When Americans think of their justice system, they might envision the heroic small town lawyer, Atticus Finch, in To Kill a Mockingbird. Or Perry Mason. Or the countless other movies, TV series and high school civics textbooks that depict the U.S. justice system as a pillar of American society.
Unfortunately, this glorified image is at odds with today’s reality. In too many areas, the U.S. justice system is becoming less a means for delivering justice and more a profit center for outside parties – less Atticus Finch and more Gordon Gekko.
How so? Let’s start with class actions. In an increasing number of cases, lawyers seem to be getting better deals than their clients. For instance, in one proposed settlement with a major internet company, the plaintiffs’ lawyers were awarded $3 million and two non-profit foundations received $6 million. And the 3.6 million class members? They didn’t get a single penny!
Or look at third-party litigation financing (TPLF). This is the practice by which hedge funds and other investment firms finance litigation. In many cases, it turns the justice system on its head by putting lenders, not litigants, in charge of litigation. One only has to look at the role of the funders in the corrupt litigation against Chevron in Ecuador to see the problems posed by this practice.
And then there’s lawyer advertising. I’m sure you’ve seen the endless TV ads for trial lawyers (like this one). It’s now a big business: according to the research firm Kantar Media, total spending on lawyer TV ads is expected to reach more than one billion dollars in 2012, an all-time record. Lawyers have also become adept at advertising for clients online, often under blatantly misleading premises.
In the past, plaintiffs who suffered a wrong would seek a lawyer. But increasingly, it’s the other way around: lawyers are seeking plaintiffs and convincing them they may have suffered a wrong. At a time when small businesses are struggling under the weight of lawsuit abuse, is this really the direction we want to go?
These examples show a justice system that is drifting away from its core principles and into dangerous new areas. By undermining justice and the rule of law, the practices I’ve described erode the principles and values we cherish as Americans. Going forward, we must move the justice system away from the values of Gordon Gekko and back towards those of Atticus Finch.
Trial lawyers seeking to enforce an ill-gotten $18 billion foreign judgment against Chevron today might feel one step closer to carrying out their plan to enforce the fraudulent judgment here and abroad, after the U.S. Supreme Court on Tuesday left in place a narrow, procedural ruling from a lower court. But the trial lawyers shouldn’t start counting their dólares just yet – those who respect the rule of law still have a number of arrows in the quiver to challenge one of the most blatant examples of “tort tourism,” ever.
As a quick refresher, here’s how Chamber CEO and President Tom Donohue recently explained this case to Investors Business Daily:
In 2003, Chevron Corporation was sued in Ecuador for environmental damage allegedly caused by Texaco's oil operations a decade earlier, even though Texaco — which Chevron acquired in 2001 — had ceased operations in Ecuador in 1992 and had settled any outstanding claims for environmental cleanup with the Ecuadorian government in 1994.
Nevertheless, in February 2011, an Ecuadorian judge ordered Chevron to pay $8.6 billion in damages. Incredibly, the judge increased that amount to $18.6 billion because the company refused to publicly apologize within 15 days of the judgment. It is the largest award ever by a foreign court against an American company.
Chevron has no assets in Ecuador, so the plaintiffs' lawyers engaged in some tort tourism. They devised a plan to collect the judgment wherever Chevron did business.
First stop — the United States. Chevron, with ample evidence that the Ecuadorian judgment had clearly been procured by fraud, won an injunction from a federal court in New York that would have, among other things, prevented collection of judgment in the United States. That injunction was overturned by a higher court [the U.S. Court of Appeals for the Second Circuit].
The Second Circuit’s decision basically required Chevron to wait to raise its arguments against enforcement of the ill-gotten $18 billion judgment until after the plaintiffs affirmatively attempt to enforce it. Last June, the Chamber’s litigation arm, the National Chamber Litigation Center, asked the U.S. Supreme Court to overturn the Second Circuit’s ruling, but yesterday, the U.S. Supreme Court “denied certiorari,” or declined to review the case.
There’s no doubt that the plaintiffs will move forward, full-steam, with their efforts to carry out a plan (which they have dubbed “Invictus”) to attempt to enforce the Ecuadorian judgment in foreign courts, and once they do, Chevron will have an opportunity to challenge
Nonetheless, this latest chapter in the soap-opera-like-lawsuit once again underscores the need for meaningful and timely relief for Chevron and other companies who are the victims of “tort tourism.” Tort tourism is a relatively recent trial lawyer strategy that involves filing lawsuits abroad against U.S. companies in countries with very little respect for the rule of law. The trial lawyers then hop from global jurisdiction to global jurisdiction attempting to enforce the foreign judgments. When I’m a tourist, I generally bring home t-shirts and mugs as souvenirs – trial lawyers bring home multi-billion-dollar judgments.
What can we do about this? The solution will require an effort on all fronts to fight fraud: the courts, Congress, you name it. The business community must continue to support efforts in the courts to prevent enforcements of fraudulent judgments. An important next step in the fight against tort tourism, such as the Ecuador case, should be federal legislation to eliminate the patchwork of inconsistent , permissive and conflicting state laws that currently govern recognition of foreign judgments. We need a single federal law that is clear, uniform, and modern — one that recognizes foreign judgments only when arrived at in a fair, reasonable and legal manner.
Tort tourism comes with tremendous costs – and not just those born by defendant companies and their shareholders. A fraudulently obtained $18 billion judgment in the pockets of trial lawyers means $18 billion that can’t be spent on adding value to the company, creating and maintain jobs, and other worthwhile investments. Another troubling cost of tort tourism is that it will only serve to further erode respect for the rule of law, a fundamental cornerstone of an effective and respected legal system – which is absolutely essential for companies around the globe to be able to conduct business.
Tuesday’s Supreme Court decision is another eye-opener to awaken all of us to the threats posed by tort tourism.
A trio of cases on the Supreme Court schedule could have a far-reaching effect on class action law, explains Daniel Fisher in Forbes. If decided in the defendants’ favor, the cases (Comcast v. Behrend, The Standard Fire Insurance vs. Knowles, and Amgen vs. Conn. Retirement Plans) could “lay waste to the class-action bar” writes Fisher, but he notes that the court decided two of three class action cases last year in the plaintiffs' favor.
The closely watched case will decide whether corporations can be sued under the Alien Tort Statute for alleged violation that happened overseas. “Plenty of human-rights violations around the world deserve attention and remedy,” says a Wall Street Journal editorial. “But American courts are not the right place to seek redress.”
The Wall Street Journal reports that an effort by Philadelphia courts to “take business away from other courts” has backfired, flooding the already busy system with out-of-state asbestos and pharmaceutical claims. Citing ILR’s lawsuit climate survey, the story points to Philadelphia being named the fifth worst jurisdiction in the nation for legal fairness, along with rules that allow for forum shopping, as evidence of the problem in Philadelphia’s courts.
The problem is not going unnoticed. For a decade now, my organization, the U.S. Chamber Institute for Legal Reform, has been measuring how businesses view the litigation climates in the fifty states. In the latest survey, conducted by Harris Interactive, a leading global polling firm, Pennsylvania is ranked 40th out of 50, a six-place drop from 2010 and a record low for the Commonwealth. And most of the blame for this decline can be laid at the doorstep of Philadelphia’s courts, which are ranked as the fifth worst in the entire country.
The biggest problems in the Philadelphia court relate to lawsuits brought by out-of-state plaintiffs. It’s a general principle of the civil justice system that cases should be tried in the jurisdiction where the injury occurred or where the plaintiff or defendant resides. Yet in today’s Philadelphia courts, lawsuits are routinely filed by plaintiffs who have little or no connection to the city against defendants with only a tangential presence.
In fact, a few years ago, some Philadelphia judges publicly encouraged out-of-state plaintiffs to file in Philadelphia. As a result, in 2011, nearly half of all asbestos cases and more than 80% of pharmaceutical cases filed in Philadelphia were from out-of-state plaintiffs.
The contrast could not be more dramatic from the courts just a short drive away in Delaware. For the ninth straight time, Delaware’s lawsuit climate was ranked as the nation’s best in the Harris survey. The state’s courts received high marks in many areas, including overall fairness and enforcing venue requirements.
At the opposite end of the spectrum is another state bordering Pennsylvania, West Virginia. That state, ranked dead last in our past four surveys, has been plagued by a legal system that features massive verdicts and no meaningful appellate review for civil cases.
So Pennsylvania has the unique distinction of bordering both the highest and lowest ranked states in the survey. Unfortunately, because of the problems in the Philadelphia court, the Commonwealth’s legal climate has more similarities to last-ranked West Virginia than top-ranked Delaware.
A bad lawsuit environment has real costs for states trying to grow their economies and create jobs. Seventy percent of those questioned in this year’s survey said their companies look at a state’s legal environment as one of the factors when deciding where to locate or expand their business, the highest percentage in five years.
Luckily, there are many ways for Pennsylvania to improve its legal climate. Already, the new leadership of the Philadelphia court has taken initial steps to limit out-of-state cases, though much more needs to be done. In addition, the Pennsylvania legislature is considering a variety of legal reforms that could lead to a fairer legal system.
A better legal environment could produce a real dividend for Pennsylvania. According to a study conducted last year by NERA Economic Consulting, improving Pennsylvania’s legal climate to the level of Delaware could reduce tort costs by up to $1.7 billion per year, translating to as many as 90,000 new jobs.
Those benefits are real and substantial. But they will not be realized unless Pennsylvania takes action to improve its legal environment. Only then will the birthplace of the American republic have a justice system that would make the Founders proud.
The Charleston Daily Mail reports that the long-running legal saga over West Virginia Attorney General Darrell McGraw’s controversial use of settlement funds could be winding down. Since 2007, the AG’s office has been fighting with three state agencies and the U.S. Center for Medicare and Medicaid Services over the proper use of $10 million received from a pharmaceutical company. The agencies argue they should be reimbursed for inappropriately prescribed medicines, but the AG used the money to build a pharmacy school and to fund other community programs.
A federal judge has lowered the fees for the lawyers that sued Motorola for not including warning labels of potential hearing loss on Bluetooth headsets, cutting it to $283,000 from $800,000. The judge wrote that “no reasonable client” would pay that amount given that class received no money, only a promise to include stronger warning labels on packaging and a $100,000 cy pres payment in charitable contributions, reports the National Law Journal.
Innovative plaintiffs’ lawyers are looking to win big paydays in foreign courts, warns U.S. Chamber of Commerce president and CEO Tom Donhoue in the Investor’s Business Daily. “Tort tourism” – filing lawsuits overseas in the hopes of collecting in American courts – has reached its apex in a case against Chevron, with lawyers looking to enforce an $18 billion Ecuadorian verdict that has been dogged by allegations of fraud. Suits like this creative massive uncertainty and discourage investment and hiring, not to mention generating huge legal bills, Donohue adds.
A proposed class action settlement that would pay $16.5 million to plaintiffs’ attorneys while offering coupons to class members has run into opposition, reports the National Law Journal. “There is very much a disproportionate aspect of what the attorneys are getting in this case versus the relief experienced by the class member,” ILR senior vice president Matthew Webb said of the suit, which alleges Ticketmaster inflated fees for processing ticket orders.