December 30, 2005

The Plaintiff Attorneys' Great Honey Rush

By Peter Brimelow and Leslie Spencer.

Forbes, Oct 16, 1989

[See also by Brimelow and Spencer: Ralph Nader, Inc.]

Roll over, Wall Street. Meet the real champions of the great American greed game: the plaintiff attorneys—lawyers who specialize in suing.

Top moneymaker in 1988, according to FORBES' count, was Houston's Joe Jamail. He made most of his $450 million—our conservative estimate; it could be as high as $600 million—by inducing Texas courts to accept the questionable theory that Pennzoil had a binding contract to buy Getty Oil even though there was nothing on paper. His victim, Texaco, the country's third-largest oil company, was forced into bankruptcy. But Jamail received only a fraction of the publicity Mike Milken got for the $550 million he made with Drexel Burnham back in 1987.

Jamail is merely the most spectacular example to date of a powerful emerging trend. The 62 other plaintiff attorneys on FORBES' list all made above $2 million in both 1987 and 1988. And FORBES has identified at least 15 more $2-million-a-year-plus suspects, with another 50 in the $1-million-to-$2-million range. Then there are the other 53,000 plaintiff attorney members of the Washington, D.C.-based Association of Trial Lawyers of America (despite its name a plaintiff attorneys' lobby: Defense lawyers are eligible only for nonvoting membership). Given the windfall nature of the attack-lawyer business, any of them might strike it rich with a single case.

One measure of the money flowing to plaintiff attorneys: Yeshiva University's Cardozo School of Law Professor Lester Brickman estimates that their total income from contingent fees—their share of the settlement, apart from their expenses—" exceeds $10 billion."

And their boodle is growing rapidly. The top moneymakers on FORBES' list typically said that they've been hitting the big numbers only for the last decade.

Unlike Wall Streeters, plaintiff attorneys don't have to worry about the stock market's swings. They mostly didn't bother with high-priced Ivy League law schools—in fact, they often say they "didn't learn a thing about practicing law in law school." Walter Umphrey) even told FORBES that he had trouble graduating from Southern Methodist University, which he attended on a football scholarship, because of "a deficiency in English." But he has no deficiency in income: $14.5 million in 1988.

Why has a single, relatively obscure corner of U.S. legal practice created so many million-dollar incomes?

It's a "fearful concatenation of circumstances," to quote a famous early American trial lawyer, Daniel Webster. In one of those institutional accidents that occasionally happen in a structured but dynamic society, the checks and balances that normally restrain an organized interest group have failed, creating an opportunity to hold the rest of the economy to ransom. Other recent examples: stockbrokers in the 1960s, who were able to make institutional investors pay full commission rates because stock exchange rules forbade volume discounts; airline pilots in the 1970s, whose powerful unions extorted stratospheric salaries out of an industry straitjacketed by regulation.

How has this happened?

The essential mechanism is simple. Two distinctively American phenomena have interacted: the contingent fee system and the "liability crisis," the explosion of litigation and awards that has occurred during the last 30 years in the previously sleepy area of tort law—the law of accidents and personal injury. Both have been historically unknown in other common-law jurisdictions, such as Britain. And plaintiff attorneys there are lot poorer.

A startlingly large part of the recent massive damage awards goes to the lawyers. Plaintiff attorneys commonly insist on a contingency fee of 33% to 40%. Plus they get expenses—whatever has been spent to litigate the case. The actual outcome varies among the different classes of tort. But, for example, the Rand Corp.'s Institute for Civil Justice has estimated that in the asbestos claims settled in the early 1980s, plaintiff attorneys' fees and expenses amounted to some 70 cents for every dollar that the injured parties received.

And by one estimate the asbestos industry's liability may be anywhere from $7.6 billion to $87 billion.

Why has this happened?

The lid was knocked off the honey pot in the last 30 years by judges arbitrarily deciding to rewrite the law (Judicial Imperialism, by Peter Brimelow, FORBES, June 1, 1987). The plaintiff attorneys are swarming to the sweet stuff like flies. But for the plaintiff attorneys, their new wealth has meant power. Those swarming flies are now rocking the pot to spill more honey out—and buzzing angrily at anyone. who interferes.

Plaintiff attorneys buzz particularly angrily at talk of the litigation explosion.

"We have been told that Americans are the most litigious people in the world," writes the celebrated Wyoming-based plaintiff attorney Gerry Spence in his 1989 book With Justice for None: Destroying an American Myth (Times Books). "Yet, per capita, there are no more suits today than there were in 1959, and the amount of the mean verdict, $8,000, has remained nearly constant since that year after adjustments for inflation have been calculated."

This is the sort of argument that makes the innocent observer suspect trial lawyers. On investigation, the Rand study that Spence cites turns out to be based on the single experience of Cook County, Ill., between 1960 and 1979 only. Although the overall number of civil jury trials was only slightly higher at the beginning and the end of the period, within that number there was rapid growth of nonautomobile torts. And Spence has confused the mean (arithmetical average) financial award with the median (half higher, half lower) award. The mean rose sharply—because the largest awards were increasing dramatically.

Subsequent studies show these trends have continued. The bulk of tort filings and awards, routine personal injuries such as automobile cases, are growing at a stable rate. But malpractice and product liability filings and awards are sharply higher than three decades ago (see charts). inflation-adjusted average awards in Rand's sample of business/contract tort litigation were up 9,100% between 1960 and 1984. (Awards can be reduced on appeal, but they have a pervasive effect because they serve as a benchmark for all settlements.) Overall, plaintiffs are winning more frequently and getting more.

And this may not be the whole story. "The real amounts being transferred in the channels of commerce are much greater than any statistics will show," says James Sales of Houston's Fulbright & Jaworski, who was local lead counsel on Texaco's unsuccessful appeal against Pennzoil. Sales says that many cases are now settled before being formally filed—and that recent settlements have actually exceeded comparable jury awards because defendants "are scared to bet the company anymore."

FORBES' conclusion about the litigation explosion: All that plaintiff attorney honey is coming from somewhere.

FORBES' conclusion about Gerry Spence: difficult, because he refused to talk to us on the grounds that we work for "the new oligarchy—namely corporate America." ("The last guerrilla fighters in the country are the trial lawyers.") But he's probably stuffing some $1.5 million a year into his bandolier.

But these judicial atrocities are just the culmination of a step-by-step process that began in theoretical arguments among legal intellectuals in law schools and on the bench some 30 years ago—a classic demonstration that ideas do have consequences. FORBES columnist Peter W. Huber, author of Liability: The Legal Revolution and its Consequences (Basic Books) and himself a lawyer and engineer, calls the men who started the process—including William Prosser of Hastings College, John Wade of Vanderbilt University Law School, Roger Traynor of the California Supreme Court—"the Founders." Judges under their influence overthrew the common law of tort as it had developed over six centuries. The chaos that has replaced it has been highly profitable to the plaintiff bar.

For example, before the 1960s, damages could generally be collected only under a number of fixed conditions—if the defendant was actually at fault, if the plaintiff had not contributed to the accident, if the plaintiff had not voluntarily assumed obvious risk and so on. Private contracts, which covered most transactions, were considered inviolate. But gradually, judges undermined these conditions. Defendants, particularly if they are perceived to have "deep pockets," have begun to find they run the risk of losing lawsuits even if their involvement is minimal. Even the most specific contracts to the contrary are ignored.

"In a nutshell, the law now says 'Be careless, get paid,'" summarizes Victor E. Schwartz, a partner with Washington, D.C.'s Crowell & Moring and a tort reform lobbyist.

Similarly, judges have allowed a proliferation of evermore-ingenious damage claims. Formerly, damages were primarily a question of compensating the plaintiff for out-of-pocket costs, like medical expenses. Now nonmeasurable damage claims like "pain and suffering," "loss of consortium" (a spouse's company) and "mental anguish" have burgeoned. And "punitive" damages in product liability cases, upheld only three times in the first 200 years of U.S. history, have become an epidemic. Even compliance with federal regulatory standards does not protect defendants against them.

"Since the 1960s, courts have more political," says Schwartz. "Also, there is a feeling on the part of judges that the U.S. is behind in not having a comprehensive social welfare system. Tort law has become a system of social insurance."

Judges opened the honey pot because they wanted to redistribute the wealth. Plaintiff attorneys want to help.

Partly, plaintiff attorneys help to keep the honey flowing by sheer relentless pressure. They are intensely motivated to come up with new moneymaking gambits.

Would you believe "hedonic damages"—the value an accident victim would have placed on his future happiness in addition to his loss of earnings, pain and suffering, his spouse's loss of consortium, etc., etc.? How about "posthumous pain and suffering"? New York's Robert Sullivan (FORBES' income estimate: $1.4 million) once won $1.5 million in extra damages for the fourteen seconds in which a truck accident victim burned to death ("We got doctors to testify his brain exploded"). Or the Big Apple Pothole Corp.—a private pothole census founded by Manhattan plaintiff attorney Fred Queller (FORBES' income estimate: $1.25 million) to counter New York's attempt to restrict its liability only to accidents involving potholes of which it had been informed.

Quantity counts as well as quality. A plaintiff attorney firm often has few principals and many support staff because much of its litigation can be mass-produced boiler-plate, sometimes designed simply to overwhelm the defense. (These can be class actions, another feature of the "legal revolution," but plaintiff lawyers prefer filing individual suits en masse: Class action fees can be limited by the judge.) This mass production, presumably, is how Melvin Belli ($2.5 million) came to file a claim in the Dupont Plaza Hotel fire case on behalf of an injured woman's husband, who had been dead for years.

And the flies' campaign to rock the honey pot is helped by its accumulating financial momentum. For example, monies won by plaintiff attorneys against the Dalkon Shield contraceptive case went directly to finance further lawsuits against other (and safer) contraceptives and morning-sickness drugs.

A more complex factor: the disintegration of the traditional code of legal ethics. In his book on the litigation explosion due next year from E.P. Dutton, Manhattan Institute Senior Fellow Walter Olson argues that the "legal revolution" has also seen the effective erosion of longstanding rules against barratry (inciting clients to litigate). "The old rules told lawyers to sit around passively and wait for business," says Olson. "The new rules encourage them to recruit clients, stoke their grievances and run the suit for maximum dollar output."

The traditional code was enforced partly by statute and judicial rulings, but also by consensus within the profession. Now, however, many plaintiff attorneys are openly hostile to its restraints. This year John O'Quinn (number 8, $8 million) justified his hiring nonlawyers to solicit clients on the grounds that this "case running" should be legalized in Texas. An attempt to disbar him failed.

But the plaintiff attorneys' most important leverage on the honey pot is provided by their interlocking relationship with two key groups: judges and politicians.

The fellow-feeling between lawyers and judges is one of the more obvious facts of life. So obvious that some years ago a judge admitted frankly in an opinion that invalidating contingent fees was "an unpleasant task for courts, especially this one, for it has practiced law for so long in the vineyard before coming to the bench and recognizes the difficulties of maintaining a law office...." Symbolically, New York's Jacob Fuchsberg, ex-president of ATLA and founder of its magazine Trial, spent some years as a judge on New York's Court of Appeals before returning to his vineyard (no FORBES vineyard estimate, but he says it's a "multimillion-dollar" one).

In some states, and at the federal level, judges are appointed. But the American Bar Association rating system, which has become a crucial test for judicial nominees, is weighted toward trial experience—even for appellate courts, although they focus exclusively on points of law. This obviously favors both the plaintiff and defense bars over corporate lawyers and legal academics.

Where judges are elected, the role of the plaintiff attorneys has become notorious: campaign contributions. In Texas, the fundraising drive supported by Joe Jamail and Pat Maloney ($6 million) was so successful that, according to one Texas attorney, "until last year the plaintiff bar owned and controlled the Texas Supreme Court." And Maloney is confident that 1988's election reversal will be corrected in 1990: "We are resilient, and we will bounce back."

It is another obvious fact of life that many politicians are lawyers. Sixty out of 100 U.S. senators and 186 out of 435 House members have law degrees. At least 48 senators and 161 House members have been practicing lawyers, including majorities on both Senate and House Judiciary Committees. Perhaps the most significant: Senator Ernest Hollings (D—S.C.), a trial attorney and a founder of ATLAS'S predecessor, now chairman of the Senate Commerce Committee, where he is ideally placed to stop tort reform legislation.

ATLA has given money to 1,485 Congressional Democrats and 656 Republicans since 1977. In 1987-88, it disbursed $3.9 million. And this doesn't include plaintiff attorneys' individual contributions.

"They're a highly focused lobby," says tort reform lobbyist Victor Schwartz ruefully. "They've never lost on an issue before Congress."

Plaintiff attorneys are also intimately involved with state politics. "I am on a first-name basis with all the legislators from Dade County," boasts Miami's J.B. Spence ($2.5 million). Corpus Christi's William Edwards says that he and partner David Perry (each $2 million) have spent a total of seven months in the past two years with the state senate in Austin drafting legislation during tort reform battles.

The legislative influence of trial lawyers may extend far beyond such obvious causes as blocking tort reform and attempts to cap damages and restrict contingent fees. Some observers suspect it in the chronic vagueness of many recent statutes, whose meaning must be fought out in litigation. Two other legislative habits that make life nicer for plaintiff attorneys, particularly i n the environmental, civil rights and regulatory areas: provision for paying fees of attorneys suing the government—not merely if they win but sometimes even if they just raise a "novel legal argument"—and the provision for private causes of action, so that private individuals can sue to ensure compliance with the law.

This species of forensic vigilantism has attracted Herb ("I'm the best damn lawyer in America—I take shit cases and turn them into gold") Hafif. Hafif (number 2, $40 million) says he has invested around $4 million to $5 million from his practice, primarily personal injury, in prosecuting whistle-blower cases against defense companies as permitted by recent legislation. His aim: "to clean up the defense industry."

Plaintiff attorneys take lobbying seriously. ATLA has equipped itself with top professionals: Washington lawyer Tom Boggs ($1.6 million on FORBES' corporate lawyer list), son of former Democratic Majority Leader Hale Boggs and Representative Lindy Boggs (D—La.); and Republican-linked consultants Timmons & Co.

Lobbying in a broader sense, the plaintiff attorneys also have a self-described "public interest arm": the three-lawyer, $650,000-a-year Trial Lawyers for Public Justice. TLPJ's mandate is apparently to boldly go where no plaintiff attorney has gone before. It pursues both quixotic liberal causes, such as the Christic Institute's RICO suit alleging that a "secret team" of conservatives and ex-intelligence officials mixed drug-running with aid to the Nicaraguan contras; and also ingenious but marginal litigation theories, such as the claim that automakers are liable for crash injuries since the invention of airbags because they have not made them standard.

One student of plaintiff attorneys believes their most effective lobbying is done for them. "They're no-see-ums," complains Victor Schwartz, comparing plaintiff attorneys with the microscopic but painful Vermont bug. "What you see is Ralph Nader."

"Nader, after eight years, is back on the inside," headlined the New York Times this spring after Nader attended a White House signing ceremony for a bill that "tightened protections for federal whistle-blowers."[ May 10, 1989.] By a remarkable coincidence, similar articles appeared around the same time in major business magazines.

Actually, Nader never went away. He is widely credited with inspiring many of Washington's alphabet-soup regulatory agencies. But perhaps more significant has been his role in encouraging the extension of liability and in suppressing the screams of insurance companies, who get the blame when rates go up but are, in effect, just collection agencies for the plaintiff attorneys. "The [insurance] industry is intimidated by him," says George K. Bernstein, a Washington insurance lawyer.

Nader and the plaintiff attorneys are clearly good friends who go back a long time. Even before he became famous with his 1965 book attacking the Corvair, Unsafe at Any Speed, he published an article on the theme in ATLA's Trial magazine. An ex-Nader-raider is now on FORBES' list—Richard Warren Mithoff (number 10, $7.4 million). Trial Lawyers for Public Justice was founded at Nader's suggestion. Recently Nader was the speaker at the Texas Trial Lawyers Association's annual banquet. "We had most of the Texas Supreme Court there: they were actually sitting up on the stage while Nader was at the podium," says Bob Gibbins ($3.7 million). "Nader supports all of our issues and we support all of his."

How? Do plaintiff attorneys contribute to Nader's organization? (one estimate of its budget: $5 million—raised 55% from individuals, 15% from foundations).

In the past Nader has violently resisted this suggestion, not surprisingly since he has regularly argued that contributions can mean conflict of interest. Former New Republic managing editor David Sanford, in his book Me & Ralph: Is Nader Unsafe for America? described Nader's "hysterical, personally abusive reaction" to a 1972 article in the magazine linking the fact that a Nader organization had accepted a $10,000 check from ATLA to Nader's opposition to no-fault insurance (which he still maintains, unlike other consumer organizations.) The check was later returned in what Sanford called a "cover-up." Sanford, today an editor with the Wall Street Journal, stands by his account. "Ralph believes in an aristocracy of trial lawyers," he says.

Some of the aristocrats are less shy. "We are what supports Nader. We all belong to his group. We contribute to him, and he fundraises through us," says Fred Levin ($7.5 million). "I can get on the phone and raise $100,000 for Nader in one day," says Herb Hafif. "We support him overtly, covertly, in every way possible," says Pat Maloney. "He is our hero. We have supported him for decades. I don't know what the dollar amounts would be, but I would think it would be very large, because we have the money and he has our unabridged affection. I would think we give him a huge percentage of what he raises. What monied groups could he turn to other than trial lawyers?"

But Joan Claybrook, president of Public Citizen, Nader's core organization, says Public Citizen receives no money from ATLA. And she adds: "We have 50,000 members [contributors of $20 or more]. I would be surprised it there were 20 members of the plaintiff bar among them."

There are plenty of pointed questions that an alert consumer organization could ask the plaintiff attorneys.

Such as: Is there enough competition between them—research suggests their contingent fees tend to "clump" at one-third and 40% of the award—just the sort of suspicious "parallel behavior" that has caused plaintiff attorneys to sue other industries, alleging antitrust violations. Do plaintiff attorneys disclose enough to prospective clients—should they offer a choice of contingent fees or hourly billing? Indeed, why are plaintiff attorneys allowed to demand contingent fees at all in cases where there is plainly no contingent—such as aircrash cases, in which liability is not in doubt as a practical matter, with the result that some plaintiff attorneys have received fees equivalent to $10,000 an hour? Or with successful plaintiff attorneys regularly choosing their cases so carefully that 95% settle out of court? Or in commercial cases, when the client is not indigent? Do clients have enough control over the expenses that plaintiff attorneys deduct from a settlement? What about practices like requiring all personal injury clients to reconfirm their hurts with particular doctors, at a high price that can be passed to the defendant? (Doctor allies are often defended by the plaintiff attorney in any malpractice suits.) What about allegations that plaintiff attorneys representing union clients sometimes pay kickbacks to the union business manager?

Public Citizen's Claybrook says she "doesn't know the answer" to fee-clumping and disclosure. "I am not a trial lawyer, and I've never gone into the issue." Public Citizen has said that contingency fees should not exceed one-third, and where the award is large "we would hope the lawyer would take less." Otherwise Claybrook defends contingency fees on the standard grounds that some clients can't afford hourly rates and "a plaintiff lawyer gets paid only when he wins."

Claybrook will have an opportunity to "go into" these issues the next time Trial Lawyers for Public Justice and ATLA's Civil Justice Foundation have board meetings. She's on both.

"I saw you earlier today, like sneak thieves in the night, slipping in here without nametags to snoop on our proceedings. A message to you, you medicine men of the oil slick, you fork-tongued serpents of the dollar. You have no need to sneak in here, 'cuz right after this meeting, we are coming after you. I'm tired of playing defense. . . . All the plaintiff lawyers of America are coming after you, you insurance demagogues, because we owe you one!"

Southern oratory is not dead. New Orleans' Russell Herman (FORBES income estimate: $1.3 million) took time during his presidential address to July's ATLA Annual Convention to direct these fraternal words at another lobby, the National Conference of Insurance Legislators, convening by unhappy coincidence in the same Boston hotel.

About 3,000 plaintiff attorneys came buzzing from all over the country to the weeklong convention. They attended a vast selection of lectures on technical subjects. They honored friendly journalists and judges—Chief Justice Paul Liacos of Massachusetts, and Justice Pascal Calagero of Louisiana, who thanked ATLA President Herman for "helping me continue to win elections." They attended 35 separate "litigation groups" with names like "Silastic Gel Breast Implants" and "Bic Lighters," where they swapped information and strategies. Herman announced that a larger clearinghouse, the ATLA Exchange, is to accumulate "a cavalcade of horrors" for use by ATLA members in personal injury and other cases.

Notwithstanding a luncheon address by cool conservative columnist George Will, the convention's atmosphere was rather like a liberal version of a fundamentalist revival meeting: emotional, evangelical, moralistic. Bob Gibbins described his accepting ATLA's vice presidency as "taking on the cause for the injured and suffering, victimized, minorities and women."

Plaintiff attorneys are an anomaly, like journalists and academics: a professional group whose politics on average are decisively to the left of others of comparable income. "There are a few Republican trial lawyers, but few in number," says Pat Maloney. "You can pick them out, because they wear peculiar clothes."

"Most of us are liberal Democrats," says Mike Gallagher ($2.5 million), recommended to FORBES as a token Republican. (But he says he supported Edward Kennedy and Lloyd Bentsen—and contributes to Ralph Nader.) Does he know any other Republican plaintiff lawyers? Gallagher chuckles: "I saw one other one, one time."

Among some plaintiff attorneys, political alienation runs very deep indeed. "I think it's a bitter shame about this society, the Russians have got a more responsive political system than we do," says Herb Hafif, would-be cleaner of America's defense industry.

This hostility toward American institutions sometimes even includes FORBES. "Why would FORBES magazine want to be here?" asked ATLA Secretary Roxanne Conlin (estimated income: $750,000). "I mean, we sue your readership regularly, and we enjoy doing it very much."

Plaintiff attorneys unquestionably believe their own rhetoric. At least ATLA's Civil Justice Foundation thinks so. Its fundraising leaflet at the convention began: "As a trial lawyer, you profit from your work in many ways—the sweet success of righting an egregious wrong, the triumph of empowering the powerless, the certain knowledge of your role in penalizing wrongdoers."

All this and $10 billion, too.

A specter is haunting the plaintiff attorneys—the specter of tort reform. After 30 years, the flies rocking the honey pot may finally have provoked America to replace the lid.

In 1985-86 insurance rates, forced ever upward and in good part because of raids by the plaintiff lawyers, threatened to close popular public services for want to insurance. The media is publicizing useful products allegedly kept off the market for fear of litigation, notably an asbestos substitute, developed by Monsanto. Peter Huber's book Liability has focused attention on the total "tort tax" on the economy. Huber estimates that individuals, businesses and governments pay at least $80 billion a year directly, in such ways as litigation costs and higher insurance premiums, and a total of $300 billion indirectly, counting the cost of efforts to avoid liability.

Ultimately, this "tort tax" is paid by the consumer. For example, an estimated 55% of the average football helmet's $110 cost is now due to liability insurance costs. Helmetmakers on the margin have been squeezed out of business: In 1970 there were about 18, now there are 2. And sports on the margin are being squeezed out, too: A recent survey found that several hundred colleges and universities have eliminated sports such as flag football, noncompetitive diving, canoeing and hiking because of liability costs.

Partly as a result, sophisticated new tort reform lobbies are emerging—such as North Palm Beach, Fla.'s Coalition of Americans to Protect Sports and the defense bar's Washington, D.C.-based Lawyers for Civil Justice.

But the plaintiffs' attorneys are fighting back fiercely. They blame the insurance industry, sometimes striking a public chord, as when California passed Proposition 103, rolling back auto rates. Their argument is made superficially appealing as the rates crunch eases, although this is probably a cyclical phenomenon.

The battle for tort reform is now raging across the states. But it's entirely possible that it could be lost, much as no-fault automobile insurance was effectively blocked during the 1970s.

Still, some states have begun to allow courts to assess costs against frivolous actions. Perhaps this is the first step to some sort of "English rule" whereby either side must be prepared to pay the other's costs if their action is unsuccessful. Decisively altering the plaintiff's incentives to litigation, the "English rule" may be the ultimate tort reform.