By Steven Malanga
(This article originally appeared on RealClearMarkets.com, 06-11-08)
Last week, the dean of securities litigation in the United States, the venerable Melvyn Weiss, was sentenced to 30 months in prison for his role in what a judge described as a decades-old "nationwide conspiracy" in which lawyers used illegal kickbacks to recruit plaintiffs for lawsuits against corporations. Given the magnitude of the cases in which Weiss' firm has been involved, including Enron, his sentencing, which marked the end of his career, might have seemed like a slam dunk front-page item for most newspapers, but the news was largely downplayed or ignored, much like his indictment eight months earlier, which gained only slightly more attention. Just a few dozen newspapers carried mostly brief stories of Weiss' sentencing, and the paper of record, the New York Times, dumped their version on page 3 of its business section, even thought the paper once called Weiss' firm the King of Torts.
This has been a pretty bad half-year for plaintiffs' attorneys, but you wouldn't know it from press coverage or our political campaigns. As presidential candidates like Barack Obama have railed against a "corporate culture rife with inside dealing, questionable accounting practices and short-term greed," the biggest misdeeds seem to be piling up in front of the trial bar, although they barely elicit outrage or calls for reform. Weiss' former partner, William Lerach, is in jail for obstruction of justice, and Richard "Dickie" Scruggs, the Mississippi plaintiffs' attorney who wrestled with the tobacco industry in the 1990s and was portrayed heroically in the movie The Insider, pled guilty in March to trying to bribe a local judge.
Meanwhile, a few tenacious judges and prosecutors continue to work hard to unravel the offenses of the trial bar in the decades-long asbestos litigation frenzy, in which lawyers have ginned up phony diagnoses using compliant doctors, and paid kickbacks to union officials to recruit workers as plaintiffs. A few law firms have been fined for their misdeeds and one prominent lawyer has gone to jail. But that's only after defendants have already paid out a staggering $70 billion in claims that wrecked dozens of businesses, cost thousands of workers their jobs, and enriched plaintiffs (many with no demonstrable health problems and no medical bills) and their lawyers--who've claimed more than half the awards in fees and expenses. As federal judge Denis Jacobs noted without a hint of irony, many of the claims in asbestos litigation are based on "fraud, corrupt experts, perjury, and other things that would be deplored and persecuted by the legal profession if done within other commercial fields."
Critics of the trial bar, like Cardozo School of Law School Professor Lester Brickman, have been warning for years that the methods employed in asbestos litigation are too typical of a cadre of lawyers that has relentlessly pursued and dealt devastating financial blows to a series of industries, from construction firms to vaccine makers, to manufacturers of scientifically-proven safe products like silicon breast implants, to publicly held firms whose only offense was a sharp drop in share price. Still, you have to look pretty hard to find editorial outrage about the trial bar's often dubious methods, or find calls for reform of our civil justice system from Washington that result in quick action.
Contrast that with the massive coverage and indignation over corporate misdeeds. When federal prosecutors indicted Enron CEO Kenneth Lay in 2004, newspapers responded with more than 1,000 stories in just a few days. When then-New York Attorney General Eliot Spitzer sued the New York Stock Exchange's Richard Grasso over his rich pay and severance package, the New York Times alone reacted with 10 stories in less than a weekincluding a profile of Grasso's attorney, an approving editorial encouraging Spitzer, an analysis of Spitzer's legal strategy, and an op-ed column. Judging by the coverage, we Americans must particularly love a story of rich corporate guys getting hammered.
But the Grasso pay-package dispute, which is ongoing, mostly affected owners of the New York Stock Exchange, and even the collapse of Enron, which vaporized shareholder equity and cost thousands of employees their jobs, seems like small potatoes compared with the cost and consequences of illicit asbestos claims, which have helped to sink nearly 80 companies, including many which never used asbestos products.
But whereas Enron quickly produced the Sarbanes-Oxley Act, all the trial bar's shenanigans seem to have shaped in Washington is more friendly legislation on their behalf. In the hopper now is the Energy and Tax Extenders Act of 2008, which includes a provision to allow plaintiffs' attorneys to deduct upfront from their tax bill the expenses of pursuing a case on a contingency-fee basis. The effect will be to help free up more up-front money for trial lawyers to pursue contingency fee cases in what is already one of the world's most litigious society.
It would be tempting to explain all of this simply by noting that trial lawyers use the deep pockets they've acquired through our litigation system to spread around massive amounts of campaign contributions, buying friends and influence across the political spectrum, especially among Democrats (it was former San Francisco Mayor Willie Brown who once referred to the plaintiffs' bar as one of the 'anchor tenants' of the Democratic Party).
But the causes go deeper. The direct victims of the trial bar are mostly deep-pocketed institutions like companies, governments and big nonprofits (hospitals, for instance) that hardly elicit much sympathy from the press, even when they collapse from the weight of litigation. The trial bar has also been skillful in building alliances with (and often funding) consumer advocacy groups that often lead the publicity charge about some new and dubious woe that the lawyers will eventually target for lawsuits, like "toxic" mold in buildings.
And trial lawyers have been skillful at cultivating the press, often providing them with scoops in advance of their lawsuits. It was a trial firm, for instance, that originally provided the New York Times with transcripts of a tape of a meeting of Texaco managers which purported to show them using racial epithets. Publication of the story eventually prompted a firestorm of publicity and led to lawsuits against the company. Only later did audio experts, analyzing the garbled tapes, determine that the transcripts provided by the trial firm were inaccurate and the managers had uttered no such racial slurs. By then, a worried Texaco had already settled out of court and most of the press had forgotten the case.
Facing an industry this skillful at public relations, the real reform of our civil justice system is happening slowly, on a case-by-case basis, prompted by a few judges and prosecutors outraged at the practices of the trial bar. Since judges started looking more carefully at the claims in asbestos mass tort cases, in which thousands of plaintiffs are linked together and their medical records merged into one vast presentation, the waves of claims have magically begun disappearing, plunging by 95 percent. Now, the cases going forward are largely those of people who have actually suffered harm. We once though this was the way our civil justice system was supposed to work, before we let the trial bar turn it into their personal piggy bank.
Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute.