"Musings on 'Tort Reform'"

Steve Susman
Houston, TX
May 17, 2005

At our latest mini-reunion, our Washington classmate-panelists seemed to concur that public life has become so polarized that there is no longer any meaningful communication between those at opposite ends of the political spectrum and virtually no one willing to claim that they are in the middle.

During the one year I spent in Washington clerking for Justice Hugo Black, life was certainly different. I became fast friends with the clerks for the other justices and none of us knew or cared whether the others were liberal or conservative. My son, who clerked for Justice Kennedy in 1997, told me that things had changed so much that clerks in one chambers wouldn't even share their views with those whose politics they didn't like.

When I started my own trial law firm in the mid-'70s, it was easy to move from the defense to the plaintiff's side of the docket and then back and forth, and to build a 70-person litigation boutique because we began before the "tort reform" movement and focused on commercial rather than personal injury cases. The fact that all of my clients are businesses and that I represent an equal number of plaintiffs and defendants allows me to bring a certain perspective to the debate about lawsuit abuse.

"Tort reform" conjures up outrageous lawsuits like the woman who sued McDonalds for scalding coffee, but encompasses more than protecting doctors from medical malpractice suits, manufacturers from product liability suits and all defendants from punitive damages. It is also clearly a code phrase for distaste for laws and distrust for judges. The two go hand-in-hand.

In fact, the tort reform movement began in the early '80s, when the Reagan Administratiion launched an attack on enforcement of the federal antitrust laws that were felt to be impeding American companies from competing in a world-wide market. Big was believed (at least by the Chicago School) to be beautiful and competition, fair or foul, laudable. Mergers went unchallenged and multi-national conglomerates consolidated their power in many areas of our economy. This movement, which strengthened corporations, was followed in the '90s by a legislative assault on securities fraud lawsuits that were claimed to be frivolously filed whenever stock prices dropped. These twin efforts to curtail antitrust and securities fraud lawsuits were coupled with an effort to stack the federal bench with judges who were thought to be non-activists and strict constructionists.

The reaction of injured parties and their lawyers was to take advantage of access to state courts. Practicing in Texas, which was one time regarded as "corporate defendant's hell," I was the personal beneficiary of the ability of plaintiffs to forum shop. What most people don't remember is that Texas' reputation for extravagant jury verdicts began, not with some defective product or medical malpractice case, but with Pennzoil's contract dispute with Texaco. In any event, by the mid-'90s, the Texas legislature had jumped on the tort reform bandwagon and with Bush-country producing a straight Republican judiciary on most trial and all appellate courts, Texas soon became the worst place to file a lawsuit.

The action first moved to Alabama and Mississippi, then to West Virginia and Madison County, Illinois. This year Congress, at the behest of big business, passed the Class Action Fairness Act, designed to remove from state courts class actions alleging only state law claims. The notion is apparently that state judges cannot be trusted to apply state laws. The attack on judges (this time over social rather than economic issues) intensified during the Shiavo debacle, with fellow Texans DeLay and Cornyn leading the charge. This week our Nation's business may come to a halt if those in power in the Senate use the "nuclear option," prohibiting filibustering federal judicial appointments. This is nothing more nor less than an effort to accomplish "tort reform" through a frontal attack on the independence of the judiciary and through litmus-test judicial appointments.

In my view, there was little solid evidence in the first place that lawsuit abuse was out of control and costing American businesses billions of dollars or interfering with their ability to compete effectively, but lawyers and courts were blamed for everything from poor health care to high energy costs. Although the United States remains a litigious society, the implementation and threat of additional tort reform has had an effect. For example, medical malpractice claims in my home state of Texas have stabilized and payouts on these claims actually have decreased. Further evidence of diminished court activity can be found in the 2004 Congressional Budget Office study on state level tort reforms. It reported that caps on damage awards did lead to reduction in the number of lawsuits filed, the value of awards and the insurance costs.

That all sounds good to many, but I think that it is apparent that "tort reform" is not the panacea our politicians, starting with President Bush,make it out to be. Indeed, it is probably the number one cause of the corporate lawlessness that has been disclosed since Enron melted down.

Freed, at least psychologically, from the fear of antitrust enforcement, securities fraud lawsuits, punitive damages and consumer class actions, corporate executives thought they were above the law and accountable only to the market. Comforted by the fact that courts were withholding their hands and strictly construing the law, corporate executives were tempted to enter the grey areas and walk as close to the line as their auditors and lawyers told them they could. One has got to ask whether elimination of the few frivolous posterboard lawsuits that sparked the tort reform movement saved even a fraction of what Enron, Worldcom, HealthSouth and AIG have cost the American economy. Investors around the world have flocked to America because, unlike tort-less societies such as Mexico and Russia, we have a functioning legal system that provides meaningful compensation for victims of fraud.

There is little question in my mind that the "tort reform" pendulum has now swung too far. The constant complaint from young lawyers in our firm is that there are no longer any lawsuits to be tried. When so many of our leaders are willing to attack the judiciary and when so many of our fellow citizens are unwilling to trust juries of their peers to do the right thing, the twin pillars of democracy, an independent judiciary and trial by jury, are in grave danger. When victims can't access courts, they are likely to turn to the streets.

Steve at the Washington D.C. Mini Reunion

Steve's e-mail address is ssusman@susmangodfrey.com.