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Trial Lawyers Inc.


   Trial Lawyers Inc.: K Street
    A Report on the Litigation Lobby, 2010

 

Trial Lawyers Inc. K Street
A Message from the Director
Introduction
The King of Torts
The Law Expands
Public Relations
State Government Relations
Suing for the State
Justice for Sale

Federal Government Relations
Expanding Liability
Deputizing Trial Lawyers
Attacking Arbitration
The Anti-Federalist
    Congress

Toy Story
A Trial-Lawyer Tax Break

Conclusion
Appendix
Other Resources
Media
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ONLINE PRESENTATION:

Watch and listen to Jim Copland present his new report online and listen to special guests Senator Jeff Sessions, Rep. Lamar Smith, Victor Schwartz, and Edwin Meese give their remarks on the report.

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Listen to Howard Husock, Vice President for Policy Research at the Manhattan Institute, interview Jim Copland on Trial Lawyers Inc.: K Street
OP-EDS
Lawyers' Lies and the Lying Lawyers Who Tell Them, James Copland Townhall.com, 02-23-10
Trial Lawyers Still Love Specter, James Copland, Pittsburgh-Post-Gazette, 02-15-10
Trial Lawyers: Democrats' Other Money Machine, James Copland, Washington Examiner, February 10, 2010
How the Plaintiffs Bar Bought the Senate, Wall Street Journal, James Copland, 02-09-10
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Why Liberals Are Lawyers' Puppets, The Washington Times, 2-17-10
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IN THE PRESS
U.S. Sen. Richard Durbin (D-Trial Lawyers), The Madison St. Clair Record, 2-21-10
Plaintiffs Bar Buys the Senate, John Stossel, Fox Business, 2-9-10
Conservative Group Rates Trial Bar as Most Influential, The Hill, 2-10-10
Why Not Tort Reform?, Waterbury Republican American, 2-10-10
The Litigation Lobby, Revealed, Shopfloor.com, 2-10-10
Plaintiffs Bar Buys the Senate John Stossel, Fox Business, 2-9-10
Manhattan Institute Probes Lobbying Efforts of Lawyers, John O'Brien, Legal Newsline, 2-9-10
Report Criticizes Influence of Plaintiffs' Lawyers, David Ingram, Blog of the Legal Times, 2-9-10

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FEDERAL GOVERNMENT RELATIONS: ATTACKING ARBITRATION

CONTRACT KILLING

Trial Lawyers, Inc.’s Allies in Congress Are Trying to Scale Back Private Arbitration

 

The Democrats in Washington can’t seem to decide what they think about arbitration. On the one hand, one of the top legislative priorities of the congressional leadership and the White House is the Employee Free Choice Act (EFCA),[218] which calls for mandatory arbitration of all union disputes. So deep is the EFCA-backers’ faith in arbitration that the law would even empower government-appointed arbitrators to write labor contracts from scratch when newly formed unions cannot agree to terms with management—in effect, to dictate the terms of a labor “contract” without reference to any actual underlying contract into which the parties freely entered.[219]

 

On the other hand, congressional leaders are waging an all-out war to eliminate all arbitration clauses in consumer and employment contracts. Such provisions are standard in many industries—they are indeed the only way that small injuries can ever get compensated, given the expense of litigation that often makes legal representation unavailable, because such cases offer plaintiffs’ attorneys only paltry contingent fees. But arbitration and other forms of alternative dispute resolution remove the middleman—the trial lawyer—which, to the plaintiffs’ bar’s political patrons, makes such extralegal approaches unthinkable.

 

The Value of Arbitration

In contrast to the EFCA’s heavy-handed provisions, standard employment and consumer arbitration contracts operate against a backdrop of preexisting contractual norms and rules of law. Professional arbitrators—usually senior attorneys or retired judges—resolve claims without incurring the time and expense of civil litigation, which takes, on average, more than two years[220] and can cost thousands of dollars.

 


THE ANTI-FEDERALIST CONGRESS

From the time of the New Deal onward, the Left has generally favored a strong national regulatory regime, while conservatives have generally fought its relentless expansion. It is therefore curious that the Democratic majority in Congress should be considering bills permitting tort actions to be brought under state law against the financial[242] and automobile[243] industries, for example—even if such state tort claims conflict with the federal regulatory regime.

 

State tort litigation can make a mess of the federal regulation of interstate commerce. Consider the situation in health care, one of the most heavily regulated—and litigated—industries. In 2008, the U.S. Supreme Court considered a case, originating in New York, in which a patient had been injured by the bursting of a balloon catheter during surgery.[244] The patient alleged that Medtronic, the device’s manufacturer, was at fault. The facts of the case, however, told a different tale: the catheter’s labeling—as required by the U.S. Food and Drug Administration (FDA)—indicated that it should not be used in “calcified” arteries and that it was designed to withstand only “eight atmospheres” of “rated burst pressure.”[245] As the Court noted, however, Riegel’s doctor failed to heed these warnings.[246] The artery into which the doctor inserted the catheter was “heavily calcified,” yet he attempted to force a full ten atmospheres of pressure through it.[247]

 

Fortunately, Congress included express language in 1976 statutory amendments that forbade the states from setting standards for medical devices beyond those required by the FDA.[248] On that basis, the Court made the commonsense ruling that Riegel’s lawsuit against the manufacturer was barred.[249] Unfortunately, the express preemption language that governs medical devices does not apply to all FDA-regulated products. Indeed, such clauses are rare within the federal code, much of which was written before the litigation explosion of the last five decades.

 

Perhaps unsurprisingly, the lawyer-dominated Congress is working to eliminate the statutory provision that barred Riegel’s product-liability claim. Worse, the bill in question, the Medical Device Safety Act of 2009,[250] would permit suits to proceed that stem from injuries that originated long before the law’s effective date, if otherwise valid under state law.

 

 

Thus, arbitration has served as a major avenue for providing justice to small claimants. In 2002, the American Arbitration Association handled more than 200,000 claims—a figure corresponding to roughly 80 percent of all federal civil cases.[221] In 2006, the National Arbitration Forum handled 214,000 arbitrations dealing solely with debt collection.[222]

 

Although you wouldn’t know it from the criticisms issue from the trial bar and its allies, these private arbitration systems are not tilted in business’s favor. A November 2009 study released by the Searle Center on Law, Regulation, and Economic Growth at Northwestern University School of Law examined comprehensive data sets of consumer arbitrations and found that after controlling for variations in case characteristics, consumers were more likely to prevail in arbitration than in court and that there was “no statistical difference in the amount they were awarded as a percentage of the amount sought.”[223]

 

Senator Al Franken’s first legislative success was an amendment expanding civil liability.

Americans in general realize the value of arbitration. When asked whether they would choose litigation or arbitration if they could “choose the method” of resolving “any serious dispute” between themselves and a company, 82 percent of those surveyed said that they would opt for arbitration.[224] And 71 percent said that they opposed Congress’s “remov[ing] arbitration agreements from contracts consumers sign with companies.”[225] Unfortunately, such consumer sentiment may not be sufficient to hold back Congress’s assault on contract, which is propelled by the lobbying clout of Trial Lawyers, Inc.

 

Funny Business

Before he was a senator, Al Franken (D-Minn.) entertained the public as a writer and performer on the sketch comedy show Saturday Night Live. Perhaps it’s fitting, then, that Franken’s first legislative success,[226] an amendment supported by Trial Lawyers, Inc.,[227] became the premise of comedians’ jokes and spoof websites.

 

On October 1, Senator Franken took to the Senate floor to relate the sad plight of Jamie Leigh Jones, who claimed that she was harassed, drugged, and gang-raped four days after arriving in Iraq to work for Kellogg Brown & Root (KBR).[228] Jones initially filed an arbitration complaint, then sought to sue her employer in court. KBR tried to consolidate the complaint before the arbitration panel, which Jones opposed. After three years of legal wrangling, the Fifth U.S. Circuit Court of Appeals held the arbitration clause unenforceable in Jones’s case because her claimed injury was not “related to” her employment, and the court gave Jones the go-ahead to proceed with her civil claim.[229]

 

Franken said on the floor of the Senate that three years was “simply too long for a rape victim to wait, just to have her day in court.”[230] He therefore proposed an amendment to an appropriations bill for the Defense Department that would, he said, “extend much of the Fifth Circuit’s reasoning to government contractors who continually subject workers to these so-called mandatory arbitration clauses.” But it would do so, he said reassuringly, only by “narrowly target[ing] the most egregious violations.”[231]

 

When thirty Republican senators voted against Franken’s amendment, they became fodder for comic ridicule. The Daily Show’s Jon Stewart exclaimed, on the air, “I understand we’re a divided country, some disagreements on health care. How is anyone against this?”[232] A video posted on the website of MSNBC’s Rachel Maddow went viral, the Democratic Senatorial Campaign Committee went on the attack,[233] and the Republican senators were mocked on a spoof Internet site, www.republicansforrape.org.

 

The problem with the comedic and political reaction is that Franken’s amendment was not, as he claimed, “narrowly targeted.” Rather, Franken’s legislation makes any arbitration clause in the employment contracts of any defense contractor inapplicable to “any claim under Title VII of the Civil Rights Act of 1964” or “any tort related to or arising out of” an “intentional infliction of emotional distress” or “negligent hiring, supervision, or retention.”[234] In essence, Franken’s amendment prevents every defense contractor from contracting with its employees to choose private arbitrators over the civil courts to resolve virtually any kind of employment dispute—a far broader provision than Franken’s invocation of the gruesome allegations in Jones’s case would suggest. But given the public caricature of Franken’s amendment, it is unsurprising that it made it into the final law.[235]

 


TOY STORY

On October 12, 2009, lawyers at the class action firm Coughlin Stoia Geller Rudman & Robbins reached a settlement with toy maker Mattel and its Fisher-Price subsidiary resolving a suit over the 2007 recall of 967,000 toys, manufactured in China, that may have contained lead-based paint.[251] The lawyers stand to pocket a hefty $12.9 million in fees[252]—likely to be a high percentage of the total settlement value[253]—but the litigation overall is hard to condemn: a major manufacturer distributed products that contained a dangerous substance banned under U.S. law.

 

Notwithstanding the righteous concern about Mattel’s potentially dangerous products, the congressional response to the public panic over the lead-containing toys—the Consumer Product Safety Improvement Act (CPSIA),[254] signed into law on August 14, 2008—is a regulatory nightmare and litigation time bomb that threatens to place virtually every producer of items for children on the wrong side of the law. Hawked by lawyer-allied consumer groups like the Public Interest Research Group,[255] and pushed by House Speaker Nancy Pelosi (D-Cal.), the bill was drafted in the House under the watchful eye of Energy and Commerce Committee Chairman Henry Waxman (D-Cal.), a longtime ally of trial lawyers whose second-largest campaign donor over the last twenty years has been the plaintiff’s bar’s political action committee, now known as the American Association for Justice.[256] That same lawyer PAC once employed as a registered lobbyist David Strickland, who developed the CPSIA in the Senate, where he served as counsel to the Commerce Committee.[257] (Strickland now oversees American automobile regulation as the head of the National Highway Transportation Safety Administration.)

 

With such a cast of characters drafting the bill, it is unsurprising that the CPSIA goes beyond the lead-paint concerns that provoked the health scare. Anne Northup, a commissioner of the federal Consumer Product Safety Commission (CPSC), observes that the law reaches products “that do not create a lead hazard for children” and that “such ordinary items as zippers, buttons, belts, the hinge on a child’s dresser—and even that bicycle from Santa Claus—are outlawed,”[258] making any manufacturer or retailer of such products subject to a lawsuit premised on an alleged violation of the statute’s provisions.

 

To make things easy for the lawyers, the statute authorizes an open website for reporting violations—which attorneys will doubtless use both to identify claims and “establish” purported wrongdoing.[259] Also waiting in the wings are suits by pioneering, politically ambitious state attorneys general (see box, page 13), who are authorized to enforce the law alongside the CPSC.[260] As reported in Crain’s Chicago Business, suits arising from the CPSIA are among the “most likely” successors to the litigation industry’s long-standing asbestos-lawsuit profit center.[261]

 

The CPSIA’s costs are not conjectural—the CPSC estimates that the law cost toy manufacturers $2 billion in the eight months following its enactment[262]—and they will grow exponentially once all of the statute’s testing requirements come into effect. Economies of scale permit large manufacturers like Mattel to meet the CPSIA’s onerous testing and labeling requirements, but the prohibitive cost of complying with these rules has prompted small manufacturers and retailers of toys to shut their doors.[263] Although the CPSIA has generated many a public outcry, Congress has predictably resisted holding hearings to learn about the grievances of those affected.

 

 

An Assault on Contract

Senator Franken’s amendment is but one of the litigation industry’s attacks on private arbitration. Other such bills being pushed in Congress by Trial Lawyers, Inc. include:

 

  • The Fairness in Nursing Home Arbitration Act (H.R. 1237, S. 512) would make unenforceable all arbitration clauses regulating disputes between nursing homes and their boarder-patients.[236]
  • The Mortgage Reform and Anti-Predatory Lending Act (H.R. 1728), which passed in the House of Representatives, would make unenforceable arbitration clauses in any mortgage loan or home-equity line of credit.[237]
  • The Payday Loan Reform Act (H.R. 1214) would present challenges to arbitration clauses in “payday loans,”[238] and the Taxpayer Abuse Prevention Act (S. 585) would prohibit arbitration clauses in loans given in anticipation of tax refunds.[239]
  • The Consumer Fairness Act (H.R. 991) would make consumer-arbitration contracts unenforceable,[240] while the Arbitration Fairness Act (H.R. 1020, S. 931) would go even further and make unenforceable arbitration clauses in all employer, franchise, and consumer contracts.[241]

 

Each of these pieces of legislation would reduce consumer choice, increase costs, and deny compensation to many truly injured individuals. But they would all help the bottom line of Trial Lawyers, Inc.

 


A TRIAL-LAWYER TAX BREAK

One way that Trial Lawyers, Inc. is exploiting its congressional influence is by seeking an old-fashioned tax break. A group of legislators led by Republican-turned-Democrat Arlen Specter—“the favorite senator of the trial lawyers”[264]—has introduced a bill giving the plaintiffs’ bar a $1.6 billion cut in its taxes.[265]

 

Under the traditional common law, “maintenance” and “champerty” were crimes (and torts). Generally speaking, it was illegal for anyone, including an attorney, to maintain, support, or promote another’s litigation (maintenance), whether or not an agreement existed to pay the supporter a portion of a lawsuit’s proceeds (champerty), should there be any.[266] On its face, the personal-injury bar’s financing structure—the “contingent fee,” the share of the proceeds that a winning client pays his attorney, who has fronted the cost of the litigation—runs afoul of the historical understanding of champerty. Therefore, expenses in contingent-fee cases have been treated by courts not as support of litigation per se but rather as loans to clients, to be repaid upon a winning lawsuit’s resolution.[267]

 

The IRS has thus forbidden plaintiffs’ lawyers working on the basis of contingent-fee arrangements to deduct, for tax purposes, litigation costs as “expenses” when they are incurred. Rather, such expenses are treated as loans, to be expensed as “losses” only in the event that the loan is “uncollectible” after a losing case has been closed (or, alternatively, to be deducted from the sum of taxable proceeds following profitable verdicts or settlements).[268]

 

Specter’s bill would change the IRS rule and allow all litigation costs to be expensed immediately, even though other kinds of loans generally are not. This tax break would encourage lawyers to file both a greater number of cases and weaker cases, and “the federal government [would], for all intents and purposes, share in the cost and risk of bringing the initial litigation. Under current and certainly potential future tax laws, this could be as much as [forty percent] of the cost of bringing litigation.”[269]

 

Unsurprisingly, the trial bar’s advocates in Congress would prefer to avoid an up-or-down vote on the legislation on its own. Thus, lawyer-lobbyists have worked to “tuck it into something”[270] else—for example, a 2008 bill that extended (but did not change) various research-and-development and energy tax credits.[271]

 

 

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218. H.R. 1409, 111th Cong. (2009).
219. See id. at § 3.
220. See, e.g., Lynn Langton & Thomas H. Cohen, Civil Bench and Jury Trials in State Courts, 2005 8 (Bureau of Justice Statistics, 2008) (finding in jury trials an average of 26 months from filing to disposition).
221. See Deborah R. Hensler, Our Courts, Ourselves: How the Alternative Dispute Resolution System Is Reshaping Our Legal System, 108 Penn St. L. Rev. 165, 167 n.11 (2003).
222. See Interim Report on Creditor Claims in Arbitration and in Court, Searle Center on Law, Regulation, and Economic Growth at Northwestern Law 1 (2009), available at http://www.law.northwestern.edu/searlecenter/uploads/Creditor%20Claims%20Interim%20Report%2011%2019%2009%20FINAL2.pdf.
223. See id. at 27.
224. See Bill McInturff et al., Key Findings from a National Survey of Likely Voters 7 (2008), http://www.instituteforlegalreform.com/component/ilr_issues/29/item/ADR.html (follow “View the survey results (PDF)” hyperlink) (discussing 2007 survey of 800 registered voters).
225. See id. at 11.
226. See Sam Stein, Franken Gets His First Amendment Passed by Roll Call Vote, Huffington P., Oct. 7, 2009, http://www.huffingtonpost.com/2009/10/07/franken-gets-first-amendm_n_312399.html.
227. See S. Amdt. 2588, 111th Sess. (2009).
228. See 155 Cong. Rec. S10028 (daily ed. Oct. 1, 2009) (statement of Sen. Franken); see also Posting of Ted Frank to Overlawyered.com, http://overlawyered.com/2007/12/halliburton-gang-rape-and-fear-of-arbitration-the-jamie-leigh-jones-case/ (Dec. 12, 2007).
229. See Jones v. Halliburton Co. No. 08 20380, 2009 U.S. App. LEXIS 20543, at *19-20 (5th Cir. Sept. 15, 2009), available at http://www.ca5.uscourts.gov/opinions/pub/08/08-20380-CV0.wpd.pdf.
230. See 155 Cong. Rec. S10028.
231. See id.
232. See Alex Leo, Jon Stewart Takes on 30 Republicans Who Voted Against Franken Rape Amendment, Huffington P., Oct. 15, 2009, http://www.huffingtonpost.com/2009/10/15/jon-stewart-takes-on-30-r_n_321985.html.
233. See Manu Raju, Dems Jam GOP with Al Franken Vote, Politico, Nov. 12, 2009, available at http://www.politico.com/news/stories/1109/29439.html.
234. See S. Amdt. 2588, 111th Sess. (2009).
235. See Pub. L. No. 111-118, § 8116 (2009).
236. See H.R. 1237, 111th Cong. (2009); S. 512, 111th Cong. (2009).
237. See H.R. 1728, 111th Cong. (2009).
238. See H.R. 1214, 111th Cong. (2009).
239. See S. 585, 111th Cong. (2009).
240. See H.R. 991, 111th Cong. (2009). As of this writing, the consumer-arbitration market is in serious jeopardy. In July 2009, Minnesota attorney general Lori Swanson sued the National Arbitration Forum, alleging deceptive trade practices. To settle the charges, the National Arbitration Forum, the largest provider of these services, agreed to stop processing new consumer-arbitration claims. The American Arbitration Association announced its own moratorium on hearing most consumer-debt disputes.
241. See H.R. 1020, 111th Cong. (2009); S. 931, 111th Cong. (2009).
242. See Consumer Financial Protection Agency Act, H.R. 3126, 111th Cong. (2009).
243. See Right to Clean Vehicles Act, H.R. 609, 111th Cong. (2009).
244. See Riegel v. Medtronic, Inc., 128 S. Ct. 999 (2008).
245. Id. at 1005.
246. See id.
247. See id.
248. See Medical Device Amendments of 1976, 21 U.S.C. § 360k(a) (2008).
249. See 128 S. Ct. at 1008.
250. H.R. 1346, 111th Cong. (2009); S. 540, 111th Cong. (2009).
251. See Notice of Class Action and Proposed Settlement, In re Mattel, Inc., Toy Lead Paint Products Liability Litigation, MDL No. 1897 (C.D. Cal., Oct. 23, 2009), available at https://www.mattelsettlement.com/Prod/Content/PDF/exC.pdf; John Kell, Mattel Settles Suit Over Lead in China-Made Toy, Wall St. J., Oct. 14, 2009; Louise Story, Lead Paint Prompts Mattel to Recall 967,000 Toys, N.Y. Times, Aug. 2, 2007.
252. See Stipulation of Class Action Settlement at 35, In re Mattel, Inc., Toy Lead Paint Products Liability Litigation, MDL No. 1897 (C.D. Cal., Oct. 23, 2009), available at https://www.mattelsettlement.com/Prod/Content/PDF/mattelstip.pdf.
253. The ratio of attorneys’ fees to actual settlement value depends on the responses of class members. Mattel’s liability to claimants is $10.875 million or less from certain claimants; plus a sticker-price voucher for each toy or valid proof of purchase returned; plus no more than $10 to each responding individual who had already submitted a recalled toy for a voucher. Given the number of toys affected (about 967,000), the relatively modest price of most of the eligible toys (see Lead Paint Toy Settlement, List of Recalled Toys, In re Mattel, Inc., Toy Lead Paint Products Liability Litigation, MDL No. 1897 (C.D. Cal., Oct. 23, 2009), available at https://www.mattelsettlement.com/Prod/Content/PDF/Catalog-ALL_TOYS.pdf), and the probability that a high percentage of eligible class members will not file for recovery, the lawyers’ take seems likely to be an inordinately high proportion of the payments made to the class.
254. Consumer Product Safety Improvement Act of 2008, Pub. L. 110-314, 122 Stat. 3016 (2008).
255. See Walter Olson, A Destructive Toy Story Made in Washington, Wall St. J., Sept. 13, 2009.
256. See Center for Responsive Politics, supra note 11, http://www.opensecrets.org/politicians/contrib.php?cycle=Career&cid=N00001861&type=C (last visited Jan. 13, 2010).
257. See Posting of David Ingram to The BLT, http://legaltimes.typepad.com/blt/2009/12/senate-lawyer-chosen-to-lead-highway-safety-agency.html (Dec. 7, 2009, 13:05 EST).
258. See Anne M. Northup, There Is No Joy in Toyland, Wall St. J., Dec. 24, 2009.
259. See Pub. L. 110-314, § 212.
260. See id. at § 218.
261. See Steven R. Strahler, Asbestos and the Legal Black Hole, Crain’s Chicago Bus., Sept. 28, 2009.
262. See Northup, supra note 258.
263. See id.
264. See Timothy P. Carney, Specter’s Voting Record, Wash. Times, Nov. 11, 2004.
265. See S. 437, 111th Cong. (2009).
266. See Black’s Law Dictionary 231 (6th ed. 1994).
267. See, e.g., Silverton v. Commissioner, 36 T.C.M. (CCH) 817 (1977), aff’d, 647 F.2d 172 (9th Cir. 1981).
268. See Priv. Ltr. Rul. 94-32-002 (Mar. 30, 1994) (“[P]ayment by one taxpayer of the obligation of another taxpayer is not considered an ‘ordinary and necessary’ expense for purposes of section 162(a).”).
269. Victor E. Schwartz & Christopher E. Appel, Federal Government Bailout for Trial Lawyers, Wash. Leg. Found. Leg. Opinion Ltr. 1 (May 22, 2009).
270. See Chris Rizo, Lobbyist: AAJ Looking To Quietly Pass Plaintiff Lawyer Tax Break, Leg. Newsline, July 29, 2009, available at http://www.legalnewsline.com/spotlight/222204-lobbyist-aaj-looking-to-quietly-pass-plaintiff-lawyer-tax-break (quoting Linda Lipsen, senior vice president of public affairs, American Association for Justice).
271. See Posting of Carter Wood to PointofLaw.com, http://www.pointoflaw.com/archives/2008/06/tax-break-for-trial-lawyers-mo.php (June 7, 2008, 15:15 EDT).

 

 

 


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