• U.S. District Court Judge Gladys Kessler threw out two out of the four claims in the federal government’s lawsuit against the tobacco industry.  Specifically, the government may not use the Medical Care Recovery Act or the Federal Employees Health Benefits Act to recover Medicare expenses related to ill smokers.  However, claims based on the federal racketeering laws may be used. The government sued the tobacco companies last year in an attempt to recover $20 billion a year spent by Medicare and other health plans.

• The Third Circuit Court of Appeals dismissed a lawsuit by 16 hospitals against the tobacco companies. The hospitals argued that the companies conspired to manipulate the nicotine level of cigarettes and deceived the public about the addiction and health risks. As a result, the hospitals sought reimbursement for treating poor patients with smoking-related illnesses. If the hospitals had more accurate information, they could have better effectively counseled patients to quit. The Third Circuit held that the damages complained of were too speculative and the injuries too remote. The Court also expressed concern that this would lead to slippery slope where hospitals could sue other industries such as the automotive industry. (Allegheny General Hospital v. Philip Morris,  3d Cir., No. 99-4024)
• J.V. Schwan has written a paper on “The Consumer Benefits of Civil Justice Reform on Texas.” Citizens for a Sound Economy had commissioned Dr. Raymond Perryman to conduct a study of the bipartisan civil justice reforms passed by the Texas legislature and signed by Governor George W. Bush. The results of the study indicate several positive and direct consumer benefits attributable to civil justice reform. Specifically, Dr. Perryman found that the 1995 Texas tort reform laws created nearly 200,000 new jobs in the state. The reforms also generated savings to the typical Texas household of $1,078  through lower prices and increased total personal income. To read the report, see http://www.cse.org/informed/1142.html.
• Donald Lough has written a legal backgrounder on “ ‘No-Injury’ Class Actions: Bad for Consumers and Business.” The author demonstrates how the litigation technique of “no-injury” class action lawsuits can aggregate hundreds or thousands of injured and uninjured users of a product alleged to be “defective,” and collect damages for such things as the cost of future repairs, restitution, or a recall. Such class actions not only empower lawyers with a  new tool to extort settlements from businesses, Lough claims, but they also harm consumers who by participating in the suit, give away any legal rights they may have if the targeted product actually injures them in the future. See http://www.wlf.org.
• The October, 2000 issue of “The American Lawyer” featured an article on “ATLA’s War Room,” detailing the activity of the Association of Trial Lawyers of America’s 61 practice groups. A sampling of ATLA’s litigation groups, which are usually closed to outsiders, include: AIDS, Bad Faith Insurance, Benzene/Leukemia, Birth Defect, Casino Gambling, Chronic Villus Sampling (CVS), Computer Vending and Ammunition, Funeral Services, Herbicide & Pesticide, Inadequate Security and its subgroup Walmart Task Force, Lead Paint, Liquor Liability, Nursing Homes, Parlodel, Stadol, Steroids, Tabloid Outrage, Tap Water Burns, Tire Litigation, and Truck Underrride. Newly approved groups include: Firefighter and EMS Hearing Loss, Allercare and its subgroup of Herbicides and Pesticides, Laser Eye Surgery Malpractice, Methyl Tertiary Butyl Ether (a gasoline additive), Propulsid (a heartburn medication), and Rezulin (a diabetes medication).
  

November 3, 2000

• In Vol. 28, No. 38 of BNA’s Product Safety & Liability, Mark Behrens and Donald Kochan of Crowell & Moring wrote an article “Let the Sunshine In: The Need for Open, Competitive Bidding In Government Retention of Private Services.” According to Behrens & Kochan, in recent years, a new phenomenon has taken hold—regulation through litigation—that violates the bedrock principle of separation of powers upon which our entire system of government is based.  Special interests and the plaintiffs’ bar have discovered that the courts can serve as a forum for the advancement of their own concentrated interests, even if those interests are opposed by a majority of the public. State and local governments have begun to sponsor such “Big Government” suits in an effort to regulate entire industries, and build the public coffers through tax increases that are imposed outside the democratic process.  The authors suggest that too often, these partnerships between public officials and private personal injury contingency fee lawyers are consummated behind closed doors. Because there is no public oversight, the attorney selection process can easily be abused for personal gain and political patronage. The authors suggest that rules be adopted to require open and competitive bidding and greater public oversight in government retention of private legal services.
• President Clinton signed into law November 1 the Transportation Recall Enhancement Accountability and Documentations (TREAD) Act. For more information on this act, see October 6 on the Criminal Law Web Page.

• In the September 2000 issue of the Manhattan Institute’s Civil Justice Forum, Professor Richard Epstein argues that the exposure of Managed Care Organizations (MCO’s) to liability for patient care will inevitably undermine consumer access to health care and drive up health care costs. Epstein examines how the argument for MCO liability rests on the flawed assumption that markets and free contractual arrangements are inadequate for the consistent provision of responsible medical care to patients. To read the report, visit http://www.manhattan-institute.org/html/cjf_39.htm.
• A neurologist has filed an $800 million lawsuit against Motorola and eight other cell phone companies.  He alleges that the cell phones caused his malignant brain tumor.  The plaintiff, Dr. Christopher Newman, filed suit in Baltimore City Circuit Court and is seeking in excess of $100 million in compensatory damages and in excess of $700 million in punitive damages.
• The Supreme Court agreed on October 10 to set the constitutional bounds that lower courts may use to settle fights over the size of punitive damages awarded in civil lawsuits. The case will provide a framework for appeals courts to follow in deciding whether a damage claim is excessive. Federal appeals courts around the country have applied differing standards for settling that question. For more information, see:
• In Howard v. Ford Motor Company, California judge Michael Ballachey ordered Ford to recall and repair nearly two million cars and trucks after concluding that the automaker knowingly installed defective ignition systems in as many as 22 million vehicles nationwide and concealed the defects from consumers and regulators. This was the first recall imposed on an automaker by a judge in United States history See: http://www.nytimes.com/2000/10/12/business/12AUTO.html.

• Exporting Tort Awards: Partisan elected courts are biased against out-of-state firms.

• Regulatory Takings Victory
  

  On September 15, the U.S. Court of Appeals for the Fifth Circuit handed down an important regulatory takings decision in United States Fidelity & Guar. Co. v. McKeithen, No. 99-30475 (5th Cir. Sept. 15, 2000).  At issue in the case was 1995 amendments to Louisiana's Workers' Compensation Second Injury Fund ("SIF") Assessment Statute.  The SIF is a state created fund designed to socialize among all employers in the state the cost of "second injuries" to previously injured workers (e.g., a worker who previously blinded in one eye in an industrial accident who loses the other eye and thus becomes totally disabled).  Established in 1974, the fund assessed each employer in the state for a share of the cost of all second injuries during a given year.  Because collecting from all employers was an inefficient method of operating the fund, the 1974 law used workers' compensation insurers as an intermediary in the collection of the assessment.  As originally enacted, the law assessed each insurer based on the premiums written in a given policy year, and the insurer was allowed to pass through the assessment to the employer in its rate base.

  In 1995, after numerous insurers had ceased or substantially reduced underwriting in the state because of high costs and bad experience, the State changed the methodology for the assessment from a premium-based assessment to an assessment on the basis of benefits paid in the current year.  The net effect of the change was to shift a substantial portion of the costs of the SIF to insurers that had withdrawn from the state. Insurers sued in federal district court in Baton Rouge, but the district court upheld the statute.  The Fifth Circuit, in an opinion written by Judge Edith Jones, reversed the district court and ordered that the statute be enjoined as applied to the plaintiff insurers.  Applying Eastern Enterprises v. Apfel, the court held that the statute constituted impermissible retroactive legislation in violation of the Takings Clause.  As applied to defendants' pre-enactment workers' compensation policies, the legislation "retroactively imposes a heavy economic burden on those who could not reasonably anticipate the liability."

  Defendant insurers were represented by Mark F. Horning and Shannen W. Coffin of Steptoe & Johnson LLP (Co-Chair, Federalism & Sep Powers Practice Group).

  The opinion is available at http://www.ca5.uscourts.gov/opinions/pub/99/99-30475-cv0.HTM

• South Carolina Attorney General is prepared to sue the entertainment industry on the theory that that violent movies, television shows and video games are causing a public health threat that puts children at risk.
• Former Attorney General Dick Thornburgh comments on a recent bill offered by Senator McCain that would make it a federal crime to "knowingly and willfully…introduce a motor vehicle or motor vehicle equipment into interstate commerce with a safety-related defect" that harms or kills someone. Senator Specter has offered a broader bill (S. 3014), making it a federal crime to knowingly manufacture and sell any product "dangerous to human life and limb beyond the reasonable and accepted risk with such or similar products lacking such a flaw." To read General Thornburgh’s New York Times editorial, visit: http://www.nytimes.com/2000/09/20/opinion/20THOR.html
• On September 15, a judge dismissed Chicago's lawsuit against the gun industry, ruling the city failed to show that gun manufacturers, distributors and dealers knowingly flood the city with handguns.

September 19, 2000

• Charge Conspiracy by Maker and Doctors' Group to Expand Ritalin Use By BARRY MEIER

Lawyers involved in class-action lawsuits against the tobacco industry, gun makers and health maintenance organizations filed two lawsuits September 13 against another target, the widely used drug Ritalin. The lawsuits, filed in federal courts in California and New Jersey, say the Novartis Pharmaceuticals Corporation, the drug's manufacturer, and the American Psychiatric Association, a professional group, conspired to create a market for Ritalin and expand its use See: http://www.nytimes.com/2000/09/14/science/14RITA.html

• Volume 32.4 of the Connecticut Law Review (Summer 2000) features an article by Anne Giddings Kimball and Sarah L. Olson titled, “Municipal Firearm Litigation: Ill Conceived from Any Angle.” The article examines the number of complaints filed by American cities and counties against firearms manufacturers in “an unprecedented governmental effort to use civil litigation to achieve uniquely legislative ends.”
• Sarah L. Olson and Anne Giddings Kimball also have an article in the latest issue of the Loyola Consumer Law Review, 12.3 (2000). Their article, “The Limits on the Use of Tort Law to Encourage Consumer Safety,” The authors state: “By examining the history of tort-based claims against firearm manufacturers over the last twenty-five years, one can perceive the outline of principles which protect consumers in individual cases but restrict the application of tort law to promote more general societal goals.  This article address these principles:

I.    A product must actually be defective for tort liability to be imposed against its manufacturer for injuries sustained during its use.

A.     The risk-utility test for product defect does not measure social utility generally.

B.     A product is not defective based solely on the fact that it can be used – criminally, intentionally, or accidentally – to inflict injury.

II.   Product warnings are intended to protect those to whom dangers are not obvious.  Where a danger inherent in a product is open and obvious, no warning is required.

III.   Tort liability cannot be imposed where a manufacturer has no relationship with the injured part, the injuring party, or the product that causes injury at the time that an injury occurs.

IV.   For tort liability to be imposed, the manufacturer must control the risk at the time of injury.

• $3.75B Fen-Phen Settlement Approved

A federal judge has approved a proposed $3.75 billion national settlement of health claims stemming from the diet drug combination fen-phen. Some of the settlement will be used for “medical monitoring,” although some feel as if the settlement does not go far enough to cover those who may develop health problems later.

• Cert was granted in Circuit City Stores v. Adams, in which the Ninth Circuit ruled, contrary to other circuits, that the Federal Arbitration Act does not apply to contracts of employment.
• The Second Circuit agreed to review the class action certification granted by the lower court in the suit against Visa and MasterCard brought by a group of large retailers. Plaintiffs, including such giants as Wal-Mart and Sears, charge that the card companies used their dominance in credit cards to dominate debit cards.

• 28 state attorneys general have filed suit against large record companies, claiming the companies should pay back millions of dollars in illegal profits collected by forcing discount stores to raise CD prices in 1995.
• 'Protecting the Trail Lawyer Monopoly: The Assault on State and Federal Binding Arbitration' By: James T. Riley Issue Analysis 106, Citizens for a Sound Economy Foundation
  In a world where individuals are a mouse-click away from virtually limitless information, people are discovering that there are many things they can do for themselves that they never would have dreamed possible just a few short years ago. Arbitration has effectively cut trial lawyers out of a big piece of action, leading them to launch an assault upon this form of dispute resolution before it grows even stronger. From California and Alabama to the U.S. Congress, the trial lawyers have enlisted their allies to propose anti-arbitration legislation in the guise of consumer protection. In fact, the drive to eliminate arbitration and other forms of alternative dispute resolution has nothing to do with consumer and everything to do with self-interested motives of the trial lawyers. See http://www.cse.org/informed/866.html
  
• 'This is Not Insurance Reform: An Update on National Efforts to Codify Third-Party ‘Bad Faith’ Liability' By: James T. Riley, Esq., Issue Analysis 103, Citizens for a Sound Economy Foundation
  An overwhelming majority of Californians rejected Proposition 30, a proposal to restore third-party "bad faith" liability claims against insurance companies as a cause of action in civil lawsuits. This proposal, and others like it around the country, would allow accident victims to sue the insurance companies of the persons allegedly responsible for their injuries, not just the person at fault. The crux of such a suit against an insurance company has no relation to the underlying injury claim. Rather, "bad faith" claims are based upon the actions of the insurance company, whether real or perceived, after the accident during the settlement process. In recent years, trial lawyers across the country have spent untold amounts of money to get "bad faith" legislation passed by building the perception that insurance companies have a poor track record dealing with claimants who are not their own policyholders. Of course, who would benefit most from such legislation? One of the most powerful special interest groups around – the trial lawyers.
  
• 'The Economic Effects of the Liability System' By: Daniel P. Kessler, Hoover Institution
  The goals of the liability system are twofold – to compensate those who are injured in accidents and to deter negligent behavior. Recent research, however, suggests that the current liability system achieves neither of these objectives. The author demonstrates that through his discussion of the liability system and its result of encouraging doctors to practice "defensive medicine" – using treatments with minimal medical benefit out of fear of legal liability. The author also discusses the various untested reforms that are available. See: http://www.hoover.org
  
• 'Shooting Blanks Cincinnati Can't Sue Gunmakers for Damages, Court Rules'
  Saying it did not want to open a ''Pandora's box'' for lawsuits against other industries, an appeals court has upheld a judge's decision to throw out a suit by the city of Cincinnati seeking to recover millions of dollars from gun manufacturers. In its unanimous decision Friday, the Ohio First District Court of Appeals likened the city suit to the "absurdity'' of suing the makers of matches because of losses from arson.

• EXPORTING TORT AWARDS

  States often impose higher taxes on goods or services consumed disproportionately by out-of-state residents, such as hotel rooms in San Francisco or coal from Kentucky. Why? State politicians try to "export" taxes because this benefits their constituents while it harms citizens of other states who don't vote.

  Do state courts also engage in "tax exportation"? In product liability cases, for example, do courts award larger judgments when a manufacturer found liable is headquartered in another state?

  Economists Eric Helland (Claremont McKenna College) and Alex Tabarrok (research director, The Independent Institute) find that the answer is "yes" in research reported in "Exporting Tort Awards" (REGULATION 23:2).

  Among Helland and Tabarrok's findings:

  * Awards against firms headquartered out-of-state are higher in all states compared to awards against in-state firms.

  * In states that select their judges using partisan elections, courts are significantly biased against out-of-state defendants. Average awards against out-of-state defendants are more than $250 thousand dollars higher in states which select their judges using partisan elections than in states which appoint or elect their judges using non-partisan elections.

  * Federal courts, where judges are appointed with life-tenure, do not seem to show the same biases as state courts.

  For "Exporting Tort Awards" by Eric Helland and Alex Tabarrok (REGULATION 23:2), see http://www.independent.org/tii/lighthouse/LHLink2-24-5.html.

  Also see Eric Helland and Alex Tabarrok's related Working Papers, "The Effect of Electoral Institutions on Tort Awards" http://www.independent.org/tii/lighthouse/LHLink2-24-6.html and "Runaway Judges? Selection Effects and the Jury" http://www.independent.org/tii/lighthouse/LHLink2-24-7.html

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• Class Action Updates
  

  John Beisner of O'Melveny & Myers achieved a significant victory for Ford Motor Company in a recent TX Supreme Court decision, Ford Motor Company, et al v. Sheldon, et al http://www.supreme.courts.state.tx.us/opinions/980539o.htm. In its opinion remanding the case to the trial court for decertification, the Texas Supreme Court provided much needed guidance on factors used to define a class. In reaching the "clearly ascertainable" requirement, the court ruled that the class definition can not be based on a determination of the merits, i.e., can not include defect theory as an element of the class definition because failure to prove the theory means that there was no class to begin with, ergo the proposed members of the class could not be bound by the judgment. The court also rejected the "state of mind" aspect to the definition of the class ("allege that the peeling or flaking was caused by a defective paint process") since the trial court would of necessity have to "inquire individually into each proposed class member's state of mind to ascertain class membership", a requirement that defeats the benefits of class certification. However, the court did state that it "need not go so far as to hold that a class definition may never require the trial court to make a subjective inquiry into the claimants' thought processes."

  Another class action case decided the same day [Southwestern Refining Company, Inc., Kerr-McGee Corporation , and Sherwood v. Julia Bernal, et al addresses the inappropriateness of using the class action device for personal injury actions because class issues do not predominate over the individual issues--another significant ruling!

  "Constitutional and Antitrust Violations of the Multistate Tobacco Settlement"

  http://www.cato.org/pubs/pas/pa-371es.html

• Rucker v. Davis, 2000 U.S. App. LEXIS 1966 (9th Cir. 2000): In a comprehensive opinion validating HUD's "One Strike and You're Out" policy, the U.S. Court of Appeals for the Ninth Circuit upheld the evictions of several public housing residents whose relatives and invitees had engaged in illicit drug use without their knowledge or consent. Rejecting the tenants' "innocent owner" defense, the Court found that the statutory and regulatory language clearly indicated that an innocent owner would be evicted if they, members of their household, or their invitees committed drug-related crimes. The Court rejected the tenants' claims that enforcement of the statute and regulation violated their First Amendment right to freedom of association, the Eighth Amendment prohibition against excessive fines, and the Fourteenth
  Amendment right to intimate association. In an interesting sidelight, the Court also rejected the claim of one tenant that eviction violated his rights under the Americans With Disabilities Act. That tenant -- a paralyzed man whose care-giver used cocaine in his apartment -- was given two notices of lease violations due to the care-giver's cocaine use. After the third violation, the Oakland Housing Authority evicted him. The Court found that the housing authority accommodated the tenant's disability by giving him three chances. The Court concluded: "Walker needs a care-giver; he does not, however, need a drug-using care-giver."
• Nordby v. Anchor Hocking Packaging Co., 199 F.3d 390 (7th Cir. 1999): The Court of Appeals for the Seventh Circuit held that a plaintiff who accepted defendant's Rule 68 Offer of Judgment was not entitled to seek attorneys' fees when the Offer stated that it was "one total sum as to all counts of the amended complaint" and the amended complaint contained a count under the Illinois Sales Representative Act which provided for counsel fees. The Court affirmed its decision in Webb v. James, 147 F.3d 617, 623 (7th Cir. 1998) -- which held that ambiguities in a Rule 68 Offer of Judgment must be construed against the offeror -- but distinguished it because the offer in this case was unequivocal. Significantly, the Seventh Circuit Court disapproved of the holding of the Court of Appeals for the Ninth Circuit in Nusom v. Comh Woodburn, Inc., 122 F.3d 830, 833-34 (9th Cir. 1997), which held that the words "including attorneys' fees" were necessary. Rejecting a "magic words" approach, the Seventh Circuit Court approved of the approach adopted by the Court of Appeals for the Eleventh Circuit in Arencibia v. Miami Shoes, Inc., 113 F.3d 1212 (11th Cir. 1997), which gave effect to an unambiguous offer even if attorneys' fees are not mentioned explicitly.
• LeFever v. Hovnanian Enterprises, Inc., 160 N.J. 307 (1999): In LeFever, the New Jersey Supreme Court extended New Jersey's already broad "product line" exception to successor liability to a manufacturer that purchased assets at a sale under Section 363 of the Bankruptcy Code.
• James v. Bessemer Processing Co., Inc., 155 N.J. 279 (1998): The New Jersey Supreme Court further relaxed the standard of proving medical causation in toxic and environmental torts to require that a plaintiff need only show (1) proof of "frequent, regular and proximate exposure" to a product or substance, and (2) medical and/or scientific proof of nexus between exposure and plaintiff's condition. This relaxed standard had applied previously only to asbestos cases.
• California Referendum On Insurer Bad Faith Liability To Third Parties: Next month California residents will vote on a referendum to resurrect third party bad faith liability for insurers and risk management companies. In 1988 the California Supreme Court struck down this "privity-deficient" cause of action, which allows a third party to sue a tortfeasor's insurer for bad faith after establishing the insured's liability and the carrier's unreasonable refusal to settle the case. Although the California Legislature passed legislation resurrecting third party liability, it will not go into effect unless the referendum passes.