Cross-posted from The Tortellini
One thing that always heartens me is the way the dynamic American legal system continues to confound the corporate interests trying to immunize themselves from lawsuits. Sometimes I think it must be a conspiracy by tort reform lobbyists as a way of keeping themselves lucratively employed, but it's not unusual to see some tort reform measures backfire on the very people who wanted them so much.
Good examples in the past include the Florida doctors who in the 1980s demanded a "loser pays" provision in the state's medical malpractice law that would require losing parties in a lawsuit to pay the other side's legal bills. They thought it would deter lawsuits. Instead, after a few years in practice, doctors begged the legislature to repeal it because they often ended up being the losers who paid. Even when they won, the brain-damaged plaintiffs or widows who'd sued them didn't have much money to offer the defense lawyers.
In 2004, business groups in California succeeded in passing a measure that would divert a hefty portion of any punitive damage award to a state public benefit trust fund as a way of keeping the money away from trial lawyers. After the fund collected exactly zero dollars, the business groups tried to prevent its reauthorization, largely because they realized that jurors might be inclined to award even bigger punitive awards if they knew the money would go to the public and not an individual plaintiff. (The legislature renewed it anyway.)
But the latest example comes in the hot area of securities litigation. Back in 1995, at the behest of big businesses, Congress in all its wisdom passed a bill over Clinton's veto to restrict shareholders' lawsuits. New data from National Economic Research Associates show that the law did reduce the rate of filings by 44 percent over the past decade. But when it comes to these sorts of things and the lawyers who file them, what doesn't kill them only makes them stronger. The remaining shareholder class actions were among the largest ever, in part because of multi-billion settlements in the enormous corporate fraud cases like Enron and WorldCom. The other reason is that the 1995 law forced lawyers to be more selective in their filings and to find bigger plaintiffs, like public pension funds, to lead the litigation, which drove up the stakes substantially in what lawsuits were still able to go forward.
The results shouldn't be so surprising. Similar things have happened in the medical malpractice and products liability arenas, where median awards have actually gone up in places that have passed caps on damages or made it harder for injured patients to sue. There are fewer suits, but the remaining ones are really, really serious. Unfortunately, these trends have the perverse effect of creating yet more demands for tort reform even as the ability of regular people to prevail in a lawsuit has already been substantially curtailed...