TCS Daily

Delay No Longer

By Pejman Yousefzadeh - April 8, 2002 12:00 AM

Despite President Bush's record approval ratings, and the particularly strong praise that he has garnered for the war on terrorism, much of the rest of his program is languishing.

On the one hand, many important elements of the President's domestic program are mired in gridlock and delay. Judicial nominations, for example, are being blocked and held up by Senate Democrats.

Moreover, the President has been forced to go on the defensive, making the politically embarrassing about-face on the issue of campaign finance reform by signing a piece of legislation that is plainly unconstitutional. And the administration has instituted steel tariffs of up to 30% in a move that shocked supporters (and free markets).

So the President should follow the example he set for himself with the war on terror and seize the initiative in domestic policy. And if the President wants to turn his attention to a pressing domestic need that will win him political points, he can do no better than to take on the issue of tort reform, an issue he tackled as Governor of Texas.

According to the American Tort Reform Association, the cost of the U.S. tort system in 1994 was $152 billion. Over the past ten years, that cost has increased 125%, and now consumes 2.2% of GDP. Plaintiffs' firms know that most defendants would rather settle a case than see an issue through trial, even if they feel that they would actually win at trial. Corporate defendants do not want to shell out the large amounts of money necessary to litigate to a verdict, since they will incur massive legal costs no matter what. This system amounts to a huge business tax - a cost that is ultimately paid by consumers.

Additionally, corporate defendants do not want allegations of wrongdoing to hurt their image. This means that in many instances where the charges against a corporate defendant are frivolous, the plaintiffs' firms will nonetheless be rewarded by a big, fat settlement. While there are certainly corporate defendants that are worthy of condemnation, the current system is simply too prone to abuse.

Due to the influence of certain special interests, tort reform has not had the success that its proponents have long envisioned. Trial lawyers and lobbyists are one of the Democratic Party's most potent sources of support. For the 2000 general election cycle, Democratic candidates amassed over $85 million from lawyers and lobbyists (Republicans received over $41 million). This support comes as a reward for the Democrats' constant and unyielding opposition to significant tort reform measures.

There has, however, been some progress. In 1995, the year the Republicans took complete control of both chambers of Congress for the first time in 40 years, Congress passed the Private Securities Litigation Reform Act (PSLRA) over President Clinton's veto (the only time President Clinton ever lost a veto fight). The PSLRA mandated, among other things, heightened standards for pleading securities fraud.

Those standards were more fully defined by the 9th Circuit Court of Appeals in In Re Silicon Graphics. There, the court ruled that plaintiffs in a securities class action must "plead with particularity." This means that pleadings must be specific as to the fraud committed, the damage caused by the fraud, and the evidence that back up the plaintiffs' claims. Plaintiffs can no longer institute vague and general allegations of securities fraud, confident in the knowledge that they would likely receive quick and instant offers of settlement from their target defendants. Instead, plaintiffs have had to belly up to the bar and offer specific allegations. Otherwise, their cases are dismissed.

The Bush Administration should propose a tort reform package that adopts this particularity requirement. The Federal Rules of Civil Procedure, which govern civil lawsuits in federal court, should be amended to prevent plaintiffs from being able to go on fishing expeditions with regard to the discovery of evidence.

One of the abuses targeted by the passage of the PSLRA was the plaintiff tactic of putting forth vague pleadings with the knowledge that even if a court dismissed the pleading as not being particular, it would grant the plaintiffs leave to amend. The plaintiffs would use that time, and the time in between their first filing and the court's decision, to continue fishing for evidence. This should no longer be allowed. Allegations should be specific and particular at the start of litigation.

The Federal Rules should only allow plaintiffs one or two opportunities to present a specified and particular pleading, dismissing with prejudice complaints that fail to do so as long as there is no substantial showing of discovery fraud on the part of defendants. This will help ensure a more honest and forthright litigation system. It will also deter plaintiffs from instituting weak actions that are solely designed to foster a lucrative settlement from frightened defendants.

For years, a lax judicial system has allowed unscrupulous plaintiffs to engage in officially sanctioned blackmail by suing corporate defendants on weak grounds, knowing that the defendants will eventually bow to public and economic pressures, and reward plaintiffs with a settlement they do not deserve. It is high time to end this sorry state of affairs. Sensible and intelligent tort reform can do exactly that, and can bring sanity to our business and legal relationships.

The writer is an attorney living in Southern California. He edits the blog

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