“…is bad for the rule of law and for capitalism,” opines The Economist, saying regulation-through prosecution has become “an extortion racket,” from hundreds of millions in Google drug-ad settlement money spread among Rhode Island police departments, to New York Gov. Andrew Cuomo’s muscling in to extract money from BNP Paribas in a settlement of legal offenses against U.S. foreign policy as distinct from New York consumers:
Who runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company. …
Perhaps the most destructive part of it all is the secrecy and opacity. The public never finds out the full facts of the case, nor discovers which specific people—with souls and bodies—were to blame. Since the cases never go to court, precedent is not established, so it is unclear what exactly is illegal. That enables future shakedowns, but hurts the rule of law and imposes enormous costs.
“Lawyers are pitching state attorneys general in 16 states with a radical idea: make the food industry pay for soaring obesity-related health care costs. … So far none have agreed to sign on.” One hope: the theory popularized by former FDA chief David Kessler that bacon, brownies and buttered popcorn should be seen as “addictive.” Paul McDonald, a Chicago lawyer who is organizing the campaign, is described as a former “senior counsel at Kraft Foods.” [Helena Bottemiller Evich, Politico]
Having defied the Securities and Exchange Commission and beaten its inside trading allegations in court, the investor and team owner is not through giving them a piece of his mind: “I think they exemplify what type of organization you should expect when you have nothing but attorneys and in particular former prosecutors running the show. …There is a culture of trying to win, not trying to find justice.” In the absence of bright-line rules, notes Cuban, the commission resorts to “regulation through litigation,” trying to ram through doubtful legal interpretations by way of sheer vehemence of enforcement. [Kevin Funnell/Bank Lawyer's Blog, Alexander Cohen/Business Rights Center, earlier] Attorney Lyle Roberts, who represented Cuban, will also be known to some of our readers for his blogging at The 10b-5 Daily.
The Colorado Supreme Court, wisely resisting a national campaign of school funding litigation, has turned down a lawsuit arguing that the state is obliged under its constitution to step up school spending. [Denver Post, KDVR, opinion in State v. Lobato]
I’ve got a post up at Cato at Liberty about the Colorado decision, noting that although school finance litigators make a lot of noise about educational quality, they are actually on a mission of “control —specifically, transferring control over spending from voters and their representatives to litigators whose loyalty is to a mix of ideologues and interest groups sharing a wish for higher spending.” I quote from a section on school finance litigation that I wound up cutting from my book Schools for Misrule about the enormous impact such suits have had in other states:
Vast sums have been redistributed as a result. Lawmakers in Kentucky enacted more than a billion dollars in tax hikes. New Jersey adopted its first income tax. Kansas lawmakers levied an additional $755 million in taxes after the state’s high court in peremptory fashion ordered them to double their spending on schools.
The results have been at best mixed: while some states to come under court order have improved their educational performance, many others have stagnated or fallen into new crisis. Colorado is fortunate not to join their ranks. (& reprint: Complete Colorado)
P.S. From a Colorado Springs Gazette report, Jul. 31, 2011:
“Putting more money into a broken system won’t get a better results. There are improvements that could be made without money,” says Deputy Attorney General Geoffrey Blue. …
He points to a Cato Institute study that showed spending on education across the country has skyrocketed but test scores didn’t improve.
“That would mean that potentially every cent of the state budget would be shifted over to K-12 education,” says Blue, who heads the office’s legal policy and government affairs.
If it seems like a far-out idea — suing legitimate makers of cold and allergy medications containing ephedrine and pseudoephedrine because underground labs use them to make meth — be aware that it’s actually been tried, by public officials in the Midwest, often working closely with ambitious private contingency-fee lawyers. The Eighth Circuit has just rejected one such case in Ashley County v. Pfizer; Eugene Volokh and commenters discuss.
Tim Sandefur asks this only half-facetiously as he reviews mass torts. Of course, as a must-read comment letter to FASB (via the indispensable Beck/Herrmann) submitted by six pharmaceutical companies notes, “A mass tort occurs when the plaintiffs’ bar decides to invest in it.”
The Texas Review of Law & Politics has published my review of Thomas Geoghegan’s book. I differ from the favorable reviews of Adam Liptak and others:
Many books and writers have documented the problems caused by the tremendous expansion of liability in the last half century. In response, several writers on the political left have written defenses of unfettered liability or indictments of the tort reform movement, sometimes even rationalizing such infamous outliers as the McDonald’s coffee case as legitimate uses of the tort system.
The latest arrival in this genre comes from much-celebrated labor lawyer and author Thomas Geoghegan: See You in Court: How the Right Made America a Lawsuit Nation. Unlike many on his political side of the aisle, Geoghegan acknowledges that the litigation explosion has harmed America, but blames it on right-wing policies. Deregulation, deunionization, and the right’s putative dismantling of the legal system and Rule of Law, Geoghegan argues, have driven Americans to the courts by cutting off alternative routes to social justice. Geoghegan effectively demonstrates that the left should view skeptically the claims of the litigation lobby, a skepticism sadly disappearing from the political discourse as the Democratic Party more and more reflexively adopts the positions of trial-lawyer benefactors at the expense of its other constituents. But Geoghegan’s attempt to blame conservatives for the increased role of litigation in society suffers from non sequiturs, self-contradictory arguments, and a general failure to engage his opponents’ arguments fairly.
Thanks to those at Overlawyered who commented on an earlier draft and helped make the paper better by reminding me that political contributions were a revealed preference.
Blogger Rogier van Bakel is furious (via Balko (h/t Slim)) at his local SPCA because they would rather put a dog to sleep than place it with his family with small children. See, they’re worried about getting sued if the dog bites one of the children. van Bakel can’t believe it: he’s even willing to sign a waiver!
His anger is misdirected. The SPCA didn’t kill his dog; trial lawyers did. Courts’ failure to recognize the right of parties to contract out of excessive liability means that the SPCA has to protect itself against attorneys, and can only do so if they avoid situations where they might be sued. With 20/20 hindsight, the would-be John Edwards will say to a jury: “The SPCA has placed other dogs that bit small children and has been sued for it, yet they continue to place dogs with small children!”, and demand punitive damages. Between judges who won’t recognize the right of contract when it interferes with a lawyer’s paycheck, and legislative efforts to prevent parties from agreeing to contract out of the high costs of the liability system, von Bakel cannot distinguish himself from the families who would blame the SPCA if a dog-attack occurs. The offer of a waiver does not help: the SPCA can’t afford to take the risk that an adoptive family will renege on its agreement not to sue if the dog attacks a child.
Now, perhaps we as a society do not want shelters to place animals in homes with small children. Or perhaps we do. But shouldn’t that be a decision that rests with a legislature, rather than random chance and a jury? But when a jury has the power to exact uncapped damages, an SPCA has to anticipate the regulation through litigation.
van Bakel and Balko direct readers to other organizations that have not yet been saddled with a lawsuit demanding such practices, but they will surely follow in the SPCA’s footsteps when the lawyers get a hold of them. The long-term solution is to insist on elected officials who will appoint judges who respect freedom of contract, and who will pass tort reform measures that put common-sense limits on the power of courts to interfere with every-day activity. Even now in Congress is debating S. 1782, which would put further limits on the power of consumers to opt out of expensive litigation, and receive the benefits of lower costs and increased choice; while President Bush will veto such legislation, an Obama administration with a Democratic Congress would surely vote it into law.
For more on the Congressional and trial-lawyer campaign to reduce consumer choice, see the Overlawyered arbitration section.
Apologies to Mr. van Bakel for the misspelling of his name in the original version of the post.
Stan Liebowitz writes in the New York Post:
Perhaps the greatest scandal of the mortgage crisis is that it is a direct result of an intentional loosening of underwriting standards – done in the name of ending discrimination, despite warnings that it could lead to wide-scale defaults. …
In an earlier newspaper story extolling the virtues of relaxed underwriting standards, Countrywide’s chief executive bragged that, to approve minority applications that would otherwise be rejected “lenders have had to stretch the rules a bit.” He’s not bragging now.
I’m not sure I entirely agree, but it’s an element we should be considering as we look at the new complaints of “racial discrimination” through excessive sub-prime loans.
I’ll be speaking in Washington, D.C. this Wednesday and again on Friday. On Wednesday, I’ll be at the Cato Institute at noon (there’s even an audio feed) commenting on Robert Levy’s new book Shakedown. On Friday, I’ll be part of a panel discussion that starts at 1:30 at the Mayflower as part of the Federalist Society’s annual National Lawyers Convention, discussing regulation through litigation with a panel that includes Michigan Supreme Court Justice Robert Young Jr. and Northeastern Law’s Richard Daynard, among others.
Next week I’ve giving talks on Tuesday (Nov. 16) at two law schools in New York City, in both case sponsored by Federalist Society chapters. I’ll speak at Fordham in Manhattan at 12:30 and then at Brooklyn Law School at 4 p.m.