Torts, Inc.

Lawsuits are legendary in America. From the $370 billion dollar tobacco settlement to the more recent medical malpractice crisis, lawsuits are constantly making headlines while expanding their reach to virtually every facet of our daily lives. Trial lawyers are an important driver in the creeping expanse of litigation, aggressively pursuing new opportunities for litigation. Unfortunately, it seems that their efforts may be based more on self interest rather than applying the principles of the common law to provide redress to individuals with real grievances. In fact, trial lawyers have recently come under investigation by the FBI for activities that would make an Enron executive blush.

There is no question that the legal industry is big business; indeed, “mega-firms” have emerged as trial lawyers have become more efficient in bringing multi-million dollar class action lawsuits. Economists have estimated that the civil justice system costs the economy $180 billion annually, or about 1.8 percent of GDP. Of course, not all of this goes to the victims. In fact, studies demonstrate that just 20 cents of every dollar goes toward compensating victims for economic losses. Lawyers themselves typically work on a contingency basis, which means they are handsomely rewarded with a fee that runs 25 percent to 33 percent of the final award (in addition to expenses).

In large class actions, the contrast becomes extreme: many times members of the class simply receive a rebate or discount on a future purchase, while the lawyers, who are a much smaller group, receive millions. For example, in a case against General Mills, the lawyers collected over $2 million while consumers received coupons for boxes of cereal.

The legal system provides strong incentives for ambitious trial lawyers, who advertise widely in hopes of landing the next billion dollar verdict. These possibilities may lead to a deviation between justice and profit when the potential for private gain becomes more important than resolving disputes. Lawyers carefully select cases and identify favorable states for trying the case, hoping to find sympathetic judges and juries.

In Mississippi, things finally may have gone too far. The Federal Bureau of Investigation has opened an inquiry to determine if the legal system has, in fact, been perverted by profiteering trial lawyers. The FBI is paying close attention to Jefferson County, a poor, rural county of less than 10,000 people that has returned a $150 million verdict against makers of the popular diet drug, Fen-Phen. Lawsuits are unusually common in this small county, where more than 21,000 people have been plaintiffs between 1995 and 2000, including a who’s who of local residents, from the Mayor on down.

In a recent turn of events, several plaintiffs have sued lawyers who brought cases against the drug manufacturer, claiming that the lawyers are profiting at the victims expense. The lawsuits allege that trial attorneys padded the client lists with false names to increase the lawyers’ share of the final settlement. Other accusations include paying “runners” to steer new clients to the lawyers.

While problematic, Jefferson County is not necessarily special. Across the country, a number of counties have been identified as judicial “hell holes,” where trial lawyers seek to steer cases in order to increase the possibilities of large damage awards. The American Tort Reform Association has established a project to monitor these hot spots to identify questionable activities. Eleven trouble spots, in particular, are highlighted in a recent report, including Jefferson County, Mississippi. One of the many reforms suggested by the American Tort Reform Association is venue reform, which would require cases to brought in one of three places: where the plaintiff lives, where the defendant’s principal place of business is located, or where the damage occurred. Such reforms would limit the forum shopping that allows lawyers to establish national policies in hell holes that provide sympathetic juries.

A case in Madison County, Illinois provides a good example of such forum shopping. As reported by overlawyered.com, in Gridley v. State Farm, the plaintiff and main witnesses are from Louisiana and the defendant is from Bloomington, Illinois. But trial attorneys want to steer the case to Madison County, a venue with a notorious reputation as a judicial “hell hole,” based on the fact that two Madison County residents who had worked for State Farm would be testifying. The case has come to the attention of the Illinois Supreme Court, which is reconsidering the state’s venue rules.

Problems continue in other parts of the legal system as well. The New York Times

recently reported that the trust established to compensate victims of Fen-Phen may be vulnerable to marauding lawyers and doctors who have teamed up to file false claims, leaving real people with real grievances at risk of receiving nothing. One doctor was found to have earned several million dollars reviewing tests for law firms that resulted in findings of 40 percent to 70 percent of the cases had heart damage due to Fen-Phen. Judge Harvey Bartle III, who oversees the settlement, found that some of these cases were “medically unreasonable” and has ordered a thorough audit of the claims made against the trust. While this may help staunch the flow of false claims, real victims are in a lurch, as audits and investigations have slowed payouts from the trust.

The costs of lawsuit abuse are reflected in the prices and availability of goods and services purchased by consumers. Yet beyond the quantifiable economic costs, abusing the legal system threatens to undermine this fundamental institution of a free society. The courts provide a critical function in resolving disputes and providing compensation for victims with real problems. However, when the courts become more concerned with redistributing resources rather than resolving disputes, the courts become a coercive arm of government driven by lawyers who can manipulate the system. Fortunately, awareness of these dangers appears to be rising. Investigations into these abuses may amplify calls for reform. In addition, the U.S. Supreme court has recently ruled against two punitive damages awards granted by lower courts, claiming that they were too high and did not follow guidelines handed down by the Supreme Court last April. Reform efforts have been introduced in a number of states, and Congress has the opportunity to pass the Class Action Fairness Act. To ensure the courts are reserved for their original purpose of resolving disputes and compensating real victims, such reforms are essential.