Tuesday, August 30, 2011

"Hot Coffee" & Tort Reform: A Corp. Lawyer's Insight on Why Corp.'s Want U to Think it's a Good Idea

Since the HBO documentary "Hot Coffee" came out a few weeks ago, some of you have asked me for my 2 cents on it and on the broader issue of "tort reform" (defined after the jump) so that's what this post will try to address.   What makes this topic particularly interesting to me is the fact that I happen to be what you would call a "corporate lawyer," which means that I represent the very fortune 500 companies, Wall Street banks and other business entities that stand to benefit from a wide sweeping reform of America's tort system.  Thus, it would stand to reason that, as the legal counsel to these entities, I, too, should try to convince you here in this post that tort reform is good for America's economy and good for you because it helps to protect our job creating businesses from the millions of frivolous lawsuits generated every day by an overly litigious society.  Yes, I should try to convince you of that.  But I can't.

You see, the fact of the matter is that when you've seen what my fellow corporate attorneys and I have seen and you know what we've come to know about the kind of advantages that our big business clients have over the individual plaintiff when both parties walk into that courtroom, the notion that corporations need tort reform is like saying that Terry Tate needs a football helmet in order to tackle Paul in accounting.  That proposition simply does not line up with reality.

With that being said and, more importantly, without revealing anything that might get me fired from my day job, I'll give you guys as much of the inside scoop as possible as to why "Tort Reform" is not in the best interest of "we the people."

No, it's not some kind of cake or pastry if that's what you were thinking.  Simply put, a tort is a civil injury (as opposed to a criminal injury).  You can "commit" a tort against somebody just like you could "commit" a crime against the state.  The most common torts are Negligence (which encompasses everything from medical malpractice to your average slip-and-fall case), Battery (eg., your standard bar room fight), Defamation (which includes slander and libel), Wrongful Death (brought by your family or your estate if you are killed by somebody's foolishness), False Imprisonment (quickly becoming the tort of choice for aggravated airline passengers who are trapped inside planes that just sit on the runway for 8 hours); Wrongful Termination (eg., fired from your job b/c you're a woman), and Strict Products Liability (eg., you buy a lawnmower and the blade flies off and hits you or your property).  There are other torts, but these are the big ones.

When people are injured by a tort, whether physically or financially, they can bring a law suit in civil court (as opposed to criminal court).  The 7th Amendment of the U.S. Constitution guarantees your right to bring a civil law suit in Federal court if you have been injured by a tort [note: most State constitutions grant the same right in state courts].

OK, so now that you are a tort expert, the question still remains as to what exactly is meant when we say the phrase "tort reform."  Tort reform is the process where State Legislators, Congress, or business entities themselves either: (A) limit the ability of the people to bring certain types of tort claims into court or (B) limit the type of damage awards that the people can receive.

(A) - Limiting Tort Claims:
The most common limitation on tort claims that we are seeing today is a device known as "Mandatory Arbitration" (aka "Binding Arbitration").    So what is Mandatory Arbitration?  To put it bluntly, arbitration is an alternative way to resolve a dispute instead of going to court.  Instead of being sued in a public court of law in front of a judge and jury for the whole world to see, most corporations and insurance companies today place nice little fine-print clauses in their customer contracts that allow them to settle disputes with their customers behind closed doors in arbitration in front of a panel of arbitrators.  If you've ever signed an agreement for a credit card, a cell phone, a laptop computer, a rental car, cable TV, the internet, employment at your job, or any other common contract with a corporation or insurance company, then there's a 99% chance that you have already agreed to arbitration should you ever need to settle a dispute with that company.

I've participated in a few arbitrations before, and let me tell you, these things are not set up for you to win.  First of all, arbitrators are not judges.  They're not even lawyers!  Although you might get lucky and run across a few retired judges who are now working as arbitrators, there are no guarantees that the person deciding your case has even so much as cracked open a law book before in their life.  And what's more, they don't even need to know the law because in arbitration, case law and statutes don't matter.  It's not a court of law that is bound to follow case precedent.  It's just a panel of cats who get paid to make decisions. And, by the way, they may or may not have a vested interest in the corporation you're trying to "arbitrate" against.  Whatever they decide, you are bound by it.  If you lose, you can't then turn around and try to take your arbitration case to a court of law for a second opinion (indeed, the court rules in New York, for example, list prior arbitration as one of the grounds for an automatic motion to dismiss a case).   And the icing on the cake is this: because you signed the contract with the arbitration clause in it, all of this is perfectly legal.

(B) - Limiting Damage Awards
Putting a cap on the amount of damages that tort victims can receive sounds like a good idea in theory when you hear about a woman winning $2.9 million dollars from McDonald's for spilling coffee in her lap (we'll come back to this in a moment), but as with most things in life, there's a difference between theory and practice.   Some people are quick to repeat the talking point that we need to place a cap on damage awards in tort cases...until they themselves or a loved one are actually injured and forced to face the reality of ominous medical bills.  Then, not surprisingly, they sing a different tune.  One of the most contentious areas of this debate is in the field of medical malpractice, where conservatives take the position that evil trial lawyers are driving up medical costs because frivolous lawsuits drive up medical insurance premiums.  However, as the "Hot Coffee" documentary clarified, states that have enacted caps on medical malpractice claims have not seen the price of insurance premiums go down.  In fact, in the State of Texas, insurance premiums were 0.44% higher than the national average before it enacted its medical tort reform law in 2003, and then rose to 1.4% higher than the national average after the law was enacted.  Moreover, in the 26 states that have placed caps on damage awards, the average medical malpractice insurance premium for doctors in 2008 was $46,336/year.  In the 24 states without a cap, that same figure was $45,449/year.  So to recap, not only does placing an arbitrary cap on damages severely limit the ability of tort victims to pay for medical bills, it also fails to reduce medical insurance costs for the rest of us.

In addition to those mentioned above, tort reform is also a bad idea for the following reasons:

1. Frivolous Lawsuits Are Easily Dismissed.  Do people file frivolous law suits?  Of course.  But luckily for us, our courts are smart enough to use the many rules and regulations within their arsenal in order to toss out frivolous law suits before they cost John Q. Taxpayer - or the defendant corporation - any significant amount of money.

2. Court Rules Punish Lawyers for Frivolous Suits.  In Federal court, a Rule 11 sanction can and will be imposed upon any lawyer who knowingly brings a frivolous law suit.  State courts also have the same rule at the state level.  So in the event that a lawyer does help some idiot bring a claim that they knew was total BS, they can be fined and possibly lose their license to practice law.

3. Corporations Have Legal Insurance.  Even if you successfully sue a corporation and win a big award, the actual payment of that award is more than likely coming from the corporation's insurance provider -- not from their pocket.

4. Corporations Have the Best Legal Defense Lawyers.  Not to toot my own horn, but corporations are - by design - represented by the best and brightest lawyers in the country.  This is not hyperbole.  In the legal profession, it is common knowledge that you want to go to the best law school and make it to the top of your class so that you can have a chance of working for the big law firms that pay the big bucks.  These so-called "top law firms" only take the cream of the crop.  They are able to pay young lawyers the big bucks because they represent the nation's biggest companies and banks which, as it turns out, are the only clients that can actually afford to pay the $1,000/hr rates that the top law firms charge.  Under this system, it is not uncommon to see an entire team of ivy-league educated attorneys (who beat out all the competition to graduate at the top of their respective classes) working around the clock on a case for your average run of the mill fortune 500 company.  Meanwhile, "we the people" have to rely on My Cousin Vinny.

5. Tort Reform Takes the Case Out of the Hands of the Jury.  The Constitution makes it clear that we are entitled to a civil jury trial, however, when we place caps on awards that are supposed to be decided by the jury, this takes the case out of their hands.  The people - and not legislators - should decide the amount of damages to be awarded, if any.

6. Even if the Individual Wins at Trial - the Corporation Has a Good Chance to Win on Appeal.  There has been a concerted effort over the past few decades by people like Karl Rove and the U.S. Chamber of Commerce to stack the deck with as many corporate-friendly judges as possible at the appellate and supreme court levels.  Nowhere is this more true than on the U.S. Supreme Court, which has consistently ruled in favor of corporations and against individual plaintiffs under the leadership of Chief Justice John Roberts.

Corporations would have you believe that, as job creators, they need to be protected at all times from frivolous lawsuits like the Mcdonald's coffee case, but the truth of the matter is that the current system already tips the scales of justice in their favor.  The coffee case is often cited by advocates for tort reform, but the "Hot Coffee" documentary actually provides details that mitigate the sensationalism of the infamous McDonald's coffee story, such as the fact that the $2.9 million dollar award was actually reduced by the judge to $480 thousand (barely enough to cover the lady's medical expenses), the woman did not attempt to drive and hold the coffee at the same time (somebody else was driving while she rode in the passenger seat), the coffee - which was at 190 degrees F - caused 3rd degree burns to the woman's lap which required skin grafts to repair, and, most importantly, McDonald's had received over 700 complaints from other people between 1982 and 1992 who had also been burned by their coffee before this woman was burned.  That means that McDonald's had ample notice to prevent something like this from happening to this woman but they chose not to act. This last point is one I want to leave you with because other than compensating the victim of a tort, the entire point of being able to bring significant damage awards against a corporation is to change the corporation's behavior.  If a corporation has a history of doing something that is causing harm to society, the people need to have the ability to address it.  If we place a measly $250,000 cap on damages (an amount that most corporations could easily spend on legal fees in one week), or if we deny people the right to take their claims to a court of law in the first place, then what recourse do the people have against corporations?

1. If you've seen the "Hot Coffee" documentary, what was your take?
2. Should we place caps on damages?
3. Should companies be permitted to take advantage of settling all of their disputes in arbitration?
4. As a consumer, were you aware of binding arbitration prior to this post or prior to the documentary?
5. Is there a way to realistically reform tort law that balances both sides?

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