in the field,
notably Larry Ribstein of the University of Illinois
and Stephen Bainbridge of UCLA. Professor Ribstein
has suggested that certain reporting requirements,
if not modified, could drive capital out of the
U.S. and into Europe. I would urge the committee
to consider the views of Professors Ribstein,
Bainbridge, and others in some depth, with a view
toward amending the well-meaning Sarbanes-Oxley
reforms to ameliorate unintended side effects
of the new regulations.
The U.S. Tort Tax
When it comes to litigation,
the American "tort tax"-the percentage
of the gross domestic product consumed by tort
law costs-is 2.22 percent. As Figure 1 shows,
the percentage of our economy devoted to tort
litigation has grown astronomically over the last
50 years. In 1950, torts cost $1.8 billion; in
2004, torts cost $260.1 billion. Over that span,
the inflation-adjusted tort tax per capita grew
almost tenfold. Tort costs grew almost four times
as fast as GDP. The American
tort tax is estimated to be the equivalent of
a 5 percent wage tax, well higher than the corporate
income tax, and "far more than enough money
to solve Social Security's long-term financing
Source: Towers Perrin Tillinghast, supra
These tort tax estimates come from the actuarial
firm Towers Perrin Tillinghast, which has been
assessing the costs of tort litigation for several
years. A few points are in order. First, the estimates
are top-down, derived from insurance company data.
"Bottom-up" estimates of tort costs
are essentially impossible to construct given
the paucity of data; most cases settle, and settlements
are typically sealed and protected by attorney-client
privilege. Second, the tort tax measured by Tillinghast
involves direct transfer payments between parties
to litigation, including attorneys, as well as
the administrative costs incurred by insurance
companies. The tort cost estimates do not reflect
the full cost of tort litigation, any more than
marginal tax rates reflect the full dynamic effect
of taxes on the economy. Reduced research, innovation,
and investment are not measured, nor are wasteful
nonproductive behavioral responses-such as defensive
medicine-that are intended solely to lower litigation
risk. Third, even on its own terms, the Tillinghast
study does not include all forms of tort litigation.
Significantly, the estimates omit punitive damages,
most securities litigation, and the multi-state
I note that trial lawyers and their allied advocates
typically criticize the Tillinghast numbers, in
no small part because they include insurance company
administrative expenses for handling tort claims.
Since the primary purview of this committee involves
insurance as well as capital markets, the insurance
cost of litigation is a critical component of
the equation. The scope and unpredictability of
litigation is destabilizing to insurance markets,
with adverse consequences for the American economy
and consumer. For example, in medical malpractice
cases, the median jury verdict rose from $500,000
in 1997 to $712,000 in 1999 to $1 million in 2000,
which precipitated a well-publicized crisis in
the medical malpractice insurance industry. In
2001, the medical malpractice insurance industry
suffered $3 billion in underwriting losses, including
almost $1 billion from the St. Paul Companies,
the then-largest malpractice insurer. St. Paul
exited the market, as did the Farmers Insurance
Group, and physician-owned Pennsylvania insurer
PHICO declared bankruptcy.
In any event, whether or not insurers' administrative
costs should be included in tort tax estimates
is really a red herring. Such costs constitute
22.2 percent of tort cost estimates today, as
compared with 32.2 percent in the 1950s. In other
words, the relative expense of insuring against
tort losses, though sizable, has not risen as
quickly as tort costs overall.
In assessing the impact of litigation on American
competitiveness, it is perhaps most useful to
look at how our tort costs compare with those
of other nations. The tort tax in the United States
is far higher than that in other developed countries.
The percentage of its economy that America devotes
to tort law is almost twice that of Germany and
three times that of France or Britain. Figure
2 shows direct tort law costs as a percentage
of GDP in the United States and other industrialized
Source: Towers Perrin Tillinghast, supra
A Cost-Benefit Analysis?
In assessing the American tort tax, we must of
course not merely look at the costs of the system.
While America may not be appreciably safer than
the other industrialized countries, perhaps our
tort system is achieving other goals, in terms
of safety or equity, that other nation's regulatory
systems or welfare states provide. In other words,
are we getting bang for our buck? The answer to
this question is almost certainly no.
Safety and Deterrence
Let's first consider safety. America is a much
safer place, in terms of accidents, than it was
fifty years ago, but the evidence shows that the
decline in accident rates "has been steady
and consistent both before and after the initial
expansion of products liability law," with
"little, if any, correlation between the
decline in accident rates and the expansion in
A recent study by Professors Paul Rubin and Joanna
Shepherd at Emory that looked at rates of accidental
death in states from 1981 through 2000 showed
that tort reform-including caps on noneconomic
damages, a higher evidence standard for punitive
damages, product liability reform, and prejudgment
interest reform-saved lives, to the tune
of 22,000 prevented accidental deaths over the
time period. In addition,
extensive cross-sectional studies of punitive
damages for a variety of risk measures (including
"toxic chemical accidents, toxic chemical
accidents causing injury or death, toxic chemical
discharges, surface water discharges, total toxic
releases, medical misadventure mortality rates,
total accidental mortality rates, and a variety
of liability insurance premium measures")
have found that "[s]tates with punitive damages
exhibit no safer risk performance than states
without punitive damages," so that "there
is no deterrence benefit that justifies the chaos
and economic disruption inflicted by punitive
What explains these results? In the modern American
tort system, most people who are injured are not
compensated and many who are compensated are uninjured.
For example, in asbestos litigation, many of those
suffering from mesothelioma, the deadly cancer
linked to asbestos exposure, go undercompensated,
while those with no cognizable medical injury
receive payouts from bankrupt firms and their
successor trusts. In
medical malpractice litigation, the famous 1991
Harvard Medical Practice Group Study emerged with
"two striking findings: most persons with
potentially legitimate claims appeared not to
file them, but most claims that were filed had
no evident basis."
These outcomes are unsurprising. Mass tort cases,
like asbestos, tend to overwhelm courts and are
subject to abuse, even fraud, as Judge Janis Jack
has discovered in looking at silicosis claims
and Judge Harvey Bartle has discovered in handling
the Fen-Phen settlement trust.
In these product liability and medical malpractice
cases, lay jurors are unsophisticated even though
we count on them to act as final arbiters; jurors'
duties today include "redesign[ing] airplane
engines and high-lift loaders, rewrit[ing] herbicide
warnings, determin[ing] whether Bendectin causes
birth defects, plac[ing] a suitable price on sorrow
and anguish, and administer[ing] an open-ended
system of punitive fines."
Moroever, jurors "face accidents up close"
without the "broader vision, dominated by
the individual case."
Little wonder, then, that asbestos dockets are
flooded with illegitimate claims
and that the medical malpractice bar is dominated
by extreme but unlikely cases, such as the claim
that an infant's cerebral palsy was caused by
asphyxiation in delivery.
"When all is said and done, the modern rules
do not deter risk: they deter behavior that gets
people sued, which is not at all the same thing."
Equity and Administrative Cost
The basic inability of our tort system to deliver
accurate results also, in and of itself, throws
into question how well the law in this arena is
fulfilling its equitable function. Moreover, by
any measure, the administrative costs of the tort
system are astronomical:
If viewed as a mechanism for compensating
victims for their economic losses, the tort system
is extremely inefficient, returning only 22 cents
of the tort cost dollar for that purpose. . .
Of course, the tort system also provides compensation
for victims' pain and suffering and other noneconomic
losses. Even including these benefits, the system
is less than 50% efficient.
In short, tort awards are random, slow, and inequitable.
The tort law system shows no evidence of deterring
specific risky behavior such that actors economically
internalize the cost of accidents, deters instead
innovation and products and behaviors that are
useful but novel with unknown risk profiles, and
is incredibly expensive to administer.
Securities Litigation: The Post-PSLRA Picture
How such costly litigation affects the competitiveness
of American capital markets, however, is
a more complex question. As already noted, insurance
companies bear a significant burden from unpredictable
litigation exposure, a burden that should not
be disregarded. To that extent, reforming our
tort law should shore up insurance company stability
and competitiveness. But beyond the insurance
component, many of the perverse effects I have
previously mentioned are specifically relevant
to the competitiveness of American manufacturers,
and to the health and safety of American consumers,
more than to capital markets competitiveness per
To understand capital markets competitiveness,
we should look specifically to the field of securities
litigation. When Congress passed the Private Securities
Litigation Reform Act of 1995 (PSLRA), there was
substantial concern that securities lawsuits were
adversely affecting U.S. capital markets. Academics
who studied securities litigation found that the
value at which securities lawsuits settled was
not related to the merits of the underlying suit.
Securities lawyers were deemed to be filing "strike
suits" whenever a stock price declined. Such
stock price drops were regular occurrences in
the high-technology sector, since high-tech stocks
naturally trade at high multiples of current earnings,
if any, and are priced based on speculative assumptions
about future earnings growth. Also, securities
lawyers were observed often "rushing to the
courthouse door" to file a suit and gain
control of litigation, since they merely had to
find a named plaintiff on behalf of a prospective
class. The excessive
cost of discovery in securities class action litigation
combined with minimal pleading standards to enable
plaintiffs' attorneys to extract substantial settlement
values from defendant firms, regardless of case
The PSRLA tried to solve the in terrorem
effect of discovery compelled by strike suits
by requiring more in-depth pleading standards
to support a securities claim and by automatically
staying discovery while a motion to dismiss is
pending. The Act provided a safe harbor provision
for forward-looking statements. Finally, the PSLRA
forced judges to select as the lead plaintiff
in securities cases the investor most likely to
protect the class of claimants' interests, typically
the largest investor, rather than merely permitting
the first plaintiff filing suit to control the
litigation. This approach was intended to remedy
what legal scholars call the "agency cost"
problem inherent in any class action litigation.
To understand agency costs, consider that by definition,
individual claims are small for class litigation,
so no individual plaintiff typically has sufficient
interest to monitor or control the class attorneys.
Securities class action king Bill Lerach once
boasted to Forbes magazine, "I have
the greatest practice in the world. I have no
Did the PSLRA work as intended? On first glance,
no. As Figure 3 makes clear, after an initial
one-year decline in securities lawsuit filings,
the number of lawsuits filed annually essentially
returned to the pre-PSRLA level, and indeed increased
Source: Stanford Law School Securities Class
Studies have shown that since the adoption of
the PSLRA, the rate of dismissals of cases
has roughly doubled, but the value of monetary
settlements has increased.
"High technology issuers remain at significantly
greater risk than issuers in other industries.
. . . [and] Congress did not achieve its goal
of increasing the filing delay in class actions.
Actions are filed as quickly now as they were
before passage of the Act."
An empirical study has shown, however, "a
closer relationship between factors relating to
fraud and securities class actions after the passage
of the PSLRA, suggesting that Congress achieved
at least part of its objective in enacting the
Two main problems have prevented the PSLRA from
living up to its promise. First, not all federal
circuits have interpreted the PSLRA's heightened
pleading standard in the same way. The Ninth Circuit,
encompassing California, adopted a more rigorous
pleadings standard in In re Silicon Graphics,
Inc. Securities Litigation, 183 F.3d 970,
974 (9th Cir. 1999), requiring a showing of "deliberate
recklessness" and requiring that "a
complaint include a list of all relevant circumstances
in great detail." Studies have shown that
filings in the Ninth Circuit tend to have a higher
percentage of facially strong cases and a lower
percentage of facially weak cases.
Unfortunately, but predictably, the Ninth Circuit
has also seen a relative drop in case filings,
as plaintiffs' attorneys seek out more lenient
A second major problem with the PSLRA in practice
has been the trial bar's ability to work around
the lead plaintiff provision. Presumptively under
the PSLRA, such plaintiffs are the shareholders
with "the largest financial interest in the
relief sought by the class." Plaintiffs'
firms quickly realized that the largest shareholders
in our economy are typically state employee pension
funds, such the California Public Employees' Retirement
System and the New York State Common Retirement
Fund, and that such state funds are politically
directed and thus subject to political influence.
According to a study by PricewaterhouseCoopers,
securities cases with public pension funds as
lead plaintiffs rose steadily from four in 1996
to 56 in 2002.
For an example of how pernicious the connection
between political interests and public pension
funds' serving as class plaintiffs can become,
consider that two law firms that represented a
class of plaintiffs suing Citigroup on behalf
of WorldCom shareholders and bondholders had,
directly and indirectly, been responsible for
$121,800 in donations to New York State Comptroller
Alan Hevesi. By virtue of his office, Hevesi controlled
the lead plaintiff in the suit, the New York State
Common Retirement Fund. The firms who had donated
to Hevesi stand to gain $144.5 million from Citigroup.
Incredibly, the New York Fund that led the suit
against Citigroup, on behalf of WorldCom shareholders,
owns almost $1 billion in Citigroup stock.
Some smaller state retirement funds have also
become notorious as repeat plaintiffs for the
securities bar. An Ohio judge found that the Teachers'
Retirement System of Louisiana was a "professional
plaintiff" and that it wastefully sought
to appoint four separate firms as counsel for
a case. As of 2004, the Louisiana pension fund
had been involved in no fewer than 60 class-action
suits in the preceding eight years.
Options for Reform
Reform options for the tort system as a whole
are many and complex. Moreover, given that so
much of tort law is at the state level, federal
options are complicated.
I will thus limit these suggestions to those that
might be appropriately adopted in the context
of securities law, and therefore appropriate for
this committee's consideration.
- Embrace a "Loser Pays"-Style Fee
Shifting Principle. Central to the filing of
weak claims in American law is our nation's
refusal-essentially unique among developed countries-to
hold the loser of lawsuits financially accountable
for the costs imposed on the other side. In
regular litigation, minimal "notice"
pleading standards enable plaintiffs to file
lawsuits at very low cost; defendants then assume
the very expensive burden of discovery. Even
for meritless claims, defendants have a significant
incentive to settle, since their costs are substantial,
win or lose. Other countries strongly deter
weak lawsuits by forcing plaintiffs to internalize
the cost they impose on defendants in the event
The PSLRA does reduce these problems, in theory,
for securities claims, by heightening pleading
standards and staying discovery. Nevertheless,
the evidence on filings suggests strongly that
weak claims continue to be filed.
A clear mechanism exists for deterring weak
lawsuits in federal courts. Federal Rule of
Civil Procedure 68 provides an offer-of-judgment
provision as follows:
At any time more than 10 days before
the trial begins, a party defending against
a claim may serve upon the adverse party an
offer to allow judgment to be taken against
the defending party for the money or property
or to the effect specified in the offer, with
costs then accrued. If within 10 days after
the service of the offer the adverse party
serves written notice that the offer is accepted,
either party may then file the offer and notice
of acceptance together with proof of service
thereof and thereupon the clerk shall enter
judgment. An offer not accepted shall be deemed
withdrawn and evidence thereof is not admissible
except in a proceeding to determine costs.
If the judgment finally obtained by the offeree
is not more favorable than the offer, the
offeree must pay the costs incurred after
the making of the offer. The fact that an
offer is made but not accepted does not preclude
a subsequent offer. When the liability of
one party to another has been determined by
verdict or order or judgment, but the amount
or extent of the liability remains to be determined
by further proceedings, the party adjudged
liable may make an offer of judgment, which
shall have the same effect as an offer made
before trial if it is served within a reasonable
time not less than 10 days prior to the commencement
of hearings to determine the amount or extent
On its face, FRCP 68 reads like a loser pays
provision; however, the "costs" covered
by the Rule are only "statutory costs"
and do not typically include attorneys' fees
and expenses-the bulk of costs in most litigation.
Amending FRCP 68 to shift all attorneys' fees
and expenses if a plaintiff proceeds with a
claim and receives less than the defendant's
offer should sharply discourage weak claims
and promote reasonable settlement. Based on
other countries' experience, the value in such
an approach would likely outweigh the administrative
costs to determine fees-particularly given that
most cases settle. The calculus for filing (and
settling) claims would be substantially shifted
were plaintiffs required to internalize defendants'
The typical reaction against loser pays systems
is that they are alleged to "shut the courthouse
door" on less-well-heeled plaintiffs, who
would be unable to bear the risk of bearing
the defendants' costs. Such concerns are generally
overblown; other countries have insurance systems,
including legal expenses insurance and "after-the-event"
insurance, to defray such risks. 
Regardless, such concerns are wholly inapplicable
to securities litigation, in which plaintiffs
are dispersed. Securities litigation is dominated
by large, well-financed, diversified law firms
with broad access to capital. Moreover, under
the PSLRA, the lead plaintiff is presumptively
a large, often institutional investor. It is
hard to imagine that a large institutional investor
and large diversified law firm could not, at
arms' length, negotiate a reasonable strategy
to assume the risk of paying defendants' costs
in the event of loss. Securities law thus provides
a compelling template for experimenting with
a strong-form Rule 68.
- Reform the PSLRA's Lead Plaintiff Provisions.
As previously noted, a significant problem with
the PSLRA in practice has been the ability of
the plaintiffs' bar to co-opt public pension
funds as their new professional plaintiffs.
Unlike institutional investors whose sole fiduciary
duty is to maximize fund-holder return-e.g.,
mutual funds such as those operated by Fidelity
or Vanguard-public employee pension funds are
typically led or influenced by politicians who
may be in political alliance with the trial
bar and/or recipients of trial bar campaign
contributions. In short, whereas the incentives
of private institutional investors are largely
aligned with their fund-holders, public employee
pension funds are managed by actors who have
diverse interests that may or may not coincide
with their investors' returns. As such, the
risk for mischief, observed in practice, is
inherent in public employee pension funds. A
simple solution to this problem would be to
amend the PSLRA to clarify that public employee
pension funds cannot be the lead plaintiff in
a federal securities suit.
An alternative approach to rooting out class
counsel mischief would be to embrace by statute
broad acceptance of the practice originated
by District Judge Vaughn R. Walker, who auctioned
off the rights to class counsel to the plaintiffs'
firm willing to accept the lowest fee. Walker's
auction practice both reduced contingency fees
and resulted in higher average recovery for
plaintiffs. Clearly, auctioning the right to
serve as class counsel worked better than designating
a "large plaintiff" to eliminate the
"captive plaintiff" problem. The Ninth
Circuit stopped Walker's practice in In re
Cavanaugh, 306 F.3d 726 (9th Cir. 2002),
in which it interpreted the PSLRA's language
to "provide no occasion for comparing
plaintiffs with each other on any basis other
than their financial stake in the case."
Clarifying the PSLRA to permit and even encourage
class counsel auctions would reduce superfluous
litigation driven by non-competitive contingency
fee arrangements and ensure fuller recovery
for legitimate claimants.
- Amend the PSLRA to Endorse the Ninth Circuit's
Rigorous Pleading Standard. As discussed
above, the Ninth Circuit's rigorous pleading
standard has worked to root out bad claims and
increase the percentage of strong claims in
that circuit. As long as plaintiffs' lawyers
are able to shop their cases to alternative
fora, however, the national effectiveness of
the PSLRA will be largely unrealized. A simple
amendment to the PSLRA could clarify that the
statute requires, as the Ninth Circuit determined
in Silicon Graphics, that a complaint
"include a list of all relevant circumstances
in great detail" and a demonstration of
"deliberate recklessness" to survive
on the pleadings.
Litigation in America is extremely costly, relative
to our history and to other developed nations.
Our tort law system fails to justify this cost
by meeting its safety-enhancing or equity-producing
mandates. As such, the system's distorting effects
on economic activity, enormous insurance burden,
and high administrative costs are hard to defend.
Securities litigation, despite the PSLRA, remains
a significant competitive disadvantage for American
capital markets. While private securities lawsuits,
rightly conceived, can complement the SEC's regulatory
authority, our system continues to permit too
many meritless suits, often filed against our
Reforms could help align our private law system
of enforcement with its object, namely, to encourage
open disclosure of information to investors to
facilitate accurate market pricing. I propose
three simple reforms to this effect: (1) adopting
a loser pays' system through the offer of judgment
rule; (1) refining the PSLRA's lead plaintiff
provision by forbidding lead plaintiff status
for public pension funds or by allowing counsel
rights to be auctioned off; and (3) amending the
PSLRA to strengthen its pleading requirements
consistent with the Ninth Circuit's Silicon
Although the United States continues to enjoy
the world's most competitive capital markets,
such status is not a foregone conclusion. In the
early nineteenth century, New Jersey was the locus
of business incorporation, until then-Governor
Woodrow Wilson drove companies away by trying
to use the state's incorporation law as an antitrust
law. Just as Delaware took New Jersey's corporate
law business, markets in Europe or Asia, likewise,
could take U.S. capital markets business.
Indeed, PricewaterhouseCoopers released a report
last week showing that in 2005, Europe passed
the United States on initial public offerings-almost
doubling the American float, attracting almost
three times the number of listings, and attracting
more than five times the number of overseas IPOs.
Regulation and reporting rules may be the dominant
forces explaining the short-run shift away from
American capital markets, but the importance of
litigation should not be ignored.
James R. Copland
- All published Trial Lawyers, Inc.
reports and updates are available at www.triallawyersinc.com.
- For a complete listing of Manhattan Institute
publications on civil justice, see http://www.manhattan-institute.org/tools/pubs.php.
- Additional commentary on this topic can be
found on the Manhattan Institute's web magazine
See, e.g., http://www.pointoflaw.com/cgi-bin/mt-search.cgi?search=spitzer.
- The viewpoints of Professors Bainbridge,
Ribstein, and others can also be accessed through
- The comments that follow are adapted in part,
in some cases directly, from earlier of my writings,
available at http://www.manhattan-institute.org/html/copland.htm.
- Tort tax statistics are taken from estimates
derived by the actuarial firm Towers Perrin
Tillinghast, U.S. Tort Costs and Cross-Border
Perspectives: 2005 Update, available at
- See Steven Hantler, The Seven Myths
of Highly Effective Plaintiffs' Lawyers,
Manhattan Institute Civil Justice Forum 42,
at 6 (April 2004)(citing Council of Economic
Advisers, Who Pays For Tort Liability Claims?
An Economic Analysis of the U.S. Tort Liability
System 12, 13 (Apr. 2002)).
- Based on statistics from Jury Verdict Research,
- For more details, see http://www.pointoflaw.com/columns/archives/001347.php.
- See George Priest, "Products Liability
Law and the Accident Rate," in Liability:
Perspectives and Policy (Robert Litan and
C. Winston, eds. 1988).
- See "Tort Reform and Accidental Deaths,"
available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=781424.
- W. Kip Viscusi, "The Social Costs of Punitive
Damages Against Corporations," 87 Geo.
L.J. 285, 297-98 (1998); W. Kip Viscusi, "Why
There Is No Defense of Punitive Damages," 87
Geo. L.J. 381 (1998).
- See Lester Brickman, "Asbestos Litigation,"
transcript of comments to the Manhattan Institute,
Mar. 10, 2004, available at http://www.manhattan-institute.org/html/clp03-10-04.htm
("[Plaintiffs' lawyers] assert claims on behalf
of each client in their inventories who are
recruited by screenings, against each of the
bankruptcy trusts and a few dozen or more of
the solvent defendants. Even if they only collect
a few hundred to a few thousand dollars per
claim, it adds up. For a single claimant, one
without any asbestos-related illness recognized
by medical science, this can amount $60,000,
even as high as $100,000."); see also
Lester Brickman, "On the Theory Class's Theories
of Asbestos Litigation: The Disconnect Between
Scholarship and Reality," 31 Pepperdine L.
Rev. 33 (2004).
- See, e.g., Troyen A. Brennan, et
al., "Incidence of Adverse Events and Negligence
in Hospitalized Patients: Results of the Harvard
Medical Practice Study I," New Engl. J. Med.
324, 370-6 (1991); "The Nature of Adverse Events
in Hospitalized Patients: Results of the Harvard
Medical Practice Study II," New Engl. J. Med.
324, 377-84 (1991). The study reviewed "a weighted
sample of 31,429 records" of "nonpsychiatric
patients discharged from nonfederal acute care
hospitals in New York in 1984." Richard Anderson,
"An 'Epidemic' of Medical Malpractice? A Commentary
on the Harvard Medical Practice Study," Manhattan
Institute Civil Justice Memo No. 27 (July
1996), available at http://www.manhattan-institute.org/html/cjm_27.htm.
- See Lester Brickman, "What Did Those
Asbestos X-Rays Really Show?", at http://www.pointoflaw.com/columns/archives/002092.php;
James Copland, "Fen-Phen Follies," at http://www.pointoflaw.com/archives/000990.php.
- Peter Huber, Liability: The Legal Revolution
and Its Consequences 185 (Basic Books 1988).
- Id. The juror's closeness to the case
is compounded by the cognitive inclination known
as "hindsight bias," i.e., "the natural human
tendency after an accident to see the outcome
as predictable - and therefore, easy to affix
blame," Hantler, supra note 7, at 3,
which "'makes the defendant[s] appear more culpable
than they really are.'" Id. at 3 (quoting
Jeffrey J. Rachlinski, "A Positive Psychological
Theory of Judging in Hindsight," 65 U. Chi.
L. Rev. 571, 572 (1998)).
- A study by Johns Hopkins radiologists published
last August in Academic Radiology found
that initial "B" readers contracted by plaintiffs'
attorneys to identify lung changes had identified
abnormalities in 95.9% of 492 cases; independent
readers hired by the radiologists who examined
the same x-rays, without knowing their origins,
found abnormalities in only 4.5% of cases. See
Joseph N. Gitlin, et al., "Comparison
of 'B' Readers' Interpretations of Chest Radiographs
for Asbestos Related Changes," 11 Acad. Radiol.
- A January 2003 report issued by the American
College of Obstetricians and Gynecologists and
American Academy of Pediatrics found that "that
use of nonreassuring fetal heart rate patterns
to predict subsequent cerebral palsy had a 99%
false-positive rate." Neonatal Encephalopathy
and Cerebral Palsy: Defining the Pathogenesis
and Pathophysiology (American College of
Obstetricians and Gynecologists and American
Academy of Pediatrics Jan. 31, 2003), available
(executive summary). Presumably, juries assessing
dueling experts, after witnessing a child born
with a tragic defect, are particularly ill-equipped
to determine whether the case before them falls
into the rare category of cases in which a lack
of oxygen in delivery was responsible for the
- Huber, supra note 16, at 164.
- See Towers Perrin Tillinghast, U.S.
Tort Costs: 2003 Update, Trends and Findings
on the Cost of the U.S. Tort System, at
- See, e.g., Janet Cooper Alexander,
"Do the Merits Matter? A Study of Settlements
in Securities Class Actions," 43 Stan. L.
Rev. 497 (1991).
- Such behaviors were not only unseemly, but
perhaps even fraudulent. The Department of Justice
is reported to be investigating whether one
of the nation's top securities litigation firms
made "payments to a former client and lead plaintiff
in several class actions." See http://www.pointoflaw.com/archives/002319.php.
- The one-year spike in filings in 2001 corresponds
to the collapse of the "dot-com" stock market
bubble. According to the Stanford Securities
Class Action Clearinghouse, "Calendar year 2001
differs from prior experience because of the
proliferation of 'IPO Allocation' lawsuits.
These complaints generally allege that underwriters
engaged in undisclosed practices in connection
with the distribution of certain IPO shares.
These complaints do not allege that issuers
have engaged in fraud when describing their
own business or financial circumstances."
- See Adam C. Pritchard, "Should Congress
Repeal Securities Class Action Reform?", Cato
Policy Analysis No. 471, at 9 (2003).
- Michael A. Perino, "Did the Private Securities
Litigation Reform Act Work?", 2003 U. Ill.
L. Rev. 913 (2002), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=346840.
- See Pritchard, supra note 25,
- See Perino, supra note 26,
- See Steven Skalak & Daniel Dooley,
Pricewaterhousecoopers, Securities Litigation
Update: The Pension Fund Factor 2 (2003).
- Lawyers among you will know well that there
is no federal common law, under the Supreme
Court's long-standing, seminal decision in Erie
Railroad Co. v. Tompkins, 304 U.S. 64 (1938).
Cross-state and state-federal forum shopping
remains a significant problem for tort law overall,
particularly in products liability cases-although
the Class Action Fairness Act of 2005 should
reduce the "magnet court" problem for class
action suits. Notwithstanding Erie, Congress
could reduce forum shopping, constructively
align tort law with federalist principles, and
improve the quality of litigation overall through
changes to federal diversity jurisdiction and
adoption of appropriate federal choice of law
rules. See, e.g., Michael Krauss, "Product
Liability and Game Theory: One More Trip to
the Choice-of-Law Well," 2002 B.Y.U. L. Rev.
759; see also Doug Laycock, "Equal Citizens
of Equal and Territorial States: The Constitutional
Foundations of Choice of Law," 92 Columbia
L. Rev. 249 (1992).
- According to Tillinghast, an estimated 19
percent of all litigation costs/fees are consumed
by plaintiffs' attorneys, and 14 percent by
defendants' counsel. See 2003 Update,
supra note 21.
- See Walter K. Olson, "Loser Pays,"
- For this argument, I am indebted to Larry
Ribstein. See http://www.pointoflaw.com/archives/002292.php.
- See http://www.primezone.com/newsroom/news.html?d=96661;
see also http://observer.guardian.co.uk/business/story/0,,1744628,00.html.