Last week, law firm Milberg Weiss Bershad & Schulman and two of its senior partners were indicted by a federal grand jury for paying illegal kickbacks to plaintiffs. Milberg Weiss, which reportedly has won more than $45 billion for its clients, strenuously denied any wrongdoing, but analysts quoted in news reports said the indictment is tough news for America's most famous and successful plaintiffs' firm.

Resident Scholar Kevin A. Hassett

While one should withhold judgment until all the facts are known, the indictment is part of a broader recent pattern of legal difficulties for aggressive plaintiffs. In a notable previous case, U.S. District Judge Janis Jack in Corpus Christi, Texas, studied the explosion of silicosis claims before her court and uncovered a highly entrepreneurial plaintiff-generating machine that boggled the imagination.

Commenting on the claims of injury before her court, she said "it is apparent that truth and justice had very little to do with these diagnoses," which were "manufactured on an assembly line...manufactured for money. There is simply no (other) rational explanation."

These developments are reverberating through Washington, and there is little question that once-high-flying trial lawyers are on the ropes. This has political salience, because trial lawyers have been among the most reliable and important Democratic financial supporters of the past decade.

More often than not, their money had brought gridlock to efforts to achieve significant legal reforms. The economic evidence supporting such reforms has been quite convincing for some time, but federal actions have fallen quite short.

Lack of Will

Everyone knows it's harmful if a firm can be sued just because its stock drops, or because a customer blames it for his obesity. But not enough politicians have been willing to do anything about it. The main reason, probably, is that reforms that inconvenience the trial bar have been blocked by Democrats whenever possible.

The costs to Americans of our excessively busy legal system are enormous. A new study by the Pacific Research Institute in San Francisco, for example, found that "excessive" direct tort costs totaled $198 billion in 2004 alone. That amounts to $2,654 a year for a typical family of four, the study reported.

The indirect costs of runaway torts are probably a lot bigger than that. A recent study by economists Robert W. Hahn and Todd G. Buchholz found that legal climate was a key factor affecting the economic performance of American states. States with legal systems that are too friendly to the trial bar have a hard time attracting new businesses, and that feeds through to economic growth.

Growth Gap

Between 1995 and 1999, the 10 states with the best legal systems, based on a study conducted by Rochester, New York-based Harris Interactive Inc., enjoyed growth rates four percentage points higher than the 10 states with legal systems that were viewed as the least fair.

Evidence such as this has certainly bolstered state-level reforms, but there is little sign that meaningful federal action is on the agenda.

At least until now. While typical voters probably aren't especially fond of trial lawyers, Democratic politicians presumably chose to accept high-profile affiliation with them because the money they got in return was so good. They also may have done so because trial lawyers can at times serve a very important function in our society.

2004 Change

Things began to change after the last election. My colleague Michael Greve studied the 2004 voting and found that of the 13 judicial races viewed as high priorities by the business community in the battle against trial lawyers, the pro-business candidate was victorious in 12.

In addition to these gains, business groups won all the attorney general races they targeted and voters approved tort reforms in several states, including a significant measure in California that imposed major limitations on private lawsuits.

Now the publicity is getting worse, and politically, trial lawyers are becoming anathema. Indeed, there is a clear historical analogy. Back in 2002--and long before anyone had been convicted of anything--Enron, Arthur Andersen and WorldCom became household names, and Congress passed sweeping, previously unthinkable legislation (the Sarbanes-Oxley bill) almost unanimously.

It's a political reality that policy changes in a time of crisis. This time around, there is a lot of good that can be accomplished. Policy wonks have been studying tort reform for years, and have a number of clever ideas fully sketched.

They have had success at the state level. States such as Texas, for example, have dramatically changed their legal climates in recent years, and posted outsized economic growth in response. Now would be a good time to adopt similar reforms for the country as a whole.

Kevin A. Hassett is a resident scholar and director of economic policy studies at AEI.