Don't Limit Lawsuits -- Redistribute the Awards

With the Bush and Taft administrations abdicating their roles as protector and bowing to corporate demands by gutting basic and critical product safety regulations, lawsuits are consumers' only shie

With the Bush and Taft administrations abdicating their roles as protector and bowing to corporate demands by gutting basic and critical product safety regulations, lawsuits are consumers' only shield against the single-minded greed that produced such deadly, profitable products as asbestos, the Ford Pinto and flammable baby pajamas.

The component of lawsuit awards that conveys the most powerful message to corporate decision-makers is punitive damages. Meant to punish the defendant and discourage similar behavior, punitive damages are often a large multiple of compensatory damages, which reimburse a plaintiff for actual losses.

In response to the ballooning of lawsuit awards since the 1960s, attempts to cap punitive damages have gained momentum over the past decade. After the 1994 election, in which the Republican Party won control of several state legislatures, 18 states enacted tort reform.

Some industries and business groups are clamoring for and in many cases getting even more protection against lawsuits. The Bush administration sneaked a provision into the Homeland Security Act that shields producers of vaccines that used Thimerosal, a mercury-based preservative that some believe causes autism.

The National Manufacturers Association and the U.S. Chamber of Commerce are pushing for an end to lawsuits related to asbestos, the insulating material that will kill more than a million people around the world — more than 300,000 in this country — before its impact abates.

Even though their wrongdoing is so fresh and recent, securities brokers and dealers are lobbying for protection from lawsuits triggered by their promotion of stocks they knew to be junk, advice that bilked investors of millions of dollars.

The National Federation of Independent Businesses seeks limits on lawsuits against businesses employing 25 or fewer employees.

The American Tort Reform Association (ATRA), a group composed of nearly 300 companies, proposes that lawsuits be limited to the greater of $250,000 or two times compensatory damages for large companies and the lesser of the two for small companies.

But by limiting jury awards to manageable, predictable levels, as proposed by ATRA, caps might result in awards too small to impact big businesses. They strip the deterrence and punishment components, which the Ohio Supreme Court recognized as two of the three purposes of this legal principle, from punitive damages.

"The purpose of punitive damages is not to compensate a plaintiff but to punish the guilty, deter future misconduct, and to demonstrate society's disapproval," the court wrote in Davis vs. Wal-Mart Stores.

Courts around the country have also recognized the disturbing frequency with which corporations apply a cost-benefit analysis to their decisions, comparing the predicted cost of lawsuits to the profits that can be earned by selling dangerous products.

In Grimshaw vs. The Ford Motor Company, a case involving the infamously dangerous Pinto, the court found that Ford "engaged in cost-benefit analysis which balanced life and limb against corporate savings and profits." As a result of this analysis, the company rejected a $4-per-car repair that would have remedied the Pinto's propensity to explode.

In its report Smoking Guns: Corporate Behavior and the Harmful Impact of a Punitive Damages Cap, consumer watchdog group Public Citizen highlights several major companies that engaged in similar cost-benefit analysis and, in each case, decided for profits and against safety. These companies include General Motors, Remington Arms, American Motors, Playtex and Ortho Pharmaceutical.

In Palmer vs. A.H. Robins Company, a case involving the Dalkon Shield — a poorly designed contraceptive device that caused death, sterility and other health problems — the court noted the danger of making punitive damages predictable.

"[I]f punitive damages are predictably certain, they become just another item in the cost of doing business, much like other production costs, and thereby induce a reluctance on the part of the manufacturer to sacrifice profit by removing a correctable defect."

In Grimshaw, the court observed, "the manufacturer may find it more profitable to treat compensatory damages as a part of the cost of doing business rather than to remedy the defect. ... Punitive damages thus remain as the most effective remedy for consumer protection against defectively designed mass-produced articles."

But large punitive damages also encourage lawsuit abuse, attracting unscrupulous, greedy attorneys and plaintiffs, as shown by this sampling of a very long list of ridiculous lawsuits:

· Lawyers filed a multimillion-dollar class action suit on behalf of people who received six unsolicited fax advertisements from a Hooters restaurant in Georgia.

· A West Virginia convenience store worker won $2.2 million, most of which was punitive damages, when she injured her back opening a jar of pickles.

· Passengers on an American Airlines flight won $2 million for 28 seconds of turbulence.

· Two California women sued for their emotional distress after seeing their mother whisked away by emergency room doctors.

· An Illinois man sued for injuries, emotional distress and indignity after a busty stripper "slammed" her chest into his head.

· The father of an Ohio youth-league baseball player sued the team's coach for failing to guide the team to tournament.

Correctly repairing America's judicial system involves finding a solution that discourages such lawsuits while allowing punitive damages with the teeth to protect consumers.

The Ohio Supreme Court recently issued a ruling containing a viable alternative that could simultaneously protect consumers and reduce lawsuit abuse.

In Dardinger vs. Anthem Blue Cross and Blue Shield, the plaintiff sued Anthem for halting its coverage of a particular chemotherapy treatment that had successfully slowed his wife's brain cancer. Anthem's internal memos showed that the company was aware of the treatment's success and that the company had purposefully slowed the appeals process.

The Supreme Court reduced the punitive portion of the award from $49 million to $30 million and redirected $20 million of that amount away from the plaintiff and to a cancer research fund. Such redirection is known as alternative distribution.

In reaching this decision, the court noted the discrepancy inherent to punitive damage awards as they are generally administered in this country.

"There is a philosophical void between the reasons we award punitive damages and how the damages are distributed," says the majority opinion. "The community makes the statement, while the plaintiff reaps the monetary award."

If alternative distribution strips the big payday of punitive damages from our legal system and awards damages for actual losses only, then this principle might discourage insincere, greed-based lawsuits. At the same time, alternative distribution does not render powerless those who were truly wronged. Their ability to win meaningful awards — awards that punish and deter — will not be impaired.

Alternative distribution could significantly reduce the number of frivolous lawsuits without discouraging legitimate cases and without losing the ability to punish a deep-pocketed defendant.

If the goal of lawmakers is to benefit and protect all members of society, not just businesses, they will reject punitive damage caps and examine alternative direction as a viable solution.

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