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Saving the Recovery From the Trial Lawyers

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Saving the Recovery From the Trial Lawyers

Washington Examiner May 29, 2020
EconomicsEmployment
Legal ReformOther

Former White House chief of staff and Chicago Mayor Rahm Emanuel famously quipped, “You never want a serious crisis to go to waste.” He intended it for politicians and activists. But another group is taking it to heart in the Covid-19 pandemic: trial lawyers. The American Association for Justice, the euphemistically named lobbying organization for personal-injury attorneys, has set up a website to help plaintiffs’ lawyers prepare Covid-related lawsuits against businesses. If elected officials do not act to rein the lawsuits in, America’s economic recovery will be substantially impaired.

Battle lines in Washington have been drawn. The Families First Coronavirus Response Act, enacted March 18, protected manufacturers and distributors of medical face masks from lawsuits. The bill was bipartisan; legislators seemed to understand the need to spur production and distribution of personal protective equipment in the face of serious shortages for front-line medical personnel, and that remedying this was inhibited by the threat of lawsuits. But no more: Democratic leaders Chuck Schumer and Nancy Pelosi have signaled an unwillingness to go any further, even as the White House and Republican Senate Majority Leader Mitch McConnell have argued that any additional Covid relief legislation must offer liability protections for a broader swath of businesses, if they made best efforts to develop safety protocols.

At the center of the impasse is the trial lawyer lobby. Over the years, the plaintiffs’ bar has cultivated its support in Washington and state capitals alike. Unlike ordinary businesses that sell products or services to willing consumers, lawyers generate revenues from unwilling defendants through their unique access to the government’s judicial branch. That doesn’t mean that we don’t need civil lawsuits or that some aren’t necessary. Rather, the point is that lawyers have a vested interest in currying favor with government actors beyond the ordinary regulated industry. 

To protect that vested interest, plaintiffs’ lawyers give a lot of cash to key political actors. So far in this political cycle, the political action committee for the aforementioned American Association for Justice is the third-biggest donor to Democrats running for federal office, behind only the PACs for two labor unions. The trial bar’s money is concentrated (97% to Democrats so far this cycle) and consistent (more than $5 million to Democrats’ federal campaigns in each two-year political cycle dating back to 1996). 

The trial bar’s political giving through a formal PAC only begins to tell the story. Campaigns require individual donations, legally limited in amount (“hard money”), and plaintiffs’ lawyers have perfected the art of “bundling” such campaign largesse. Four of the top five donors to Sen. Dick Durbin of Illinois are law firms, three focused exclusively on plaintiff-side personal-injury and asbestos litigation. Durbin is the Senate Democrats’ minority whip: the member responsible for rounding up the party’s votes. His House counterpart, Majority Whip James Clyburn of South Carolina, counts the law firm Motley Rice as one of his three largest donors (the second-biggest excluding PACs). The Motley Rice firm was an early leader in asbestos litigation before snagging billions in state lawsuits against tobacco companies and later, other products. 

The trial lawyer lobby unsurprisingly argues that it would be irresponsible to foreclose lawsuits. Bruce Stern, the president of the American Association for Justice, even argues that the prospect of lawsuits is necessary to get people back to work: “Workers and consumers will not return to offices, stores and restaurants if companies cannot be held accountable when they fail to prioritize health and safety.” Stern’s professed goals are right: a priority on health and safety, and an economic recovery. But his means are doubtful. Count me skeptical that an unfettered litigation lottery is the best way to promote good safety practices, or that people will rush headlong back to work if they have confidence that their friendly neighborhood plaintiffs’ lawyer will sue on their behalf if they do, in fact, get sick. 

Our legal system encourages gamesmanship and empowers shakedowns. Most litigation costs are run up before trial, and our rules make pretrial processes especially costly and prone to abuse. American courts are unusual in giving plaintiff attorneys the power to file “notice” of lawsuits, without evidence, followed by broad rights to “discover” documents and depose witnesses before trial. Suing lawyers have every incentive to make sweeping demands because the costs are borne wholly by the lawsuit’s defendant. That’s true win or lose: Unlike every country in Western Europe, the winner of a lawsuit in America is unable to recoup lawyers’ fees from the losing side. U.S. courts are also unusually permissive in allowing lawyers to group together lots of different cases in “class action” suits, through which lawyers can sue on behalf of a large group of people they’ve never met. 

These idiosyncratic American legal rules prove extraordinarily costly. Tort litigation in the United States, as a percentage of the economy, costs about 3 times as much as in the average European country. But that understates the predicament we’re in now. These are no ordinary times. Most businesses, big and small, are hemorrhaging cash. Their reserves are depleted. Few will be able to fight back against lawsuits and stay afloat. 

Bankruptcies are an inevitable part of doing business, of course. Many businesses will fail for all sorts of reasons. Yet with unemployment rates higher than at any point since World War II, the economy can ill-afford additional bankruptcies driven by lawsuits. 

And the lawsuits are coming. Lawyers are already jostling for position. On media and through the internet, law firms are using client recruitment tactics, well-honed in litigation targeting companies that used asbestos or produced pharmaceuticals. The New York law firm Napoli Shkolnik touts its “national coronavirus lawyers” on its website. But the “best coronavirus lawyers” are actually at the Barnes Firm in California, according to its website, which directs individuals to get tested for the virus SARS-CoV-2 and, if positive, to contact the firm’s attorneys to figure out whom to sue. 

As law firms troll for clients, the firms that have them aren’t waiting to file suit. According to a complaint-tracking website set up by the law firm Hunton Andrews Kurth, at least 2,278 COVID-related lawsuits had been filed in the U.S. by May 26. Eight states already have at least 80 COVID lawsuits: California, Florida, Illinois, New Jersey, New York, Ohio, Pennsylvania, and Texas. New York leads the way, with 577 lawsuits already filed. Absent legislation limiting liability, the number of COVID lawsuits can be expected to grow — perhaps exponentially, like the virus itself. 

Most of these COVID-related lawsuits, to date, do not allege that an individual was physically injured or killed by the virus. Only 30 pursue a claim that a plaintiff contracted the virus on the job. More than 100, conversely, target educational institutions, typically seeking refunds for not offering in-person instruction. Scores more seek refunds from businesses forced to close by government order. Some of these latter cases might be valid, depending on contractual language, but make no mistake: Businesses have a good chance of being sued if they reopen or if they stay closed. Because behaving well won’t protect businesses from being sued, our litigation system figures to act essentially as a tax on our economic recovery. 

Some lawsuits directly or indirectly threaten the public health as well. Among the litigation that does allege worker injury are class-action lawsuits against hospitals, as well as lawsuits against essential producers (Smithfield Foods) and distributors (Wal-Mart) in the food supply chain. Other class-action suits have alleged no actual personal injury at all but compromise the epidemic response. It took the Food and Drug Administration far too long to clear administrative hurdles to increasing manufacturing of alcohol-based hand sanitizers, but when it did, lawyers were quick to pounce and file class-action litigation under state consumer fraud statutes. The alleged fraud? Preexisting product labeling saying that the hand sanitizers kill “99.9% of all germs,” a claim that hasn’t been tested for the novel coronavirus. 

Some states have already acted to offer some measure of liability protection. Hard-hit New York and New Jersey, despite their typically trial-bar-friendly orientation, each passed statutes protecting healthcare businesses from lawsuits. A few states have gone further still. North Carolina, for instance, granted lawsuit immunity not only to healthcare providers and volunteers but also to any “essential business,” as defined in the governor’s executive order promulgated in the emergency response, as long as the emergency was declared. 

Such a hodgepodge of state rules is generally an asset of federalism, part of the genius of the American constitutional design. Different states face different conditions; New Jersey is not Montana. States have a strong incentive to protect their hospitals and to find the proper balance between local businesses’ viability and the local citizenry’s health and safety. States will make mistakes, and state borders offer little protection against a virus. But decentralized decision-making also avoids the potential for catastrophic error always present in a one-size-fits-all national response. 

Still, not all litigation costs are local. Far too often, lawsuits in our modern system target not local, but interstate commerce — and effect a perverse anti-federalism, in which one state’s legal rules make regulatory decisions for the other 49. A meat-packing or pharmaceutical plant in one state typically supplies its product nationally. And plaintiffs’ lawyers are not even bound to sue where the business is; rather, national commerce often empowers plaintiffs’ lawyers to shop their case to the most favorable jurisdiction. Among the initial wave of more than 2,000 product liability lawsuits that led New Jersey-based Johnson & Johnson to announce last week that it was pulling its baby powder from American (but not overseas) shelves, more than two-thirds were filed in state court in St. Louis, Missouri. 

In recent decades, Congress has acted on multiple occasions to protect the national interest from ruinous lawsuits. In 1986, the National Childhood Vaccine Injury Act established an alternative-compensation program to handle vaccine injury claims. Following the Sept. 11 terrorist attacks, Congress protected airlines from lawsuits and set up a different alternative-compensation scheme for victims and first responders. The Public Readiness and Emergency Preparedness Act, enacted in 2005, applied a broader tort liability shield during terrorist attacks or declared public health emergencies, including epidemics, for manufacturers responding to the crisis. In 1995 and 2005, Congress enacted class-action reforms that made it harder to file certain federal shakedown lawsuits and pulled more large cases with national economic implications into federal court. 

These earlier federal liability reforms offer an initial blueprint for the COVID legislative response. The PREP Act is a good starting point for encouraging the research, manufacture, and distribution of lifesaving treatments and vaccines, and Congress should update it for the current pandemic. The 1995 securities litigation reform also serves as a template for limiting lawsuits based on stock-price drops: cases that essentially shift money from one group of shareholders to another, with lawyers pocketing a big percentage in the process. The federal government has overseen national securities markets since the 1930s, and there’s no reason to transfer money from shareholders to lawyers based on market turbulence caused by a public health emergency and government lockdown orders. 

For claims based on exposure or medical malpractice, which are typically more localized in scope, and governed by state law, Congress should tread purposefully but carefully. Much as Congress expanded federal jurisdiction for class-action litigation in 2005, it should broaden jurisdictional rules for most COVID-based claims, disallowing the common practice of adding local defendants to keep nationally significant cases out of federal court. Congress could also broaden the federal “offer of judgment” rule to allow defendants in COVID-related lawsuits to collect attorney fees when they win at trial — essentially, in this crisis, adopting the common-sense rule employed by the rest of the world. 

Such federal jurisdictional and procedural reforms would ensure rational federal oversight of cases with national economic importance without trampling on states’ interests and ability to adopt alternative regimes to meet differing local needs. Substantive state liability and workers-compensation rules would still generally apply. Congress might, however, consider offering temporary blanket immunity, at least for some industries, followed by a “safe harbor” for businesses that made good-faith efforts to comply with federal guidelines. Some such guidelines have already been developed by the U.S. Centers for Disease Control and Prevention, and a safe-harbor liability shield would encourage economic recovery while also giving businesses guidance in, and the incentive to adopt, best health and safety practices. 

Is such a reform package possible? There’s certainly the temptation to elevate this fight enough to make it a campaign issue but not enough to break the stalemate, in order to spur fundraising and campaign spots for the fall election. Still, I remain convinced that most elected officials, in both parties, truly want to act in the national interest. Doing so will require good-faith efforts on both sides. Democrats will have to resist the trial-bar lobby, which may fight furiously to stymie any threats to its new COVID line of business. Republicans, in turn, must resist the temptation to overreach with legal shields that protect overt misconduct or extend beyond the existing crisis. 

As a political matter, Rahm Emanuel may be right: Crises are made to be exploited. But this is no ordinary crisis; the economic and health costs of the current pandemic eclipse anything we’ve seen in the modern era. I am convinced that Congress can act to reform liability rules in a way that promotes both economic recovery and public health. Let’s hope they do, so our viral epidemic doesn’t needlessly foment an epidemic of lawsuits as well.

This piece first appeared at the Washington Examiner (paywall)

______________________

James R. Copland is a senior fellow and director of legal policy at the Manhattan Institute. He is the author of “The Unelected: How an Unaccountable Elite is Governing America,” forthcoming in September. Follow him on Twitter here.

Photo by Maica/iStock

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