CENTER FOR LEGAL POLICY AT THE MANHATTAN INSTITUTE C L P STREET NW A REPORT ON THE LITIGATION LOBBY 2010 A Message from the Director merica’s litigation-friendly legal system continues to im- law is, for the most part, crafted by state judges rather than en- A pose a heavy burden on our economy. The annual direct acted by state legislatures, these efforts have centered on ensuring cost of American tort litigation—excluding much securities liti- a friendly judiciary, whether appointed or elected. gation, punitive damages, and the multibillion-dollar settlement With business groups now fighting back against Trial Lawyers, reached between the tobacco companies and the states in 1998— Inc.’s longtime grip on state judiciaries, the litigation lobby has exceeds $250 billion, almost 2 percent of gross domestic prod- turned its attention to state legislatures, where it is not only block- uct.1 The indirect costs of excessive litigiousness (for example, the ing tort reforms but working to expand its portfolio of litigation unnecessary tests and procedures characterizing the practice of opportunities. Among other things, state legislators are authoriz- “defensive” medicine, or the loss of the fruits of research never ing new kinds of lawsuits, raising damage caps, and giving private undertaken on account of the risk of abusive lawsuits) are prob- lawyers authority to sue on behalf of the state. ably much greater than the direct costs themselves.2 Of course, the growth in federal regulation and law has made Of course, tort litigation does do some good, and it does deter it necessary for Trial Lawyers, Inc. to lobby Congress as well. some bad behavior. The problem is that it deters a lot of good Thanks to large contributions, both to the Democratic Party and behavior, too. Indeed, the legal system does such a poor job of to individual legislators, lawyers have not only blocked most fed- distinguishing between good and bad behavior that the high cost eral efforts at tort reform but are also working to coax goodies of litigation is effectively a “tort tax” paid by every American. The from Congress that pad their bottom line. Such efforts include: share of America’s economy devoted to lawsuits is far higher than • Lengthening statutes of limitations in employment law to that of other developed nations such as Germany and Japan (see make it easier to file discrimination suits;4 graph below, left). Yet America is hardly safer as a result. • Spurring securities litigation by allowing suits to be filed As this report details, the causes of the staggering growth in against the vendors of corporations accused of fraud;5 the overall economic costs of litigation in America (see graph be- • Cutting contingent-fee lawyers a tax break worth over a low, right) are somewhat complex. A series of writings by academ- billion dollars;6 ics and decisions by judges from the 1930s through the 1960s— • Gutting arbitration contracts designed to encourage resolu- many of which were well-intentioned—changed our legal rules to tion of disputes that are too expensive to take to trial;7 and make it much easier to file and win lawsuits.3 • Allowing state juries to override federal regulations.8 Alongside these doctrinal changes, the modern trial-lawyer The litigation industry isn’t making political headway because lobby emerged. As the plaintiffs’ bar became wealthier, more it is popular. Eighty-three percent of Americans think that the organized, and more like an industry—we like to call it Trial legal system makes it too easy to assert invalid claims.9 The plain- Lawyers, Inc.—it grew into a major political force. Combining tiffs’ bar became so nervous about its public image that it changed large-scale political giving with K-Street lobbying sophistica- its name: in 2006, the Association of Trial Lawyers of America tion, the lawyers worked to maintain the legal shifts that had rebranded itself the American Association for Justice.10 enriched them, as well as to initiate changes that would enrich But general public unease over the conduct of litigation today them still more. cannot combat the overwhelming influence that Trial Lawyers, The litigation industry’s political strategy is multifaceted. Be- Inc. has obtained in the halls of power. In the last decade, lawyers cause tort law is state law in the United States, the states have been and law firms—excluding lobbyists—have injected $780 million the focus of Trial Lawyers, Inc.’s political efforts. And because tort into federal campaigns,11 on top of $725 million donated to state Tort Litigation Consumes Much More of America’s Since 1950, U.S. Tort Costs Have Risen Economy than of Other Developed Nations’ Much Faster than GDP 16,000 U.S. 2.2 e 14,000 Italy 1.7 ng e 12,000 ha C Germ any 1.1 v 10,000 la ge 8,000 ta Japan 0.8 m u 6,000 Tort Costs Cu France 0.7 cen 4,000 GDP U.K. 0.7 Per 2,000 0 0 0.5 1 1.5 2 2.5 19 50 19 60 19 70 19 80 19 90 20 00 Tort Costs, Percent GDP, 2003 19 55 19 65 19 75 19 85 19 95 20 05 Source: Towers Perrin Source: Towers Perrin www.TrialLawyersInc.com K STREET Tort Costs Have Risen More Slowly of Late Table of 20.0 14.7 15.0 13.4 Contents 10.0 ge an 6.6 5.5 6.0 6.3 6.1 Ch 4.7 4.8 t 5.0 3.2 3.4 3.3 Tort Costs 2.1 en 1.1 rc 0.4 GDP A Message from the Director 2 Pe 0.0 2001 2002 2003 2004 2005 2006 2007 2008 Introduction 4 (5.0) (5.6) The King of Torts 5 (10.0) The Law Expands 6 Source: Towers Perrin Public Relations 9 races.12 Lawyers’ giving is so lavish that it exceeds all other industries’, State Government Relations 12 and likely would do so even if donations by defense firms were backed Suing for the State 13 out of total contribution figures (see note 36).13 Moreover, the plain- tiffs’ bar strategically concentrates its giving, wielding disproportionate Justice for Sale 15 influence in contested state supreme court elections and over the lead- ership of both the U.S. Senate and key state legislatures. Federal Government Relations The progress of the plaintiffs’ bar has not been entirely unimpeded. Expanding Liability 16 Since the Manhattan Institute issued, in 2003, its first report entitled Trial Lawyers, Inc., major tort-reform legislation in states such as Texas Deputizing Trial Lawyers 17 and Mississippi has forced plaintiffs’ lawyers to look for friendly new Attacking Arbitration 20 jurisdictions.14 Judges such as Janis Graham Jack have blown the doors The Anti-Federalist Congress 20 off a program of manufactured testimony and medical examinations in the asbestos-lawsuit industry, producing a sharp drop in new case Toy Story 22 15 filings in that line of litigation. From 2004 through 2008, the cost A Trial-Lawyer Tax Break 23 of litigation to the economy rose more slowly than overall economic growth (see graph above). And four key members of our original Trial Conclusion 24 Lawyers, Inc.’s “leadership team” have left the business altogether: fed- eral prosecutors uncovered bribery and kickback schemes that led to Appendix 25 the imprisonment of Dickie Scruggs,16 Bill Lerach,17 and Mel Weiss;18 Endnotes 26 and former U.S. Senator John Edwards has retreated from the public scene in ignominy.19 Other Resources 31 But make no mistake: trial lawyers are re- acting to recent setbacks not by licking their wounds but by flexing their political muscle. Newly enlarged Democratic majorities—swept into office by financial crisis, disaffection with the war in Iraq, and enthusiasm for “hope and change”—seem intent on rewarding their po- litical benefactors. I hope that this report, by shedding light on their shenanigans, can help stem the damage. Visit TrialLawyersInc.com for online versions of this report, previous James R. Copland Director, Center for Legal Policy editions in the series, updates, and Manhattan Institute for Policy Research other resources. C L P CENTER FOR LEGAL POLICY AT THE MANHATTAN INSTITUTE INTRODUCTION POLITIcaL POWER How Trial Lawyers, Inc. Became Washington’s Most Influential Business Lobby The late Fred Baron, one THE RISE OF tHE PLAINTIFFS’ BAR of the litigation industry’s most Although the legal profession and the successful asbestos lawyers, was Anglo-American system of tort law long never bashful about acknowledging predate the United States itself, an or- trial lawyers’ political influence. In ganized plaintiffs’ bar—and the rise in 2002, in reaction to a recent Wall political influence of trial lawyers like Street Journal editorial claiming that Fred Baron—are relatively recent de- “the plaintiffs bar is all but running velopments. As noted by legal historian the Senate,” Baron quipped, “I John Fabian Witt, “For the first century really, strongly disagree with that. and a half of U.S. history, the plaintiffs’ Particularly the ‘all but.’ ”20 lawyer barely existed as a category.”24 A past president of Trial Law- Until the late nineteenth century, torts yers, Inc.’s political wing—known was not recognized as a discrete branch when he headed it as the Associa- of law; the first American treatise on the tion of Trial Lawyers of America— subject was not published until 1859.25 Baron had personally donated mil- Early-American accident lawyers “shifted lions of dollars to political causes.21 back and forth between representing de- For his friend and fellow trial law- fendants and plaintiffs,” and “[t]hrough Fred Baron yer John Edwards’s 2004 and 2008 Times Josh Merwin/New York the first half of the twentieth century, runs for national office, Baron di- plaintiffs’ lawyers remained for the most rected fund-raising operations, lent the campaign his private part diffuse and unorganized.”26 jet, and infamously paid to relocate the candidate’s mistress, However, amid and following the upheavals of the Indus- who was pregnant.22 trial Revolution, reformers during the Progressive era and the Baron was but one of many heavy-hitting plaintiffs’ law- New Deal came to believe that the old common-law tort system yers who have ponied up big cash to political campaigns.