Common Sense on Life Support
Class action lawsuits have evolved (or devolved) into a means for trial lawyers to go after businesses and large institutions, often in the name of clients who don't even know they are being represented.
Yesterday, I wrote an article about Virginia Tech and the tragic shooting that took place there. The responses were split about 50/50 among those in agreement with my position and those who were not.
Today, I will present another facet of my worldview and put my money where my mouth is when I say that I "vary on the issues."
About ten years ago, I had the pleasure of reading a book by Philip K. Howard, called "The Death of Common Sense: How Law is Suffocating America."
Philip K. Howard
Howard explores the following cases-among many others:
- The New York City building code putting the kibosh on Mother Teresa's plans to build a shelter for the homeless-because her order couldn't afford to install an elevator, a requirement for all new and renovated dwellings.
- Elementary schools not being permitted to hang student art on the walls because construction paper is flammable.
- Handicap-access laws requiring certain homeowners to install handicap-accessible bathrooms-even if no one living in the house is handicapped.
- Howard posits that "America is drowning: in law, legality, bureaucratic process. Abandoning our common sense and individual sense of responsibility, we live in terror of the law, in awe of procedure, at war with one another."
- He makes clear how the nature of individual rights has been distorted by today's "rights industry." Rights, Howard reminds us, are "rights against the law, not positive goods that government is obligated to provide for any and all claimants."
- Not long ago, Howard wrote a piece for the New York Sun in which he pointed out that "the U.S. securities markets are on the way to losing their pre-eminence."
- And how.
- The American share of global initial public offerings declined to 5% from 50% in the last five years.
- He goes on to say that foreign companies are being scared away in part by soaring costs of American law.
- In 2005, over $9 billion was awarded in class action settlements.
- In 2004, government fines in America totaled $4.74 billion, over 100 times more than British government fines.
- Then there's Sarbanes-Oxley, which has almost tripled auditing costs for small public companies.
- Want to get around Sarbanes-Oxley?
- Here's an idea: hire the D.C. law firm that just hired Michael Oxley! (note: see MVTV for more on this…)
- Howard says trust has eroded to such a degree that business is not only hamstrung, but afraid of being hamstrung-which is possibly even worse.
- From his New York Sun article: Companies are afraid that if a few employees out of thousands do something wrong - even if not material to the bottom line - the company faces the prospect of ruin. An indictment, not a conviction, could put a company out of business. Why roll the legal dice in America when legal systems in Britain and elsewhere focus on punishing the individual wrongdoer, not shooting everyone in sight?
- Hell of a point. Can there "never be too much accountability?"
- Accountability is a good thing, yes.
- But not when it engenders fear, paranoia, and knee-jerk butt-covering, resulting in stagnation and a severe reduction in innovation.
- Something's wrong when Halliburton (HAL) considers a move to the Middle East-because it's easier to operate there than it is in the U.S.!
Common Sense on Trial
Class action lawsuits originated as a way for people with similar grievances to join together and get compensated for injuries. But they have evolved (or devolved) into a means for trial lawyers to go after businesses and large institutions, often in the name of clients who don't even know they are being represented.
- Legitimate companies are hard-pressed to defend themselves against thousands or even millions of plaintiffs.
- Companies almost always choose to settle rather than risk billions of dollars in punitive damages.
- Trial Lawyers, Inc. (www.triallawyersinc.com) is a project of Center for Legal Policy at The Manhattan Institute.
- They have imagined a corporation called Trial Lawyers, Inc. which rakes in almost $40 billion per year in revenues-50% more than Microsoft (MSFT) or Intel (INTC) and twice those of Coca-Cola (KO).
- This makes the semi-fictitious Trial Lawyers, Inc. about the most profitable business in the world.
- Where are the new revenue streams coming from?
- Just about anywhere and everywhere you can imagine.
- 3M (MMM), which never made or sold asbestos, was accused of failing to warn users that its masks would not filter out asbestos dust if they were not used properly.
- So, the masks wouldn't filter out the asbestos that wasn't there in the first place.
- Guess they wouldn't have filtered out the gold dust, hanta virus, and mustard gas that wasn't there, either.
- Jeez, you don't even have to be injured by asbestos exposure to benefit from it.
- Here are some folks who certainly didn't benefit:
- Companies bankrupted by asbestos have cut an estimated 60,000 jobs, failed to create 128,000 new jobs, and forgone an estimated $10 billion in investment, according to new studies by RAND and Sebago Associates.
- Ralph Nader has called McDonald's (MCD) hamburgers "weapons of mass destruction."
- If the masses were to eat unheard-of numbers of hamburgers-McDonald's or otherwise-they'd certainly be flirting with health issues. But "weapons of mass destruction?"
- Absolutely! Don't you remember when the U.S. military found hidden caches of these all over Iraq?
The McDonald's "McWMD"
Makes Sense to...Whom?
I've already touched on the asbestos issue. Sure, asbestos can be potentially harmful, as can Clorox on the rocks, fast-moving currents, and high winds. Since there's no fast-moving current industry to put out of business, trial lawyers must look elsewhere.
- Legal industry "venture capitalists" back firms filing enormous, speculative class action suits with an eye toward rich rewards down the road.
- Not surprising then, that a secondary financial market would exist, where shares in future legal fees are bought and sold.
- Plus, if you can't find your malady on the official list, make it up!
- A viewer sued NBC for $2.5 million over a "Fear Factor" rat-eating episode, alleging the episode made him dizzy, lightheaded and caused him to vomit and run into a doorway. (Associated Press, January 26, 2005)
- A train conductor settled for $8.5 million from a railroad after claiming a collision between his commuter train and a freight train worsened his alcoholism. (Associated Press, February 2, 2005)
- Two teens thought they'd pleasantly surprise their neighbor with a nighttime cookie delivery, but were sued when the neighbor claimed their unannounced arrival caused a severe anxiety attack. (Denver Post, February 4, 2005)
- I'm running a little low on walkin' around money this month…what to do?
- I know! I got burned by scalding tap water this morning! I also woke up with a hangover! And the automatic door in the supermarket closed on my hand!
- See you in court, suckers!
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