10 February 2009

The GOP and the fallacy of out-of-control plaintiffs

One of the most maddening, yet least-reported, tendencies of the Republican Party is its obsession with curbing what it terms "runaway" lawsuits.

What "the shrinking middle class" is to Democrats, "greedy trial lawyers" are to the GOP. Both fixations are complete and utter fallacies.

Last week, a bill was introduced in the Georgia state senate whereby a plaintiff would be forced to pay the costs of a prevailing defendant if its lawsuit was dismissed in the earliest possible stage. The bill is not clear as to whether this refers to a mere order dismissing the claim for failure to prosecute, or a motion to dismiss for failure to state a claim (commonly known as a 12(b)(6) motion in federal court).

Either way, this bill is an atrocious idea, and the GOP's fixation with "out-of-control" lawsuits continues to lack any sort of credible basis. 

(By the way, I speak of the GOP generally for two reasons -- first, a "loser pays" provision was part of the Republican "Contract with America" in 1994; and second, President Bush stoked the fire of limiting "runaway" medical malpractice lawsuits during his re-election campaign in 2004).

First, the GOP's premise is wholly devoid of any factual support. Its underlying assumption is that verdicts and settlements are on the rise, which, ergo, has led to more expensive malpractice premiums for doctors and hospitals. This cost is then transferred on to the patients, driving the overall cost of health care up.
However, ask a conservative to cite a single piece of evidence of this upward trend. They can't. In fact, although malpractice premiums have in fact gone up over the last decade, verdicts and settlements have gone down.

If the GOP wants to actually make a difference in terms of health care providers' malpractice costs, why not regulate the malpractice insurance industry instead?

The answer is because the insurance lobby is one of the GOP's most lucrative benefactors, just like trial lawyers are vis-a-vis Democrats.

Second, Republicans carry an assumption that greedy attorneys encourage clients who have baseless claims to file lawsuits, and that they're able therefor to reap an immediate windfall. This is false.

The vast majority of tort lawsuits (encompassing personal injury, medical malpractice and even civil rights violations) are taken on a contingency fee basis. Generally, if the lawsuit settles in advance of either the trial date or the formal filing of the lawsuit, the plaintiff's lawyer takes between 1/4 and 1/3 of the overall recovery. That percentage generally goes up after trial has commenced, and goes up again in the likely event of an appeal. The other side of the coin is largely ignored, however. If there is no recovery -- no matter how much time and effort a plaintiff's lawyer has poured into a case -- the attorney receives nothing.

As a corollary to the above, the third point must be understood. Generally -- especially in the malpractice arena -- these "quick settlements" just don't happen in reality. 

My firm handled one particular medical malpractice case that settled last summer. The defendants -- a surgeon and the large St. Louis hospital where he was employed -- could have settled the case immediately for between $70,000-80,000, without ever stepping foot into the courthouse. Instead, they poured that amount and more into legal fees to defend the suit, on deposition costs and expert witness fees. On the morning of trial, the case settled for about $90,000. So the defendants paid $90,000 in attorneys' fees and costs, and another $90,000 to our client, instead of paying less than half of that to make the lawsuit go away.

I have another half-dozen stories just like this, just from the last year and a half.

This is reality. Unless the facts of the case show egregious negligence, defendants don't "just settle" to make plaintiffs go away. 

Driving the bus in these cases is not the doctor or hospital, but rather the defendant's malpractice carrier. And based on the malpractice carrier's business model, it is considered more beneficial in the long run to spend more money now litigating a lawsuit to its ultimate conclusion in front of a jury, as opposed to settling quickly. This refusal to settle has a deterring effect, and sends a clear message to the plaintiffs' bar that "strike suits" will be unfruitful.

Fourth, the Georgia bill ignores the reality that an initial pleading (called either a petition or complaint) that is defective for failure to state a cognizable cause of action is the fault of the attorney, not the plaintiff.  If a petition is dismissed for failing to state a claim upon which relief may be granted, it is likely that the attorney has failed to read the relevant statute. In Missouri, for instance, a medical malpractice plaintiff is required to submit an affidavit from an expert who has evaluated the case and is willing to testify as to the validity of the plaintiff's claim. If the plaintiff doesn't submit this affidavit, his or her case is automatically dismissed. And any attorney worth his salt will seek out such an expert before filing suit. Many states have similar laws. By initiating a "loser pays" law, the legislature would serve to transfer the burden for what is clearly the attorney's error on to the innocent client. 

Fifth, a procedural device called an "offer of judgment" -- in force in virtually every state in the union -- serves to do the exact same thing as a "loser pays" statute, but without the chilling effect on plaintiffs. An offer of judgment is essentially a public settlement offer from the defendant that is filed as an actual pleading with the court. It is a public document. Upon the filing of an offer of judgment, a plaintiff might be allowed a certain amount of time (determined by statute) to accept the defendant's offer. In the event that the plaintiff rejects the defendant's offer, however, and receives any amount less than the offer of judgment from the jury, the plaintiff will be on the hook for the defendant's costs from the time of the filing of the offer to the date of the jury verdict. The particular makeup of the "offer of judgment" rule varies from state to state, but the principle is the same throughout jurisdictions.

Finally (and this is perhaps the least convincing argument), the "loser pays" rule is violative of the traditional American rule of each party paying its own costs. The so-called English rule (in force, of course, in Great Britain) imposes liability for an opponent's costs on the losing party, but from the inception of the American republic, such a rule has been roundly rejected. Proponents of the "loser pays" rule are unable to advance any argument as to why it should apply only to plaintiffs bringing personal injury or medical malpractice claims, and not lawsuits that are challenges to validly written wills or for breach of contract.

In conclusion, the idea of the "out-of-control plaintiff" is a complete and utter fallacy. Proponents -- mostly conservatives -- of "loser pays" statutes or other forms tort reform refuse to allow facts to get in the way of their stance.

1 comment:

Simon said...

Not so much to dispute as to qualify your points, it's my understanding that plenty of other countries have a "loser pays" rule, and the sky has not fallen there for plaintiffs. Moreover, a loser pays rule that kicks in only when the complaint is so patently without merit as to be dismissed on the pleadings seems like weak tea as such things go - and thus, perhaps, a sensible way to test the waters, if you'll forgive the mixed metaphor. The observation that a 12(b)(6) dismissal (or state equivalent) is more likely to be the attorney's fault than the plaintiff's so why punish the plaintiff seems a little overheated; in such a circumstance, would the plaintiff not have a malpractice claim against his attorney?

To me, the very strongest rule against moving to loser pays is the argument from tradition: as you note, the American rule has long been that each party ordinarily bears their own costs. But tradition isn't absolute, I'm not convinced that Walter Olson et al are wrong, and if there's a more efficient rule, it seems worth considering.