Getting Fat on Torts

Trial lawyers are now among the most successful entrepreneurs in America. The returns on investment are staggering. In the silicon breast implant saga, for example, $80 billion changed hands–even though subsequent scientific research proved the health scare to be unfounded. As Walter Olson points out in his new book “The Rule of Lawyers,” estimated hourly wages for attorneys who took the lead in the tobacco settlement amounted to more than $100,000 an hour.

All this moneymaking does not go on long without attracting ambitious people. The numbers of applicants taking the Law School Application Test (LSAT) are at historic highs and have seen double-digit rates of increase for the last two years. Business school applicants, although also at an all-time high, seem to have leveled off. More telling still, law firms are now attracting venture capital. It may not be long before there are mutual funds enabling the “little guy” to invest in the litigator of his choice.

New ground was mined early this month when a federal judge in New York handed down the first ruling on the latest avenue to riches–the claim by eight New York City teenagers that eating at McDonald’s has made them fat. True, federal judge Robert Sweet dismissed the initial claim. “If consumers know, or reasonably should know, the potential ill health effects of eating McDonald’s, they cannot blame McDonald’s if they, nonetheless, choose to satiate their appetite with a surfeit of supersized McDonald’s products,” said the 80-year-old jurist.

Newspapers all over the country celebrated this triumph of common sense. The notoriously liberal Sweet–who once ruled that panhandling was “free speech”–had dismissed the case, right? Well, not exactly. First note how Sweet casually asserts that eating at McDonald’s may have “potential ill effects.” That was enough to make Ralph Nader’s Center for Science in the Public Interest break out the mineral water. Second, Sweet made the consumer’s knowledge of these supposed ill effects the crux of his decision.

Only the New York Post, parsing the 64-page decision, noted that at one point Sweet actually labeled McDonald’s Chicken McNuggets a “McFrankenstein creation of various elements.” Like a patient law professor, Judge Sweet was actually coaxing his pupils in the proper direction.

Wrote reporter John Lehmann: “After listing McNuggets’ ingredients, Sweet pointed out that customers might not know that they contained twice as much fat per ounce as a hamburger.” “If plaintiffs were able to flesh out this argument,” wrote Sweet, “it may establish that the dangers of McDonald’s products were not commonly well known and thus that McDonald’s had a duty towards its customers.”

Samuel Hirsch, representing the teenagers, said he plans to refile, emphasizing the judge’s desired arguments.

Hirsch, for now anyway, is a small-time operator. “Big Food” cases have not yet attracted such all-stars as Peter Angelos, the Baltimore lawyer whose tort practice (primarily asbestos) has become one of Maryland’s major industries, or Dickie Scruggs, brother-in-law of Trent Lott and buddy of Bill Clinton, who was the lead litigator in the tobacco suit. But that’s the way things work in any thriving industry. Pioneers such as Hirsch are to the litigation industry what Daniel Bricklin (VisiCalc) and Scott Cook (Quicken) were to software. They explore the cutting edge. If successful, their efforts are quickly acquired or copied by the industry giants, with the founders getting a piece of the action.

Remember, all it will take is one federal or state judge to agree to put McDonald’s on trial and the doors will be open. Discovery proceedings will ransack corporate files for the smoking gun. Soon it will be: “They knew! They lied to us!” Think trillions.

The academics and Naderites who spearhead these campaigns are already focusing their sights. “There’s a lot of people who benefit from people being fat and sick,” says Marion Nestle, author of “Food Politics.” “The whole setup is designed to make people eat more. So the response to the food industry should be very similar to what happened with the tobacco companies.” And while McDonald’s and fast-food companies are the initial targets, the crusade could very well be expanded to include farmers themselves. The dairy industry seems particularly vulnerable for its milk ads. Some might argue that farmers are widely respected members of the community, but remember the same was once said about doctors. In recent months doctors in Pennsylvania, West Virginia, and New Jersey have struck over high malpractice premiums.

Driving the tort industry’s phenomenal growth is the principle that civil courts can mete out punishment. Traditionally, punishment was reserved for the criminal courts while civil courts settled disputes among individual parties. Over the decades, however, lawyers have been able to make “punitive damages” the centerpiece of many civil proceedings.

If a corporation defies the Environmental Protection Agency, for example, it may find itself paying a fine of $1 million a day–if it is foolish enough to persist. Yet civil courts now issue punitive verdicts in the billions. In October, for example, a California jury awarded $28 billion to one smoker who claimed she never knew cigarettes were dangerous.

Besides being eye-poppingly excessive, punitive damages can be imposed over and over for the same offense–as the asbestos defendants are finding out. There are no protections against double jeopardy, nor–increasingly–any statute of limitations. All this might seem to violate the Eighth Amendment’s provision against “unusual punishments” and “excessive fines.” Unfortunately, back in the innocent days of 1989, the Supreme Court ruled that the Eighth Amendment applies only to criminal proceedings, not civil verdicts.

What makes lawsuits such an attractive investment is that there is so little downside. An individual lawyer who spends years pursuing a fruitless case may waste his time but little else. Besides, he knows he is inflicting the same costs on the defendant–which is often enough to force a settlement. The tobacco companies never lost a judgment on Medicaid, but still handed over $84 billion in fear of virtually opened-ended damages.

Almost unanimously, proponents of tort reform point to the lack of a “loser-pays” principle in American civil law as the reason lawyers can engage in this high-stakes crapshoot with little fear of consequences. Chief rainmaker Scruggs openly boasted that it pays to up the ante as high as possible. Suing for $20 billion instead of $20 million generates press coverage–crucial in stigmatizing an industry. It also gets juries salivating over “sending a message” and righting historic wrongs with bankloads of money.

So here’s a proposal. Why not apply some of the principles that apply to American businesses to the law firms themselves?

First, let’s say that for any lawsuit seeking more than $1 million in damages there should be a court user fee of one percent of the claim if the case goes to trial. It would be like paying $2 to enter a national park. And the analogy is not that farfetched: The plaintiff’s bar is already campaigning for expanded courts (which are a public good) in order to accommodate all their lucrative new traffic.

Thus, for a $1 billion suit, the fee would be a mere $10 million, easily deducted from a winning case, although a noticeable burden to a loser. Since plaintiff’s attorneys are financial partners in these ventures, they should be willing to put up the money. Now it’s easy to see what lawyers would be tempted to do. They’d want to form a separate corporation for each lawsuit and declare bankruptcy if they lost. This happens all the time in other business dealings. That’s the purpose of surety bonds. If a construction company contracts to build a highway for the state, it puts up a performance bond to assure it isn’t a fly-by-night. Posting surety bonds would discourage plaintiff’s firms from using the blunderbuss approach–bringing multiple lawsuits in as many venues as possible for maximum advantage.

Lawyers will argue that such a fee is unfair, that they are only “servants of the court,” processing the legitimate claims of people who otherwise couldn’t afford to pursue justice. But that is a polite fiction. The lawyers’ share has become the prevailing interest. Requiring “Law, Inc.” to act like any other business not only would help resolve the tort crisis, it would confirm the obvious–that the civil courts have become just another American industry, where ambitious entrepreneurs seek fame and fortune.

William Tucker is a columnist for the New York Post.