Tort Reform And Epistemic Closure

Closed Mind Image.jpgThere’s been a lot of talk in the political blogosphere lately about whether conservatism is suffering from “epistemic closure.” Epistemic closure is a term that has become shorthand for the closing of the conservative mind – the idea that conservatives are recycling the same ideas over and over when they should be inventing new policy solutions. The debate about whether conservatives are suffering from “epistemic closure” has prompted some soul-searching by conservatives about whether they’ve simply curled up like hedgehogs in response to challenges to their belief system.
And it seems like we’ve seen plenty of challenges to that belief system lately, especially conservatives’ free market fundamentalism. On Wall Street, we’ve seen unchecked markets lead to grotesque executive compensation schemes, where traders earn massive bonuses by taking short-term risks and pass the long-term costs of their risks onto shareholders and the government. In our health care system, we’ve seen how unrestrained markets lead to insurance companies freezing out people who are the most in need of health insurance and doctors running up the bills, instead of being incentivized to promote preventative care.
Epistemic closure was much on my mind recently when I went back to read “The Litigation Explosion: What Happened When America Unleashed The Lawsuit,” a nearly two-decade old book by Walter K. Olson, a think tank fellow who recently departed the Manhattan Institute for Cato and who does a lot of work in the field of tort reform. What made me read a twenty year old book by a policy wonk, a title obscure enough that I was able to buy a used hardcover copy on for ninety-eight cents?

The answer is that my frequent reading of two tort reform blogs – and – left me wondering whether there was any coherent philosophy underlying the tort reform movement.
From my reading of tort reform blogs, I was unable to sift out any sort of worldview that the tort reformers subscribed to. To my mind, the blogs’ contributors simply posted snarky blog posts without answering the tough questions that their posts raised. For instance, each of these blogs is littered with dozens of seemingly sarcastic posts about asbestos litigation. But I could not find a single blog post addressing what we should do to compensate mesothelioma victims. If the tort reformers don’t like the status quo what do they propose as an alternative? Government insurance? Letting the loss lie where it falls, i.e., no remedy at all for asbestos victims?
One thing was clear from reading these blogs: the tort reformers are not libertarian believers in free markets. They are more like you’re local Chamber of Commerce boosters than your Chicago-style free market thinkers.
They do not align themselves with the “Law and Economics” movement that I’ve blogged about before. The legal school of Law & Economics applies the insights and principles of economics to the study of law. The adherents of Law & Economics have found that our legal rules and principles are astonishingly efficient – it’s almost as if the judges who invented these legal rules had set out to devise the most economically efficient rules that they could. The disciples of Law & Economics have no problem, in principle, with the sort of strict liability law that governs asbestos cases, products liability and other torts. In fact, they think (and quite convincingly argue) that that sort of liability is economically efficient.
Olson, whose formal training is in economics, not law, has almost repudiated economic analysis of the intersection of law and efficiency. In fact, he disparages Law & Economics adherents as believers in the “invisible fist” of litigation (a play on Adam Smith’s “invisible hand of the marketplace”). Olson’s critique of our litigious society focuses more on how lawsuits interfere with human relationships and personal privacy. Olson writes that, “A litigation explosion is a civil war in very, very slow motion,” and that, “No philosophy of community and mutual aid should welcome a regime of law that sets people against each other in adversarial bitterness at every turn.”
There are several positive things that should be said about Olson’s book. First, as a prose stylist he’s on a par with George Will and other leading conservative essayists. He writes the same sort of droll well-turned prose as Will.
Second, he knows about as much about law as anyone can learn without having gone to law school or practiced law. On some topics, his knowledge of the law surpasses that of the ordinary attorney. (I chuckled to myself reading a chapter of his on the topic of “conflict of laws” because most lawyers are less informed than Olson on the subject; I sometimes get phone calls from law school classmates on conflict of laws issues because of an elective class I took on the subject). Olson has also managed to get his work cited in a Supreme Court case – TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443 (1993) – which is something that most legal academics spend their entire careers aspiring to but never achieve.
As knowledgeable and likable as Olson is however, “The Litigation Explosion” ultimately fails to persuade. One of Olson’s main themes is that we should abolish contingency fees. Now the contingency fee is by far the most common fee arrangement between a personal injury attorney and his client. Normally the attorney takes one-third of the recovery plus his costs if there is a recovery. In the event that there is no recovery, the client does not have to pay the attorney.
Since most people cannot pay a lawyer hundreds of dollars an hour to represent them, especially if they’re injured and out of work, the contingency fee arrangement insures that injury victims are able to secure legal representation. Olson would have us get rid of the contingency fee agreement.
Olson would also have us switch from the “American rule” (if you lose a lawsuit, you don’t pay the other side’s attorney’s fees) to the “English rule,” the rule that dominates in much of the rest of the world (the losing party pays the winning party’s lawyer). Olson says that, “Full two-way fee-shifting is the single most important and constructive legal reform that ordinary citizens can fight for over the long term.”
When people ask me why we shouldn’t adopt the “English rule” or what we should do about the “problem” of frivolous lawsuits, I normally refer to Palsgraf v. Long Island Railroad, a 1928 negligence case to which more law school class time is devoted than perhaps any other case. In Palsgraf, railway employees caused a passenger to drop a bag containing firecrackers by pushing him onto a train. The firecrackers in the bag went off as a result, causing ceiling tiles to fall on the head of Mrs. Palsgraf, who was standing at the other end of the platform. Ms. Palsgraf sued the railway for her injuries.
Ultimately, Palsgraf lost at the appellate level. Writing for the majority, Judge Cardozo (whom I’ve previously blogged about here) held that the railway should not be held liable because the manner in which the injury was caused was not foreseeable. The dissent argued that Mrs. Palsgraf should be entitled to recover because she was within the physical zone of danger created by the railway’s negligence in pushing the passenger onto the railway car. (This account is necessarily an oversimplification of the analysis).
In one sense, Mrs. Palsgraf’s lawsuit was frivolous. She lost. It would be hard to conceive of a more outlandish scenario than the one that resulted in her injury. But on the other hand, by the filing of this “frivolous” lawsuit, Mrs. Palsgraf single-handedly contributed more to the development of the law of negligence than anyone else in American history. You could fill libraries with the number of books and journal articles analyzing the concept of “foreseeability” in negligence. Following the “English rule” and requiring Mrs. Palsgraf to pay the railway’s attorney’s fees would be adding insult to Mrs. Palsgraf’s head injury. The fact that there’s not a case like Palsgraf in the annals of English jurisprudence is probably because of the English rule itself and their legal system is all the more impoverished for it.
Olson’s other proposed “reform” – the root-and-branch extirpation of contingency fees – is also misguided. Instead of contingency fees, Olson (or at least the Olson of two decades ago) favors a running “taxi meter” fee for lawyers. The flaws in this proposal go beyond the obvious fact that the poor and middle class would no longer be able to afford personal injury lawyers, except in all but the most clear-cut cases of negligence and extend to a misunderstanding of the economics behind some of the agency problems in attorney-client relationships.
Litigation tends to be drawn out not by the personal injury lawyer looking for his contingency fee but by the “taxi meter” defense lawyer who is billing his client. It is the billable hour lawyer who has every incentive to drag out the litigation, to file frivolous and harassing motions. Every young plaintiff’s lawyer in a case of clear-cut liability and damages has had the experience of turning to another lawyer and asking the question, “Why are they dragging this thing out? Why don’t they just pay up and settle? It would be cheaper.” And the reply, always the same, is, “They have to get their billables. They need to bill to the case.”
If there were a single change in lawyer compensation that would most benefit America’s corporations, it would be the abolition of the billable hour/”taxi meter” system . The corporate and insurance defense lawyers are too often like the unscrupulous taxi drivers who take you the roundabout way to the airport. Jay Shepherd has a great blog about killing the billable hour – “The Client Revolution” – that you can read here.
The personal injury attorney, unlike the defense attorney, has every incentive to get a client the settlement that he’s entitled to and move on to the next case because he’s getting one-third of the recovery whether the litigation lasts a day or ten years.
Lastly, the concerns Olson raises about lawsuits undermining personal relationship and invading personal privacy will seem overblown to most people who have practiced in the field. Most personal injury attorneys have represented auto passengers in lawsuits that are nominally against the car’s driver, who is also the passenger’s friend. Do these lawsuits tend to erode the friendship between the two? No. Both sides know that the recovery will be paid by an insurance company and not the friend, so there are no feelings of animosity. The relationship continues as always.
I also don’t share Olson’s worries about diving into corporate documents. One of things that makes our society open and transparent is that you can file a lawsuit and force a corporation to open its books to you.
Olson’s arguments about civility and personal – not corporate – privacy are where he stands on firmest ground. Lawsuits, especially hard-fought ones, take a psychic and emotional toll. And we ought to do a better job of insuring that the normal code of civility that people adhere to is abided by in the courtroom and in depositions.
The end of the book however still left me wondering: Just what is it that the tort reformers propose we do with all the victims of asbestos and other mass torts? Are we simply to trust in a “philosophy of community and mutual aid”?