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CLEANING HOUSE
Governor Schwarzenegger looks to give California
a fresh start by sweeping away lawsuit abuse.
When Arnold Schwarzenegger ran for governor in California's 2003 recall election,
Trial Lawyers, Inc. fought hard to keep the Austrian-born actor out of office.
The plaintiffs' bar pumped almost $2 million into the recall race to support
incumbent governor Gray Davis and Lieutenant Governor Cruz Bustamante.[146]
The Consumer Attorneys of California—Trial Lawyers, Inc.'s public-relations
arm for the state—forecast judicial doom under a Schwarzenegger administration.[147]
The typically savvy litigation industry had reason to be afraid. Having long relied on political influence to stymie reform, the trial bar knew that
in Schwarzenegger they faced a leader whose charisma would enable him to take his case directly to the people and circumvent Sacramento gridlock
—no mere cliché, given California's thriving tradition of voter initiatives. Although the state still has far to go, early results are promising.
Recent Reforms
One of Governor Schwarzenegger's first policy successes was his overhaul of
California's dysfunctional workers' compensation system. California has the
nation's longest disability absences, and the state's workers' comp program
cost two to three times the national average.[148] Threatening
to take the issue to the voters by referendum, the Governator forced the legislature
to enact a badly needed reform.[149]
The comprehensive reform requires injured workers to seek immediate medical
care to get them back on the job sooner.[150] The bill
caps temporary disability payments at two years and has adopted the American
Medical Association's methodology for determining whether a disability is permanent.[151]
Payments for permanent disability have been reduced for less serious injuries
but almost doubled for the most severe ones; thus, the law is hardly an exclusively
pro-business reform.[152] Though the legislation is certainly
not perfect—e.g., litigation over what constitutes a "permanent disability"
will surely follow[153]—it was a resolute step in the right
direction and a sharp rebuke to Trial Lawyers, Inc.
Governor Schwarzenegger was less successful in reforming punitive damages in
the state. Schwarzenegger proposed that 75 percent of all punitive-damage awards
should go to the state, rather than to claimants or their attorneys[154]—the
theory being that since punitive damages are intended to deter egregious conduct
rather than compensate injury, the plaintiff is not really entitled to the funds.
Schwarzenegger's reform proposal would also have mandated that punitive damages
only be awarded once for any "single act or omission," thus ensuring that multiple
juries could not punish the same conduct over and over.[155]
Unfortunately, the trial bar's Sacramento allies undid the governor's proposal.
Politicians like Santa Ana Democrat Joe Dunn, who received over $350,000 from
trial lawyers for his 2002 reelection (31 percent of his entire war chest),
pressed changes in the new law that stripped it of meaningful reform: it lacks
the multiple-punitive-awards prohibition and assures plaintiffs' lawyers 25
percent of the government's take.[156] Moreover, the bill
only applies to lawsuits filed after August 2004 and adjudicated by the end
of June 2006.[157] Since few large cases will reach a final
judgment so quickly, the law accomplishes little.
Despite the punitive-damages law's failure, reformers push ahead on other fronts,
such as last year's Proposition 64, which sought to eliminate section 17200's
perverse provision allowing suits to be filed without a client and without establishing
actual injury.[158] Trial Lawyers, Inc. fought vigorously
to defeat the measure, spending $4.5 million, largely on television commercials
in the weeks before the election.[159] The Consumer Attorneys
of California ponied up $725,000 to fight the referendum, and its then-president
James Sturdevant gave $415,000 of his own money.[160] Litigation-industry
leaders Bill Lerach, Elizabeth Cabraser, and Brian Panish forked out between
$50,000 and $150,000, as individuals or through their firms.[161]
Ultimately, however, 59 percent of California's voters supported Prop 64, in
large part due to the endorsement of Governor Schwarzenegger and a well-planned
campaign that attracted financial support from a broad spectrum of the business
community and "vote yes" editorials from the state's major newspapers.[162]
Two appellate courts have already ruled that the proposition applies retroactively
to all pending litigation.[163]
Agenda for the Future
So where does California go from here? Reformers should
follow up on Prop 64 by limiting the costly "bounty hunter" regime Prop
65 has instituted (see
"Another Gold Rush"). Protections against abusive construction-defects
litigation should be extended to single-family homes (see
"Housing Constriction"). The
state should reform its byzantine wage-and-hour laws (see
"The Boss in the Crosshairs"). And the state should eliminate the
perverse role its public-employee pension funds play in federal securities
litigation by shifting to privately managed accounts, as the governor
has proposed (see
"Pension Politics").
Moreover, the state must get a handle on its asbestos-litigation problem. Over
2,000 asbestos cases are still pending in northern California, with the Bay
Area threatening to become the center of the asbestos-litigation storm. The
San Francisco courts have attracted forum-shopping litigators by rapidly processing
multiple cases without sufficient inquiry into the merits of each;[164]
to restore due process of law for defendants and plaintiffs alike, the state
must put a brake on this activity and permit each claim to get the fair hearing
it deserves.[165]
California also must reform its class action procedures. The recently adopted
federal Class Action Fairness Act prevents national class actions from being
filed in state courts, which will force Trial Lawyers, Inc. to file more state-centered
cases.[166] Expect California to be their favored destination:
it's the nation's most populous state, and no procedure exists under California
law for appealing class certification before trial—a right that exists in federal
court and many other states.[167] Thus, a single judge
elected with trial-bar money can determine a class on whose behalf Trial Lawyers,
Inc. can sue; businesses, unable to appeal that determination to a higher court,
are forced to settle.
Finally, California should change the way its courts award fees,
which are unconscionably high, and which allow Trial Lawyers, Inc. both
to invest in new litigation efforts and to purchase the political in.uence
that makes those efforts pay off.[168] In addition
to reversing the California Supreme Court's misguided adoption of the
"catalyst fee" theory (see
"Another Gold Rush"), the state would be well advised to adopt an
"early offer" settlement mechanism to speed case resolution and prevent
unscrupulous attorneys from exploiting unsophisticated clients. In addition,
the state should adopt a "loser pays" rule—consistent with most of the
rest of the world—to discourage meritless claims.[169]
The prospects for such reforms in California are the best they have been in two decades. With Governor Schwarzenegger's considerable political
muscle, the state may soon be able to say "hasta la vista" to some of Trial Lawyers, Inc.'s most egregious lawsuit abuses.
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MICRA’S POWERFUL PRESCRIPTION
One long-standing California reform success is the 1975 Medical Injury Compensation
Reform Act (MICRA),[170] which has made medical malpractice
litigation in the state a notable exception to the generally bleak lawsuit landscape.
Due to MICRA, California has escaped the much-publicized medical malpractice
liability crisis, which has led doctors in many states to abandon high-risk
but crucial procedures, retire early, and move to less tort-friendly jurisdictions.[171]
MICRA has been so successful at containing medical malpractice liability costs
that President Bush has urged the legislation as a model for medical malpractice
liability reform at the federal level.[172] How does MICRA
work? The law caps medical malpractice liability awards for noneconomic damages—hard-to-quantify
losses such as pain and suffering, mental anguish, and emotional distress—at
$250,000.[173] MICRA also limits the percentage that plaintiffs'
lawyers receive from awarded judgments, setting their contingency fees according
to a sliding scale that goes down as awards go up.[174]
MICRA's results have been dramatic. In the law's first 27 years, California’s
medical malpractice insurance premiums increased 245 percent, compared with
750 percent for the rest of the nation.[175] A recent study
by the RAND Institute examined a database of 257 California jury verdicts in
med-mal cases between 1995 and 1999 in which the plaintiffs won, and found that
MICRA reduced total payouts 30 percent on average.[176]
The fee caps affected fewer than half of all cases.[177]
Moreover, due to the attorney-fee restrictions, the average plaintiff recovery
fell by only half as much as payouts, i.e., patients kept a higher percentage
of the smaller judgments.[178] For the average noneconomic
damage award, the typical plaintiff recovery actually increased 7 percent, and
for 97 percent of all verdicts, the patient's payout fell by 7.5 percent or
less.[179] The average attorney award, RAND noted, fell
by 60 percent.[180] So while Trial Lawyers, Inc. suffers
under MICRA, the law has been nothing but salutary for California's doctors
and citizens.
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146. See Trial Lawyer Campaign Spending Update, supra note 24.
147. See Jeff Chorney, Arnold's Agenda, RECORDER, June 16, 2003,
available at http://www.law.com/ (last
visited Mar. 7, 2005).
148. Daniel Weintraub, It's Not Perfect, But Workers' Comp Deal Works,
OAKLAND TRIB., Apr. 20, 2004, at Op-Ed.
149. See Excerpts of Governor Schwarzenegger's Remarks at Workers' Compensation
Bill Signing, Apr. 19, 2004, available at http://www.governor.ca.gov/
(last visited Mar. 6, 2005)
150. See 2004 Cal. Legis. Serv. Ch. 34 (S.B. 899) (West); CAL. LABOR CODE
§ 139.48 (West 2005); Weintraub, supra note 148.
151. See CAL. LABOR CODE §§ 4060(b)(1), 4656(c)(1) (West 2005); Jim Wasserman,
California Lawmakers Approve Overhaul of Workers' Compensation, AP, Apr.
16, 2004.
152. See Weintraub, supra note 148.
153. See CAL. LABOR CODE §§ 4062.1, 4062.2 (West 2005).
154. See, e.g., Walter Olson, More Punitives to the People!, WALL
ST. J., June 2, 2004.
155. See Victor E. Schwartz et al., New California Law Grants State
75% of Punitive Damage Award, Washington Legal Foundation Legal Opinion
Letter, Sept. 3, 2004, available at http://www.wlf.org/upload/090304LOLSchwartz.pdf
(last visited Mar. 7, 2005).
156. See Political Spending 2002, supra note 23; Governor Signs Bill Adopting
Court Budget Reform, Giving State Share of Punitive Damages, METROPOLITAN (L.A.)
NEWS ENTERPRISE, Aug. 18, 2004, at 1, available at http://www.metnews.com/articles/2004/bill081804.htm
(last visited Mar. 7, 2005); Schwartz et al., supra note 155, at 2.
157. See id.
158. See Olson, supra note 26.
159. Statement of John Sullivan, President, Consumer Attorneys of California (Mar. 3,
2005).
160. Website of the California Secretary of State, supra note 113.
161. Id.
162. See Said, supra note 29, at C1.
163. See Justin Scheck, Another Appeal Court Says Prop 64 Retroactive,
RECORDER, Feb. 11, 2005.
164. See Anderson & Martin, supra note 33, at 1-2.
165. See id. at 39-40.
166. See Class Action Fairness Act of 2005, Pub. L. 109-2, 119 Stat.
4 (2005); see also Stephanie Mencimer, Backlog or Backfire?, AM.
PROSPECT ONLINE, Feb. 16, 2005, available at
(last visited Mar. 7, 2005).
167. Compare Blue Chip Stamps v. Superior Court, 18 Cal.3d 381 (1976)
(determining that a grant of class certification is not a final order and not
appealable, only challengeable with a writ of mandamus), with 28 U.S.C.
§ 1292(f) (2005) (providing for interlocutory appeal of class certifications
in federal court), and Ill. S. Ct. R. 307(a)(8) (2005) (same for Illinois courts).
168. See Lester Brickman et al., MANHATTAN INSTITUTE RESEARCH MEMORANDUM
(1994).
169. See Walter Olson, Loser Pays Overview, POINTOFLAW.COM, May
21, 2004, at http://www.pointoflaw.com/loserpays/overview.php
(last visited Mar. 7, 2005).
170. Stats. 1975, 2nd Ex. Sess., c. 1.
171. See Trial Lawyers, Inc., supra note 57, at 12.
172. See Press Release, President Discusses Medical Liability Reform,
Jan. 5, 2005, at http://www.whitehouse.gov/news/releases/2005/01/20050105-4.html
(last visited Mar. 7, 2005).
173. See NICHOLAS M. PACE ET AL., RAND INSTITUTE FOR CIVIL JUSTICE, CAPPING
NON- ECONOMIC AWARDS IN MEDICAL MALPRACTICE TRIALS: CALIFORNIA JURY VERDICTS
UNDER MICRA xvii (2004).
174. See id.
175. National Association of Insurance Commissioners Profitability
Index (2003) (showing increase in annual California premiums from $228 million
to $787 million from 1976 to 2002, versus an increase from $958 million to $8.15
billion nationally, excluding California) [hereinafter NAIC Profitability Index].
176. Pace et al., supra note 173, at 38, fig.4-2.
177. Id. at 20-21.
178. Id. at 38, fig. 4-2.
179. Id. at 39, tab. 4-1; Curtis E. Harris, Limits in MICRA Tort Reform
Felt Mostly by Lawyers—Not Patients, at http://www.ama-assn.org/amednews/2005/01/17/edlt0117.htm#1
(last visited Mar. 7, 2005) ("Based on my calculations, the average net capped
award received by 97% of the patients reported was reduced by only 7.5%, and
in most cases even less than that.").
180. Pace et al., supra note 173, at 36, fig. 4-1.
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