Six months ago the Delaware Supreme Court upheld the right of an enterprise to include a loser-pays provision in its bylaws, specifying that losing shareholder-litigants would have to contribute reasonable legal fees to compensate what would otherwise be loss to other owners. Since then there’s been a concerted campaign to overturn the ruling, either in the Delaware legislature or if necessary elsewhere. But as I argue in a new Cato post, allowing scope for freedom of contract of this sort is one of the best and most promising ways to avert an ever-rising toll of litigation. Contractually specified alternatives to courtroom wrangling have played a vital role, and are under attack for that very reason, in curbing litigation areas like workplace and consumer arbitration, shrinkwrap and click-through disclaimers of liability, and risk disclaimers at ballparks and elsewhere. (& Stephen Bainbridge).
To the extent America has made progress in recent years in rolling back the extreme litigiousness of earlier years, one main reason has been the courts’ increased willingness to respect the libertarian and classical liberal principle of freedom of contract. Most legal disputes arise between parties with prior dealings, and if they have been left free in those dealings to specify who bears the risks when things go wrong, the result will often be to cut off the need for expensive and open-ended litigation afterward.
More on the Delaware bylaw controversy: D & O Diary (scroll), Andrew Trask on state of the merger class action, WSJ Law Blog first and second, Daniel Fisher, and ABA Journal in June, Alison Frankel/Reuters (forum selection bylaws).
Organized trial lawyers usually don’t make minimum wage increases a top priority, but they may do so in order to deprive incoming GOP Gov. Bruce Rauner of leverage he might use to extract liability reform. [Rich Miller, Crain's Chicago Business]
…circa 1897,” in Chicago. It is well recognized that a legal culture of entrepreneurial claims-making and suit-filing, especially as regards road and transport mishaps, had emerged in some large American cities by the early Twentieth Century. But its development in all likelihood can be traced to even earlier points than that, perhaps stimulated in part by the widespread electrification of urban streetcar lines (previously animal-drawn) in the early 1890s. [Kyle Graham]
Fifty years ago yesterday the Supreme Court handed down its greatest tort reform decision — just for you. [Related 2003 Baseball Crank post on federalism.]
…the U.S. Supreme Court heard argument in what was to become one of its most celebrated tort reform decisions. A profitable national manufacturer had been sued in a distant rural state in which it was decidedly unpopular, resulting in a runaway jury verdict which it sought to challenge on appeal. Pointing out the disadvantages of unpredictable and locally variable tort standards, the corporation’s lawyers pushed for a more uniform and modern standard of liability suited to a nationwide market, which the high court agreed unanimously to develop for the occasion and impose on state courts. And ever since 1964, the winning party in the case — that is to say, the New York Times Company — has taken a sympathetic editorial interest in the plight of other national businesses subjected to runaway verdicts in local courts.
Well, OK, maybe not that last sentence. But the rest of it did happen, in the celebrated case of New York Times v. Sullivan.
Per Eugene Volokh‘s new article, a wide range of actors from landlords to employers to colleges to product manufacturers correctly see themselves as being at legal risk if they don’t surveill, probe, and share information about those they deal with:
Gathering or disclosing information about people’s backgrounds, tendencies, and actions is increasingly inexpensive, and increasingly effective at helping avoid, interrupt, or deter harm. …Failure to take those precautions thus becomes negligent. … Failure to provide camera surveillance is now a common claim in negligence cases.
An especially fertile source of such incentives is the duty (much expanded by modern developments in liability law) to take reasonable precautions against criminal acts by others. It will soon be feasible at low cost, if it is not already, for automakers to install electronic components in new cars that send a warning communication — to police monitors, for example — when a motorist tries to drive at very high speed. What will happen after automakers begin to be sued after accidents for not installing such components?
They’ve reconvened, trying to enact a set of litigation reforms the state’s high court won’t just strike down [The Oklahoman, Tulsa World, earlier]
Some had urged the state’s highest court to abandon the old common-law standard in favor of a comparative negligence standard, but the court said any such move will need to come from the Maryland legislature. [Daily Record, earlier; Coleman v. Soccer Association of Columbia]
I’ve got a guest column up at the widely read PowerLine blog, my first there, countering misleading criticisms of the Protection of Lawful Commerce in Arms Act in the Washington Post and elsewhere. Rep. Adam Schiff (D-Calif.) is trying to rally efforts to gut or repeal PLCAA in line with the critics’ charges, but his efforts have picked up little traction thus far.
P.S. Thanks to Eugene Volokh for the link and kind words (“I generally quite agree with it, except that the title (‘six myths about the law that bans gun lawsuits’ is imprecise — the law bans many lawsuits against gun manufacturers and dealers, but by no means all,” citing the law’s sec. 4(5)(A).)
A new empirical study from Joanna Shepherd (Emory) in the Vanderbilt Law Review looks at the question (via Chris Robinette/TortsProf). Among the conclusions:
My empirical results indicate that several reforms that restrict the scope of products liability have a significant impact on economic activity. Statutes of repose that limit the time period for which manufacturers are liable for product defects, comparative negligence reforms that reduce damage awards when plaintiffs engage in negligent activity, and reforms that eliminate strict liability for nonmanufacturer product sellers are all associated with statistically significant increases in economic activity. Specifically, my results suggest that these reforms increase the number of businesses, employment, and production in the industries that bear most of the products liability claims: the manufacturing, retail, distribution, wholesale, and insurance industries.
In contrast, other reforms have a weak effect on economic activity. My results suggest that caps on noneconomic damages and reforms to the traditional collateral source rule are only weakly associated with increases in economic activity. Meanwhile, caps on punitive damages and reforms eliminating joint and several liability are weakly associated with decreases in certain measures of economic activity.