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Monday, October 11, 2010

Guest Blogger Lester Brickman on "Yes, Virginia, There Is A Litigation Explosion."

Today's guest blogger is Lester Brickman, Professor of Law and former Acting Dean at at the Benjamin N. Cardozo School of Law.

YES, VIRGINIA, THERE IS A LITIGATION EXPLOSION

The dispute over the growth of tort liability and whether this has resulted in a “litigation explosion” transcends mere statistical jousting.  Invariably, those who conclude that there has been explosive growth in tort litigation support reforms to roll back excessive tort liability expansion.  Conversely, those who reject the explosive growth thesis also reject tort reforms as unnecessary and unwise.  In the tort reform wars, the battle over whether there has been a substantial increase in the scope of tort liability and resulting “explosion” in litigation, as measured by the volume of tort litigation, looms large.  The accepted wisdom, of course, is that the claim of a “litigation explosion” is pure bunk.  Not so fast.  

The litigation explosion deniers mostly rely on empirical data on the numbers of tort lawsuits filed, collected by the National Center for State Courts or found in annual reports issued by the federal judiciary, as well as studies by the RAND Institute of Civil Justice.  Based solely on this published data, I concur that there is no factual basis for a litigation explosion.  But the published data suffers from many critical infirmities which I describe in my forthcoming book, Lawyer Barons: What Their Contingency Fees Really Cost America (Cambridge Univ. Press, Jan. 2011).

Furthermore, the tort filing statistics measure ignores increases in tort claim valuation and the total amounts of wealth transferred through the tort system, and as a result, does not a provide a meaningful account of what is occurring in the tort system.  Consider, for example, the experience of New York City.  While the number of tort claims filed against the city grew by 50 percent between 1984 and 1994, the dollar value of the settlements and judgments in the same time period increased by over twice that amount, from an average of $14,386 per claim to $29,894, up 108 percent.  Even when the aggregate number of tort claims filed against the city dropped by 18.5% between 1995 and 2004, the dollar amount of settlements and judgments increased by 122%, from $241.5 million to $536.8 million.

These inadequacies pale when compared to the most glaring defect in case filing statistics: the omission of millions of tort claims that have resulted in tens of billions of dollars in wealth transfers.  Relying on case filings as a measure of what is going on to the tort system is like relying on U.S. census data, which omits California, New York and Texas, to measure the nation’s population growth. 

There are somewhere between 15,000,000 and 20,000,000 civil cases filed annually in state courts, including divorce, property, contracts, torts, and landlord-tenant cases.  An estimated 1,000,000 to 1,500,000 of these civil suits are tort cases.  In addition, there are approximately 50,000 to 70,000 tort filings a year in federal courts.  However, the actual number of plaintiffs who become claimants in state and federal courts is actually far higher than these numbers suggest.  Here is why: Each time a lawyer files a tort case, he pays a filing fee to the court.  In mass tort litigations -- such as asbestos -- tort lawyers came up with a clever ruse, which both saved money and materially increased the pressure on defendants to settle tens of thousands of mostly bogus claims.  In states such as Texas, Mississippi, West Virginia, and Illinois, lawyers filed complaints against dozens, if not hundreds, of asbestos defendants on behalf of a single plaintiff, let’s say John Smith.  They then added ten to fifty additional plaintiffs to the case.  However, the title of the case remained John Smith vs. [one hundred defendants listed by name], so the lawyer paid one filing fee.  For purposes of counting the number of case filings, John Smith and fifty other plaintiffs vs. one hundred defendants -- which added up to over 5,000 claims -- counted as one filing!  As many as 100,000 asbestos plaintiffs who filed suit against scores of defendants totaling millions of claims were thus omitted from case filing statistics.

A similar process occurred when asbestos and other mass tort cases were consolidated in state courts.  Here too, lawyers saved money on filing fees by listing only a handful of plaintiffs in a consolidated case and paying their filing fees, even when there were actually thousands of plaintiffs.

Another source of vastly undercounting civil case filings is the virtual omission of class actions and the substantial omission of bankruptcy trust claims filings.  These constitute an enormous and growing number of claims, generating billions of dollars in wealth transferred through the tort system and hundreds of millions dollars in contingency fees for lawyers. 

Class actions include millions of claimants who become eligible for billions of dollars of compensation annually but who are virtually all invisible when it comes to counting tort case filings.  Class action lawyers pay filing fees only for each of the named plaintiffs.  Since the number of civil cases filed is determined on the basis of the number of filing fees paid, the putative class action counts for statistical purposes as one or perhaps two or three civil actions.  This accounting is unchanged by the fact of certification of a class.  In addition, some states do not count a civil action as filed until a jury or first witness is sworn at the commencement of a trial -- events that rarely occur in class actions.

While some class action settlements incorporate thousands of individual claims filed in courts, other class action settlements include claims that are filed after a settlement has been reached and a trust or other mechanism has been created for payment of the settlement funds.  For example, when the silicone breast implant litigation settlement was reached, approximately 440,000 women filed claims to be paid out of the settlement. The vast majority of these claimants were recruited by lawyers after the settlement was reached and had not previously filed suit in a court.  Accordingly, these hundreds of thousands of claims were not counted in case filing compilations.

Another area of large-scale undercounting involves trusts or similar mechanisms for the payment of claims, which are created in the course of certain bankruptcy proceedings.  Assets are transferred from the debtor in bankruptcy to the trust for the payment of current and, in the case of latent injuries, future tort claimants.  While many of those filing claims with the trust have previously filed tort actions in federal or state court, filing a tort action in a court is typically not a prerequisite for filing a claim with the trust.  As many as hundreds of thousands of asbestos claimants, mostly generated by litigation screenings, who presented claims to the trusts and received and continue to receive, in the aggregate, billions of dollars of compensation, may never have brought suit in a court and are, therefore, not counted in tort claim filing data.

If joined cases, consolidated cases, class actions, mass tort settlements, and bankruptcy trust filings were included in tort claims filing data -- as they properly should be -- then there has indeed been a “litigation explosion.”  Nonetheless, as I discuss in Lawyer Barons, the fact that there has been a litigation explosion does not, in and of itself, mean that there is an excess of litigation that imposes social costs that far exceed benefits.

Whether that is the case is the issue I tackle in my book.  Contrary to a broad academic consensus, I argue that the financial incentives for lawyers to litigate in many instances have become so inordinately high that they perversely impact our civil justice system and impose other substantial costs.  But that is a subject for another day.  

- Lester Brickman
Professor of Law
Benjamin N. Cardozo School of Law

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