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Trial Lawyers Inc.



   Reports on the Lawsuit Industry in America

 

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Trial Lawyers Inc. Update No 7, December 2008

 

 

LOUISIANA LITIGATORS:
While People Leave the Pelican State, Attorneys Thrive

 

The troubled state of Louisiana has lost 200,000 residents in the years since Hurricane Katrina devastated New Orleans.[1] But the state had been having a hard time attracting workers and others, as well as holding on to those it had, even before the hurricane struck. While the national trend in population growth in the previous five years was 4.6 percent, Louisiana grew by only 0.6 percent in that period (see graph).[2] Even so, one segment of the population—trial lawyers—is finding the state to be an excellent place to hang out and do business. Long a lawsuit-friendly jurisdiction, Louisiana has become a magnet for mass tort lawyers squeezed by comprehensive tort reform in neighboring states such as Texas and Mississippi.

 

 

That plaintiffs' lawyers would find the Bayou State a good place to sue is unsurprising. In a 2008 survey conducted by Harris Interactive for the U.S. Chamber of Commerce Institute for Legal Reform, corporate litigators ranked the fairness of Louisiana's judicial system next-to-last among the fifty states (see map).[3] The state ranked among the bottom three in every category surveyed, and Louisiana was deemed the worst state in the nation in its treatment of scientific and technical evidence, its timeliness in granting or denying summary judgment or dismissal, its discovery process, and its judges' competence. Orleans Parish, encompassing the city of New Orleans, has regularly been dubbed a "judicial hellhole" by the American Tort Reform Association,[4] and it was ranked the ninth-worst local jurisdiction in the country.[5]

 

Louisiana's hospitability to litigation is an impediment to its economic recovery: 64 percent of business leaders around the country surveyed by Harris said that a state's litigation climate would affect their decision on where to locate a business.[6] If Louisiana's leaders want to resuscitate their state's fortunes, then cleaning up its system of civil justice would be a good place to start.

 

A UNIQUE LEGAL SYSTEM

 

Owing to its pre-1803 history as a French colony, Louisiana—alone among the fifty states—has a French-derived "civil law" tradition rather than a British-derived system of "common law."[7] Consequently, all causes of action in Louisiana are based in the Louisiana Civil Code[8]; in theory, at least, Louisiana's judges do not make law. Unfortunately, Louisiana's exceptionality does not extend to European-style constraints on litigation, such as "loser pays" fee-shifting rules and prohibitions against contingent fees and class actions.

 

In contrast to judges in common-law states, who typically show substantial deference to previous court decisions, Louisiana's judges are supposed to work from a "direct interpretation" of the code.[9] While such a legal approach would seem to support legislative supremacy and judicial restraint, open-ended or ambiguous statutes have invited a wider scope of judicial interpretation and disregard for judicial predecessors' rulings.

 

A NOVEL APPROACH TO DAMAGES

 

One example of how Louisiana's unique legal approach encourages instability in the law is the state supreme court's move away from long-standing limitations on damages recoverable in litigation, even though the underlying statutory language has not changed. Traditionally, the state lumped together as "general damages" non-pecuniary injuries such as "pain and suffering."[10] While loss of enjoyment of life can legitimately be thought to be an aspect of "general damages," recently Louisiana's courts have begun allowing various elements of general damages to be set as separate elements in a jury charge. In 2006, the state supreme court for the first time embraced a separate jury charge for a new variety of damages[11]—"hedonic" damages, or "loss of enjoyment of life"—developed conceptually by economists in the 1980s.[12]

 

The dissenting justices were undoubtedly correct that allowing a separate charge for these losses—in addition to "pain and suffering," which includes mental suffering—creates the risk that jurors will mistakenly count the same harms twice.[13] The state supreme court's decision not only departed from its traditional interpretation of the civil code but also separated it from the overwhelming majority of other states that have considered the issue.[14]

 


MASS TORT MASTER

Louisiana's lawyers have long been led by an intriguing cast of characters, from the late "King of Torts," Melvin Belli, and "the General," Wendell Gauthier, who sued the manufacturers of everything from tobacco to breast implants, to the flamboyant Michael St. Martin, whose nickname, "Alligator Mick," stems from his penchant for hunting reptiles.[15] Today the king of the Louisiana plaintiffs' bar is Russ Herman, a jazz aficionado and a fan and sometime impersonator of Harry Potter.[16]

 

Herman practices law in New Orleans with his son in the firm founded by his father and uncle. He has served as president of the Louisiana Trial Lawyers Association and the Association of Trial Lawyers of America.[17] A leader in the multibillion-dollar litigation against the tobacco industry on behalf of the states, in 2004 Herman scored a $591 million jury verdict against American Tobacco Company.[18] Last year, Lawyers USA named Herman its 2007 Lawyer of the Year for his role in leading negotiations that culminated in a $4.85 billion settlement between Merck, the pharmaceutical company, and plaintiffs alleging injuries that resulted from their taking its prescription painkiller Vioxx.[19]

 

Herman's organizing skills, honed while he served in similar leadership roles in earlier mass tort litigation, proved essential in the Vioxx cases. He quipped: "It was like each lawyer had a greased football and was running like a wild monkey."[20] But whether the deal was in the best interests of the lawyers' clients is debatable. The Manhattan Institute's Marie Gryphon has criticized the Vioxx settlement as structured to pay out settlement cash to objectively weak claims while "sell[ing] out the interests of those clients who actually have viable claims."[21] While those "sold out" clients may have little recourse, Herman's deal does well by his fellow litigators, who received some $1.5 billion in fees.[22]


 

A HOTBED OF NEW LEGAL THEORIES

 

Louisiana's courts have permitted other novel theories of injury in recent years. Take the $591 million jury verdict levied against tobacco companies in 2004 in Scott v. American Tobacco.[23] The class action in Scott did not seek damages for individuals actually harmed by smoking; in the event, it won funding of a "smoking cessation" program on behalf of class members.[24] The 1998 $200 billion-plus Master Settlement Agreement with the tobacco companies was supposed to pay for such programs,[25] but the trial court actually forbade the defendants to present evidence of the master agreement's expenditures for the same purpose.[26] On appeal, the smoking-cessation efforts funded by the jury were "limited" to such programs as "reimbursement of medications" (including nicotine gum), "telephone quit lines," and "intensive cessation programs."[27] These restrictions reduced overall damages to "only" $279 million[28]—a sum that still results in a mighty hefty paycheck for Trial Lawyers, Inc.

 


PROFESSIONAL PLAINTIFFS

Louisiana's public-employee pension funds are notorious for spurring class action suits against high-growth companies when their share price drops. While ostensibly intended to ferret out fraud, these cases often lack any evidence of real wrongdoing and represent merely a tax on doing business.

 

An empirical study shows that securities class actions' settlement values are unrelated to the merits of the underlying cases.[29] Moreover, shareholders in securities suits are generally as likely to be a defendant as they are to be a plaintiff, inasmuch as the proceeds of such claims are merely transfers from one class of a company's shareholder to another. Some critics have described these cases as "legal extortion"[30]; a Florida judge compared some securities class action lawyers to " 'squeegee boys' who . . . run up to a stopped car, splash soapy water on its perfectly clean windshield and expect payment for the uninvited service of wiping it off."[31]

 

 


Public-employee pension funds' involvement in securities class action litigation stems from a congressional effort to clean up these lawsuits, the 1995 Private Securities Litigation Reform Act.[32] Because Congress found that class action lawyers were controlling securities litigation with little client oversight—understandably, since small shareholders have little incentive to monitor their attorneys on behalf of their fellow class members—the reform legislation called for the designation of "lead plaintiffs" in securities suits. These would be those plaintiffs "most capable of adequately representing the interests of class members," which the legislation presumed to be those having the "largest financial interest."[33] What congressional reformers failed to anticipate was that securities class action attorneys would arrange to designate public-employee pension funds, which have large stock holdings and boards composed of public officials and union appointees whose motives go beyond their fiduciary duties.

 

In Louisiana's pension funds, Trial Lawyers, Inc. found its most accommodating and enthusiastic plaintiffs; indeed, three Louisiana pension funds are among the five most active lead plaintiffs nationally (see box); the Teachers' Retirement System of Louisiana is first.[34] In denying the teachers' fund's efforts to head a class action before his court, an Ohio judge in 2004 chastised it for being a "professional plaintiff." The judge remarked that the fund was already leading eight other cases and had wastefully chosen four separate plaintiffs' firms to handle the Ohio case.[35] Two other Louisiana funds worked quickly with their trial lawyers to file class actions after the recent financial collapse: on October 1, 2008, the Louisiana Sheriffs' Pension and Relief Fund and the Louisiana Municipal Employees' Retirement System filed lawsuits in New York against Citigroup and JP Morgan Chase.[36]


 

 

Tobacco is not the only traditional lawsuit business for which Louisiana lawyers have developed new theories of liability; even as asbestos lawsuits continue to fill the state's court dockets, creative lawyers have begun to file new lawsuits that allege loss of hearing in many of the very same clients.[37] Big asbestos firms such as Texas's Baron & Budd have begun running ads in newspapers like The Advocate looking for hearing-loss clients.[38] As George Bezet, a lawyer defending against several such suits that have been filed en masse in southern Louisiana, concedes: "It's logical that [noisy] plants … would be a natural place to start looking for people who might have hearing loss."[39] While workers exposed to asbestos would not know during the period of exposure either that they had been exposed or that the exposure was harmful, workers exposed to deafening sound should be able to anticipate the risk to their hearing. But this key distinction between these two kinds of harms hasn't stopped lawyers from filing claims embracing this new theory for hundreds of clients this year.[40]

 

Louisiana lawyers have also developed a growth business out of suing for damages alleged to be caused by mold growing in buildings—an inevitable consequence of the Pelican State's humid climate. In 2004, New Orleans's large Plaza Tower building offered $4.25 million to settle claims by hundreds of state office workers alleging various health ailments that lawyers attributed to mold.[41] In May 2008, a New Orleans judge ruled that the state was liable for worker injuries in that building; the total tab for the taxpayers could run as high as $35 million.[42] Such litigation, which blames respiratory ailments on the black mold species stachybotrys chartarum, has proliferated, notwithstanding the paucity of data supporting the claims. The U.S. Centers for Disease Control acknowledge that "a causal link between the presence of the toxic mold and these conditions has not been proven." [43]

 

A FLOOD OF LAWSUITS

 

Perhaps the most prominent litigation in Louisiana over the last few years has stemmed from injuries caused by Hurricane Katrina. The devastation from the hurricane was not only real but vast, and lawsuits stemming from the tragedy were to be expected. Trial Lawyers, Inc.'s response was almost immediate: in October 2005, the New Orleans class action firm Bruno & Bruno posted signs on utility poles looking for plaintiffs.[44] While some of the resulting claims against insurance companies were valid, many turned out to be inflated. For instance, in the first federal Katrina case to go to trial in Louisiana, the plaintiffs withdrew their claims (and gave up any right to refile them) before the case went to jury after evidence at trial suggested that damages to cover living expenses that the plaintiffs were seeking had already been paid by the insurer.[45]

 

Many of the post-Katrina lawsuits involved challenges to insurance companies' denial of flood-coverage claims submitted by policyholders who had earlier expressly declined flood coverage. Adjudicating each claim has required a fact-specific inquiry as to the extent to which damages were caused by flooding as opposed to wind and rain, which were typically covered by the homeowners' policies. Forcing insurers to pay out on policies that did not cover flood damage would not only be unfair to them (as well as to those individuals who had expressly paid for flood coverage); it would destabilize the overall Louisiana insurance market and impair individuals' ability to get insurance in the future. For example, when neighboring Mississippi threatened to force insurance companies to pay for damage not covered by contracts, some insurers ceased to write new policies in the state.[46]

 

In April 2008, the Louisiana Supreme Court unanimously held that homeowners lacking flood insurance whose homes were destroyed by post-Katrina flooding could not collect from insurers.[47] Thousands of lawsuits stemming from Katrina remain unsettled, and more lawsuits have been filed in the wake of subsequent hurricanes such as Gustav.[48] However, the Louisiana Supreme Court's decision to resist political pressure and enforce clear contractual language is a very positive development for the rule of law.

 

AN UNCERTAIN FUTURE

 

In addition to maintaining the rule of law in Katrina-related litigation, the Louisiana Supreme Court deserves praise for its decision in 2007 to reverse an activist lower-court decision that would have overturned the state's long-standing cap on damages in medical-malpractice cases.[49] While Louisiana's litigation climate is heavily pro-plaintiff, medical-malpractice insurance rates there remain lower than they are in much of the rest of the nation,[50] largely because of the cap, which was enacted in 1975.

 

Last summer, the legislature took another important step forward when it passed a law designed to improve Louisiana courts' ability to handle expert witnesses.[51] The new law, which takes effect on January 1, 2009, requires judges to hold pretrial hearings on the admissibility of expert testimony at least thirty days before a trial. This procedure should help remove "junk science" from the state's courtrooms.

 

Still, trial lawyers in Louisiana have been busy in their own behalf. Their allies in the legislature introduced a bill this year that would have exempted some damages from the state's medical-malpractice cap, thus driving up insurance premiums for doctors.[52] Another bill threatened to double the length of time that a plaintiff would have to file a suit, increasing litigation risks to all businesses.[53]

 

Rather than opening up the state to still more litigation, Louisiana should go further in reducing fraud in its courts, particularly in the area of asbestos and silica litigation. Some 10,000 claims against dozens of defendants are pending there,[54] yet 90 percent or more of plaintiffs have not actually been injured.[55] Louisiana's legislature considered a bill in 2008 that would have given priority to the claims of the genuinely ill as well as improved transparency in the processing of claims by bankruptcy trusts set up to handle asbestos claims.[56]

 

Passing such legislation is important to Louisiana's future. As the state rebuilds itself, it must avoid the man-made disaster of lawsuit abuse and its impact on the economy. The state remains in many respects a lawyer's paradise, but the supreme court's handling of Katrina cases and the legislature's passage of evidentiary reforms may indicate a realization by the state's leadership that the rebuilding process requires restraining Trial Lawyers, Inc.



HIS LEGACY LIVES ON

With a political history filled with pandering populists like governors Huey Long and Edwin Edwards and U.S. Rep. William Jefferson, Louisiana unsurprisingly features politicians who have allied themselves with Trial Lawyers, Inc.[57] One such politician is former state attorney general Charles Foti, whose failure to be reelected in 2007, or even to secure a spot in the runoff, did not dissuade him from filing a lawsuit that same November against insurance companies that he alleged engaged in price-fixing in the wake of Hurricane Katrina.[58] Then, on January 14, 2008—his last day in office—Foti sued the world's largest biotechnology company for mounting another alleged pricing scheme.[59] Not only were the merits of the cases dubious, but so was their handling: the four private law firms he hired to work with the state on the case had contributed thousands of dollars to his failed campaign.[60]

 

Foti's successor, James "Buddy" Caldwell, dropped the biotechnology case but continued to press the claim against the insurers. Caldwell is a longtime friend of Louisiana super-lawyer Russ Herman (see box,)[61] who is one of the lawyers Foti picked to work with the state on the lawsuit. Since leaving office, Foti has taken a job at Kahn Gauthier Swick, a Louisiana firm specializing in class action litigation.[62]


 

Notes

  1. See U.S. Census Bureau, Annual Population Estimates 2000-2007, available at http://www.census.gov/popest/states/NST-ann-est.html.
  2. See id.
  3. See U.S. Chamber of Commerce, Institute for Legal Reform, Lawsuit Climate 2008, available at http://www.instituteforlegalreform.com/states/lawsuitclimate2008/pdf/LawsuitClimateReport.pdf.
  4. See American Tort Reform Foundation, Judicial Hellholes 2004, 2003, 2002, available at http://www.atra.org/reports/hellholes/.
  5. See U.S. Chamber of Commerce, supra note 3.
  6. See id.
  7. See Daniel Engber, Louisiana's Napoleon Complex, SLATE.COM, Sept. 12, 2005, at http://www.slate.com/id/2126126/.
  8. See generally LA. CIV. CODE (2008).
  9. Engstrom, supra note 7.
  10. Boswell v. Roy O. Martin Lumber Company, Inc., 363 So.2d 506 (La.1978) (affirming a general damages award which included damages for mental pain and anguish over the loss of timber on plaintiff's land).
  11. See McGee v. A C and S, Inc., 933 So.2d 770, 780 (La. 2006).
  12. See Victor E. Schwartz and Cary Silverman, Hedonic Damages: The Rapidly Bubbling Cauldron, 69 BROOKLYN L. REV. 1037, 1040-1041 (2004).
  13. See 933 So.2d at 783 (Victory, J., dissenting) (attributing to the majority's ruling "the inequitable outcome of the injured party securing a 'double recovery' for a single element of harm"), 785 (Weimar, J., dissenting) ("In the terms of a jury verdict that makes specific awards for pain and suffering and loss of enjoyment of life, the injured party is potentially compensated for the same deprivation twice.").
  14. See id. at 781, n.2 (Victory, J., dissenting) (collecting cases).
  15. See Matt Labash, Lawyers, Guns, and Money, WKLY. STD., Feb. 1, 1999, at 25.
  16. See Emily DeSanctis, Top Lawyers-The First Post—Katrina List, N. ORLEANS MAG., Oct. 25, 2006, available at http://www.neworleansmagazine.com/a/news/top-lawyers-the-first-post-katrina-list-1480.html.
  17. See Firm Bio at http://www.hhkc.com/Attorneys/apg_a9_Russ_M_Herman.aspx.
  18. See Scott, 949 So.2d at 1272.
  19. See Firm Bio, supra note 3.
  20. See Andrew Longstreth, $4.85 Billion Vioxx Settlement Validates Merck's Courthouse Strategy, AM. LAWYER, Nov. 12, 2007, available at http://www.law.com/.
  21. See Marie Gryphon, Unjust Deserters, CITYJOURNAL.COM, Jan. 28, 2008, at http://www.city-journal.org/2008/eon0128mg.html.
  22. See Kirstin Maguire, Vioxx Judge Caps Plaintiffs Fees, AM. L. LITIG. DAILY, Aug. 29, 1008, at http://amlawdaily.typepad.com/amlawdaily/2008/08/the-am-law-l-20.html.
  23. See Scott v. Amer. Tobacco Co., 949 So.2d 1266, 1272 (La. App. 4th Cir. 2007), writ denied 973 So.2d 740 (La. 2008), cert. denied 128 S.Ct. 2908 (2008).
  24. See id. at 1271.
  25. See Master Settlement Agreement at II(f)(4) (establishing Foundation to, inter alia, develop "effective cessation programs"), available at http://ag.ca.gov/tobacco/pdf/1msa.pdf.
  26. See American Tort Reform Foundation, 2004, supra note 4, at 27.
  27. 949 So.2d at 1287.
  28. See id.
  29. See Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 STAN. L. REV. 497 (1991) (concluding that settlement value in securities fraud cases is not a function of merit).
  30. H. Rep. 104-50, Part I (1995), available at http://thomas.loc.gov/bss/d104/d104laws.html.
  31. Judge Compares Milberg Weiss Case to the Squeegee Man, NEW YORK LAW., Apr. 18, 2002, available at http://www.nylawyer.com/news/02/04/041802e.html.
  32. Private Securities Litigation Reform Act, Pub. L. No. 104-67, 109 Stat. 737 (1995).
  33. See id. at § 27(a)(3)(B)(iii)(I)(bb).
  34. See Laura E. Simmons and Ellen M. Ryan, Securities Class Action Settlements: 2006 Review and Analysis, CORNERSTONE RESEARCH 11 fig. 10 (2006).
  35. Editorial, Pension Fund Shenanigans, WALL ST. J., Aug. 20, 2004, at A12.
  36. See Louisiana Sheriffs' Pension and Relief Fund v. Citigroup, Inc., 08 Civ. 9522 (Nov. 5, 2008).
  37. See David Jacobs, Loud and Clear, 25 GREATER BATON ROUGE BUS. RPT. 102 (July 15, 2008).
  38. See id.
  39. Id.
  40. See id.
  41. See Greg Thomas, Sick-Building Claims to Net $4.25 Million, NEW ORLEANS TIMES-PICAYUNE, Mar. 30, 2004, Money at 1.
  42. See Greg Thomas, Faulty Tower?, GAMBIT WKLY., May 20, 2008.
  43. Questions and Answers on Stachybotrys Chartarum and Other Molds, CDC's Nat'l Center for Envtl. Health, available at http://www.cdc.gov/nceh/airpollution/mold/stachy.htm.
  44. See Laura Parker, After Katrina, Courts Flooded by Lawsuits, USA TODAY, Jan. 15, 2006, available at http://usatoday.com/news/nation/2006-01-15-katrina-suits_x.htm.
  45. See Michael Kunzelman, Couple Drops Suit Against Allstate Over Katrina Damage, AP, Feb. 16, 2007, available at http://www.law.com/.
  46. See Ted Frank, Mississippi Fails to Learn from History, THE AMERICAN, Feb. 16, 2007, available at http://www.american.com/archive/2007/february-0207/mississippi-fails-to-learn-from-history.
  47. See Sher v. Lafayette Ins. Co., 988 So.2d 186 (La. 2008).
  48. See Chad Hemenway, Despite Katrina Rulings, Attorneys Expected to Get Creative Following Recent Storms, BESTWIRE, Sept. 15, 2008.
  49. See Louisiana Supreme Court Vacates Decision on State Cap in Medical Malpractice Lawsuits, MEDICAL NEWS TODAY, Feb. 13, 2007, at http://www.medicalnewstoday.com/articles/62779.php.
  50. See Alexander Tabarrok & Amanda Agan, Medical Malpractice Awards, Insurance, and Negligence: Which Are Related?, No. 10 CIV. JUSTICE RPT. 4 (Manhattan Inst. Center for Legal Pol'y, May 2006), available at http://www.manhattan-institute.org/html/cjr_10.htm.
  51. See S.B. 308, 2008 Sess. (La. 2008).
  52. See H.B. 189, 2008 Sess. (La. 2008).
  53. See S.B. 186, 2008 Sess. (La. 2008).
  54. See Coalition for Common Sense, Facts: Asbestos and Silica Reform, at http://www.coalitionforcommonsense.com/.
  55. See, e.g., Joseph N. Gitlin et al., Comparison of "B" Readers' Interpretations of Chest Radiographs for Asbestos Related Changes, 11 Acad. Radiol. 243 (2004).
  56. See H.B. 484, 2008 Sess. (La. 2008).
  57. In questioning the merits and legal staffing of the cases filed by the outgoing state attorney general, to the extent continued by his successor, the Manhattan Institute does not intend to imply official wrongdoing, only to present its view that the legacy of lawsuit abuse, with which the Institute strongly disagrees on policy grounds, unfortunately still continues in the State of Louisiana.
  58. See Sean P. Carr, Judge Orders Louisiana Price-Fixing Lawsuit to Stay in Federal Court, BESTWIRE, July 21, 2008.
  59. See Chris Rizo, Louisiana AG Drops Amgen Anti-trust Lawsuit, LEGALNEWSLINE.COM, Apr. 10, 2008, at http://www.legalnewsline.com/news/210727-louisiana-ag-drops-amgen-anti-trust-lawsuit.
  60. See Michael Kunzelman, La. Attorney General Inherits "Curious" Cases from Predecessor, AP, Fe. 28, 2008.
  61. See id.
  62. See id.

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