Litigation - cost of litigation to US businesses - includes related articles - CE Roundtable - Panel Discussion

Chief Executive, The, Jan-Feb, 1995 by Lorri Grube

Before the 1930s, there was no such process. You didn't know what the other side had in its files, and it didn't know what you had in yours. It was trial by ambush. Maybe that's a better system. Maybe we should return to it.

The bottom line is that 98 percent of all lawsuits in this country are tried in state courts. That's where reform has to start.

Donlon: How would you change the system?

Weiner: Give additional funds to the justice system. Only about 1 percent of all government spending goes to the system, and .7 percent of that goes for prisons. The courts are overwhelmed with lawsuits, and they're not technologically equipped to handle them.

Arnold B. Pollard (CE): Why do we have to pump more money into the system? Why can't we re-engineer it to resemble another successful system we've designed?

Justice Edward A. Panelli (J.A.M.S./Endispute): I don't think we can give more money to the justice system - the California legislature always tries to cut our budget. Instead, we should look at an alternate method to resolve disputes, such as arbitration.

R. Quintus Anderson (The Aarque Cos.): How does that apply when there is potential for huge punitive damages?

Glen H. Hiner (Owens-Corning Fiberglas): Punitive damages are supposed to set an example, but how many times can you be punished for doing something wrong?

Panelli: Exactly. We need legislation that says, "You've had your 15 whacks. That's enough."

Greenberg: But will it hold up constitutionally?

Panelli: I am a former California State Supreme Court judge. In my court, we had hoped something would happen with regard to punitive damages.

Greenberg: So did we.

Panelli: We now are working with an arbitration clause that permits punitive damages, but requires a neutral hearing officer instead of 12 people from the community deciding on the award figure.

Greenberg: Suppose, by law, insurance could not cover punitive damages. Would there be as much incentive for the lawyers to argue for punitive damages? For the big guys it would, of course, but not for the small ones.

Michael Horowitz (Hudson Institute): I disagree. It would be leveraged in the negotiation of the settlement.

Panelli: The lawyers would say you didn't settle within your policy limits, and there was punitive damage exposure. So when the case isn't settled, they'll say you caused us to suffer this punitive damage, because you didn't settle within your limits, and you're going to pick it up anyway.

A.B. Krongard (Alex. Brown Inc.): Lawyers would start taking equity positions in these small companies. [Laughter.] They'd own all the companies in America.

Greenberg: If an amendment were made for states to eliminate punitive damages, each would have to be tested constitutionally. Then we might make some headway. Unfortunately, in many states, the trial lawyers control the legislative process.

Motion for Reform

Horowitz: The tort system is clearly dysfunctional, but the question is why it has resisted reform for so long. Of course, the tort bar has shrewdly spent money buying influence with legislatures and politicians. But I believe the durability of today's tort regime represents a failure of ideas and strategy more than it does a triumph of the tort bar's money and muscle. The business community's "muscular" approach to reform is strategically flawed. This approach, which "simply" seeks to repeal or limit bad legal doctrines, cedes the high ground to the tort lawyers, letting them pose as consumer protectors while cloaking corporate greed.