101 Ways to Improve State Legal FOURTH Systems EDITION A User's Guide to Promoting Fair and Effective Civil Justice
SEPTEMBER 2015 © U.S. Chamber Institute for Legal Reform, September 2015. All rights reserved. This publication, or part thereof, may not be reproduced in any form without the written permission of the U.S. Chamber Institute for Legal Reform. Forward requests for permission to reprint to: Reprint Permission Office, U.S. Chamber Institute for Legal Reform, 1615 H Street, N.W., Washington, D.C. 20062-2000 (202.463.5724). Table of Contents
How to Use This Guide...... 1 Address Over-Enforcement...... 3 Provide Transparency in Hiring of Private Lawyers by State Officials...... 5 Restore Rationality to Unfair and Deceptive Trade Practices Litigation...... 8 Avoid Excesses in False Claims Act Litigation...... 11 Adopt Best Practices for Fair Enforcement of Unclaimed Property Laws...... 14 Reject Expansions of Bad Faith Liability that Drive Up Insurance Rates...... 16 Safeguard the Integrity of the Litigation Process...... 19 Stop Predatory and Unsound Lawsuit Lending Practices...... 21 Protect the Rights of Consumers of Legal Services...... 23 Reduce Forum Shopping...... 25 Ensure that Juries Represent the Entire Community...... 27 Make Losers Pay for Filing Frivolous Lawsuits...... 29 Stem Class Action Abuse...... 32 Prevent Suppression of Evidence of Plaintiff Exposures in Asbestos Cases...... 35 Support Sound Science and Expert Evidence in the Courtroom...... 39 Safeguard the Right to Appeal...... 41 Promote Fairness in Judgment Interest Accrual...... 44 Promote Rational Liability Rules...... 47 Preclude Recovery When a Plaintiff is Primarily Responsible for His or Her Own Injury...... 49 Fairly and Proportionately Allocate Liability Based on Fault...... 51 Provide Transparency as to When Legislatures Create New Ways to Sue...... 53 Improve Product Liability Law...... 55 Prevent Lawyers from Circumventing Core Product Liability Requirements...... 57 Encourage Compliance with Government Regulations...... 60 Protect Innocent Product Sellers...... 63 Recognize that Product Liability Ends at the Expiration of a Product’s Useful Life...... 66 Prioritize Asbestos Claims to Benefit Legitimate Claimants With Credible Injuries...... 67 Address Damages "Run Wild"...... 69 Ensure that Damages for Medical Expenses Reflect Actual Costs...... 71 Provide Juries with Full Information on the Plaintiff’s Actual Losses...... 74 Place Reasonable Bounds on Subjective Noneconomic Damages Awards...... 76 Protect Due Process in Punitive Damages Determinations...... 79 Prevent Excessive Punitive Damages Awards...... 81 Protect Access to Healthcare Through Medical Liability Reform...... 84
Prepared for the U.S. Chamber Institute for Legal Reform by Victor E. Schwartz & Cary Silverman, Shook, Hardy & Bacon L.L.P. How to Use This Guide
The American civil justice system is the most costly in the world. Litigation costs affect the ability of businesses to compete and prosper. By adding rationality and predictability to the American civil justice system and rooting out unnecessary expenses and abuse, civil justice reform can increase confidence in the economy, help businesses expand, and create jobs. Such reforms can also increase respect for the judicial system, which is too often characterized by liability that is disproportionate to responsibility, inconsistent outcomes, and jackpot verdicts.
101 Ways to Improve State Legal Systems and suffering awards that have become the offers some of the many options available to largest part of tort damages, and punitive foster a sound legal system that promotes damages “run wild”? This report answers states’ economies. It considers key issues these questions and more. confronting policymakers. For example, when government officials hire contingency 101 Ways also considers fair and effective fee lawyers, what safeguards will ensure measures that would improve the litigation that law enforcement is driven by the process, promote rational liability rules, and public interest, not the financial interest of rein in excessive awards. In addition, the attorneys with a stake in the litigation? What report addresses the latest trend in legal role should a business’s compliance with abuse: over-enforcement. This problem government safety standards play in product occurs when elected officials, regulators, liability litigation? How can the law address and the trial bar team up to bring a series of damages that exceed actual losses, pain enforcement actions against companies at
1 101 Ways to Improve State Legal Systems the federal, state, and local levels—and invite endorses a certain approach or favors one follow-on lawsuits by plaintiffs’ lawyers. The specific option over another. The options Economist recently wrote that America’s included in each section must be evaluated enforcement system is “the world’s most in light of a specific state’s political and lucrative shakedown operation.” legal landscape, and the order in which reforms are presented does not necessarily The report presents legal reform options reflect their level of importance, priority, or in a conceptual manner. It then directs effectiveness. ILR presents these options readers to and summarizes approximately and recently enacted legislation to provide a 101 legal reform bills enacted over the past useful resource to the reader. several years. These recent laws show how legislators can move the proposals described Additional information on these and other in this guide from theory into practice. legal reform issues can be found at www.InstituteForLegalReform.com. Inclusion of a legal reform in this report does not necessarily mean that the U.S. Chamber Institute for Legal Reform (ILR)
U.S. Chamber Institute for Legal Reform 2 Address Over-Enforcement
Everyone—consumers, investors, and legitimate businesses— benefits when companies that have engaged in fraud or other unlawful conduct are identified and receive a punishment that fits the crime. However, a troubling trend has emerged in which self-interested government officials and plaintiffs’ lawyers are increasingly making law enforcement decisions and setting the public policy of the state.
For example, multiple state attorneys in succession (forcing targets to litigate general and other state regulators, and the same issues over and over again), one or more federal agencies, acting in imposing huge litigation costs long before concert with private lawyers, may target any finder of fact might have an opportunity a company (or an entire industry). They to evaluate the merits of the claims. institute multiple overlapping investigations The public drumbeat regarding these and lawsuits, alleging violations of law accusations (regardless of the underlying based on ambiguous claims such as “unfair merits), subjects the target to significant, practices,” “false claims,” “public nuisance,” ongoing reputational damage. The company or some other similarly vague theory. The ultimately has little choice but to agree to company is then forced to defend multiple whatever settlement is demanded by the duplicative investigations and legal actions government officials and private lawyers. that are pursued either simultaneously or
[M]ultiple state attorneys general and other state regulators,“ and one or more federal agencies, acting in concert with private lawyers, may target a company (or an entire industry). ”
3 101 Ways to Improve State Legal Systems States can enact reforms to protect the 4. Adopt best practices to ensure the fair fundamental principles of fairness and enforcement of state unclaimed property impartiality that are the hallmark of our laws, where government officials bent legal system. This section presents options on balancing the budget have engaged for addressing these concerns in five core financially-motivated private audit firms areas. State legislators can: to assess compliance.
1. Adopt a transparent process with close 5. Curb abuses in bad faith actions against government oversight when states insurers that lead to higher insurance decide to hire private lawyers on a rates for drivers and homeowners. contingency fee basis. These changes would go a long way toward 2. Ensure that unfair and deceptive preventing today’s enforcement abuses trade practices laws help consumers, and ensuring that enforcement actions are rather than provide a means for private focused on actual wrongdoing that inflicts lawyers to enforce laws intended for real harm on the consumers, taxpayers, government enforcement, regulate policyholders, and businesses that the law conduct where no consumer was is intended to protect. injured, or circumvent the evidence needed to recover in a tort lawsuit.
3. Learn from the experience of the federal False Claims Act, which plaintiffs’ lawyers have transformed into a means to privately enforce a broad swath of laws and regulations governing companies that do business with the government.
U.S. Chamber Institute for Legal Reform 4 Address Over-Enforcement Provide Transparency in Hiring of Private Lawyers by State Officials
Purpose Government officials are increasingly turning public with a perception that the state to private lawyers to pursue litigation on behalf hires attorneys based primarily on their of the state. Such arrangements are too often personal and political connections and the result of agreements made behind closed not their experience. doors between public officials and private contingency fee lawyers. In many cases, the The government’s use of private lawyers, lawsuits stem not from a government need to particularly on a contingency fee basis, protect the rights of its citizens, but originate also raises the troubling potential for in theories developed by private attorneys enforcement of state law that is motivated and pitched to state attorneys general (AGs) by profit, rather than the public interest. across the country until they find one or more Private lawyers representing the state can “buyers.” The lawsuits filed by plaintiffs’ obtain a windfall—millions of dollars in lawyers on behalf of the government often attorneys’ fees that would otherwise go to mimic lawsuits brought by the same lawyers the general treasury—when the state could in private class actions. have pursued the litigation through the The current lack of disclosure and legislative taxpayer-paid government lawyers. oversight in many states can leave the
Options 1. Adopt aspects of the Transparency in sufficient resources to handle the Private Attorney Contracting (TIPAC) law, matter in house; (2) the time and labor as first enacted in Florida, S.B. 712 (2010) required, complexity of the matter, (codified at Fla. Stat. Ann. § 16.0155): and skill necessary; (3) the geographic • Finding of need: Before hiring outside area where the attorney services are counsel on a contingency fee basis, to be provided; and (4) the amount of the government must find that the experience desired for the particular arrangement is both cost-effective and kind of attorney services to be in the public interest when considering: provided and the nature of the private (1) whether the government has attorney’s experience with similar issues or cases.
5 101 Ways to Improve State Legal Systems Address Over-Enforcement
• Request for proposals: The government 2. Legislators should also consider including must issue a request for proposals from the following additional elements: private attorneys who seek to represent • Government control: Retention the state on a contingency fee basis agreements must include safeguards unless such a process is not feasible requiring government attorneys under the circumstances. to retain complete control over • Transparency: Contingency fee the litigation and recognizing that agreements between the state and government attorneys have exclusive private lawyers, and fee payments settlement authority (enacted in made, are promptly posted on a several states). public website. • Eliminate financial motive to punish: • Recordkeeping: Law firms must keep A contingency fee may not be based detailed time and expense records. on penalties or civil fines awarded, as enacted in Arkansas, Mississippi, • Fee schedule: Contingency fee Nevada, North Carolina, Ohio, and percentages are set through a Wisconsin. reasonable sliding scale based on amount of recovery and subject to 3. Address attempts by AGs to circumvent an aggregate cap of $50 million, existing safeguards that require them exclusive of reasonable costs to obtain express statutory or legislative and expenses. States that have authority before hiring outside counsel. enacted TIPAC legislation more • Louisiana enacted such a law in 2014, recently have included lower fee as did Nevada in 2015. percentages and aggregate caps. For example, Nevada's legislation, RECENT ENACTMENTS S.B. 244, enacted in 2015, includes Thirteen states have followed Florida in an aggregate cap of $10 million. enacting AG transparency legislation. Each • Oversight: The attorney general law varies but includes a combination of the must submit an annual report to elements above. the legislature describing use of • Arkansas S.B. 204 (2015) (to be contingency fee contracts in the codified at Ark. Code Ann. preceding year and status of pending § 25-16 -714) contingency fee litigation. • Nevada S.B. 244 (2015) (to be codified in Nev. Rev. Stat. ch. 228) • Ohio S.B. 38 (2015) (to be codified at Ohio Rev. Code Ann. § 9.49 et seq.)
U.S. Chamber Institute for Legal Reform 6 Address Over-Enforcement
• Utah S.B. 233 (2015) (amending Utah • Mississippi H.B. 211 (2012) (codified Code § 63G-6a-106) at Miss. Code Ann. §§ 7-5-5, 7-5-8, 7-5-21, 7-5-39) • North Carolina S.B. 648 (2014) (to be codified at N.C. Gen. Stat. • Arizona H.B. 2423 (2011), as § 114-9.2 et seq.) amended by S.B. 1132 (2012) (codified at Ariz. Rev. Stat. § 41-4801 • Louisiana Act No. 796 (2014) et seq.) (amending La. Rev. Stat. §§ 42:262, 49:259) • Indiana S.B. 214 (2011) (codified at Ind. Code Ann. § 4-6-3-2.5) • Wisconsin A.B. 27 (2013) (codified at Wis. Stat. §§ 14.11, 20.9305) • Missouri S.B. 59 (2011) (codified at Mo. Rev. Stat. §§ 34.376, 34.378, and • Alabama H.B. 227 (2013) (codified at 34.380) Ala. Code § 41-16-72) • Iowa H.F. 563 (2012) (codified at Iowa Code § 23B.1 et seq.)
7 101 Ways to Improve State Legal Systems Address Over-Enforcement Restore Rationality to Unfair and Deceptive Trade Practices Litigation
Purpose In 1914, Congress established the Federal an alternative to product liability, public Trade Commission (FTC) and, over time, nuisance, and other claims. Plaintiffs’ lawyers empowered it to regulate unfair and do so where they are unable to otherwise deceptive trade practices. States developed satisfy the well-reasoned elements of these so-called little FTCs to stop fraudulent acts claims, such as a showing of an actual injury, within their jurisdictions. Unlike the federal causation, or damages. In addition, plaintiffs’ FTC Act, however, most state unfair and lawyers use UDTPAs to bring lawsuits deceptive trade practices acts (UDTPAs) (also claiming violations of regulations that the known as consumer protection acts) allow legislature intended government agencies consumers to bring private lawsuits for any to monitor and enforce. UDTPAs also form conduct that could be considered “unfair” the basis of massive consumer class actions or “deceptive,” in addition to government brought on behalf of people who may enforcement. These laws often permit private not have been injured by the challenged litigants to recover statutory damages—a adverting, labeling, or other practice. minimum amount per violation regardless of whether a person experienced an actual RECENT EXAMPLE injury. Many permit or require an award of The Massachusetts Supreme Judicial Court three times the amount of actual or statutory ruled that even after a jury finds that a small damages (known as treble damages) as well business owner’s negligence did not cause a as attorneys’ fees and legal costs. patron’s injury or death, a judge may impose treble damages and attorneys’ fees on the Plaintiffs’ lawyers are increasingly asserting basis of a technical violation, such as lack of a UDTPAs claims where traditional tort claims building permit, under the state’s consumer fail. More specifically, UDTPAs claims law. See Klairmont v. Gainsboro Restaurant, are increasingly tacked on or brought as Inc., 987 N.E.2d 1247 (Mass. 2013).
Options 1. Require a plaintiff to show: (1) reliance ascertainable loss of money or property; on an unfair or deceptive act or practice and (3) proof that the conduct at issue that is objectively reasonable; (2) an caused the plaintiff’s injury.
U.S. Chamber Institute for Legal Reform 8 Address Over-Enforcement
2. Require proof that the defendant 5. Provide that the UDTPA may not be used willfully deceived the public for an by plaintiffs’ lawyers to create a private award of treble damages where they right of action under other state laws that are available or required. are enforced by government agencies and not through private lawsuits. 3. Provide that punitive or exemplary damages are not available in an unfair or 6. Encourage courts to apply traditional deceptive trade practices action to avoid class action safeguards, such as double punishment of a defendant that requiring that common questions of has already been required to pay law and fact predominate, where class treble damages. actions are available. • Currently law in Tennessee. • Alabama, Georgia, Louisiana, Mississippi, Montana, Tennessee, 4. Provide that a court may not find conduct and South Carolina do not allow unfair or deceptive if the conduct is consumer protection claims to be required or permitted by or in accord with brought as class actions. Iowa allows state or federal law, rule or regulation, the filing of a class action after judicial or administrative decision, or approval by the attorney general. formal or informal agency action. • Most states have adopted regulatory 7. Do not permit statutory damages in compliance provisions, though class actions. the scope or application varies • Currently law in Colorado, New York, considerably: Alaska, Arizona (FTC- Ohio, and Utah. regulated conduct only), Arkansas, Colorado, Connecticut, Delaware, 8. Require a person, prior to bringing a Florida, Georgia, Hawaii, Indiana, lawsuit, to provide the prospective Iowa, Kentucky, Louisiana, Maine, defendant with a certain number of days’ Massachusetts, Michigan, Minnesota, notice of the intended action to promote Nebraska, New York (federally regulated prompt resolution of the dispute without conduct only), Ohio, Oklahoma, the need for litigation. Oregon, Rhode Island, South Carolina, • Currently law in Georgia. South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, 9. Authorize awards of attorneys’ fees and and Wyoming. costs to prevailing plaintiffs only when the defendant’s conduct was willful. • Currently law in Minnesota, North Carolina, and North Dakota.
9 101 Ways to Improve State Legal Systems Address Over-Enforcement
RECENT ENACTMENTS • Tennessee H.B. 2008, §§ 14-20 • West Virginia S.B. 315 (2015) (2011) (amending Tenn. Code Ann. (amending W. Va. Code §§ 46A-6-101, §§ 47-18-104(b)(27), 47-18-109): 105, 106): Requires proof of an actual Provides that a “catch all” provision out-of-pocket loss proximately caused generally prohibiting “any other act by a violation of the statute. Provides or practice which is deceptive” is any party with the right to demand to be exclusively enforced by the a jury trial. Excludes from scope of government, not through private coverage “actions or transactions lawsuits. Clarifies that a court may otherwise permitted or regulated by not award treble (triple) damages the Federal Trade Commission or any authorized for willful or knowing other regulatory body or officer acting violations and punitive damages for under statutory authority of this state the same conduct. Does not permit or the United States.” class actions under the consumer fraud statute.
U.S. Chamber Institute for Legal Reform 10 Address Over-Enforcement Avoid Excesses in False Claims Act Litigation
Purpose Over the last five years, false claims litigation Deficit Reduction Act of 2005 (DRA). In brought under federal law has exploded. order to qualify, a state must enact a law The federal False Claims Act (FCA) was with qui tam provisions authorizing private originally enacted to address defense lawsuits on behalf of the government that contracting fraud during the Civil War, but are “at least as effective” as the federal the law has transformed into a means law, have consistent liability provisions, and for plaintiffs’ lawyers to privately enforce have penalties that are at least as high at a broad swath of laws and regulations the federal law. As an in-depth exploration governing companies that do business with of state false claims acts published by ILR the government. Such lawsuits now target observed, states may receive a 10% bump conduct that does not actually involve a false in their recovery in multi-state federal FCA claim or a true “whistleblower.” settlements, but that increase may be more than offset by the state’s obligation to pay While the government can itself enforce a 20% bounty of any funds received to the the law, individuals who claim to have relators who filed suit under the state law inside knowledge, known as a relator or and the administrative cost of reviewing whistleblower, can bring an action in the FCA litigation brought by private plaintiffs’ name of the government and receive a lawyers. See Jonathan L. Diesenhaus, The bounty between 15-25% of any government Great Myths of State False Claims Acts: recovery. Companies that take such cases to Alternatives to Qui Tam Statutes 10 (Inst. trial face triple damages and the aggregation for Legal Reform, Oct. 2013). of “per claim” statutory penalties. With approximately two-thirds of states Congress provides an incentive for states having enacted their own False Claims to adopt false claims laws through offering Acts, plaintiffs’ lawyers are now gravitating increased federal Medicaid funding in the toward increased use of these laws.
Options States that have enacted False Claims 1. Provide that companies operating Acts, or are contemplating doing so, should compliance programs certified as meeting consider the following reforms: criteria set by an independent body benefit from liability protections including:
11 101 Ways to Improve State Legal Systems Address Over-Enforcement
• A defendant would be liable for treble In non-intervened cases, relators damages only if it acted with specific would receive 25% to 30% of intent to defraud; double damages the first $50 million recovered; if it acted with knowledge, reckless plus 20% to 25% of the next disregard, or deliberate ignorance; $50 million recovered; plus 10% and 1.5 times damages if it made to 20% of amounts recovered a qualifying self-disclosure to the above $100 million. government of the conduct. • Bar qui tam actions brought by • With limited exceptions, qui tam former or present government actions would be barred against a employees arising out of such company that previously disclosed person’s employment by the substantially the same allegations government to prevent government to an appropriate government employees from cashing in on their Inspector General or other federal government service. investigative office. • Define the phrase “false or • In order to create incentives fraudulent claim” to exclude the for employees to report alleged judicially-created concept of “implied misconduct internally, an employee false certification” liability, so that who failed to report internally at least liability is imposed when a claim is 180 days before filing a qui tam action “materially false or fraudulent on its would face dismissal of the action. face,” or when a claim is presented • A company and, absent personal or made “when the claimant has involvement in fraud, its executives, knowingly violated a requirement would not be subject to mandatory or that is expressly stated by contract, permissive exclusion or debarment. regulation, or statute to be a condition of payment of the claim.” 2. Adopt reforms applicable to all • Require all essential elements companies, such as: of liability under the state FCA to • Reduce the relator’s share of the be proven by “clear and convincing government recovery to provide evidence” to bring the law in line substantial, but not excessive, with other federal and state incentives for bringing fraud to light. anti-fraud statutes. In cases in which the • Amend the FCA damages provision government intervenes, relators to better measure the government’s would receive 15% to 25% of actual loss. The government would the first $50 million recovered; recover its “net actual damage” plus 5% to 15% of the next $50 before application of any damage million recovered; plus 1% to multiplier, which is defined to mean 3% of amounts recovered above “out-of-pocket monetary losses, less $100 million. the value of benefits received by the government, and does not include indirect or consequential damages.”
U.S. Chamber Institute for Legal Reform 12 Address Over-Enforcement
• Change the current irrational penalty the state does not have to share its structure of the FCA, so that recovery with qui tam plaintiffs and statutory penalties are assessed pay their attorneys’ fees. only where no damages are awarded • Nevada A.B. 48 (2015) (amending and are capped at an “amount Nev. Rev. Stat. § 357.210): Reduces equal to the sum sought in the from 33% to 25% the maximum claim in addition to all costs to the share of any recovery that a private government attributable to reviewing plaintiff is entitled to in a qui tam the claim.” action brought under the state’s • Require a state attorney general who Medicaid false claims law when the receives a qui tam complaint, or attorney general intervenes in the initiates a false claims investigation, action at the outset, and from 50% to notify all relevant government to 33% the maximum share of any agencies and employees of their recovery that a private plaintiff is obligation to preserve relevant entitled when the attorney general documents. If the attorney general’s does not intervene. office fails to provide this notification, • West Virginia H.B. 4001 (2014) the court would be instructed to (rejected): The West Virginia “draw or instruct the jury to draw a Legislature rejected a plaintiffs’ negative inference from any failure lawyer-sponsored proposal to enact of the government to produce a state false claims act. A national documents requested in the course organization, Taxpayers Against of litigation based on their loss or Fraud, whose largest donors include destruction.” individuals and lawyers who obtain 3. Repeal unnecessary and duplicative false millions of dollars in qui tam bounties, claims laws. drove the legislation. Members of the House of Delegates expressed RECENT LEGISLATIVE ACTION concern that the bill would duplicate • Wisconsin S.B. 21, § 945n (2015) existing anti-fraud laws, damage the (effective July 14, 2015): Repeals state’s business climate, and lead to Wisconsin’s False Claims for Medical more lawsuits that primarily benefit Assistance Act, Wis. Stat. § 20.931, plaintiffs’ lawyers. which was enacted in 2007. In • Maryland H.B. 867 (2014) (postponed a memorandum submitted to a indefinitely in the Senate): The Wisconsin legislator, the Wisconsin Maryland Senate rejected a broad Department of Justice concluded that false claims act with expansive liability repeal of the law “will not reduce and potential damages exceeding dollars recovered but rather, could federal law. Senators recognized that serve to increase dollars recovered the law would provide an unwarranted for the [Medical Assistance] incentive for litigation and harm the program” because when the state state’s business environment. pursues recovery through other laws,
13 101 Ways to Improve State Legal Systems Address Over-Enforcement Adopt Best Practices for Fair Enforcement of Unclaimed Property Laws
Purpose Unclaimed property laws require companies This increased state reliance on unclaimed to transfer to the state treasury any money property has dangerously coincided or property deemed abandoned after a with unclaimed property administrators' certain period of inactivity by the property’s increased use of private audit firms to last-known owner. These laws reach a wide assess whether businesses are properly range of assets—a long-forgotten insurance reporting unclaimed property. When these policy, inactive bank account with leftover firms stand to gain financially for every funds, unclaimed dividend, or gift card that dollar collected, private auditors have an was never used. Such funds are becoming incentive to stretch the boundaries of increasingly attractive to state officials the law in order to maximize their return. looking to fill holes in government budgets. There is growing concern that private auditors operating under contingency fee Once transferred by a business, unclaimed arrangements have a conflict of interest funds are held by the state, nominally for that infects the process. They may be the benefit of the absent owner, but as a overly aggressive in pursuit of private practical matter as an indefinite, interest- gain and control enforcement without free loan for the state. These laws, when adequate oversight and accountability. fairly and appropriately enforced, may help States should take proactive steps and reunite rightful owners with their property adopt best practices that ensure the fair and may help ensure that companies and transparent enforcement of state are incentivized to protect abandoned unclaimed property laws. consumer property. In times of budget tightening, however, there is a heighted focus on unclaimed property as a cash source for state treasuries.
When these firms stand to gain financially for every dollar collected,“ private auditors have an incentive to stretch the boundaries of the law in order to maximize their return.”
U.S. Chamber Institute for Legal Reform 14 Address Over-Enforcement
Options 1. Require unclaimed property RECENT ENACTMENTS administrators to make a written finding • Delaware S.B. 11 (2015) (amending of need before engaging private auditors various sections Del. Code tit. 12): and use an open and competitive bidding Limits the term of contracts with process for all state contracts with outside auditors to no more than five private audit firms. years and precludes hiring certain 2. Require posting of all government former government employees as contracts with private audit firms outside auditors for two years after on the unclaimed property leaving state employment, among administrator’s website. other changes. 3. Prohibit state officials from • Delaware S.B. 141 (2015) (amending compensating private audit firms based Del. Code tit. 12, §§ 1156, 1158): on the amount recovered. All private Permanently extends the state’s audit firms should be paid on an hourly Voluntary Disclosure Program and or fixed-fee basis. reduces the look-back period for audits to 22 years from initiation of 4. Require unclaimed property the audit (current law allows looking administrators to maintain complete back to 1981), among other reforms. control over the course and manner of any audit conducted by a private auditor. OTHER RECENT LEGISLATION • Delaware S.B. 215 (2014): This bill 5. Provide companies subject to audit prohibited the State Escheator from with the right to contact the unclaimed hiring contract auditors that are paid property administrator’s staff directly on a commission or a contingency on any matter pertaining to the scope fee basis and would have limited or resolution of, or legal justification for, contracts with third-party auditors to the audit. no more than three years. The bill died in the Senate Banking Committee. 6. Adopt programs providing companies with incentives to voluntarily comply • Michigan H.B. 5524 (2012). This with unclaimed property laws without bill provided that if the unclaimed the risks associated with an intrusive property administrator contracts audit. For example, some states have with a private firm to conduct adopted voluntary disclosure programs an audit, “the audit shall not be that offer a materially shorter look-back performed on a contingent fee period for voluntary reporting than would basis or any other similar method be subject to examination in an audit. that may impair an auditor's independence or the perception of independence by the public.” The bill died in the House Committee on Tax Policy.
15 101 Ways to Improve State Legal Systems Address Over-Enforcement Reject Expansions of Bad Faith Liability that Drive Up Insurance Rates
Purpose Every state has laws to protect against an Plaintiffs’ lawyers have pushed legislation insurer’s improper and unfair handling of an to expand such lucrative lawsuits against insurance claim. These laws generally provide insurers in four key ways by: (1) creating for regulatory enforcement by a state’s new statutory private rights of action insurance department, but may also permit for bad faith; (2) diluting any intentional an insured, and sometimes a third party, to conduct standard for claiming bad faith; directly sue an insurer in a tort action for any (3) enumerating strict criteria purporting denial of a claim done in “bad faith.” to show bad faith; and (4) increasing and expanding penalties for bad faith actions. Traditionally, courts have interpreted “bad By establishing new private rights of action faith” as an intentional or reckless denial of for insureds and third parties, and then a claim; however, some state courts have diluting the standards for maintaining such diluted this standard by holding that minor claims, plaintiffs’ lawyers are able to fashion and unintended technical violations of an a broad and highly malleable civil action that insurance statute may constitute bad faith can transform even the most minor insurer for the purposes of a tort action. This may error into a multi-million dollar lawsuit. enable a claimant to recover a broad array of damages against an insurer, such as the Ultimately, costs associated with such full value of the underlying insurance policy, lawsuits are not borne by a “wealthy extra-contractual damages, attorneys’ fees, insurer,” but rather by individuals, court costs, and punitive damages. small businesses, and other insurance consumers onto whom higher premiums are passed. Higher premiums may price
Ultimately, costs associated with such lawsuits are “not borne by a ‛wealthy insurer,’ but rather by individuals, small businesses, and other insurance consumers onto whom higher premiums are passed.”
U.S. Chamber Institute for Legal Reform 16 Address Over-Enforcement
some consumers out of the insurance although such an action is generally market altogether, increasing the number available. Approximately a dozen states of uninsured and underinsured, and further permit claims by someone other than increase costs for those able to maintain the insured individual (i.e., third-party insurance. Some insurers may also claimant). See Victor E. Schwartz & discontinue or substantially curtail their Christopher E. Appel, Common-Sense services given the risks associated with Construction of Unfair Claims Settlement an overly-expansive bad faith law, which Statutes: Restoring the Good Faith in Bad would additionally penalize consumers Faith, 58 Am. U. L. Rev. 1477 (2009). through less insurer competition and fewer • A recent study found that Florida’s coverage choices. virtually unrestricted ability to file third- NOTES party bad faith lawsuits may have resulted • States vary on whether a private right in over $800 million in additional auto of action by a direct insured against his liability claim payments in 2013 alone. or her insurer (i.e., first-party claimant) See Insurance Research Council, Third- is provided by statute or common law, Party Bad-Faith in Florida’s Automobile Insurance System (2014).
Options 1. Provide a safe harbor from bad faith 4. Provide or clarify that any statutory private claims, during which the insurer can right of action is limited to the direct properly investigate the claim and decide insured and not other third-party claimants. whether to pay the policy limits. 5. Repeal statutes permitting third-party bad 2. Provide or clarify that the standard for faith claims where applicable. any private bad faith statutory right of action is that the insurer must act 6. Clarify that enforcement of the state’s intentionally to unjustly deny payment unfair claims settlement statute is under a claim or act in reckless disregard limited to a state insurance commission of the claimant’s interests. or department, and that any private statutory right of action must be 3. Eliminate dual enforcement of bad faith established separately. actions under statute and common law such that a claimant failing to make a 7. Establish limits on extra-contractual claim under statute cannot revive his or and/or punitive damages available in her claim through a common law tort bad faith actions. action, or vice-versa.
17 101 Ways to Improve State Legal Systems Address Over-Enforcement
8. Oppose legislation that creates a private where the insurer breached its duty to right of action for third-party claimants, defend but did not act in bad faith. The reduces or eliminates the standard for bill died in the House Committee on finding bad faith, or increases penalties. Insurance Policy.
RECENT DEVELOPMENTS Several plaintiffs’ bar-supported bills also Legislation was introduced that would failed. Examples include: have placed reasonable limits on bad faith • New Jersey A.B. 231 (2014): Would actions against insurers. Examples include: have established a private cause of • Florida H.B. 1197 / S.B. 1088 (2015): action for bad faith in the settlement Would have required a claimant of insurance claims arising out of bringing a bad faith action under either a declared disaster and authorized statute or common law to provide an punitive damages, attorneys’ fees insurer with a written notice of the and interest payments related to alleged loss. The bill provided a safe such actions. harbor from bad faith liability to an • Michigan H.B. 5523 (2014): Would insurer that offers to pay the claimant have created a statutory presumption the lesser of the amount that the of bad faith whenever an insurer claimant is willing to accept or the failed to meet the technical policy limit within 45 days of receiving requirements of other statutory the notice. The bill did not advance. provisions related to the handling of • Missouri H.B. 1344 / S.B. 617 (2014): an insurance claim. Would have limited a judgment against an insurer to a policy’s applicable limits
U.S. Chamber Institute for Legal Reform 18 Safeguard the Integrity of the Litigation Process
Individuals and businesses that find themselves named as defendants in civil litigation are often confident that they will prevail against meritless lawsuits if the case is decided through a fair and impartial system. Unfortunately, in some areas of the country, the litigation system is slanted against defendants. The rules governing lawsuit procedure can matter just as much as the substantive law.
First, defendants are immediately placed Next, defendants are often forced into at a distinct disadvantage in some settling lawsuits by pre-trial rulings that jurisdictions. State venue laws may allow stack the deck against them. States in plaintiffs’ lawyers to pick and choose the which judges do not act as gatekeepers court where they believe they will receive over the reliability of purported expert the most favorable judge or jury, even if testimony run a risk of junk science that area has no connection to the lawsuit. invading the trial and an outcome that is Other laws fail to provide parties with a unsupported by sound science. The bet-the- representative jury—one whose diversity company nature of class action lawsuits, reduces the chance of an outlier decision once certified, often leads businesses to or runaway award. State statutes and quickly settle claims even when many of rules against frivolous lawsuits are also the purported class members have no notoriously lax, leaving those hit with such concern with the product or its marketing. suits to pay the cost even if the lawsuit is ultimately dismissed.
19 101 Ways to Improve State Legal Systems At the same time, plaintiffs’ lawyers exploit procedural loopholes. In asbestos litigation, for instance, they file claims against Unfortunately, solvent companies that have only a remote connection to the litigation. During the in some areas of the litigation, however, the plaintiffs’ lawyers “ country, the litigation do not disclose that they believe their clients’ exposure to asbestos stemmed system is slanted from the products of companies that have against defendants. already filed for bankruptcy as a result of the liability. The lawyers then file claims with trusts established by the bankrupt ” companies and recover more. Since the trust claims are kept hidden during the litigation, juries are misled and solvent Individuals who experience injuries also companies settle for inflated amounts. face unfairness in the legal system. They are enticed to take loans while their lawsuit Finally, appeal of an extraordinary verdict is pending at sky-high interest rates. They may be beyond the reach of civil defendants may also be misled by attorney advertising due to unconstrained appeal bond rules that and solicitation practices that do not fully require the defendant to post an amount educate them on their rights and options in as much as, or more than, the amount of obtaining legal representation. the judgment in order to prevent collection attempts during its appeal. And, during what The reforms addressed in this section are may be a long litigation process, interest intended to safeguard the integrity of the on the judgment continues to accumulate litigation process, providing a balanced at a rate that, in some states, is ten times system to fairly resolve disputes. inflation. These laws place undue pressure on defendants to settle rather than exercise their right to appeal.
U.S. Chamber Institute for Legal Reform 20 Safeguard the Integrity of the Litigation Process Stop Predatory and Unsound Lawsuit Lending Practices
Purpose In recent years, an industry has emerged full investment. To make matters worse, in which lawsuit lenders offer to lend funds the longer a lawsuit drags on, the more the in exchange for a portion of the expected consumer owes the lender as high interest settlement to plaintiffs, often in personal rates compound monthly on the principal. injury lawsuits. These loans are typically attached to sky-high interest rates that can Interjecting a third-party lender also weakens exceed 200 percent, leaving borrowers the traditional attorney-client relationship and with little to no recovery. The Wall Street raises serious questions about the lender’s Journal has called lawsuit lending ”the legal place in that relationship. There can be no equivalent of the payday loan.” Plaintiffs question that a company with a substantial who lose their cases are not obligated to amount of money invested in a lawsuit will repay the loan. This distinction allows lawsuit seek to influence strategy and will seek lenders to call the process “non-recourse access to confidential information. These funding” and claim it is not a loan subject to motivations raise troubling ethical concerns safeguards applicable to other lenders. because, in contrast to lawyers, lenders have no established or enforceable duty to Lawsuit lending encourages prolonged represent their clients zealously or guard litigation and artificially inflated settlements. their confidences. Injecting a third-party lender into a case incentivizes plaintiffs to reject reasonable State legislatures should consider bills settlement offers because of their that would prohibit lawsuit lending, reject obligation to share their recoveries with the proposals to authorize or expand such lender. By the same token, a lender may practices, and, at minimum, subject lawsuit pressure a borrower to reject a settlement lenders to existing state consumer lending offer that does not reimburse the lender’s laws or similar requirements.
Options 1. Reject legislation that would expand the • capping the interest consumer availability of lawsuit lending. lawsuit lenders can charge at the state’s existing usury rate; 2. Clarify that consumer lawsuit lending falls within the ambit of states’ existing fair-lending laws by:
21 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
• requiring consumer lawsuit lenders to percentage rate (APR). Provides make the same disclosures regarding that a violation is a deceptive and their loans as other providers of unconscionable trade practice. consumer credit; and • Tennessee S.B. 1360 (2014) • subjecting consumer lawsuit lenders (to be codified at Tenn. Code Ann. to the state’s existing regulations §§ 47-51-101 et seq.): Permits lenders governing other providers of to charge an annual administrative consumer credit. fee of no more than 10% of the amount provided to the consumer 3. Provide much-needed disclosure and a “yearly fee” (interest rate) regarding consumer lawsuit lending of up to 36%. Limits the terms transactions by requiring a plaintiff who of loans to three years. Does not has received consumer lawsuit lending permit lawsuit lending with respect to produce in discovery any documents to workers’ compensation claims. he or she may have shared with the Mandates certain contract disclosure consumer lawsuit lender and to file with information. Requires litigation the court a copy of the lending contract. financers to register with the state and file a surety bond. 4. Prohibit lawsuit lending. Courts in several jurisdictions have invalidated agreements • Oklahoma S.B. 1016 (2013) (codified providing for third-party financing of at Okla. Stat. tit. 14A, §§ 3-801 litigation. Legislatures can provide greater et seq.): Permits lawsuit lending clarity in the law by codifying these rulings. only with respect to existing legal claims. Subjects agreements to the RECENT ENACTMENTS Uniform Consumer Credit Code. • Arkansas S.B. 882 (2015) Mandates certain contract disclosure (to be codified at Ark. Code Ann. information. Requires consumer § 4-57-109): Places the consumer lawsuit lender to obtain a license and lawsuit lending industry under the file a bond or irrevocable letter of state’s usury laws, providing for credit. Prohibits lender from making a maximum interest rate of 17%. decisions relating to the conduct, Requires written contract with settlement, or resolution of the prominent disclosure of annual underlying legal claim.
Lawsuit lending encourages prolonged litigation and artificially“ inflated settlements. Injecting a third-party lender into a case incentivizes plaintiffs to reject reasonable settlement offers because of their obligation to share their recoveries with the lender.” U.S. Chamber Institute for Legal Reform 22 Safeguard the Integrity of the Litigation Process Protect the Rights of Consumers of Legal Services
Purpose For the average person, the legal injured—once by the accident that spawned process is confusing and expensive. The their lawsuit and once by the legal system often complex path to justice is strewn itself at the hands of their own lawyers. A with undisclosed costs and is further legal consumers’ “bill of rights” would help complicated by the abuse of contingency those who need representation become fees. Many consumers cannot comparison more informed shoppers. shop for cost-effective legal services NOTE because they lack the background to This proposal may be used as an make informed decisions about their own amendment to legislation that would legal actions. Consequently, plaintiffs broaden liability or damages under state may emerge from the legal system twice consumer protection acts.
Options 1. Forbid an attorney and any of his or her 3. Require attorneys in personal injury representatives from making unsolicited cases to provide a full written contact with a potential claimant for 45 explanation of the fee agreement and days after an event resulting in personal alternative billing options, as well as an injury or death that could give rise to a up-front estimate of the probability of cause of action by that claimant. success, likely recovery, hours of work to be expended, and all expenses that 2. Require attorney advertisements that may be incurred. use the word “free” or any other phrase indicating that legal services are provided 4. Mandate that, in any retention at no cost to the client, to also state, in agreement, attorneys disclose all fees the same size print, whether the client and costs anticipated and explain the will be responsible for costs associated calculation of contingency fees and with litigation and the possible range of responsibility for paying expenses. Give contingency fees that will be charged if a prospective client at least three days the client does recover. to review the agreement for services. 5. Mandate that attorneys keep accurate time records and at the end of the
23 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
case provide the client with detailed 11. Provide that failure to meet these information regarding the amount of disclosure obligations is considered time spent on the case and any fees an unfair or deceptive trade practice and expenses to be charged. under state law. 6. Require attorneys to provide copies 12. Provide that the legislation is in of all major documents and to notify addition to and not in lieu of any clients within a reasonable time of any other available remedies or penalties, settlement offer, dispositive motion, including any ethics rules applicable or court ruling. to attorneys that provide additional protections for legal consumers. An 7. Require that an attorney disclose attorney who fails to comply shall be any agreement or intent to have subject to court sanctions, disciplinary outside counsel provide any of the action by the state bar association or legal services, including the scope other such professional organization and anticipated costs associated through existing procedures, and civil with engaging outside counsel. If the liability in an action brought by a party decision to use outside counsel is made alleging injury from failure to comply after the legal services agreement is with legislation. entered into, the attorney must receive the client’s consent in writing. 13. Provide that an attorney who intentionally fails to disclose to a 8. Require attorneys to advise clients claimant any information required of their ability to obtain an objective shall additionally be liable for treble or review of a contingency fee by a court exemplary damages. or through a bar association committee, and to provide clients with a closing 14. Offer an exception to these provisions statement and complete accounting of when the client is a “knowledgeable all financial transactions related to the consumer of legal services,” including a provision of legal services. sole proprietorship or a business that has counsel to review such an agreement or 9. Require attorneys who maintain a has at least 30 employees. fiduciary or escrow account with collective deposits in excess of $1 RECENT ENACTMENTS million during a calendar year to file a • Wisconsin S.B. 12 (Spec. Sess. 2011) certification from an outside financial (codified at Wis. Stat. § 814.045): expert that the account has been Provides a presumption that maintained in accordance with all reasonable attorneys’ fees are no applicable laws and regulations. more than three times the amount 10. Provide that failure to comply with of the compensatory damages these requirements renders the fee awarded. This presumption may be agreement voidable at the option of overcome if the court determines, the plaintiff, and the attorney shall after considering factors provided thereupon be limited in recovery to a by the Wisconsin law, that a greater reasonable fee for services rendered. amount is reasonable.
U.S. Chamber Institute for Legal Reform 24 Safeguard the Integrity of the Litigation Process Reduce Forum Shopping
Purpose Forum shopping, or “litigation tourism,” Forum shopping has led to an influx of describes the practice whereby attorneys file litigation in certain jurisdictions. This lawsuits in a jurisdiction that has little or no practice can provide plaintiffs with an unfair relation to the litigants or conduct involved and inappropriate advantage in litigation in the lawsuit. This can occur within a state and place an undue burden on the judicial (intrastate forum shopping) or among states system and taxpayers of these jurisdictions. (interstate forum shopping). The motivation Choice of forum is typically governed by is often a perception of pro-plaintiff judges state venue laws or the doctrine of forum or juries, a reputation for high verdicts, or non conveniens, which provides a court favorable court procedures or law. with discretion to dismiss a case more appropriately heard in another forum.
Options
1. Prohibit nonresidents of the state from 5. Specify factors pursuant to which a court bringing an action in state court unless may dismiss or transfer a case when the all or a substantial part of the acts or lawsuit is more closely related, and is omissions giving rise to the lawsuit more appropriately decided, in another occurred in the state. jurisdiction. Such factors may include: where the injury occurred; where the 2. Require that, in any civil action where parties are located; the location and more than one plaintiff is joined, each availability of witnesses; the ease of plaintiff shall independently establish access to evidence; the possibility of proper venue. harassment to the defendant in an inconvenient forum; the enforceability 3. Limit the ability of a plaintiff to file a of a judgment; whether the litigant is lawsuit in a jurisdiction other than where attempting to circumvent the time limit for the action arose, where the plaintiff bringing a claim in another state; which resides, or where the defendant has its state’s law would govern the case; and the principal place of business. burden on the court and jury of deciding a 4. Tighten venue rules by providing matter that is not of local concern. that owning property and transacting RECENT ENACTMENTS business in a county is insufficient in and • Virginia H.B. 1618 (2013) (amending of itself to establish the principal place of Va. Code Ann. § 8.01-262): Provides business for a corporation. that a plaintiff may only file a lawsuit
25 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
where a corporate defendant’s principal office or principal place of business is located, or where there This practice can is a practical nexus between a forum provide plaintiffs with an in which the defendant regularly “ conducts substantial business activity unfair and inappropriate and the action, as shown by the advantage in litigation location of fact witnesses, plaintiffs, or other evidence to the action. and place an undue • Oklahoma H.B. 1003X (Spec. Sess. burden on the judicial 2013): Codifies the doctrine of forum system and taxpayers of non conveniens, allowing a court to transfer a claim or action to another these jurisdictions. venue in the interest of justice and for the convenience of the parties. ” The court must consider: whether • Alabama S.B. 212 (2011) (amending an alternate forum exists in which Ala. Code § 6-5-410): Requires the action may be tried; whether the wrongful death actions to be brought alternate forum provides an adequate in the county where the decedent remedy; whether keeping the action could have filed suit, preventing in the court in which the case is filed the practice of naming a personal would be a substantial injustice to the representative in a plaintiff-favorable moving party; whether the alternate county solely for purposes of forum can exercise jurisdiction over obtaining venue there. all the defendants properly joined in • Tennessee H.B. 2008, § 2 (2011) the action of the plaintiff; whether (amending Tenn. Code Ann. § 20-4- the balance of the private interests 104): Provides that civil suits against of the parties and the public interest businesses must be filed in the county of the state predominates in favor where all or a substantial part of the of the action being pursued in an events or omissions giving rise to the alternate forum; and whether the cause of action accrued, or the county stay, transfer, or dismissal would where any defendant maintains its prevent unreasonable duplication or principal office. If the defendant is proliferation of litigation. an out-of-state business, the action • Louisiana H.B. 464 (2012) (codified at must be filed in the county where La. Civ. Code Art. 38): Provides that the defendant’s registered agent for a business’s residence (domicile) for service of process is located; or, if venue purposes is either the state of the defendant does not maintain a its formation or the state of its principal registered agent within Tennessee, the place of business, whichever is most county where the person designated pertinent to the particular issue. by statute as the defendant’s agent for service of process is located.
U.S. Chamber Institute for Legal Reform 26 Safeguard the Integrity of the Litigation Process Ensure that Juries Represent the Entire Community
Purpose
Representative juries that include people Two states use a particularly innovative from all walks of life reduce the potential for “lengthy trial fund” to ensure that jurors outlier decisions. The jury service laws of who would not receive their ordinary income some states exempt certain professionals, during jury service are able to serve on make it easy for citizens to simply avoid complex trials that extend more than one or jury service, and provide inadequate two weeks. Without the availability of such compensation for working jurors to serve wage replacement, individuals who depend on particularly long, high-stakes trials. More on hourly wages, work as independent representative juries can be secured by contractors, or own small businesses are likely reducing the burdens of jury service and to be excused from jury service on high-stakes more effectively requiring all people to serve. trials due to financial hardship. By including a diverse range of experiences, this program may reduce the potential for a “runaway” jury.
Options
1. Best practices. Consider updating state • increase civil fines for failure to respond jury service laws to: to a juror summons (e.g., $500).
• provide a procedure to automatically 2. Innovations. In coordination with the reschedule jury service; state’s judiciary, consider adopting • limit the term of service to no more legislation to authorize, study, or fund than one day or one trial; jury service innovations included in the • strengthen hardship excuse standard; National Center for State Courts Jury Trial Innovations (2d ed. 2006) guide or • eliminate all exemptions based on the recommendations of the American profession or occupation; Bar Association’s Principles for Juries and • prohibit employers from requiring use of Jury Trials (2005). These guides support leave or vacation time for jury service; several of the reforms bulleted above but also recommend additional practices, • protect small businesses that may such as allowing juror note-taking. suffer from a temporary loss of more than one employee on jury service; and
27 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
3. Lengthy Trial Fund. Adopt a lengthy a $10 court fee assessed on the filing trial fund providing supplemental of civil complaints. compensation to jurors selected to serve on trials of more than 5 or 10 days 4. Preserve 12-member juries. Promote who do not receive their full regular predictability and consistency in compensation during jury service jury determinations by preserving a from their employers or who are self- 12-member jury in civil cases (other than employed. This fund may be financed for deciding small claims). Smaller juries by a nominal fee on the filing of civil have less diversity and deliberation, and complaints without the use of taxpayer are less representative of the community. dollars. Such a system is currently They have a greater chance of reaching operating in Arizona and Oklahoma. outlier decisions. Resist efforts—pushed by plaintiffs’ lawyers and enticing as a • Ariz. Rev. Stat. § 21-222 et seq.: means to cut costs or increase juror pay— Jurors who serve more than five to reduce civil juries to six members. days who document that they are not receiving their usual income can RECENT ENACTMENTS receive their daily loss up to $300 for • Arizona S.B. 1248 (2014) (amending each day of jury service. Those who Laws 2003, ch. 200, § 13): Extends are retired or not employed are eligible the Lengthy Trial Fund that was set to to receive $40 per day. Supplemental expire on July 1, 2014 for an additional compensation is fully funded by a five years (June 30, 2019). $15 court fee assessed on the filing of civil complaints, answers to civil • Arizona H.B. 2133 (2012) (amending complaints, and motions to intervene Ariz. Rev. Stat. § 21-222): Modifies the in civil cases filed in superior court. Lengthy Trial Fund to allow jurors who The fee is not imposed in cases serve on a trial lasting more than five that involve minimal use of court days to receive wage supplementation resources or that are not afforded the or replacement beginning on the first opportunity for a trial by jury. day of jury service. • Okla. Stat. tit. 28, § 86: Jurors • Oregon H.B. 3034 (2011) (amending who serve more than 10 days who Or. Rev. Stat. §§ 10.055, 10.090): document that they are not receiving Provides that a judge or court clerk their usual income can receive their may grant a summoned juror’s second daily loss up to $200 for each day of request for a deferral of jury service jury service beginning the fourth day if the person provides a list of no of service. The court may also award fewer than 10 dates within the six- replacement wages of up to $50 per month period following the date of the day for the fourth to the tenth day request on which the person would be of jury service when a juror serves able to serve. An employer may not more than 10 days if it finds that jury require that an employee use vacation, service for a particular individual is sick, or annual leave for time spent in a significant financial hardship. This responding to summons for jury duty wage replacement is fully funded by and must permit the employee to take leave without pay for time spent.
U.S. Chamber Institute for Legal Reform 28 Safeguard the Integrity of the Litigation Process Make Losers Pay for Filing Frivolous Lawsuits
Purpose
State legislators periodically express interest adding attorneys’ fees on top of what may in adopting “loser pays”—a system under already be excessive liability. Legislation which the losing party in a lawsuit must pay strengthening rules against frivolous claims, the opposing party’s attorneys’ fees and requiring losing parties to pay discovery costs. A loser-pays system has strong appeal. expenses, or addressing vexatious litigants It often takes little more than a small filing may provide better options. fee and generation of a form complaint to begin a lawsuit. It costs much more for a NOTE small business to defend itself. Even when an Concern that the English Rule might individual or business “wins” a lawsuit, the not result in a loser-pays system, but cost of defending against a meritless claim instead “defendant pays,” stems from the can easily rise into the tens or hundreds of considerable discretion that judges typically thousands of dollars. These expenses, which have to avoid imposing fees on individuals are typically not recoverable, become a cost whose good-faith claims could not be of doing business in America—it is part of the proved by a preponderance of the evidence. “tort tax.” Imposition of fees is especially unlikely when the prevailing party is a corporate defendant Theoretically, a loser-pays law should deter that is viewed as being able to “afford” lawyers from filing weak claims. Some defending against the suit. Thus, the English respected scholars and advocacy groups rule could paradoxically increase the liability strongly support a loser-pays system. exposure of America’s employers. Even if a There are questions, however, as to judge imposed fees on a losing plaintiff, in whether the pure form of a loser-pays law, many cases, such individuals are “judgment known as the “English Rule,” achieves this proof” and a defendant that pursues fees result in practice. Some have expressed would spend more money to chase after an concern that a loser-pays system will be unattainable reimbursement. unevenly applied against defendants—
Options
1. Require those who file frivolous lawsuits to is one that: (1) is presented for an improper pay the defendant’s attorneys’ fees related purpose; (2) is not supported by existing to dismissal of the suit. A frivolous lawsuit law or a legitimate argument for extending,
29 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
modifying, or reversing existing law or for establishing new law; or (3) is not supported by the facts and is unlikely to Even when an have evidentiary support after a reasonable individual or business opportunity for further investigation or “ discovery. By way of contrast, a meritless ‛wins’ a lawsuit, the cost lawsuit is one where there is a legitimate of defending against a claim, but the plaintiff cannot, or does not, meritless claim can easily meet his or her burden of proof. • Require courts to impose sanctions rise into the tens or hundreds when a judge finds that a claim or of thousands of dollars. defense is frivolous. These expenses, which are • Recognize that a court may use sanctions to reimburse a party for typically not recoverable, reasonable attorneys’ fees and become a cost of doing costs incurred as a result of the business in America—it is frivolous claim. • Place the cost of frivolous legal part of the ‛tort tax.’ claims or defenses on the attorney responsible. ” • Eliminate the 21-day “safe harbor” 3. Adopt vexatious litigant law. This law would (available in federal courts and about require that pro se plaintiffs (individuals one-third of state courts), which who file lawsuits without an attorney) allows plaintiffs’ lawyers to withdraw who repeatedly file and lose lawsuits to frivolous claims without penalty even obtain permission from the court and post after imposing significant costs upon security before filing additional litigation. a defendant. Such laws have been enacted in states 2. Impose the costs of discovery on the such as California, Florida, Hawaii, Ohio, losing party. This option would not place Texas, and, most recently, New Hampshire. the full costs of the litigation on the losing RECENT ENACTMENTS party, but would discourage litigants from Strengthening the state’s rule against imposing excessive, time-consuming, and frivolous claims: costly document production obligations on opponents in order to pressure them • Wisconsin S.B. 1, § 28, Spec. Sess. into an unfair settlement. Current law in (2011) (codified at Wis. Stat. § 895.044): many states already permits the prevailing Provides a more limited safe harbor party to seek recovery of costs. This than the federal rule and permits the approach would expand the definition of use of sanctions to reimburse victims reimbursable costs to include expenses of frivolous lawsuits. Allows a judge to incurred in responding to written and oral award court costs and attorneys’ fees discovery and producing documents. to the defendant even if the plaintiff’s
U.S. Chamber Institute for Legal Reform 30 Safeguard the Integrity of the Litigation Process
attorney withdraws the frivolous action constitutionality of a law where the within 21 days. If the frivolous action meaning, lawfulness or constitutionality is not withdrawn, then the defending is a matter of first impression of an party is entitled to recovery of appellate court; or (6) the court granted reasonable court costs and attorneys’ the motion to dismiss the claim due to fees. Requires reimbursement of the subsequent repeal, amendment, attorneys’ fees if the sanctioned party overruling or distinguishing of the pursues and loses an appeal. Costs and applicable law, regulation or published fees may be assessed fully against the court precedent. The court awards fees party bringing the action or the attorney only after all appeals are exhausted. representing the party, or both, jointly • Texas H.B. 274 (2011) (adding Tex. and severally, or may be assessed so Gov't Code § 22.004(g),(h)): Directs that the party and the attorney each pay the Supreme Court to adopt rules a portion of the costs and fees. to provide for the early dismissal of Requiring a plaintiff whose case is causes of action that have no basis dismissed at an early stage for failure in law or fact. See also Tex. R. Civ. to state a claim to pay the defendant’s Proc. 91a: Provides rule governing attorneys’ fees and costs: “Dismissal of Baseless Causes of • Tennessee H.B. 3124 (2012) (amending Action” that requires filing a motion Tenn. Code Ann. § 20-12-119): Provides to dismiss within 60 days of the that when a court dismisses a lawsuit first pleading and the court to award for failure to state a claim, a defendant the prevailing party all costs and is entitled to recover up to $10,000 in reasonable and necessary attorneys' attorneys’ fees and costs that resulted fees incurred with respect to the from the filing of those claims. This challenged cause of action. loser-pays provision has several broad Adopting a vexatious litigant law: exceptions. The court will not require a plaintiff to pay if: (1) the defendant did • Arizona S.B. 1048 (2015) (amending not file the motion to dismiss within 60 Ariz. Rev. Stat. §§ 12-302, 12-3201): days of service of the complaint; (2) the Prohibits courts from waiving court plaintiff withdraws or amends the fees and costs in civil actions filed by complaint to state a claim; a pro se vexatious litigant. (3) the plaintiff is a pro se litigant, • New Hampshire S.B. 96 (2013) unless the court finds the plaintiff acted (codified at N.H. Rev. Stat. Ann. unreasonably in bringing, or refusing § 507:15-a): Authorizes judges to to withdraw, the dismissed claim; (4) order individuals who have filed the plaintiff is a government entity three or more frivolous lawsuits to or public official; (5) the complaint retain an attorney of good character specifically pleads that its purpose is to represent them in all actions or to to extend, modify, or reverse existing post a cash or surety bond sufficient precedent, law or regulation, or to cover all attorneys' fees and establish the meaning, lawfulness or anticipated damages.
31 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process Stem Class Action Abuse
Purpose
Class action abuse is a long-standing issue As the value of class action litigation to at both the federal and state levels. Many consumers has become increasingly class action settlements reward the lawyers questionable, the practice of distributing responsible for the creative theories behind class funds to third-party charities instead such suits with highly lucrative fees. Their of class members, known as cy pres, purported “clients,” the consumers of the has grown. This practice, often used to products, must fill out paperwork to obtain distribute unclaimed funds, encourages a nearly worthless recovery. class actions where purported class members do not view themselves as Courts that improperly certify class actions injured or do not benefit from the lawsuit. place tremendous pressure on defendants It also undermines the fundamental goal to settle cases as the alternative is to of civil litigation: to provide compensation “bet the company” on a colossal lawsuit. for those who have experienced an injury. Several states protect a defendant’s ability State legislatures can provide close scrutiny to appeal erroneous class certification of class action settlements and help ensure decisions that undermine due process by that class members—not entrepreneurial allowing for immediate judicial review. lawyers—are the primary beneficiaries of these lawsuits.
Options
1. Provide a right to interlocutory • Ga. Code Ann. § 9-11-23(g) (immediate) appeal of a trial court’s grant • Iowa R. Civ. P. 1.264(3) or denial of class certification. Several states provide a right to appeal class • Ky. R. Civ. P. 23.06 certification orders through statute or • La. Code Civ. Proc. Ann. art. court rule: 592 (A)(3)(b) • Ala. Code § 6-5-642 • N.D. R. Civ. P. 23(d)(3) • Ariz. Rev. Stat. Ann. § 12-1873 • Ohio Rev. Code § 2505.02(B)(5) • Ark. R. App. P. 2(a)(9) • Okla. Stat. tit. 12, § 993(A)(6) • Conn. Gen. Stat. § 42-110h • Tenn. Code Ann. § 27-1-125 • Fla. R. App. P. 9.130(a)(3)(C)(iv) • Tex. Civ. Prac. & Rem. Code Ann. § 51.014(a)(3)
U.S. Chamber Institute for Legal Reform 32 Safeguard the Integrity of the Litigation Process
2. Provide that classes may be certified only RECENT ENACTMENTS after the class representative makes a • Oklahoma H.B. 1013X (Spec. Sess. preliminary factual showing of a reasonable 2013) (amending Okla. Stat., tit. 12, likelihood of success on the merits. § 2023) (reenacted 2009 law): Limits membership in class actions 3. Reform attorneys' fee arrangements to individuals who are Oklahoma through adoption of a “declining residents or nonresidents of percentage principle,” whereby the Oklahoma who own property percentage of recovery allocated to located in Oklahoma that is relevant attorneys' fees decreases as the size of to the class action. Subjects class the recovery increases. certification orders to closer appellate 4. Instruct courts to provide greater scrutiny review (de novo). Provides that to class action settlements, especially “[i]f any portion of the benefits those involving coupons or other recovered for the class are in the noncash settlements. form of coupons or other noncash common benefits, the attorney fees 5. Tie attorneys’ fees in class action awarded in the class action shall be settlements to the value of money in cash and noncash amounts in the and benefits actually received by class same proportion as the recovery for members—not the amount of funds the class.” Establishes factors for or coupons available or money that a awarding attorneys’ fees. Authorizes defendant agrees to give to a charity. the court to appoint an independent For example, the federal Class Action attorney to represent the class in any Fairness Act of 2005 (CAFA) links dispute over fees. attorneys’ fees in coupon class actions to • Arizona S.B. 1346 (2013) (codified at the value of coupons actually redeemed Ariz. Rev. Stat. Ann. §§ 12-1871 to by class members. States can take a 12-1873): Establishes procedures similar approach in cy pres settlements. for maintaining a class action and provides for interlocutory appeal of class certification rulings.
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• Louisiana H.B. 472 (2013) (codified • Louisiana H.B. 464 (2012) (codified at La. Code Civ. Proc. art. 591, 592): at La. Code Civ. Proc. §§ 593.1, Clarifies that plaintiffs’ lawyers 593.2): Permits a defendant to have must show that a proposed class duplicative class actions filed in action satisfies certification criteria multiple Louisiana courts transferred and provides that a proposed class to the district court where the event does not meet the criteria if, at the occurred, or, where their conduct certification stage, a court needs occurred at multiple locations, to to inquire into the merits of each the district court where the first suit potential class member’s cause of was brought. If within 30 days of action. Specifies that the proponent certification of a class action there of certification has the burden of are related putative class actions proof to establish all requirements pending, then courts may transfer are met. those actions to the court that • New Jersey A.B. 3123 (2013) (codified certified the related action. at N.J. Stat. Ann. §§ 14A:3-6.1 to 14A:3-6.9): Establishes procedures for commencing and maintaining a shareholder class action and derivative lawsuit.
U.S. Chamber Institute for Legal Reform 34 Safeguard the Integrity of the Litigation Process Prevent Suppression of Evidence of Plaintiff Exposures in Asbestos Cases
Purpose
Asbestos litigation is the longest-running also found that “[t]he withholding of mass tort in U.S. history. Asbestos-related exposure evidence by plaintiffs and their liabilities have helped force approximately lawyers was significant and had the effect of 100 employers into Chapter 11 bankruptcy. unfairly inflating the recoveries…” Evidence Scores of trusts have been created to pay Garlock needed to attribute plaintiffs’ injuries claims related to those companies’ asbestos to insulation products often “disappeared” products. A U.S. Government Accountability once those companies filed bankruptcy. The Office report estimated that asbestos trusts judge said, “[t]his occurrence was a result held a combined total of over $36.8 billion of the effort by some plaintiffs and their in assets in 2011. lawyers to withhold evidence of exposure to other asbestos products and to delay In litigation, plaintiffs’ lawyers claim that filing claims against bankrupt defendants’ their clients’ injuries stem from exposure to asbestos trusts until after obtaining asbestos from products of solvent companies. recoveries from Garlock (and other viable Trust claim filings reflect additional sources defendants).” In re Garlock Sealing Techs., of exposure to asbestos by the plaintiff. LLC, 504 B.R. 71 (W.D.N.C. Bankr. 2014). Plaintiffs’ lawyers often delay these filings, however, until after the resolution of the tort As asbestos litigation continues to force case, thus suppressing key evidence of the otherwise viable corporations into bankruptcy, responsibility of bankrupt companies. As a employers left to defend asbestos lawsuits result, solvent companies are forced to pay have struggled to convince some judges inflated settlements because of the difficulty to account for bankruptcy trust claims in of proving alternative causation. asbestos lawsuits. Existing statutes and judicial precedents do not account for the U.S. Bankruptcy Judge George Hodges unique phenomenon of tens of billions of recently documented these problems in an dollars flowing to tort claimants outside of opinion estimating the liability of Charlotte- the civil justice system. The present lack based gasket and packing manufacturer of transparency between the asbestos Garlock Sealing Technologies, LLC for bankruptcy trust and tort systems makes it mesothelioma claims. Judge Hodges extremely difficult—if not impossible—for concluded that Garlock’s settlements in solvent defendants to discover inconsistent or the tort system were “infected by the conflicting statements by plaintiffs regarding manipulation of exposure evidence by the totality of their asbestos exposures. plaintiffs and their lawyers.” Judge Hodges
35 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
Options
1. Require plaintiffs to file and produce Judge Hodges concluded all asbestos bankruptcy trust claims that Garlock’s settlements before trial. “ in the tort system were 2. Give defendants an opportunity to move ‛infected by the manipulation the court to stay the litigation and require plaintiffs to file additional trust claims not of exposure evidence by identified by the plaintiff if the defendant plaintiffs and their lawyers.’ can show that the plaintiff satisfies the eligibility criteria. Judge Hodges also found that ‛[t]he withholding of exposure 3. Clarify that asbestos trust claims materials are admissible in court to prove evidence by plaintiffs and alternative causation for a plaintiff's their lawyers was significant injuries or to allocate liability for the plaintiff's injury. and had the effect of unfairly inflating the recoveries…’ 4. Provide a setoff in civil litigation for money that has or will be received by the plaintiff from asbestos bankruptcy trusts. ” RECENT ENACTMENTS materials are admissible into evidence • Arizona H.B. 2603 (2015) (to be and may be considered by the jury in codified at Ariz. Rev. Stat. § 12-782): determining liability and apportioning Requires a plaintiff, within 45 days of fault. Defendants are entitled to a the defendant’s filing of an answer, setoff to reflect amounts the plaintiff to provide to all parties a sworn received from asbestos trusts. statement identifying each claim the plaintiff has filed or reasonably • Texas H.B. 1492 (2015) (to be anticipates filing against an asbestos codified at Tex. Civ. Prac. & Rem. trust. The plaintiff must provide each Code § 90.051 et seq.): Requires a party with the claim and all trust plaintiff who has filed an asbestos- documents. If the plaintiff indicates or silica-related lawsuit to make a that he or she anticipates filing trust claim against each asbestos additional claims against asbestos or silica trust the plaintiff believes trusts, the court must stay the may owe compensation or damages litigation until the trust claim is filed. to the plaintiff for the injury that is A court may not schedule a trial until the basis of the lawsuit. A plaintiff at least 180 days after the plaintiff must make each trust claim no later makes the required disclosures. Trust than the 150th day before trial. The plaintiff must serve each party notice
U.S. Chamber Institute for Legal Reform 36 Safeguard the Integrity of the Litigation Process
of the trust claim along with the the asbestos trust claim may support claim material. The plaintiff has an a jury finding that such exposure may obligation to supplement the notice be a substantial factor in causing or materials if they are incomplete the plaintiff's injury that is at issue or incorrect. A trial court may not in the asbestos action. A defendant begin a trial unless the plaintiff has is entitled to a setoff or credit in the made each trust claim and served amount of the valuation established the parties with the required material. by the trust. A plaintiff who fails to A defendant can request a stay of provide all of the information required proceedings if the defendant has is subject to sanctions. a good faith belief that the plaintiff can make a successful claim against • Wisconsin A.B. 19 (2014) (to be additional trusts. codified at Wis. Stat. § 802.025): Requires an asbestos plaintiff • West Virginia S.B. 411 (2015) (to be to provide to all parties a sworn codified at W. Va. Code §§ 55-7E-1 et statement identifying each personal seq.): Requires a plaintiff to provide injury claim the plaintiff has filed or parties with a sworn statement reasonably anticipates filing against identifying all asbestos trust claims an asbestos trust. Provides that trust that have been filed by the plaintiff claim materials are admissible at trial. or by anyone on the plaintiff's behalf Authorizes courts to stay litigation until no later than 120 days prior to trial. the plaintiff has filed trust claims. The plaintiff must make available to all parties all trust claims materials • Oklahoma S.B. 404 (2013) (codified for each asbestos trust claim. A at Okla. Stat. tit. 76, §§ 81 to 89): defendant in an asbestos action may Requires a plaintiff, within 90 days seek discovery from an asbestos of filing a personal injury lawsuit, to trust. A court must stay an asbestos provide all parties with a statement action if the plaintiff fails to make the identifying all claims the plaintiff disclosures required. A court may has filed or anticipates filing with stay a claim if the plaintiff intends to a personal injury trust. A plaintiff file additional trust claims. If a plaintiff must produce a final executed proof proceeds to trial before an asbestos of claim and all other trust claims trust claim is resolved, the filing of materials relevant to each filed claim. Provides that trust claim materials
37 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
are admissible at trial. Requires the all parties a statement identifying all court to stay litigation if a plaintiff existing asbestos trust claims filed anticipates filing a claim against a and produce all trust claims material personal injury trust until the plaintiff pertaining to each claim. If the files with the trust and provides plaintiff subsequently files claims with a proof of claim. Provides that a additional trusts, the plaintiff must file defendant is entitled to a setoff or an updated statement and produce credit in the amount awarded from the filed material. Not less than 75 the trust or the value established for a days before trial, a defendant may pending claim. file a motion to stay the litigation by showing credible evidence that the • Ohio H.B. 380 (2012) (codified at plaintiff has not disclosed trust claims. Ohio Rev. Code §§ 2307.951 to 2307.954 ): Within 30 days after the commencement of discovery, an asbestos plaintiff must provide to
U.S. Chamber Institute for Legal Reform 38 Safeguard the Integrity of the Litigation Process Support Sound Science and Expert Evidence in the Courtroom
Purpose
Prior to 1993, federal courts permitted • Just seven states continue to apply parties to present expert testimony the less rigorous Frye standard for involving novel scientific or technical admission of expert testimony: theories if the underlying theory or basis California, Illinois, Maryland, New of opinion was generally accepted as York, North Dakota, Pennsylvania, reliable within the expert’s particular field. and Washington. These states The general acceptance test, known as are in greatest need of expert the Frye standard, was applied liberally testimony reform. to favor admissibility of expert testimony. • Most states follow Daubert or The U.S. Supreme Court’s landmark consider their state rule consistent decision in Daubert emphasized the with its approach: Alabama, Alaska, obligation of the trial court to serve as a Arizona, Arkansas, Connecticut, “gatekeeper,” guarding the courthouse Delaware, Florida, Georgia, Indiana, against untrustworthy expert testimony. The Kansas, Kentucky, Louisiana, Daubert decision, however, is binding only Massachusetts, Michigan, in federal courts. While many states have Mississippi, Montana, Nebraska, adopted the core requirements of Daubert, New Hampshire, New Mexico, North some have not. For this reason, a clear gap Carolina, Ohio, Oklahoma, Oregon, remains between evidentiary standards in South Dakota, Texas, West Virginia, federal courts and some state courts. Wisconsin, and Wyoming. NOTES • About one-third of states use a hybrid Organizations and scholars differ on standard of Daubert or apply their own how many states still maintain the Frye standard: Colorado, Hawaii, Idaho, standard and how many have transitioned Iowa, Maine, Minnesota, Missouri, to the Daubert standard because some Nevada, New Jersey, Rhode Island, jurisdictions apply different standards South Carolina, Tennessee, Utah, depending on the type of evidence at issue. Vermont, and Virginia.
39 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
Options
1. Amend state rules for admission of RECENT ENACTMENTS (ADOPTING OR expert testimony to be consistent with CODIFYING THE DAUBERT APPROACH) the Federal Rules of Evidence Rule 702 • Kansas S.B. 311 (2014) (amending as amended in 2000 to reflect Daubert. Kan. Stat. Ann. § 60-456) Rule 702 provides that “[a] witness who • Louisiana H.B. 624 (2014) (amending is qualified as an expert by knowledge, La. Code of Evidence Art. 702) skill, experience, training, or education may testify in the form of an opinion or • Florida H.B. 7015 (2013) (codified at otherwise if: (a) the expert’s scientific, Fla. Stat. Ann. §§ 90.702, 90.704) technical, or other specialized knowledge • Oklahoma S.B. 6X (Spec. Sess. 2013) will help the trier of fact to understand (codified at Okla. Stat. tit. 12, §§ the evidence or to determine a fact in 2702, 2703) (reenacting law passed issue; (b) the testimony is based on in 2009) sufficient facts or data; (c) the testimony • Alabama S.B. 187 (2011) (amending is the product of reliable principles and Ala. Code § 12-21-160) methods; and (d) the expert has reliably applied the principles and methods to the • North Carolina H.B. 542, 1.3 (2011) facts of the case.” (amending N.C. Gen. Stat. § 8C-702) • Wisconsin S.B. 1 (Spec. Sess. 2011) 2. Provide that the state’s standard for (amending Wis. Stat. §907.02, 907.03) admission of expert testimony is to be interpreted consistently with • Arizona S.B. 1189 (2010) (codified Daubert and its progeny, including the at Ariz. Rev. Stat. § 12-2203) and “gatekeeping” function. Arizona Supreme Court amendment to Rule of Evidence 702 (effective 3. Require courts to hold a pretrial hearing Jan. 1, 2012) on an expert’s proposed testimony upon motion of a party.
4. Mandate pretrial disclosure of expert testimony.
U.S. Chamber Institute for Legal Reform 40 Safeguard the Integrity of the Litigation Process Safeguard the Right to Appeal
Purpose
A critical element of the civil justice system • West Virginia lacks both an intermediate is the right of a party to appeal an adverse appellate court and full appellate review verdict. In some states, the structure of the as a matter of right in the state’s high judicial system, statutes, or court rules place court. In 2011, the West Virginia Supreme obstacles to the ability of a party to exercise Court of Appeals rejected an independent this right. Intermediate appellate courts also commission’s proposal to create an promote consistency and predictability in intermediate appellate court, opting the law by providing more decisional case instead to marginally expand its own law that establishes binding precedent. appellate review of cases.
STRUCTURE OF THE JUDICIARY • Voters in Nevada, another state that AND THE RIGHT TO APPEAL does not have an intermediate appellate States vary in the opportunity they provide court, approved a proposed constitutional for appellate review. While most states amendment to establish such a court in have a supreme court and intermediate November 2014. appellate court or appellate division (with two layers of review), eleven, mostly APPEAL BONDS smaller, states provide only a single Defendants, in order to stay the execution appellate court. Most states provide of a judgment and protect their assets litigants with at least one appeal as a matter during an appeal, must post appeal bonds, of right (mandatory review). Many states which can run up to 150% of the judgment that have two levels of review provide against them in some states. If a defendant that review in the state supreme court is cannot post the required bond, then it may discretionary, similar to the federal system have no way to protect against the plaintiff in which the U.S. Supreme Court grants seizing its assets during the appeal besides certiorari in a relatively small number of filing for bankruptcy. Most states adopted cases each year to decide issues of broad bonding requirements before the creation impact. As smaller states increase in of novel and expansive theories of liability, population and litigation, they may wish to at a time when judgments were generally consider developing intermediate appellate more reasonable in scale. Appeal bond rules courts to ensure thorough appellate review stand as unfair roadblocks to appeals of and relieve the burden placed on the state’s such crushing verdicts and place inordinate high court. Justice demands that every pressure to settle even cases that are likely litigant have the right to at least one full to be reversed on appeal. Such requirements appellate review. can pose a particularly significant challenge
41 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
for small businesses that are hit with appeal bonds and place no limit on their excessive verdicts. size. Several states have limited the size of appeal bonds, but applied the reform only More than two-thirds of states currently to signatories to the “Master Settlement have appeal bond limits of some sort. Agreement” (tobacco companies). In a Five states do not require a defendant to few states, an appeal bond limit applies post an appeal bond. By way of contrast, only to the punitive damages portion of the Alaska, Delaware, Illinois, Montana, New judgment, if any. York, and the District of Columbia require
Options
1. Appellate review: • Limit the necessary appeal bond to • Establish an intermediate appellate the compensatory damages portion court with mandatory review. of the verdict (exclude the need to post bond to cover the punitive • Provide interlocutory (immediate) damages portion of the award, if any). appeal orders granting or denying class certification. RECENT ENACTMENTS Appellate review: 2. Appeal bonds: • Nevada Ballot Question 1 • Apply appeal bond limits to all civil (2014): Amended Article 6 of the case judgments regardless of legal Nevada Constitution to create theory or type of defendant. an intermediate appellate court, • Provide a separate, lower cap for the Nevada Court of Appeals. small businesses or a limit based on All appeals will be filed with the a defendant’s net worth. Nevada Supreme Court, which may then assign certain cases to the intermediate appellate court.
Appeal bonds: Intermediate • Nevada S.B. 134 (2015) (to be appellate courts also codified in Nev. Rev. Stat. ch. 20): “ Limits appeal bonds to the lesser promote consistency and of $50 million or the amount of predictability in the law by the judgment, $1 million for small businesses, and provides courts with providing more decisional discretion to set a lower bond for case law that establishes good cause shown. binding precedent.” U.S. Chamber Institute for Legal Reform 42 Safeguard the Integrity of the Litigation Process
• Maryland H.B. 164 (2015) (to be • South Carolina H. 3775 (2011) codified at Md. Cts. & Jud. Proc. (amending S.C. Code Ann. § 18-9- Code § 12-301.1): Limits appeal 130): Limits the amount of an appeal bonds to $100 million, $1 million bond to $25 million for businesses for small businesses, and provides with 50 or more employees and gross courts with discretion to set a lower revenue of more than $5 million, and bond for good cause shown. $1 million for all other entities. • Montana H.B. 224 (2013) (codified at • Tennessee H.B. 2008 (2011) Mont. Code Ann. § 25-12-103): Limits (amending Tenn. Code Ann. § 27-1- appeal bonds to $50 million. 24): Reduces the maximum amount • Arizona S.B. 1212 (2011) (amending of an appeal bond from $75 million to Ariz. Rev. Stat. § 12-2108): Limits $25 million, not to exceed 125% of the amount of an appeal bond to the judgment. the lesser of the total amount of damages awarded excluding punitive damages, 50% of the appellant’s net worth, or $25 million.
43 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process Promote Fairness in Judgment Interest Accrual
Purpose
Many state legislatures have enacted inequitable and punitive in nature where the laws that allow for interest to compensate statutory interest rate fails to approximate plaintiffs for the often considerable lag prevailing market rates. Statutory interest between the event giving rise to the cause rates that greatly exceed market rates can of action or filing of the lawsuit, and the result in overcompensation and a windfall actual payment of damages. recovery for plaintiffs. For example, if a statute provides a judgment interest rate Interest can accrue for both prejudgment of 12% and prevailing market rates are only and post-judgment time delays. 3%, a plaintiff’s recovery would far exceed Prejudgment interest is awarded for the the real dollar value of the judgment. This time between the injury or loss and the excess interest payment, in effect, acts time that judgment is entered (after trial). as a penalty against defendants. Further, Post-judgment interest is awarded for the because awards of judgment interest are period between the final judgment and the generally unrelated to the merits of a claim time when the full amount owed is paid. or conduct of the parties, this penalty is unconnected to any willful or reckless The primary purpose of these judgment misconduct, which is the traditional linchpin interest awards is to compensate a prevailing for allowing punitive recovery. As a result, party for the time value of money, which a defendant may be penalized simply by reflects the general principle that getting resolving to exercise his or her legal rights. a dollar today is worth more than getting a dollar tomorrow due to inflation, lost NOTE opportunity cost, or other factors. Judgment Examples of states that retain fixed interest is a form of compensatory recovery rates in the double-digits to calculate designed to leave the parties with the real judgment interest include Arkansas (10%), dollar value of their judgment when it is or California (10%), Connecticut (10%), Hawaii should have been paid. It can also have the (10%), Kentucky (12%), Maryland (10%), effect of encouraging parties to engage in Massachusetts (12%), Montana (10%), early settlement and providing an incentive Rhode Island (12%), South Dakota (10%), for defendants to pay damages quickly. Vermont (12%), and Wyoming (10%). These fixed rates are grossly disproportionate Although well-intended, the practical and arbitrary when compared to existing effects of judgment interest statutes can be market rates.
U.S. Chamber Institute for Legal Reform 44 Safeguard the Integrity of the Litigation Process
Options
1. Set a reasonable interest rate. Examples 2. Provide that prejudgment interest may of sensible prejudgment interest rates not be awarded for future economic or include the following: noneconomic damages.
• Alaska: Twelfth Federal Reserve 3. Provide that prejudgment interest may District discount rate plus 3%. not be awarded for punitive damages. • Georgia: Federal Reserve prime rate plus 3%. RECENT ENACTMENTS • Utah S.B. 69 (2014) (amending • Iowa: U.S. Treasury rate constant Utah Code § 78B-5-824): Sets the maturity index plus 2%. prejudgment interest rate for special • Nebraska: Two percentage points damages actually incurred as two above the U.S. Treasury bill rate in percentage points above the prime effect on the date of entry of the rate, as published by the Federal judgment. Interest accrues from the Reserve, but not lower than 5% or date of the plaintiff’s first offer of higher than 10%. Requires a plaintiff settlement that is exceeded by the to tender an offer of settlement that 1 judgment until the entry of judgment does not exceed 1 /3 the amount if certain conditions are met. of a judgment awarded at trial to • South Carolina: Prime rate plus 4%. qualify for prejudgment interest. Any prejudgment interest shall be • Texas: New York Federal Reserve computed as simple interest. prime rate, with a floor of 5% and a ceiling of 15%. • Oklahoma S.B. 1080 (2013) (codified at Okla. Stat. tit. 12, § 727.1): Clarifies • Washington: U.S. Treasury bill that courts must apply the post- rate plus 2%. judgment interest rate agreed upon in a contract.
Although well-intended, the practical effects of judgment“ interest statutes can be inequitable and punitive in nature where the statutory interest rate fails to approximate prevailing market rates.”
45 101 Ways to Improve State Legal Systems Safeguard the Integrity of the Litigation Process
• Tennessee H.B. 2982 (2012) (to be • Florida H.B. 567 (2011) (amending codified at Tenn. Code Ann. § 47-14- Fla. Stat. §§ 55.03, 17.1341): Provides 121): Provides that the interest rate that, absent contractual agreement, on judgments is 2% less than the the pre- and post-judgment interest Federal Reserve System’s published rate is set by Florida’s chief financial average prime loan rate. officer based on the discount rate • Alabama S.B. 207 (2011) (codified of the Federal Reserve Bank of New at Ala. Code § 8-8-10): Reduces the York for the preceding 12 months post-judgment interest rate from plus 4%. 12% to 7.5%. • Wisconsin S.B. 14 (2011) (amending • Arizona S.B. 1212 (2011) (amending Wis. Stat. §§ 807.01(4), 814.04(4) Ariz. Rev. Stat. § 44-1201): Lowers and 815.05(8): Lowers the post- the judgment interest rate from judgment interest rate on judgments 10% to the lesser of 10% or 1% plus from 12% to 1% plus the prime rate, the prime rate as published by the as reported by the Federal Reserve Board of Governors of the Federal Board. Reserve System.
U.S. Chamber Institute for Legal Reform 46 Promote Rational Liability Rules
There are many ways that states can tailor liability rules to strike the appropriate balance of fairly compensating individuals for injuries and protecting the public without imposing unwarranted liability on defendants. This section highlights three options.
At the foundation of a fair civil justice States are also moving away from joint and system is the method by which several liability, which unjustly requires a responsibility for an injury is allocated defendant that is as little as 1% at fault for among those involved. For many years, the an injury to pay the entire damage award if law barred a person who was partially at others responsible are immune, judgment fault for his or her own injury from recovery. proof, or beyond the court’s jurisdiction. Now, most states have replaced this Such laws lead plaintiffs’ lawyers to target doctrine of contributory negligence with a businesses based on deep pockets rather system known as “modified comparative than their responsibility for an injury. fault.” Under modified comparative fault, Instead, more states are determining a a plaintiff’s damages are reduced by that defendant’s liability proportionally based on person’s percentage of fault, and the person can recover so long as the plaintiff is not the primary cause of his or her own injury (50% or 51% at fault, depending on the state). Some state laws, however, encourage risky behavior by plaintiffs, raise liability costs for businesses, and drive up the number of States are also lawsuits filed by allowing plaintiffs who are largely responsible for their own injury (even moving“ away from joint 99% at fault) to “roll the dice” in court. and several liability… Such laws lead plaintiffs’ lawyers to target businesses based on deep pockets rather than their responsibility for an injury. ” 47 101 Ways to Improve State Legal Systems fault. States are also ensuring that juries are know whether the law is enforced through allowed to consider and allocate fault among government officials, private lawsuits, or all parties involved, regardless of whether both. The suggested reform allows courts they are named as defendants. This system to recognize a new cause of action under a ensures that defendants pay their fair share, statute only when the legislature expressly not for an injury caused by someone else. states its intent to create a new means to sue. Such transparency is vital to the The reforms included in this section also democratic process, protects due process, ensure that when a state legislature and promotes predictability and consistency regulates an industry’s products or in regulation of goods and services. practices, individuals and businesses
U.S. Chamber Institute for Legal Reform 48 Promote Rational Liability Rules Preclude Recovery When a Plaintiff is Primarily Responsible for His or Her Own Injury
Purpose
Fairness and common sense suggest • Alaska, Arizona, California, Florida, that a party should not be required to Kentucky, Louisiana, Mississippi, compensate an individual who was the Missouri, New Mexico, New York, primary cause of his or her own injury. Rhode Island, South Dakota, and Rules of apportionment have evolved Washington follow this approach. to reflect this basic principle; however, Five jurisdictions follow “contributory some states require defendants to pay negligence,” which provides a defense to damages even when a plaintiff was liability if the plaintiff is responsible to any primarily responsible for his or her own degree for his or her injuries, subject to injury. A modified comparative fault various exceptions. system corrects this unfair result. • Alabama, District of Columbia, Legislation has also sought to ensure that Maryland, North Carolina, and juries are permitted to fairly allocate fault Virginia follow this approach. to anyone whose conduct contributed to The remaining states follow a modified the plaintiff’s injury, not just those who comparative fault system under which a are present in court. Failure to consider plaintiff who is primarily responsible for the responsibility of all involved in the his or her own injuries may not recover incident that allegedly caused a plaintiff’s damages. States have adopted various injury prejudices the named defendants, thresholds with respect to the percentage who are required to pay more than of fault that precludes recovery. States also their fair share of the plaintiff’s loss. vary in whether, and how, juries allocate fault to parties that may have contributed NOTES to the plaintiff’s injury but are not present in Thirteen states follow a pure comparative the litigation. fault system, under which a plaintiff who is 90% at fault for his or her own injury may still require a defendant to pay 10% of the losses.
49 101 Ways to Improve State Legal Systems Promote Rational Liability Rules
Options
1. Provide that a plaintiff cannot recover if § 13-21-111.5(2); Fla. Stat. Ann. § 768.81; his or her negligence was greater than Ga. Code Ann. § 51-12-33(c); Ohio Rev. the negligence of the person against Code § 2307.23(c); Tex. Civ. Prac. & Rem. whom recovery is sought (see, e.g., Colo. Code Ann. § 33.003(a); Utah Code Ann. Rev. Stat. § 13-21-11; Minn. Stat. Ann. § 78-27-38(4)(A). § 604.01), or if he or she bears a greater percentage of fault than the combined RECENT ENACTMENTS percentage of fault attributed to others • West Virginia H.B. 2002 (2015) (to (see, e.g., Iowa Code § 668.3; N.H. Rev. be codified at W. Va. Code §§ 55-17- Stat. Ann. § 507:7-d; N.D. Cent. Code 13a, 55-17-13c(c)): Codifies modified § 32-03.2-02; Ohio Rev. Code § 2315.33). comparative fault. The plaintiff’s fault does not bar recovery unless the 2. Provide or clarify that the jury is plaintiff’s fault is greater than the permitted to consider all of the combined fault of all other persons potentially responsible parties when responsible for the total amount of allocating fault, including parties that damages. If the plaintiff’s fault is less settled before suit and those that are than the combined fault of all other otherwise not before the court. Some persons, the plaintiff’s recovery is state laws require defendants to provide reduced in proportion to the plaintiff’s notice to plaintiffs of responsible third degree of fault. parties before trial. See, e.g., Ark. Code Ann. § 16-55-202(b)(1); Colo. Rev. Stat.
U.S. Chamber Institute for Legal Reform 50 Promote Rational Liability Rules Fairly and Proportionately Allocate Liability Based on Fault
Purpose
Joint and several liability reform is intended a defendant found to be 1% at fault can to allocate liability fairly and proportionately be forced to pay 100% of the damages based on the percentage of fault attributed if others who contributed to the injury to each party’s responsibility for an injury. are judgment proof, beyond the court’s Where multiple defendants are named, jurisdiction, or otherwise not a party to the fact finder attributes to each party a the litigation. This reform corrects such percentage of fault in causing the plaintiff’s fundamental unfairness by tailoring the law injuries under the presumption that each to have defendants pay only the percentage defendant will pay his or her corresponding of fault for which they are responsible and percentage of damages. not for damages attributed to others.
Problems arise, however, where a NOTE defendant or other party that contributed to States most in need of reform (those the injury is insolvent, has already settled with pure joint liability) include Alabama, with the plaintiff, or is otherwise unable to Delaware, Maryland, North Carolina, pay the apportioned amount of damages. Rhode Island, and Virginia. Under a system of “pure” joint liability,
Options
1. Adopt pure several liability. Limit 2. Authorize the fact finder to apportion a defendant’s liability only to the fault among all individuals and entities percentage of fault attributed to that contributed to the plaintiff’s injury, that defendant. regardless of whether they are parties in the litigation. • Currently law in Alaska, Arizona, Colorado, Connecticut, Florida, 3. Implement modified joint and several Georgia, Indiana, Kansas, Kentucky, liability. Joint liability is barred for Oklahoma, Michigan, Mississippi, defendants found to be less than Tennessee, Utah, and Wyoming. 50% at fault.
51 101 Ways to Improve State Legal Systems Promote Rational Liability Rules
• Variants of this approach are currently found to have engaged in conspiracy, law in Iowa, Minnesota, Missouri driven under the influence, engaged (less than 51%), Montana, New in criminal conduct, or illegally Hampshire, New Jersey (less than disposed of hazardous waste. 60%), Ohio (for economic damages), Pennsylvania (less than 60%), South • Tennessee S.B. 56 (2013) (codified at Carolina, Texas, and Wisconsin (less Tenn. Code Ann. § 29-11-107): Limits than 51%). the liability of each party in a multi- defendant lawsuit to that party’s 4. Bar joint liability for recovery of proportionate responsibility and noneconomic damages, retaining joint provides that juries can allocate fault liability for economic damages only. among all those who contributed to an injury, including nonparties. • Currently law in California, Nebraska, and New York (for defendants less • Oklahoma S.B. 862 (2011) (amending than 50% at fault). Okla. Stat. tit. 23, § 15.1): Replaces modified joint and several liability RECENT ENACTMENTS with pure several liability except in • West Virginia H.B. 2002 (2015) (to be lawsuits brought by the state. codified at W. Va. Code § 55-17-13c): Replaces law imposing joint liability • Pennsylvania S.B. 1131 (2011) on parties 30% or more at fault with (amending Pa. Consol. Stat. tit. 42, pure several liability. After a good- § 7102): Bars the application of the faith effort to collect the judgment, rule of joint and several liability in the law permits the plaintiff to move the recovery of all damages, except for reallocation of uncollectable when a defendant has been: (1) shares of liable defendants among found liable for intentional fraud or other liable defendants in proportion tort; (2) held at least 60% liable; (3) to each party’s percentage of fault. held liable for environmental hazards; A defendant who is equal or less or (4) held civilly liable as a result of at fault than the plaintiff is not drunk driving. subject to reallocation. Joint liability continues to apply to defendants
U.S. Chamber Institute for Legal Reform 52 Promote Rational Liability Rules Provide Transparency as to When Legislatures Create New Ways to Sue
Purpose
On occasion, courts create an “implied” plaintiffs waste time and money litigating cause of action or a right to sue based claims that courts may later find do not on their subjective views about whether exist. Courts spend substantial judicial a state legislature intended to do so. For resources considering such issues. example, the legislature may intend for Whether a private right to sue exists may a state health department to enforce a also have implications for government law regulating restaurant practices in policymaking and enforcement of a law. For disclosing fat content of fast food, but these reasons, legislation should be clear attorneys may use this regulatory law to as to whether any act of the legislature attempt to create a new type of private creates a new right to sue. This proposal lawsuit. The principles for when courts will would provide greater transparency in the or will not create these implied causes legislative process and clarity in the courts. of action are vague and uncertain. As a If a state legislature is going to create a result, defendants may face unexpected, new way to sue, it should say so directly. new, and expanded liability. In addition,
Options
1. Provide that any legislation that creates a such express language. Clarify that private right of action or affirmative duty this law does not in any way impair the of care shall contain express language courts’ ability to develop causes of action providing for such a right or duty. Instruct or duties under the common law in the courts that they are not to interpret a absence of a legislative act, or use the statute to imply a private right of action violation of a statute to show negligent or affirmative duty in the absence of or unlawful conduct.
53 101 Ways to Improve State Legal Systems Promote Rational Liability Rules
RECENT ENACTMENTS • Kansas H.B. 2313 (2012) (codified at Kan. Stat. Ann. § 60-5201): Precludes [L]egislation should be courts from interpreting a statute to clear as to whether any authorize a private right of action in the “ absence of express language in the act of the legislature creates statute providing a new right to sue. a new right to sue. This • Tennessee S.B. 2140 (2012) (codified proposal would provide at Tenn. Code Ann. § 1-3-119): Provides that in order for legislation greater transparency in enacted by the general assembly the legislative process and to create or confer a private right of action, the legislation must clarity in the courts. contain express language creating or conferring the right. Courts ” are precluded from construing or interpreting a statute to impliedly create or confer a private right of action in the absence of such express language.
U.S. Chamber Institute for Legal Reform 54 Improve Product Liability Law
Product liability law is intended to ensure that people who are injured by a defective product can receive fair compensation from the business that sold it. Proper application of product liability law is important for both product safety and consumer choice. Holding manufacturers liable can protect consumers when a product’s design is unreasonably dangerous and a reasonable alternative design exists that would have prevented the harm, or when a product’s warnings are insufficient to inform a reasonable consumer of nonobvious product risks. But when courts impose liability on businesses viewed as “deep pockets” that are not responsible for injuries, prices needlessly rise, and valuable products may be removed from the market.
Product liability exposure has soared since The proposals presented in this section the 1960s and 1970s. That trend continues would help restore balance. They would today, as plaintiffs’ lawyers propose new codify core principles of product liability theories that would either impose liability on law and curb excesses allowed by some a company that is not at fault for the plaintiffs’ courts. For example, plaintiffs would harm or attempt to circumvent traditional be required to identify the particular requirements of product liability law. Many manufacturer and product that caused courts properly reject such invitations, injury. They would not be able to take but some have occasionally engaged in short-cuts to establishing liability based on unprecedented expansions of liability. a company’s market share in the industry. Nor could they seek to make a brand-name manufacturer pay a plaintiff who used a generic product made by a competitor.
55 101 Ways to Improve State Legal Systems [P]laintiffs’ lawyers propose new theories that would either“ impose liability on a company that is not at fault for the plaintiffs’ harm or attempt to circumvent traditional requirements of product liability law.” The options would also prevent plaintiffs’ seller reform,” states can provide that a lawyers and courts from transforming seller that did not participate in developing consumer protection laws from a means a product’s design or warnings is not of recovery for economic loss in everyday subject to liability unless the plaintiff cannot purchases to a way of recovering for recover from the actual manufacturer. This personal injuries stemming from alleged section’s suggested reforms also include product defects where unsupported by limiting product liability exposure to a set product liability law. number of years, recognizing that, after a decade or more of use, an injury stemming Product liability law is often all “stick” from a product is more likely a result of and no “carrot.” For example, a product’s deterioration than a defect at the time it failure to comply with government was manufactured. safety standards may establish liability. A manufacturer that complies with No discussion on product liability would and even substantially exceeds such be complete without exploring ways standards, however, does not receive a to fairly address asbestos litigation, commensurate benefit in most states. the nation’s longest running mass tort. States can encourage safety by adopting a Asbestos litigation has been tainted by presumption that a product is not defective mass screenings, lawsuits filed on behalf or by precluding punitive damages when a of people who are not sick, and findings product is approved by regulators or meets of manipulation and fraud. This section government requirements. highlights one successful and fair reform, which prioritizes the claims of plaintiffs Product liability law can hurt both small who have an asbestos-related disease businesses and larger retailers that simply above unimpaired claimants who were sold a product in their stores without merely exposed to asbestos. knowledge of a danger. Through “product
U.S. Chamber Institute for Legal Reform 56 Improve Product Liability Law Prevent Lawyers from Circumventing Core Product Liability Requirements
Purpose
Some plaintiffs’ lawyers attempt to that they did not make, sell, or distribute circumvent the core requirements of extend beyond the pharmaceutical industry. product liability law. They pursue novel Without reform, this trend will continue. theories or applications of traditional tort law to go after a business viewed a “deep- Plaintiffs’ lawyers also routinely cast pocket,” often regardless of fault. product liability claims as consumer protection claims to avoid the need to For example, in high-profile litigation, some show that an alleged defect caused a have tried to subject manufacturers to physical injury. For example, a class action public nuisance liability for harms caused brought on behalf of uninjured cell phone by individuals who misused the products. users claimed that radiation from their use In these cases, it is not alleged that the placed them at risk of developing cancer, products are defective, which is the but that the manufacturers represented linchpin for liability under product liability such products as safe. Likewise, plaintiffs’ law. Lawsuits have also sought to impose lawyers often attack the safety of liability on entire industries based on prescription drugs, automobiles, and other market share, conspiracy, or other theories products on behalf of people who bought rather than on the individual or business the product, but are unharmed, by alleging actually responsible for the plaintiff’s harm. creative theories of damages based on hypothetical future injuries and statistical In pharmaceutical litigation, some models with the aid of hired experts. These plaintiffs’ lawyers allege claims against types of theories attempt to eliminate manufacturers of brand-name drugs even the need to show the product had an when they fully acknowledge that their inadequate warning or caused actual harm, clients took only generic versions. This as required by product liability law. litigation violates the bedrock product liability law principle that one can sue only States can codify their product liability the company that made, sold, or distributed laws or update their existing product the actual product that allegedly caused liability statutes to ensure that those who the harm—not its competitors. Attempts claim injury from a product fulfill the basic to hold manufacturers liable for products elements of proof necessary to recover.
57 101 Ways to Improve State Legal Systems Improve Product Liability Law
RECENT EXAMPLES OF THE • The Pennsylvania Supreme Court ruled that, EXPANSION OF PRODUCT LIABILITY in some circumstances, manufacturers are • The Alabama Supreme Court is the first subject to liability for negligently designing a and only state high court to recognize prescription drug. See Lance v. Wyeth, Inc., “innovator liability”—imposing liability on 85 A.3d 434 (Pa. 2014). Traditionally, courts a brand-name drug maker for the injuries reject such claims because a drug’s design of a plaintiff who only took a generic cannot be altered without fundamentally version of the drug. See Wyeth, Inc. v. changing the FDA-approved product. Courts Weeks, 159 So. 3d 649 (Ala. 2014). generally do not consider a drug that is accompanied by adequate directions and warnings defective.
Options
1. If the state has codified a Product Liability 4. Require plaintiffs who allege that a Act, clarify that the act establishes the product’s warnings are inadequate to exclusive theories of liability for any civil specify a reasonable alternative warning action for harm caused by a product. that would have prevented harm to the plaintiff. See Aaron D. Twerski & James 2. Clarify that a defendant may be held A. Henderson, Jr., Fixing Failure to Warn, liable only if it manufactured or sold the 90 Ind. L.J. 237 (2015). actual product that was the cause of harm for which the claimant seeks to recover compensatory damages. Require plaintiffs to identify the specific product and manufacturer that allegedly caused the plaintiff’s injury. Provide that a product Some plaintiffs’ seller may not be held liable in a product lawyers attempt to liability action based on market share, “ enterprise, or industry-wide liability. circumvent the core requirements of product 3. Require plaintiffs who claim a product’s design is defective to show that a liability law. They technologically feasible and practical pursue novel theories or alternative design would have reduced or avoided a foreseeable risk of harm applications of traditional without significantly impairing the tort law to go after usefulness or desirability of the product to its intended users. a business viewed a ‛deep-pocket,’ often regardless of fault. ”
U.S. Chamber Institute for Legal Reform 58 Improve Product Liability Law
RECENT ENACTMENTS • Wisconsin S.B. 1 (2011) (codified at • Alabama S.B. 80 (2015): Provides that Wis. Stat. §§ 895.046, 895.047): a manufacturer is not liable under Provides that a manufacturer, any theory for personal injury, death, distributor, seller, or promoter of a or property damage resulting from product may be held liable only if the a product unless the manufacturer claimant proves, in addition to any designed, manufactured, sold, or other elements required to prove his leased the particular product alleged or her claim, that the manufacturer, to have caused the injury. Overturns distributor, seller, or promoter of a the Alabama Supreme Court's product manufactured, distributed, decision in Wyeth v. Weeks. sold, or promoted the specific product alleged to have caused • Oklahoma H.B. 3365 (2014) (to be the claimant's injury or harm, with codified at Okla. Stat. tit. 76, § 57.2): narrow exceptions. Requires proof Provides that, in a negligence action, of a “reasonable alternative design,” a product seller is only liable if it moving Wisconsin away from the sold the product involved, did not broad “consumer expectation” test. exercise reasonable care in making Overturns a court decision adopting the product or passing on warnings a “risk contribution” theory in lead- or instructions, and the failure to paint cases that allowed plaintiffs exercise reasonable care caused the to sue without identifying which plaintiff’s harm. company’s product was responsible for their injury.
59 101 Ways to Improve State Legal Systems Improve Product Liability Law Encourage Compliance with Government Regulations
Purpose
State legislatures and Congress have • See, e.g., Colo. Rev. Stat. charged certain government agencies § 13-21-403(1)(b); Kan. Stat. Ann. with ensuring that products are safe for § 60-3304(a); Ky. Rev. Stat. Ann. public use and services are provided § 411.310(2); Mich. Comp. Laws in a manner that adequately protects § 600.2946(4); Okla. Stat. tit. 76, consumers. Nevertheless, even the most § 57.2; Tenn. Code Ann. § 29-28- closely regulated businesses face lawsuits 104(a); Tex. Civ. Prac. & Rem. Code advancing theories of liability that create § 82.008; Utah Code Ann. § 78-15- tension with the reasoned decisions of 6(3), Wis. Stat. § 895.047(3)(b). government regulators. Such claims impose liability, and sometimes even punitive This reform is sound public policy because damages, on businesses that faithfully it reduces unnecessary and cumbersome comply with the law. By bringing congruity litigation where a product or service has between government regulations and already undergone a lengthy approval the liability system, state reforms can process or complies with detailed provide much needed clarity, stability, and government safety standards. Moreover, predictability in the law; treat manufacturers, product liability litigation has many product sellers, and service providers with examples of inconsistent verdicts regarding fairness; and protect the public interest. the safety of the same product. A regulatory compliance statute NOTES encourages safety and lawful conduct, Several states provide some level of and promotes consistency, while allowing protection from liability where a defendant’s claims to proceed in the legal system conduct was in compliance with federal or where there is strong evidence that the state regulations or a government agency government’s regulation of the product approved the product or warnings at issue. or service at issue was out of date or These provisions typically establish a compromised with respect to safety. “rebuttable presumption” that a product or service that complies with government In addition, several state laws recognize regulations is not defective unless a plaintiff that punitive damages are not appropriate provides sufficient proof to overcome when a government agency approved that presumption. the product or service at issue or the
U.S. Chamber Institute for Legal Reform 60 Improve Product Liability Law
product or service was in compliance • See, e.g., Ariz. Rev. Stat. §§ 12-689, with government regulations. Such 12-701; N.J. Stat. § 2A:58C-5; Ohio protection typically does not apply if the Rev. Code § 2307.80; Or. Rev. Stat. manufacturer knowingly, in violation of § 30.927; Tenn. Code Ann. §§ 29-28- applicable regulations, withheld from or 104(b), 29-39-104(d), (e); Utah Code misrepresented to the agency information § 78-18-2. known to be material and relevant to the harm that the plaintiff allegedly suffered. Earlier enactments in New Jersey, Ohio, These laws recognize that a manufacturer Oregon, and Utah are limited to U.S. Food whose product is evaluated and considered and Drug Administration (FDA)-approved safe and effective by a government agency pharmaceuticals and medical devices. charged with protecting the public should The Arizona, Oklahoma, and Tennessee not be punished through a private lawsuit laws apply to all products approved by seeking punitive damages. a government agency. The Arizona and Tennessee laws also apply to government- approved services.
Options
1. Establish a rebuttable presumption that • Apply to any service where the act a product or service that complies with or transaction forming the basis of government regulations is not subject the claim involves terms of service, to liability. contract provisions, representations or other practices authorized by, 2. Provide that punitive damages are not or in compliance with, the rules, available when the product at issue regulations, standards or orders was approved by a government agency of, or a statute administered by, a or is in compliance with government government agency. regulations absent evidence that the manufacturer wrongfully withheld or RECENT ENACTMENTS misrepresented information related to • Oklahoma H.B. 3365 (2014) (codified the risk of harm at issue in the litigation. at Okla. Stat. tit. 76, § 57.2): Provides • Apply to drugs and medical devices a rebuttable presumption that a approved by the FDA. product manufacturer or seller is not liable for an injury caused by • Apply to any product where the some aspect of the formulation, design or warning at issue was labeling, or design of the product if approved by any state or federal that aspect of the product complied agency or the aspect of the with or exceeded mandatory product at issue met or exceeded safety standards or was subject to government safety standards. premarket licensing or approval by a federal government agency.
61 101 Ways to Improve State Legal Systems Improve Product Liability Law
• Arizona H.B. 2503 (2012) (codified at Ariz. Rev. Stat. § 12-689): Prohibits an award of punitive damages against [E]ven the most closely any manufacturer, service provider, regulated businesses face or product seller when the product or “ service at issue was approved by a lawsuits advancing theories government agency or in compliance of liability that create tension with government safety standards with respect to the aspect at issue in with the reasoned decisions of the lawsuit, with certain exceptions. government regulators. • Wisconsin S.B. 1 (2011) (codified at Wis. Stat. § 895.047(3)(b)): Provides ” that “[e]vidence that the product, at drug or device manufacturers when the time of sale, complied in material the product was manufactured in respects with relevant standards, accordance with relevant federal law, conditions, or specifications adopted with certain exceptions. Prohibits the or approved by a federal or state law award of punitive damages when the or agency shall create a rebuttable defendant was in compliance with presumption that the product is not relevant federal and state regulations defective.” setting forth specific standards applicable to the activity in question • Tennessee H. 2008, §§ 10, 11 (2011) to protect a class of persons or (codified at Tenn. Code Ann. §§ 29- entities that includes the plaintiff. 28-104, 29-39-104): Prohibits the award of punitive damages against
U.S. Chamber Institute for Legal Reform 62 Improve Product Liability Law Protect Innocent Product Sellers
Purpose
Strict liability imposes responsibility for Colorado, Delaware, Georgia, Idaho, injuries related to a defective product on Illinois, Indiana, Iowa, Kansas, Kentucky, any business in the chain of distribution Louisiana, Maryland, Michigan, Minnesota, for the product. Thus, a retailer that took Mississippi, Missouri, Nebraska, New no part in designing or labeling a product Jersey, North Carolina, North Dakota, Ohio, is subject to suit and may be required to Oklahoma, South Dakota, Tennessee, Texas, pay the plaintiff’s damages. Personal injury Washington, and Wisconsin. lawyers will often name a local retailer or wholesaler as a defendant, even though These statutes vary from state to state. they have few assets and no responsibility Some states simply provide that a product beyond selling or distributing the product, seller is not liable as a manufacturer under as a way to avoid the jurisdiction of a strict liability. Other states provide that a “neutral” federal court and be heard, seller is not strictly liable if the product instead, in a more favorable local court. By was sold in a sealed container and the naming a local defendant, a plaintiff may seller had no knowledge of the defect and be able to keep an out-of-state defendant could not have discovered the defect while in the plaintiff’s court of choice. In addition, exercising reasonable care. Many states the small, local business, while not a true do not limit the seller’s liability when the target in the litigation, is forced to expend seller had a substantial part in designing, precious business time and pay substantial manufacturing, or labeling the product, or legal fees. made an express warranty regarding the product. A seller also remains liable under NOTES several state laws when the manufacturer A majority of states have acted to protect is insolvent, not subject to the jurisdiction innocent sellers, including Alabama, of the court, or cannot be identified.
Options
1. Limit the scope of product liability • the product seller exercised actions such that they may be permitted substantial control over the aspect of only against the manufacturer of the the design, testing, manufacturing, allegedly defective product and not packaging, or labeling of the product a seller that had no knowledge of that caused the alleged harm for or control over the defect. Consider which recovery of damages is sought; exceptions in which the product seller may be held strictly liable, such as:
63 101 Ways to Improve State Legal Systems Improve Product Liability Law
• the product seller altered or modified RECENT ENACTMENTS the product, and the alteration • Oklahoma H.B. 3365 (2014) (to be or modification was a substantial codified at Okla. Stat. tit. 76, § 57.2): factor in causing the harm for which Provides that a product liability action recovery of damages is sought; cannot be asserted against a product seller other than the manufacturer • the product seller made an express unless: the product seller exercised warranty regarding the product substantial control over the aspect of independent of any express warranty the product that caused the alleged made by a manufacturer, the product harm; the seller modified or altered failed to conform to the product seller’s the product in a manner that caused warranty, and the failure of the product the alleged harm; the seller made to conform to the warranty caused the an express warranty; the claimant is harm alleged by the claimant; unable to identify the manufacturer; • the claimant is unable, despite a the manufacturer is not subject to good faith exercise of due diligence, service of process; or the claimant to identify the manufacturer would be unable to enforce a of the product; judgment against the manufacturer. • the manufacturer is not subject to • Alabama S.B. 184 (Ala. 2011) (codified service of process under the laws at Ala. Code § 6-5-501): Provides of the state; and/or that no product liability action may • the court determines that the be brought against a product seller claimant would be unable to enforce that is not the manufacturer unless: a judgment against the manufacturer. (1) the product seller is also the manufacturer; (2) the product seller exercised substantial control over the aspect of the product at issue; or (3)
Personal injury lawyers will often name a local retailer“ or wholesaler as a defendant, even though they have few assets and no responsibility beyond selling or distributing the product, as a way to avoid the jurisdiction of a ‛neutral’ federal court and be heard, instead, in a more favorable local court.”
U.S. Chamber Institute for Legal Reform 64 Improve Product Liability Law
the product seller altered or modified distributor of the product or part in the product in a manner that was question is not subject to service of a substantial factor in causing the process in Tennessee and the state’s injury. A product liability action may long-arm statutes do not provide also be brought against a product a basis for obtaining service of seller if the plaintiff files an affidavit process; or (5) the manufacturer has asserting that he or she is unable been judicially declared insolvent. to identify the manufacturer of the defective product. If the product • Wisconsin S.B. 1, § 31 (2011) seller files an affidavit identifying the (codified at Wis. Stat. § 895.047(2), manufacturer, the plaintiff must file (3)(e)): A seller or distributor of an action against the manufacturer a product is not subject to strict and dismiss all claims against the liability unless: (1) the seller or product seller. distributor contractually assumed one of the manufacturer’s duties • Tennessee H.B. 2008 (Tenn. 2011) to manufacture, design, or provide (amending Tenn. Code Ann. § 29- warnings or instructions with 28-106): No “product liability action” respect to the product; (2) neither shall be commenced or maintained the manufacturer nor its insurer is against any seller other than the subject to service of process within manufacturering, unless: (1) the this state; or (3) the claimant would seller exercised substantial control be unable to enforce a judgment over that aspect of the design, against the manufacturer or its testing, manufacturing, packaging, or insurer. The court must dismiss labeling of the product that caused a product seller or distributor as the alleged harm for which recovery a defendant if the manufacturer of damages is sought; (2) the seller or its insurer submits itself to the altered or modified the product, and jurisdiction of the court in which the the alteration or modification was a suit is pending. A seller or distributor substantial factor in causing the harm of a product is not liable if it receives for which recovery of damages is the product in a sealed container and sought; (3) the seller gave an express has no reasonable opportunity to test warranty; (4) the manufacturer or or inspect the product.
65 101 Ways to Improve State Legal Systems Improve Product Liability Law Recognize that Product Liability Ends at the Expiration of a Product’s Useful Life
Purpose
Statutes of repose recognize that, after The following states have enacted generally a certain number of years, the useful life applicable statutes of repose: Colorado, of a product ends and an injury allegedly Connecticut, Florida, Georgia, Idaho, Illinois, stemming from use of that product does Indiana, Iowa, Kansas, Kentucky, Michigan, not result from a defect at the time of sale. Minnesota, Nebraska, North Carolina, Ohio, About half of the states have laws that limit Oregon, Tennessee, Texas, Washington, the length of time that a manufacturer is and Wisconsin. Courts in some states have exposed to liability after the sale of a product. found statutes of repose unconstitutional, but most courts have upheld such laws.
Options
1. Establish a statute of repose (e.g., 10, RECENT ENACTMENTS 12, or 15 years) for products, starting at • Wisconsin S.B. 1, § 31 (2011) the time of initial sale to consumers, (codified at Wis. Stat. § 895.047(5)): so that a product liability claim would Provides that “[a] defendant is not be precluded after the statutory period liable to a claimant for damages if the has elapsed. product alleged to have caused the damage was manufactured 15 years 2. This reform should apply only to those or more before the claim accrues, products with a useful life under a unless the manufacturer makes specified period of time (e.g., 10 years) a specific representation that the and not where the product is specifically product will last for a period beyond warranted to have a useful life longer 15 years.” Does not apply to an action than this period. based on a claim for damages caused by a latent disease.
U.S. Chamber Institute for Legal Reform 66 Improve Product Liability Law Prioritize Asbestos Claims to Benefit Legitimate Claimants with Credible Injuries
Purpose
For decades, courts have struggled with NOTES an avalanche of asbestos lawsuits. As far A growing number of states have responded back as 1997, the U.S. Supreme Court to the serious problems created by mass described the litigation as a “crisis.” Cardozo filings generated by for-profit litigation Law School Professor Lester Brickman, screeners by enacting “medical criteria” an expert on asbestos litigation, has said, procedures for asbestos and silica cases. “the ‘asbestos litigation crisis’ would never Medical criteria procedures for asbestos have arisen” if not for the claims filed by and silica cases were enacted in Ohio in the non-sick. Most of these filings have 2004, Florida and Texas in 2005, Kansas and been generated through lawyer-sponsored South Carolina in 2006, Georgia in 2007, screenings, which are notoriously unreliable. Oklahoma in 2013, and West Virginia in 2015. Tennessee enacted medical criteria Filings by unimpaired claimants have created procedures for silica cases in 2006. judicial backlogs and exhausted resources needed to compensate sick claimants with The presently unimpaired are protected from legitimate claims. Plaintiffs’ lawyers have having their claims time-barred should they responded to asbestos-related bankruptcies develop an impairing condition in the future. by dragging many small and medium-size Thus, sick claimants with legitimate claims companies into the litigation. The Wall are given priority so they can receive more Street Journal has editorialized that “the timely and adequate recoveries; defendants net has spread from the asbestos makers are relieved from having to spend critical to companies far removed from the scene resources on premature or meritless claims; of any putative wrongdoing.” A former the non-sick have their claims preserved; plaintiffs’ attorney candidly described the and court dockets are unclogged. litigation as an “endless search for a solvent bystander.” Editorial, Lawyers Torch the Economy, Wall. St. J., Apr. 6, 2001.
67 101 Ways to Improve State Legal Systems Improve Product Liability Law
Options 1. Require claimants to submit credible and Filings by unimpaired objective evidence of physical impairment caused by asbestos or silica to bring or claimants“ have created maintain an asbestos or silica claim. judicial backlogs and RECENT ENACTMENTS: exhausted resources • West Virginia S.B. 411 (2015) (to be needed to compensate codified at W. Va. Code §§ 55-7F-1 et seq.) (enacting the Asbestos and sick claimants with Silica Claims Priorities Act): Gives legitimate claims. priority to the claims of individuals who can demonstrate actual physical impairment caused by exposure ” to asbestos or silica, establishes medical criteria for determining • Texas H.B. 1325 (2013) (codified at impairment, requires certain medical Tex. Civ. Prac. & Rem. Code Ann. documentation to support a claim, §§ 90.007, 90.010): Provides a and preserves the legal rights of mechanism for state courts to dismiss people who have been exposed to long dormant claims where asbestos asbestos or to silica, but who have no and silica plaintiffs have not shown present physical impairment. proof of impairment under criteria established by Texas’s 2005 reform. • Oklahoma S.B. 14X (Spec. Sess. Preserves a claimant’s ability to re-file 2013) (codified as Okla. Stat. tit. 76, a dismissed case should the claimant § 90) (enacting the Asbestos and develop an impairing condition. Silica Claims Priorities Act, described above)
U.S. Chamber Institute for Legal Reform 68 Address Damages "Run Wild"
The civil justice system is intended to make whole a person who suffered an injury, restoring the plaintiff to the position he or she would be in but for another party’s carelessness or wrongful act. In rare instances in which a party has engaged in malicious conduct, the courts may impose punitive damages to punish a defendant. Jackpot verdicts and windfall awards, however, damage respect for and public confidence in the civil justice system. This section provides approaches for accurately measuring economic damages, noneconomic damages, and punitive damages, and avoiding excessive awards.
For example, in many states, a person actually paid by the patient or the patient’s can receive damages for medical bills that insurer and accepted by the healthcare no one ever paid. If an employee sought provider is far less. As a result, damages reimbursement for items picked up at a for medical expenses in personal injury grocery store but submitted the list price, lawsuits are often inflated. Legislatures can rather than the amount actually paid after eliminate these “phantom damages,” which sales and “club card” use, he or she serve no compensatory purpose. would likely be fired. Similarly, a driver who destroys a new car and expects an Furthermore, juries are often blindfolded insurer to pay the full MSRP, rather than from learning that a plaintiff already the price actually paid or the bluebook received full or substantial compensation value, would be sorely disappointed. But in for the very injury at issue in the lawsuit the civil justice system, plaintiffs’ lawyers before he or she sued. What is known seek—and receive—the list price printed as the “collateral source rule” prevents on medical bills even though the amount introduction of evidence of payments received by the plaintiff from insurers or
69 101 Ways to Improve State Legal Systems other sources. As a result, plaintiffs may receive double compensation for an injury. Some states either allow the court to Jackpot verdicts and deduct compensation the plaintiff already windfall awards, however, has received for an injury after a verdict or “ allow the jury to consider such evidence damage respect for and in reaching its award, particularly when public confidence in the unnecessary liability adversely affects the public’s access to affordable healthcare. civil justice system.
In addition, juries receive no guidance when asked to reach an award for the ” pain and suffering of a plaintiff. As a result, adopted laws that require proportionality these noneconomic damages are entirely between the harm caused by the subjective and fluctuate widely from defendant’s conduct and the punishment case-to-case. While once a small part of imposed by the judicial system. Such laws tort damages, pain and suffering awards are guided by the U.S. Supreme Court have grown to become the largest part of decisions on unconstitutionally excessive tort costs. Most states have responded punitive damages awards and help avoid by enacting reasonable bounds for lengthy, costly appellate litigation. noneconomic damages in personal injury or The section concludes by highlighting medical malpractice claims. reforms that address excessive liability in States have safeguarded due process by the healthcare system, where the societal ensuring that punitive damages awards are impact of inequities and inefficiencies is decided through a fair process and reserved most immediately felt. for proven misconduct. They have also
U.S. Chamber Institute for Legal Reform 70 Address Damages "Run Wild" Ensure that Damages for Medical Expenses Reflect Actual Costs
Purpose
Plaintiffs’ lawyers argue in personal plaintiffs should recover amounts that are injury cases that their clients should vastly in excess of the medical expenses receive damages for medical expenses actually paid. for the amount billed by their healthcare providers, even when providers accepted NOTES a substantially lower amount as payment 1. About one-third of the states have limited in full. Since it is not uncommon for billed recovery of “phantom damages” through amounts to be three or four times the court rulings or legislation: Alabama, amounts paid by patients or their insurers California, Connecticut, Florida, Idaho, (including private insurers, Medicare, Indiana, Maryland, Massachusetts, or Medicaid) due to negotiated rates, Minnesota, Missouri, New York, North discounts, and write-offs, defendants Carolina, Ohio, Oklahoma, Pennsylvania, typically pay significantly inflated awards Texas, and West Virginia. to reimburse a plaintiff for nonexistent • In some states that limit phantom medical expenses. Such damages serve damages, such as Florida, plaintiffs’ no compensatory purpose and are passed lawyers engage in tactics that continue on to consumers in the form of higher to allow inflated recovery. They do so costs for goods and services and higher through “Letters of Protection,” where insurance rates. These “phantom damages” a patient, by not paying a healthcare can also unjustly place costs on small provider for services during pending businesses and nonprofits that are sued for litigation, avoids evidence of the true common accidents such as slip-and-falls. value of a service that he or she would actually pay. The following options present a modest commonsense approach to reducing 2. The following states permit recovery of excessive damages. It does not go as far phantom damages: Arizona, Colorado, as eliminating the collateral source rule and Delaware, District of Columbia, Georgia, therefore permits plaintiffs to continue to Hawaii, Illinois, Iowa, Kansas, Kentucky, recover expenses even if those expenses Louisiana, Maine, Mississippi, Nebraska, were covered by insurance. Those who Oregon, South Carolina, South Dakota, oppose such an approach must explain why Virginia, Washington, and Wisconsin.
71 101 Ways to Improve State Legal Systems Address Damages "Run Wild"
3. In the remainder of states, the ability to Hamilton Meats & Provisions, Inc., 257 recover phantom damages is unclear or P.3d 1130 (Cal. 2011); Stayton v. Delaware inconsistently applied. Health Corp., 2015 WL 3654325 (Del. June 12, 2015). 4. Texas was the first state to address phantom damages through legislation 6. State high courts in Montana, West in 2003 (Tex. Civ. Prac. & Rem. Code Virginia, and Wisconsin, however, § 41.0105). The one-line statute provides: recently permitted phantom damages. “In addition to any other limitation See Meek v. Montana Eighth Jud. Dist. under law, recovery of medical or health Ct., 349 P.3d 493 (Mont. 2015); Kenney care expenses incurred is limited to v. Liston, 760 S.E.2d 434 (W. Va. 2014); the amount actually paid or incurred Orlowski v. State Farm Mutual Auto. Ins. by or on behalf of the claimant.” The Co., 810 N.W.2d 775 (Wis. 2012). The Texas Supreme Court has applied this West Virginia Legislature responded by provision to preclude admission of billed enacting a law that limits a verdict for amounts that do not reflect actual costs past medical expenses to the amount as evidence at trial. Haygood v. De paid by or on behalf of the plaintiff and Escabedo, 356 S.W.3d 390 (Tex. 2011). the total amount incurred for which the plaintiff or another person on behalf of 5. The California and Delaware supreme the plaintiff is obligated to pay. West courts are the most recent state high Virginia S.B. 6 (2015) (to be codified at W. courts to rule that phantom damages Va. Code § 55-7B-9d). are inadmissible evidence. Howell v.
Since it is not uncommon for billed amounts to be three“ or four times the amounts paid by patients or their insurers…due to negotiated rates, discounts, and write- offs, defendants typically pay significantly inflated awards to reimburse a plaintiff for nonexistent medical expenses. Such damages serve no compensatory purpose and are passed on to consumers in the form of higher costs for goods and services and higher insurance rates.”
U.S. Chamber Institute for Legal Reform 72 Address Damages "Run Wild"
Options
1. Provide that amounts billed that do not amount of the medical bills that have reflect the amounts actually paid are not been paid but which the plaintiff inadmissible at trial. California, North is obligated to pay. See Mo. Rev. Carolina, Oklahoma, and Texas are among Stat. § 490.715 (enacted 2005). the states that follow this ideal approach. 4. Close loopholes, such as Letters Of 2. Allow the jury to hear evidence of both Protection, that allow plaintiffs’ lawyers the amount billed and amount paid and to circumvent laws intended to prevent reach their own determination of the phantom damages. reasonable value of the medical services. RECENT ENACTMENTS: 3. Permit the jury to learn only the amount • West Virginia S.B. 6 (2015) (to be billed, but then permit or require the codified at W. Va. Code § 55-7B- judge to reduce the verdict due to 9d): Limits a verdict for past medical phantom damages. This approach is expenses to ”the total amount paid not ideal because, by misleading jurors by or on behalf of the plaintiff” and to believe that the plaintiff has higher incurred but unpaid amounts that ”the medical expenses, they may reach an plaintiff or another person on behalf inflated award for pain and suffering. of the plaintiff is obligated to pay”. • Florida allows the jury to hear • Oklahoma H.B. 2023 (2011) and S.B. evidence of the amounts billed only 789 (2015) (codified at Okla. Stat. tit. in cases in which the bill was paid in 12, § 3009.1): Provides that the actual whole or in part by private insurance. amounts paid for medical bills, not the After the verdict, Florida law requires amounts billed, are admissible at trial, the judge to “set off” (subtract) the and that where a bill remains unpaid, amount of phantom damages. Medicare reimbursement rates are admissible if the provider will accept • Missouri law provides a rebuttable payment at this rate. presumption that the amount accepted by a healthcare provider • North Carolina H.B. 542 (2011) as full payment for a medical bill (codified at N.C. Gen. Stat. ch. 8C, represents the value of the medical Rule 414): Limits evidence offered treatment rendered and allows the to prove past medical expenses judge, outside the presence of the to amounts actually paid to satisfy jury, to consider other evidence of the bills, regardless of the source the value of the medical treatment of payment, and evidence of the based on the medical bills incurred, amounts actually necessary to satisfy the amount actually paid, and the the bills that have been incurred but not yet satisfied.
73 101 Ways to Improve State Legal Systems Address Damages "Run Wild" Provide Juries with Full Information on the Plaintiff’s Actual Losses
Purpose
Generally, the collateral source rule The shift in the landscape under the ACA prohibits admission of evidence that all significantly alters these assumptions. or some of a plaintiff’s damages will be The “individual mandate,” which went into or have been paid by a source other than effect in 2014, now requires most people to the defendant(s), such as through health secure health insurance. Health insurance insurance, workers’ compensation, or is now compulsory, not “collateral.” The previous settlements. As a result, the law prohibits health insurers from denying plaintiff may receive double recovery—first coverage based on pre-existing conditions, from the collateral source and again from eliminating the uninsurability concern that the defendant. To prevent double dipping supported the collateral source rule. These by plaintiffs and needless litigation, some changes may fuel new interest in collateral states allow a judgment to be offset by source reform. the amount a claimant has received for the injuries giving rise to the lawsuit from NOTES sources other than the defendant(s). 1. Several states have eliminated the collateral source rule in cases asserting Policy arguments supporting retention negligent medical care, but continue of the collateral source rule are severely to bar a jury from considering collateral undermined by the Affordable Care Act source evidence in other cases. (ACA). Historically, courts applied the common law collateral source rule so 2. The proposal to eliminate phantom that a person who voluntarily obtained damages provides a related, but limited insurance is not penalized by his or her way of addressing collateral source prudence in doing so. The common law benefits. While elimination of phantom collateral source rule also presumes that damages does not preclude recovery of a plaintiff may not have insurance for collateral sources, it confines recovery of future medical treatment expenses. For medical bills that were paid by a collateral example, a plaintiff could lose his or her source to amounts actually paid rather job (and employer-provided insurance) than the higher amounts initially billed. and be denied future coverage from other sources due to pre-existing condition.
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Options
1. Permit the jury to consider collateral PREVIOUS ENACTMENTS source payments in all civil actions. • Washington H.B. 2292 (2006) (amending Wash. Rev. Code 2. Permit the jury to consider collateral § 7.70.080): Permits admissibility source evidence in medical malpractice of evidence of collateral source cases. payments in medical liability cases. • States such as Arizona, California, Plaintiff may present evidence of an Delaware, Massachusetts, Nevada, obligation to repay any compensation Ohio, Oklahoma, Rhode Island, South and evidence of any amount Dakota, Tennessee, and Washington paid by the plaintiff, or his or her follow this general approach. representative or immediate family, to secure the right to the compensation. 3. Provide in all civil actions that the judge must consider after the verdict but prior • Ohio Am. Sub. S.B. 80 (2004) to judgment any evidence showing that (codified at Ohio Rev. Code a plaintiff received compensation for § 2315.20): Permits introduction the injuries or harm that gave rise to the of collateral source benefits into cause of action from a source other than evidence, except under certain the defendant and must deduct from the circumstances. The plaintiff may judgment the amount of the payments introduce evidence of any amount from collateral sources. that the plaintiff has paid or contributed to secure the right to • Variations of this approach are receive the collateral source benefits. currently law in states such as Alaska, Colorado, Connecticut, Florida, Idaho, Michigan, Minnesota, New Jersey, New York, North Dakota, and Oregon. Additional states use a similar set off approach in medical malpractice cases.
75 101 Ways to Improve State Legal Systems Address Damages "Run Wild" Place Reasonable Bounds on Subjective Noneconomic Damages Awards
Purpose
Historically, pain and suffering damages Utah, West Virginia, and Wisconsin. were modest in amount and often had Several additional states limit total a close relationship to a plaintiff’s actual damages (economic and noneconomic) pecuniary loss, such as medical expenses. in medical liability lawsuits. In recent years, a confluence of factors has led to a significant rise in the size of pain Ten states limit noneconomic damages in and suffering awards, creating the need for some or all personal injury claims. legislation to guard against excessive and • Alaska, Colorado, Hawaii, Idaho, unpredictable outlier awards. Noneconomic Kansas, Maryland, Mississippi, Ohio, damages awards in personal injury litigation Oklahoma, and Tennessee. now constitute the largest single item of recovery, exceeding medical expenses Federal courts and most state courts have and lost wages. Such awards may occur held that limits on noneconomic damages due to juries being improperly influenced are constitutional. Some state courts have by sympathy for the plaintiff, bias against a struck down such laws, however, based on deep-pocket defendant, or a desire to punish unique state constitutional provisions or the defendant rather than compensate outlier interpretations of such provisions. the plaintiff. Pain and suffering awards are • The Florida Supreme Court subjective, unpredictable, and inconsistent. struck down the state’s limit on Excessive pain and suffering awards raise noneconomic damages as applied the costs of goods and services for the to wrongful death cases involving public, increase insurance rates, and limit multiple claimants in 2014. the availability of medical care. • After the Missouri Supreme Court NOTES invalidated a limit on noneconomic Twenty states limit noneconomic damages damages as unconstitutionally in healthcare liability lawsuits. limiting damages available • Alaska, California, Colorado, Florida, under common law in 2012, the Indiana, Louisiana, Maryland, Michigan, legislature, in 2015, replaced the Mississippi, Missouri, Montana, common law cause of action for Nebraska, North Carolina, North medical malpractice claims with a Dakota, Ohio, South Carolina, Texas, statutory action subject to a limit on noneconomic damages.
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Options:
1. Limit noneconomic damages in all In recent years, a personal injury actions to a specific confluence of factors has amount. See, e.g., Nev. Rev. Stat. Ann. “ § 41A.035 (limiting noneconomic led to a significant rise in damages to $350,000 in any action for the size of pain and injury against a healthcare provider based on professional negligence). suffering awards, creating the need for legislation to 2. Limit noneconomic damages to the greater of a specific amount or a guard against excessive multiplier of the compensatory damages and unpredictable outlier award. See, e.g., Ohio Rev. Code Ann. § 2315.18 (greater of $250,000 or three awards. Noneconomic times economic loss up to a maximum damages awards in of $350,000). personal injury litigation 3. Limit noneconomic damages to a now constitute the largest certain amount per year of the plaintiff’s life expectancy. See, e.g., Alaska Stat. single item of recovery, § 09.17.010 (limiting noneconomic exceeding medical expenses damages to the greater of $400,000 or the injured person’s life expectancy in and lost wages. years multiplied by $8,000 and, in cases involving severe permanent injuries, ” to the greater of $1 million or the injured person’s life expectancy in RECENT ENACTMENTS years multiplied by $25,000). • Missouri S.B. 239 (2015) (to be 4. Authorize higher noneconomic damages codified at Mo. Rev. Stat. §§ 1.010, awards in cases involving defined 538.205, 538.210): Provides a catastrophic injuries. See, e.g., Tenn. statutory cause of action for medical Code Ann. § 29-39-102. malpractice subject to a $400,000 limit on noneconomic damages, 5. Provide for periodic adjustment of the which rises to $700,000 in defined noneconomic damages limit to account cases of catastrophic injury or for inflation. See, e.g., Idaho Code wrongful death. § 6-1603 (adjusts the $250,000 limit set in 2004 based on the state’s average annual wage adjustments).
77 101 Ways to Improve State Legal Systems Address Damages "Run Wild"
• California Proposition 46 (Nov. 2014) cause of the plaintiff’s injuries, were (rejected): Would have increased committed in reckless disregard of the state’s cap on non-economic the rights of others, grossly negligent, damages in medical negligence fraudulent, intentional, or with malice. lawsuits from $250,000 to $1.1 million and would have increased • Oklahoma H.B. 2128 (2011) (amending the level annually for inflation. The Okla. Stat. tit. 23, § 61.2): Reduces the initiative failed by a 2:1 margin limit on the amount of noneconomic without gaining the support of damages that may be awarded for a majority of voters in a single noneconomic loss arising from a California county. claim of bodily injury from $400,000 to $350,000. Does not apply if the • Kansas S.B. 311 (2014) (amending defendant’s actions were: (1) in reckless Kan. Stat. Ann. § 60-19a02): disregard for the rights of others; (2) Incrementally raises the $250,000 grossly negligent; (3) fraudulent; or limit on noneconomic damages by (4) intentional or with malice. $50,000 every four years until 2022. • Tennessee H.B. 2008 (2011) (codified • North Carolina S.B. 33 (2011) (codified at Tenn. Code § 29-39-102): Limits at N.C. Gen. Stat. § 90-21.19): Limits noneconomic damages to $750,000 noneconomic damages in medical or $1 million if the injury or loss is liability cases to $500,000 subject catastrophic in nature. Does not to adjustments, every three years apply if the defendant intended to starting on January 1, 2014, based inflict serious injury, intentionally on the Consumer Price Index. Does destroyed or falsified records, or not apply if: (1) the plaintiff suffered acted under the influence of drugs disfigurement, loss of use of part or alcohol. of the body, permanent injury or death; and (2) the defendant’s acts or failures, which are the proximate
U.S. Chamber Institute for Legal Reform 78 Address Damages "Run Wild" Protect Due Process in Punitive Damages Determinations
Purpose
The Supreme Court of the United States they involve punitive damages because has ruled that the lack of adequate court such awards “pose an acute danger of procedures to guard against arbitrary arbitrary deprivation of property” and come and inaccurate deprivations of property with “the potential that juries will use violates a defendant’s due process rights. their verdicts to express biases against big In so doing, the Court considers whether business, particularly those without strong a lower court’s method of determining local presences.” In recent years, courts punitive damages departs from traditional have adopted helpful practices with respect procedures. The adequacy of procedural to punitive damages that may be more protections is particularly important when specifically addressed through legislation.
Options
1. Allow optional bifurcation. Upon 2. Stop duplicative punishment for the motion by any party, in the first stage same conduct. Punitive damages of a proceeding, the trier of fact would may not be awarded if the defendant determine whether and to what extent establishes before trial that punitive compensatory damages should be damages have previously been awarded awarded. Only if the trier of fact awards against it for the same action or course compensatory damages does the of conduct. If the court determines by proceeding continue to the second clear and convincing evidence that the stage, where evidence relevant to punitive damages award was insufficient, the question of punitive or exemplary then the court may permit the jury to damages is presented. consider a subsequent award.
79 101 Ways to Improve State Legal Systems Address Damages "Run Wild"
3. Require “clear and convincing” evidence RECENT ENACTMENTS to support an award of punitive damages. • West Virginia S.B. 421 (2015) (to be Many states follow this approach, but it codified at W. Va. Code § 55-7-27): is still needed in Connecticut, Delaware, Requires the plaintiff to establish by Illinois, New Mexico, Pennsylvania, clear and convincing evidence that Rhode Island, Vermont, Virginia, West the damages suffered were the result Virginia, and Wyoming. Clear and of the conduct that was carried out convincing evidence is a standard in by the defendant with actual malice between “beyond a reasonable doubt” of toward the plaintiff or a conscious, criminal law and “preponderance of the reckless and outrageous indifference evidence” of civil liability. to the health, safety and welfare of others. Provides for bifurcation at 4. Eliminate prejudgment interest on request of the defendant. punitive or exemplary damages. • Tennessee S.B. 222 (2013) (codified at Tenn. Code Ann. § 29-39-104): Provides that a defendant that is only vicariously liable for the conduct of another is subject to punitive damages in limited circumstances. • South Carolina H. 3375 (2011) (codified at S.C. Code Ann. § 15-32- 520) and Tennessee H.B. 2008 (2011) (codified at Tenn. Code Ann. § 29-39- 104): Requires clear and convincing evidence and bifurcated trial.
U.S. Chamber Institute for Legal Reform 80 Address Damages "Run Wild" Prevent Excessive Punitive Damages Awards
Purpose
In a surprising number of decisions, the Dakota, Ohio, Oklahoma, South U.S. Supreme Court has observed that Carolina, Tennessee, Texas, West punitive damages have “run wild.” Although Virginia, and Wisconsin. the Court has provided constitutional guidelines for determining whether an Six states generally do not permit punitive award is excessive, state court decisions damages awards. frequently evade both the letter and • Louisiana, Massachusetts, Michigan, spirit of these rulings. To promote a Nebraska, New Hampshire, and more stable legal climate, some states Washington. have adopted statutory limits on punitive damages. Statutory limits provide greater The following states have no statutory limit: predictability and certainty in litigation, • Arizona, California, Delaware, District eliminate outlier verdicts, and avoid of Columbia, Hawaii, Illinois, Iowa, constitutionally excessive awards. Kentucky, Maryland, Minnesota, NOTES New Mexico, New York, Oregon, About half of the states that permit punitive Pennsylvania, Rhode Island, South damages have statutory limits in place. Dakota, Utah, Vermont, and Wyoming. • Alabama, Alaska, Colorado, The Arkansas Supreme Court and Missouri Connecticut (product liability only), Supreme Court struck down their states’ Florida, Georgia, Idaho, Indiana, statutory limits on punitive damages in 2011 Kansas, Maine (wrongful death cases and 2014, respectively. Other state high only), Mississippi, Montana, Nevada, courts have upheld such measures. New Jersey, North Carolina, North
Options
1. Limit punitive damages awards to the 2. In cases where the fact finder finds a greater of three times compensatory specific intent to harm or malice, limit damages or a specific cap (possibly punitive damages awards to the greater adjusting periodically for inflation). of four times compensatory damages or a specific cap.
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RECENT ENACTMENTS • West Virginia S.B. 421 (2015) (to be Although the codified at W. Va. Code § 55-7-27): [U.S. Supreme] Court has Punitive damages may not exceed “ $500,000 or four times the amount provided constitutional of compensatory damages, whichever guidelines for determining is greater. whether an award is • South Carolina H. 3375 (2011) excessive, state court (codified at S.C. Code Ann. § 15-32-530): decisions frequently evade Limits punitive damages to both the letter and spirit of the greater of three times these rulings. compensatory damages awarded to each claimant or $500,000. Permits punitive damages of ” up to the greater of four times 3. For individuals or small businesses, limit compensatory damages awarded punitive damages awards to the lesser of to each claimant or $2 million if three times compensatory damages or a the trial court determines that: certain percentage of net worth. (1) the wrongful conduct was 4. Provide that the limit shall not be disclosed motivated primarily by unreasonable to the trier of fact, but applied by the court financial gain, and the unreasonably to any punitive damages verdict. dangerous nature of the conduct, together with the high likelihood of 5. When compensatory damages are injury resulting from the conduct, above a certain amount, provide that was known or approved by the punitive damages are not to exceed person responsible for making policy compensatory damages. decisions; or (2) the defendant’s actions could subject the defendant 6. Do not punish businesses that follow to conviction of a felony. the law by precluding punitive damages Limit if the trial court determines: in cases in which the product or service (1) the defendant had an intent at issue was approved by a government to harm the claimant; (2) the agency or complied with government defendant has pled guilty to or been regulations. convicted of a felony arising out of the same act or course of conduct; or (3) the defendant acted or failed to act while under the influence of alcohol, drugs, or other substances.
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• Tennessee H.B. 2008 (2011) (codified • Wisconsin S.B. 1 (2011) (codified at Tenn. Code Ann. § 29-39-104): at Wis. Stat. § 895.043(6)): Limits Limits punitive damages to two times punitive damages to $200,000 or compensatory damages or $500,000, two times compensatory damages, whichever is greater. Does not apply whichever is greater. Does not apply if the defendant intended to inflict to defendants who drive under the serious injury, intentionally destroyed influence of an intoxicant. or falsified records, or acted under the influence of drugs or alcohol.
83 101 Ways to Improve State Legal Systems Address Damages "Run Wild" Protect Access to Healthcare Through Medical Liability Reform
Purpose
The societal impact of excessive civil of healthcare. They also encourage the liability is nowhere more evident than in practice of defensive medicine as a means medical liability. Widely disparate awards of reducing or avoiding tort liability, which across states for the same or substantially is a major contributor to skyrocketing similar injuries demonstrate medical healthcare costs. Medical liability reforms liability’s systemic problems. These have dramatically improved the healthcare inequities and inefficiencies negatively environment in such states as Mississippi, affect the affordability and accessibility Pennsylvania, Texas, and West Virginia.
Options
1. Establish a limit on noneconomic 4. Limit the liability of physicians and other damages in medical liability cases. medical professionals who provide Such limits exist, in various forms, voluntary or emergency care. in more than half of the states. 5. Allow healthcare providers to express 2. Allow admission of evidence of statements of apology or regret without payments to the plaintiff from sources fear that such statements can be used other than the defendant, or a set off for against them in litigation. collateral source recovery. 6. Eliminate phantom damages. 3. Require plaintiffs’ lawyers to file medical liability lawsuits where the action arose, preventing such claims from flowing to the county viewed as the most plaintiff-friendly in the state.
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7. Provide a sliding scale for contingency RECENT ENACTMENTS: fees in medical liability cases (e.g., up • West Virginia S.B. 6 (2015) (to be to 40% of the first $150,000 recovered, codified at W. Va. Code § 55-7B-7): 33% of the next $150,000, 25% of the Adds a requirement to criteria for next $200,000, and 20% of any amount an expert to qualify to testify on the recovered over $500,000). standard of care that the opinion is • States with similar provisions include grounded on scientifically valid peer- reviewed studies if available. California, Connecticut, Delaware, Florida, Illinois, Massachusetts, • Alaska H.B. 250 (2014) (codified Nevada, New Hampshire, New at Alaska Stat. § 09.55.544): Jersey, New York, and Wisconsin. Provides that an expression of 8. Require the plaintiff to obtain from a apology, sympathy, commiseration, qualified physician a certificate of merit compassion, or benevolence made finding a breach of the duty of care by a healthcare provider to a patient before filing a lawsuit. concerning an unanticipated outcome of medical treatment or the patient's 9. Set qualifications for expert witnesses discomfort, pain, suffering, injury, or that require them to be licensed and death is inadmissible as evidence trained in the same specialty as the in a civil action. Statements by a defendant doctor and actively practicing healthcare provider indicating it would in that specialty at the date of the injury. attempt to correct to remediate an Prohibit testimony from expert witnesses unanticipated outcome, compromise whose compensation depends upon the or settle a medical malpractice claim, outcome of the lawsuit. or pay or write off medical expenses are also inadmissible.
• Wisconsin A.B. 120 (2014) (codified at Wis. Stat. § 904.14): Provides that a healthcare provider’s expression of apology, benevolence, compassion, condolence, fault, liability, remorse, responsibility, or sympathy to a patient or his or her relative, made before commencement of a civil action, is not admissible as evidence of liability or as an admission against interest.
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• Florida S.B. 1792 (2013) (codified • Oklahoma H.B. 1007x (Spec. Sess. at Fla. Stat. Ann. § 766.102(12)): 2013): In any civil action where Provides that a witness may not a patient is claiming injuries as a testify on the professional standard result of negligence by a healthcare of care unless the person is a professional, factual statements healthcare provider in the same made during any peer review process specialty as the defendant provider are not subject to discovery. and devoted professional time to that specialty in the three years • Virginia H.B. 1545 (2013) (codified immediately preceding the date of at Va. Code Ann. §§ 8.01-20.1, 8.01- the occurrence that is the basis of 50.1, and 16.1-83.1): Provides that a the lawsuit through clinic practice, court may review the expert opinion instruction, or research. Clarifies a obtained by the plaintiff regarding healthcare provider’s right to legal a violation of the standard of care, counsel, and permits an attorney for which is a pre-filing requirement for a a healthcare provider to informally medical malpractice claim. discuss the claim with a plaintiff’s treating physicians. • Wisconsin A.B. 139 (2013) (codified at Wis. Stat. §§ 448.30): Establishes • Oklahoma S.B. 1x (Spec. Sess. 2013) that a physician’s duty to inform (codified at Okla. Stat. tit. 12, patients about the risks and benefits § 19.1): Requires the filing of a of reasonable alternate treatment certificate of merit finding a breach of is determined based on what a the relevant standard of care signed reasonable physician in the same by a qualified expert prior to filing a or similar specialty would do in the professional negligence claim. circumstances.
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U.S. Chamber Institute for Legal Reform 88 202.463.5724 main 1615 H Street, NW instituteforlegalreform.com 202.463.5302 fax Washington, DC 20062