Civil Justice Reform - Building On Success

Tuesday, February 1, 2005 - 01:00

Kim M. Brunner and Thomas A. Gottschalk

History will record 2004 as a year of noteworthy progress in the quest for civil justice reform. From state legislatures to ballot initiatives to judicial elections, several states took significant steps to improve their civil justice environments. Countless individuals and organizations contributed time and effort to bring these reforms about. While significant progress was made, achieving lasting and meaningful balance in our legal system will require heightened vigilance and dedication.

Just over a year ago, this publication reported on efforts of the Civil Justice Reform Group (CJRG) - an organization founded in early 1994 by general counsel to work on civil justice reform efforts principally at the state level. The CJRG partners with local legal reform organizations to pursue state-level reforms and coordinates with major national reform groups, including the U.S. Chamber's Institute for Legal Reform, Lawyers for Civil Justice (LCJ), and the American Tort Reform Association (ATRA). As the only general counsel-directed organization dedicated to civil justice reform, the CJRG pursues a reform agenda that is established and supported by its member general counsel.

Resources to support civil justice reforms are scarce; hence careful priority-setting is required to achieve meaningful, attainable results. The CJRG identifies the most significant and accomplishable reform opportunities in the states and at the federal level, and it develops strategies to achieve those reforms. This crucial prioritization derives from the active involvement of general counsel, who provide a vital point of coordination within the corporate community.

In October 2003, general counsel representing over 50 major companies convened the CJRG's first General Counsel Summit on Civil Justice. The main objective of the Summit was to identify the business community's legal reform priorities. Acknowledging that class action and asbestos reform would remain top priorities at the federal level, general counsel attending the 2003 Summit identified four other key areas requiring immediate attention: 1) so-called "problem jurisdictions," where state reforms are urgently needed; 2) the increasing frequency with which state attorneys general assign a state's interest in litigation to private law firms working for a contingency fee; 3) abuse and unwarranted expansion of state unfair and deceptive practices acts; and 4) California's civil justice climate, with reform of the state's unfair competition statute, Business and Professions Code §17200, being an immediate priority. The group then considered specific ways to improve the situation in each of these areas. Demonstrable progress has been made on several of these and related fronts.

State-Level Legislative Reforms

Impressive forward movement was made in 2004 in several identified problem jurisdictions. Following the path of comprehensive civil justice reform enacted in Texas in 2003, the Mississippi legislature enacted its own sweeping reform package in 2004. Mississippi HB 13, signed by Governor Haley Barbour, addresses venue, abolishes joint and several liability, caps non-economic damages, immunizes innocent sellers from product defect litigation, caps punitive damages, encourages jury service, and establishes a new "speedy trial" priority status.

As 2004 came to a close, the Ohio General Assembly passed a similarly comprehensive civil justice reform package. On January 6, 2005, Governor Bob Taft signed SB 80 into law. This new legislation includes limits on both non-economic damages and punitive damages, establishes a 10-year statute of repose for product liability and construction defect cases, and permits introduction of evidence of collateral source payments. Joining the cause of reform, newly-elected Missouri Governor Matt Blount has asked the legislature to pass meaningful civil justice reform in 2005. Such reform legislation was passed on two previous occasions but was vetoed by Governor Blount's predecessor.

State Ballot Measures

Citizens of several states also took direct steps to protect the business - and civil justice - environment in their states. In a move that should favorably address some of the most notorious abuses of California's unfair and deceptive practices act, voters in November approved Proposition 64 by an impressive 59% to 41% margin. This new, voter-enacted measure imposes standing requirements and places limits on "private attorney general" lawsuits alleging violations of California Business & Professions Code §17200.

In neighboring Nevada, the personal injury bar backed Questions 4 and 5 in the November general election. Had these initiatives passed, they would have reversed medical liability reforms achieved legislatively in 2002. The measures also would have prevented the legislature from enacting any future tort reform, prevented any limits on contingency fees, and precluded a judge from ever reducing a jury award. Fortunately, Nevadans defeated each measure by resounding margins.

Federal Class Action Reform

The Class Action Fairness Act, S. 2062, endured a roller-coaster ride in the U.S. Senate. Companion legislation was passed by the House of Representatives in June of 2003. But despite bipartisan support, reform advocates were unable to cross the goal line on the Senate floor in 2004.

S. 2062 would have allowed the Federal Courts to hear more large, interstate class actions - those with diversity of citizenship, more than 100 plaintiffs and damages alleged to exceed $5 million - while ensuring truly local controversies remain in state courts. The bill also set limits on "coupon" settlements by enacting a Consumer Class Action Bill of Rights and ensuring attorneys' fees were based on the number of hours work invested in the case or the value of coupons actually redeemed, not the potential value of coupons that may be issued pursuant to the settlement. Although the class action bill did not make it to the President for signature this past session, the groundwork firmly has been laid for success early in the new Congress.

Federal Asbestos Legislation

Efforts to find a legislative solution to the asbestos litigation crisis also remain a priority at the federal level. Some progress was made during the last Congress toward reaching a bipartisan consensus on how to solve this crisis. The proposed legislation would take all pending and future asbestos claims out of the tort system and establish an asbestos victims compensation fund, which compensates qualified individuals fairly on a no-fault basis, according to the severity of their injuries caused by asbestos. Provided the broken asbestos tort system is shut down immediately and completely upon enactment of such legislation, representatives of the business community continue to support this solution because it represents an effective and equitable means of restoring financial certainty and rationality while providing real asbestos victims with fair and quick compensation. We are hopeful that efforts to pass asbestos reform in the 109th Congress will also prove successful.

The Road Ahead

Despite the record of successes in 2004, much remains to be done, and civil justice reform must continue to be a top priority for the business community.

The "tort tax" imposed by an unbalanced civil justice system makes it ever more expensive for companies - large and small - to do business in states with dysfunctional or unfair liability systems. As the 2004 reforms passed in Mississippi, Ohio, and California illustrate, the motivating factor in their successful adoption was the realization that the state or local civil justice landscape had to be improved in order to attract and retain business investment. Many jurisdictions continue to present challenging business environments, and they should be carefully targeted for reform in 2005 and beyond.

Serious problems remain at both the state level and in local venues, which even prominent contingent fee lawyers acknowledge are "magic jurisdictions." The miscarriage of justice in these jurisdictions must be raised to a level of public awareness. Ways to even the playing field for all participants in the judicial process must be found and advocated.

Organizations of state legislators whose public policy agendas extend beyond civil justice reform, like the American Legislative Exchange Council (ALEC), have recognized the need to curtail the practices of some states to "farm out" litigation to favored plaintiff law firms. In response to this problem, ALEC has developed the model Private Attorney Retention Sunshine Act. Taxpayers fund offices of the attorney general to represent the state in litigation, and the citizens should expect their attorney general to be accountable for decisions to retain bounty hunter law firms who handle state litigation in exchange for a hefty cut of any recovery.

Voters across the country overwhelmingly selected judges in state supreme and appellate court races who endorse judicial restraint and respect for the separation of powers. That development notwithstanding, the manner in which state judges qualify to hold judgeships is another area that offers an opportunity to improve the civil justice environment in the states. Judicial elections are becoming increasingly politicized, a trend that is seriously undermining public confidence in the fair administration of justice. Merit selection of judges holds promise to attract qualified judicial candidates at the trial and appellate court levels, reduce the politicization of the third branch of state government, and make the dispensation of justice more efficient and fair.

When to impose liability for punitive damages, and in what amounts, must also remain an important focus of legal reform efforts. While the U.S. Supreme Court's decision in State Farm v. Campbell (538 US 408 (2003)) provides important guidance, opportunity remains to rein in the more activist courts and ensure punitive damage awards, when appropriate, do not violate defendants' due process or equal protection rights.

Again, the American Legislative Exchange Council has considered the issue and has adopted "Constitutional Guidelines for Punitive Damages Act." This model legislation allows de novo appellate review of the constitutionality of punitive damage awards as a matter of right. The ALEC model also suggests standards, based on BMW of N. America v. Gore (517 US 559 (1996)), for the court to consider in reviewing the constitutionality of the award.

The Role And ResponsibilityOf Corporate Counsel

Corporate counsel at all levels must remain actively involved in civil justice reform efforts. In fact, a greater level of engagement by general counsel and their staffs is needed, if progress across the country toward a more balanced, more equitable system of civil justice is to be achieved and maintained. Leadership at the highest level of corporate law departments provides the necessary vitality to the many legal reform groups operating both nationally and locally, in venues across the United States. General counsel and corporate counsel on their staffs provide these organizations a rich supply of reform ideas, and their companies provide the resources needed to see those ideas to fruition.

With each passing year, engaged corporate counsel identify more that needs to be done than current levels of support permit. By pooling the resources, ideas, and commitment of the many interested companies and leveraging them through national and local civil justice reform groups, we can continue to make progress, build momentum, and accomplish needed reform.

To help lay the groundwork for another successful year, CJRG hosted its second General Counsel Summit in late January. Summit attendees critically reviewed the successes of 2004 and discussed where future efforts need to be concentrated in light of the daunting problems that remain. As with the first Summit, this meeting provided a unique forum for general counsel to offer ideas and develop consensus on civil justice reform initiatives for 2005-06. We look forward at a future date to reporting on the results of that meeting and on related CJRG priorities and activities.

Kim M. Brunner is Executive Vice President and General Counsel, State Farm Insurance Companies, and Thomas A. Gottschalk is Executive Vice President and General Counsel, General Motors Corporation. Messrs. Brunner and Gottschalk are Co-Chairs of the CJRG Steering Committee.