Coyote Blog

I posted on shareholder suits over at Overlawyered.  A reader sent me this great article from 2000 in Fortune on Bill Lerach, the kind of shareholder suits.  These thoughts echo my own (or, since I guess this was written long before my post, my thoughts echoes these):

Stanford law professor Joseph Grundfest, a former
SEC commissioner, goes so far as to describe the current system governing
securities fraud as "nuts." As he sees it, class-action settlements amount
to nothing more than an unproductive "transfer payment" from current shareholders
to past shareholders–with big contingency fees skimmed off the top. "The
plaintiffs lawyers are getting a cut of the money that flows from our left
pocket to our right pocket," he says. Even in those cases involving genuine
wrongdoing, he adds, the individual perpetrators rarely pay anything out
of their own pockets, thanks to insurance and indemnification policies.
Nor do the shareholders get much–generally no more than 15% of their losses,
studies show. "Fraud is wrong," says Grundfest. "It has to be punished.
But what we have here is a shell game."

Read the whole article.  In many of the anecdotes, Lerach seems to be channeling Tony Soprano.

In a recent post, I started to develop the theory that people who are positive to neutral about the regulatory state may be so in part because they don’t encounter it – e.g. an employee tends to be sheltered from the mind-numbing body of labor law that regulates his relationship with his employer because more efficient HR departments and payroll companies shelter people from this mess.

By the way, let me digress just one second on the nature of my blogging.  When I said above that it was a theory I started to develop in a post, this does not mean that I sat around for days, came up with the idea, and started to flesh out my well-oiled thinking on the topic in that post.  It means it occurred to me literally while I was typing my post, somewhere between paragraphs 3 and 4.  I use the act of blogging as a way to test-drive my thinking on certain topics, which puts you the reader in the position of something between a intellectual sounding board and a psychotherapist.  I actually spend my time trying to keep my business running — my college roommate is the only one I know who gets paid to sit around and think deep thoughts.

Anyway, with that out of the way, I can return to the actual point of this post which is to point out that the same attitude of "not to know it is to love it" may well apply to torts and litigation.  All romantic and heroic as portrayed in the media (e.g. Erin Bronkovitch), torts as practiced in real-life seldom so heroic, either in their details or their outcomes.  Here is Bookslut wondering about her opposition to tort reform now that she has witnessed some silly lawsuits in her area of familiarity.  Overlawyered has background on the case in question/

Once and a while, I like to put in a plug for Overlawyered.com, which is a great place to keep up with the wacky and increasingly scary world of jackpot litigation and over-regulation. Just keep scrolling.

Catching my eye is this piece from Canada, concerning my "extended family":

"A Vancouver woman is suing the city and the B.C. government for
allegedly failing to keep the streets safe after her pet cat was killed
by two coyotes….In a statement of claim filed in B.C. Supreme Court,
[Judith] Webster says she’s suffered and continues to suffer from
post-traumatic stress and/or adjustment disorder, loss of enjoyment of
life, and loss of past and future earnings."

Arizona has gotten a lot of press for its shoot to kill order on wild animals in inhabited areas, engendered by a similar suit against the state.  Environmentalists have made common cause successfully for years with the tort bar, but one wonders if these kinds of suits may drive a wedge between them.

By the way, did anyone see that guy in Pittsburg who had a heart attack in a bar when Jerome Bettis fumbled the ball late in the 4th quarter against Indy?  I wonder if he will be suing the Steelers for "post-traumatic stress and/or adjustment disorder, loss of enjoyment of
life, and loss of past and future earnings"?

The other piece that caught my attention was this, from New York:

“Last summer, [New
York City’s] health department launched a campaign against trans-fats.
Often used by restaurants and in packaged foods, trans-fats are thought
to cause cholesterol problems and increase the risk of heart disease.
After restaurant inspectors found that 30 percent of the city’s 30,000
eateries were using oils that contain trans-fats, the department began
urging a citywide ”oil change.” Officials sent letters to food
service operators and started teaching workers about trans-fats along
with their required food safety training. The city plans another survey
this spring to measure the results of the project. Officials next want
to tackle portion sizes. Towering pastrami sandwiches, bagels with
gooey schmears of cream cheese and pizza slices that spill over paper
plates may be the city’s culinary landmarks, but the health department
says the Big Apple is out of control.”

Which makes the NYC health department officials the only New Yorkers I have ever heard complain about getting too much for their money.

The other day, I wrote about the left of late lamenting that the machinery of state control that they created, agencies like the FDA and public schools, are being taken over by their political enemies, the "Neanderthal southern religious conservatives".  I observed that they were not apologizing for creating a statist structure to control individual decision-making, but just were upset they lost control of it.

In using the FDA as one example:

Today, via Instapundit, comes this story about the GAO audit of the decision by the FDA to not allow the plan B morning after pill to be sold over the counter.
And, knock me over with a feather, it appears that the decision was
political, based on a conservative administration’s opposition to
abortion.  And again the technocrats on the left are freaked.  Well,
what did you expect?  You applauded the Clinton FDA’s politically
motivated ban on breast implants as a sop to NOW and the trial
lawyers.  In
establishing the FDA, it was you on the left that established the
principal, contradictory to the left’s own stand on abortion, that the
government does indeed trump the individual on decision making for
their own body  (other thoughts here).
Again we hear the lament that the game was great until these
conservative yahoos took over.  No, it wasn’t.  It was unjust to scheme
to control other people’s lives, and just plain stupid to expect that
the machinery of control you created would never fall into your
political enemy’s hands.

That has spurred a lot of email pointing me to other FDA-related articles.  I posted this one in the updates of that same post, pointing out how the FDA process (and the tort process, by the way) puts a much higher value on a life lost to drug side-effects than to a life saved from drug benefits.

Today I was pointed to this article by Derek Lowe who has been a drug development researcher for a number of years:

As a drug discovery researcher, I can tell you something that might sound
crazy: many of these older drugs would have a hard time getting approved today.
Some of them would never even have made it to the FDA at all.

The best example is aspirin itself. It’s one of the foundation stones of the
drug industry, and it’s hard to even guess how many billions of doses of it have
been taken over the last hundred years. But if you were somehow able to change
history so that aspirin had never been discovered until this year, I can
guarantee you that it would have died in the lab. No modern drug development
organization would touch it.

Thanks in part to advertisements for competing drugs, people know that there
are some stomach problems associated with aspirin. Actually, its use more or
less doubles the risk of a severe gastrointestinal event, which in most cases
means bleeding seriously enough to require hospitalization. Lower doses such as
those prescribed for cardiovascular patients and various formulation
improvements (coatings and the like) only seem to improve these numbers by a
small amount. Such incidents, along with others brought on by other oral
anti-inflammatory drugs, are the most common severe drug side effects seen in
medical practice….

That brings us up to penicillin, a drug with a clean reputation if ever there
was one. But at the same time, everyone has heard of the occasional bad allergic
reaction to it and related antibiotics. Even with the availability of skin tests
for sensitivity, these antibiotics cause about one fatality per 50 to 100,000
patient courses of treatment. Other severe reactions are twenty times as common.
Those are interesting figures to put into today’s legal context: over 9 million
prescriptions were written for Vioxx, for example. Any modern drug that directly
caused that number of patient deaths and injuries would bury its company in a
hailstorm of lawsuits, because (unlike the Vioxx cases) there would be little
room to argue about

While the "she was asking for it" defense has thankfully been purged from most rape trials (at least those involving strangers), it seems to be alive and well in the civil trial world.  Last week, a jury held that the terrorists who bombed the World Trade Center in 1993 were only 32% responsible for their actions.  The real villain in this terrorist attack was … the Port Authority, owner of the facility, who so thoughtlessly allowed themselves to get bombed.  More via Volokh and Overlawyered.  Based on joint and several liability, the PA now is on the hook for the entire $1.8 billion verdict.

By the way, the "smoking gun" in the trial was apparently a recommendation the PA received (one of hundreds and perhaps thousands of suggestions of wildly varying quality) to close the parking lot to cars to prevent car bombs.  This helps reinforce my earlier point of why litigation insanity like this actually works to make the world less safe, because such litigation provides a strong disincentive for an entity to have any internal discourse on safety, since notes from this discourse can be held against it later. 

It is always useful to think about what consistently applied policy would have satisfied the jury that the PA was not liable.  In this case, the jury’s verdict was clearly "they should have closed the garage to prevent car bombings."  Now, lets apply that everywhere consistently.  This would basically mean that we close every car parking garage in the country, since they are all equally vulnerable to a car bomb.  Applying this further, wouldn’t this same standard also result in closing all tall buildings to prevent airplane attack, closing all airports to prevent hijackings, and closing all government buildings to prevent bombings (well, maybe thats not so bad).  I have posted before about finding the absurdity from translating a jury’s civil verdict into a consistent policy.  Here is one example:

the exact wording on the complaint against the railroad is even better than I thought:

"The
[engineer] did not stop the train in a timely manner, and failed to
yield the right of way to a pedestrian walking along the tracks in
plain view"

A freight train’s topping distance is measured in miles, even with full emergency braking.

She and her attorney’s further argue:

that
the railroad was negligent for failing to post signs warning ‘of the
dangers of walking near train tracks and that the tracks were actively
in useLets

leave aside the obvious point
about individual responsibility, and ask what would happen if this were
the legal standard, to have such signs.  To make sure someone saw one,
you would have to have one say every 30 feet.  Since there are just over 200,000 miles of freight railroads in the North America that works out to a bit over 35,000,000 signs that need to be posted.  At $100 per sign this would cost $3.5 billion.

Here is the serious point:  Never would any legislature
pass a law that said there had to be warning signs every 30 feet on
railroads.  It would be way too costly for little benefit.  At grade
crossings today, we have signs and flashing lights and even gates and
still thousands of people a year drive in front of trains on grade
crossings.  So, if we would never require it legislatively, how have we
gotten to a point where a jury might effectively retroactively require
such signs, and assess a multi-million dollar penalty for not doing it?

Walter Olson has a post on California Prop 79, which

contains a sneaky, little-discussed provision that will empower trial
lawyers to file bounty-hunting suits against pharmaceutical companies
if the companies charge prices "that lead to any unjust and
unreasonable profit", with a minimum $100,000 plus fees guaranteed to
plaintiffs if a jury agrees that they have proved this (very hazily
defined) offense.

He has a roundup of posts on other California bounty-hunting laws.  I knew about a few of these, but the list is a lot longer than I suspected.

There is an interesting discussion about liability going on at Overlawyered and Prawfsblawg.  The original subject was Eddy Curry, the basketball player who may or may not have a genetic heart condition.  The Chicago Bulls refused to play him until he had submitted to a series of tests that would let them determine for themselves if it was safe for him to play (Curry had already said that he wanted to play).

The Bulls have been derided in a number of venues for requiring privacy-invading tests which Curry reasonably refused to submit to.  However, in today’s legal world, the Bulls are being entirely rational and in fact entirely consistent with the law, at least as it is practiced in courts today.  Many courts, including those in particular in legal hellhole Illinois, have pretty much thrown out most liability wavers.  Effectively, courts have said that Curry has no right to make risk-reward trade-offs for his own body and self, and if he gets hurt playing for the Bulls, it is the Bulls fault and they can be sued.  So, reasonably, the Bulls want the necessary information to make that safety decision, since the fact that Curry has already decided for himself holds no weight in courts today.

I have long lamented this statist tendency to treat us all like incompetent children, effectively revoking our ability to make decisions for ourselves and our own lives.  Where the discussion gets interesting, though, is when a lawyer suggests that Curry’s liability waiver should hold more water than the average person’s, since he is wealthy and has access to a full range of professionals to advise him.  Which suggests that there is some point, either in terms of wealth or education, where Americans may actually regain the right to make decisions for themselves and be held responsible for them.  I remember when I was working on an acquisition of a company, and was concerned whether a non-compete agreement I had the other party sign was enforceable.  After all, I had in the past had non-competes signed by my employees routinely thrown out by judges.  My attorney told me that it is assumed that the average ordinary employee does not know what they are doing when they sign an agreement, but that wealthy business people in a transaction are treated like big boys and it is assumed they actually understand and really mean what they sign their name to.

Overlawyered concludes:

A fascinating epitomization of the litigation culture: "ordinary"
people can’t make intelligent and free decisions, but elites—presumably
including lawyers and judges—can properly advise them how to do so.

Paul’s proposed rule of emancipation upon reaching a certain wealth
level has interesting ramifications. It would be fascinating to see
what democratic political consensus would develop for where to set the
Gowder Line above which people are permitted to make free decisions.
Many doctors and attorneys would be sufficiently wealthy to qualify,
but would public interest and government attorneys protest that,
through no fault of their own, they don’t have the same rights as
BigLaw partners and their children? Would college professors lobby for
the same emancipation rights as wealthy millionaires because they’re
already sufficiently sophisticated? And once that happens, would the
NEA dare to suggest that teachers aren’t entitled to the same status?
Before you know it, every Sneech will have a star on his belly.

I made myself clear about this long ago:  We have got to move to a point where adults can be trusted to make decisions for themselves and take responsibility for those consequences.  However, the temptation is just too great, it seems, to act like you know more about someone’s best interest than they do.

Update: By the way, we discuss this all in terms of capability and competence and knowledge.  One important factor not discussed above is that every person has a different set of values.  Mr. Curry may rank the value of playing basketball, or making lots of money, higher than the risk of losing his full four-score and ten year lifespan.  Or he might feel just the opposite.  I have heard athletes who have said they would have played pro sports even if they knew for sure they would only as a result live until 50, and I have heard athletes call those others insane.  We all have different values, and even beyond relative confidence and information in making decisions, it is IMPOSSIBLE for other people to make quality decisions about your life, because they are not going to share the details of what you value and how much.  But of course they do all the time.  And if we assign others liability when we make the wrong choice in our life, then we are just asking for other people to take over our decision-making. 

In a free society, I suppose you can delegate the decision-making for your life to others, if you lack confidence in your abilities, but don’t give away mine!

Update #2:  Here is another decision adversely affected by lawsuits:

We’ve reported before (Mar. 18, 2004)
on how, after court decisions in Arizona eroded the state’s
longstanding immunity from being sued over the actions of wild animals,
lawyers began obtaining large verdicts from public managers over
humans’ harmful encounters with wildlife — with the result that
managers began moving to a "when in doubt, take it [out]" policy of
slaughtering wild creatures that might pose even a remote threat to
people. The continuing results of the policy came in for some public
discussion last month after a bear wandered into a residential area
near Rumsey Park in Payson, Ariz. and was euthanized by Arizona Game
and Fish personnel:

[Ranger Cathe] Descheemaker said
that the two Game and Fish officials were no doubt following procedure,
and that bears are routinely destroyed ever since the agency was sued
when a bear mauled a 16-year-old girl in 1996 on Mt. Lemmon near
Tucson.

"Since Game and Fish lost that lawsuit, they do not relocate any
bears," she said. "The fact that bear was in town was its death
warrant."

I missed this story the first time around, but apparently a husband and wife team of lawyers has revived the old badger game, but in a more modern form:

According to a story in the San Antonio Express-News,
husband-and-wife legal partners Ted H. and Mary Schorlemer Roberts received
money in a curious sequence of events. Mary, claiming to seek "no strings"
discreet encounters, would seduce men over an Internet dating service. Ted would
then write the men (in legal documents sometimes typed by Mary) and notify them
that he planned to seek intrusive and public civil discovery to investigate
whether the affair brought forward potential causes of action that were flimsy
at best; the men would pay tens of thousands of dollars for a release and
confidentiality agreement.

Read the full Overlawyered update:  it is fascinating to see just where watchdogs set the ethical bar for lawyers (hint: its really low).  Apparently the Bar Association can’t decide if they think this behavior by the Roberts is unethical.  Currently the the attorney who blew the whistle on this scam is being investigated, but the scammers themselves are not under investigation.

I wrote about the Vioxx decision here as another defeat for personal choice. Marginal Revolution has a good post on gaps in the anti-Vioxx science.  Here is a taste:

…[E]ven if there actually is an elevated risk of the magnitude the studies
suggest but can’t prove, the question is whether I might want to accept a 1 in 4,000 risk of dying
from a heart attack in order to get the only medication timt
makes my pain bearable and a mobile life livable.  And if I say no to the
Vioxx, I may end up taking something that is less effective for my pain but has
risks of its own.

…. How did we arrive at a system in which 12 random Texans are assigned
responsibility for evaluating the scientific merits of statistical evidence of
this type, weighing the costs and benefits, and potentially
sending a productive blue-chip American company into bankruptcy protection?

I could fill this blog with litigation horror stories, but there is no need when Walter Olson does such a good job.  If you read his blog much, one of the themes than runs through the cases he highlights is the ever widening search in every case to find the deep pockets.  Unfortunately for trial lawyers, the person who is truly at fault, ie the drunk driver that runs down a pedestrian, seldom has deep enough pockets to produce a really satisfying fee.  So you gotta be creative.  This is to be expected.  What is not to be expected is the lengths to which the judicial system goes to validate this search (via Overlawyered):

The state Supreme Court has ruled that store owners can be sued for causing
injuries in a drunken driving accident if they sold gas to an intoxicated
driver.

The court ruled in a lawsuit filed by two men who were severely
injured in 2000 when they were struck head-on by Brian Lee Tarver, who later
pleaded guilty to vehicular assault and driving under the influence.
Before the accident, Tarver bought gas at an Exxon owned by East
Tennessee Pioneer Oil Company.

Fortunately, I guess, Exxon is used to getting sued for damages by drunk drivers. 

This case I wrote about previously is one of the best examples I have seen of how liability goes to the deep pockets, not the guilty:

Car veers into
truck’s lane…and so a jury has ordered the trucking company, Auction
Transport Inc., to pay $22.5 million over the resulting injuries to a
young passenger in the accident, which occurred at rush hour on Kansas
City’s I-435. Mary Coleman’s car, allegedly sideswiped by a third
vehicle, had careened in front of the truck, but attorneys argued that
the truck driver had been "driving too fast in congested traffic and
not watching the road." The jury found the trucking company responsible
for just less than half the fault of the accident — a greater share of
fault than the allegedly sideswiping driver — and Coleman for hardly
any of it.

So, surprisingly enough, three
vehicles involved, two with limited resources and one with deep
pockets.  Guess who is liable – the deep pockets of course, despite the
fact that he was the only driver among the three who stayed in his lane!

Now, here is the thought experiment.  Move the truck with
deep pockets into any of the other two roles.  Imagine first that it
was the car that nudged the plaintiff into the other lane.  Imagine
next that the truck was the one nudged into oncoming traffic and hit
the plaintiff.  In these two cases, if they had gone to trial, who
would have gotten the blame?  I would bet you that in either case, the
truck with the deep pockets would have been given most of the blame in
either of these cases.

So where is the fairness?  Why should blame be based on
bank account size, and not actual actions?  Is there anything more than
coercive wealth transfer going on here?  Does this constitute justice?

Law

The town of New London, CT, is assessing nearly 5 years back rent on Susette Kelo and other property holders whose land the Supreme Court recently allowed the city to confiscate.  As it stands, if New London has its way, Kelo will not only lose her house, she will also be wiped out financially, all for the crime of owning the land where New London wanted condos and hotels.

The U.S. Supreme Court recently found that the city’s original seizure of
private property was constitutional under the principal of eminent domain, and
now New London is claiming that the affected homeowners were living on city land
for the duration of the lawsuit and owe back rent. It’s a new definition of
chutzpah: Confiscate land and charge back rent for the years the owners fought
confiscation.

In some cases, their debt could amount to hundreds of thousands of dollars.
Moreover, the homeowners are being offered buyouts based on the market rate as
it was in 2000...

The New London Development Corp., the semi-public organization hired by the
city to facilitate the deal, is offering residents the market rate as it was in
2000, as state law requires. That rate pales in comparison to what the units are
now worth, owing largely to the relentless housing bubble that has yet to burst.

"I can’t replace what I have in this market for three times [the 2000
assessment]," says Dery, 48, who works as a home delivery sales manager for the New London Day . He soothes himself with humor:
"It’s a lot like what I like to do in the stock market: buy high and sell low."

And there are more storms on the horizon. In June 2004, NLDC sent the seven
affected residents a letter indicating that after the completion of the case,
the city would expect to receive retroactive "use and occupancy" payments (also
known as "rent") from the residents.

In the letter, lawyers argued that because the takeover took place in 2000,
the residents had been living on city property for nearly five years, and would
therefore owe rent for the duration of their stay at the close of the trial. Any
money made from tenants, some residents’ only form of income, would also have to be
paid to the city….

An NLDC estimate assessed Dery for $6,100 per month since the takeover, a
debt of more than $300K. One of his neighbors, case namesake Susette Kelo, who
owns a single-family house with her husband, learned she would owe in the
ballpark of 57 grand. "I’d leave here broke," says Kelo. "I wouldn’t have a home
or any money to get one. I could probably get a large-size refrigerator box and
live under the bridge."

I want to barf.  Hat tip to Reason’s Hit and Run.

I am renouncing my place of birth.  No, not my country.  For all its faults, I love the United States and miss it when I am away.  And no, not my birth state of Texas, despite its perceived great Satan status among the media elite.  I am not even renouncing my birth city of Houston, despite the fact I don’t think I could ever return to the traffic and humidity.  I am taking the bold, original step of renouncing my birth hospital.  I was born at St. Luke’s in the Texas Medical Center, and they are apparently going over to the dark side:

St. Luke’s Episcopal Hospital’s famed medical tower will soon be renamed for a
Houston lawyer who has made millions taking the health care industry to trial.

The plan to rename the edifice after John O’Quinn in recognition of a $25
million donation by his foundation has infuriated many St. Luke’s doctors, who
last week began circulating a petition against it and Monday night convened an
emergency meeting of the medical executive committee.

"Perhaps you are unaware of the intensity of feelings held by many physicians
about Mr. John O’Quinn," says the petition, which is addressed to the Rev. Don
Wimberly, bishop of the Episcopal Diocese of Texas and chairman of the St.
Luke’s Episcopal Health System board of directors. "The primary source of his
financial success has been representing plaintiffs in medical liability and
products liability cases, many of them groundless."

Where does the money come from?  In part from O’Quinn’s baseless but infuriatingly successful suits over breast implants, which no serious medical study have shown to be dangerous:

A plaintiff’s lawyer who often has sued doctors, O’Quinn made some of his
fortune on litigation involving breast implants, which bankrupted a company (Dow
Corning) even though the consensus later developed that the science didn’t back
up the claims.

Another part of the money comes from pushing bogus asbestos claims that have kept most of the asbestos settlement money out of the hands of the truly sick:

In July 2005, a Corpus Christi federal judge fined O’Quinn’s law firm for its
part helping to produce what she called bogus diagnoses involving the
occupational illness silicosis, a serious and occasionally fatal lung disease.
She said the claims "defy all medical knowledge" and the diagnoses were about
"litigation rather than health care."

More on the growing scandal in asbestos screening here and here.  Overlawyered has the whole store here, as well as links to plenty of background on Mr. O’Quinn.

Last week, Tyco’s Dennis Kozlowski was found guilty of looting the shareholder’s assets for his own personal gain.  Good.  Too many CEO’s treat public companies as their own, rather than other peoples’ companies for which they have fiduciary responsibility.  And, unlike the Dick Grasso mess I commented on earlier, this was a much clearer case of looting as opposed to just negotiating themselves a good deal.  (update:  Stephen Bainbridge has a different take here)

According to the Wall Street Journal, which requires a subscription:

The guilty verdicts are in for L. Dennis Kozlowski and Mark H. Swartz. For Tyco International Ltd., the company they looted, there may be more court dates to come.

Tyco was hit with dozens of shareholder lawsuits in
2002 and 2003 as the company disclosed waves of accounting problems
that sank its stock. It has restated results several times, going as
far back as 1998. A July 2003 restatement cut about a billion dollars
from pretax profit over several years.

The convictions
lend credence to the plaintiffs’ allegations that Tyco was grossly
mismanaged. The suing shareholders already have a strong leg to stand
on: Tyco’s string of past restatements amount to an admission that its
accounting was deeply faulty. Shareholders claim they were deceived by
accounting practices that presented rosy pictures of the performance of
the company and its acquisitions, then suffered losses following the
revelation of allegations against Mr. Kozlowski and the restatements.

I have never been able to justify most lawsuits by shareholders against companies in which they own shares.  Any successful verdict would effectively come out of the pockets of the company’s owners who are.. the shareholders.  So in effect, shareholders are suing themselves, and, win or lose, they as a group end up with less than if the suit had never been started, since a good chunk of the payout goes to the lawyers.  The only way these suits make financial sense (except to the lawyers, like Bill Lerach) is if only a small subset of the shareholders participate, and then these are just vehicles for transferring money from half the shareholders to the other half, or in other words from one wronged party that does not engage in litigation to another wronged party who are aggressively litigious.  Is there really justice here?

OK, you could argue that many of these shareholders are not suing themselves, because they are past shareholders that dumped their stock at a loss.  But given these facts, these suits are even less fair.  If these suits are often made by past shareholders who held stock at the time certain wrongs were committed, they are paid by current and future shareholders, who may well have not even owned the company at the time of the abuses, and may in fact be participating in cleaning the company up.  So their argument is that because the company was run unethically when I owned it, I am going to sue the people who bought it from me and cleaned it up for my damages?  Though it never happens, the more fair approach would be for current shareholders to sue past shareholders for the mess they left.

The vast majority of these suits are dreamed up by attorneys for the benefit of attorneys.  They help shareholders not at all.

Postscript: There are a couple of circumstances where these suits are entirely justified.  The two that come to mind are:

• Suing a particular group of shareholders who somehow got disproportionate rights in the company or disproportionately benefited financially at the expense of other common shareholders.  A good example would be suing the Rigas family at Adelphia Communications for hosing the minority shareholders.  Note, however, I am talking not about suing the company, but suing certain owners who abused minority shareholders to their benefit.
• Suing to modify certain governance rules that are seen to be unethical or illegal.  I would hope this would be a last resort after trying a number of proxy fights and other remedies, but this can in certain circumstances be the last protection of minority shareholders abused by the majority.

This is something our company has encountered a couple of times now:  There is apparently danger nowadays in posting warning signs.  Apparently, courts and juries are taking the position that by posting any warning at all, you are communicating to the public that you are taking on the task of warning them about any possible danger.  Then, when someone gets hurt by something you did not warn them about, they can argue that you are liable. Via Overlawyered:

Putting up signs warning visitors of the dangerous rip currents off New Jersey’s
Long Beach might seem like an obvious step. "However, Long Beach Township
Attorney Richard Shackleton said there are liability issues to consider.
According to the law, the town does not have to warn people about natural
conditions, and if Long Beach put up a sign and a jury found its warnings to be
inadequate, the town could possibly be found liable for a drowning or injury.
Having no signs, he said, reduces the risk of being sued."

We have similarly had our attorneys and/or insurance inspectors recommend we take down a number of warning signs for this reason.  I have no idea how this outcome can be in the public interest.

Like a smoker trying to quit for the twenty-seventh time, I have tried really, really hard to limit the number tort-related rants in my blog lately.  I sometimes go for weeks without falling off the wagon,and then something comes along that is so insane, I can’t resist.

Via Overlawyered.com comes this site from attorney Lewis Laska dedicated to outlining all the ways people too bored or incompetent to make money the old fashion way can try to support their lifestyles by suing Walmart.  Don’t miss this page, where the attorney will sell you packets of information for how to sue for various occurrences, such as:

Parking Lots- Uneven Surface and Protrusions (16 items, $135)

Parking Lots- Improper Parking Lot Design or Marking (11 items, $90)

Entering the Store – Entranceway Floors and Floormats (21 items, $160)

Entering the Store – Doors and Doorways – Tracked-in Water (32 items,
$200)

Aisle Ways – In-Store Consumable Food on Floor (18 items, $160)

Aisle Ways – Out-of-Store Consumable Food on Floor (14 items, $120)

Aisle Ways – Unknown Substance on Floor (59 items, $200)

Aisle Ways – Packaged Product on Floor (14 items, $110)

Aisle Ways – Unpackaged Product on Floor (13 items, $100)

Merchandise – Merchandise Protruding (1 item, $15)

Shelving and Racks and Displays – Vegetable Produce Displays (1 item,
$15)

Shelving and Racks and Displays – Water/Condensation From
Vegetable/Refrigeration/Freezer Displays (6 items, $55)

Shopping Carts – Overloaded (4 items, $45)

Shopping Carts – Defective (4 items, $45)

This is only a very short sample of the whole list.  I especially like the packaged product on floor.  Get your friend to drop a box of Wheaties on the floor, and then you follow him and sue.  And how the heck is Wal-Mart at fault if you overload your own shopping cart?  Anyway, I am going to order one to see what I get.

By the way, I especially liked this whopper, I guess because he is trying to portray himself as the brave man taking on huge odds:

Most lawyers are not interested in filing suits against Wal-Mart.
The company is reluctant to settle cases promptly and fairly and almost
seems eager to take cases to trial. One of the goals of the Wal-Mart Litigation
Project is to identify lawyers who are ready, willing and able to sue the
company where a case has merit.

I hardly know where to start.  First, if lawyers are so reluctant to sue Wal-Mart, why does Wal-Mart have like 20,000 suits pending against it? (note the numbers in this article, and it is 4 years old) Second, you gotta love the part about the attorney put out because Wal-Mart won’t play the part of the victim like other companies and actually demands their right to a trial.  In this one statement, you see exactly how the plaintiff’s bar works – they don’t really want to go to a trial.  They want to force a fast settlement that requires little of their own time and move on with their 30+% of the take.

Frequent readers of this site will know that I am a strong opponent of how the current tort system works.  However, I am not a big supporter of damage caps.  Damage caps may limit the harm of a broken tort system, but they don’t fix the root problem – the jackpot justice that seeks wealth transfers from wealthy parties irrespective of who was really at fault.  For example, note this case, where teens who were not wearing their seat belts were killed by a driver breaking the speed limit and with a blood alcohol level over twice the legal limit.  The jury decided the accident was 90% the fault of… Ford, for designing a car with the same glass used by everyone else in the auto industry.  But the unfairness of the decision is only the beginning of the outright nuttiness and fraud by the plaintiff in this case.  Make sure to go to this article – you have to scroll to the article on Ford appealing frontier justice, but the extra finger work is justified.

I have written several times that one of the perverse effects of lawsuits aimed at unsafe products is that they generally punish any company that has an open, honest internal debate on safety.  However, as I wrote here, that honest internal debate is critical to selling safe products and services.

Today, Marginal Revolution links a New Yorker article that points out the same deadly paradox:

Merck would seem to have one big thing in its favor: the company voluntarily withdrew Vioxx from the market. But while Merck executives may have hoped to persuade people that they were acting responsibly, plaintiffs’ attorneys have taken the withdrawal as an admission of guilt…internal company documents show that Merck employees were debating the safety of the drug for years before the recall.

From a scientific perspective, this is hardly damning. The internal debates about the drug’s safety were just that—debates, with different scientists arguing for and against the drug….While that kind of weighing of risk and benefit may be medically rational, in the legal arena it’s poison. Nothing infuriates juries like finding out that companies knew about dangers and then “balanced” them away. In fact, any kind of risk-benefit analysis, honest or not, is likely to get you in trouble with juries….Viscusi has shown that people are inclined to award heftier punitive damages against a company that had performed a risk analysis before selling a product than a company that didn’t bother to. Even if the company puts a very high value on each life, the fact that it has weighed costs against benefits is, in itself, reprehensible. “We’re just numbers, I feel, to them” is how a juror in the G.M. case put it. “Statistics. That’s something that is wrong.”…

Before a jury, then, a firm is better off being ignorant than informed.

Over the last two days, Phoenix put out an order to boil tap water before drinking and not to bathe or shower.  Many restaurants closed for the two day period, and many many people went out and loaded up on expensive bottled water.

What I found interesting was that through the whole "crisis", and now after the fact, Phoenix officials continued to say that they thought the water was safe, that they had not gotten any bad test results, but that people still shouldn’t use the water "as a precaution".

Given the current state of liability and torts, I probably would have done the same in their shoes, but is this really the world we want?  There are costs to shutting off water in a city of 2 million plus people.  Shouldn’t those costs be justified by some real risk? 

When I was an engineer, my job was often to rule on whether some condition was "safe".  Every day I had to make decisions like "should we shut this part of the plant down, or can we keep running it safely".  Certainly we wanted to err on the side of safety, but ruling every little concern as cause for shutdown would have caused the plant to be shut down almost all the time.  In that job, I had to take responsibility and make a decision, balancing risks and costs.  People want to say that shutting the plant (or the water system) at every hint of a problem is the "responsible" thing to do — but in fact it is just the opposite.  It is an avoidance, both of decision-making and responsibility.

Unfortunately, no one wants to make such decisions anymore.  My wife’s mammogram had something on it the doctor said he was 100% sure was just an artifact of the photography, but to cover his butt he said he had to get her to go have a biopsy (painful, expensive, and time-consuming) which was of course negative.  We are loading the economy down with risk-defense costs, an invisible tax that is already hammering the medical field.

But beyond just the costs, at what point does this hair-trigger defensive posture lead to a chicken-little syndrome where no one pays attention to warnings any more?  I know that the next time we get a warning about Phoenix water, I will be much less likely to be careful, because I remember that the last time nothing was really wrong with the water.  How many people pay attention to homeland security alerts any more?  Do you even bother to read warning labels any more, on the off chance it is a useful warning and not a "this toaster should not be used as a water ski" type warning?

I must be going crazy.  First this, and now comes this story, via Overlawyered.com:

A former Inglewood police officer [Jeremy Morese] who was fired for punching a black teenager and slamming him against a patrol car was awarded $1.6 million Tuesday by the jury in a discrimination lawsuit he and his partner brought against the city [note that the teenager was handcuffed at the time]

OK, we won’t even get into the fact that employers should be able to fire "at-will" employees for just about any old reason.  How, though, have we gotten to a world where a police department can’t fire an officer who abused a handcuffed man? 

It gets better, though:

the jury was unanimous in awarding $810,000 to Morse’s partner, Bijan Darvish, who had been disciplined in connection with the 2002 incident.

Darvish was suspended 10 days (presumably without pay) for falsifying a report to cover up for his partner’s abusive actions.  Ignore for a moment whether a 10 day suspension is the right punishment for his actions (I would have fired the guy), but ask – how is $810,000 proper recompense for a 10 day suspension, even if the suspension was totally invalid?  The main damage was lost pay — but on this basis the $810,000 for 10 days pay would represent $29,565,000 for a whole year.   I guess I need to quit my job and go sign up as a police officer in Inglewood, because they sure as heck make more money than I do.

By the way, if I was an African-American, I would sure as hell stay away from Inglewood, or any other community that pays million dollar rewards to cops that beat the hell out of black people.

I have written a lot on my frustration with the tort system.  If I had to summarize my issue in one sentence, it is that the system has moved away from assessing damages against parties truly guilty of substantial negligence or malpractice and has instead shifted to granting payouts to the injured, charging whoever happened to be nearby with deep pockets with the cost (see the tort thought experiment here). 

The result in this current system is that the innocent at best get high insurance premiums and at worst have to fight for years against ridiculous suits.  At the same time, the truly harmed fail to get compensation in a system clogged with BS claims, and the worst, truly bad doctors continue to practice.

But, as I said in the title, just because I am passionate about the tort system being broken does not mean that real damages aren’t occurring.  For example, this story via Kevin Drum about medical interns:

In New York City residents routinely begin their day at six or seven in the morning, work twelve hours, then stay on call all night. In a practice that I think is particularly cruel, they typically don’t get home until noon the following day — several hours after morning rounds.

I have never, never understood why having interns practice medicine while sleep-deprived makes them better doctors.  This is fraternity hazing, plain and simple (not to mention cost reduction for hospitals).  I find it astounding that this practice still exists today, with the complexity that is modern medicine.  Astonishingly, most doctors seem to support this practice.  I find it even more astonishing that some smart attorney’s haven’t found a way to bring suit against hospitals for the plainly dangerous practice.  It is a great example of what I said above about what is wrong with the system – OB’s are getting sued every day for birth defects they had no power to correct or prevent, but hospitals get away with this clearly dangerous practice?

UPDATE:

Reason has more here.  They make the interesting point that doctors support this hazing because it is a way to deter doctors from the field, in the same way as does occupational licensing, thus raising salaries. 

Read this story at Overlawyered.com (you are welcome to try the linked article in the KC newspaper, but take my word for it, the registration is a pain with lots of attempted spamming (you might try bugmenot instead).  Here is the gist:

Car veers into truck’s lane…and so a jury has ordered the trucking company, Auction Transport Inc., to pay $22.5 million over the resulting injuries to a young passenger in the accident, which occurred at rush hour on Kansas City’s I-435. Mary Coleman’s car, allegedly sideswiped by a third vehicle, had careened in front of the truck, but attorneys argued that the truck driver had been "driving too fast in congested traffic and not watching the road." The jury found the trucking company responsible for just less than half the fault of the accident — a greater share of fault than the allegedly sideswiping driver — and Coleman for hardly any of it.

So, surprisingly enough, three vehicles involved, two with limited resources and one with deep pockets.  Guess who is liable – the deep pockets of course, despite the fact that he was the only driver among the three who stayed in his lane!

Now, here is the thought experiment.  Move the truck with deep pockets into any of the other two roles.  Imagine first that it was the car that nudged the plaintiff into the other lane.  Imagine next that the truck was the one nudged into oncoming traffic and hit the plaintiff.  In these two cases, if they had gone to trial, who would have gotten the blame?  I would bet you that in either case, the truck with the deep pockets would have been given most of the blame in either of these cases.

So where is the fairness?  Why should blame be based on bank account size, and not actual actions?  Is there anything more than coercive wealth transfer going on here?  Does this constitute justice? 

By the way, I continue to say that limiting damages misses the point of what is wrong with the tort system and the malpractice system.  Congress and state legislatures have got to find a way to bring some sanity to the tort process, where legitimately harmed people can still get compensated for damages, however large those damages may be, but otherwise innocent people who happen to have deep pockets and somehow find themselves nearby a legitimate accident don’t have to worry about being held at fault.  Babies are sometimes born with birth defects, people sometimes slip on perfectly safe sidewalks, and car accidents are sometimes just that: accidents.  I make this same point over and over here.

Update:  oops, left off the link.  Fixed now

There are legitimate concerns that need to be addressed in putting together tort reform legislation; and there are shortcomings, as usual, in the GWB proposals (see below).  This, however, via Kevin Drum, is grasping at straws by tort reform’s opponents.  Drum cites a recent UC San Diego Study described here that shows that there are a disproportionate number of medication errors in the first few days of the month.  The study claims that this is due to pharmacists being overworked and making mistakes because they claim poor people all rush to buy their drugs after their government checks arrive.

Kevin Drum cites this study as evidence that malpractice tort reform is misguided, because, as he puts it "one of the causes of malpractice lawsuits is — surprise! — malpractice".

OK, its hard to know where to start.  Though I am a supporter of tort reform, I would probably not have gotten worked up enough to bother to post.  However, this is another example where science and "studies" are misunderstood and perverted in the media, which DOES tick me off enough to write.  Here goes:

• This study has nothing to do with medical malpractice!  The debate is around doctors and doctors getting driven out of business by their malpractice rates.  What do pharmacist mistakes have anything to do with the types of medical malpractice and medical malpractice insurance rates.  The departure of doctors from certain counties has nothing to do with pharmacy errors.
• Though the authors and Mr. Drum wish to imply that all the medication mistakes measured are by medical professionals, the study in fact includes:

“wrong drug given or taken,” or “accidental overdose of drug,” or “drug taken inadvertently.”

Note that of the four categories of mistakes above and included in the numbers (wrong drug given, wrong drug taken, accidental overdose, and drug taken inadvertently), three of the four are reasonably the fault of the individual taking the drug, not the pharmacist.  However, since most supporters of the current tort system tend to reject the notion individual responsibility, I guess this little issue was ignored. 

• The authors never have anything to say about Mr. Drum’s point, ie they do not correlate these deaths with actual malpractice suits, so it is impossible to actually make Mr. Drum’s point in the first paragraph.  The best evidence I have seen is equivocal – it says that a large number of lawsuits are baloney, but that a large number of true malpractice victims go uncompensated.
• The authors actually have no evidence, other than their supposition, that these deaths are due to pharmacists being overworked.  They did not do any research into the specific cases involved – they just surveyed notoriously inaccurate death certificates.  In fact, though it may be in the actual report, I don’t see any evidence that demand actually increases or that pharmacists are indeed overworked the first few days of the month – they just seem to hypothesize it without proof.  And, if there really is more work load the first few days of the month, they never mention any data on staffing – presumably if there is such a trend, pharmacies may actually staff up for it, which would also defeat their supposition.  My business gets more traffic on certain days of the year and we staff for it.

OK, while we are on the topic of medical tort reform, I will offer up a couple of more thoughts beyond just the silly use of this study:

• No one denies that some malpractice torts are from real malpractice.  Wrong legs ARE cut off, etc.  No one wants to protect people who are guilty of obvious malpractice.
• The issue is less with the existence of medical torts but with their enormous escalation in the last 10-20 years.  To argue that malpractice torts mostly result from real malpractice, you have to argue that the incidence of real malpractice has gone up dramatically over the last 20 years.  That may be, given the great increase in complexity of medicine, but I doubt it is the entire explanation

As usual, part of the problem in this argument is that GWB and his minions suck at getting a message out that can drive a consensus.  Here is my alternate message on medical malpractice:

The system today is broken for two reasons: 

• First, bad doctors and real malpractice is not punished strongly enough, and some of the worst practitioners go on to hurt more and more people.   Insurance today spreads the cost of bad medicine to all doctors, reducing the negative impact on the worst.  In addition, insurance premiums and torts are a poor substitute for better discipline and penalty systems for bad medicine
• Second, too many good doctors are punished with suits because they had bad outcomes from good medicine.  Sometimes babies are born with birth defects, sometimes medications that help millions have unpredictably bad side effects for a few unlucky people, and sometimes people die and there is nothing that can be done.

More important than damage caps, both for truly injured patients and good doctors, is to bring scientific sanity to the system, and to make sure that bad medicine, not bad outcomes, are punished.

By the way, in a previous post Mr. Drum said that there is no cost to "frivolous" suits since they don’t go to court.  This is quite wrong:

• I am not in medicine, but I am in a public contact business that gets some slip and fall suits, but I assure you that your insurance premiums can go up substantially even for suits that don’t go to trial
• You still have to have a lawyer at $400 or so an hour to defend against a frivolous suit.  You can’t walk in the first day and say, "hey judge, this is BS, let’s drop it".  I have spent tens of thousands of dollars before frivolous suits against me get dropped
• Frivolous suits do go to trial and can win.  Just think McDonald’s coffee.

And yes, I have had experience with frivolous suits.  In one case, a person who claims to have stepped on a nail head protruding from a board in our campground sued us for sexual dysfunction.  That case is still active more than 3 years later!  In another case, a person claimed to have hurt her knee falling on some steps.  Excluding the issue of why I am at fault if she fell down a perfectly safe set of steps, we eventually discovered that she had hurt her knee several weeks earlier, had no medical insurance, and was visiting a number of local businesses making the same claim to try to get someone to pay for an operation.

So please, don’t lecture me on frivolous suits.  When Mr. Drum has to pay $400 an hour to defend a suit from someone who got an infected paper cut while reading his article in a magazine, then he can talk about why frivolous suits are OK.  However, he is right in this respect – I don’t think the answer is capping damages.  The answer is having a way to defeat these things, to drop them out of the system quickly and inexpensively.  To have some kind of sanity filter.  This would help those of us subject to BS suits, and would help the truly injured get to trial faster.

This story surprises me not at all, and, if you are a reader of this site and my Florida horror stories, you will not be surprised that it occurred in Florida.  After driving all the neurosurgeons out of town with frivolous malpractice suits, plaintiffs lawyers are now suing…because there are no neurosurgeons:

Florida, the family of the late Barbara Masterson is suing West Boca Medical Center because hospital staff was unable to locate a neurosurgeon willing to come to the scene to perform life-saving surgery after a stroke. "The incident occurred in February, when Palm Beach County neurosurgeons were refusing to perform emergency services for fear of skyrocketing malpractice costs."

Also see this story about a recent death in Pennsylvania because all the neurosurgeons had been run out of town.

Our family actually has a personal experience with this.  My dad (81 years old) broke his neck while at his ranch in central Wyoming.  As he was cared for in Casper, the largest city in the state, we soon found it impossible to get any quality time with the neurosurgeon, since there was only one left in all of the central part of the state!  Eventually, they got his neck stabilized enough to fly him to Texas on a medical evac jet where he could get real care and eventually surgery (happy ending, all is well and all the appendages still work fine).

From Overlawyered.com comes the story that the anti-tort reform Center for Justice & Democracy is upset about this bit of legal immunity:

Many farmers use anhydrous ammonia as fertilizer, because it provides vital nitrogen nutrients to the soil. The combustible material is produced in Louisiana, and then shipped to the Midwest on barges or through pipelines, and then stored on tanks on farms. However, ammonia is also useful for making illegal methamphetamines, and thefts are a regular problem. (KOMU-TV, "Law Officers Fight Ammonia Thefts", May 19). If a thief injures himself tampering with an ammonia tank, should he be able to sue the farmer for the injury? Three states, Kansas, Missouri, and Wyoming, say no, and provide immunity for those who store, handle, or own ammonia equipment from suit by thieves. Legislatures are considering the issue in other midwestern states.

I find this hard to argue with, unless of course you are a tort lawyer and want to sue over anything any time.  In fact, I have an even better idea.  I propose the following law:

Citizens shall be immune from any suit for injuries or damages incurred by someone committing a crime against them.

I reported a similar story last week, but here is another:  Workers get $211,000 in back salary, their lawyers ask for $2,570,000 in fees.