Monster on the loose: the civil justice system.

Americans are facing a monster...just as terrifying as, and certainly more real than, anything coming out of Jurassic Park. It is abuse of the civil justice system. According to a survey, 69 percent of Los Angeles area voters fear that they, or a member of their family, may be a victim of a frivolous lawsuit some day. This monster has many tentacles. Among them are personal injury, product liability, wrongful termination, medical malpractice, discrimination in the work place, and class action securities fraud. Although these are categories for legitimate lawsuits, abuse occurs when lawsuits are initiated or threatened to obtain verdicts that are not merited by the facts or awards that exceed reasonable compensation for damage, injury, or pain incurred. We have created a monster in which it pays to sue in hopes of receiving a large settlement or judgment. For example, a man who had fallen out of a tree after eating sugary snack food sued the food company for $100 million. A woman who cut her hand while separating frozen hors d'oeuvres sued the supermarket and the firm that produced the frozen foods. A drunk driver ignored detour signs and a sign showing 45 mph as the maximum speed on a curve. He crashed and suffered multiple injuries. Then he sued the state department of highways, the road contractor, the utility company that owned the adjoining property, and the engineering firm that designed the detour. Five years later, each settled for $35,000. The legal fees for the 15-man engineering firm were $200,000. In the now-famous McDonald's case, a woman was awarded $2.9 million, later reduced to $600,000, for injuries sustained from spilling a cup of coffee she was holding between her legs. A juror concluded that the case was all about "callous disregard for the safety of people." If we are wondering whatever happened to personal responsibility, this one may top them all. A New Mexico prison inmate, who claimed that the prison failed to treat his persistent groin pains, cut out his own testicles. He is suing the prison. Doctors and Lawyers Medical malpractice suits have produced a curious combination of "more" and "less." Doctors engage in defensive medicine by ordering excessive tests and procedures primarily to protect themselves from lawsuits. Conversely, the threat of lawsuits has caused some effective treatments-such as Benedictine (for morning sickness)-to be withdrawn from the market, and one of every eight obstetricians has stopped delivering babies. The birth of a deformed child is almost certain to be followed by a lawsuit; 70 percent of the obstetricians currently in practice have been sued. Some entrepreneurial lawyers have found class action securities cases to be a source of booty. In a case against Genentech, more than 60,000 investors were enticed by the lure of a big windfall to amass a total of $740 million in claims based on the price of the stock on two different dates. The case was settled without a trial for $29 million, with the lawyers getting their usual 30 percent cut. Plaintiffs received about three percent of the amount claimed. The explanation of the settlement by law firms representing the plaintiffs is enlightening. "There was a substantial risk that none, or only a very small portion, of the total market loss would have been recovered." "There was substantial risk that the plaintiffs could not establish liability at all." Translation: "We had no real basis for a lawsuit in the first place, but we can shake down Genentech for four cents on the dollar." Discrimination Cases Grow Employment litigation-discrimination, wrongful discharge, sexual harassment-is the newest and fastest growing hijacking opportunity and now accounts for 10 percent of the entire federal case load. The number of discrimination cases has risen more than 2,200 percent since 1974. Four major pieces of legislation are the basis for most of this growth: Title VII of the Civil Rights Act of 1964, which prohibits discrimination on the basis of race, religion, sex, or national origin; the Age Discrimination in Employment Act of 1967; the Americans with Disabilities Act of 1990, which outlaws discrimination against people with disabilities, including the obese; and the Civil Rights Act of 1991, which opened discrimination cases to jury trials and allowed for compensatory and punitive damages plus back pay and legal fees. State laws tend to follow the national. In wrongful termination of employment cases, the pot is made richer by "front pay." This is the notion that, in addition to everything else, plaintiffs should be compensated for all of the loss they might be expected to withstand before finding another job of similar pay and responsibility. Front pay can extend far into the future, thereby reducing the incentive to find another job. In the case of a 56-year-old construction company executive, who was awarded a total of $5.7 million (front pay included), the appellate judge, in upholding the legally valid verdict, opined, "California cannot flourish with such multimillion dollar verdicts readily attainable." High Cost The cost of all this is enormous. No one knows just how big it is. Much of the cost is hidden in the thousands of cases that are settled by the defendants paying off rather than incurring the expense of a trial and taking a chance on the vagaries of a jury. The cost is borne by the prices paid for goods and services and indirectly as a cost to the economy (and to consumers) for products limited in availability or not produced at all. Litigation accounts for 20 percent of the cost of a stepladder; for a football helmet, it is 50 percent. In 1978, 18,000 general aviation aircraft were produced in the United States. Hounded by lawsuits, the industry produced only 547 in 1993, and employment has been cut by 100,000. Spaulding quit making all protective sporting equipment. The University of Texas developed a new technology for stopping weld leaks in nuclear reactors. The industry ignored the improvement because it could be used to substantiate liability for failure of existing welds. You see, improved technology could be used to contend that the old technology was unsafe. A number of reasons have been given for the explosion in lawsuits. Some believe that a breakdown in morality is an underlying cause. A diminished sense of personal responsibility has been cited. Whatever part changes in mores play, a major cause is the balance of risk and reward that favors the plaintiffs. Plaintiffs cannot lose when their lawyers are paid on contingency. Lawyers risk their time. But one big gusher of a win makes up for many dry holes. Defendants, on the other hand, pay legal costs win or lose. Moreover, they frequently are forced into the position of having to prove themselves innocent. Whereas plaintiffs' injuries are usually not contestable, defendants may find themselves trying to prove that their products or actions did not cause the injury. Major Changes Needed To right a system gone wrong, there needs to be a change in public opinion as a forerunner to substantive change. Helping inform the public are Citizens Against Lawsuit Abuse (CALA) on the state level and the American Tort Reform Association, which acts as a clearing house for 40 state tort-reform organizations. In California, CALA was incorporated in 1993 to educate the public about the impact of lawsuit abuse through speakers, literature, and the paid media. Needed most of all are changes to the laws pertaining to torts. There have been some changes at the state level, but none at the federal level. Why so little change? Any change that might reduce the number or amount of settlements in tort cases is vigorously opposed by the Association of Trial Lawyers of America (ATLA). The ATLA is one of the most powerful and focused lobbying groups in the nation. In the 1991-92 political campaign, the association gave candidates $2.4 million. Although the amount may not be large in comparison with some others, keep in mind that it is given with a single-minded purpose: stopping tort reform. Most changes in tort law, recently imposed and proposed, nip around the edges. The change that would strike at the heart of the monster is some form of the British system whereby the loser pays all or some part of the opposing party's legal fees. Among the world's major countries, the U. S. stands alone in denying the winner of a lawsuit the opportunity to recover legal costs. Making this change would drastically alter the existing balance of risk and reward. Lawyers would no longer find that it pays to gamble on speculative lawsuits with the hope of winning one if they had to pay for their losses on the other nine. WILLIAM C. WADDELL, D.B.A., is president of Foreplan Business Planning in Lomita, CA, and a member of the Los Angeles County Quality and Productivity Commission. He is a former executive editor of BUSINESS FORUM.