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Wednesday, February 7, 2007

An Observation on Philip K. Howard's Sun Op-Ed

Phiip K. Howard of Covington & Burling and Common Good wrote an interesting op-ed for the New York Sun discussing the importance of, well, something.

Most of the piece is reasonably well-represented by this:

The U.S. securities markets are on the way to losing their pre-eminence. That's the conclusion reached by two recent reports, one indirectly sponsored by Treasury Secretary Paulson and the other by Mayor Bloomberg and Senator Chuck Schumer. The facts are indeed alarming — the American share of global initial public offerings declined to 5% from 50% in the last five years.

Foreign companies are being scared away in part, both reports conclude, by soaring costs of American law. The highwater mark for securities lawsuits was reached in 2005, with over $9 billion in class action settlements. The zeal of American prosecutors in corporate scandals is also of a different order of magnitude. In 2004, government fines in America totalled $4.74 billion, over 100 times more than in Britain, which had a total of $40.48 million. Sarbanes-Oxley, the federal law that imposes higher accountability standards on corporate boards, has almost tripled auditing costs for small public companies.

The piece then argues that the biggest problem with securities law (in particular Sarbanes-Oxley) is that foreign investors and businesspeople don't trust the U.S. legal system to treat like cases alike -- that securities laws no longer ensure transparency and fairness, but instead a CYA attitude and obstruction.

Okay, so it's a securities law piece, urging the modification of Sarbanes-Oxley.  Fair enough.  I don't do securities stuff and if there is a just God, I never will, so I don't have much of a basis to criticize or to agree.

But then there's the title: "Beyond Tort Reform."  And this conclusion:

Trust, once lost, is hard to regain. Tort reforms limiting damages don't get close to the heart of the problem. American justice has a deeper flaw — it no longer reliably distinguishes right from wrong. Instead, decisions are made on an ad hoc basis, jury by jury, without predictable boundaries.

What's needed is not merely more tort reform, but also a fundamental shift in goals, toward balance and predictability. Only then can we rebuild the trust in law that used to be one of America's greatest competitive assets.

Whoa.  Huh?  None of the rest of the piece comes close to establishing, or even really suggesting, that the lack of predictability and transparency is in the tort system.  It's all about commercial and contract law. 

The studies he's addressing do a little more on the tort system, but they seem to me to be primarily focused on the securities system as well.  And I don't think they establish anything like a conclusion that the tort system has no "predictable boundaries."  (I have only read the coverage of the studies, not the studies themselves, so perhaps they do a better job than I think.  Howard's piece, though, doesn't suggest that.)

Certainly there are problems with predictability in the tort system, and I tend to agree that in certain areas of tort law, there is less predictability than there once was.  And other items on the Common Good website (a group that Howard leads) address those issues. 

But this piece by itself seems a bit to me like a parent telling their child that because candy is unhealthy, the child will no longer get to watch as much TV.  Maybe the latter idea is a good one, but it's not supported by the first part.

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Bill Childs at TortsProfs Blog today picks apart a New York Sun column by Common Good's Philip Howard. Bill puzzles over the strange construction of the article, which starts out talking about securities litigation and then veers off into issues [Read More]

Tracked on Feb 8, 2007 1:41:08 PM


He is talking about securities class actions. Although those class actions arise under a federal statute or under SEC Regulation 10b-5, they are, at bottom, fraud cases; the Supreme Court has held several times that 10b-5 cases are to be interpreted in light of common-law fraud principles. So I don't see it as much of a stretch to call these "tort" cases.

Posted by: Elliot | Feb 9, 2007 3:10:01 PM

Fair enough, except that the only tort reform measure he references has to do with "limiting damages," utterly unrelated to the Sarbanes-Oxley personal liability concerns he sets up the column with. To my knowledge, nobody is pitching reforming SOX via a limitation on damages -- that has to do with noneconomic damages.

As I said, I'm no securities guy, but I don't think there's a big problem with noneconomic dammages in those cases. Is there? Does anyone else in the world besides him consider SOX modifications to be "tort reform"?

Posted by: Bill Childs | Feb 9, 2007 4:02:03 PM

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