Sir Issac Newton's Third Law of physics teaches us that every action causes an equal and opposite reaction.
But unlike the physical laws of motion, the law of today's Washington politics seems to be telling us that every action creates an opportunity for a disproportionate reaction, one that can reward special interests while having a profound impact on our nation.
In 2007 and 2008, the Supreme Court's actions in a pair of decisions ( Ashcroft v. Iqbal and Bell Atlantic v. Twombly ) has triggered a lopsided legislative reaction from the trial bar and their allies which, if successful, will greatly expand the number of costly junk lawsuits that could seriously injure an already fragile economy.
The Notice Pleading Restoration Act of 2009 (S. 1504) and its House companion, the Open Access to Courts Act (H.R. 4115), embodies an effort by some in Congress - working at the behest of the plaintiffs' bar - to legislatively repeal these two opinions which stood for an unremarkable and commonsense legal proposition: plaintiffs should not sue someone and subject a defendant to the costs and burdens of litigation if there is no plausible basis for their claims.
Proponents of this bill claim that Iqbal and Twombly marked a radical "sea change" in federal procedural law and that a generation of plaintiffs will be barred from seeking redress for their injuries because they are now subject to a universal heightened pleading standard in federal court.
Nothing could be further from the truth. The reality is that the Iqbal and Twombly decisions represent an outgrowth and endorsement of a vast body of lower federal court precedent governing federal pleading standards for over five decades. These lower court standards represent the very rules of procedural law that any first year law student learns in civil procedure: plaintiffs cannot advance complaints containing "bald assertions," "unsupported conclusions" and "legal conclusions."
Supporters of the legislation point to a 1957 Supreme Court case called Conley v. Gibson , which they say established a prevailing, and somewhat broader, pleading standard prior to Iqbal and Twombly . But Justice Souter disagreed, declaring of the Conley decision: "a good many judges and commentators have balked at taking the literal terms of the Conley passage as a pleading standard." And even the Federal Judicial Conference recently noted that Conley's "no set of facts" language was never "literally applied" by the federal courts. Translation: Conley was never used by the federal courts and in fact has been specifically rejected by many federal judges.
While the plaintiffs' bar and their allies in Congress bellow about how Iqbal and Twombly have caused a massive spike in the dismissal rates of civil complaints, a review of the empirical evidence shows quite the contrary. Indeed, recently circulated data from the Judicial Conference Advisory Committee on Civil Rules shows no discernable change in the rates of dismissals throughout the 94 federal judicial districts across the country.
Pleading standards perform an essential gatekeeping function. They ensure that federal courts are not overwhelmed with frivolous cases and that defendants are not hauled into court on a whim and subjected to the onerous burdens of discovery. Reversing Iqbal and Twombly would increase the already-excessive litigation burdens on businesses in this country - small and large alike - diverting resources that would otherwise be used to create jobs and strengthen our nation's economy.
Without pleading standards, meritless cases will abound. And they will place a tremendous cost on businesses given the limitless opportunities for trial lawyers to sue first and ask questions later. Plaintiffs with a baseless claim would have instant leverage to force a settlement over any defendant who must now face the real threat of expensive and burdensome discovery.
The cumulative effect of reversing the Supreme Court rulings in Iqbal and Twombly would deal a devastating blow to America's fragile economy, as the job creators, already facing economic uncertainty and weak markets, would see their job-creating capital siphoned off to pay what amounts to plaintiffs' lawyer extortion.
This Congress has created a cottage industry out of attempting to reverse Supreme Court rulings with which they disagree. That, of course, is their prerogative. But make no mistake, the Iqbal and Twombly bill is a plaintiffs' lawyer bonanza disguised in the cloak of "justice." It would only result in a new wave of large lawsuits that will further pummel our fragile economy, and become the latest example of the law of political physics.
This article originally appeared in Metropolitan Corporate Counsel.
Any doctor will tell you that a periodic physical is indispensable to a patient’s long-term wellbeing. A medical check-up can catch minor ailments before they become major illnesses or encourage the continuation of healthy behavior, such as eating well and exercising regularly.
Similarly, a regular check-up of a state’s lawsuit system is essential to the long-term fitness of its economy.
It may not seem obvious, but a state with a fair and reasonable legal system has a leg up on its neighbors when it comes to encouraging businesses to locate their operations or grow jobs within its borders. Conversely, those states with sickly lawsuit systems can shackle their economic opportunities.
With the national unemployment rate hovering around 10 percent, states can no longer afford ailing lawsuit climates that can shutter small businesses and drive larger companies to places with better legal environments. Elected officials need to focus on creating more jobs, not more lawsuits.
In order to help state leaders understand how their legal systems stack up against others, the U.S. Chamber Institute for Legal Reform recently released the Lawsuit Climate 2010: Ranking the States survey. This study, the eighth of its kind, was conducted by the nonpartisan market research firm Harris Interactive and ranks all 50 states according to the perceived fairness and reasonableness of their state liability systems.
The Lawsuit Climate report is based on the input from almost 1,500 in-house general counsel or senior litigators at some of America’s largest companies. Why does the perception of in-house counsel matter? Because these are the people who help make far-reaching business decisions, such as where to locate a new factory, whether to add additional employees, or whether to pull operations out of a state.
Some – especially those who make a living by filing lawsuits – argue that a sick state legal environment has no impact on economic opportunity. Yet, the study found that fully two-thirds, or 67 percent, of respondents believe that a state’s lawsuit climate is likely to impact important business decisions at their company.
And while the Lawsuit Climate survey measures the perceptions of America’s largest companies, any state legal system that encourages abusive lawsuits negatively impacts all businesses, regardless of size.
Small businesses, which create 64 percent of all new jobs, are essential to turning our economy around, but lawsuits are threatening America’s entrepreneurs just when we need them the most. In good times, small businesses operate on a razor-thin margin. In this current economic environment, many are only one frivolous suit away from closing their doors forever.
Take the lawsuits filed against Monroe Rubber and Gasket in Monroe, Louisiana. The family-owned small business is currently defending itself against more than 100 asbestos suits, which were filed despite the fact that the company has not handled anything related to asbestos in more than 20 years. Even then, the company was an intermediary seller of a small amount of materials containing encapsulated asbestos, a non-airborne material that remains legal to this day. “This could take us out of business,” lamented owner Mike Carter. “It’s just sad because I’ve got a group of people here that work with me. And it’s their livelihoods on the line.”
Just like a sickly patient who has ignored his/her doctor’s dietary and fitness recommendations for years, some states have neglected their ailing lawsuit climates for far too long – and with severe consequences.
One obvious example is California, whose abysmal #46 Lawsuit Climate ranking is not surprising given the fact that state courts remain a haven for class action lawsuits. Both Los Angeles and San Francisco were cited by survey respondents as among the top four most unfair and unreasonable litigation environments in the country. In addition, state laws on the books have been known to encourage professional plaintiffs and their lawyers to bring lawsuits against businesses for technical violations of disabled access laws – such as a bathroom mirror being two inches too high – and receiving up to $4,000 plus attorneys’ fees per violation.
As California’s elected leaders consider actions to address one of the highest unemployment rates in the U.S. at 12.6 percent, they cannot ignore the poor impression that their pro-lawsuit environment is giving to current and potential job creators.
On the other hand, some sensible elected officials are taking their lawsuit ailments head on. During the 2010 legislative session, Florida’s leaders enacted two measures which they hope will incrementally improve its current #42 Lawsuit Climate ranking.
One new Florida law sheds light onto the sometimes murky relationship between state attorneys general and the plaintiffs’ law firms they hire on a contingency fee basis to bring lawsuits on the state’s behalf. Another significant measure reformed the state’s flawed slip-and-fall statute, which previously stacked the deck against business owners and their insurers – so much so that they felt compelled to settle every slip-and-fall claim, regardless of merit.
Some states, like Texas – which has moved up 10 spots since the survey began to #36 this year – have enacted comprehensive tort reforms and have seen their Lawsuit Climate rankings gradually improve. These states are on the road to recovery, but just like the long-term health of a patient, constant vigilance is required to prevent reforms from being undercut by those who wish to turn local businesses into cash machines.
The message to state officials is clear: your check-up is complete, and if your lawsuit temperature is high, then it is time to consider whether your state’s economic wellbeing will benefit from more jobs or from more lawsuits. Job growth in this tough environment will depend on many positive factors; hampering businesses with more lawsuits is not one of them.
A new study documents how plaintiffs’ attorneys and advocates are working with foreign plaintiffs and employing a common set of aggressive, out-of-court tactics that approach, straddle and sometimes cross ethical lines to gain litigation advantages against transnational companies. The first-of-its-kind study, released by the U.S. Chamber Institute for Legal Reform (ILR), also shows a dramatic increase in the number of global tort claims or transnational tort cases filed in the U.S. against American companies for alleged injuries that occur abroad.
“While the outcome of the Senate Judiciary Committee’s 13 – 6 vote today to approve the nomination of John “Jack” McConnell was not unexpected, we were encouraged by the vocal concerns raised by members of the committee about his fitness to serve a lifetime appointment to the federal bench. . ."
It was no coincidence that a lawsuit filed against Coca Cola this February in New York City's federal court coincided with the release of a documentary called "The Coca Cola Case." The documentary featured the plaintiffs lawyers in the case—concerning allegations of violence against workers at a Guatemala bottling facility—and five others like it in Turkey and Colombia.
It didn't seem to matter that federal appellate courts in New York and Atlanta had already dismissed all five of the earlier lawsuits, or that the alleged violence in Guatemala was perpetrated by individuals not affiliated with Coke. It also didn't seem to matter that a judge had sanctioned the plaintiffs lawyers for violating a confidentiality order involving settlement discussions. The documentary continues to play in North America, Europe, New Zealand and elsewhere, bringing additional publicity and pressure against the company.
Welcome to the Wild West of transnational tort cases, where what happens inside the courtroom is often overshadowed by what happens outside. Old-fashioned motions and pleadings are now accompanied by public-relations campaigns complete with documentaries, community organizing, political lobbying and efforts to drive down stock prices of companies and multinationals with a U.S. presence. It's all part of an effort to inflict maximum punishment on companies that choose to fight, trying to force them into lucrative settlements for alleged conduct overseas, and to pressure foreign courts in cases filed abroad.
Plaintiffs lawyers are filing scores of cases in U.S. and foreign courts against companies in connection with their foreign operations, particularly in emerging markets. The cases filed here often rely on the Alien Tort Statute, an 18th century artifact that allows non-U.S. nationals to file lawsuits in federal courts for certain claimed violations of international law.
One current lawsuit in Indianapolis against Bridgestone/Firestone involves claims of alleged forced labor on a rubber plantation in Liberia. Plaintiffs lawyers have pursued a vigorous campaign that includes video clips, graphic allegations of abuse by nongovernmental organizations (NGOs), lobbying for city resolutions, and calls for the National Football League to cease airing company commercials during games.
Lawsuits have been filed in California against Occidental Petroleum for violence by the Colombian military (allegedly directed by Occidental) near an oil pipeline, for the company's alleged complicity in human-rights violations by paramilitary units guarding a pipeline in Ecuador, and for alleged environmental harms in Peru. Accompanying the suits have been calls for boycotts, staged protests and in the Peru lawsuit a documentary narrated by actress Daryl Hannah.
Some of these transnational tort cases are tainted by fraud. Three separate U.S. courts have now found fraud and unfairness in proceedings against Dole, the Dow Chemical Company and others, arising from the alleged exposure of workers to pesticides on banana plantations in Nicaragua. This fraud includes fabricating injuries, submitting false evidence, conspiring with corrupt foreign laboratories to bolster false claims, suborning perjury, and helping create foreign litigation regimes so overtly hostile to U.S. companies that they violate the most basic notions of due process. Some of the cases are still pending.
A new study I have overseen on behalf of the U.S. Chamber of Commerce's Institute for Legal Reform, "Think Globally, Sue Locally," shows that these transnational lawsuits frequently involve tactics that fall into four categories. There is the media campaign, including full-length films and mini-documentaries, and heavy reliance on print, radio, television and the Internet, including social media websites and shared video sites. There are also investment-related activities, such as stock divestment drives, pressuring institutional investors, feeding harmful information to Wall Street analysts, and attending and participating in shareholder meetings.
There are also political efforts. These include advocating for and testifying at Congressional hearings (increasingly being held as a trial date approaches), soliciting politicians to advocate for the plaintiffs, lobbying for the passage of local city resolutions, and in overseas litigation using political pressure to influence susceptible foreign courts.
Finally, community organizing in the form of protests, boycotts, letter writing, on-campus efforts and other techniques are undertaken to bring pressure on companies.
There is evidence these tactics are effective. In one well-known Alien Tort case, Talisman Energy, listed on the New York Stock Exchange, spent millions of dollars in local development programs in Sudan, assisted in the efforts to bring peace to the civil war ravaged nation, and prevailed in a lawsuit in New York arising from its investment in an oil consortium there. (The case involved allegations the company was complicit in human-rights violations committed by the government.) Yet Talisman succumbed to the political and litigation pressure, selling its interest to an Indian state-controlled oil and gas company rather than continuing to operate.
Companies with U.S. ties considering even relatively small overseas investments must be conscious that a perceived failure to adhere to certain social expectations can lead to high-profile, multimillion dollar lawsuits, and with them an accompanying set of highly aggressive tactics aimed at decimating the company's image.
This article originally appeared in the Wall Street Journal.
"ILR congratulates the Georgia legislature and Governor Perdue for leading the nation with this first-of-its-kind transparency bill and encourages other states to follow suit. We are particularly grateful for the leadership of Senator John Wiles, who sponsored the bill in the Senate, as well as House sponsor Representative Earl Ehrhart for getting this bill over the finish line. . .
Since it was founded 12 years ago, the U.S. Chamber Institute for Legal Reform (ILR) has never opposed anyone nominated for a federal district court judgeship. That changed this month, when the chamber joined with other business organizations in recommending to the Senate Judiciary Committee that it reject the nomination of John J. “Jack” McConnell to serve a lifetime appointment on the U.S. District Court for Rhode Island.
The decision to weigh in on Mr. McConnell’s nomination is not one that was made lightly and nor was it based on the fact that Mr. McConnell is a plaintiffs’ lawyer.
If that were the case, we would have been busy opposing other nominees.
Instead, we are opposing Mr. McConnell because he has demonstrated unsound legal judgment and has a history of strong personal anti-business bias. He is also among the lowest-rated of all current federal judicial nominees, and if confirmed, would have a clear conflict of interest because of his generous deferred-compensation deal. Further, his elevation to the bench will draw many enterprising plaintiffs lawyers to the Rhode Island federal court.
In the late 1990s, following their massive (and massively lucrative) victory over the tobacco industry, Mr. McConnell and his partners at the South Carolina law firm Motley Rice looked for their next windfall, and concocted a novel concept to use an 800-year-old common-law theory known as public nuisance to sue national paint companies. The Providence Journal editorial board has called their theory a “ludicrous interpretation” of public-nuisance law and a “preposterous scheme to raid the coffers of paint companies.” Mr. McConnell himself initially referred to the concept as “a whacky idea” first thought up by one of his law partners.
But he soon changed his mind. In 1999, Mr. McConnell — then treasurer of the Rhode Island Democratic Party, the second biggest contributor to the campaign of then-state Atty. Gen. Sheldon Whitehouse — persuaded Mr. Whitehouse to hire Motley Rice to file their “public-nuisance” theory lawsuit against the paint companies on behalf of the state. Mr. McConnell and Mr. Whitehouse agreed to guarantee Motley Rice a nearly 17 percent share of the billion-dollar-plus award they hoped to recover — this in addition to the state paying for their litigation expenses.
The first trial ended in a hung jury. A second trial ended in a verdict for Mr. McConnell and the state, which was unanimously overturned two years later by the Rhode Island Supreme Court, which said that the case should never have gone to trial in the first place because the lawsuit was not based on fact or law.
In the meantime, Mr. McConnell and his partners were shopping public-nuisance lawsuits to state and local governments across America, hoping for huge paydays. But these cases were uniformly rejected, including by the highest courts of New Jersey, Missouri and Illinois. Some observers saw this as litigation run amok.
Following the Rhode Island Supreme Court’s repudiation of his misguided theories under the public-nuisance doctrine, Mr. McConnell attacked the court’s unanimous decision. But instead of basing his argument on the law, Mr. McConnell took a different tack, stating that the Rhode Island justices “got it . . . terribly wrong” by letting “wrongdoers off the hook.” This statement is troubling because it casts light on an activist judicial philosophy that appears more outcome-driven than based on interpreting and applying the law.
Mr. McConnell’s ability to render fair and impartial rulings from the bench are further impaired by the $2.5 million-to-$3.1 million-a-year payout he stands to receive over the next 15 years from an organization tied to his current employer, the Motley Rice firm. This amount stems from his share of attorneys’ fees from the massive tobacco settlement and possibly other lawsuit settlements.
At 51, Mr. McConnell would be a federal judge for quite a while receiving these payouts. We can think of no greater conflict of interest than to have him sitting in judgment on cases brought by some of the very plaintiffs’ firms that he partnered with to give him this multimillion-dollar windfall. To make matters worse, Mr. McConnell in his responses to the Senate questionnaire said that he, if confirmed, would “possibly” even entertain lawsuits brought by his current law firm.
Mr. McConnell has never been a judge. In their review of his qualifications, the American Bar Association’s 15-member judicial-rating committee gave him a mediocre or “substantial majority qualified, minority unqualified” rating — making him at the time one of only four of the Obama administration’s 69 judicial nominees to receive such a poor rating. For a practicing lawyer with 25 years of experience to obtain such a low rating speaks poorly of his legal abilities and likely means that he generated negative comments from judges whom he appeared and/or from lawyers who know him.
One thing that Mr. McConnell has excelled at far above his nominated peers is political giving. Since 1993, according to Federal Election Commission records, the 68 other individuals nominated by President Obama to the federal bench have donated an average of $3,371 to federal political candidates. Jack McConnell has given $253,660.
To be sure, political giving does not and should not disqualify someone from being confirmed to the federal bench. Neither does lack of prior judicial experience. But looking at this nominee’s entire career and qualifications — his lack of any judicial experience, a lackluster rating from the ABA, a history of advancing legal theories that belie any common understanding of the law, his public statements indicating a clear and consistent bias against business, his outsized political contributions that go way beyond those of any of his peers, and the clear conflict of interest regarding his future payments from work done with plaintiffs’ lawyers coming before his court — we believe it is the proper and responsible position to question whether Mr. McConnell is the best person to be nominated for a lifetime appointment to the federal bench.
Mr. McConnell should be rejected. His elevation to a lifetime appointment in Rhode Island federal court will inevitably attract a generation of enterprising personal-injury lawyers to flock to Mr. McConnell’s courtroom.
Those who will determine this question should ask themselves: If a lifelong defense lawyer were similarly nominated with all the questions Mr. McConnell brings to the table, would the plaintiffs’ lawyers be right to question his or her ability to serve on the federal bench? We think so.
“The United States Senate Judiciary Committee should reject the nomination of John J. ‘Jack’ McConnell for a judgeship on the U.S. District Court in Rhode Island.
“In addition to earning a lackluster rating from the American Bar Association, Mr. McConnell has defined his plaintiffs’ lawyer career by suing employers based on controversial legal theories. For example, he has spent a large part of the past decade advancing a misguided interpretation of the public nuisance theory in lead paint litigation, which was rejected by four state supreme courts, including the unanimous rejection by the Rhode Island Supreme Court..."
In addition, a multi-industry letter opposing the nomination was sent to the U.S. Senate Judiciary Committee.
Specter's Stoneridge Amendment helps Plaintiffs' Lawyers at the Expense of the Economy and Small Investors
Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform (ILR), made the following statement in response to Senator Specter’s introduction of an amendment addressing the issues in the Stoneridge v Scientific Atlanta Supreme Court case:
Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform (ILR), made the following statement in response to Senator Specter’s introduction of an amendment addressing the issues in the Stoneridge v Scientific Atlanta Supreme Court case:
“Senator Specter’s amendment, which would overturn the Supreme Court precedent in the Stoneridge case, will greatly expand an already broken securities class action litigation system whose primary beneficiaries are a handful of plaintiffs’ lawyers making huge sums at the expense of millions of small investors. Allowing more private securities class action lawsuits in every corner of our economy will only slow our financial recovery and impede the creation of much needed new jobs.”
Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform (ILR), made the following statement in response to the signing today of Florida’s Transparency in Private Attorney Contracting Act (TPAC):
“With the signing of the TPAC legislation today, the Sunshine State becomes a model to the nation. This law will shine a much-needed light on the process that Florida attorneys general must follow when they hire private plaintiffs’ law firms under a contingency fee arrangement to sue on behalf of the state...."