Lawsuit Lobby Remains Active

Monday, May 3, 2010 - 00:00

Tiger Joyce

American Tort ReformAssociation (ATRA)

In a March letter to his membership of personal injury lawyers, national trial lawyer association chief Anthony Tarricone openly boasted of the group's influence over what has been and is likely to remain the single most important piece of legislation enacted into law this year at either the state or federal level.

As the special interest group that consistently gives more money than any other to the political campaigns of those comprising the current congressional majority, the plaintiffs' bar impressively managed to keep any meaningful medical liability reform out of the new health-care law signed by President Obama earlier this year. Not only did the lawsuit industry avoid required sacrifice, unlike the insurance and pharmaceutical industries, state Medicaid programs, doctors and hospitals, Medicare recipients and others, it actually stands to reap considerable benefits from the law's various liability-expanding trial lawyer earmarks.

But no one should mistakenly think that Tarricone and his litigation-promoting lobbyists are now going to take a break.

"That health care has passed unfortunately does not mean our fight is over," wrote Tarricone to his membership. "Undoubtedly, lawmakers will need to revisit health care in the months and years to come, and that may lead to future battles on medical malpractice."

And, of course, malpractice isn't the only item on the trial lawyers' legislative agenda. The financial reform bill passed in the House late last year, and the one working its way through the Senate at press time also offers up a bonanza of profit-making opportunities for the plaintiffs' bar.

Furthermore, the litigation industry's chief lobbyist, Linda Lipsen, told Trial magazine (see the April 2010 issue) that, in addition to pushing passage of laws limiting mandatory arbitration, her team will continue pressing Congress to overturn three recent Supreme Court decisions, one of which upheld federal preemption of state product liability lawsuits against makers of certain FDA-approved medical devices ( Riegel ), and two others ( Iqbal and Twombly ) that raised the standard for notice pleadings.

Naturally, the agendas of trial-lawyer lobbyists working the statehouses across the country are more varied than the agenda of their federal lobbyist counterparts here in Washington. So I'll use the remainder of the space here to offer a summary and some analysis of that state activity.

Good News

This year's count of plaintiffs' bar-driven bills that had or still may have a chance of final passage (as tracked by the American Tort Reform Association's "Defensive Efforts" program) is, thankfully, considerably smaller than last year's. Compared to the roughly 200 liability-expanding "tort deform" bills that posed a real threat at this time last year, there are only 70 to 80 such bills that ATRA has tracked and/or actively worked against in 2010.

There are several reasons for this welcomed falloff. First, it's an election year, and many state trial lawyer associations have shifted their focus somewhat away from lobbying activity and more toward campaign contributions. Second, several state legislatures that meet only once every two years were not in session this year. And third, state legislatures that are or were in session this year have been preoccupied with overwhelming budget issues.

With so many states drowning in red ink, and with persistently high unemployment in many states, it's been politically difficult for personal injury lawyer-friendly legislators to get much traction for their liability-expanding, job-killing bills.

Bad News

Nonetheless, various litigation-growing bills have moved in many statehouses this year, and ATRA has identified three categories of such legislation that we find most troubling: litigation finance, wrongful death and false claims.

Litigation Finance.

As Sen. Arlen Specter (D-PA) continues to champion a federal tax break for trial lawyers who finance their clients' lawsuits, the American Legal Finance Association is pressing ahead in at least six states - Illinois, Kentucky, Maryland, Minnesota, Nebraska and New York - with legislation that also would boost third-party financiers.

These heretofore largely unregulated species of lawsuit loan sharks contend these bills would regulate their litigation-financing industry and provide protections for the plaintiffs who avail themselves of this so-called non-recourse funding. In fact, this legislation, to varying degrees, would limit or preclude the reach of regulators while doing little to protect consumers.

Contracts between such consumers and the financing companies are designed, say the companies, to provide plaintiffs with money for rent, car payments, medical expenses and other essentials while their lawsuits are pending. The companies' increasingly ubiquitous cable television commercials stress that, if a plaintiff loses his lawsuit, he owes nothing.

But what the TV ads don't say is that the contracts offered by these companies charge from 2 to 4 percent interest per month and, since they do not fall under state banking regulations, they are not generally subject to anti-usury laws. In other words, a loan of just 15 percent of the estimated value of a lawsuit balloons to 60 percent of the lawsuit's value after just three years at 4 percent interest per month. And it's by no means uncommon for a personal injury lawsuit to drag on for at least three years, and in some case much longer than that.

In a case from Nebraska, a plaintiff rejected the $1 million settlement her lawyer negotiated with opposing counsel because, after paying off her contract with a financing company to the tune of $600,000 and paying her lawyer the $350,000 he would be owed by way of a 35 percent contingency fee, she figured she needed at least $1.2 million just to break even.

If such third-party financing is allowed to proliferate, there will be more costly lawsuits, and more of them will go all the way to trial as more plaintiffs will feel pressure to eschew reasonable settlement offers, only to be left holding the bag when juries decide their cases weren't worth as much as their lawyers and the lawsuit loan sharks may have suggested.

In recent years, many states cracked down on abuses in the pay-day loan industry. Rather than promoting the comparably troubling litigation loan industry, as these bills would do, states ought to be tightening the screws. In fact, while congressional negotiators work on consumer protection provisions in the big financial reform bill, they might want to consider including a federal clamp-down on these lawsuit loan sharks.

Wrongful Death.

Tireless lawsuit lobbyists also pushed significant expansions of wrongful death liability in at least eight states this legislative session, including Florida, Iowa, Idaho, Maryland, Pennsylvania, Rhode Island, Washington and Wisconsin.

Several of these state bills would amend current law by allowing parents of deceased adult children to bring wrongful death claims and/or by allowing adult children to bring such claims relating to their deceased parents. Other bills would go further in expanding the field of potential wrongful death claimants, while many would significantly increase current limits on awards for damages.

False Claims.

Spurred by financial incentives in the federal Deficit Reduction Act of 2005, many states have since considered and adopted false claims or qui tam laws of their own that target alleged Medicaid fraud. That trend continued this year as 14 states, including Arizona, Colorado, Iowa, Illinois, Kentucky, Louisiana, Maryland, Mississippi, New York, Pennsylvania, Vermont, Washington, Wisconsin and West Virginia have thus far contemplated legislation that would establish or expand existing false claims laws.

These laws generally authorize private civil actions against defendants alleged to have knowingly presented a false claim for payment to the state government. Typically, the whistle-blower plaintiff receives a significant percentage of any funds recovered for the state treasury, thus the resulting bounty hunter mindset can encourage at least some lawsuits that are dishonest or false in their own right.

Every taxpayer, tort reformers included, has an interest in seeing to it that those who do business with our governments do so in a fair, forthright and honest manner. But when personal injury lawyers who moonlight as state legislators write laws that provide incentives for more lawsuits motivated by self-interest instead of the public interest, all of us should be very wary.

Tort Reform Victories

Just as the election calendar and state budget woes managed to limit the number of trial lawyer-driven bills considered in the statehouses this year, so too have the number of positive tort reform bills been limited.

Nevertheless, there have been at least a few rather notable victories in the ongoing war against liability expansion. Most prominent among these victories may be two laws enacted in Florida.

Championed by state Attorney General Bill McCollum, the first of Florida's big reform laws will shine sunlight on the relationships between private sector personal injury lawyers and future Sunshine State attorneys general. As readers of this publication know too well, in a growing number of states, activist attorneys general hire on a contingency fee basis their political supporters among the plaintiffs' bar to prosecute lawsuits on behalf of the state. The new Florida law will dramatically limit the use of such pay-to-play contingency fee arrangements and otherwise provide for much needed transparency and oversight.

The other reform victory came in response to what had become a booming cottage industry in perennial "judicial hellhole" South Florida (Miami-Dade, Broward and Palm Beach Counties), home of the slip-and-fall lawsuit.

Following media exposure of fraudulent slip-and-falls, wherein security cameras caught plaintiffs red-handed in the staging of their bogus claims, pressure to protect retailers and other small business owners grew in Tallahassee to the point where even the powerful Florida plaintiffs' bar couldn't stop the momentum for reform.

The new reform law requires that a plaintiff who claims to have slipped on a foreign substance in a business establishment prove that staff of the business knew of the condition and could have taken action to remedy it. This will preclude con men and women from, for example, walking into a supermarket's produce section, purposely squashing a banana on the floor, and then pretending to slip and fall on said banana.

Lawmakers in Utah also deserve credit for passage of the Health Care Malpractice Act, which imposes a 10-year statute of repose on all such claims while also limiting recoveries for noneconomic damages to $350,000. The reform law additionally requires an affidavit of merit from a health-care professional and limits liability, in certain circumstances, for the acts or omissions of an ostensible agent. The new law will invariably work to increase access to affordable health care for all Utahans.

Last but by no means least, a much broader, general tort reform bill has passed the South Carolina House overwhelmingly but, at press time, is being bottled up in a tort lawyer-friendly Senate Judiciary Committee. ATRA and its membership are working to move that bill to the Senate floor, and I hope to be able to report its final passage when I next update this publication's readers about civil justice legislation in the states.