Corp Reform - Not Tort Reform

Shouldn't we ban lawsuits over products approved by the Federal government?

No.

Many tort reformers want to prevent lawsuits over products that the Federal government approved.  They argue that any product that meets government safety standards can’t be unsafe or defective.  If we were to assume that was true – a big assumption – at least one problem remains: Corporate executives have been known to lie or conceal information to get products approved by the government.  Often, the only way their illegal actions are revealed is through product liability lawsuits.

Here’s just one example:

During the 1970’s, Eli Lilly spent a great deal of money to develop Oraflex, a drug designed to relieve arthritis symptoms.  (Just like Vioxx.)  Oraflex was put on the market in Europe about two years before the FDA approved it for sale in the U.S.  In those two years, 29 people died from using Oraflex. 

Eli Lilly was legally obligated to tell the FDA about those deaths.  But an Eli Lilly Vice-President decided to conceal the deaths from the FDA, because he knew that if the FDA found out Oraflex was deadly, it wouldn’t approve the drug.  Relying upon Eli Lilly’s false data, the FDA approved Oraflex for sale in the U.S.  Predictably, Oraflex killed people here, too.

The family of an American victim of Oraflex filed suit against Eli Lilly over the drug.  The attorney in that case discovered that Eli Lilly concealed the European deaths from the FDA, and was instrumental in getting the FDA to launch an investigation.  Due to this lawsuit, the FDA pulled Oraflex from the market just a few months after it was approved.  More importantly, the Federal government brought 25 criminal charges against the Eli Lilly Vice-President, to which he pled guilty.  Sadly, the charges and penalties were barely a slap on the wrist: Each of the 25 charges brought were misdemeanors, and carried only a $1,000 fine.

Several facts are clearly illustrated by the Oraflex story:

• When millions of dollars are on the line, some corporate executives will lie to get a product approved by the Federal government – even if that means people will die.
• Federal regulatory agencies have neither the time nor the resources to independently verify the data submitted by product manufacturers.  But “greedy lawyers” do.
• The penalties for submitting fraudulent data to regulatory agencies aren’t large enough to deter this kind of behavior.

No one is yet certain whether Merck executives lied to the FDA to get Vioxx approved.  But what is certain is that ending product liability lawsuits over products that meet Federal standards will quite literally enable corporations to get away with murder.

Haven't U.S. Jury Verdicts Driven Manufacturers Out of Business and Put People Out of Work?

No.

Tort reformers often argue that large jury verdicts and the high liability insurance rates they bring have forced U.S. manufacturers to shut their doors, thus putting people out of work and abandoning markets to foreign manufacturers.

However, there's a problem with that theory: Any foreign corporation that does business in America has consented to be sued in American courts. Thus, foreign manufacturers are also routinely sued in American courts, under American law, and subjected to American jury verdicts.

So, why aren't foreign manufacturers being driven out of business - or at least out of this country - by American jury verdicts?

There are two possibilities as I see it. The first possibility is that foreign manufacturers just make better, safer products than their American counterparts. If this is true - and I doubt it is - then American consumers are better off.

The second possibility is that other factors have caused manufacturers to shut their doors. Between our high taxes on gas and the ability of foreign competitors to pay .10 per hour for labor, it's easy to see why American manufacturers can't compete with their foreign competitors. And those factors have nothing to do with our justice system.

The "Lawsuits put people out of work!" argument is flawed because foreign manufacturers are able to flourish in the U.S. market, despite their exposure to the same "runaway verdicts" that are supposedly putting American manufacturers out of business.

So I'm left to wonder - Why aren't foreign corporations going out of business because of "runaway jury verdicts," and why aren't foreign insurance companies raising their liability rates because of "frivolous lawsuits?"

Could it be that American corporations are going out of business because of a poor economic climate, and that American insurers are raising their rates because they made bad investments? You decide.

What About Defensive Medicine?

Lately, there has been a lot of talk about doctors practicing "defensive medicine" as a result of the "litigation crisis" in America. But, like many aspects of tort reform, many people don't know what defensive medicine is.

Defensive medicine is when a doctor, afraid of being sued, leaves no stone unturned to diagnose, treat, or cure a patient. The most common example cited is when a doctor "knows" that a patient has illness X, but runs a test to check for illness Y, just on the incredibly rare chance that the patient has illness Y. A wide variety of statistics are available to show just how much money is spent on these unnecessary tests and procedures. However, there is one statistic I'd like to see but haven't: How many lives have been saved because an "unnecessary" test diagnosed a fatal illness early?

Somehow, tort reformers argue, that because a doctor in Duluth orders an "unnecesary" MRI, patients in Los Angeles will pay more for their needed MRI's. Proponents of the defensive medicine theory therefore argue that the traditional economic principal that as supplies increase, prices decrease, somehow does not apply to medicine.

Finally, ask yourself who defensive medicine really hurts. It doesn't hurt the doctor that charges for the procedure or test. It doesn't hurt the pharmaceutical that supplies drugs for the procedure or test. It certainly doesn't hurt the patient to have an extremely thorough doctor. And if the patient is footing the bill, he or she can certainly choose whether or not to have the procedure or test done.

The only other party that defensive medicine could possibly hurt would be insurance companies.  But the problem with that theory is that insurance companies have very strict policies about what procedures and tests they'll pay for.  It's all too common for a patient to develop a serious medical condition because their insurer wouldn't pay for a test or procedure that would have diagnosed the condition before it became serious.

So defensive medicine puts money in the pockets of doctors, hospitals, and pharmaceuticals.  Insurance companies won't pay for defensive medicine, so it doesn't raise anyone's health insurance premiums.  From time to time, defensive medicine saves lives.  It would therefore appear that "defensive medicine" is just another sham used to scare people into supporting tort reform.

I’ve heard that a “tort tax” costs a family of four about $3,200 a year in higher prices for products and services.

Ever hear that there are lies, damn lies, and statistics? Well, that $3,200-for-a-family-of-four statistic is based upon a study that found that about 2% of America’s GDP is related to the legal system. Tort reformers use the study to argue that if we could get rid of those expenses, it would be like giving an extra $800 to every American, or $3,200 to a family of four. On its face, that sounds logical, but it really isn’t.

For example, why stop with the legal industry? Since America spends $248 billion a year on advertising, let's gut the ad industry, too - giving another $3,400 to a family of four. And since we’re on a roll, let’s just get rid of the other 96% of the GDP, which would give a family of four over $200,000 per year! That's just silly, and so is the "tort tax" argument.

But there’s another flaw in the “tort tax” argument, too. My doctor recently finished paying off his copier, which was almost $700 a month. But instead of lowering his fees to pass the savings on to his clients, he’s taking that $8,400 a year home to his family, like most people would.

The “tort tax” argument asks you to believe that every time a business reduces its expenses that it will lower prices by the same amount instead of enjoying a higher profit.

Do you?

Don’t frivolous lawsuits “drown out” lawsuits with merit, and end up hurting everybody?

No.

Due at least in part to the high crime rate and high divorce rate in this country, our courts have become proficient in disposing of a large number of cases without a trial, through summary judgments, mediation, and other mechanisms. In fact, they’ve become so proficient that a much lower percentage of cases go to trial today than did 40 years ago: During the 1960’s, about 11% of federal lawsuits went to trial, but today that number is about 2%. I’ve seen numerous studies about state courts, and they all found that less than 2% of lawsuits ever make it to a jury trial. The American Bar Association is studying the reasons for the decline, but the only thing they’ve found for sure is that trials are on the decline. If frivolous lawsuits were really clogging our justice system, trial by jury wouldn’t be the rarity that it is today.

Here's an excerpt from a great article:

Between 1962 and 2002, the number of federal civil cases resolved by trial plunged from 11 percent to 1.8 percent, according to a January ABA report, "The Vanishing Trial." And the number of trials per year showed a net drop of more than 20 percent over the same period, starting at 5,802, peaking to 12,529 in 1985 and falling to 4,569, the report concluded. The decline occurred despite a fivefold increase in cases resolved, from about 50,000 to almost 260,000. Federal criminal trials fell from 15 percent to 4.7 percent.

The article concluded by stating that defense attorneys today just don't get the same experience they did 20 years ago, and their clients may not be getting the same good results. Maybe that's a reason why corporate America is lobbying to make it harder for a plaintiff to take a case to trial.

Don’t frivolous lawsuits waste a great deal of time and money for the court and for defendants?

No.

There are two legal mechanisms that quickly and inexpensively resolve frivolous lawsuits. The truly frivolous lawsuits are often “thrown out of court” when the defendant files a motion to dismiss. If that fails, a defendant may still file a motion for summary judgment, which requires the plaintiff to present actual evidence that he or she “has a case” and that there are no laws that prevent the plaintiff from winning.

Motions for summary judgment are decided by judges – not juries - so any lawsuit that makes it past a summary judgment has some merit. Motions to dismiss and motions for summary judgment quickly and inexpensively weed out lawsuits that don’t have any merit. And often, a plaintiff on the losing end of either motion is ordered by the court to pay the defendant’s legal fees, thus discouraging people from filing frivolous suits in the first place.

Learn more about summary judgments and frivolous lawsuits here.

Quick Questions and Answers

Whenever I discuss tort reform with nonlawyers, I always hear the same questions. So, I figured that those must be common questions, and I've decided to make a Q&A category with quick answers to those questions, along with links to more detailed answers.

The Q&A section would be a great place to point your friends.