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August 5, 2005



PAUL GIGOT: Welcome to THE JOURNAL EDITORIAL REPORT. Mention "tort reform," and a lot of people run for the nearest exit. But it often becomes a different matter if you talk about things like medical malpractice, and accidents, and defective or damaging products -- the most contentious kinds of tort cases, which wind up costing each of us more than 800 dollars a year according to one estimate.

PAUL GIGOT: Simply put, a "tort" is any civil matter in which the damaged party seeks legal redress, usually money, from those who caused the injury. There are three fundamental issues: the size of awards, the attorneys' fees, and the lawsuits' merit. Proponents of tort reform want to impose limits on court awards. A $250,000 cap is often proposed. They cite the case of a 79-year-old woman who was scalded by a cup of MacDonald's coffee, and was awarded 2.9 million dollars by a jury, although this was later reduced on appeal.

Opponents of a cap question whether $250,000 would be reasonable to compensate a severely injured person -- say, a teenager who lost two legs to a negligent driver, or an infant brain damaged by a negligent doctor. Proponents of tort reform also want to put limits on attorneys' fees.

Take the case of the lawyers who sued on behalf of American Airlines Frequent Flyers, and won. American agreed to give four million members a 25 to 75 dollar discount on a future flight, but American Airlines also agreed to give the winning lawyers about 25 million dollars, their contingency fee. Pro reformers argue that the system encourages lawsuits, many of them without merit so-called frivolous lawsuits. Opponents claim that limiting attorneys' fees would make it more difficult for a victim to find a lawyer willing to take the risk on a contingency case, and would deny them their day in court. This, opponents claim, grants unfair protection to businesses and insurance companies.

PAUL GIGOT: With me to discuss all this are: Dan Henninger, columnist and deputy editor of THE WALL STREET JOURNAL editorial page; Kim Strassel, a senior editorial page writer; Jason Riley, also a senior writer for the editorial page; and Philip Howard, who has written for the editorial page about legal reform. He is a lawyer who has written two books, THE DEATH OF COMMON SENSE and THE COLLAPSE OF THE COMMON GOOD. He argues that America is drowning in law and legality and bureaucracy, and we'd all be a lot better off if we gave up believing the law can save us from ourselves and just tried to resolve our differences by doing what we think is right. Philip, welcome to the program.

PHILIP HOWARD: Nice to be here.

PAUL GIGOT: Very good to have you here. We all know America has become this great litigious society. It's even become a subject of late night talk show jokes. What's gone wrong with our legal system? How did we get here?

PHILIP HOWARD: Well, justice is supposed to be the foundation of freedom, and provide a solid foundation for daily choices. Instead, it's become a free-for-all. And there's a core flaw in modern legal orthodoxy, and it is that nobody has the authority to decide who can sue for what.

PAUL GIGOT: How did we get to this circumstance?

PHILIP HOWARD: Well it really changed in the 1960's. We woke up to all these abuses -- racism and other things -- and we changed a lot of things we should have changed. But we also changed our judicial philosophy because we figured we couldn't trust anyone in authority. And we told judges that they should just be referees, and let anybody make any claim for anything, and let the juries decide.

PAUL GIGOT: So judges have in a sense abdicated their duty of judgment?

PHILIP HOWARD: They have. And they thought they were creating a neutral system, but in fact they left a vacuum. And at first, people started suing for a million dollars. There was this moment in which a million dollar verdict made the front page of the MIAMI HERALD in the early seventies. Now a billion wouldn't make the front page -- not because of inflation.

PAUL GIGOT: What about the flaws of the system that we so often hear so much about? Things like venue shopping, or contingency fees, things like that -- are those core problems that have developed in more recent times, or have they simply been there all along and subject to abuse?

PHILIP HOWARD: Well, they're symptoms of this broader problem. The lawyers have learned that they can get away with almost anything, any kind of argument, claiming for any amount of money. Any time there's an accident, it couldn't be easier to make up a theory of something that might have been done differently. There should have been a warning, you know, you should have been more careful, etc. And the judges let all that into the courtroom.

PAUL GIGOT: And venue shopping, of course, is where you find, if you're a lawyer you find a nice jurisdiction that is sympathetic to what lawsuits tends to be, and you bring your lawsuit there, like Madison County in Illinois.

PHILIP HOWARD: It became very cynical in certain parts of the country. The judges were elected, the plaintiffs' lawyers would finance their elections and then bring cases, national cases in some rural county in Mississippi. They were called "magic jurisdictions" where the defendants didn't have a chance.

PAUL GIGOT: And to try to stop that, you end up playing a kind of "Where's Waldo" where if you push one thing -- or "Whack a Mole." When you push one thing down and it pops up somewhere else. What are the consequences of this? Let's start with the economic consequences, because there are -- I mean, has anybody done an estimate of the economic costs of runaway litigation?

PHILIP HOWARD: Yeah, they have, and the direct costs are fairly significant. I mean, it's many billions of dollars. Tillinghast estimates about 300 billion dollars a year, but the indirect costs dwarf the direct costs. For example, in health care the direct costs are about -- of liability and medical malpractice cases, all insurance, etc. -- 15 to 20 billion dollars. The indirect costs, like defensive medicine, are a multiple of that. Some people estimate between 50 and 100 billion dollars.

PAUL GIGOT: And by defensive medicine, you mean the practices that doctors will pursue to make sure that they don't get sued, just to cover themselves against any possible lawsuit.

PHILIP HOWARD: Right. A group that I chair did a Harris poll of all the doctors. Seventy-nine percent said that they regularly ordered tests that they didn't think were needed, and 90 something percent said that all the other doctors did it.

PAUL GIGOT: You've also talked about something, about the cost of trust, lack of trust in the system that develops when we have an overly litigious society. Why don't you explain that to viewers? What do you mean by that?

PHILIP HOWARD: Well, you know, people have forgotten why law is so important to freedom. And what's happened in America today is that people no longer feel free to put an arm around a crying child. That is the rule in America. The other day this child got handcuffed -- a five-year-old girl in St. Petersburg got handcuffed. Why? Because the rule was, they couldn't touch her. And so what was the remedy? They called the police. They have it all on video. It's completely absurd. City playgrounds have been stripped of all athletic equipment, because someone might have an accident on a see saw, or a jungle gym, or a climbing rope. New York City chopped the trees, the limbs of trees, so no one would climb them.

PAUL GIGOT: And even on charity, charitable giving -- explain to us how that has been affected by this culture.

PHILIP HOWARD: Well, charities, particularly ones who have volunteers, are now scared that they'll be liable for some ordinary accident that occurs by a volunteer. And just a month or two ago there was a case in Wisconsin where a volunteer for the Legion of Mary was taking a statue of the Virgin Mary to an invalid. She ran a red light, injured a man, an 82-year-old man who was paralyzed. A fair enough lawsuit against the person who ran the red light. They sued the Catholic archdiocese, which doesn't even actually run the Legion of Mary, because they had meetings in the church. Got a 17 million dollar verdict against the Catholic Church. The effect of that will be that many churches will no longer allow volunteer activities in the churches now. There's this chilling effect, like a great wave of defensiveness has come over our country -- when dealing with children, when dealing with volunteers, dealing with anybody. Businesses no longer give job references.

PAUL GIGOT: And that's a tangible loss of freedom, the ability to act aside. Let me play devil's advocate for a second. Because every time we raise the subject of tort reform, or I get in a conversation with somebody about it, they say the following: "Look, this is about you're trying to deny people, Americans, average Americans, their day in court. The opportunity to address a wrong in a court of law is a fundamental American right, and you're trying to deny it to them." How do you respond to that?

PHILIP HOWARD: Well actually, we're trying to protect people's rights. Everyone should have their right to go to court. The question is how long they stay there. If somebody sues because their child fell off the seesaw, the judge should lean back and say, well, this claim -- whatever happens to the jury -- just making this claim will mean that people will get rid of the see saw. It affects people not in the court rooms. It's my job to hold, as a matter of policy, whether seesaws are a reasonable risk for our society. And I think he should say, "Case dismissed." Judges don't do that any more. They don't say, "Case dismissed." They just let it all go. So people will have their day in court. It's a question of how far they go. And what we're doing is protecting the rights of the millions of kids who want to play on seesaws.

PAUL GIGOT: Another example might be the asbestos litigation, where you have people who really did suffer a wrong from exposure to asbestos, are sick from exposure to asbestos, but can't get their day or court or can't get compensated because the system has been so flooded with frivolous or non -- really suits by people who are not sick.

PHILIP HOWARD: Right. It's one of the most abusive examples of our courts in history, because you have hundreds of thousands of people who are not injured taking money out of legitimate employers, driving over 60 of them bankrupt, while people who are legitimately injured are standing in line, some of them not getting any money. It's literally justice upside down -- while, by the way, the lawyers, the total cost is more than 50 percent.

PAUL GIGOT: Okay. What do we do about this? Because you seem to think -- if I'm inferring correctly from what you've been saying, judges, if they asserted themselves more, could do something about it. Would it be that simple, or do we need much larger change?

PHILIP HOWARD: Well first of all, I think we need to get beyond tort reform. It's not about stopping this kind of lawsuit or that kind of lawsuit. It's developing a principle of a system of justice that's fair to whoever's right. So if somebody's injured by some corporate behavior, they ought to be able to get redressed more quickly and at less cost. But if some doctor is sued when he didn't do anything wrong, he should be affirmatively protected by the system. So we think it needs an entirely new approach. So the biggest change will be judges taking back the responsibility. It's a kind of defensive activism, if you will.

PAUL GIGOT: Can they do that on their own?

PHILIP HOWARD: Yes, they could. But they don't think they can now.

PAUL GIGOT: Why not?

PHILIP HOWARD: Because the appellate courts will reverse them. And they're right. They will.

PAUL GIGOT: But are you talking about educating the appellate judges as well? Is it merely a process of educating them to go back to first principles, or back to a system where they took control?

PHILIP HOWARD: I think we probably need a statute that tells them that it's their job, something like: "judges shall take the responsibility to draw the lines of reasonable dispute, applying common law principles and statutory guidelines." Give them the job back. It's really amazing. I give speeches to judges all the time. They say, "Yeah, what a great idea."

PAUL GIGOT: Well, you've talked about an idea called health courts to particularly deal with the medical malpractice problem. How would that work?

PHILIP HOWARD: Well, health care is so complicated now. You couldn't expect a normal judge to take some case with neurosurgery and write a sensible ruling about whether it complied with the standard of care or not.

PAUL GIGOT: Much less a jury.

PHILIP HOWARD: Yeah, much less a jury. But juries don't have any authority to make binding precedent. That's the problem with juries. It's not that they're not sensible most of the time -- most of the time. It's that they don't, there's no consistency. Every jury's different. So the current system basically encourages wildly inconsistent verdicts. That's what's wrong. That's exactly what the rule of law is not supposed to do.

PAUL GIGOT: Okay. Let's open this up to the rest of my colleagues. Dan, what do you take away from this conversation?

DAN HENNINGER: Well, one thing I take away is this point that Philip makes about judges waving these lawsuits into courts. Philip, I've heard you talk about this, and I wonder if you could very briefly and succinctly describe the philosophy that existed before they came to believe that everyone should have their day in court. This isn't an idea that's existed since the thirteenth century, it's very new. What was the judicial philosophy prior to this anybody-can-sue?

PHILIP HOWARD: If somebody had an ordinary accident and they went into a court in the 1950's, or the 1910's, or whenever, and they sued for 20 million dollars for pain and suffering, the judge would say, "Well maybe you have a claim for your accident, but I'm not going to allow my courtroom to be used for extortion or to get rich. That's not the point of the system of justice. It's not a lottery, it's there to address your injuries. So come back when you've got a claim that's reasonable.

DAN HENNINGER: And when did that change? In the sixties or seventies?

PHILIP HOWARD: Well, it started in the sixties. It really changed in the seventies. There's something called the Legal Process Movement. There was this intellectual change.

DAN HENNINGER: You have pointed out that this is not a liberal versus conservative. It's conservative judges as well that feel that it's not their job to be gatekeeper any more.

PHILIP HOWARD: Yeah, absolutely. Because conservative judges correctly were leery of taking over school systems, and re-making the jails, the so--called judicial activism or busing and such. But they confuse that kind of activism with their job of protecting society as a whole from claims that will tend to undermine everyone's freedom.

JASON RILEY: You seem to be explaining a two-fold problem. You've got plaintiff's trial lawyers who won't police themselves, and you've got judges who won't throw out frivolous suits. I'm wondering, is there a legislative role here for a loser pays sort of a law, or a penalizing lawyers who bring frivolous suits? Can the legislature do something constructive to cut down on this?

PAUL GIGOT: Let me explain. Loser pays is if you bring a lawsuit -- it exists in England -- if you bring a lawsuit and you lose, then you would be responsible for paying the court costs of the person that you sued, Phil.

PHILIP HOWARD: Well, there's clearly a role for the legislature here. And I think that people who bring a claim that's baseless should be fined, or they bring frivolous claims or it's not factually based -- it's a fraud, which happens all the time. I don't think you'll ever get a flat loser pays because it tends to favor the deep pocket. So a big company can afford my law firm, but the little guy can't. But I think it's very important to penalize people who abuse the system, like the parent who sued in Wisconsin recently because the son had homework assigned over the summer. He should be fined. It's an abuse of the court system.

So there clearly is a role for legislatures to re-establish principles that the courts never should have lost in the first place. But it's not blocking lawsuits. Again, it's trying to make them reliable. It's trying to set the boundaries for a free society.

KIM STRASSEL: But doesn't it even go farther than that in terms of what the legislature needs to do? I think of asbestos. And I think a lot of judges out there would say, we don't know, it's a lot to ask us to delve into very complicated medical criteria and to decide who should get paid and who is disabled and who is not? And you need to give us some guidance here. And aren't there sort of other areas too about class-action venues, all kinds of things.

PHILIP HOWARD: You're absolutely right. Something like asbestos, that's not a litigation problem. That's a national social problem. We had material that was mandated by statutes to be used in building codes and such, and it turns out that it's terribly injured hundreds of thousands of people. The legislature ought to take care of it. It's a social problem, balancing the interests of the corporations and their employees and other stakeholders against the needs of the people who are actually injured. Instead, for over 10 years, Congress hasn't acted because they didn't want to "interfere with the right to sue." Well what about the rights of all the workers of the companies that went bankrupt? It's just crying for a legislative solution.

DAN HENNINGER: There almost seems like there's a kind of interstate commerce clause issue here. Sixty-seven companies have gone bankrupt over the asbestos issue. And very few had anything to do with asbestos. Now they're going on to sue food companies because of the fat content. You're talking about attacking whole industries, and literally undermining sectors of the economy. There's almost a commerce-type issue there.

PHILIP HOWARD: Oh, absolutely. You could go industry by industry and talk about the frictions imposed by this system, the cost and the frictions. It costs over a billion dollars to get a new drug approved. What that means is that we don't have people doing research on orphan drugs, and drugs that might help only save the lives of, say, 20 thousand people, because it's too costly to get them approved.

JASON RILEY: Don't you also have -- to follow up on Dan's point -- government is sometimes part of the problem. I mean, you had them partnering with contingency fee lawyers to bring suits against entire industries. We saw it with tobacco, we see it with guns now. Sometimes government is part of the problem here, right?

PHILIP HOWARD: Well, what's happened is the attorney generals of the states got on the bandwagon in tobacco and said, "Great. Let's make money." And so you have this -- again, it's so antithetical to the rule of law. If we don't want smoking in our society, that's a legislative judgment that can be made by a legislature. The notion that government teams up with plaintiffs' lawyers, lets them become billionaires, and then gets a lot of money to sort of shore up the budget this year in this or that state, is outrageous.

PAUL GIGOT: Philip, earlier this year Congress passed a class-action reform. It's mostly a jurisdiction, venue change from state courts to federal courts. Is that going to make much difference?

PHILIP HOWARD: It'll make a little difference. It gets rid of most of the problem you and I were talking about earlier, about going to these magic jurisdictions in Madison County, Illinois and stuff. It means that interstate class actions can go into federal court. Federal court does not have elected judges. It's a more reasonable forum -- even though they still don't make the value judgments we're talking about. Nonetheless, the game isn't rigged. We were talking about justice with a stacked deck. I mean, it was really kangaroo courts in these jurisdictions.

PAUL GIGOT: Briefly, Philip, are we seeing a broader recognition here of the problem, and seeing momentum for change? Are we moving in the right direction?

PHILIP HOWARD: Well, I think we have to get beyond tort reform.

PAUL GIGOT: That issue, that ...

PHILIP HOWARD: Yeah, I'm chairing this group called Common Good, and we're getting prominent people on the left and right to go on our board to get to the point of saying, the public understanding, it's my school, it's the cost of my health care that's at stake here. Let's come up with a system, not that blocks lawsuits, but that actually is a system of justice, that makes deliberate choices and judgments about who can sue for what. That's what it's supposed to be.

PAUL GIGOT: All right. Thank you, Philip. Thank you all very much. Next subject.