The Rule of Law – Part 7

Some legal reforms over the last two decades that have tended to reduce litigation abuse and encourage innovation.

Continuing this essay series on the rule of law, this essay will explore some legal reforms over the last two decades that have tended to reduce litigation abuse and encourage innovation. (I was very involved in the enactment of each of these.)

Because the common law imposes neither a duty on private entities to act for the benefit of another person, nor liability for failing to act to rescue a person, in most instances, if a private entity decides not to provide a good or service, that private entity can’t be successfully sued for a failure to act. On the other hand, in most instances, when a private entity voluntarily acts, it opens itself up to costly lawsuits claiming the private entity’s actions fell short in some way. Manufacturers have no practical way of keeping their products out of certain states, and personal injury lawyers generally get to choose the forum of their choice, and so they pick a jurisdiction with the most pro-lawsuit judges in which to sue. Richard “Dickie” Scruggs was one the nation’s wealthiest personal injury attorneys before he went to prison for bribing a judge. He labelled “magic jurisdictions” as follows: “[W]hat I call the ‘magic jurisdiction’ ... [is] where the judiciary is elected with verdict money. The trial lawyers have established relationships with the judges that are elected … They’ve got large populations of voters who are in on the deal ... And so, it’s a political force in their jurisdiction, and it’s almost impossible to get a fair trial if you’re a defendant in some of these places ... Any lawyer fresh out of law school can walk in there and win the case, so it doesn't matter what the evidence or the law is.”

The jurisdictions most friendly to personal injury lawyers can, if very large verdicts are rendered, indirectly impose the costs of those verdicts on consumers nationwide, producing a sort of “lawsuit inflation” that increases the price of goods and services everywhere. If costly tort lawsuits are preventing private entities from voluntarily producing goods and services that would benefit the American public, it often makes sense for Congress to enact legal reforms that remove barriers that discourage private entities from taking actions that increase benefits to the public or reduce risks to the public. In this way, legal reform can provide the sort of “check and balance” that helps ensure the “separation of powers” the Framers of the Constitution insisted upon -- namely a mode of government designed to limit state power in ways that allow “the People themselves” to have the ultimate say in the policies that govern them. (I explored the constitutional basis for federal legal reform in a law review article entitled “The Federalist Papers, the Commerce Clause, and Federal Tort Reform.”)

As the authors of the Federalist Papers wrote, the “importance of the Union, in a commercial light” relies on the “adventurous spirit, which distinguishes the commercial character of America.” And “there is no object, as it respects the interests of trade and finance, that more strongly demands a federal superintendence” than the “power to regulate commerce.” An “active commerce” should be “the offspring of moral and physical necessity” and Congress should have the power to provide that “[t]he veins of commerce in every part [of the Union] will be replenished, and will acquire additional motion and vigor from a free circulation of the commodities of every part.” The Commerce Clause was necessary not just to allow Congress to protect against state policies that interfered with commerce at the time, but also to protect against state policies based on “future contrivances” that result in “serious interruptions of the public tranquility.”

Over the last quarter-century, Congress has used its constitutional authority to enact a number of federal legal reforms that supersede contrary state laws and legal rules that acted to impede commerce. Judicial precedents leave little doubt as to their constitutionality, and these laws can’t be nullified under state constitutions. Even President Ronald Reagan, known for his deference to states’ rights, established a special task force to study the need for legal reform. The task force concluded that the federal government should address liability when appropriate because it’s a problem adversely affecting interstate commerce. That task force, called the Tort Policy Working Group, consisted of representatives of ten Reagan Administration agencies and the White House. The final report of that task force concluded as follows: “In sum, tort law appears to be a major cause of the insurance availability/affordability crisis which the federal government can and should address in a variety of sensible and appropriate ways.”

This view is supported by the principal architects and advocates of the federal Constitution -- James Madison and Alexander Hamilton – who made clear in the Federalist Papers that Congress has the constitutional authority to enact legislation that breaks down the types of barriers to trade and free enterprise caused by the abuse of state liability laws. This power was embodied in the clause of the Constitution that gives Congress the power to regulate commerce among the states in Article II, Section 8. The Commerce Clause was necessary to allow Congress to counter not only the sorts of state-imposed trade barriers that increased prices in existence at the time, but also future trade barriers to the free flow of goods and services nationwide, the nature of which would change with time. As Madison wrote in Federalist No. 42, “We may be assured by past experience, that such a practice would be introduced by future contrivances” if Congress did not have the authority to break down barriers to trade imposed by the states as it saw fit in the future. One such “future contrivance” is the vast expansion of legal liability in the states, and the adverse economic effects of such an expansion, that has occurred since 1789. As legal historian Lawrence Friedman described the current situation, “The dramatic extension of the tort system in the twentieth century is unquestionably real. People brought lawsuits which would have been unthinkable in the nineteenth century, or even in the earlier part of the twentieth.”

While some may argue that federal action to address overly expansive state legal liability is unnecessary because businesses can simply avoid states that have oppressive liability laws, Madison rejected that argument. Madison described the purpose of the Commerce Clause as providing for “the relief of the States which import and export through other States, from the improper contributions levied on them by the latter [that] load the articles of import and export, during the passage through their jurisdiction, with duties which would fall on the makers of the latter and the consumers of the former.” He foresaw the problem in which products or services would be made to cost more to consumers in one state because other states those products and services passed through would levy costly duties on them. Just like the levied duties Madison complained of, state liability law has negative effects on the price and interstate movement of labor, goods, and services.

Today, some states’ liability laws allow virtually unlimited lawsuits to increase the costs of selling products or services that cross into other jurisdictions. The modern term applied to that phenomenon is the “tort tax,” and when it is applied to national industries, it’s passed on to consumers everywhere. The result is higher prices, and lost jobs, across multiple states, or nationwide. When that happens, Congress can, and often should, enact federal legal reform to enforce federalism principles, and it has done so several times over the last two decades, with beneficial results, as shown by the following examples.

The SAFETY Act

Some lawsuits may not just threaten economic viability, but national security as well. After the terrorist attacks of September 11, 2001, federal legislation was needed to keep American and United Airlines operating. Lenders would not lend funds to the airlines because of the threat of potentially bankrupting lawsuits resulting from the terrorist attacks. Legislation was enacted that capped the liability of the airlines, and kept their planes in the air.

Soon thereafter it became increasingly clear that government at all levels must rely on the private sector to help counter more and varied threats to its citizens by those who would do them harm. Those threats can come in the form of terrorist mass shootings, suicide bombers, and cyber-attacks that steal people’s personal identification, money, and credit. At the same time, potential abusive lawsuits made the private sector less willing to take action to reduce public risks because of the fear of lawsuits.

Since 9/11, Congress has enacted three federal statutes, the SAFETY Act, the PREP Act, and the Cybersecurity Act, to provide private entities that are on the front lines in efforts to combat terrorists and other bad actors, and efforts to reduce pandemics, with protection from debilitating litigation that would otherwise deter them from acting for the public good.

After 9/11, the federal government appealed directly to the private sector for help in combating terrorism. A team of the nation’s leading scientists called for a comprehensive rethinking of our anti-terrorism infrastructure, underscoring the need to encourage private activity so existing technologies could be quickly brought into wider use. According to their report, conducted under the auspices of the National Academies, “Research performed but not exploited, and technologies invented but not manufactured and deployed, do not help the nation protect itself.”

In response to this finding, as part of the Homeland Security Act of 2002, Congress enacted liability protections that the Department of Homeland Security could extend to providers of effective anti-terrorism technologies. The SAFETY Act has resulted in the deployment of tens of thousands of anti-terrorism technologies to protect innocent Americans, technologies that would not have been deployed without the Act’s lawsuit protections. I explore this legislation, and also the PREP Act, in much more detail in a law review article entitled “We’re All In This Together: Extending Sovereign Immunity to Encourage Private Parties to Reduce Public Risk.”

The SAFETY Act was initially opposed by lawyers and their allies. In the House, an amendment to strike it from the homeland security bill was defeated, but just by a single vote. It survived in the Senate and was signed into law by President George W. Bush. The legislation subsequently came to enjoy broad bipartisan support because it opened the gates to the production of new anti-terrorism technologies. Indeed, the results were so clear that in January, 2007, just after the Democrats took control of the House of Representatives, a bill directing the Secretary of Homeland Security to streamline the SAFETY Act and anti-terrorism technology procurement processes passed by a vote of 427 to zero. During the debate on that legislation, the Democratic Chairman of the House Homeland Security Committee, Bennie Thompson (who had previously voted to strike the SAFETY Act from legislation in 2002) said during debate on the bill: “Today I rise to support a bill that reaffirms our commitment to ensuring that safe and effective antiterrorism technologies are being deployed. We must enable the private sector to deliver the revolutionary, breakthrough technologies that will help win the Nation’s fight against terrorism.”

Products covered under the liability protections of the SAFETY Act include metal and explosives detectors used in subway systems, dog-sniffing training programs, water contamination detectors, and other anti-terrorism products and technologies that have been deployed nationwide since 2002. Fred Schwien at Boeing has said “Without the SAFETY Act protections, Boeing would not be in the anti-terrorism business.”

The SAFETY Act is used by sports stadiums around the country that implement approved safety programs. A promotional video proclaiming the 1,000th product approved under the SAFETY Act appeared during the first Trump Administration and features a clip of Yankee Stadium, one of the many sports stadiums covered by the SAFETY Act’s protections. The DHS websites goes on to state:

The road to 1,000 SAFETY Act approvals may not have been paved with turf, but OSAI has worked closely with several organizations within professional sports leagues to harden security and ensure the safety of patrons … National Football League (NFL), Major League Baseball (MLB), and National Basketball Association (NBA) venues have had security systems and best practices approved through the S&T SAFETY Act program … Gillette Stadium, home of the New England Patriots, received SAFETY Act protections in 2017 and stated on their website, “Our number one priority is the safety of our patrons, and this certification shows the amount of thought and effort that goes into making sure everyone who comes to any ticketed event at Gillette Stadium is safe.” Doug Collins, with Lambeau Field (home of the Green Bay Packers), stated, “Going through the process allowed us to verify we have all the best practices in place to provide a safe and secure venue.” Lambeau Field received SAFETY Act protections in 2016 …

Some venues taking advantage of SAFETY Act protections today include:

NFL -- Levi’s Stadium; Gillette Stadium; FedEx Field; Met Life Stadium; Nissan Stadium; Lambeau Field; University of Phoenix Stadium; NRG Stadium

MLB -- Comerica Park; Yankee Stadium; Citi Field

NBA -- Madison Square Garden

The PREP Act

Further, the COVID-19 vaccines would not have so dramatically reduced the deaths caused by COVID-19 as they did if federal statutory legal reform enacted over a decade earlier had not made them readily available without the years-long delays that would have otherwise been caused by lawsuits.

In 2005, Congress enacted the Public Readiness and Emergency Preparedness Act, the “PREP Act.” Under the PREP Act, covered entities are protected from lawsuits when they engage in federally approved efforts to create vaccines and other means of stopping the spread of pandemics and other biological threats, including biological attacks by terrorists. Again, the PREP Act was initially opposed by the plaintiff’s lawyers and their allies. But after it became law, President Obama, along with his predecessor, President George W. Bush, applied the PREP Act’s protections many times, including to cover those making and administering influenza vaccines. The PREP Act’s liability coverage currently extends to countermeasures regarding smallpox, acute radiation syndrome, anthrax, the Zika virus, nerve agents, and other threats. President Obama’s Secretary of Health and Human Services applied the PREP Act’s lawsuit protections to those manufacturing and distributing vaccines to help prevent the spread of the Ebola virus. Obama’s Secretary of Health and Human Services stated publicly “The PREP Act was designed to facilitate the development of medical countermeasures to respond to urgent public health needs, including the development of critical vaccines like those to prevent the spread of Ebola … My strong hope … is that other nations will also enact appropriate liability protection …”

One of the vaccines President Obama’s administration protected from excessive liability under the PREP Act was rVSV-ZEBOV, discussed here. It was declared “highly effective.” In December, 2016, the World Health Organization’s Assistant Director-General for Health Systems and Innovation said “While these compelling results come too late for those who lost their lives during West Africa’s Ebola epidemic, they show that when the next Ebola outbreak hits, we will not be defenseless.” Tragically, Ebola reappeared in Africa. But today, thanks to legal reform and the work of scientists and health researchers, we can read headlines like this one from the New York Times: “Ebola Erupts Again in Africa, Only Now There’s a Vaccine.”

President Trump, through his Secretary of Health and Human Services, applied the PREP Act’s legal reform provisions five times regarding the COVID-19 vaccines, which saved hundreds of thousands of lives. As one researcher reported, “I find that vaccines saved 748,600 lives through June 2023. That is, without vaccines, cumulative mortality from COVID-19 would have been closer to 1.91 million over this time period.”

The Cybersecurity Act

While the PREP Act extended liability protection to countermeasures that combat biological viruses, there remained the need to extend liability protection to encourage the development of countermeasures against computer viruses and other cyberthreats. To that end, the Cybersecurity Act of 2015 extended a safe harbor from lawsuits to internet and other technology companies when they coordinate efforts to understand, anticipate, and combat cyber-security threats in accordance with federal rules. Previously, a myriad of state and federal laws intended to protect the privacy of customer information threatened to deter entities from sharing information about the sources of cyberthreats and the customers whose computers they were routed through. Today, those entities can share such information without fear of lawsuits, creating new resources for information sharing to help protect their customers’ money and personal information.

The Protection of Lawful Commerce in Arms Act

Another prominent federal legal reform (it was the National Rifle Association’s top legislative priority the year it was passed) is the Protection of Lawful Commerce in Arms Act, which protects gun manufacturers from liability caused by the independent actions of criminals. Prior to the enactment of that legislation, dozens of liberal-run cities were suing the gun industry, claiming it was responsible for the costs of any harm caused by anyone who used guns, even if the manufacturers had no control over their illegal use, and even if the guns had passed through dozens of hands over decades prior to their illegal use. Enactment of that federal legislation saved the domestic firearms industry from bankruptcy. The Act has been upheld as constitutional under the Commerce Clause by several courts, including one of the most liberal federal district court judges in the country, Judge Jack Weinstein of the Eastern District of New York, and the Second Circuit Court of Appeals.

As an aside, it appears liberal-run cities today are drawing on the same playbook they once used against the firearms industry in ongoing lawsuits against the car industry. As the Wall Street Journal writes:

Car thefts have spiked amid the turn toward progressive policing. And, naturally, the response by progressives who run big cities is to punish the auto makers. Last week Baltimore joined other cities suing Kia and Hyundai for the alleged offense of making cars that are too easy to steal … Progressive leaders want the companies to pay to compensate for their political failure to protect their citizens. Baltimore follows St. Louis, Cleveland, San Diego, Milwaukee, Seattle and New York City in demanding that Kia and Hyundai pay damages for “public nuisances” resulting from auto thefts.

Potential Future Federal Consumer Protection Reforms

While the above-described federal statutes have a proven record of protecting the American people, other potential federal reforms, not yet enacted, have the potential to help American consumers. I’ll mention a couple of them here.

Class Action Lawsuits

Abuses of the class action system continue to require reform. Lawyers can bring class actions with a few lead plaintiffs, without obtaining permission from members of the class to bring a lawsuit. People have to explicitly “opt out” of the class to be excluded from it. Most people don’t do this. They simply toss the “notice of class action” in the trash. Yet lawyers can sue on behalf of those people without getting their permission. Indeed, members of the “class” often ignore the lawsuit even if it’s won. In that regard, according to a sworn declaration of a professional who administers consumer class action settlements, the median rate at which consumer class action members take the compensation offered in a settlement is an incredibly low 0.023 percent. Only the tiniest fraction of consumer class action members bother to claim the compensation awarded them. That’s pretty clear proof that vastly large numbers of class members are satisfied with the product they purchased, don’t want compensation, and don’t want to be lumped into a gigantic class action lawsuit against their will.

The Manual for Complex Litigation is a treatise published by the Federal Judicial Center, which is operated by the federal judiciary. It was written by a group of well-respected judges, most of whom are still active. Section 21.71 of the Manual states as follows: “Compensating counsel for the actual benefits conferred on the class members is the basis for awarding attorney fees.” The focus is on the result actually achieved for class members. For the most part, however, federal courts aren’t following this directive. While class action lawyers get huge fees, their class action clients collect little or nothing.

Congress should enact legislation that will ensure that damages awarded in class actions aren’t inflated to include damages for people who had no problems with the product, and that class action members receive the principal benefit of successful class actions by limiting lawyer fees to a reasonable percentage of what class members actually get. That will incentivize class action lawyers to do better at both finding deserving victims, and ensuring those victims receive the compensation they deserve.

Federal Rule 11

A third area in need of reform is Federal Rule of Civil Procedure 11, which is intended to curb frivolous claims. Current Rule 11 allows judges to deny the victims of frivolous lawsuits (usually small businesses) any compensation for the harm they suffered. This result occurs even if the judge determines the lawsuit against the small business was frivolous (meaning the lawsuit had no basis in law or fact). As a result, the current Rule 11 goes largely unenforced. Victims of frivolous lawsuits have little incentive to pursue additional litigation to have the case declared frivolous when there is no guarantee of compensation for their legal costs. Further, they have to expend additional legal costs to bring an ineffective Rule 11 motion. Congress should make it mandatory for the victims of frivolous lawsuits filed in federal court to be compensated for the harm done to them by the filers of frivolous lawsuits. A frivolous lawsuit is itself a defective product, and its victims should be awarded compensation just like all victims of defective products.

In the next essay in this series, we’ll examine the “Lawyer-Judge Bias” in the American legal system, which persists because of a unique situation in which lawyers and judges are allowed to supervise themselves.