Wednesday, February 25, 2004

Reforming Tort Law - A View After the Federalist Convention
Tort law needs to be reformed by adopting a loser pays system and to reform the manner in which plaintiff's lawyers are being paid.

Of course, the immediate response to my proposition is that "the poor" will lose out. That seems to be the immediate battle cry of the left, but doesn't take a reasoned view of the problems involved.

Last weekend at a Federalist Society symposium, I had the opportunity to see law professors debate the issue. One, Professor Bogus, a former plaintiff's lawyer, stressed the benefits of the tort system in changing unsafe practices by corporations and attempted to defend the actions of plaintiffs' lawyers. The other, Professor Priest from Yale, weighed in on the issue with his vast experience and study which he had done over many years, concluding, essentially, that torts are more of a form of wealth redistribution than any system designed to recompense victims. In fact, Professor Bogus admitted that torts were more effective at changing unsafe practices than they were at making victims whole. (Pardon me if I misstated either of the Professor's views.)

The problem with torts, quite simply, is that it is a form of legalized extortion in the U.S. Professor Priest is exactly right in that it creates a system of wealth redistribution. I would go further to say that the wealth is not only redistributed, but more likely is redistributed to plaintiffs lawyers as opposed to their clients. While Professor Bogus may be correct that it has made some improvements in safety, that does not necessarily mean the system does not need reform.

The goal of making victims whole, which should be the purpose behind the tort system is utterly lost and it should be recovered. The current system encourages individuals with no actual injury, or a minor one, to seek out as much medical help as possible. Throughout the U.S. there are lawyers, chiropractors, and medical doctorswho use the accidents in which these individuals have been involved for their own benefit. Ambulance chasers pay runners to bring accident victims to their offices. They then send the "victim" to a chiropractor who performs few actual medical services, if any are needed at all. These lawyers often encourage and entice their "clients" with promises of insurance money. The lawyer files suit. Because of the current tort system, the defendant in the suit has a choice of paying costly legal fees to defend themselves or pay off the plaintiff. Many insurance companies have a threshold of $10,000.00 which they are willing to pay to get rid of a suit.

Who loses in this system? 1) The defendants, mostly insurance companies, other corporations as well, but really any individual who can be sued who has any resources worth going after. 2) The customers of these corporations who pay for these settlements. 3) The plaintiffs. That's right, the plaintiffs. The plaintiff pays out about a third to the lawyer and a third for medical bills. For those plaintiffs who are not actually injured, they do get some money. For those that aren't, the ones who actually have legitimate claims, they often receive shoddy medical care, if any actual care. Also, they are often left with a quick settlement instead of the amount they actually deserve, because the lawyers running these "insurance mills" work on volume. They don't have time to actually litigate a worthwhile case.

There are two other wonderful byproducts. 1) Attorneys who refer their clients to finance companies, usually for a kickback or some other benefit, who charge near usurious interest rates. In this way, even the clients with fraudulent or frivolous suits lose out. They often end up losing money on the entire event and can't complain to anyone, because they have been party to the fraud. 2) Corruption. In states where judges are elected, plaintiffs lawyers tend to be more successful at being elected. If successful, they make more money than their defense counterparts, so they have more money to run campaigns. They also have more money to contribute to campaigns. Some elected judges are not above deciding in favor of one side simply because of a campaign contribution.

The loser pays system would dry up this cesspool of corruption that essentially only serves to line the pockets of a class of people who are parasites on our society. Certainly, some plaintiffs lawyers do good work. Certainly, some are honest. However, those that are could easily flourish under a loser pays system. They would only cases with merit. The defendants would actually have an incentive to settle if they realized that the cases against them were strong as they would not want to pay both theirs and their opponents legal fees. On the other hand, they would have the incentive to fight fraudulent, frivolous, and weak claims.

The problem would be the effects on weak claims. Plaintiffs that may be deserving, but do not have a good case. Obviously, the preponderance of the evidence standard helps to begin with. They have a low threshold to prove. Also, juries may be even more sympathetic under the current system.

So what could be done about those poor who did lose? The plaintiffs lawyers are used to not receiving a fee when they lose, but how could defendants recover the legal fees. Simply, the plaintiffs lawyer could be held for the fees. While this idea is obviously going to cause alarm bells for most attorneys, it's quite reasonable considering the huge contingency fees plaintiffs lawyers receive. While I believe contingency fees are outrageous, this requirement for them to pay their opponent's fees would be a reason to maintain the current fee structure. Some will argue that the attorney should not have a personal stake in their client's interests. Well, they already do with the current contingency fee structure. They've lived by the sword for many years, it's time to let them die by it.

How would this system affect the corruption that exists as well as the predatory lending of clients? Unfortunately, it wouldn't directly affect either. Plaintiff's lawyers would still have large amounts of money. However, that may be necessary to provide a safety net for poor plaintiffs who lose good cases. If would indirectly have the effect of putting dishonest plaintiffs lawyers out of business though who would be less likely to engage in such dishonest behavior.

Also, I am assuming loser pays means that the losing defendant pays the contingency on top of the settlement amount. That way, the plaintiff recovers the full amount owed to them.

Just something to think about.

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