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Look Who's Behind 'Tort Reform'
Published on Wednesday, October 6, 2004 by The Nation
Look Who's Behind 'Tort Reform'
by Dan Zegart
 

from the forthcoming October 24, 2004 issue of The Nation

Just as the GOP convention was about to kick off in late August, the US Chamber of Commerce made an unusual announcement. Although it had never in its 100-year history endorsed a presidential candidate, the organization vowed to help pump $10 million into TV ads in seven battleground states urging voters to support restrictions on lawsuits. Such restrictions have been endorsed by George W. Bush and opposed by John Kerry. Calling it “a make or break election for legal reform,” chamber president Thomas Donahue charged that “lawsuit abuse destroys jobs, drives doctors out of business and forces companies into bankruptcy.”

The ads put the 3 million businesses of the theoretically non-partisan chamber squarely in Bush’s corner. The Bush campaign has hit hard at the Kerry/Edwards ticket for allegedly being pawns of plaintiff’s attorneys. Indeed, the lines could not be more clearly drawn. John Edwards had a meteoric career as a malpractice lawyer, while the Bush forces have made attacks on “junk lawsuits” a mainstay of their stump rhetoric.“You can’t be pro-doctor and pro-patient and pro-plaintiff’s attorney at the same time,” said Bush in mid-August in Michigan. “I made my choice. I am for medical liability reform now.”

The crowd applauded, although voters have never shown the slightest interest in “tort reform.” But regardless of whether or not the issue helps Bush get re-elected, its heightened prominence demonstrates the escalation of the stakes in what is now a thirty-year-long war by the ultra-right to disembowel the civil justice system and make America safer for companies to work their unfettered will. Piggybacking on the campaign of an incumbent President—who made lawsuit restrictions a central part of his governorship in Texas—the tort reformers have seized on this election as their defining moment.

In Texas, however, the future is already here, thanks to several generous helpings of “reform.” Anyone who wants a glimpse of what’s in store for the rest of us would do well to look at Bush’s legacy in his home state.

Jackie Smith has a hard time with the idea that suing over her mother’s rape in a nursing home is “frivolous.” Smith voted against Proposition 12, a constitutional amendment on the Texas ballot in September 2003 that capped medical malpractice awards. No state in history had ever taken the radical step of changing its constitution to restrict lawsuits. Smith, a 54-year-old freelance writer, didn’t believe the TV commercials claiming that suits by greedy lawyers were driving up malpractice insurance premiums to the point that doctors were quitting medicine. Nevertheless, Proposition 12 passed by a razor-thin majority.

Smith herself had never had reason to sue anyone, until 2:30 am on November 7, 2003, when a male nurse noticed that a patient’s door at the Heritage Duval Gardens Nursing Home in Austin was closed when it should have been open. He heard crying, and when he snapped on the light, he saw a man leap from the bed of an elderly woman. The woman was naked. The man’s pants were around his ankles. The man, according to police, was Kevin Arceneaux, a 6-foot, 190-pound nurse’s aide. Still sobbing softly in her bed was Smith’s mother, an 85-year-old Alzheimer’s patient. Two months later, police arrested Arceneaux and he confessed.

Jackie Smith wanted the nursing home punished, especially when she learned that Heritage knew—or should have known—when it hired Arceneaux that in eight years as a certified nurse assistant, he had never held a job for more than five months. He arrived at Heritage after a brief stint at another nursing home in Austin, where he had been questioned regarding a woman who was sodomized there on his third day. Before that, he worked eleven days at another facility. Despite Arceneaux’s checkered past, Heritage hired him on September 22 and put him on the lightly supervised night shift. Within six weeks, an Alzheimer’s patient was sexually assaulted a few doors down from Smith’s mother and then Smith’s mother was raped, though police didn’t learn of the first attack until much later.

Jackie Smith hoped the Texas Department of Human Services, which regulates nursing homes, would discipline Heritage Duval Gardens. But DHS found that Heritage had done nothing wrong in hiring Arceneaux, since the facility had performed the required criminal background check, which came up clean. The agency’s report found that “based on substantial evidence, [Arceneaux] sexually abused [Smith’s mother],” but didn’t cite Heritage for any deficiencies. (Administrators at Heritage Duval continue to deny committing any impropriety in hiring Arceneaux.)

Furious, Jackie Smith decided to try to do DHS’s job herself, with a lawsuit. It fell to Frank Ivy, an Austin lawyer, to explain that tort reform in Texas had made her suit almost impossible financially no matter how negligent Heritage had been. Since the assault took place in the course of delivering medical care, it was considered malpractice—but that wouldn’t help Smith. A nursing-home patient can’t sue for loss of future income, a type of award that had been separately capped. Punitive damages were unlikely because the standard of proof was raised under then-Governor George W. Bush, requiring Smith to prove that Heritage intended to harm her mother, the so-called “malice” standard.

Ivy explained that the only money Smith could extract from Heritage would be for her mother’s “pain and suffering.” To that end, testimony could be introduced about the terror caused by the brutal rape of a confused, elderly woman. But even the most sympathetic jury couldn’t give her more than $250,000, the limit set in the constitutional amendment that passed the previous September. Then Ivy explained why even the maximum award, which Smith was unlikely to get, wouldn’t be enough. Tort reform would force Smith to hire experts in several fields, including psychiatry and nursing-home administration, to prove Heritage had been negligent, costing as much as $20,000 per witness. And with settlements rarer because insurance companies know a jury can’t sting them for more than $250,000, a trial was far more likely than before the initiative passed. All told, Frank Ivy’s five-person law firm had to be prepared to spend $100,000 with no guarantee of recovery or earning its contingent fee of 40 percent of the payout. When all the math was done, the best Smith could hope for would be to win perhaps $50,000 from a nursing home that apparently hired a sexual predator to care for her mother.

Because of the changes in the law, Ivy’s firm now takes only a handful of malpractice cases. He hopes—but isn’t sure—that Smith’s will be one of them.

Smith says she doesn’t care about the money. “I want to make them accountable so that it doesn’t happen again,” she says.

Before entering Heritage her mother had lived with Smith in her mobile home until Smith came to fear leaving her alone. “My mother became my daughter. It was like having my young daughter assaulted. And it’s been extremely difficult.”

There are no statistics, but a four-month Nation investigation established to a virtual certainty that there are many cases like Jackie Smith’s mother, victims the civil justice system once helped who are now routinely barred from court. This is happening not only in Texas but in many other states, as a kind of tort-reform frenzy has swept the country during the past two years. Malpractice “reforms” are only the thin end of the wedge for a much bigger agenda. Lined up behind the doctors are most of the Fortune 500, a formidable coalition led by insurance and tobacco companies, far-right think tanks and dozens of well-heeled pressure groups, many of them fronts for corporate interests. Buoyed by the conservative tide flowing through the country, this coalition has stepped up the pressure to enact damage caps and other measures. Before unleashing its campaign ads, the Chamber of Commerce had already poured $100 million into an antilawsuit lobbying and publicity blitz that claimed product liability suits add a “tort tax” of $809 per person every year to the cost of goods and services. Stories highlighting the lawsuit abuse “problem” have become a staple in Reader’s Digest and the newsweeklies.

It is no exaggeration to say that the civil justice system in America is under saturation bombardment, the most significant effort at rewriting the laws that govern lawsuits in twenty years. These are changes some legal scholars believe could alter the balance of the three branches of government; changes that could defang the civil jury so thoroughly that its role as quality-control guardian for products and services will alter drastically, if it doesn’t wither and die.

The cheerleader-in-chief for this movement is President Bush. In his first months as governor of Texas, a job he won with the help of $1.4 million from the extremist Texans for Lawsuit Reform, Bush declared a “frivolous lawsuit emergency” and rammed through the legislature a series of bills restricting suits. Now Bush has become the first President to make downsizing the civil courts a signature concern of both his Administration and his re-election effort. His campaign calls medical liability the “largest cost in the health care system”—a sheer fiction.

While Bush and the GOP in Congress push for federal lawsuit restrictions, Texas-style legal changes are already becoming the rule, not the exception. Thirty states have enacted civil justice “reform” in a two-year period. Indeed, since the Gingrich revolution swept the House of Representatives and many statehouses in 1994, virtually every state has made it harder to sue over botched medical care, hazardous products, business scams, drunk drivers, nursing-home rapes and many other woeful situations with which the tort system deals in the United States. Whole categories of miscreants can dodge the courts in Texas, unquestionably the flag-bearer of the movement. If you buy a brand-new house and the windows fall out, you can sue the builder only after navigating a maze of arbitration that can take years, one designed and staffed by the home-building industry. And by altering its Constitution via Proposition 12, Texas guaranteed that its Supreme Court cannot nullify the damage cap, something high courts have done ninety-six times to lawsuit restrictions. Constitutional amendments are on the ballot in three other states this fall.

Despite promises that only meritless legal actions would be affected, the early evidence from Texas is that the referendum has combined with previous changes to compromise the state’s civil justice system severely. Local newspapers are beginning to write about alleged malpractice victims who cannot find a lawyer, like Yvonne Harrison, a clinical pathologist and paralegal whose 18-year-old son died in the hospital of pneumonia. Harrison says all of the dozens of lawyers she contacted cited the damage caps in turning her down. She is now representing herself. In Harris County, which includes Houston, only forty medical malpractice suits were filed between January and March 2004, compared with 120 during that period in each of the previous three years. And finally, I investigated other “medical accidents” in Texas, including a baby blinded at birth after doctors allegedly failed to identify a treatable eye condition, and a woman dying of lung cancer, apparently because her physician misread her chest X-ray. Both were rejected by attorneys who said tort reform made them unfeasible.

“We’re turning down ten cases a week that we used to look very seriously at,” said Tom Rhodes, a San Antonio malpractice specialist. Children and the elderly will be disproportionately affected, he said, because the only damages they can receive are for pain and suffering.

The purpose of Proposition 12’s severe restrictions on victims’ rights was to lower malpractice insurance premiums, which had seen double-digit increases. In Texas, as elsewhere, the tort reformers exploited the rate hikes as part of a scare campaign to sell reform. However, the facts show that the legal system is not driving insurance rates. Tort actions at the state level—meaning personal-injury lawsuits, everything from product liability to traffic accidents to libel—have fallen 5 percent in nine years, according to the National Center for State Courts.

More specifically, malpractice filings declined nationally by about 4 percent between 1995 and 2000. And while a recent analysis of the Medicare population estimated that medical errors kill 131,000 people annually, making it the fourth leading cause of death, medical suits are only 5 percent of personal-injury filings, with product liability cases another 5 percent. Plaintiffs lose 60 percent of product cases and 70 percent of malpractice suits.

Not only are socially significant lawsuits like malpractice and product liability a small fraction of the legal picture but numerous studies show that capping damages doesn’t affect insuance premiums. One survey examined insurance rates between 1985 and 1998, then ranked the states according to the severity of their restrictions on lawsuits. Increased severity did not produce lower rates. In Texas, where malpractice filings dropped 20 percent in the nine years before Proposition 12, the liability picture has been little improved by its passage. About a third of doctors will see a decrease of 12 percent—after cumulative increases of 147 percent. The rest will either get no relief or double-digit increases.

According to J. Robert Hunter, Federal Insurance Administrator under Presidents Ford and Carter, caps don’t work because liability rates reflect not litigation costs but the insurance industry’s own practices. During good times, insurers write policies even for the worst risks to generate cash for investment. When the stock market tanks, rates climb steeply to cover losses. The current liability crisis, Hunter notes, coincided with the market downturn that began in the summer of 2001. And since the insurance cycle is international, the “hard market” also drove up premiums in Canada, Australia and France. “And those countries have totally different legal systems,” Hunter says.

The irony is that just as virtually the entire country finishes retooling its civil justice system, the hard market is easing and insurance costs are edging downward, a trend that became evident in late 2003 and for which tort reform is unjustly receiving credit, according to Hunter.

The numbers show that lawsuits are an insignificant cost both to businesses and to health providers, for whom they represent less than 2 percent of spending. In short, the lawsuit-abuse crisis is a hoax. Yet the Republican right has launched one of the great propaganda blitzes of recent American history to yank the teeth from the civil jury.

The reach of the civil justice system expanded dramatically during the 1970s, but by the early 1980s a retrenchment was under way. The seed money for tort reform came from the same group of extremist multimillionaires whose family foundations nurtured the rest of the ultra-right’s agenda, especially David and Charles Koch, Richard Mellon Scaife and Lynde and Harry Bradley. Of the dozens of think tanks they created, four— the Heritage Foundation, the Washington Legal Fund, the American Legislative Exchange Council and especially the Manhattan Institute and its Center for Legal Policy—took particular aim at plaintiff’s lawyers.

They were an obvious target, especially the “mass tort” lawyers who were filing waves of suits over products like the Dalkon Shield and asbestos. Only in America can civil juries, which are virtually unheard of in the rest of the world, both compensate victims and award punitive damages against a defendant whose behavior outrages the community. Although less than 4 percent of tort actions are decided by a jury verdict, that tiny handful represents the only time a corporation’s fate rests in the hands of ordinary citizens. A punitive damage award, or any large judgment, is a serious embarrassment and often collapses stock prices. The fate of asbestos maker Johns-Manville, which sought bankruptcy protection in 1982 under a deluge of 20,000 lawsuits, has often been cited as a portent of things to come, although it is rarely mentioned that Johns-Manville was a fully solvent company with assets of more than $2 billion when it sought shelter. Or that it emerged six years later with its profit-generating core intact.

By the mid-1980s the asbestos wars had made a number of plaintiff’s lawyers wealthy political players in the liberal wing of the Democratic Party, while on the other side, the American Tort Reform Association was founded to lobby and begin reprogramming the jury pool through a long-term propaganda campaign. The ultra-right was perfectly positioned to speak to opinion leaders through its web of self-referential think tanks, magazines, books and conferences. The Manhattan Institute promoted Peter Huber, whose influential books injected terms like “junk science” and “tort tax” into the national conversation.

Few of the ultra-right’s obsessions have won such substantial backing from mainstream corporate America as tort reform. Corporate boards may have little stake in school vouchers or abortion, but every company wants to limit its liability. The total spent on lobbying, advertising, think tanks, endowing chairs at law schools and electing reform-friendly judges and legislators probably exceeds $1 billion over a thirty-year period, according to Leonard Salle, president of the Commonweal Institute and co-author of its report “The Attack on Trial Lawyers and Tort Law.” But despite two successful waves of tort reform in the states in the mid-1970s and mid-1980s, in Washington antilawsuit bills died in committee. As an issue, “tort reform” had a chilly, academic ring, like lobbying for the metric system.

The solution was born in south Texas in 1991, when the Rio Grande Valley Chamber of Commerce, infuriated by a $2.5 million verdict to two Mexican-Americans illegally fired from a sugar mill, launched Citizens Against Lawsuit Abuse, which plastered billboards across the valley with slogans like “Lawsuit Abuse: Guess Who Picks Up the Tab? You Do,” according to a joint study by the Center for Justice and Democracy and Public Citizen. The cigarette companies were already deeply involved in the issue, and Philip Morris provided generous start-up funding for Citizens Against Lawsuit Abuse. Thanks in large part to tobacco largesse, there were CALA groups all over the country by the mid-1990s. In 1993 and 1994, while a politically green George W. Bush received instruction from Mike Toomey, soon-to-be lobbyist for Texans for Lawsuit Reform, Karl Rove, a consultant to Philip Morris, was convincing Bush to exploit the lawsuit-abuse issue in his first gubernatorial campaign, according to the book Bush’s Brain, by James Moore and Wayne Slater. Tort reform proved a powerful weapon. Although of little interest to voters, the issue, according to Rove himself, was a magnet for corporate donations—among numerous other benefits.

“By publicizing all the horrors of the tort system, they get a lot done,” explains Pamela Gilbert, a lobbyist for plaintiff’s lawyers. “You pass legislation that curbs their liability—that’s the ultimate prize. But short of that, you affect juries, you affect elected officials, you affect judges, you affect the entire discourse of the United States.” Best of all, by doing harm to plaintiff’s lawyers, Gilbert notes, tort reform would help defund the Democratic Party, a key piece of strategy for the Rove Republicans in the new millennium.

With a uniform message and national structure, the “lawsuit abuse” campaign grew exponentially in the states in the 1990s. Trial lawyers and consumer groups fought back with hastily erected alliances. The tort reformers effectively used distorted anecdotes about minor injuries bringing absurd verdicts. The trial lawyers’ counterpunch to “lawsuit abuse” was “tort deform,” which sounded like a bad joke from a faculty cocktail party.

Now the message has become so familiar it has jumped the fence from think tanks to John Stossel, drive-time radio and David Letterman’s Top Ten, coming perilously close to turning Americans against the civil jury, perhaps our most radically democratic institution. Its success can be measured by sitting in a Texas courthouse and hearing potential jurors recite, one after another, that there are just too many frivolous lawsuits.

There are, of course, plenty of things wrong with the civil justice system. It has high “transaction” costs, meaning money that should go to victims is eaten up by lawyers and others, but worst of all, it is haphazard. In 1991 a Harvard University study of medical malpractice in New York State found an unexpectedly high rate of medical accidents. However, few of even the most serious “mishaps” resulted in lawsuits, and there was no correlation between severity and litigation.

Carl Bogus, a law professor at Roger Williams University, argues that what plaintiff’s lawyers do best is regulate, a role that has become more and more vital as government’s watchdog function has shrunk under conservative attack. Bogus notes that while asbestos caused 170,000 deaths from lung cancer, the Environmental Protection Agency was never able to ban it. Lawsuits forced it from the market.

However, if this vital aspect of the civil justice system is to be rescued, someone will have to make the case for it. Despite Bush’s persistent attacks and the presence of trial lawyer Edwards on the ticket, the Democrats apparently consider tort issues unmentionable. Part of the problem, says Gilbert, the trial lawyer lobbyist, is that defending the system is inherently problematic. “If someone’s been a victim of medical malpractice, to like say, oh, but gee, aren’t you lucky because you get to bring a medical malpractice lawsuit! It’s like, well thank you very much, I’d much rather that it never happened at all,” says Gilbert.

The real goal is safety. Lawsuits can never provide anything more than frontier justice in a world in which we are surrounded by seemingly innocuous manufactured goods that in fact can injure or kill us. In this world, evil is truly banal—it’s the missing plastic seal in a gas tank, the pill we take for morning sickness, the tires on our car. Plaintiff’s attorneys can sometimes punish a wrongdoer, but there is no swift and sure law enforcement in our manufactured world. Whopping punitive awards—even in the rare cases where they are awarded and stick—are an embarrassment and a short-term deterrent, but the persistence of corporate wrongdoing over decades argues that the effect wears off. Ford built the flammable Pinto in the 1970s, the rollover-prone Bronco II in the 1980s and its successor, the almost equally hazardous Explorer, in the 1990s.

However, absent a working alternative, there is no substitute for civil justice. Ironically, says Gilbert, Enron and WorldCom probably would never have become headline-making criminal cases had the 1995 federal Private Securities Litigation Reform Act not succeeded in practically wiping out shareholder class actions that for years were a real deterrent to crooked bookkeeping and financial manipulation in publicly held companies. The potential for mischief if Congress were to take a similar course with medical malpractice suits is sobering.

For now, the sheer scale of the harm done to an entire society by a defective mass-marketed product makes the availability of the tort action essential, even while underlining its inadequacies: 11 million workers exposed to asbestos, 10,000 children born with defects due to thalidomide, 1.5 million Pintos recalled, more than 6 million dieters who used Phen Fen, which damaged the heart muscle. These are truly modern plagues.

On the tort reform side, the numbers tell a story of squandered dollars. The $809 “tort tax” was invented by taking $233 billion, which is what insurance industry consultant Tillinghast-Towers Perrin says is the cost of the tort system, and dividing it by the population of the United States. But those billions represent not only legal expenses but the total cost of running the insurance industry, including executive salaries, advertising expenditures and much else unrelated to lawsuits. The real figure is probably less than half that amount.

The numbers game misses the point, because while the plaintiff’s lawyer is indeed an American creation, billions would still have to be spent to compensate and care for victims even if the tort system were abolished. The legal systems of France, Germany, Japan, Australia and other wealthy countries forbid most personal-injury actions, ban contingent fees and require the loser to pay the winner’s expenses, making suits by individuals against corporations impossible. Instead, national healthcare or other compensation schemes cover those hurt in any kind of accident. In Japan, a special industry fund covers air-pollution victims; another pays for injuries caused by pharmaceuticals. “In some sense it’s because of the thinness of our welfare state and the kind of fragmentation of authority in this country that we just do more with the civil courts,” says Marc Galanter, a law professor at the University of Wisconsin.

It is unlikely we will become less litigious—that there will be less law and fewer legal interventions. Although the number of personal-injury suits isn’t rising, the sheer number of laws is increasing rapidly, writes Galanter. As an example, he offers government regulations: In 1960, 14,477 pages were added to the Federal Register. In 2002 the number was 80,322. But it is an open question who will get to manipulate this ever-expanding legal web. Galanter found that between 1962 and 2002, the percentage of civil cases that went to trial in federal courts fell from 11.5 percent to 1.8 percent, an astonishing drop. His conclusion was that the civil trial, with its adversarial public questioning of live witnesses, is vanishing. The implications are disturbing. “When there was a bigger possibility of trial, that distributed the bargaining chips in a certain way. Now we’re going to a situation where so few things go to trial, it’s not there anymore as a wild card for plaintiffs or underdogs to use,” Galanter explains.

In addition to these trends, there is an increasing emphasis on alternative dispute resolution and privatized forums for handling certain legal issues, such as in-house tribunals within companies. If trials all but disappear while the right of ordinary people to sue is restricted, Galanter argues, the legal process becomes more and more about exchanges of paper between and within entities, especially corporations, frequently behind closed doors. Will Americans allow their most unique legal rights to slip down the memory hole?

Dan Zegart is the author of Civil Warriors: The Legal Siege on the Tobacco Industry (Delacorte), and Your Father’s Voice: Letters for Emmy About Life With Jeremy—and Without Him After 9/11, published last month by St. Martin’s Press.

© The Nation

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