Copyright 1999 Federal News Service, Inc.
Federal News Service
JUNE 9, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
3275 words
HEADLINE: PREPARED STATEMENT OF
GERARD
T. NOCE, ESQ.
ON BEHALF OF
THE DEFENSE RESEARCH INSTITUTE
AND THE
MISSOURI ORGANIZATION OF DEFENSE LAWYERS
BEFORE THE SENATE
COMMERCE, SCIENCE AND TRANSPORTATION COMMITTEE
SUBJECT - S.837 THE AUTO
CHOICE REFORM ACT
BODY:
Good morning, Mr.
Chairman. My name is Gerard Noce. I am an attorney in St. Louis and president of
the Missouri Organization Defense Lawyers. I am also Missouri state chair of the
Defense Research Institute. Both of those groups are associations of lawyers who
represent defendants in civil lawsuits.
There is no question that in many
jurisdictions, automobile insurance costs are too high. Defense lawyers agree
that states' auto accident reparations systems should be reformed, but strongly
believe that the basic principles of the civil justice system are sound. Rather
than imposing a federal system of no-fault auto insurance, we urge that each
state be permitted to continue to experiment with methods of reducing litigation
costs. Meanwhile, we believe that Congress should concentrate on addressing
those problems of the civil justice system which have a predominantly interstate
character. Your committee is charged with regulating interstate commerce, and,
we would submit, there are aspects of the tort system which are a burden on such
commerce. Auto accident reparations, however, is not one of them.
FEDERALISM
AND TORT REFORM
It seems to us that the Founders had a good idea of how to
apportion state and federal responsibility for the legal system. In constructing
the union, they recognized that states and state courts would have primary
responsibility for administering justice. But they did make some exceptions to
the general rule. First, in creating our federal judiciary, they gave federal
courts jurisdiction over disputes of citizens from different states. They
reasoned that the national government must ensure that state courts would not
discriminate against outsiders.
Second, in granting Congress the power to
regulate commerce among the states, the Founders sought to ensure that
idiosyncratic state laws would not become a burden on interstate trade. The
Constitution encourages you to legislate in areas which require national
uniformity.
These two principles-- nondiscrimination against out-of-state
defendants, and protection against burdensome state laws or practices-- should
remain the primary rationales for congressional intervention in the states'
justice systems.
Viewed in this light, it is pretty clear that state laws
respecting recovery for injuries in automobile accidents are not an appropriate
subject for federal preemption. There is simply no national interest in
mandating, or even in suggesting, a preferred method of resolving motor vehicle
lawsuits. The vast majority of these lawsuits involve individuals who are
residents of the same state, who are insured by companies regulated by state
officials. Neither state tort laws governing auto accidents nor auto insurance
markets involve interstate distortions or discrimination. In short, there is not
the sort of inefficiency or unfairness that only Congress can resolve.Indeed, I
think that imposing national uniformity over such a huge portion of state court
litigation would be bad. The states have been called "laboratories of democracy"
because they are usually free to experiment with reforms which, once found to be
successful, can be copied by other states. Through my participation in DRI, a
national association of defense lawyers, I have heard about numerous reforms to
the civil justice system that have started in one state and then spread to
others. These include discovery reforms, alternative dispute resolution, summary
jury trials, and many other ideas. All of these reforms show promise in cutting
litigation costs and reducing auto insurance rates. I have summarized a number
of these state-level reform concepts in the appendix to my statement.
We
have noted that the authors of S. 837 have revised the opt-out provisions from
last year's version, giving state legislatures a little more time to decide
whether they wish to retain their present systems. But the new provision merely
pays lip service to sound principles of federalism. It seems to us that
including the opt-out is an admission that there is no real need for national
legislation in this area. Also, a one-year deadline would require special
sessions to exercise the opt-out in states whose legislatures meet biennially.
This comes awfully close to "commandeering" state legislatures and strikes us
violating the spirit, if not the letter, of the Tenth Amendment under New York
v. United States, 488 U.S. 1041 (1992).
State legislatures are capable of
enacting programs like Auto Choice on their own. Last year, proponents of Auto
Choice presented the concept to the annual meeting of the National Conference of
State Legislatures. A presentation has also been made to the American
Legislative Exchange Council, another group of state lawmakers. There wasalso an
Auto Choice presentation at the 1998 legislative conference of the American Tort
Reform Association, attended by state tort reform coalition leaders from across
the U.S. Mr. Chairman, state legislators have heard the arguments in favor of
this proposal, but have shown no interest in trying it out. It would be wrong
for Congress to overrule their choice against Auto Choice.
When should
Congress get involved in civil justice reform? Congress definitely should
legislate in those areas where the availability of fifty different state court
systems causes inefficiency or unfairness. There are plenty of examples of this.
Please let me bring to your attention a situation that has developed in my
hometown of St. Louis. St. Louis city courts have become a magnet for injury
lawsuits involving out-of-state accidents. Most of these lawsuits are filed by
railroad workers seeking compensation under the Federal Employers Liability Act.
FELA allows railroad workers to recover for on-the-job injuries. But FELA
doesn't specify that a lawsuit must be filed in the county or state where the
injury took place. This means that plaintiffs' lawyers may file the case in any
county where the railroad does business.
Over the years, plaintiffs' lawyers
have decided that, given a choice, they'd prefer to file FELA cases in St.
Louis. This is because jurors in St. Louis have a reputation for being more
"generous" in awarding damages. St. Louis residents are thought more likely to
be poor, undereducated, or pro-union, traits that plaintiffs' lawyers seek when
picking a jury.
What is the result of this? The impact on St. Louis is that
our residents are called for jury duty more often than residents of any other
area in the state, and Missouri taxpayers are paying to process non-Missouri
civil cases.But the wider, national impact is that shippers are paying higher
rates to transport their products. That is because, according to a jury verdict
expert quoted in the St. Louis Post-Dispatch, 1damage awards in St. Louis are
nine percent higher than the national average, and higher still than awards in
some of the rural counties where the railroad accidents take place. Eventually,
these higher costs are passed along to consumers. Surely this is a more
appropriate matter for the Commerce Committee to be studying than auto
insurance.
There are several other interstate tort law issues which also
better deserve Congress' attention.
One is the issue of multiple
punitive damage awards for the same conduct. Punitive damages, unlike
compensatory damages, are awarded to punish wrongdoers and deter future
misconduct. As you know, these awards can become very large, especially when
juries are dealing with out-of-state or foreign corporations for whom they may
have no sympathy. Now there is considerable disagreement about whether Congress
should cap punitive damages. But our legal tradition disfavors double jeopardy,
so there shouldn't be as much disagreement over whether different state courts
should be able to pile on multiple punitive awards for a single tortious act. As
the federal courts' Working Group on Mass Torts noted, "punitive damages awarded
in a small portion of (mass tort) cases may deplete funds available for
compensatory damages for many other victims." 2 This is obviously a problem that
only Congress can address.
Finally, there is the issue of state courts
certifying nationwide class actions. Both the Senate and House Judiciary
Committees have held hearings on the problems created by this practice: the
"drive- through certifications" of classes, in which a judge rubber-stamps
approval, giving a plaintiffs' lawyer the leverage to force a settlement of even
the most frivolous or de minimus claims;
- the use of discount coupon
settlements, in which defendants provide virtually worthless coupons to buy
their own products, or reversionary settlements, in which defendants retain any
money not paid out through the settlement's arduous claim procedure; both of
which provide real monetary benefits only to the plaintiffs' attorneys, not to
consumers;
- "reverse auction" settlements, by which defendants negotiate
with various plaintiffs' attorneys to purchase res judicata for the cheapest
price.3 Only federal legislation can solve these problems. Whenever class
actions are filed, as they frequently are, before rural small-town judges who do
not have the time or inclination to question class certifications,4 there is
risk that businesses will be blackmailed into settling frivolous claims. And
these state court judges, who do not have law clerks or staff attorneys to
assist them as federal judges do, also lack the resources to scrutinize
settlement agreements, leading to appalling instances of consumers being short-
changed. But most importantly, the mere fact that class actions involving the
same subject matter can filed simultaneously by different lawyers in different
state courts inevitably leads to the "reverse auction" process in settling
meritorious claims on the cheap. S. 353, a bipartisan bill now pending in the
Judiciary Committee, would make a huge step toward ending these abuses by moving
multi- state class actions into the federal courts.
CONCLUSION
Over the
years, we have seen that it is difficult for even a single liability reform bill
to be passed each Congress. We are concerned that, while the sponsors of Auto
Choice are well-intentioned, their advocacy of this bill diverts time and
attention from other measures, such as class action reform,
that deserve a high priority. Moreover, as you have noted, Mr. Chairman, it's
much easier for Congress to pass bite-size pieces of incremental reform than it
is to pass comprehensive bills such as this one. We urge you to move on to the
issues which truly demand federal attention, and leave auto insurance issues to
the states.
APPENDIX: STATE LEVEL OPTIONS TO REDUCE AUTO INSURANCE COSTS
Discovery_ Reform.
A recent study by the Federal Judicial Center found that
half of all litigation costs are attributable to discovery, the process of fact-
finding in civil lawsuits. 5 The states have taken the lead in trying to reduce
these costs. In 1990, the Arizona Supreme Court and the Arizona State Bar
created a commission to redraft discovery rules. New rules went into effect in
1992. These rules limit the amount of discovery that attorneys may initiate on
their own. They also introduced the concept of "mandatory disclosure," by which
parties to a lawsuit are required to disclose certain core information about the
case without prompting. Arizona's rules became a model for the federal system--
the federal courts have been experimenting with mandatory disclosure for about
five years, and the federal Judicial Conference is currently considering
limitations on attorney-initiated discovery. Also, several state court systems
have followed Arizona's lead.
Attorneys are divided on whether these
sweeping reforms protect their clients' interests. And the empirical studies are
not unanimous in concluding that the reforms save a significant amount of money.
But Arizona's experience with discovery reform demonstrates that the states'
judiciaries and bars are willing to attempt radical changes to reduce the costs
of the civil justice system. Moreover, as time goes by, we learn more and more
about which methods work. As state experiments continue, bolstered by the
knowledge gained by experiments in the federal system under the Civil Justice
Reform Act, discovery costs in automobile litigation should drop in every
American jurisdiction. Alternative Dispute Resolution,
In many states, most
motor vehicle accident cases are submitted to mandatory court-annexed
arbitration. Arbitration hearings are expedited proceedings in which parties
present their cases informally, without the need to bring in every witness.
Michigan and Arizona have instituted ADR programs with "teeth." If a party
rejects an arbitration award and then fails to obtain a more favorable outcome
at trial, that party must pay the opponent's attorneys fees and expert witness
fees in addition to court costs.
This rule creates an incentive for
litigants to accept the arbitration outcome, cutting off the litigation process
at an early stage and reducing expenses. Like discovery reform, it also creates
a disincentive for plaintiffs to bring non-meritorious lawsuits because the
"nuisance value" of the lawsuit is reduced when litigation expense is reduced. A
defendant who knows he can head off a frivolous lawsuit at the arbitration
hearing need not pay off a plaintiff to get rid of the case at an early
stage.Again, there is a dearth of empirical research into whether attorney fee
shifting reduces litigation. Many in the defense bar fear that fee shifting
would not be applied even- handedly-- that judges would shrink from enforcing
sanctions on individual plaintiffs while enforcing them stringently against
wealthy corporations. But as long as states are free to apply these techniques
to auto accident litigation, knowledge as to what works will emerge, and other
states will then be able to adopt them. Summary Jury Trials.
Another Arizona
innovation is the summary jury trial. The idea of the summary jury trial has
been around for some time in the federal court system. It has been used as an
ADR method to get a jury's non-binding, advisory verdict to guide the parties to
settlement. Arizona's twist on the summary jury trial has been to make it
binding. The parties must voluntarily agree to this procedure. Typically, they
will also stipulate to the evidence and exhibits to be submitted to the jury, as
well as to a "high-low" agreement. The high-low agreement places a ceiling and
floor on the amount of the verdict, taking away the risk of either a "runaway"
jury or an excessively penurious jury.
A summary jury trial takes no more
than one day to hold. The judge conducts an expedited voir dire, the attorneys
have time limits on their presentations, and the jurors are given streamlined
instructions. As Judge Barry Schneider, civil presiding judge of the Maricopa
County Superior Court put it, the parties to a summary jury trial "benefit
significantly from having traded away all the tried and true but enormously
expensive trappings of the typical jury trial."
The Seat Belt Defense
The "seat belt gag rule" is an exception to the negligence per se doctrine
which plaintiffs' bar lobbyists have had inserted in many states' mandatory seat
belt laws. The common law doctrine of negligence per se holds that a jury should
consider a party's violation of a statute in determining whether he was
negligent. The seat belt gag rule says that a plaintiff's failure to comply with
the seat belt law cannot be used against him, even if that non-use increased the
damages he suffered. This anomaly rewards the lawbreaker and punishes the
consumer. According to a University of Kentucky study, the average cost of
treating a motor vehicle accident victim who was not wearing a seat belt is 4.4
times more than the cost of treating seat belt wearers.6 We urge that states
permit a seat belt defense. While it is expensive for the defense lawyer to
bring in expert evidence at trial showing how failure to wear a seat belt added
to a plaintiffs damages, the seat belt defense allows us to discount settlement
amounts in such cases. That is only fair, since it is wrong for other insurance
consumers to pay increased premiums to cover injuries that could have been
mitigated if the driver acted responsibly.
Note that the Auto Choice
plan actually moves away from the principle of personal responsibility-- under
Auto Choice, injured drivers would be compensated without regard to whether they
caused an accident by their own negligence and without regard to whether they
obeyed the seat belt law. Eliminating the collateral source rule.
This old
common law rule prevents jurors from hearing evidence of compensation a
plaintiff receives from health insurance, wage continuation programs, or other
sources. In most cases, health insurers will file a subrogation lien entitling
them to reimbursement for payments from the tortfeasor. But far too frequently,
in routine auto cases, health insurers neglect to file their liens. Seldom, if
ever, does an employer file a lien for the plaintiffs "sick days." The result is
double recoveries for many plaintiffs, and "double taxation" for consumers, who
pay higher premiums to fund extra recoveries.
A number of states have
abolished or altered the collateral source rule. Because auto accident claims
are frequently settled at an amount three times the plaintiffs economic damages,
eliminating the rule may reduce payments in individual cases by as much as a
third. Moreover, offsetting collateral source payments discourages the filing of
some minor claims by making them economically unrewarding for plaintiffs'
attorneys. "No Pay/No Play" for auto accident plaintiffs.
California has
disqualified uninsured drivers from collecting non- economic damages. This
measure eliminates "free riders" from the tort system-- those who sue to collect
damages they incur, but don't take responsibility for paying damages they cause.
According to the Insurance Commissioner in California, this has reduced costs to
consumers by one quarter of a billion dollars. 7 "Medical Injury Profiles".
Some states have experimented with practice guidelines to reduce instances
of "defensive medicine:" the ordering by physicians of unneeded tests or
procedures solely to avoid medical malpractice suits. These guidelines,
formulated with input from medical professionals, can be introduced into
evidence by doctors to contest an allegation that a certain medical treatment
was necessary. We are proposing that similar guidelines be created for minor
injuries from auto accidents. Such guidelines could then be introduced by
defense attorneys to contest the reasonableness or necessity of medical
treatment claimed by an injured party, 8 This would deter plaintiffs' lawyers
from sending clients to "medical bill mills" to ratchet up damage claims.
FOOTNOTES:
1"Shopping for Justice," St. Louis Post-Dispatch, September
15, 1996.
2 Report on Mass Tort Litigation, February 15, 1999
3 Report
of the House Judiciary Committee to accompany H.R. 3789, Class Action
Jurisdiction Act of 1998, September 10, 1998. (105-702)
4 "Justice RFD: Big
Suits Land in Rural Courts," Wall Street Journal, October 10, 1996.
5
Federal Judicial Center, "Discovery and Disclosure Practice, Problems, and
Proposals for Change," August 22, 1997.
6 Gary Flanagan, "The Seat Belt
Defense: Has It Become Unbuckled?" Florida Bar Journal, January. 1996.
7
J.C. Howard, "Calif. Auto Profits in High Gear," National Underwriter, April 20,
1998.
8 See, e.g., SB 49, California Legislature, Introduced December 20,
1994 (Sen. Lockyer)
END
LOAD-DATE: June 10,
1999 
