Overlawyered: Chronicling The High Cost Of Our Legal System

Posts Tagged ‘loser pays’

Litigation and the honest working guy

Don Brunell, president of the Association of Washington Business, in the Daily Columbian (via Carter Wood):

There is a mistaken assumption that a small proprietor slapped with a lawsuit simply lets his insurance company handle it. Wrong. Many business owners shoulder the costs themselves out of fear of higher premiums or the risk that their insurance company will cancel their coverage. Some start-up businesses simply cannot afford liability insurance. In fact, the [Institute for Legal Reform] study shows that, in 2005, small business owners paid $20 billion out of their own pockets for court costs and out-of-court settlements.

Finally, the smallest businesses, those with revenues of less than $1 million, paid $31 billion in lawsuit-related costs. Let’s put that in perspective. These businesses, which represent just 6 percent of total business revenues, paid more than 20 percent of the national tort tab. These lawsuits really do hit the “little guy” who struggles to make ends meet.

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Update: Kia Franklin and Roy Pearson and the $67 million pants

I’d like to make a correction. In my earlier post, I suggested that Milberg Weiss Justice Fellow Kia Franklin thought that Judge Roy Pearson’s $67 million lawsuit over a pair of pants was frivolous. I appear to have been mistaken in attributing such a common-sense view to her. Franklin has a lengthy post protesting that, while she thinks Pearson’s lawsuit is “ridiculous” and “crazy” (she has also called it “obscene”), she does not think it is “frivolous.” We regret the error.

But it is a useful illustration: when those who oppose civil justice reform say they don’t think frivolous litigation is a problem, it is because they define “frivolous litigation” so narrowly that even Roy Pearson’s lawsuit is not frivolous in their eyes. Well, that’s one way to make problems go away, by using doublespeak or narrow technical legal definitions to pretend they don’t exist instead of suggesting that there is a problem with the narrow technical legal definition.

Read On…

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Roy Pearson pants suit: the bottom line

Our editor, Walter Olson, in today’s Wall Street Journal:

A few observations:
• Phrases like “Do you realize I’m a lawyer?” uttered in the course of routine disputes with storekeepers, neighbors, school principals, etc., probably account for more of the legal profession’s aggregate unpopularity than any number of scandals in the actual representation of clients.

• David and Goliath talk notwithstanding, legal action is often a powerful dis-equalizer of the playing field, as those who know how to work the system fleece the outsiders, the novices, the distracted and the trustful.

• Pretty much every other advanced country would have afforded the Chungs better protection against a lawsuit like this. Under proper “loser-pays” rules, the Chungs would be correctly construed as having won even if Mr. Pearson proves damages of, say, $1,000, since they would have prevailed on the actual issues in dispute. D.C. does have a weak “offer of judgment” rule that might let the Chungs recover some miscellaneous court costs — but not their major expense, lawyers’ fees — if Mr. Pearson loses or wins but a token sum. So even if they win, they’re bound to lose.

• The other source of Mr. Pearson’s power — his ability to hold the threat of huge penalties over the Chungs’ heads — arises from consumer laws that encourage complainants to multiply the stated penalty for a single infraction by the whole universe of a business’s clientele, or by all the days in the calendar, with no need to prove actual injury.

This sort of mechanical damage-multiplication has been a key engine in shakedown scandals in California (where roving complainants have mass-mailed demand letters to small businesses over technical infractions); in “junk-fax” litigation demanding billions from hapless merchants in Texas, Illinois and elsewhere; and in important sectors of litigation aimed at bigger businesses, including claims against credit-card providers and purveyors of “light” cigarettes. Whole dockets’-worth of opportunistic litigation would dry up if we revised these laws so as to require a showing of actual injury. Doing so would require overcoming epic resistance from the litigation lobby.

It’s nice to see that even the organized plaintiffs bar piously deplores Mr. Pearson’s abuse of the law. It would be even nicer if they agreed to stop opposing reforms that would give the Chungs of the world a fighting chance the next time around.

Earlier: June 17; June 14; Apr. 26; et cetera.

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The Litigation Lobby’s “frivolous” bait-and-switch: the Judge Roy Pearson pants-suit

Second Milberg Weiss Justice Fellow, same as the first? Bizarro-Overlawyered twists itself into contortions over the infamous $54 million Judge Pearson pants-suit. Cyrus Dugger’s replacement as Milberg Weiss Justice Fellow, Kia Franklin, recognizes that the anti-reform cause can’t be seen endorsing the patently-ridiculous lawsuit that is the laughingstock of the world. So, she dances over the issue: yes, this case is frivolous, but frivolous cases are rare, so there are no lessons to learn from the fact that a small business was forced to pay tens of thousands of dollars litigating an overbroad consumer-fraud claim, to the point that it was willing to pay $12,000 over a pair of pants to make the lawsuit go away and stop the financial bleeding.

Her evidence is a Public Citizen study—but she ignores our 2006 post noting that Public Citizen got its math wrong, and even distorts the distorted statistic beyond what Public Citizen claimed. (Public Citizen gerrymandered its claim to falsely say businesses were 69% more likely to be sanctioned for frivolousness than individual tort plaintiffs, but Franklin misreads that to say individuals, which is false even by Public Citizen’s numbers, which found by its own measure that individuals were sanctioned for frivolousness 86% more often than corporations. Note also the difference between the inaccurate “more likely” and “more often.”)

The really funny thing is that, under the Public Citizen narrow definition of “frivolous lawsuit” used in its study, Judge Pearson’s suit is not frivolous! When politicians speak of “frivolous” cases, they use it in the everyday English sense of “silly”: they mean the meritless cases, where, because of far-fetched legal theories, junk science, or overbroad liability rules, plaintiffs seek or realize recovery far beyond what makes good social policy—cases like Roy Pearson’s. Public Citizen’s study, however, in a typical litigation-lobby bait-and-switch (see, e.g., the Kerry/Edwards malpractice reform plan), defines “frivolous” with the narrow technical legal definition so that it can conclude (like Franklin) that frivolous litigation is “rare” and thus not a problem. (Amazing how many problems disappear when you assume them away.) The definition is so narrow that Pearson’s suit is outside of it: Pearson defeated motions to dismiss and for summary judgment, and received a $12,000 offer of judgment. (Pearson is apparently sufficiently emotionally troubled that he thinks he has a better shot seeking tens of millions from a couple of immigrant Korean dry cleaners than the thousands of dollars offered in settlement for a pair of pants, even though the judge who will be ruling on his case has given him plenty of hints that he has no hope of success.) The Pearson suit would have been excluded from Public Citizen’s count of frivolous suits for a second reason: Public Citizen ignored pro se lawsuits brought by attorneys like Pearson in its count of frivolous suits, as it had to to deflate the number of sanctions issued against individual tort plaintiffs and falsely claim that corporations are sanctioned more often.

We’re excited to see Franklin join the world of reformers and recognize that many more lawsuits are frivolous than what Public Citizen recognizes. We encourage her to read the data and arguments of those she mistakenly claims to oppose, and to scrutinize those she mistakenly thinks are her allies a bit more closely. Why is it alright for wealthy white trial lawyers to extort billions from big business using the same ad terrorem tactics (and even the same consumer-protection laws!) as a poor African-American pro se did to extort $12,000 from a small business? We encourage Franklin to examine the Association of Trial Lawyers of America’s racial double-standard.

And since Franklin agrees that the Pearson lawsuit is frivolous, we are eager to hear how she would define a frivolous lawsuit, and hope that she uses that definition consistently for both the Milberg Weisses of the world as well as African-American city employees.

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Update: Australian’s failed suicide try

A 19-year-old Australian who fell from a tree and was left quadriplegic after a failed suicide attempt has failed in his effort to lay legal blame on a mental hospital that had discharged him eleven days earlier. Timothy Walker “sued the Sydney West Health Service for negligence, claiming not enough was done to care for him prior to the accident. He claimed the hospital should have prescribed him anti-depressant or anti-psychotic medication, counselled him and detained him as an involuntary patient for at least two weeks for assessment.” However, a judge found that the health service had not rendered substandard care, that it properly declined to prescribe antidepressants because Walker would not promise to stay off liquor, and that it had followed up with home visits after Walker’s discharge, during which he reported feeling better. Walker will, at least notionally, be liable for the hospital’s legal expenses under the rule that costs follow the event (sometimes known as the “everywhere-but-America rule”). (Alyssa Braithwaite, “Would-be suicider fails in hospital sue bid”, AAP/Daily Telegraph, May 25). Earlier: May 9.

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“Pro Bono” doesn’t mean cheap

One of the secrets of so-called “pro bono” work is that it often isn’t pro bono at all. Instead, it’s really contingency work: firms don’t bill their clients, but if they win, they recover their fees under various statutes, such as the Voting Rights Act, that require the loser — often the government — to pay the attorneys fees of the winner. These statutes are designed to incentivize law firms to take these cases — cases where the plaintiffs often can’t pay and where there’s no big monetary award at stake from which the attorneys can take a cut.

But if the attorneys would take the cases anyway, even if they didn’t get paid all that money, does it really make sense for the courts to award them all their fees? Last month, in a Voting Rights Act case, the Second Circuit said, “Not necessarily.” (PDF.) Rather, the courts should look at how much the plaintiffs would have to pay in the marketplace to convince lawyers to take the cases, and should award fees on that basis. The courts should consider whether these lawyers are really taking the cases “to promote the lawyer’s own reputational or societal goals” — and if so, the court should only award a portion of the fees. (One factor the Second Circuit glosses over is that many of the large law firms that take these cases — Gibson, Dunn & Crutcher handled this particular case — don’t really care about the fees; they really use these cases as a way to provide free training to their younger attorneys without having to risk cases involving their paying clients.)

(Gibson, Dunn’s credibility when making their fee request presumably wasn’t enhanced by the fact that they had previously tried to bill over $100,000 for 300 hours of work when “the entire argument section of the brief on this single-issue appeal occupied barely six pages.”)

But Adam Liptak (Time$elect, May 28) reports that many civil rights groups and other “public interest organizations” are up in arms over this decision, terrified that they might be forced to shop around for attorneys instead of getting taxpayers to pay for attorneys at the highest big firm rates for their causes:

In a flurry of legal filings last week, the lawyers, supported by two bar associations and 29 public interest organizations — including the Urban Justice Center, Public Citizen, the Natural Resources Defense Council and several affiliates of the American Civil Liberties Union — begged the court to reconsider.

“It really is a dangerous decision,” said David Udell, a lawyer with the Brennan Center for Justice at New York University, which represents the public interest groups. “What the court does is say that legal work is less valuable when the lawyers’ hearts are in it.”

That’s not actually what the court said at all; what the court said was that lawyers shouldn’t get paid more by taxpayers than they would if they were hired on the open market.

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May 8 roundup

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