Program: Monday, May 26, 2003 Special Edition Memorial Day Edition of Nightly Business Report- Implications of Litigation

Product Liability Lawsuits
Corporate Shareholder Lawsuits
Is The Current Level of Litigation Justified?: A Discussion
Anti-Lawsuit Solutions
The Arbitration Option
Paul Kangas' Stocks In The News
Market Stats

05/26/03: Product Liability Lawsuits

SUSIE GHARIB: When a business doesn't deliver on a promise or harms someone, legal action is justified and is to be expected. But many businesses a surge in civil lawsuits have taken them by surprise and it's starting to hurt their bottom line.

PAUL KANGAS: While it's difficult to quantify, some say litigation against businesses has reached an unprecedented level, not just in terms of the number of lawsuits, but in terms of the amount of damages sought. And some of the largest damage awards are being pursued in class action suits by corporate shareholders and persons with product liability claims.

GHARIB: We have two reports tonight looking at those court filings. We begin with Stephanie Woods in Washington.

STEPHANIE WOODS, NIGHTLY BUSINESS REPORT CORRESPONDENT: In March, a ruling in a single class action suit by smokers against the Philip Morris unit of Altria (MO) had the company threatening bankruptcy. A judge found the tobacco maker deceived consumers into thinking low-tar cigarettes were safer than regular ones. The judge ordered Philip Morris to post a $12 billion bond to pay damages while the case is appealed. That bond was later reduced. Tobacco firms aren't the only companies facing class action suits. Manufacturers of items ranging from guns to asbestos to medical devices are also at risk. Sheila Birnbaum, who heads the product liability practice at Skadden, Arps, says class actions can turn individual claims into billion-dollar liabilities.

SHEILA BIRNBAUM, PARTNER, SKADDEN, ARPS: These mass torts are life-threatening to the corporation and there is a great deal of pressure to try to resolve them within the corporation's assets and insurance. And many companies have gone into bankruptcy as an attempt to globally resolve their cases.

WOODS: Bruce Finzen works on behalf of plaintiffs. He says class actions can backfire on the victims, with settlements often benefiting the plaintiff's attorneys and the corporations that are sued.

BRUCE FINZEN, PARTNER, ROBINS, KAPLAN, MILLER & CIRESI: We've seen time and time again where corporations use the class action vehicle as a method for resolving nationwide exposure to product liability claims. And sometimes they do that by seeking what I would say lowest denominator, finding a claim, essentially making a class settlement and then having that certified by the court to resolve all claims of class members who don't opt out. And that sometimes allows them both to end litigation and to do so on a fairly favorable basis.

WOODS: In a bid to end litigation against them, gun makers and distributors recently went to Congress. They successfully lobbied House lawmakers to ban lawsuits stemming from gun-related death. But the legislation now faces an uphill battle in the Senate. Ken Feinberg, who specializes in mass tort settlements, says industries counting on new laws to limit liability may be disappointed.

KEN FEINBERG, THE FEINBERG GROUP: The history of business lobbying the Congress for some type of tort-relief, has largely been proven wishful thinking. Congress has not been overly eager to interfere with state or federal litigation and the civil justice system.

WOODS: But Congress is under pressure to do something about the most costly form of product liability cases: asbestos-related lawsuits. These cases charge that companies should have done more to protect workers and consumers from this cancer-causing substance. After 25 years of protracted litigation, total liability in asbestos lawsuits is close to $300 billion. At least 67 companies linked to asbestos have gone bankrupt rather than pay. So more and more companies with even minor asbestos connections are being sued to the point where 85 percent of America's major corporations are reported to be targets of asbestos lawsuits. The fear is that what's happened in asbestos cases could be repeated in other product liability areas with billions of dollars in legal costs, but results that satisfy few victims or companies. Stephanie Woods, NIGHTLY BUSINESS REPORT, Washington.

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. Copyright (c) 2003 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

05/26/03: Corporate Shareholder Lawsuits

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is Scott Gurvey in New York. The accounting scandals that brought down companies like Enron and WorldCom are starting to reach the court through shareholder class action suits against those firms. Even before that, a new wave of shareholder lawsuits was under way. A tally by Stanford Law School and Cornerstone Research shows 224 companies were sued by shareholders in federal class actions in 2002 over what are generally called disclosure issues. During the same period, those 224 companies lost $1.9 trillion in market capitalization. It is not a coincidence.

SAMUEL ISSACHAROFF, PROFESSOR, COLUMBIA LAW SCHOOL: Anytime you have a decrease in stock prices, people are looking around to see if there is evidence of misbehavior. You also have, in the last five years, what is perhaps the most significant increase in restatement of corporate profits that we've ever seen, a dramatic increase of almost 250 percent in the number of such restatements. Generally that indicates that something went wrong in the accounting processes.

GURVEY: Of course, the company and its shareholder owners bear the cost of shareholder lawsuits, so some say the end result only hurts both sides. The U.S. Chamber of Commerce is currently investigating the impact of litigation costs on shareholder value. Even some leading shareholder advocates prefer to engage management in discussions and work through shareholder proxy proposals to effect reform.

EVELYN Y. DAVIS, SHAREHOLDER ACTIVIST: A lot of lawyers are looking for a quick buck to make. And, of course, because of the corporate scandals that have been in there, they are opportunistic and they jump in on some of the things. Well, I personally have never filed any lawsuit. I have had my differences with corporations, but I've always straightened it out in an amicable way with the corporate CEOs. I don't operate that way.

GURVEY: But plaintiffs' lawyers argue that only they can put a meaningful check on corporate misbehavior. They say the Private Securities Litigation Reform Act of 1995 made it harder and more expensive to file lawsuits, greatly reducing frivolous actions and consolidating the plaintiffs' bar. They say government lawyers are no match for the legal departments of big business and that only the threat of civil litigation by shareholders will control corporate wrongdoing.

MELVYN WEISS, ATTORNEY, MILBERG WEISS BERSHAD HYNES & LERACH: They cooked the books. They misled people concerning earnings by manufacturing earnings. They did every gimmick you can imagine. They kept liabilities off the balance sheet and off the income statements. And there was no deterrence. The SEC was understaffed. The U.S. attorney's office never had enough people to hold corporate America criminally accountable. And the civil litigation, which was the best deterrence we had historically, was seriously impaired by the passage by Congress in 1995 of a law making it much more difficult for victims to get remedies.

GURVEY: But there are indications that the drop in shareholder class action suits that followed the 1995 law is coming to an end. This year researchers expect to see a large number of suits filed alleging misrepresentation on the part of Wall Street analysts. Scott Gurvey for NIGHTLY BUSINESS REPORT, New York.

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. Copyright (c) 2003 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

5/26/03: Is The Current Level of Litigation Justified?: A Discussion

SUSIE GHARIB: If litigation is truly at the point where it's threatening the viability of many American businesses, the question is, who is to blame? I posed that question to two observers with differing views: Joanne Doroshow of the Center of Justice and Democracy; and Walter Olson of the Manhattan Institute and author of the new book, "The Rule of Lawyers."

WALTER OLSON, AUTHOR, "THE RULE OF LAWYERS": I think there is plenty of blame to go around. We have judges who have given us the most liberal rules in the world for when people can sue. We have lawyers who have been very clever about exploiting every possible open end to file suits. And we have, unfortunately at this point, a population that looks around too often for someone to sue when something goes wrong.

GHARIB: Joanne Doroshow, what do you think? Who is to blame?

JOANNE DOROSHOW, CENTER FOR JUSTICE AND DEMOCRACY: Well, first of all, I don't agree with the premise that there is too much litigation in this country. The National Center for State Courts shows that these kinds of suits are not going up at all. The only kinds of litigation that is going up are businesses suing other businesses for contract violations and so forth. But if you're going to try to blame somebody, you need to blame who is causing the injuries. You need to blame corporations that are reckless and are committing wrong-doing.

GHARIB: Walter, we've seen that businesses really have never been very popular with juries and yet now we're seeing these awards in the hundreds of billions of dollars against cigarette makers, against gun-makers and other industries. And some people say that it is getting to the point that juries are deciding that which lines of businesses and which companies are going to be allowed to operate. Do you think juries have gone too far? And should some action be taken against them?

OLSON: It's worse than that actually, because it's not just the average jury that gets to decide whether your industry or my industry is going to be allowed to continue. It is the unusual one, nine out of 10 juries can say that it's OK to sell firearms, for example, and that tenth jury can impose punitive damages to wipe out a whole company. So no one would have planned a system on purpose I think whereby a single jury that gets angered by a clever lawyer can bankrupt some defendant.

GHARIB: Joanne, do you think that something should be done about these so-called "runaway juries?"

DOROSHOW: Again, I completely disagree with this premise. Juries are - every study that have looked into the jury system has found that they are conservative and that they do not award unreasonable verdicts. And to the extent that occasionally one does award a very high verdict, the judge comes in and reduces it. And you rarely hear about that in the news. What you only hear about are kind of the headline verdicts and these things that seem like juries are really not even listening to the evidence. This is absurd. They are the only ones that listen to the evidence. And what you don't want is some politician in Washington coming in and telling a jury what they can and can't award in a case.

GHARIB: Let me ask you this, some companies have opted to file for bankruptcy instead of paying these large jury awards. And so the plaintiffs in the end just get a few pennies on the dollar. Do you think that that's - that something should be done about - to keep that from happening, Joanne?

DOROSHOW: Well, I mean, look how rare that kind of situation is, first of all. Also, look at the misconduct that that company has engaged in. Maybe that company should not be - exist. Maybe it should not be producing a defective product or engaging in the negligence which has caused a lot of injuries in this country. You have to look at what's really behind that verdict.

OLSON: If I could jump in on that. The best-known case where a very large company has gone bankrupt through litigation I think is Dow Corning Corporation which made breast implants. Scientific studies came out on that, exonerated them from the main charges.

DOROSHOW: That's not true.

OLSON: And it's really a disgrace to the legal system that that would be allowed to happen.

DOROSHOW: That's completely untrue. Breast implants were shown - silicone breast implants were shown to be very, very damaging to women, but particularly the ones that leaked and caused all kinds of injuries and eruptions.

OLSON: The federal government has repeatedly said that I'm afraid that view is not right.

DOROSHOW: That's ridiculous.

GHARIB: Joanne, we've seen that in many of these class action lawsuits there is only like a token award to the people who are actually hurt, and yet we see the attorneys walking off with millions of dollars. Do you think something needs to be done to change that?

DOROSHOW: Well, first of all, class actions are a very important tool for consumers, who have been hurt by financial fraud and civil rights violations and polluters, to pull together and to file a case where a defendant has received a substantial benefit, but then there are a large number people who have been injured. There are occasional abuses of that system. In fact we work with consumer groups at Public Citizen and Trial Lawyers for Public Justice that have whole projects aimed at trying to control those abuses. We don't believe the occasional cases are right, but there is a way with dealing with that system by challenging the abuses instead of trying wipe out all class actions.

GHARIB: Walter, would you say that plaintiffs' attorneys are the ones that walk away with the biggest awards?

OLSON: Well, class actions are run by the lawyers for the lawyers of the lawyers. And yes, sometimes they do some good. But there is a lot of abuse. The legal system is not policing itself well at all. And I'm not surprised at all that there are cries for reform.

GHARIB: Well, I want to thank you both very much for this very controversial topic and for coming in and talking to us. Joanne Doroshow from the Center for Justice and Democracy, and Walter Olson of the Manhattan Institute and author of "The Rule of Lawyers."

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. Copyright (c) 2003 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

05/26/03: Anti-Lawsuit Solutions

PAUL KANGAS: While there is some dispute about the level of litigation against businesses, there is little argument that related legal costs are going up sharply. For that reason some major insurance companies, the U.S. Chamber of Commerce and other business groups are calling for action to halt the rising costs associated with civil litigation. And as Jeff Yastine reports, Congress, the individual states and the courts are all considering ways to deal with the problem.

JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In his State of the Union address this year, President Bush put tort reform on the legislative front burner.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: No one has ever been healed by a frivolous lawsuit. I urge the Congress to pass medical liability reform.

YASTINE: Beginning with action to limit awards in medical malpractice lawsuits. Now, a bill that would do just that is making its way through Congress. The proposal is called The Health Act of 2003. The bill would shorten the length of time an injured person would have to file a lawsuit and it would cap the amount of non-economic damages, what are sometimes called pain and suffering, to just $250,000. But the injured person could still recover economic damages, including future medical expenses and lost wages. The Health Act was approved by the House of Representatives but it's still awaiting action in the Senate. In the meantime, some states are acting on their own. Under pressure from doctors to do something about skyrocketing malpractice insurance rates, 23 states already have limits of some kind on the books. Some in Congress are also hoping to change how class action lawsuits are litigated through The Class Action Fairness Act. The proposal would move more class action lawsuits to the federal courts. Supporters say it would keep plaintiffs' attorneys from using a popular tactic, filing class action cases, which are national in scope, in states where they can expect a sympathetic hearing from friendly state judges and local juries.

STAN ANDERSON, NATIONAL CHAMBER LITIGATION CENTER: The bottom line is it's a procedural bill that allows, under certain circumstances, cases filed in state court to be transferred to federal court, where the feeling is that you've got judges that are better trained, they have better staffs and that you get a fairer hearing before those judges than you would at the state courts.

YASTINE: The bill's opponents disagree.

MARY ALEXANDER, PRESIDENT, AMERICAN TRIAL LAWYERS ASSOCIATION: It is very important that consumers maintain and have the ability to fight back when corporations defraud them, when they take away their life savings, when we have situations like WorldCom and Global Crossing, so that consumers, the average person has the ability to fight back.

YASTINE: Congress is also working to tackle the long running asbestos litigation issue. A Senate proposal would create a giant trust fund of $100 billion or more to handle all future asbestos claims instead of litigating them through the courts. The U.S. Supreme Court is also weighing in with decisions that will affect juries and punitive damage awards. Just last month, in "State Farm v. Campbell," the high court overturned an earlier $145 million judgment against State Farm Insurance, saying the 140 to one ratio of punitive to compensatory or actual damages was "neither reasonable nor proportionate to the wrong committed." The decision made clear that punitive damages in such cases should generally not exceed actual damages by more than a nine to one ratio. Experts say the case will be an important legal guide post for other product liability cases seeking large punitive damages against companies, such as cases involving SUV rollovers and other automotive safety issues. Jeff Yastine, NIGHTLY BUSINESS REPORT.

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. Copyright (c) 2003 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.

05/26/03: The Arbitration Option

PAUL KANGAS: To reduce the legal cost of and potential liabilities from lawsuits, many businesses are turning to a different means of dispute resolution: arbitration. But is arbitration just as fair as litigation? And should a company's customers be forced to accept arbitration as a condition of doing business? Here to discuss those matters with us are Richard Naimark, senior vice president of the American Arbitration Association, and F. Paul Bland, staff attorney with Trial Lawyers for Public Justice. Gentlemen, welcome.

RICHARD NAIMARK, SR. VICE PRES., AMERICAN ARBITRATION ASSN.: Thank you.

F. PAUL BLAND, JR., TRIAL LAWYERS FOR PUBLIC JUSTICE: Thank you.

KANGAS: First, Richard, could you give us a thumbnail description of how arbitration works?

NAIMARK: Yes. Arbitration is essentially what we call a quasi-judicial forum where an arbitrator makes a decision that's binding on parties. It's really nothing new. It has been around for a long time. In fact, George Washington provided for arbitration in his will in the event of a dispute. But what we're seeing recent years is a mushrooming in the areas of utilization of arbitration.

KANGAS: So would you say that arbitration is better at dealing with most business disputes than the courts?

NAIMARK: Well, there are some inherent advantages to arbitration. It can be much quicker. You can have technical experts who are decision-makers in your dispute. It can be relatively more inexpensive. To a certain extent, the parties can have some control over the process so they can make it serve their needs.

KANGAS: Now Paul Bland, arbitration sounds like a pretty straightforward and less expensive method than litigation. So what's wrong with it?

BLAND: Well, a lot of times the arbitration is really a somewhat rigged deal. I mean, you replace a publicly accountable judge or jury that's drawn from the community with a private judge who is usually picked by the company, or the company picks a firm that provides judges. So for example, someone who - a woman who has a case against an HMO, where she feels that the HMO didn't provide her medical care she needed, will frequently go into arbitration to get a list of seven arbitrators, and three of them will be lawyers who work for HMOs, and the other four will be lawyers who principally defend HMOs. Does she think that's fairer? No.

KANGAS: I understand that you are especially opposed to mandatory arbitration clauses which many businesses now require customers to sign in advance of doing any kind of a transaction by agreeing to mandatory arbitration. What is the consumer giving up in this case?

BLAND: Well, the consumer is giving up, first of all, any right to an appeal, because whatever the arbitrator is essentially final. The Supreme Court said even if an arbitrator's decision is silly, that's not grounds for overturning it. And the consumer is giving up constitutional rights that they don't know about. And a lot of times the consumer is getting themself (sic) into a system where they're going to be - have their disputes decided by someone who is really essentially chosen by the other side. And that's a really serious problem.

KANGAS: Richard Naimark, one of the advantages of arbitration is supposed to be that both sides settle on a neutral arbitrator. So if a business automatically gets to choose the arbitrator, isn't the other side then at a disadvantage?

NAIMARK: Well, there is arbitration and then there is arbitration. You wouldn't buy life insurance from a poorly-rated insurance company. And you wouldn't have surgery from a surgeon who wasn't board-certified. And it's really the same thing with the arbitration process. The American Arbitration Association is a non-profit service provider that has over the years built some protections in in this very specialized area we're talking about now of consumer and employee arbitration, which I stress is a very specialized area. And there are safeguards which we call protocols which really protect against the issues, the very legitimate issues that are being raised by Paul Bland.

KANGAS: Now we've just heard that appeals are seldom allowed in arbitration. But what if either of the parties feels that it has not received a fair hearing?

NAIMARK: Well, it is a trade-off, but the advantage is that you're not subjected to the potential for endless appeals which can go on for years and years. And that is really a game of big budget players.

KANGAS: I understand the U.S. Supreme Court recently upheld the enforceability of arbitration rulings. Should this be seen as a seal of approval for the arbitration process, Richard?

NAIMARK: There is a long history of public policy in this country of support for the arbitration process. What's different and distinct about what we're talking about right now is this fairly new area of the use of arbitration in the consumer and employee context.

KANGAS: All right. Paul, your thoughts on that matter?

BLAND: Well, the Supreme Court has said that arbitration agreements are generally going to be enforceable. But they have left state law as some limitation on that. So where arbitration clauses are written in ways that are particularly unfair or they're extremely expensive where they really act as a get-out-of-jail-free card that lets a company walk away no matter what it has done. There are a number of courts that are refusing to enforce arbitration agreements in those kinds of situations. And it happens a lot more frequently than you would think. One other interesting thing that you see with a lot of these arbitration clauses is it is extremely common for businesses to write arbitration clauses that say that the consumer has to arbitrate any disputes they have against the business, that the business reserves for itself the right to go to court. And I think that shows a little bit of how they actually view these things.

KANGAS: So to sum up, given the choice between arbitration or litigation, which should a business or consumer choose, Paul?

BLAND: We tell consumers that if a business says to them that they have to waive and give up their constitutional rights in order to do business with them, they really ought to look for another business.

KANGAS: And Richard Naimark, your response?

NAIMARK: A properly arbitration can serve the needs of both parties. It is important, however, to make sure that there are fair play protocols that give the protections that Paul is talking about.

KANGAS: Gentlemen, thank you very much, we appreciate it.

NAIMARK: Thank you.

BLAND: Thank you.

KANGAS: I've been speaking with F. Paul Bland of Trial Lawyers for Public Justice, and Richard Naimark of the American Arbitration Association.

Nightly Business Report transcripts are available on-line post broadcast. The program is transcribed by eMediaMillWorks. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Community Television Foundation of South Florida, Inc. Nightly Business Report, or WPBT. Information presented on Nightly Business Report is not and should not be considered as investment advice. Copyright (c) 2003 Community Television Foundation of South Florida, Inc. ALL RIGHTS RESERVED. Terms of use.