Can States Reform Torts?

October 5, 2004

Unedited transcript prepared from a tape recording

1:45 p.m.	Registration
2:00	Presenters:	Andrew R. Stephens, U.S. Chamber Institute for Legal Reform
		Hugh Rice Kelly, general counsel, Texans for Lawsuit Reform
		Linda Woggon, Ohio Chamber of Commerce
		Michelle White, University of California–San Diego and NBER
	Moderator:	Michael S. Greve, AEI
4:00	Adjournment

Proceedings:
MR. GREVE:  This event on “Tort Reform in the States” is a joint production of the AEI Federalism Project and the AEI Liability Project.  That joint production was easy to accomplish because I happen to head both of those projects.  At AEI we reduce our transaction costs whenever we can.

Before I introduce our panel, I wanted to say a few words on the reasons for, the joint nature of this event.  It is common to think of the tort crisis or the liability crisis as having to do with––well, tort doctrine, substantive tort doctrines.  Everyone can easily rattle off the things over the past 100 years that have happened in tort law: the creation of enterprise liability, which George Priest has described so eloquently; the evisceration of contract or the substitution of tort for contracts; the evisceration of traditional common law defenses, such as assumption of risk; etcetera, etcetera.  All of that, undoubtedly, has played a role.  But there is also a strong federalism aspect to the tort crisis or the liability crisis.  In fact, one can probably argue that the crisis has as much to do with the crisis of federalism as it has to do with the crisis of torts itself.  The basic problem in a federal system is this:  You're going to have a lot of multi-state transactions.  Legal disputes over these multi-state transactions invite the local courts or the local bar to transfer wealth to in-state plaintiffs from out-of-state parties.  The greater the freedom of lawyers to choose their plaintiff, and the greater the plaintiff's freedom to choose his forum and its law, the greater the tendency towards wealth transfers from out-of-state producers to in-state plaintiffs will be.

The fact is that federalism was once upon a time set up to preclude those kind of stratagems.  Prior to the New Deal, for example, the disputes that are now commonly adjudicated under one state law or another, were frequently matters of federal common law.  The purpose of federal common law was precisely to avoid the in-state bias that would otherwise afflict the out-of-state defendant.

You also had constitutional protections for out-of-state defendants.  I thought I'd give you one intriguing little example.  Once upon a time the proud State of Arkansas had a venue statute.  (A venue statute, governs where you can sue.)  What the venue statute said was that Arkansas corporations could be sued only in the county that was their principal place of business.  In contrast, out-of-state corporations, non-Arkansas corporations, could be sued in any state court, in any county.  In other words, domestic corporations got a forum where they could be reasonably sure to get a balanced jury because they acted as employers and so forth.  In contrast, the out-of-state producers got routinely home cooked.  In a case called Power Manufacturing Company v. Saunders --not that anybody has ever heard of this case, I just happened to stumble upon it––the Supreme Court invalidated that statute and said it violated the constitutional Equal Protection Clause.  That was in 1927.  That was a 7 to 2 decision with Justice Holmes and Justice Brandeis dissenting.

A leading member of the Arkansas corporate bar wrote a letter to the author of the decision as follows:  "This decision was one of the greatest blessings that ever came to our state.  Petty lawyers interested in damage suits against foreign corporations have kept this infamous statute upon the books and have harassed such corporations by bringing suits in the most remote counties and often in counties where the cards have been stacked against the defendant.  And nothing has done so much to keep foreign capital out of Arkansas."  Again, this was in 1927.

The reason why we still have this letter is that the judicial author, Justice Van Devanter, liked it so much that he sent a copy of it to Chief Justice Taft, in whose archives we found it.  The point is that these guys had it all figured out––again, in 1927.  They knew exactly what tort law could become.  And they had it figured out a half century before the liability crisis hit with full force. 

Unfortunately, the other side, namely Justice Holmes and Brandeis, had also figured it out.  Under their influence and leadership, all of the constitutional and subconstitutional protections that federalism once offered went by the boards.  The leading decision, of course, is Erie Railroad.  A few years later came the decision Klaxon v. Stentor Manufacturing.  The decision in Saunders was finally overruled in 1976 in a case that came from none other than the State of Texas. 

Once all the constitutional and subconstitutional doctrines that protect out-of-state defendants against in-state bias fall by the wayside, federalism becomes a kind of trial lawyers bill of rights and tort law becomes a race to the bottom.  At that point, you have to ask yourself: is there anything to stop that at all?

The impulse for federal tort reform has always been, I think, that nothing can be reasonably done at the state level because the race to the bottom, this tendency to transfer wealth from out-of-state to in-state parties is just too powerful to be overcome by anything but a federal preemption or categorical prohibition.

Now, it turns out that, miraculously, some states, including some of the notorious hellhole states, have in fact managed to enact meaningful tort reforms.  We're here to discuss how they have done that, why they have managed to do that, and what the potential of those kinds of reforms is.  To that effect, we have three battle-scarred veterans of the tort wars in the various states, whom I will introduce in the order in which they will speak.

Hugh Kelly is the co-founder of Texans for Lawsuit Reform and serves as its general counsel.  He will talk about the really interesting and meaningful reforms Texas enacted in 2003.

Linda Woggon is the Vice-President for Governmental Affairs for the Ohio Chamber of Commerce, which––Ohio, not the Chamber of Commerce––has recently enacted a rather striking asbestos reform.  Andy Stephens is the Vice-President for Policy and Research at the U.S. Chamber Institute for Legal Reform.  He has seen a lot of these battles up front and up close.  And finally we will hear from Michelle White, who is an economist at the University of California at San Diego.  Currently at the NBER and Harvard Law School, Michelle has done terrific economic work on various aspects of mass tort litigation, in particular asbestos litigation.  Each participant will talk for about 15 to 20 minutes.  And then we'll open it for discussion.

MR. KELLY:  Thank you.  I have a paper that you should have in your packet.  The Wall Street Journal called our reform, 10 gallon tort reform.  We passed a huge bill in the year 2003.  A full summary is presented as an appendix here that covers what we got passed.  But this has gotten a lot of attention.  Steve Forbes, who was writing here, predicts that pillaging trial lawyers will no longer rule the State of Texas.  They have been ruling the courthouses.  And we've passed enough laws here to really put a crimp in their action.  We may be getting back actual justice in our courts in the next 10 years instead of what we've been having.

In any event, I thought I'd hit a few of the high points.  Then, I’ll talk to you a little about the approach we used, why it was successful, and why others have not been successful. 

Major reforms start out with class action.  In Texas we've had a very conservative supreme court now for over 15 years, certainly for 10 years and fairly conservative for 15.  They've gone a long way toward reforming class actions in Texas, but not all the way because they had limited authority to review class action certifications.  As most of you know, once a class action is certified, it's normally right for settlement.  Therefore, you've got to do something about the certification.  So one of our reforms was to expand the jurisdiction of the Texas Supreme Court to include unlimited authority to review decisions concerning certification of classes. 

While we were at it, we also abolished any rules about the award of attorneys fees other than award under hourly rates.  That is, the only way a class action lawyer can get paid now in Texas is through a so-called lodestar method.  The contingency fees are no longer permitted.  And just to sort of put, maybe put a wrinkle of fun in it, we provided that if it's a coupon settlement, the lawyer gets paid in coupons.  So that's helped cut off some of the tackier kinds of class actions.

The next item we have is we adopted a type of loser pay.  Loser pay is sort of the holy grail of most tort reformers, but every time we've tried, we've run into almost the insuperable barrier that the plaintiff never has any money.  So it ends up being defendant pays.  And so loser pay is something that none of us really get done.  We've tried to thread the needle a little bit.  We have a loser pay statute that's tied strictly to who turned down a good settlement.  And it can only be invoked by the defendant.  If the defendant opens the gate then both sides can play and possibly recover their litigation expense.  But leaving it within the control of the defendant was important because the defendant otherwise would be simply paying in every case.

We adopted a comprehensive system of proportionate liability.  The game of deep pockets is played by use of the joint and several liability rule.  That's how the corporate defendant who made 1 percent of the products, but is the last defendant standing has to pay the remaining 90 percent that hasn't been covered by settlements and other causes.  Now every single party, whether they are before the court or not or whether they could be brought before the court or not, such as a bankrupt party, a party actively in bankruptcy, a party who cannot be found, a party who cannot even be named because, for example, someone who fled, a criminal, can be submitted to the jury.  And then the jury will decide what percentage of fault is allocated to each participant.  So, for example, in future asbestos cases, instead of some tiny asbestos product manufacturer bearing 100 percent of the loss in the case, they'll end up bearing 1 or 2 percent because the jury would be required to hear about the allocation--hear about the sins of Johns Manville and all the other companies who have been long since dead and gone through the bankruptcy courts and assign percentages to them.  Unfortunately, that does not have retrospective effect and so our asbestos situation in Texas is not touched by it yet.

We have a major extension of the rules limiting where lawsuits can be filed in Texas addressing the venue games.  We had judges in Texas who would simply find things that were not true, and because of a quirk in our jurisdiction the supreme court could not review those cases.  We changed that.  We have now made it such that there is basically no trick way to get venue in remote killing zone counties in Texas.  Unfortunately, if your party sells a product in some place along the Mexican border and they're heard along the Mexican border, you're going to go to trial there because the venue is proper.  But the artificial devices to get into these places, such as Beaumont, Texas, another terrible place, are basically stopped through this law.

We have comprehensively reworked the entire products liability law from top to bottom to include a governmental standards bill.  If someone sues an airline because of a fire problem in a crash, they're going to have to overcome the fact that the Federal Government agency approved the fire standards.  And if it's shown that they conformed, the case is dismissed.  With regard to drugs if it's an on label use, and the FDA has, in fact, approved the use, that's a complete defense and the case is dismissed.  That is how it works.  And it is as rigorous as it goes.

Unfortunately, it does not have the same effect in off label uses, because you couldn't really come up with a way to deal with that.  So many of the more dangerous drug problems are off label uses.  But in any event, if you're an FDA approved label, you can basically put your defense in the bank.  You're going to win your case.

We adopt a completely new and long comprehensive health care liability law that includes an absolute limit of $250,000 for pain and suffering and similar non-economic damages for the plaintiff.  Now, that can actually be increased to $750,000, because it's $250,000 for the doctors, 250 for the hospitals and 250 for other institutions or defendants who might be involved.  But this follows a trend and at least 20 states have passed absolute ceilings on non-economic damages.  And we've added that to our mix.

Another item which became very handy to Wyeth Pharmaceuticals not long ago was that we set an appeal bond requirement stating that an appeal bond cannot exceed $25 million or the net worth of the company.  And so you get $25 million, unlike this tobacco case against, I think, Altria in Illinois.  Even the largest tobacco company in the world couldn't appeal the case because they had a $10 billion bond.  That can't happen in Texas.  It cannot be higher than $25 million.

So those are some of the highlights.  We went down the line for everything we could think of.  We had a very successful legislative session in 1995 where we wiped out, did our first stage of improvements on the venue laws.  We also eliminated a state consumer protection law that had turned into a monster and pared it back into a small claims procedure, which is where it started.  But beyond that point, we've addressed every major tort issue in Texas other than asbestos.  The asbestos thing is still for the coming year.  We have, on our plate, a lot of work that we're doing now working with legislators, working with defendants of all kinds and trying to get organized for a major push beginning after the first of January 2005 to try to solve the problem in Texas on asbestos.

We also have an ongoing problem with our judiciary.  I'm talking about our lower judiciary, our district courts.  We have not yet found a way to convince the Democratic party or the Republican party that we should stop electing our judges.  And you get a very poor quality of judge, frankly, across the board because of that.  A really good lawyer who is successful is going to face disincentives to become a judge in the first place, but if you also tell him that he's subject to being re-elected every four years, you lose most of them.  So you end up getting very young lawyers who want to make a name for themselves and go back into private practice.  Or worse yet, older lawyers for whom the pay of a judge is an increase in salary.  Neither one of these is very favorable for your prospects.  We are going to be working on that again.  But we are less optimistic we will be able to solve it now. 

Oklahoma solved its problems about elected judiciary about 25 or 30 years ago by the discovery of a bribery scam involving the entire Oklahoma Supreme Court.  They were able to turn that into a judicial reform in their state.  I'm afraid that in Texas it may take some kind of extreme scandal before we can somehow convince one of the two parties that they need to stop supporting the election of judges.  So those are the two things that we have coming that are important in the future.

Now, what did we do to get this done?  By just reading the tort press, you know that some of the most powerful plaintiffs’ lawyers in America operate out of Texas.  There are a lot of rotten jurisdictions.  There are hell holes as they like to call them in Texas.  And how did we get all this legislation through?  Let me tell you, this is not stuff with nice captions but lots of loopholes.  This stuff is tough all the way down.  How did that happen?

Well, the answer is that, first of all, Texas is a conservative state.  And if you can harness the basic conservatism of the state with the elected officials, get the trial lawyer allies, most of whom are Democrats out of the way, then you set the stage for it.  But you still have to win your case in the legislature.  And you have to, above all, have all of those office holders understand that you have been there for them politically in a very important way and that you're going to be there after the session to help them be re-elected.  The result is that there is one way to really be effective.  And it's not by just having a nice smile and knowing a lot of telephone numbers.  You have to be out in the country, getting people elected.  You have to be out there stopping the defendants, the people who are helping the defense side of this being defeated by plaintiffs’ lawyers.

Plaintiffs’ lawyer lobby is very sophisticated, not just in Washington, but in the States.  They have all the money in the world.  They are closely allied with the powers that be in the courthouse.  They're intrinsically good politically.  If you're not a political player, if you're somebody who shows up at the legislature, but you don't have a political lever, you're going to get beaten because politicians everywhere respond fundamentally to the political truth.  How did they get elected?  Who is going to keep them getting elected? 

Texans for Lawsuit Reform, the group that I helped found in 1994, has in most of the years since that time, including '94, had the largest political action committee in the state.  That really is what you have to have.  You have to have somebody who is a single issue organization.  We don't have any other agenda items.  We are just on lawsuits.  Just like the plaintiffs’ lawyers.  They don't care about gun control.  They don't care about right to life.  They don't care about Iraq.  They care about lawsuits.  And they have more money than just about anyone.  So you have to have something that can counter that.  Now, that's ideally how you will do that.

Now, whether in other states you can muster that much power and focus it on just lawsuits would be up to each state.  But when you look at the sources of political support for this institute that we're before today, you see there are a lot of people out there who will support conservative causes who are civic-minded people that are philosophically aligned with litigation reform who will give money if they trust the organization.  But it's got to be the kind of organization they're used to dealing with.

The other approach that you see in dealing with this are the trade group alliances, business lobbies doing it as a sideline, things like that.  Our experience is that does not work.  We have a lot of groups that come and help in Austin.  And they help with lobbyists.  And they help with, you know, having cocktail parties.  And those are useful.  And they have good contacts.  But they can't get it done because they don't have the political muscle to really get somebody to answer the telephone and be afraid to welch on their commitment.  You've got to have somebody that's got a political handle on them.  And you don't get that from big corporations. 

Big corporations don't give money politically to elect candidates.  Big companies are all bound up with committees and different kinds of agendas.  Big companies have a list of legislative requirements that are as long as your arm.  I was the general counsel of a large electric utility for 20 years.  And tort reform was not at the top of our list.  Utility regulation was.  And then there was tax policy.  And then there's environmental policy.  And there's this.  And when you get down to tort reform, that is good government, folks.  Well, good government is about number 17 on that list.  You've got to have somebody to whom good government is the one and only point on the list.  So big companies they will give you all the moral support you want.  They'll give you a little bit of money but not much.  In Texas I guess the largest amount we ever got from big companies may have been in the range of a little under a million dollars for a year.

We got a lot more than that from people who created their own businesses, people that own ball clubs, people that give money to swift boat veterans, those kind of guys.  You've never heard of them.  They're home builders.  But they, you find out they have made, these people are just sitting on mountains of money.  And they'd like to do something with it.  But you've got to be ready.  You've got to identify them.  That is where the real money will come from to elect candidates and defeat candidates, not from General Motors and Chrysler and all the other folks that we like who are fine people whom we respect.  But they are not going to be able to carry the kind of things needed at the state level to pass tort reform laws.

Sometimes I wonder.  I mention it here. I call it the silence of the lambs.  Sometimes you see a great deal of passivity among the corporate community.  They're getting beat up day in and day out, but if somebody tries to make an alliance, they'll break off and make a separate deal.  When they get close to trial in a case, instead of taking it to trial they way Baycol did, for example––Bayer, had a huge victory in Texas about six months ago––they'll settle the case.  The corporate community is a little too focused on quarter-to-quarter thinking, a little too fearful of becoming controversial for its own good. 

So build your organization outside of corporate America.  Corporate America will help you, but they will not give you what you need to win campaigns.  They will not make you politically strong. 

So that's basically what we did in Texas and are still doing.  Our head, a man named Dick Weekley, is a fellow that has never taken any money out of the organization.  The chairman did not and I have not.  We're volunteers.  But beyond that, we've got a big professional staff.  And they get paid.  And we've got lobbyists, and we pay them a lot.  But above all, we've got to get in there and win elections.

I'll give you one example, and then I'll quit.  One of our key state senators retired suddenly.  And we had to face the fact that there was going to be replacement within three weeks, a special election in deep east Texas.  And there were two Republicans running and one very prestigious Democrat who was an asbestos lawyer.  So the Republican vote split, and we had an asbestos lawyer, a very good campaigner, with a good reputation and good standing in the community.  And we had three weeks to go.  There was no name recognition for the better of the two Republicans.  So we had to go from almost zero to winning that election in three weeks.  We raised a million dollars and spent a million dollars in one state senate election.  But because we're on a one vote margin in the Texas Senate, we had to do that.  Now, that is a lot of money for one, tiny, little area.

So when you're looking at the state level, you can't keep your mind focused on the national scene.  You've got to get right down to the courthouse level, state senate level, state representative level.  You've got to keep the phone calls going.  You've got to send the checks out.  You've got to follow-up.  They're spending their money back.  Give them technical assistance and that sort of thing.

So that's an example of how we kept the ability to have a one vote margin, we believe, in the Texas Senate through that one, one election.  But, again, that brings us back to the point that without political power, you're not going to change the tort laws.  And to my knowledge, our group in Texas is the only substantial single issue tort reform group at the state level in the country.   The other group I know that's got a lot of muscle that I have a lot of admiration for is the Institute for Legal Reform.  For their trouble they get criticized in Forbes and things like that.  They're doing it a different way, but they're doing it smart.  Anyway, that, so that's what I can tell you about Texas.  We're pretty optimistic. 

MR. GREVE:  Thank you very much, Hugh.

Linda, please?

MS. WOGGON:  As I was getting on the plane this morning in Columbus, Ohio, I started thinking about how it's probably the first time I've ever come to Washington, D.C. to get away from Presidential politics.  But we certainly are ground zero.  We're hoping that with another visit or two, we might be able to tax the candidates and solve our budget problems.

I'm going to talk a little bit about what we've done in Ohio.  I've provided for you in your packets a document that we put together that actually shows every step of the way what we've tried to pass, what we have passed, and the interplay between the legislature and the court in Ohio.  I think you'll probably find that in almost every state.  I know Hugh just talked a little bit about it.  I would imagine we're going to hear about it in Mississippi as well.  But clearly when you begin to talk about tort reform, there is a very strong interplay between the legislative and judicial branch in order to get it done.

We started working on tort reform in Ohio in a comprehensive bill back in 1987.  Although we didn't form a free standing organization, like the one in Texas, we did form the Ohio Alliance for Civil Justice, which is a trade group alliance, but it has a, a single purpose.  We do retain legal counsel, PR counsel, and grassroots counsel, but it is an effort that's undertaken by the major business trade associations in the state.

We passed the comprehensive bill in 1987 only to find it chipped away by the court shortly thereafter.  We started approaching the middle nineties, and there was nothing left of our bill.  At the same time the labor and trial bar had made a concerted effort to elect members of our Ohio Supreme Court who were liberal, who were against tort reform, and who were activist jurists.  So we debated whether we should try and make changes on our court.  In fact, we talked with some of the folks in Texas, because that's the approach that they had taken.  We also considered whether we should once again try and pass a comprehensive bill.

What had happened also in Ohio during the early nineties is that the Republicans had taken control of both the house and the senate, as well as every elected state-wide office.  So we had large Republican domination in our legislative and state governmental elected positions.  There was a lot of interest on the part of the speaker of the house, Jo Ann Davidson, who is a very strong pro-business Republican, to see a comprehensive tort reform bill done again.  So we did put together what is House Bill 350.  It capped non-economic damages, it capped punitive damages, had joint and several liability reforms, collateral source reforms, a statute of repose for products, and major changes to our products liability statute.  It was a very, very comprehensive bill.

Some of the things that worked for us in getting that bill through were having the strong support of leadership in both the house and the senate and the Governor.  Congressman Tiberi, who is now here in Washington, was actually the sponsor of that bill.  He was a member of leadership in the house in Ohio at that time.  We were able to get the bill heard in select committees.  So we were able to get, at least on those committees, some friends of the business community, some supporters of tort reform.  We also had a very strong grassroots component and did a lot of work with editorial boards. 

What we found in Ohio is that newspapers care a lot about tort reform.  And you can usually get strong editorial support.  We got the bill passed.  Unfortunately, it was thrown out again by the court.  And I'll talk about that in a minute.  But what our alliance did once the bill was through the legislature is immediately go into a court watch mode because we knew the bill would be challenged, and we knew we'd have a lot of work to do with the attorneys in the state in putting together a network where we could get information out to them as they faced legal challenges on the bill. 

That was somewhat effective.  However, when the challenge came, it came directly in the supreme court.  And at that point we had a supreme court that was four activists justices and three more conservative justices.  They brought an original action.  They sought extraordinary writs of mandamus and prohibition, and the court agreed to hear the case, which was absolutely something that I think surprised most people that were watching what was happening in Ohio across the country.  The court issued its opinion in August of 1999, written by Justice Alice Roby-Resnick, who still remains on the court at this point.  The court threw the bill out saying that it was a separation of powers doctrine violation.  It usurped judicial authority and violated the single subject provisions of our constitution. 

At that point we knew we couldn't ignore the court any longer.  If we were going to get tort reform of any kind done in the state, we had to get the business community involved in supreme court races.  The Ohio Chamber had begun about five years before to do an evaluation of the court very similar to a legislative voting record.  I believe we were the first organization in the country to do this, although more organizations are currently doing it.  Where we actually looked over a 10 year period at major business decisions made by the court and evaluated where the justices came down on those decisions.  And what we found was that we had four justices that under 20 percent of the time ruled for the business litigant in the cases.  What we told the press as we released these kind of numbers is, we don't expect a justice to rule for the business litigant a majority of the time, but somewhere around that 40 to 60 percent would indicate that you're probably looking at a justice who is looking at the case fairly and not from a personal or philosophical bias. When you had four of them that were under 20 percent of the time, there was clearly a bias on our court.

So we worked really hard to change the court.  We got involved in the year 2000 in trying to defeat Alice Roby-Resnick, who was the justice who drafted the opinion throwing out our tort reform bill.  Unfortunately, we were not able to do that, but I think we truly began to convince the business community that the time, effort, and money that they were spending in the legislative process was for naught if they did not have a court that was going to look at the challenge of these legislative efforts fairly.

In the year 2001 we, again, looked at what we wanted to do in the area of tort reform, and another factor that I think has played into all of our efforts in Ohio is that we are a state with term limits.  So where I agree with you that political power is really important, it becomes a lot more difficult to utilize it when you're having the kind of constant turnover that we're having in our legislature.  We also are finding that most of the races are being really fought in primaries rather than in general elections.  So when that occurs, you often have Republican legislators elected who are not necessarily concerned about or willing to go to bat for the business agenda.  They, more often than not, are particularly concerned about a social agenda. Finding a champion for something like tort reform or workers' comp reform or some of the other very important business issues becomes more difficult in this kind of a legislative environment.

We decided not to approach tort reform from a comprehensive standpoint in 2001 in conversations with the new speaker of the house, who was the new speaker because of term limits.  He wanted us to bring in a bill that would address the joint and several liability issue, which we did.  One of the rude awakenings also for us with term limits is we debated long and hard about bringing in a joint and several liability bill that would move to 100 percent proportionate liability and negotiate that from there or whether to bring in the portion of 350, which was 50 percent or less and you have proportional liability and hope that we could get exactly what the legislature had passed before. 

We went with the latter option.  And it was probably a tactical mistake because we had an almost brand new legislature because of term limits.  And they wanted to negotiate from where we had ended up when we negotiated in 350.  So that was a mistake, but we were ultimately able to get a very strong joint and several liability bill out of the legislature that essentially mirrored what the court had thrown out in House Bill 350.  And it has not been challenged to date.

In November of 2002 we were finally able to make a change on the court.  And we now have a court that, as we evaluated, is four/three the other way.  And that brought us to this general assembly which began in January of 2003 and ends in December of 2004.  We, once again, since we've made a change on the court, felt that we had a good chance of passing a more comprehensive tort reform bill.  We had it introduced in the senate.  The trial bar, while it was pretty much a hands-off player back in the early nineties when we passed House Bill 350, keeping to a strategy I think all along of challenging the bill in the court and not having to expend the resources in the legislature, had changed tactics.  We had changed the court.  They changed their tactics.  And they were now a bigger player in the legislature.  And despite the fact that it was a Republican legislature, they had put their money where they needed to put it, and have a lot of friends right now currently in both the house and the senate.

We had to go to the senate to get the bill introduced.  It is a comprehensive bill.  It looks a lot like 350, minus the joint and several liability provisions that we were able to get done separately.  It caps non-economic damages.  It caps punitive damages and has collateral source and a statute of repose reforms in it.

We also decided that one of the issues that we needed to address in Ohio was asbestos reform.  We didn't see it happening at the federal level.  In Ohio in Cuyahoga County alone we have 40,000 pending asbestos cases.  Most statistics would show that up to 80 percent of those are cases of people who are not actually sick or injured as a result of their exposure to asbestos.  The courts were completely clogged up.  And we needed to do something to remedy that.  So we included medical criteria reforms in the bill.  In other words, unless you could meet certain medical criteria, your case does not go forward as an asbestos plaintiff.  We also applied those provisions retroactively or to pending cases.  That was the only way that we were going to be able to get through the huge problem that we currently have in the courts.

That bill made it through the senate.  It also included some successor liability provisions to give some relief from liability to those companies who acquire a company who had asbestos exposure.  The house--interestingly enough, and I believe because they have quite a bit of support from trial attorneys---took the bill apart.  They reintroduced the asbestos provisions as another bill, and they gave it to a sponsor who was not very pro-asbestos reform.  So we've had a real problem.  And the remainder of the tort reforms then sat in this particular legislator's committee.  Again, he's not very pro-asbestos reform, and he's even less pro-tort reform, but he is a Republican legislator.

We were able to get the asbestos bill passed in the house.  I attribute most of that to the fact that we had a very strong champion in Representative Bill Sykes from Cincinnati.  He's a lawyer on the defense side.  I saw him give a presentation on the asbestos bill to the Civil Justice Reform Group a few months ago.  And the person sitting next to me, when he got done, said he's scary smart.  And he is.  He is extremely bright.  And he really went to bat.  It was wonderful being in the room that we were forced to be in with many of the plaintiffs’ attorneys that practice asbestos litigation, some of the Baron and Budd folks who came up from Texas to work against us on the bill.  And he went head-to-head with them and did a great job.  So we ended up with a really strong asbestos bill.

We were also able to get introduced, at the same time, a bill that's very similar in nature that sets medical criteria for bringing silica and mixed dust actions.  This is the next wave that we see coming in the mass tort area similar to asbestos.

Those bills passed the house.  When they went over to the senate, the successor liability provisions were removed from the asbestos bill.  But ultimately both the house and the senate passed those bills.  They were signed by the governor.  And then the trial bar threatened to bring a referendum on this November's ballot against the asbestos bill.  We have a referendum and initiative petitions in Ohio where the electorate can actually initiate a bill or can vote yea or nay on a bill that the legislature has passed.  It's very difficult, if you're supporting the bill, because you have the yes side in a referendum.  And so we weren't looking forward to that.  We weren't looking forward to the millions of dollars that we heard would be spent to try and get the bill revoked by the electorate.  Fortunately, they decided not to bring a referendum action.  Instead, they've challenged the bill in the Eighth District Court of Appeals up in Cuyahoga County.  The three judge panel ruled about a month and-a-half ago that they would not stay the effective date of the bill.  So the bill is in effect.  The asbestos judges in the Cuyahoga Court of Common Pleas have adopted a rule to invoke the medical criteria.  And many of the pending cases that have been brought on behalf of plaintiffs who are not in any way injured or sick currently as a result of their asbestos exposure are being administratively dismissed.  So we feel very optimistic that that bill may be upheld by the courts.  But we're back in the battle between the legislature and the court because we have a supreme court this November where four of our seven supreme court justices seats are being elected.  If we lose one of those, we could be back in a position where the asbestos bill is appealed to the supreme court and it gets thrown out again.  So it's a constant battle. 

Our comprehensive tort reform bill is still pending in the house.  We expect that they'll vote it out in our lame duck session in November.  We think we'll get a pretty good bill.  It's probably not going to be as strong a bill as we had back in the early nineties with House Bill 350.  So that's what's happening in Ohio.

MR. GREVE:  Thank you, Linda.

Andy?

MR. STEPHENS:  Hard work, Haley Barbour, and good luck, that's the answer.  The question is, what did it take to enact tort reform in Mississippi?  As you've heard, Mississippi has long been regarded as a judicial hellhole, one of the worst states, one of the states with the most corrupt and simply unfair legal systems.  But earlier this year we won a victory on tort reform in Mississippi that would have been simply impossible a few years ago.  The Wall Street Journal called this effort a case study in how to break the power of the trial lawyer lobby.  In June Haley Barbour, the Governor, signed one of the most comprehensive tort reform bills ever enacted, pretty comparable to what Hugh described in Texas.  Most of the provisions took effect September 1st.

And you might not be surprised to find out, there was an avalanche of filings in the last few days of August.  The poor county clerks in some of these out of the way courthouses were going out of their minds because they would usually get, oh, two or three cases a day, they had hundreds a day coming in the last few days of August.

There's a summary of the bill in your packet.  It's the one with the little cartoon on the cover, which I couldn't resist.  But I want to make clear to you, I had nothing to do with this cartoon.  This is an actual editorial cartoon from the local newspaper down there that shows Lawyerman, who was the chairman of the House Judiciary Committee that had our bill.  These cartoons ran on separate days.  When the battle first heated up, this was him resisting the locomotive labeled “Tort Reform.”  And at the end when we got the bill passed, Lawyerman says, "Ouch."

Let me just run through quickly what the bill did.  You've heard some of these explanations from Hugh.  First of all, we abolished joint liability.  And when I think about this and I try to explain this to non-lawyers, what amazes me is that we think this is a great step forward.  This is a great advance in legal reform.  But if you're 10 percent responsible for the plaintiff's damages and your neighbor is 90 percent responsible, why should you have to pay the whole judgment?  But until recently, that was the law in Mississippi.  That was the law in Texas.  That's still the law in a lot of states.  We did away with that.

We also put a stop to shopping around for the most favorable court, which is what goes on across the nation and within the bad states.  So you have to file a suit where the defendant lives or the principal place of business is, where the event actually occurred that you're suing about, where you bought the defective product, or where you live, again, common sense things. 

We also put a cap on damages.  And for those who sympathize with the plaintiffs, I want to make absolutely clear if you have some catastrophic injury that requires 27 gazillion dollars for your medical expenses for the rest of your life, you can still recover that.  What we limited is non-economic damages.  And this is the soft, the nonsense part, of claims that just get inflated when you have a sympathetic plaintiff in front of a jury.  All of your actual economic damages that you can show evidence for you can still recover.

Another common sense reform: we have protection for innocent sellers.  If you run a retail store and you simply sell a product that you didn't manufacture or you didn't design and you didn't tamper with, you're not liable for injuries caused by that product unless you did something to it that caused the injury.  We also lowered caps on punitive damages which, again, are like the non-economic damages.  They're the part that gets ratcheted up.  The bill also contains model legislation that was developed by ALEC about jury service.  This is important because in a lot of the pretty bad states around the country, like Mississippi, juries basically consist of people who couldn't come up with an excuse to get out of serving on a jury.  And we're trying to make jury service a little less painful so that we actually go back to having something approaching a jury of your peers, a more representative jury. 

Now, the question is how did we do this in a state that was as bad off as Mississippi?  And you have to go back a little bit, because this was a multi-year, multi-pronged effort.  And I want to back up a little bit more.  This is another handout that I think is floating around somewhere.  This time of year you hear a lot of nonsense about red states and blue states.  Forget that.  This is the key, red states, green states, and yellow states.  Now, in case there's anyone here who has never driven, these are traffic signals.  If you want to locate a business, this is the signal that the litigation system or the state court system in a state sends to you.  Red state, says don't come here.  Go somewhere else.  Yellow state, well, proceed with caution.  Green state, come here.  Pretty simple.  And this is not my opinion.  This is not even the Chamber's opinion or the Institute for Legal Reform. These are the opinions of 1400 in-house litigators whom we survey across the country every year.  These are the people who try cases day in and day out in all the state courts.  And we ask them, not where do you lose most often or where do you win, but what do you think of the fairness of the courts in these states.  And we ask them about jurors.  We ask them about the competence of judges, the fairness of judges, the treatment of evidence, things like that.

Now, we've done this three years in a row and Mississippi was dead last, number 50, all three of those years, not the only state in red, but you can see it's bright red there.  And it's worth spending just a couple seconds on how bad Mississippi was.  And this is a state where I'd say it was one of the most blatantly openly corrupt court systems you could think of.  There was one judge who while he had lawyers arguing a case in front of them, he said, you know, I'm up for re-election soon and I need campaign contributions.  Here's my Fed-Ex account number so you can send contributions to my campaign.  Pretty subtle.

More recently in Mississippi the FBI arrested about a dozen people in the Fen-Phen case for simply fabricating claims.  They got phony prescription labels; they committed perjury; they lied and said they had taken Fen-Phen so they could join the lawsuit and get some money.  They never had.  And as you said, one of the problems in Mississippi and some of the other states is that you have lawyers who, unlike the federal system, become judges fairly early in their careers.  They do that for a while, and then they go back to the local plaintiffs’ bar.  Well, guess what, they have to remain friends with their buddies in the plaintiffs’ bars.  So while they're on the bench, they're getting contributions from those guys.  They stay friendly with them.  They go back and they practice and they become plaintiffs’ lawyers again after a little while on the bench.  And if you want to read a really depressing, a very good but depressing version of this, read Wally Olsen's book, "The Rule of Lawyers."  It's very good.  It has some of these stories that I just mentioned.  The one place I differ with Wally—if you read his book you'll think that we can never change this.  And I think that we're starting to prove Wally wrong in some of these states.  I want to come back to the point about the red and blue states.  If you look at this map, you'll see this is not a partisan issue.  The red states here and the green states do not necessarily correspond to the red and blue states.

Anyway, we realized a few years ago in Mississippi that this problem was so bad it was going to take a long effort and on several different fronts.  As Linda said, you can't just rely on legislation.  You have to change legislation.  You have to change the courts.  You have to change the political leaders and you have to change the culture.  So we started in 2000.  There was a state supreme court election that year.  We launched some major voter education efforts to raise public awareness of the problems.  And we had a major PR effort focusing partly on these state rankings and partly on some of the outrageous court rulings. 

Now, this map here doesn't get much attention in D.C., but let me tell you, this gets a lot of attention in Mississippi and now in West Virginia.  In Mississippi, right now, the newspapers are all full of stories saying, we're not going to be number 50 anymore.  And in West Virginia, which has been number 49, they're saying, oh, my gosh, we're going to be number 50 next year because Mississippi has gotten better. 

So we started, as I said, in 2000 with the supreme court election.  We managed to get some changes in the court, get some good rulings out of the court.  But the real key came in 2003 when Haley Barbour ran for Governor and Amy Tuck ran for Lieutenant Governor on a platform of legal reform.  Now, in most states, if you stand up and you're running for office and you're talking about joint and several liability and venue, you know, the room is going to clear out in a second.  But in a poor state like Mississippi, they knew that the bad legal climate was driving business away.  And I should emphasize when we do this poll, we ask people, these in-house litigators, does the legal climate in a state affect business decisions like where to locate plants.  And 80 percent of them said, yes, it can affect those decisions.

Now, Haley is busy trying to get businesses to come to Mississippi.  So he and Amy Tuck made this a centerpiece of their campaign.  And that is really the key to what happened in Mississippi.  When the legislature convened in 2004, the senate, which was controlled by Republicans, passed a comprehensive bill.  They actually passed it several times, but it got blocked in the house where the leaders would not let it come to a vote, even though there were more than a majority of the members that were cosponsoring the bill.   It was the House Speaker, Billy McCoy and Ed Blackman, who is a trial lawyer who chairs the House Judiciary Committee who just bottled up the bill.

Then we thought, oh, we'll be smart.  We'll file a discharge petition to get the bill out of committee.  Well, they changed the rules on us midstream.  It used to be you only needed a majority of the house to vote to get a bill out of the committee.  They changed that to two-thirds.  That might have been their undoing because, as we see here in Congress, whenever you change the rules and you forget that it's going to come back to bite you, it annoys the other side.  That actually kind of energized the pro-legal reform side, and meanwhile, Haley Barber kept threatening the legislature.  He basically said: if you don't pass tort reform now, you're going to be here for a special session, and you're not going home till you pass it.  And he did that.  He lived up to his promise.  At the end of the regular session, they hadn't passed it.  He gave them a couple days to recover and called them back into a special session solely to deal with tort reform.

So we ran statewide radio ads during the special session.  We generated, oh, I couldn't even remember the numbers, tens of thousands of constituent phone calls to the state capital, jammed the switchboards.  One legislator called Sprint and said he was going to put them out of business or something because his phones wouldn't work.  Well, you know, it's not Sprint's fault.  It's our fault.  And we also had a bipartisan team of business representatives.  The other key was that the business community was united.  Too often in Washington, as we saw with products liability and other battles, the business community gets splintered, and then we lose.  Here we kept the business community together and we convinced the legislature that legal reform was really necessary to clean up the environment and improve business investment.  A couple groups we worked with, in particular: Mississippians for Economic Progress, Stop Lawsuit Abuse, and the Mississippi Economic Council. 

Anyway, as I said, the bill took effect September 1st.  And you wouldn't think there would be any results yet, but I can tell you there's been one slight improvement already.  Medical malpractice insurance rates have soared in Mississippi over the last few years.  And the company that insures 60 percent of the doctors in the state, the Medical Assurance Company of Mississippi, has announced that specifically because of this bill they will hold the line on rates in 2005.  That's not an immense rollback, but it's progress.  And that came only three weeks after the bill took effect.

Now, that's the good news.  Mike also asked me if I would throw in a little bad news.  And the bad news is Illinois.  Now, if you look at the map, Illinois is another red state.  In the three years we've done this poll, Illinois dropped 10 places from 34 to 44 largely because of Madison County.  As some of you know, Madison County is a rural county in southern Illinois.  And in our poll it ranked among the five worst local jurisdictions in the country, along with Cook County and neighboring St. Clare County.  Now, last year there were 106 class actions in Madison County.  That was up from 2 in 1998.  For those of you whose math skills are as bad of mine, I'll do the math for you: that's an increase of 5,800 percent.  Now, they're not going there because the courthouse is pretty.  There are also more than 8,000 asbestos suits filed there since the late 1980s.  And this is in a country with a population of about 250,000.

One law professor was quoted recently as saying, well, of course, they go to Madison--I'm sorry, that part is not a direct quote.  But he said, yeah, you have to go to Madison County because it would be legal malpractice not to file where you can get the most money for your clients.  Makes sense.  It's pretty bad.  It's bad enough that the Department of Justice has been asked to investigate the county court system there.  There's a new newspaper, the Madison County Record focusing solely on legal problems in Madison County.  And doctors are fleeing.  There are two brain surgeons in southern Illinois, and they're both leaving by the end of the year.  So if you're driving in Illinois, be very careful.  And they're leaving because of the malpractice insurance rates.  I'll tell you some of the rates here.  For a neurosurgeon in southern Illinois, medical liability insurance costs $228,000 a year.  In Wisconsin, a neighboring state, the same policy costs $47,000.  In Indiana, 70,000, in Missouri, 91,000.  That's a big difference.  One hospital in southern Illinois says 161 doctors are leaving by the end of the year.

And let me read you a quote from one state senator in Illinois.  “There's only one neurosurgeon in all of Joliet.  And there are no neurosurgeons in Illinois south of Springfield, which geographically is more than half of the state.  In Carbondale you have to drive through 20 counties to have a baby delivered.  And at Good Samaritan Hospital in Downers Grove, there were three neurosurgeon teams.  Now there is only one.  And I know of an obstetrician in Hinsdale who quit his practice and now builds houses for a living.”  So that's the result of a bad legal environment.  The lawyers are flocking to Illinois; the doctors are fleeing.  And what do the consumers get?  Meanwhile, as you heard, they get coupons while the plaintiff’s lawyers get millions in fees.

There's one case recently, some of you may have heard about, involving Ameritech, where the plaintiffs got $5 phone cards.  The problem was they couldn't use them and for a lot of them they couldn't use them in the states where they live.  And the lawyers got $16 million in fees.  And that's a pretty modest one.  Often the fees are a lot more than that.  And the fees are important because the plaintiffs’ bar turns around and uses that money to maintain their control over the political systems in a lot of these states.  In Illinois they still do control it.  The governor, the legislature, and the courts are all opposed to any sort of legal reform.

The bright side of that, if you want to turn it around and look at it a little more optimistically, is that Illinois is now where Mississippi was four years ago.  You know, four years ago if you had said, “can we get any kind of tort reform in Mississippi,” the answer would have been no, never.  Now the beginnings of some glimmer of hope for Illinois can come this fall.  There's a major state supreme court election.  And if I can take just another second, I'll tell you what we do to look at judges.  We don't just use anecdotal evidence.  There is something called the Judicial Evaluation Institute that actually examines cases where the ruling is not necessarily preordained by the case law, and they look at judges' records and rank them on a scale of 0 to 100.  Are they basically for expanding liability or being more restrained, being more reasonable.

Right now the Illinois Supreme Court we judge as three, what we call liability restrainers, two in the middle, two essentially in the pocket of the plaintiffs’ bar.  If the legal reform candidate wins this fall, it will be 4, 2, and 1.  And the reason this election is so important is because this is the last supreme court election in that state until 2010.  And this comes back to my earlier point that if you want to achieve legal reform in a state, you have to be in it for the long run.  So you can't just pass a bill and walk away.  The governor is up in 2006.  So not much is going to change before then.  So if we come back here next year, we're still going to say Illinois is in lousy shape.  If we come back in 2010 and 2011, we may be able to see some progress.

In Mississippi the Wall Street Journal said if legal reform can happen here, it can happen anywhere.  Well, it happened in Mississippi.  So I think it can happen in Illinois, eventually, and it can happen in any other state. 

MR. GREVE:  Thank you, Andy.  I just want to ask Andy one quick question, which goes to something legal.  Before I do I want to confirm independently the force of his chart outside the Beltway.  I testified on behalf of one of the reform bills in Ohio.  And it turns out, other than Illinois, that the fastest-dropping states were Montana and Ohio.  That did impress people.  I mean, it did rattle them.  They didn't want to hear that.

What I want to ask about is the innocent seller issue in Mississippi.  My question is whether that is a sort of diversity reform on a state level.  Many of you may have seen the fabulous 60 Minutes expose some time ago where they featured the local pharmacist who had been sued 46 times.  And she said, “people come here and they have a home address that says Lincoln, Nebraska, and they order one pill in my pharmacy.  Something tells me this is not to fill their prescription down here.”  One way or the other, these innocent sellers always have a defense because they're going to be dropped as soon as the lawsuit is underway.  So my question is, when can the defense be asserted?  Is it early enough to defeat the claims altogether in Mississippi courts and get the whole damn case dismissed?

MR. STEPHENS:  My answer is, I think so.  But I'm not 100 percent sure.  I can check on that.(1)

MR. GREVE:  Okay.  Thanks.

Michelle, please.

MS. WHITE:  Let me start just by saying that I'm an academic.  I haven't been working for tort reform; I haven't been working against tort reform.  I've been studying litigation.  I'm busy doing, particularly been working on asbestos litigation and on other mass torts.  A lot of my work has involved statistics, trying to come up with some statistical evidence for and against some of these claims.  One thing I did recently was to put together a data set of all of the asbestos trials that have occurred anywhere in the country over the last 15 years.  I wanted to quantify the differences in the respective return across states and across jurisdictions within states.  So I ran a regression, and I controlled for the disease, are you a smoker, how old are you, and various other characteristics of the case.  Then I also put in variables representing the state where the lawsuit was filed and, where I could, the jurisdiction within the state where the lawsuit was filed.  You can't always do that because often there are only a very small number of trials.

And the results were startling in the sense--well, they weren't startling in that, yes, I found Mississippi was the best place to bring an asbestos case; the next best place was Houston; the worst place was Philadelphia.  Now, what was startling were the size of the differences.  How much greater is your average return, counting the fact that you might lose and might not get anything in one place versus another.  Well, compared to states that don't have much asbestos litigation, on average you get 2.6 million more per plaintiff in Mississippi.  You get 2.1 million more in Houston.  And you get 1.7 million more in West Virginia.  If you're in Philadelphia, you get 700,000 less.  So this is per case, controlling for what your disease is.

Now, this one, it's from a recent Rand report on asbestos litigation.  And what it's doing is tracking where claims are filed.  And the [inaudible] is to see how much change there's been.  And in particular, of course, there's Texas up there.  And you can see that Texas started out very small, and it got huge.  It didn't just start to get smaller.  Starting in the mid-nineties asbestos claims were moving away from Texas, although you can see that there are still a lot of them there.  If you go back to the beginning, asbestos litigation started mainly in California and in Philadelphia.  And that's not surprising because the original claimants were shipyard workers.  And that's where the big shipyards were.  And you can, of course, see that California and Pennsylvania have gotten much smaller.  And not surprisingly I've found that the expected return if you file an asbestos case in Pennsylvania is the lowest anywhere in the country.  And that makes it not surprising that the litigation has moved out of Pennsylvania.  It hasn't moved out so quickly.  The cases didn't suddenly all disappear.  There are certainly a number of cases in Philadelphia, but it's way down from the past. 

Another aspect that is not in the slide is the movement of asbestos litigation from the federal courts to state courts.  If you go back 15 years, 40 percent of all asbestos claims were filed in federal court.  Now it's down to about 10 percent.  So the litigation has moved away from the federal courts mainly, I think, because of the multidistrict litigation that requires that asbestos claims filed anywhere in the country move to Pennsylvania to a particular federal court for discovery purposes.  That means they move, they move to Pennsylvania, nothing happens because every year eventually they get moved back if they haven't settled, they get moved back to the jurisdiction where they were filed for trial.  And, of course, plaintiffs’ lawyers don't want to have that delay.  And so they left the federal court system.

So when one state becomes unfavorable, filers move to another state.  I think it's also the case that this forum shopping is very, very profitable.  The differences in returns at trial between favorable states and unfavorable states are extremely wide.  So there's a very good incentive to move to favorable states.

Now, what does all that mean in terms of tort reform?  Well, it means two things.  One is that if you have tort reform in a state that's unattractive nothing is going to happen.  If you have tort reform in a state that's very attractive, then it's going to mean that litigation will move out of that state--not completely because things don't go to zero.  But it will tend to move out of that state to, presumably, the next few most favorable states.

So one cautionary note is that you can have a great success in Mississippi or Texas, and I'm not disputing that, but from the national standpoint that doesn't solve the problem just because there is West Virginia.  There is New York.  There are lots of other states that, that are favorable, maybe not quite as favorable as Mississippi, but, but the litigation is going to tend to concentrate itself in the next most favorable states when one state launches a--let's say boosts itself up from the bottom of the ranking to higher up.

Another point I wanted to make is that forum shopping has two elements.  One is the choice by plaintiff lawyers of the most pro-plaintiff state, and the second is the choice of venue within the particular state.  And within the particular state plaintiffs’ lawyers look for particular courts with pro-plaintiff judges.  Often they're actually looking for a very small court so there is only one judge, or a couple of judges.  And they'll know what they're getting.  With only two judges you might know that they're both pro-plaintiff so there's no risk of getting a judge that happens to be pro-defendant.  So small, small venues are often very attractive. 

What do the judges do?  What's their role and why are they so important?  Well, they make an awful lot of procedural decisions that have a huge affect on the outcome.  So one thing judges do, for example, if they're pro-plaintiff, well, they might announce the trial with only a day or two notice to the defendants.  And we've got a venue in a rural location that's hard to get to.  So the defendant's lawyers have to rush into this town. They don't have any time to prepare.  Whereas, the plaintiff’s lawyers knew all along what was going to happen.

Of course the judges make decisions about whether to use some of these procedures, many of them are developed [inaudible] do you bifurcate the trial? meaning do you do damages before you do liability, which often is helpful to plaintiffs.

Do you consolidate, do you have a joint trial for multiple plaintiffs together?  In asbestos this is very common.

Do you "strong arm" the defendants to settle?  So in many of these pro-plaintiff jurisdictions, the plaintiffs’ lawyers don't want to go to trial.  They'd like to get a settlement because that's much less expensive for them, and some judges are just very active in pretty much "strong-arming" the defendants to settle.  The ways they can do it is to basically give very pro-plaintiff instructions to the jury.  Tell the jury to think about punitive damages--in effect, suggest very strongly to the jury to come up with big damage awards--and that kind of power by the judges is of course what leads to very high settlements.

Putting those things together, the movement of the litigation across states and the importance of the venue within the state, I think that if litigation moves out of Mississippi because Mississippi has had these tort reforms, then, in effect, there's going to be a process that makes the new state more pro-plaintiff than it was before.  Plaintiffs’ lawyers are going to move to the new state, whatever it is, and they're going to start developing these long-term relationships with the judges, involving the campaign contributions and whatever else it takes.  A lot of times the plaintiffs’ lawyers are bringing economic development to small local towns that otherwise wouldn't have any restaurants or any hotels, except for the litigation.

So they're going to be developing these relationships, and, in effect, that's going to make the new state more pro-plaintiff than you would think it would be, just from looking at the law.

So just in summary, I think that tort reform goes beyond just one state, two state, three states.  There's always a state that's most favorable, however many states adopt tort reform, and so I think this is going to tend to be a continuing struggle.

MR. GREVE:  Thank you, Michelle.  Can I ask you a follow-up question as well?  One of the things that makes case migration here easy is the peculiar rules of asbestos litigation.  You need only one plaintiff and then you have this inchoate mass of plaintiffs, 30-, 40,000 in Cuyahoga County.  So in that context, it's perfectly logical to think that, well, if you reform liability in one state, Fred Baron will not care.  To him it's just the marginal cost of opening another office in some other town, right?  But to what extent are other types of claims equally transportable and movable?  To what extent can they migrate in that fashion?  Or is asbestos really unique in this respect?

MS. WHITE:  Well, I think there's no reason to think that it isn't.  I guess maybe I don't have the same kind of statistical evidence to give you for others, and in fact a lot of my research now involves looking at some of these issues.  Maybe you should ask the people who are in the trenches the question.

MR. STEPHENS:  I'd say other claims are also readily transportable to bad states, and that's why we need to try to clean up some of the worst ones.  We'll never make every state perfect, but we can at least reduce the number of places where Fred Baron can transport those cases by changing the state laws, and some changes at the federal level.

MR. KELLY:  I think I saw, on maybe the Mississippi list and the Ohio list, and on ours, a reform in which you require that each plaintiff has to establish his own individual venue, and so you can't get one plaintiff with proper venue and then bring in 5,000 people from all over the United States.  In fact, that was one of the specific loopholes that we fixed, and I should have mentioned in my talk.

We had a big round of reforms in 1995, in which we had that reform in 1995.  Then we had to go back and fix it again in 2003 because it was being loopholed by judges who would simply find that everyone had good venue, even though there was no proof or showing whatsoever that they did.  So they said you have to go prove it to the supreme court.  But I think, maybe in most states, there was such kinds of reforms.

MR. GREVE:  I swear I'll open it up to the audience in one sec. I just want to pursue this issue for one more minute, especially with Andy.

Two of the things that I heard about Mississippi–– and both of them may be urban myths––is that one, the trial lawyers, at the end of the day, didn't really fight all that hard because they knew that most of the class actions, most of the big mass torts that they really cared about could be opened elsewhere.

So business can fight and win.  But one implication is that as you run out of states that volunteer to be the next Mississippi, business is going to have a harder fight.  I don't know how to assess that but it's one of the things I heard.

The second thing I heard was that one of the critical events in Mississippi was that one company, in particular, an unnamed Japanese automobile manufacturer said, “Look, guys, we can either build Toyotas in Mississippi or we can build them elsewhere, and it all hangs on tort reform.”

Now it isn't clear to me why, exactly, that should be a powerful argument for a corporation because Toyota or Ford Motor Company or anybody else can be sued for their automobiles and their accidents in Mississippi, regardless of where the cars were built.  So was it bluster, did it actually happen, or is it just another thing Greve heard at some Ohio watering hole but that isn't really true?

MR. STEPHENS:  It really did happen; it really was Toyota.  I've seen the letter.  I should say that I drive a Toyota and will continue to drive my Toyota.  The more important question that you raise is how much impact that has and, as you know in political battles, sometimes people do what works.  As somebody in the audience just said, it may be symbolic.  It may not have that much impact.

I think the more important question that you raise is the first one.  Do we just move the problem from one state to another?  Do we just say to Fred Baron, well, okay, you can't bring your bogus suits in Mississippi so maybe you move to Arkansas next year.

You've got to start somewhere.  We've been stymied at the federal level.  We start with the worst states, and if the people who've been abusing the Mississippi courts move to the No. 49 state, to West Virginia, or to the No. 48 state, well, those states aren't quite as bad.  That's the only way I can look at it.  We're making small incremental progress.

MR. Kelly:  I was thinking that the state that will be the hardest will be the one that has only tourism and coal mines, like West Virginia.  You can't run those out of state, so--

MR. Stephens:  But a state like West Virginia that has only tourism and coal mines would like to maintain those industries and would like to attract some others.  They need asphalt companies for all the roads that Bobby Byrd keeps bringing there, so they need some other business.

MR. GREVE:  The other state that fits the description is Mississippi, right?  It had three meaningful industries: agriculture, military installations, and torts.  All of those are transfer industries.  They’re net transfers from Washington, D.C. to Mississippi.  That's all there was.  I mean, Mississippi had one net export which is quarterbacks named Manning but that doesn't make up for it.

We'll take questions from the audience.

QUESTION: Can the states accomplish tort reform by themselves or is there anything that you need the federal government to do that the states cannot do?  If so, what?

MR. STEPHENS:  No, we can't do it all at the state level.  There are several key bills that have been stalled in the senate--most notably the class action reform bill for which we had more than 60 votes earlier this year, but we were not able to get it to the floor.

There's also asbestos legislation that's stalled in the U.S. Senate.  There's a new bill called the Lawsuit Abuse Reform Act.

If you delve into the depths of the legal doctrine, tort laws are traditionally a state concern so many of the issues we talked about are best addressed at the state level, but there are some things that have to be done at the federal level.

MR. KELLY:  I would agree with that.  We had a long run at trying to get a federal product liability law through.  That would be a very useful thing to do.  If they'd like to see a good one, they can come and look at one we just passed.

Things that definitely affect interstate commerce, comprehensively; the products are sold uniformly across state lines and things of that kind.  It would be very important, I think, to do that at the federal level, and that would stop this "cat and mouse" game going from one Reno, Nevada, to another, in order to find the best liability situation.  But to do that, there's going to have to be some significant political change in Washington.

QUESTION:  What still needs to be fixed?

MR. KELLY:  I'll take a swing at that.  Definitely, class action has to be fixed.  If you do that, you'd pull all the air out of that balloon with a minimal diversity requirement.  That is a very major deal.

The second one really is an asbestos bill and that cries out for a national solution.  The Ohio bill has helped a lot because the plaintiffs’ lawyers are starting to lose their confidence that they can hold out forever.  If Texas passes theirs, it'll be a little more.

Those are the two that come to my mind.  Andy?

MR. STEPHENS:  I would agree with you.  Those top my list also.  On the class action bill, that has to be done at the federal level because the legislation would move most large interstate class actions to federal court where they belong.

If you look back at the constitutional convention-–sorry, but I'm working on a biography of George Mason, one of the forgotten Founding Fathers--the whole reason we have a federal court system is because the framers thought that out-of-state defendants would be treated unfairly in other states' courts.  That's exactly what's happening, and that's exactly what we're trying to solve with the class action bill.

MS. WHITE:  Let me chime in here.  I've been looking a lot at various ways that asbestos might be solved, and generally, the legal system has two ways of kind of putting all the claims together and resolving a mass tort at once.

One is class actions, which the Supreme Court has ruled out for asbestos and the states have followed.  The other is bankruptcy.

The problem with bankruptcy is that it resolves all the claims against one company, but because many companies and many insurers are jointly liable for most of the plaintiffs’ harm, a bankruptcy by one firm just spreads the litigation to others.  So the firms that aren't bankrupt then end up bearing more of the liability because the bankrupt defendant is gone, and the same thing happens for insurers.  So often there are many insurers that are jointly liable, an insurer goes bankrupt and that just spreads the liability farther.  So bankruptcy doesn't do it.

MR. GREVE:  I should say that since Michelle is too modest to mention it, she's written a wonderful paper on asbestos reform, why asbestos reform has to be done at the federal level.  Is that a fair description?

MS. WHITE:  I think that's right.

QUESTION:  How important is a cap on non-economic damages?  Is it the centerpiece of tort reform?

MS. WOGGON:  That's one of the issues that we'll probably be debating in our lame duck session.  We do have a cap on non-economic damages in the bill that's currently pending in Ohio. It's particularly important to small businesses.  I think some of the larger businesses would find the punitive damage cap to be something that would make the bill very valuable to them but I think for small businesses, the non-economic damage cap becomes particularly important.

It's the most controversial, and I think how it's structured is critically important.  I think there needs to be some flexibility, and the cap needs to be able to move for different types of catastrophic injuries.

MR. KELLY:  I'd certainly endorse that.  I would not call it the centerpiece, and it's caused great debate among even tort reformers as to whether a cap is fair.  Imagine that your daughter or son or father or mother was caught in a burning automobile and blinded and now hideously deformed and in constant pain, but has a lifespan of 40 years, is $250,000 the right measure of damages?

Well, it answers itself.  It's extremely difficult to face the destruction of the pleasure of life and being cast into a hellish existence then face some arbitrary cut-off.  That's what you can't get over.

So you've got to have some huge public policy counterweight to that, and when you're saying in the case of medical care, we're not choosing between giving or not giving somebody big damages.  We're asking whether we're going to still have doctors in this part of the state, and in Texas, that argument was not seen as smoke because it was not.

The doctors were leaving the southern part of the state.  So what's worse:  Somebody's going to be limited to $250,000 from a doctor's malpractice or a whole bunch of people not getting medical care?  So it's like worker's compensation.  That doesn't seem fair either, and yet there are limits in every state on comp benefits.  And why?  Because there's a specific balance struck there.  But to do that in other areas, you'd have to ask yourself why.

MS. WHITE:  Let me just put in kind of the opposite view.  I mean, there's a limit to how low you'd want to push things down because the liability is an incentive to reduce injuries, and reduce harm.  If we went to the extreme and had no liability for any harm that anyone did to anybody else, we'd have an awful lot of damage out there.  So tort reform and limits on damages make a lot of sense, but going too far has an economic cost on the other side.

MS. WOGGON:  I'd like to respond to that because it was a debate that we had in our legislature as it related to punitive damages, and one of the attorneys that testified, I think, was compelling in that there are other ways to deal with that in the legal system.  Doing it and providing for damages, which are often not fair and where different plaintiffs will get different amounts of money for similar injuries, is probably not the most efficient way to do that.  Now I know you're an economist.  So I may be speaking beyond what I'm able to argue, but I think that there are other ways to deal with it in the legal system, not through damages.

MR. STEPHENS:  I was glad that Linda raised the point of efficiency because when we talk about large damage awards––and you [Mr. Kelly] brought up the point of worker's comp, which is a little bit more certain, and a whole lot faster and a whole lot more efficient––some of the biggest cases that are going on now, like the State Farm case that's been up to the Supreme Court and back down to the Utah court a few times, the accident that they're arguing about happened more than 20 years ago.  So under the current system if you're horribly injured, you have a shot at getting a huge amount of punitive damages, but you may be dead long before then.

The advantage of a simpler, more efficient system, something closer to worker's comp, you don't have the potential for the huge jackpot, but you have much greater certainty, and the system is faster and more efficient.

Right now, we spend $233 billion a year on the tort liability system in the U.S.  233 billion.  And less than half of that goes to injured plaintiffs.

MS. WHITE:  There's been work on punitive damages by economists recently, so I'm just going to throw out the way most economists think about it.

I think that economists would agree that there's a real problem with punitive damages across the states.  I think economists have been arguing recently that the main use of punitive damages ought to be for the type of harm where people either don't discover their harm or it's too small to--well, mainly, when you're unlikely to discover your harm, and then companies can get away with harming people because they're not liable.

An example would be something like this case involving somebody who bought a Mercedes, and it turned out it had been damaged and repainted and the dealer never told him.

Well, that's the kind of damage that reduces the value of the car, but most people are never going to find out about it.  So a sensible use of punitive damages would be to jack up the damage award by the number of times that it happened and nobody had discovered it or brought a lawsuit.

Once you've done it, of course, you don't want to do it again, and of course, we don't have a mechanism for preventing that from happening.

MR. GREVE:  I presume you asked mostly about caps, about medical malpractice awards.  It is extremely hard to do responsible econometric work in this area.  For one thing, the data aren't all they could be.  For another thing, the modeling, for various reasons, is very, very difficult.  You're dealing with time lags, with multiple reforms that kick in at the same time and which you can't disaggregate, and so on and so forth. Most of studies go to the effects of malpractice reforms on insurance rates but not to the ultimate effects, which is what I really want to know.  But there are some serious studies, one of them done here at AEI by my former colleague, Jon Klick, who is now at Florida State University, which tends to show that at a level of about $500,000, medical malpractice caps do in fact help doctor retention.  That is to say, doctors stay when the caps are in place.

It may also be the case that the same damage limitations limit or reduce the level of care under some circumstances for some populations.  That's the tradeoff Michelle mentioned.  That's as far as that study goes.  But it's the state of the art out there.  All I'm trying to say is we know very little.

QUESTION:  Sam Kazman with Competitive Enterprise Institute.  I'd like to ask the panel what has been the history of tort reform measures being put up for public referenda in the various states?  Has it happened much, at all, and what's been the outcome?

MS. WOGGON:   We have not seen that in Ohio at all, to my knowledge.

MR. KELLY:  We had, in connection with the limitations on medical malpractice, pain and suffering verdicts.  The sponsors decided to put it into the state constitution, really technically not necessary, but they wanted to make sure it was completely on ice.  So we had a constitutional amendment put up to a vote of the people, and it passed by one percent.

We had a ten point spread going in.  Our group likes to say it wouldn't have been that bad if we were in charge of it, but the group that was caring for the measure, carrying it for the people, didn't do as good a job as they could have done.  The plaintiffs’ lawyers did a wonderful job of illustrating what would happen to housewives not employed outside the home if they were blinded in their doctor's office.  They'd get 250,000.  They pounded away hard at that, and they won substantial victories in Dallas and in Houston.

But in the rural areas, which had actually experienced the loss of physicians, the vote was very lopsided the other way.  But the bottom line was one percent.  So it was easily subject to demagoguery on the part of the plaintiffs’ bar.  They're very good at it, they had absolutely unlimited funding, and you couldn't turn on the television and not see more stuff about how terrible it was going to be if this thing passed.  So that was our experience.

MR. STEPHENS:  There is one significant tort reform measure on the ballot in California this fall.  It's called Proposition 64, and as I said before, the problem with legal reform is it generally doesn't move voters.  It doesn't get them to go to the polls.

But in California there's been a rash of what we call shakedown lawsuits under section 17200 of the state's business and professions code, and this proposition would rein those in.

The polling shows that once people understand the issue, they're overwhelmingly for it.  The problem is most people don't understand the issue and haven't heard about it and their eyes glaze over when you first mention the subject.

Can I add one more thing?  This is a shameless plug for everyone who's here interested in these issues.  On October 14th, the Chamber will be having our annual legal reform summit where we'll be talking a lot about Mississippi.  In fact, Haley Barbour is our keynote speaker at lunch.  We also have two attorney generals: Jerry Kilgore from Virginia and Mike Cox from Michigan.  John Fund of The Wall Street Journal  will be there as will Senator Tom Carper from Delaware.

So if you're interested enough in these issues to come here, walk on down a few blocks further south to the Chamber on October 14th.  If you want to see the agenda, go to legalreformnow.com.

MR. GREVE:  With that plug out of the way, I have--it's not a plug, it's an obsession, okay?  Here it comes.  I want to ask you about it because you mentioned it in passing.  I've looked at a lot of so-called tort suits—big expensive class actions.

There is not one among them that is pled exclusively on a tort theory.  Time and again, the tort claims are quasicontractual claims.  They are pled alongside statutory claims under state little FTC acts, consumer fraud statutes, consumer protection statutes (Hugh mentioned that in Texas this was repealed).  But I don't know of any other example where that has happened.  In fact, if you look at the logic of these lawsuits and the evisceration of defenses such as reliance, it all happened under those kinds of statutes--not as a spontaneous evolution of the tort law.

As far as I can see, nobody in the business community or the tort reform community has paid the slightest attention to these statutes.  Am I wrong or is somebody else missing something here?  Or is it just that business says, “We've looked at it, nothing can be done about it, good night?”

MR. KELLY:  I could tell you about section 17200.  At lunch, I couldn't remember the number of it, but it is famous throughout the United States as being an extremely dangerous thing for people doing business in California because it has no limits and no standards.  If somebody feels bad about a business practice, you're open to it.

So yeah, people do, but again, it's intensely local.  California will have its funny law.  Texas had its funny law, which we pruned back to where it was supposed to be in 1995, and you'll find things like that in various states, not just in this but in the whole area.

I mean, people's eyes glaze over on all this stuff, frankly.  This is very specialized.  You start telling somebody about proportionate liability and they go, "God, please!"

That worked to the plaintiffs’ advantage because they would put wonderful labels on it: "cops and robbers" and big companies squashing little guys. Before you knew it, all the glazed eyes are pulling the big lever for the plaintiff’s position.

MR. STEPHENS:  There is a group looking at the state little FTC statutes.  It's called the Civil Justice Reform Group, and it's composed of what I like to call the "good guy trial lawyers."  It's the trial lawyers who do battle against the Fred Barons and the deans of the plaintiffs’ bar who represent the defendants.

MR. GREVE:  I thank you all for coming.  Please join me in thanking the panel for what I thought was a just terrifically educational and instructive discussion.

(1) The following text is a reply to Mr. Greve’s question submitted after the event by Linda Kelly of the U.S. Chamber Institute for Legal Reform:  The innocent seller provision appears in the section of the code that defines the conditions for imposing liability for a product defect.  Thus, the innocent seller language requires that, to demonstrate liability of a seller, a claimant must demonstrate by a preponderance of the evidence that: 1) the seller exercised substantial control over that aspect of the design, testing, etc. of the product that caused the harm; or 2) the seller altered or modified the product and the alteration or modification was a substantial factor in causing the harm; or 3) the seller had actual or constructive knowledge of the defective condition of the product at the time he sold it.   In other words, it is an essential element of a product liability claim against a retailer, rather than simply a defense. 

A preexisting section of the code (11-1-64) established a process by which a retailer could move for dismissal from a case in which there are no facts and circumstances demonstrating liability, other than the defendant's status as a seller in the stream of commerce.  This new provision will work in concert with the previously established process to make it easier for innocent sellers to be dismissed from a case from the outset.