Trial Lawyer Lobby's Focus Likely To Shift To Executive Branch In 2011-2012

Monday, December 6, 2010 - 00:00

The American Association for Justice (AAJ), formerly known more accurately as the Association of Trial Lawyers of America, continues to evolve as a proactive organization, no longer content to defend against tort reform initiatives at state and federal levels. Though congressional majorities supported by the plaintiffs' bar were eliminated or weakened by election losses last month, litigation industry lobbyists and their friends throughout the executive branch are expected to continue a steady push for liability expansion.

Trial Lawyers And Congress

AAJ allies on Capitol Hill will no longer control the House, and their Senate majority will be smaller in January. But the generous campaign contributions its individual members and their law firms make to certain surviving members of Congress (see the Center for Responsive Politics' Open Secrets website) will keep their liability agenda alive, if perhaps less vigorously so, in the post-election lame-duck session and beyond.

Overturning Five Prominent U.S. Supreme Court Decisions

After its early 2009 success in moving Congress to overturn the U.S. Supreme Court's 2007 Ledbetter v. Goodyear Tire & Rubber Co. decision, which limited employment discrimination liability, AAJ continues pushing lawmakers to overturn at least five more prominent high court decisions in key areas of civil law.They include: Stoneridge Investment Partners, LLC v. Scientific Atlanta, Inc ., Bell Atlantic Corp. v. Twombly , Ashcroft v. Iqbal , Exxon Shipping Co. v. Baker , and Riegel v. Medtronic, Inc .

Empowering State Attorneys General to Enforce Federal Law

Although a 2007 executive order signed by President Bush remains in effect and prohibits the federal government from entering into contingency fee contracts with outside counsel, the plaintiffs' bar continues to lobby for inclusion in a wide range of legislation provisions that empower state attorneys general to enforce federal law and hire outside counsel on contingency to help them do so. Such arrangements invite conflicts of interest as the prosecutorial decisions of elected state AGs may be influenced by political patrons comprising the plaintiffs' bar.

Eliminating Preemption and Arbitration

As suggested above with respect to the Riegel decision pertaining to FDA-approved medical devices, AAJ is engaged in a broader effort to eliminate all federal preemption of state tort claims.

AAJ's first success in this area was the inclusion of an unprecedented "gag order" in the Consumer Product Safety Improvement Act of 2008 (CPSIA), which precludes the Consumer Product Safety Commission from "preempting any cause of action under State or local common law or State statutory law regarding damage claims." AAJ is likely to seek similar provisions in reauthorization legislation for other federal agencies.

The plaintiffs' bar is also pushing hard for the inclusion of provisions in a variety of bills that would strictly limit or eliminate mandatory arbitration clauses from various consumer service contracts, from nursing homes to cell phones.

Shifting Focus To The Executive Branch

With Democrats no longer in control of the House come January, AAJ's lobbying strategy will likely shift to the Obama administration, where it has already achieved some of its policy goals through executive orders and agency actions.

$1.6 Billion Trial-Lawyer Tax Break Would Spur Litigation

Not waiting for January, AAJ has already engaged in an intense campaign through the Treasury Department to obtain a tax deduction for trial lawyers that will encourage speculative lawsuits by reducing litigation expenses. Such action comes after AAJ repeatedly failed to obtain this change through legislation. The legal opinion the AAJ is seeking from the Internal Revenue Service (IRS) would allow lawyers who work on a contingency fee basis to immediately and uniformly deduct costs advanced to clients. For decades, the IRS has viewed such expenses as loans to clients, deductable only at the conclusion of the litigation, and most courts have agreed.

For contingency fee lawyers, the tax break would bring a windfall; depending on a lawyer's effective tax rate, 30-40 percent of the risk and initial costs of bringing a lawsuit would be shifted to the federal government. This significant reduction in the risk of contingency fee litigation would create incentives to file riskier and more speculative lawsuits. The Joint Tax Committee has estimated the cost of this tax deduction at $1.6 billion over ten years. Elimination of Preemption as a Viable Defense

In tandem with the current congressional majority, the administration has engaged in a sustained campaign to eliminate preemption of state tort law claims by federal agency action. Businesses invoke preemption as a defense to liability when they have followed federal standards or received federal approval of a product's design or warning labels. AAJ and its allies successfully lobbied the administration to issue a May 2009 Executive Memorandum instructing department and agency heads to avoid preemption, and to review and consider rescinding or otherwise revoking agency positions that have supported preemption within the past decade. This memorandum appears to have been the result of substantial lobbying by the plaintiffs' bar and was modeled on documents submitted to the Obama administration early in the transition process.

Transformation of Health Care Law Demonstration Projects from Reducing to Expanding Liability

AAJ has boasted about its successful efforts to keep all tort reform measures out of the heath care reform bill, even after the Congressional Budget Office conservatively estimated that such provisions would reduce the deficit by $54 billion over 10 years. Now, not content with their victory, AAJ is seeking to transform what was intended as an olive branch to opponents of the bill - those who were concerned that the legislation did not adequately address medical malpractice - into a mechanism for expanding liability.

Section 10607 of the new health care law authorizes a five-year, $50 million grant program beginning in 2011 to encourage states to "develop alternatives to the current medical liability system." But an amendment offered by Senate Majority Leader Harry Reid and passed without debate precludes demonstration projects that "limit or curtail a patient's existing legal rights, ability to file a claim in or access a State's legal system, or otherwise abrogate a patient's ability to file a medical malpractice claim." This language essentially means that damage caps and similar reforms would be off the table in any "alternative to litigation" established under the grants.

AAJ recently increased its lobbying effort with regard to the medical liability state demonstration grants awarded under the auspices of Department of Health and Human Services (HHS). Rather than use this law to show how various state-based reforms can reduce liability and the cost of patient care, as intended, we believe that AAJ is pushing HHS to consider studies to show how increased liability can increase patient safety.

Judicial Branch Holding The Line (For Now)

Though the plaintiffs' bar continues aggressively to seek and enjoy regulation-through-litigation victories, its rate of success has, arguably, fallen somewhat since Chief Justice John Roberts and Associate Justice Samuel Alito were seated on the U.S. Supreme Court. Constrained by new precedents and, perhaps, concerned with being overturned, lower federal courts have also shown a refreshing willingness to hold the line against some of the more fanciful theories of liability advanced by the litigation industry's more creative practitioners.

CAFA Erosion

One area in which the trial bar has had recent success is in its efforts to erode the effectiveness of the Class Action Fairness Act (CAFA), passed by a Republican Congress and signed into law by President Bush in 2005. Though class-action lawyers' forum shopping in state courts has been curtailed somewhat by CAFA, the practice has not ended. Some plaintiffs' lawyers continue to bring nationwide class actions, but opt for federal courts known as being friendly to them in particular areas of law.For example, federal courts in the 9th Circuit have experienced a surge in consumer class actions since CAFA's adoption.

Some federal courts seem perfectly willing to play along in weakening CAFA. The most notable decision is a July 2010 ruling by a panel of the 11th Circuit holding that federal courts do not have jurisdiction over class actions unless at least one of the class members seeks more than $75,000 in damages - the threshold for ordinary diversity jurisdiction. CAFA, however, was clearly intended to replace the $75,000 amount-in-controversy requirement for class actions. Congress intended to extend federal jurisdiction based on the aggregated amount of the class's claims and not the individual amount of any particular claim. Unless overturned by an en banc panel of the 11th Circuit or by the U.S. Supreme Court, this case will significantly undermine CAFA.

Climate-Change Litigation

On a brighter note, three important federal lawsuits, blaming various fossil fuel-based energy providers for climate change, are working their way toward the Supreme Court. The September 13, 2010 edition of the National Law Journal offered a thorough analysis headlined, "High Court Could Melt Climate-Change Cases," which suggests that the trial lawyers and their environmental activist clients are likely to be left out in the cold when all is said and done.

Alien Tort Statute Cases

Similarly, the recent flourishing of Alien Tort Statute cases, wherein foreign plaintiffs sue multinational corporations in U.S. courts for alleged wrongs committed or abetted on foreign soil, has been undermined by revelations of fraud in a much-reported case against Dole Foods that was engineered by California-based personal injury lawyers on behalf of Nicaraguan banana harvesters.

More recently, in September, the 2nd U.S. Circuit Court of Appeals rejected outright the theory that corporations can be held liable in the United States under the Alien Tort Statute for violations of international law in foreign countries.

In a sweeping decision rebuffing a lawsuit against The Royal Dutch Petroleum Co. and others for allegedly aiding and abetting human rights violations during oil exploration in Nigeria, the court declared that "corporate liability is not a discernible - much less universally recognized - norm of customary international law that we may apply pursuant to ATS (Alien Tort Statute)."

High Court as Backstop

In addition to greater skepticism on the part of lower court judges, the Supreme Court, with its new term now underway, appears poised to deal the plaintiffs' bar a number of significant setbacks, according to a recent Forbes analysis, "Next Supreme Court Term Could Be Hard on Plaintiff Lawyers."

Conclusion

Though trial lawyer-friendly congressional majorities will be eliminated or weakened beginning next year, and though the U.S. Supreme Court and lower federal courts seem prepared to hold the line against some of the more aggressive and radical lines of litigation, the executive branch at the federal level remains, for the time being, a staunch ally of the plaintiffs' bar.

Therefore, the business community and others interested in promoting a more fair and predictable civil justice system must remain vigilant and committed to working together and with their policymaking allies on many fronts. ATRA will continue to keep its members and allies apprised of issues affecting them and their invaluable contributions to our nation's economy.

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.