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A Country Named Sue

[Originally appeared in CEO International Strategies, October/November 1992]

There are two points of view about civil litigation, one fantastic and one realistic.

The fantastic view, put out by the press offices of the American Bar Association, the Association of Trial Lawyers of America, and the Consumers' Union, is that litigation is a method by which society rights wrongs and metes out justice, and that unless you've done something wrong, you needn't worry about getting sued.

The realistic view is that of Jerome K. Jerome, the turn-of-the-century British humorist (Three Men in a Boat):

"If a man stopped me in the street, and demanded of me my watch," observed Jerome, "I should refuse to give it to him. If he threatened to take it by force, I feel I should, though not a fighting man, do my best to protect it.

"If, on the other hand, he should assert his intention of trying to obtain it by means of an action in any court of law, I should take it out of my pocket and hand it to him, and think I had got off cheaply."

Plenty of American business people these days feel the same way. They know that just about any employee they fire, for good cause or bad, can (if possessed of a sharp lawyer and a dull conscience) use the leverage of a lawsuit threat to demand a whopping severance packet.

They know that if their company's stock price falls (or rises) too sharply, some supposedly disgruntled shareholder whose name may have been stamped on dozens of similar lawsuits against other companies will take them to court and then step aside while the law firm that really controls the action negotiates its million-dollar fee award.

We sometimes speak as if America's lawsuit crisis were mostly a matter of personal injury suits, affecting those few companies so foolish as to go on making two-seater planes or football helmets or medications for expectant mothers even after our legal system's disapproval of such activity has been made clear.

That's part of it, of course. The direct constant-dollar cost of American tort law, in insurance and related expenses, doubled in the ten years to 1987. Compared with the average advanced democracy with which we compete on world markets, we in America manage to spend from three to five times as much on tort law as a share of our GNP. The gap has been getting wider, too, not narrower.

But the litigation problem is not just a matter of the parents who sue because their 7-year-old spilled hot mashed potatoes on his lap, as in a recent case against the Fresno schools for allegedly negligent lunchroom supervision.

It's also the free-for-all (or, differently put, expensive-for-all) strife within the business world itself, the mounting legal sniping and sharkery between suppliers and purchasers, lenders and borrowers, franchisees and franchisors, commercial tenants and building owners -- not to mention the lawsuits everyone files against their competitors.

Some observers believe that commercial litigation is growing faster than tort litigation. Be that as it may, it's a common complaint that the deal that would get done with a handshake in Japan, and a four-page contract in Europe, lumbers to completion in the United States after the hammering out of a hundred-page contract that tries to anticipate every contingency and stave off every hostile judicial interpretation. The expense is astounding, to say nothing of the delay. And then you can get sued anyway.

It wasn't always this way. Until not long ago, our legal system aimed to keep lawsuits an exception, a last resort. Protecting innocent targets from unfounded or speculative accusations was considered just as important as getting to the bottom of well-founded claims. Those who wanted to sue were expected to offer a plausible account at the start of what their opponent had done wrong, and then stand or fall on that account, as a prosecutor must.

"Discovery" powers to compel adversaries to release information were strictly regulated, lest they turn into fishing expeditions. Canons of legal ethics forbade lawyers to stir up suits for their own profit.

If litigation is relatively uncommon, and the stakes have not spiraled to the terrifying bet-your-company level, then the fear of litigation will not have to drive the way deals are done. Hence the short contract, or the handshake.

It was only fairly recently, as historical trends go, that the climate in our legal culture changed. Not until roughly the 1960s or 1970s did our law schools really begin to buy into the idea that the way for a country to get more justice (as well as more safety, ethics and so forth) was for more and more people to sue over more and more things.

Once that change of ideas had taken place, all the rest was a matter of time. Our legal rules, which for so long had sought to constrain and curb the litigious passion, began enthusiastically stoking it.

Reformers vastly liberalized procedure, making it easier for lawyers to shop around for favorable courts in which to file suits, to get the testimony of a dubious hired expert witness admitted to keep a weak case alive, and so forth. Legislators and courts enacted vague laws and standards providing plenty of new grounds to sue, and new chances to collect triple, punitive and intangible damages for such things as emotional distress and humiliation.

Meanwhile we were deregulating lawyering as an industry, and encouraging a bottom-line approach to legal practice. One legal ethicist accurately captured the new mood when he wrote of an "ethical responsibility to chase ambulances". We forgot to ask how well the policy of laissez-faire would work for society when the service being deregulated is that of subpoenaing people as opposed to, say, installing their telephones.

What can we do about it all at this late date? A great deal, actually. And we don't have to design a new legal system from scratch. The key is to learn first from history and secondly from how things are done in other countries.

Discourage Litigation

The most important lesson is one of spirit and approach. "Discourage litigation," wrote Abraham Lincoln, in a view typical of his day. "Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often the real loser in fees, expenses and waste of time."

It's a lesson business people can take to heart in their own activities. That way they might not boast, as did one Hollywood CEO notorious for hardball lawyering, of having turned litigation into a profit center for their companies.

History holds lessons on a level of society-wide policy as well. We know, for example, that the present pro-litigation rules are not graven in stone, simply because we did without them so recently in our past as a nation. Even the lawyers' contingency fee -- which, for drummers-up of litigation, is like the battery in the Energizer bunny -- did not become legal everywhere in this country until the 1960s. (It is still flatly prohibited by legal-ethics rules in most countries, as giving lawyers too sharp an incentive to stir up suits and to overplay their clients' hand once in court.)

We can also learn from experience abroad. Virtually all the proposals of today's legal reform movement, from the curbing of pre-trial discovery to judicial control of expert testimony, would simply move this country closer to the longstanding legal practice in other industrial democracies.

This is emphatically true of the proposal to introduce a "loser-pays" principle, by requiring litigants whose position is not vindicated to compensate their opponents for at least some of the financial harm done by the litigation.

The principle of shifting legal fees in this way is firmly rooted in Roman as well as Anglo-Saxon law; it is the rule not only in Britain and Canada but also in France, Germany, Switzerland and other countries whose legal systems descend from Roman models.

The "loser-pays" rule has some interesting features that help align litigants' incentives with the wider interests of society. In many countries, for example, a plaintiff who succeeds in proving liability, but then is awarded a much lower sum than he asked for, is considered to have mostly lost his case, because he exaggerated its value and probably frightened the other side into overly costly preparations for trial. And so a sizable fee shift can be deducted from his award -- strong motive to set a reasonable money demand from the start. That is one reason the hundred-thousand-dollar claim for a broken arm is unknown in most countries.

Now, if there is anything that can be said about a legal practice that prevails in nearly every civilized country, that has centuries and indeed millennia of experience behind it, that is considered wholesome and necessary by political leaders abroad ranging from the most progressive to the most conservative, it is that such a practice would not spell the end of the world for Americans who find themselves involved with the courts.

Even so, much of our legal establishment has reacted to the idea with the open-mouthed horror of that fellow on the bridge in the Edvard Munch painting. Even the remote fluke chance of an adverse fee shift, they object, would frighten people with valid cases out of justice. (As if the certainty of not being compensated for money spent in a valid defense does not do exactly that now.) Holding those who sue accountable for the damage they do, we are told, runs counter to the American spirit of suing with impunity. It is -- the ultimate insult -- "radical".

Maybe it is, if one remembers that "radical" means getting to the root of something. If the root of our lawsuit mania is our power to inflict uncompensated costs on each other through legal process, then a loser-pays rule certainly does strike at that root.

Frightening lawyers

One may pass over briefly the irony of seeing a legal establishment that usually resembles an overly trendy clergyman in its undignified eagerness to change and grow with the times, suddenly become the soul of caution and conservatism when the question is one of constraining rather than expanding litigators' powers.

The point to make is that the harder our bar associations and law schools dig in their heels against even modest reform, the surer the prospect that before long they will be confronted with demands for change that truly will be radical.

The public, after all, is well on its way to figuring out that something has gone terribly wrong in our legal system. And once grass-roots activists get mobilized they do not tend to fool around with halfway measures. When they noticed that Congress was getting arrogant, for instance, grass-rootsers did not bother trying to refine the already incomprehensible laws on campaign finance or the budget process. They went for a swing of the well-aimed two-by-four, in the form of term limits.

It's remarkable how often talk-show callers and audience questioners around the country advance a similar proposal. Isn't reform impossible, they ask, so long as our legislatures are dominated by members who are lawyers? And isn't the answer, then, to prohibit lawyers from sitting in legislative bodies?

Any sober policy analyst could offer a number of plausible reasons why such a ban might be a bad idea: lawyers are among the most skillful drafters of legislation; not all lawyers vote in favor of bills that expand opportunities to sue; many lawyers in fact are eloquent critics of today's excesses. But one can't deny the insight behind the question, a radical insight if you will: there's a deep conflict of interest between the two jobs, and what are we going to do about it?

Activists in various states are beginning to prepare initiatives that, if nothing else, should help get the legal establishment's attention. Rob Spooner of Oregonians to Limit Lawyers in the town of Florence has launched a ballot drive aimed at shutting down the state university's law school. His reasoning is that since there are already too many lawyers practicing in the state, why turn out more? He points out that Alaska has gotten along just fine without an in-state law school, as did other states in the relatively recent past.

Come to think of it, Mr. Spooner may be on to something. If America stopped its production of lawyers tomorrow, it might peg along for decades before the number practicing per capita fell to the levels of other leading countries. (The U.S. has 281 lawyers per 100,000 residents; Germany 111; Britain 82; and Japan 11. The A.B.A. has responded with some heat that these numbers are terribly misleading because in Japan non-lawyers prepare tax returns, seemingly unaware that they do so here, too.)

Interestingly, Dean Mark Yudof of the University of Texas Law School, a scholar of repute as well as an administrator, has proposed slashing the number of students admitted to that state's law schools. (Lone Star lawyers now number 50,000, up 55 percent since 1980.) Even the A.B.A., at its last convention, was forced to consider a resolution submitted by Omaha lawyer David Begley calling on law schools to cut their intake by a third. It was voted down, but the sheer presumption of Begley's getting such a measure to the floor is news in itself.

Here's my free advice to the litigation industry: start paying at least lip service to legal reform, instead of rejecting it as haughtily as you've been doing. If the public decides you're never going to clean your own house, it might step in and do the cleaning itself. And then it might do something...radical.