Litigation Industry Pursues Its Own "Stimulus Package"

Monday, May 4, 2009 - 01:00

Tiger Joyce

American Tort ReformAssociation (ATRA)

In the past two editions of this publication, I've offered broad analysis of the litigation industry's well financed and well coordinated lobbying effort in statehouses across the country designed to roll back recent tort reforms and otherwise increase liability and the number of lawsuits, all at the expense of productive elements of the economy upon which we must rely to drive an eventual recovery.

As the plaintiffs' bar relentlessly pursues a "stimulus package" of its own, elements may include a fairly wide variety of liability expanding earmarks or stand-alone bills. But an ongoing analysis performed by the American Tort Reform Association as part of its Defensive Efforts campaign, wherein onerous trial lawyer bills in the states are closely tracked and ATRA members and allies are alerted when crucial votes are pending, suggests that litigators are pushing most often four basic types of legislation as a means by which to expand their business model.

False Claims and Qui Tam Legislation

The federal False Claims Act (FCA) is the federal government's primary weapon to combat fraud committed against federally funded government programs. A defendant company in an FCA lawsuit can be held liable if it knew, or should have known, its claim was false. Importantly, the statute also authorizes individuals to bring suit on behalf of the government and keep up to 30% of monies recovered for the government. These so-called qui tam plaintiffs can also recover damages when an employer "retaliates" against them for whistle-blowing, and they can receive full compensation for attorneys' fees and expenses.

In the hands of aggressive plaintiffs' attorneys, qui tam litigation can quickly become a dangerous vehicle for abuse. And because Congress offered states a financial incentive to enact their own qui tam statutes in the Deficit Reduction Act of 2005 (DRA), namely an additional 10% of the funds recovered in Medicaid fraud cases for states that enact false claim statutes considered "at least as effective" as the federal statute, litigation industry lobbyists went into overdrive.

Within minutes of the DRA's passage, the trial bar unveiled model state false claims legislation that can at first appear attractive to state lawmakers. But closer analyses showing that state Medicaid programs ultimately fail to benefit from increased litigation have kept trial lawyer lobbyists from running the table. All the DRA's 10% bonus will do, open-minded lawmakers have found, is to offset additional recoveries for whistleblowers and their lawyers.

In stopping these bills, opponents also have explained to legislators that a considerable body of federal and state law already exists to punish and prevent fraud. State qui tam legislation adds players to that complex mix and can delay the investigation and prosecution of meritorious cases. Furthermore, such statutes could subject businesses to costly multiple lawsuits and duplicative civil penalties for the same allegedly wrongful act, all with negative consequences for employment and economic growth.

When opponents of qui tam statutes face unreasonable statehouse majorities, they can pursue an amendment strategy to minimize a bill's potential harm. A "first to file" rule would preempt all subsequent claims in connection with the same act of alleged fraud once the first plaintiff has filed a claim. If the "first to file" rule is not adopted, another approach would be to offset the civil penalties already awarded for a violation in an earlier lawsuit against subsequent penalties for the same violation. This approach is not ideal. It may minimize civil penalties, but it doesn't keep companies from having to pay duplicative damages and costs to defend the same alleged wrongful act in multiple lawsuits.

Conflicts between federal and state FCAs can be minimized if they're aligned to encourage predictability and minimize burdens on defendants. Efforts by plaintiffs' lawyers to expand their recoveries should be rejected. These efforts include attempts to create a longer statute of limitations for claims under state law and to eliminate the rule in federal law that a qui tam lawsuit cannot be based on information that has been publicly disclosed unless the plaintiff has direct and independent knowledge of the information.

Since enactment of the DRA, only six states have passed new qui tam statutes (Georgia, New York, Oklahoma, Rhode Island, New Jersey, and Wisconsin); five have amended previously existing statutes to comply with the DRA (Florida, Louisiana, Montana, Nevada, and Texas); and one, New Mexico, enacted a second state false claims statute, without repealing its original. Many additional states have considered false claims legislation, including more than a dozen in 2009 (Arkansas, Arizona, California, Illinois, Iowa, Maryland, Michigan, Minnesota, Mississippi, Montana, Nebraska, Oregon, South Carolina and Texas).

Expanding Consumer Protection Acts

Consumer protection laws have emerged as a powerful tool for plaintiffs' lawyers to launch new types of litigation.These laws generally prohibit "unfair or deceptive" acts in the sale of a product or service. But because the range of how consumer products are marketed and sold is so complex and varied, these statutes are purposely vague and broadly designed. This fact makes the law an attractive means for innovative and profit-motivated personal injury lawyers to attack a wide range of conduct, circumventing traditional requirements of product liability law or promoting their own regulatory agenda.

Overexpansion of existing consumer protection acts has led to cases such as Washington, D.C.'s infamous "pantsuit" wherein the plaintiff pursued a $54 million claim against his dry cleaner over a misplaced pair of suit pants. While the judge ultimately ruled for the defendant at trial, the broadly worded law, which allows a "private attorney general" to seek $1,500 "per violation" without demonstrating injury, kept the judge from dismissing the case outright at an early stage. The family owned dry cleaners ran up more than $100,000 in defense costs and ultimately opted to close the shop.

Though the pantsuit example constitutes an extreme attempt to test the limits of D.C.'s law as currently written, trial lawyer lobbying in various statehouses seek to pave the way for a more certain and steady road to more claims for more money. Attempts to stretch consumer protection law most often come in the form of amendments to statutory definitions, recognition of specific conduct as violations, or expansion of the act to cover industries already regulated by government agencies.

At least eight states have considered expansions of consumer protection law this year, including Indiana, Iowa, Maryland, Minnesota, Mississippi, Nevada, Oregon and Washington.

Extending Statute Of Limitations And Repealing Or Extending Statutes Of Repose

Statutes of limitation and statutes of repose place time limits on the filing of lawsuits. Once these limits expire, a person can no longer bring a claim for an alleged injury. These statutory limits ensure predictability and finality in the civil justice system, and legislatures carefully craft them to provide plaintiffs with fair and ample opportunity to file claims. Nevertheless, the plaintiffs' bar continually pushes to extend these time limits, leaving many defendants with tremendous uncertainty of their exposure to liability. In the past year, at least eight states considered legislation to arbitrarily increase statutes of limitation or repose.

Statutes of limitation provide a deadline for bringing a lawsuit. These laws prohibit plaintiffs' lawyers from reviving old claims under new legal theories, bringing cases in light of new court rulings or other developments, or sitting on a case for so long that the opposing party has a more difficult time defending itself.

Statutes of limitation recognize that, over time, memories fade, witnesses become hard to find or pass away, and documents are discarded or lost. The clock ordinarily begins to run when the injury occurred or when the claimant knew or should have known of the injury giving rise to the action. Typically, these periods are several years in duration.

A statute of repose sets a time limit for bringing a claim based on the expected lifespan of a product or benefit of a service. Statutes of repose recognize that certain products have a finite lifetime during which the manufacturer is responsible for defects. After that period expires, it is much more likely that any failure of the equipment is a result of ordinary wear and tear as opposed to a design defect. For example, federal law provides that small airplane manufacturers are not subject to lawsuits related to crashes after 18 years, a measure that helped save the industry in the United States.

The legislation proposed in many states would alter reasoned and balanced limitation periods, which have provided a sense of predictability and certainty in the civil justice system for centuries. They also would lead to greater injustice for civil defendants less able to defend accusations after considerable passage of time. Lastly, some proposals are retroactive; that is, they could revive many time-barred claims, potentially violating the constitutional rights of civil defendants. At least eight state legislatures considered such dangerous proposals this year, including Alaska, Colorado, Connecticut, Maryland, Oregon, South Carolina, Vermont and Virginia.

Expanding Recovery in Wrongful Death Actions

An increasingly common approach by the personal injury bar to fundamentally alter and expand liability is through seeking an amendment to a state's wrongful death statute. Such efforts generally attempt to either expand the class of persons who may recover in the event of a wrongful death or allow for non-economic recoveries under the statute.

By expanding the scope of claimants in wrongful death actions, personal injury lawyers can increase the number of potential plaintiffs in each and every case. This necessarily creates more litigation and brings more profit for the plaintiffs' bar.

To compound this effect, the personal injury bar also has pushed expansions of wrongful death law to allow for non-economic damages, such as pain and suffering and loss of consortium or society. These damages are in addition to the traditional economic damages that compensate a plaintiff for all of the direct pecuniary losses incurred as a result of the decedents' wrongful death. Non-economic damages are also more subjective in nature, which can lead to higher damages and increase the potential for excessive awards.

At least seven states considered expansions of wrongful death statutes this year, including Iowa, Maryland, New Jersey, New York, Rhode Island, Utah and Washington.

Tort Reform

Space is limited and will not permit details this time around, but, as part of its litigation stimulus package, the personal injury bar also continues to lobby for rollbacks or outright repeals of reasonable tort reforms passed by the various states in years past. Legislatures in Colorado, Hawaii, Maryland, Michigan, Minnesota, North Dakota, Texas and Wisconsin were among those to consider such rollbacks this year.

This is why ATRA will continue to track litigation industry legislation in all statehouses and alert tort reformers of the need to vigilantly defend against it. For up-to-date information about specific bills, visit ATRA's specialized Web site, www.DefendingTortReform.com, and please work with ATRA so that we can keep up the good fight at the federal level, too.

Tiger Joyce is President, American Tort Reform Association, based in Washington, DC. He can be reached at (202) 682-1163 or through the organization's primary website, www.atra.org.

For more information, please visit www.atra.org and www.defendingtortreform.com.