Michael B. Wallace*
Since the early days of the Reagan Administration, tort reform
has been a perennial dispute in each succeeding Congress. Both the
Reagan and Bush Administrations sought unsuccessfully to apply substantive
changes in product liability law on a nationwide basis, displacing
provisions of traditional state tort law. Later, Congress succeeded
in adopting reforms of securities litigation over President Clinton's
veto, but medical malpractice reform died in the battles over the
budget, and efforts for broader tort reform proved equally unavailing.
Cynics may consider this long war of attrition to concern only
money, with consumer groups and plaintiffs' lawyers allied against
doctors and business interests. Both sides nevertheless present
their arguments as matters of deepest constitutional principle.
Liberals express unaccustomed fealty to states' rights, arguing
that the federal government has no power to interfere in the civil
justice systems of the sovereign states. Consumer groups regard
tort suits as property rights, which the federal government cannot
divest without due process and compensation under the Fifth Amendment.
Businesses, on the other hand, complain of the chaotic patchwork
of state laws, and argue that one of the chief reasons for adopting
the Constitution was to give Congress the power to regulate interstate
commerce. Members of the Federalist Society, dedicated to the preservation
of constitutional principles, take each of these arguments seriously,
and come to sharply different conclusions.
There is, however, one simple tort reform which is unquestionably
within the powers granted to Congress by the Framers at Philadelphia.
Congress could add an additional subsection to 28 U.S.C. §
1441 so as to provide:
Any civil action where the matter in controversy exceeds the sum
or value of $75,000.00, exclusive of interest and costs, brought
in a State court may be removed to the district court of the United
States for the district and division embracing the place where such
action is pending by any defendant who is not a citizen of that
State and whose citizenship differs from that of any plaintiff.
Together with a corresponding amendment to the diversity jurisdiction
statute, 28 U.S.C. § 1332, this provision would permit any
defendant who does not want to proceed in the courts of a state
where he is not a citizen instead to defend himself in federal court
before a judge appointed by the President and confirmed by the Senate.
Those who learned what they know of the Constitution in high school
and college probably think this right is already available. Indeed,
the Framers probably assumed it would be available when they defined
the judicial power in Article III to extend to controversies "between
Citizens of different States." Congress, however, in implementing
this provision by statute required complete diversity; if any defendant
is a citizen of the same state as any plaintiff, federal jurisdiction
does not exist. This requirement of complete diversity was found
to be a part of the Judiciary Act of 1789 in Strawbridge v. Curtiss,
2 L.Ed. 435 (1806), and since then Congress has not generally allowed
jurisdiction in cases of incomplete diversity, where not all of
the defendants have citizenship diverse from that of all plaintiffs.
However, in statutory interpleader cases under 28 U.S.C. 1335, Congress
has allowed federal jurisdiction in cases of minimal diversity,
where any two of the antagonists are diverse, and the Supreme court
held such jurisdiction to be constitutionally permissible in State
Farm Fire & Cas. Co. v. Tashire, 386 U.S. 523 (1967). Congress,
then, has clear constitutional authority to broaden the jurisdiction
of the federal courts to include all cases of minimal diversity
whenever it wants to.
There are two good reasons why Congress should broaden federal
jurisdiction to permit out-of-state defendants to remove their cases
from state court. First, while most state courts are both fair and
competent, plaintiffs are highly experienced at finding those that
are neither. Second, litigation will be simplified and accelerated
as plaintiffs lose their incentives to sue local defendants for
the sole purpose of precluding complete diversity.
There is nothing new about the fear of local bias on the part of
out-of-state defendants. Those fears permeated the Constitutional
Convention, as Chief Justice Marshall recognized almost two centuries
However true the fact may be, that the tribunals of the states
will administer justice as impartially as those of the nation, to
parties of every description, it is not less true, that the constitution
itself either entertains apprehensions on this subject, or views
with such indulgence the possible fears and apprehensions of suitors,
that it has established national tribunals for the decision of controversies
between aliens and a citizen, and between citizens of different
Bank of United States v. Deveaux, 5 Cranch 61, 87 (1809). The "fears
and apprehensions" of which Marshall spoke are no less prevalent
today, when an automobile manufacturer can face a judgment for $4,000,000
in an Alabama state court over a paint job. This judgment was finally
too much for the Supreme Court of the United States, which reversed
in BMW of North America, Inc. v. Gore, 116 S.Ct. 1589 (1996), but
that Court has neither the time nor the constitutional power to
correct every egregious state court decision.
The defenders of state courts are absolutely right when they say
that those courts are generally of high quality. The problem is
that it is all too easy for plaintiffs to bring their claims in
the low quality courts. Walter Olson explained in The Litigation
Explosion how the strengthening of long-arm jurisdiction statutes
and the weakening of venue requirements in recent decades have permitted
plaintiffs to sue almost any defendant in any court. There are state
courts which permit free rein to plaintiffs' lawyers and put immense
settlement pressures on out-of-state defendants, and plaintiffs
know how to find them.
Indeed, wily plaintiffs can go so far as to secure a particular
judge within a particular jurisdiction. Not long ago, a plaintiff
filed two substantially identical actions against a client of mine
in a rural Mississippi county, where the clerk assigns new cases
alternately to each of the two judges. As soon as the cases were
filed, the plaintiff dismissed the case before the judge he did
not want and proceeded with the case assigned to his favorite.
State appellate courts provide some protection against the more
outrageous local decisions. After all, the Supreme Court of Alabama
did cut the BMW judgment in half, to $2,000,000. However, defendants
cannot always afford to take their cases to the appellate court.
In Jackson, Mississippi, in 1995 a jury rendered a verdict against
a Canadian funeral home chain for $100,000,000 in actual damages,
and $400,000,000 in punitive damages. In order to stay enforcement
of the judgment, Mississippi law requires a defendant to post a
supersedeas bond of 125%. The defendant could not post the bond,
and the Supreme Court of Mississippi refused to lower it, forcing
the Canadian company to settle at a price reportedly in excess of
Judgments of these magnitudes simply would not be tolerated in
the federal system. State law would still be applied by the federal
courts, so the substantive rights of plaintiffs would be carefully
protected. However, out-of-state defendants understand that federal
judges, appointed for life, are not subject to local pressure, and
they trust them to apply local law fairly. Moreover, on the rare
occasions when federal judges or juries exceed the bounds of law
and reason, federal appellate courts can be trusted to intervene.
The Fifth Circuit, for instance, has a well developed standard for
determining when damage judgments are excessive and must be corrected.
Caldarera v. Eastern Airlines, Inc., 705 F.2d 778, 784-85 (5th Cir.
1983). State appellate courts, on the other hand, are reluctant
to intervene in decisions made by local jurors. Perhaps the best
evidence that state courts present an unfair advantage to local
plaintiffs is the effort those plaintiffs make to get there. Although
the clear target of a damage suit is always a wealthy out-of-state
corporation, plaintiffs invariably sue a local manager or agent
or retailer in order to avoid complete diversity. The asbestos litigation
of the past decade in Pascagoula, Mississippi, is instructive. Plaintiffs
and their lawyers have collected tens of millions of dollars in
judgments and settlements from non-Mississippi companies, but the
cases have been kept in state court by the presence of a handful
of local dealers, none of whom has ever paid a dime.
Indeed, the routine joinder of local defendants illustrates the
second benefit of diversity reform in simplifying the system of
justice. As long as plaintiffs can avoid federal court by suing
local defendants form whom they never expect to recover damages,
the local courts will be clogged with unnecessary parties and unnecessary
lawyers. Every one of those local defendants has to hire a lawyers,
and every one of those lawyers bills for attendance at hearings
and discovery proceedings. The elimination of those unnecessary
defendants would go a long way toward rationalizing the tort system.
Although those local defendants are purely nominal as far as payment
is concerned, they become a major and expensive focus of every case.
Notwithstanding the presence of the local defendant, out-out-state
defendants may remove the case to federal court on grounds of fraudulent
joinder when they can show that no recovery is possible against
the local defendant. Plaintiffs routinely move to remand the case
to state court, arguing that they can make out a claim against the
local defendant. Lawyers on both sides spend hundreds of hours and
thousands of dollars arguing over the purely hypothetical liability
of a defendant who everyone knows will never pay a penny.
Such removal battles form a major part of may own practice here
in Mississippi. When my phone rings after an out-of-state corporation
has been sued here, the first question they invariably ask is whether
they can get out of state court. The removal and remand battle,
fought over the liability of some token local defendant, is almost
always determinative of the liability of the real target. When a
case stays in federal court, it is almost always dismissed or settled
for a minimal sum. When the case goes back to state court, the cost
of settlement or trial goes through the ceiling.
These jurisdictional games are expensive and unnecessary, and they
bring the law into ill repute. There is a better solution to the
reasonable fears of out-of-state defendants, and the Framers provided
it over two centuries ago. They intended to protect all Americans
by assuring a trial in a federal court rather than before the judiciary
of another state. Through its undisputed power to control the jurisdiction
of the federal courts, Congress can implement the solution provided
by the Framers. It should do so without delay.
*Michael B. Wallace is a partner in the Jackson, Mississippi office
of Phelps, Dunbar.