Tort Reform, the Free Market, and the Constitution

A lie repeated frequently enough is soon accepted as gospel.  And so it is with the perceived need for "tort reform," a cause that has been advanced by Big Business for three decades now. 

By carefully manipulating media coverage of "runaway" judgments and "outrageous" jury awards, Big Business has convinced most Americans that there is a litigation crisis in this country despite the overwhelming evidence to the contrary.  According to a recent report of the Economic Policy Institute, there is "no credible evidence" to support insurance industry assertions that tort litigation has resulted in a whole host of economic evils, including lost jobs and increased product and insurance costs.  Indeed, the report concludes that "what little effect changing the tort system will have on the economy might hurt job creation rather than help it."  And according to a Center for Justice and Democracy "Mythbuster" report, "2004 was the most profitable year ever for the insurance industry."

Perhaps more significantly, in arguing that high damage awards are bad for business, and therefore bad for the economy, leaders of this movement have failed to step back and ponder whether their proposed reforms are consistent with the "free market" and "limited government" ideals that Big Business holds so dear.  After all, Big Business has also decried the morass of laws and regulations strangling economic activity, and has generally asserted that people should be as free as possible to pursue their own economic self-interests.

A free market economy rewards entrepreneurs for their actions that benefit society.  The manufacturer who builds a better mousetrap wins in the marketplace, and few would question that manufacturer's right to reap the rewards of its own ingenuity.  This is largely because the manufacturer has, in the effort to succeed, shouldered a risk of failure.  It is the marketplace, comprised of ordinary people, rather than the government, which determines whether the manufacturer wins or loses.

If the efficient production of material wealth is all that concerns us, then the marketplace needs no other rewards or penalties.  Most will agree, however, that manufacturers should be encouraged to create safe as well as efficient products, for the number of deaths and injuries annually caused by defective products is astronomical.  According to the 2003 Annual Report of the U.S. Consumer Product Safety Commission, there were 4,509 deaths and 13,690,526 injuries associated with just 15 categories of consumer products during that one-year reporting period.  Add to these the deaths and injuries caused annually by toxic substances and pharmaceutical products, neither of which is regulated by the Consumer Product Safety Commission, and it should be obvious that safety should be a primary concern.

Fortunately, by making manufacturers liable to the people they have injured, the once-revered common law tort system creates an incentive for the manufacturer to build a safer mousetrap.  Those who advocate more government might suggest that safety can best be engineered from above, by governmental regulation, but true advocates of a free market will agree that it is better to permit the manufacturer to determine how to make its own product safe for consumer use, rather than some government bureaucrat.  In exchange for the right to determine the most efficient way to make its products safe, however, a manufacturer must be subject to suit for failure to perform this undertaking.

In order to guarantee that the injured consumer has access to the courts, the marketplace must also create an incentive for lawyers to represent such people, who are generally far less wealthy and powerful than the businesses that have injured them.  Currently, victims are able to hire attorneys on a contingent fee basis, so that they do not have to pay any fee unless they win in court.  Those who advocate the elimination or capping of any form of damages are, in reality, seeking to destroy the ability of injured consumers to hire lawyers.

The prospect of substantial punitive damage awards encourages lawyers to take even those cases in which the amount of actual damages would be insufficient to justify the enormous amount of time, effort, and money that must be invested in a lawsuit in order to win.  The tort lawyer, like the manufacturer, is an entrepreneur.  Like the manufacturer, the tort lawyer assumes a great risk, and could very easily receive nothing for his or her efforts.  Like the manufacturer, whether the lawyer wins or loses is determined by ordinary people, a jury.  And like the manufacturer, the lawyer's great reward is justified by the fact that he or she produces something of great value to society, the efficient policing of industry. 

Indeed, this is the essence of a free market, that the pursuit of self-interest guarantees a greater abundance for society as a whole.

Big Business has in the past, and would most likely continue in the future, to oppose most efforts to alter the mechanisms of the free market, for it is especially fond of its own freedom.  But with great freedom comes great responsibility.  Even in a free market economy, people and corporations must be held accountable for their conduct.
The Truth About the Tort System

Big Business wants citizens to believe that there is something fundamentally wrong with our tort system, that the courts are "clogged" with tort cases, and that juries are daily doling out inflated awards to plaintiffs who have sued over trivial matters.  Nothing could be further from the truth.  Consider the facts set forth in the Civil Justice Survey of State Courts, 2001, a bulletin issued in 2004 by the Bureau of Justice Statistics of the United States Department of Justice:
 
--Between 1992 and 2001, the number of tort claims actually declined by 47 percent.
 
--The amount awarded by juries has also decreased dramatically.  The median jury award in all cases declined from $65,000 in 1992 to $37,000 in 2001.

--Significantly, the median jury award in contract cases, $45,000, is 67 percent greater than the median jury award in tort cases, $27,000.  To put this in context, businesses are the plaintiffs in 16 percent of all lawsuits, but are the plaintiffs in 44 percent of contract lawsuits.  This means that businesses - not injured people - are receiving the largest median awards.
 
--Only a small fraction of all cases filed - about 3 three percent - ever go to trial.
 
--Product liability claims account for just 1.3 percent of the cases that do go to trial, and yet these are the claims about which Big Business complains the most.  In contrast, contract cases - the cases in which businesses are more often plaintiffs - account for 31.1 percent of the cases that go to trial.
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--Punitive damages are awarded in just 6 percent of cases that go to trial.  Since only 3 percent of all lawsuits filed ever go to trial, punitive damages are awarded in fewer than 2 of every 1,000 lawsuits.
 
--The median punitive damage award is just $50,000.  Significantly, the highest estimated punitive damage awards are made in contract cases, not in tort cases.

"Poster Child" Cases and the Big Lie

-To promote the notion that the civil justice system is broken, Big Business has engaged in a masterful propaganda ploy that would astonish even Joseph Goebbels.  These business propagandists scour legal reports for cases in which juries have awarded substantial damages, and when they find one, they selectively report the facts so that the jury award appears to be "outrageous."  If the propagandists cannot find a case that can be manipulated in this way, they simply create a fictional case.  Using this technique, Big Business has over the course of three decades managed to alter the "conventional wisdom" about trial lawyers, juries, and the tort system.  According to a 2003 report of the Commonweal Institute:
  
... strategic messages are developed and repeated as steps toward the final goal.  For example, first stories about ridiculous-sounding lawsuits are spread.  Once "everyone knows" lawsuits are "frivolous" and "out of control," the public is barraged with messages about how these lawsuits are causing doctors to leave the profession.  Only then does the movement introduce legislative "solutions."

The single lawsuit that has best served the purposes of Big Business as its "poster child" case is the infamous coffee case, about which we are told that a runaway jury awarded millions of dollars to a woman for nothing more than spilling coffee on herself.  What Big Business has omitted to disclose about the case is most revealing.
The elderly victim purchased coffee at the drive-through window of a fast-food giant, and, after the driver parked the car in which she was a passenger, she placed the cup between her knees and attempted to remove the plastic lid in order to add cream and sugar.  As a result, the entire contents of the cup spilled into her lap and was immediately absorbed by her clothing, causing her to suffer third-degree burns over 6 percent of her body.  As a result of her injuries, she was hospitalized for eight days, during which time she underwent painful skin graft surgery.

The fast-food giant rejected the initial settlement demand of $20,000, knowing that it had in its possession damning internal documents.  The evidence at trial established that:
 

During the preceding ten years the defendant had received no fewer than 700 claims from other customers who had been burned by its coffee, many of whom also suffered third-degree burns.

--Coffee served at 140 degrees or higher creates an unnecessary burn hazard, and the risk of serious burns increases exponentially as the temperature increases above 155 degrees.  At 180 degrees, any liquid will cause a third-degree burn to human skin within 2 to 7 seconds.

--The defendant kept its coffee at between 180 and 190 degrees Fahrenheit to maintain optimum taste.  At trial, it admitted that it actively enforced a requirement that coffee be held in the pot at 185 degrees, plus or minus five degrees.

--The defendant further admitted that a burn hazard existed above 140 degrees and acknowledged that its coffee was therefore not fit for immediate consumption.

The defendant also admitted that despite the known burn hazard, it had no intention of reducing the "holding temperature" of its coffee.

Because of the burn hazard, most other businesses sell coffee at substantially lower temperatures, and coffee served at home is generally 135 to 140 degrees.

The jury awarded the elderly victim $200,000 in compensatory damages, an amount that was reduced to $160,000 because the jury found her 20 percent at fault in the spill.  However, because the fast-food chain had demonstrated a callous disregard for safety, the jury also awarded punitive damages in the amount of $2.7 million, an amount equal to approximately two days of the defendant's coffee sales.  The trial judge reduced the punitive damages award to $480,000, but the victim probably didn't receive even that amount, for the parties thereafter entered into a post-verdict settlement.  After attorneys fees and costs of trial (such as expert witnesses), it is doubtful that she received even the amount of her actual damages.

How has society in general been affected by this case?  An investigation after the verdict disclosed the fact that the temperature of coffee at the specific restaurant at which the injury occurred had been reduced to 158 degrees Fahrenheit.  In short, as a result of the verdict, the defendant took action to prevent future injuries.
Cherished Constitutional Liberties Under Attack

The right to trial by jury in civil cases is a fundamental right that is necessary to preserve our precious liberty.  As with other fundamental rights, its purpose is to level the playing field.  Juries are composed of ordinary people empowered to make binding decisions that affect the lives and fortunes of their fellow citizens.  While powerful corporations can readily influence legislators and judges, who are subject to political pressures, they have no similar control over jurors, who do not run for election, do not seek appointment, and do not carry into their deliberations any political "debt."  Indeed, the position of juror may be the only constitutional office in this country that remains open to the weakest and least wealthy members of society, while at the same time remaining virtually free of political influence.  That the jury is insulated from political influence creates a problem for Big Business only because the jury also wields power that may be exercised over Big Business.

It is for this reason that Big Business has mercilessly attacked juries, deliberately characterizing them as composed of ignorant, unqualified, and incompetent people.  Unfortunately, Big Business has been very successful in promoting legislative intrusions onto the jury's constitutional authority to award damages to injured consumers, including mandatory arbitration and damage caps.

Any nation that despises the rights of its weakest citizens is prone to tyranny.  In his rise to power, Adolph Hitler declared "I shall not rest until every German sees that it is a shameful thing to be a lawyer."  In sharp contrast, America's founding fathers viewed the right to trial by jury as essential to secure our liberty, and, anticipating assaults on that right, made certain that it was guaranteed in the Bill of Rights.  Consider what they had to say:

Patrick Henry of Virginia, a patriot best remembered for having said, "Give me liberty or give me death!" also said "Trial by jury is the best appendage of freedom by which our ancestors have secured their lives and property.  I hope we shall never be induced to part with that excellent mode of trial."

 
John Adams, the second President of the United States, said, "Representative government and trial by jury are the heart and lungs of liberty.  Without them we have no other fortification against being ridden like horses, fleeced like sheep, worked like cattle and fed and clothed like swine and hounds."

Thomas Jefferson, the author of the Declaration of Independence and the third President of the United States, said, "I consider trial by jury as the only anchor ever yet imagined by man, by which a government can be held to the principles of its constitution."

James Madison, the author of the Constitution and the fourth President of the United States, said, "Trial by jury in civil cases is as essential to secure the liberty of the people as any one of the pre-existent rights of nature."

Why did our founding fathers consider trial by jury in civil cases so important?  The answer, of course, is that they understood human history, specifically the tendency of wealthy and powerful interests to oppress the poor and weak.  Benjamin Franklin remarked that "democracy is two wolves and a lamb voting on what to have for lunch.  Liberty is a well-armed lamb contesting the vote."  This is why the Constitution and Bill of Rights are filled with individual guarantees of liberty, not the least of which is the right to trial by jury.  That right, more than any other, insures that the lambs among us can contest any unfair decision made by the wolves.

Robert Leslie Palmer is a Birmingham, Alabama attorney who received a B.A. from Tulane University in 1979 and a J.D. from Georgetown University in 1982.