Wall Street Journal

Stop the Shakedown

By WALTER OLSON
October 29, 2004; Page A14

Voters in six states will decide, on Nov. 2, the fate of ballot measures on lawsuit reform. In the past lawyers have prevailed in nearly all such battles. Will things be different this year?

The defeat of most lawyer-curbing initiatives follows a depressing script. Armed with favorable opinion polls, confident reformers begin collecting signatures. After some time they realize that the lawyers are doing far better than they are at framing the issues in the press, polishing sympathetic anecdotes and exploiting distrust of change (especially if reforms are to be inscribed in a state constitution). While lawyers summon help from partners such as the AFL-CIO and Sierra Club, natural allies on the reform side sit things out. Soon the "No on Amendment Z" side has run the table on newspaper endorsements. Then the massive ad buys have their effect.

Florida doctors are struggling to escape the script. Dissatisfied with a relatively weak damage-limit law enacted lately by the state legislature, the state's MDs came up with Amendment 3, which would sharply limit lawyers' fee percentages in malpractice cases. Fee limits are part of California's MICRA law, widely seen as a practical success, but proposed limits in Florida are significantly lower, raising concern that lawyers will shy from taking some complicated cases even if meritorious. (Lawyers could pocket no more than $75,000 plus expenses from a $225,000 settlement, and $150,000 plus expenses from one worth $1 million.)

There were ominous signs from early on. The state's main business lobby, itself invested in the recent Tallahassee compromise, has actually opposed the measure. The press has been hostile from day one. And backers of the measure seem almost surprised to have been massively outspent, lawyers having dumped $20 million into "No on 3" efforts, compared with $7 million on the pro side. From a 45-29 poll lead, the amendment had sunk by mid-October to a 34-39 deficit.

It gets worse for the docs, because lawyers have struck back with a technique perfected in California: teach-a-lesson "revenge initiatives." The Academy of Florida Trial Lawyers devised what its executive director called "countermeasures to ensure that the [Florida Medical Association] must play defense first and offense second." Amendment 7, purportedly aimed at throwing sunlight on medical errors, would give lawyers new access to hospitals' peer-review records whether or not negligence is found, chilling candor in peer review. Amendment 8 would menace docs with license revocation if they lose three malpractice verdicts, a sanction unlikely to be carried out often -- few still-practicing doctors lose three trials -- but which would stampede physicians into big out-of-court settlements to avoid the chance of a first or second strike. Both revenge measures enjoy huge leads in the polls.

The doctors' prospects look less grim in three states out West. No poll data is available on Wyoming's battle over Amendments C and D, but an Oct. 1 poll found a 50-36 lead for Oregon's Measure 35, which would limit non-economic damages in medical cases to $500,000. Another poll shows Nevada's Question Three, which would adopt MICRA-like limits on pain and suffering awards and attorney fees, has risen to 57% voter support. Trial lawyers vainly sought to keep Three off the ballot and have failed to rally strong support for their own Questions Four and Five, which would repeal med-mal reform and insert agenda items of theirs into the state constitution. (In what the Las Vegas Review-Journal calls a "sneaky" move, the second lawyer-backed measure is mistitled the "Stop Frivolous Lawsuits and Protect Your Legal Rights Act.") Incidentally, trial lawyers in Oregon and Wyoming are using the same heart-tugging testimonial ad ("Becky's Family"), to the surprise of viewers who'd assumed that a family appearing in ads against their state's ballot measure probably lived in the state.

In the other two states, Colorado and California, it's business not doctors facing off against the plaintiff's bar. In Colorado, construction interests are hoping to turn back trial-lawyer-sponsored Amendment 34, which would create sweeping rights to sue over alleged construction defects; a recent poll showed the measure with a four-point lead, but both major papers in the state have come out against it. For national significance, though, the race to watch may be California's battle over Proposition 64, which would apply modest pruning to the state's famously overgrown "unfair competition" consumer-rights law, also known as 17200 after its section number in the business and professions code. This law, an only-in-California concoction, empowers lawyers to sue businesses over any breach of state regulation, including petty paperwork infractions. The law has all sorts of bad consequences, but Prop 64 attempts to fix only the most distinctive abuses, bringing 17200 into line with traditional legal notions of "standing" by requiring that lawyers before suing line up a real client who's suffered actual injury, if only trivial, from the complained-of practice. Government lawyers could continue to invoke the law without alleging actual harm, and class actions would be allowed.

For years 17200 has been a major drag on the state's business climate, but it took last year's shakedown-lawsuit scandal to unleash a movement for reform. Several law firms, including the Trevor Law Group, were revealed to have mass-mailed letters to thousands of small businesses demanding cash as a condition of not suing them over state paperwork omissions and other infractions. After a wave of public revulsion -- the victims included hundreds of auto repair shops and immigrant-owned nail salons -- AG Bill Lockyer made an example of a couple of the most notorious firms, through disbarment and fines. The state's trial lawyers, who control the relevant committees in Sacramento, then nearly succeeded in a move to expand the scope of the law, on the ground that the few bad apples had been disposed of and it was time to get back to the serious business of suing.

But the abuses -- many perfectly legal under the law -- have continued. Hundreds of travel agents have been sued for not putting their license numbers on their Web sites, while home builders have been sued for putting the abbreviation "APR" in their ads instead of spelling it out as "Annual Percentage Rate." This summer, a court told retailers and other defendants to fork over $3 million in fees to attorneys including the famed Bill Lerach because they'd marketed as "Made in USA" a Kwikset lock that turned out to include six screws made in Taiwan. Dissenting Justice David Sills called the fee award "ridiculously high" and said the case confirms critics' portrayal of the law as having "degenerated into nothing but a feeding frenzy for attorneys who use the law to shake down California businesses and chase jobs out of California."

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Early numbers showed Prop 64 trailing, yet its supporters are excited -- for once most of the state's major newspapers are actually backing reform, including both San Francisco papers, those in Oakland and San Diego, and most remarkably the LA Times, which has long scoffed at lawsuit reformers but reversed itself magnificently in an Oct. 16 editorial. In particular, it rejected advocates' argument that clientless bounty-hunting is admirable because it occasionally exposes genuine wrongdoing: "Due process and fairness are not judicial concepts that can be watered down to make it easier to sue corporations. . . . Would these same liberal interest groups applaud the adoption of draconian criminal laws that undermined traditional constitutional values if they happened to make it easier to catch some bad guys?"

That sounds like common sense. Actually, it's more than that -- it's the perfect call to arms.

Mr. Olson, of the Manhattan Institute, is author of "The Rule of Lawyers" (St. Martin's, 2004).