Imagine yourself - maybe on a cold Thursday morning in February - in a hurry to get to work. You awoke late today and didn't have time to eat breakfast at home. On your way into work, you decide to order some food at a McDonald's drive-thru. After all, breakfast is the most important meal of the day.

You place your order: egg and cheese biscuit, small order of those hash brown-type things, and coffee. The hot coffee will help to warm you and ease the bite of winter. You reach the window and pay the man who in turn hands you your bag and styrofoam cup. You are off to work.

Three minutes later, while stopped at a red light, you reach for your coffee. Your life is about to change dramatically. The light turns green and you accelerate, simultaneously raising the cup to your lips. You can't tell that the coffee is approximately 180 degrees Fahrenheit because of your gloves. Suddenly, the car in front of you brakes hard and you must swerve to avoid rear-ending it. As you do, the coffee is thrown over your face and down your neck. You sustain third-degree burns on your face. Roughly two years later, at the conclusion of a lengthy trial, a jury awards you the amount of your medical bills, compensation for missed work, and $4 million in punitive damages.

This general fact pattern has, over the last few years, become so ingrained in our popular culture that it has attained nearly "urban legend" status. ⁽¹⁾ Ever since Stella Liebeck, an eighty-one year old resident of Albuquerque, New Mexico, spilled scalding coffee on herself shortly after pulling away from a McDonald's drive-thru window, such circumstances serve as the quintessential "get rich quick" scheme. The jury awarded Mrs. Liebeck $2.7 million in punitive damages. ⁽²⁾ The case serves as fodder for journalists, talk show hosts, politicians, and interest groups in their attempts to characterize the tort system as dangerously out of control. They claim that cases such as this point to a need for limits on damage awards in an effort to curb judges and juries "gone wild."

Supporters of the tort system claim that cases like Mrs. Liebeck's are infrequent and shouldn't be seen as typical in the larger world of tort litigation. Specifically, they maintain that two of the main goals of punitive damages - retribution and deterrence - would be frustrated by "capping" these awards. Defenders of the tort system assert that any limitation on the amount of punitive damages that may be recovered will have a disproportionately negative effect on access to the legal system by the poor. This is because of the degree of flexibility in fee arrangements with regard most tort actions that allows for lawyers to take their payment out of any resulting monetary award. This mechanism, called the "contingency fee," serves to increase access to the legal system. It also encourages potentially unethical behavior by lawyers.

The battle over tort reform is currently being waged at the national and state levels. A number of states have already implemented some form of punitive damage caps while others are attempting to do so. Both the Reagan ⁽³⁾ and Bush ⁽⁴⁾ Administrations took affirmative steps to encourage such reforms and the Clinton Administration has at least considered some types of caps. ⁽⁵⁾The nature of the claims put forth by all sides in this debate over the propriety of punitive damage caps warrant an examination of the positions. As such, the purpose of this paper is two-fold: First, we will survey the landscape of the tort reform movement as is relates to proposed limitations on punitive damages. Secondly, we will focus on the specific effects of these proposed caps and explain how the poor are - or may be - affected by their implementation.
 
 

Overview. In order to best understand why there exists such a concerted effort to reform the tort system in America, it is necessary to recognize the basis and justifications for such a system. In terms of this paper's twin goals, we must be clear on the reasons why punitive damages are currently available. Generally, punitive damages reflect the money awarded to a plaintiff in a civil action after a finding that a defendant was guilty of violating a plaintiff's rights. These damages are usually awarded by a jury, and occasionally by a judge, when the defendant has been found guilty of acting intentionally, maliciously or with a conscious, reckless, willful or wanton disregard for a plaintiff's interests. ⁽⁶⁾ In this respect, the tort system varies substantially with other forms of legal action. Most notably, and in contrast to the criminal system, here the victims control the prosecution of legal actions and seek redress for wrongs committed.

When the system functions as intended, the plaintiff and society benefit in two ways. First, responsibility for the damage - and its associated costs - is assigned to the person(s) or organization(s) who caused the harm. The decision makers (judge or jury) listen to the information presented by the parties involved and subsequently determine liability. In this way, the decision makers distribute responsibility for the injuries claimed. ⁽⁷⁾ Secondly, society is theoretically protected through the deterring effect that monetary damages create. Careless and egregious behavior is deterred by a financial consequence for wrongdoing. ⁽⁸⁾

A Tort Litigation Crisis? Many claim that excessive tort litigation and the apparent rise of huge jury awards stifles economic growth and undermines our civil liability system. The "liability tax" ⁽⁹⁾ makes things more expensive, they argue, and deters innovative and progressive product development. The social costs of an "out of control" tort litigation system culminates in the scarcity of necessary goods. According to the actuarial firm Tillinghast-Towers Perrin, tort costs in 1994 totaled $152 billion, up from $67 billion in 1984. ⁽¹⁰⁾ This represents more than 2% of U.S. gross domestic product. ⁽¹¹⁾ One notable effect of these costs was reported by lawyer and engineer Peter Huber who found that the number of U.S. vaccine manufacturers declined by more than one half during the period of 1965 to 1985. ⁽¹²⁾

Stephen Magee, a professor of finance at the University of Texas at Austin, estimated that our abundance of lawyers in the United States reduces economic output by $300 to $660 billion annually. ⁽¹³⁾ Among other consequences, many argue that this loss comes in the form of increased prices, higher insurance premiums, and a decline in incentive to develop new and cheaper products. This kind of reduction can adversely affect our economic competitiveness. A 1994 survey of 20 major U.S. corporations found that they receive 55 percent of their revenue from inside our country while incurring 88 percent of their total legal costs here. ^(14)(15)

Supporters of the current system claim that tort litigation has led to many improvements in product safety. Any reduction in economic output, they argue, is overcome by the benefits that society reaps from the potentially debilitating financial penalties that create a deterrent to negligence ⁽¹⁶⁾. Indeed, even tort reform advocates seem to acknowledge results such as improvements in safety design, manufacturing techniques and warning labels. ⁽¹⁷⁾ Likewise, supporters of tort litigation concede that problems do exist. Commonly accepted problems in conjunction with tort litigation include delay in compensation, uncertainty of recovery, inequity when a small number of victims collect gigantic awards while large numbers of victims remain undercompensated, increased incentives to litigate, enormous attorneys fees, and related transaction costs. ⁽¹⁸⁾

Despite the claims of both sides, a careful consideration of the numbers leaves little doubt that tort litigation can have a profound effect on our daily lives. But the question remains: Is our tort system out of control? Put another way, is the price we pay as a society for this system outweighed by its benefits? As only the egregious cases, involving huge awards of punitive damages, are reported with any great consistency, it could be that no real "crisis" exists.

If the goal of tort "reformers" is to provide relief to the business and medical communities from the proliferation of "outrageous" jury awards, there should be evidence that such protection is needed. Advocates on both sides of the issue frequently cite empirical data that fails to reflect accurately the state of tort litigation and its effects. For example, in "Disadvantaging the Disadvantaged: The Discriminatory Effects of Punitive Damage Caps", ⁽¹⁹⁾ Troy L. Cady concludes that it is "difficult to find any rationale for the assertion that...punitive damages are compromising American business interests." In support of his assertion, he cites a study conducted by Professor Michael Rustad which reports only 355 punitive damage awards in products liability actions between 1965 to 1990. ⁽²⁰⁾

Indeed, ten cases per year does not a crisis make. Moreover, Cady's focus on products liability fails to give an accurate portrayal of the full range of tort litigation. , During 1994 there were 50 cases in the United States in which jury verdicts exceeded $17.5 million. ⁽²¹⁾ Of these, only seven involved product liability. ⁽²²⁾ The remaining cases involved disputes in areas such as employment, securities, lenders, accountants, environmental claims, insurers, business torts, state and local governments, volunteer firefighters, medical claims, and other actions not involving products. ⁽²³⁾

In 1998 there were 45 awards of at least $40 million ⁽²⁴⁾ and 17 of these awards were for $100 million or more. ⁽²⁵⁾ It is difficult to ignore these staggering numbers. Law and economics scholars Professors A. Mitchell Polinsky and Steven Shavell assert that "one of the more controversial features of the American legal system is the imposition of punitive damages." ⁽²⁶⁾ When coupled with the dramatic rise in total costs of the tort system and the statistics cited here, it is even more difficult to deny at least the potential that we are in the midst of a system quickly losing credibility. Many seem to agree with this proposition. A survey conducted ⁽²⁷⁾ among the members of the American Law and Economics Association (ALEA) found that a sizable majority - 65 percent - agreed with the following statement: Limiting punitive damages to three times actual damages would be more efficient that the current procedure. ⁽²⁸⁾

As with most issues that have a political connection, whether a true crisis exists has little to do with the popular conception of whether one exists. Even if there is no real "tort litigation crisis," political rhetoric shapes social perceptions. High profile cases, such as Stella Liebeck's, reenforce social attitudes that we are experiencing a legal system run amok. This in turn incites legislative and judicial action at the state and federal levels.

State legislation. As of June 30, 2000, 32 states have enacted some form of punitive damage legislation. ⁽²⁹⁾ Of these, 15 place limits on punitive damages. ⁽³⁰⁾ In Florida, for example, punitive damages are limited to the greater of three times compensatory damages or $500,000. ⁽³¹⁾ However, in certain circumstances the recovery may be higher. The limit is increased to four times compensatory damages or $2,000,000, whichever is greater, in the event that the defendant's wrongful conduct is found to have been motivated by unreasonable financial gain or the likelihood of injury was known. ⁽³²⁾ The Florida legislature passed this sweeping tort reform bill, which took effect in 1999, with the support of Florida Gov. Jeb Bush (R).

Such legislation is not without its detractors. The Association of Trial Lawyers of America (ATLA) has filed a declaratory judgment action challenging this punitive damages legislation in Florida. ⁽³³⁾ The plaintiffs claim that the reform bill violates numerous provisions of the Florida Constitution. ⁽³⁴⁾ They seek a declaratory judgment on each "facial challenge" to the law. ⁽³⁵⁾

The ATLA has been largely successful in its challenges to state punitive damage cap legislation. In 1999 alone, the ATLA helped to strike down tort reform legislation in Indiana, Oregon and Ohio. Most notably, the Oregon Supreme Court struck down a $500,000 cap on noneconomic damages. ⁽³⁶⁾ In addition to Florida, challenges to punitive damage cap legislation are pending in West Virginia, Maryland and Colorado. ⁽³⁷⁾

Courts in Nebraska and North Dakota have recently declared unconstitutional statutes limiting the rights of plaintiffs to seek redress for injuries caused by others. ⁽³⁸⁾ The North Dakota case involved a statute of limitations for products liability actions. The Nebraska court ruled that the state's $1.25 million cap on damages in medical malpractice cases violated the state constitution. In 1999, a Nebraska jury awarded $5.65 million to the parents of a six-year-old boy with cerebral palsy. The plaintiffs claimed the boy suffered severe neurological injuries at birth due to the negligence of the attending obstetrician. The court found the 24-year-old medical malpractice cap to be "fundamentally unfair." Weighing the individual costs against the social benefit, the court noted that it did not see a "legitimate relationship between insurance rates and the cap."

The battle between legislatures and the ATLA is being waged state to state. There are still a number of states with some form of punitive damage caps. As such, the ATLA has an uphill fight. Even so, the ATLA's success rate is impressive. It remains to be seen how state legislatures choose to respond to challenges filed by the ATLA and its allies. One possibility is to amend state constitutions to allow for this legislative power. This was attempted in Oregon earlier this year by referendum. The voters rejected the measure by a 3 to 1 vote. ⁽³⁹⁾

Congressional attempts at tort reform. Congress regularly considers legislation that would place limits on punitive damages. One of the best known attempts came as part of the "Contract with America" that helped the Republican Party gain control of Congress in 1994. Led by Georgia Representative Newt Gingrich, Republicans made "common sense legal reform" part of their platform and legislative agenda. Eventually the House of Representatives passed three bills encompassing tort reform. One was the Common Sense Product Liability and Legal Reform Act of 1995. ⁽⁴⁰⁾

There were many reforms contained in the bill. The most important for our purposes were the limits placed on punitive damages. Like many of the current state statutory schemes, the legislation capped punitive damages at $250,000 or two (Senate Bill) or three (House Bill) times economic ("compensatory") damages, whichever is greater. ⁽⁴¹⁾ The bill also required that before punitive damages could be imposed, "clear and convincing evidence" must exist showing the harm inflicted was caused by the defendant's "malicious conduct." ⁽⁴²⁾

The bill that emerged from the joint committee and submitted for the President's signature reflected a greater percentage of the Senate's proposals. President Clinton vetoed the bill in the summer of 1996. ⁽⁴³⁾ Shortly after Clinton began his second term and following Clinton's remarks that he favored "real common sense product liability reform," Senate Majority Leader Trent Lott introduced legislation similar to what had been vetoed. It appears that if this bill, or a form of it, ever becomes law, constitutional challenges are sure to follow. And although the Supreme Court's decisions appear to hold that there is no constitutional right to punitive damages, ⁽⁴⁴⁾ the ATLA's successful challenges to state legislation provides for some uncertainty. ⁽⁴⁵⁾

Supreme Court Decisions on Tort Reform. It is not the purpose of this paper to examine the full scope of Supreme Court decisions relating to punitive damages and/or tort reform. However, a brief discussion of two recent cases will help shed some light upon what has been addressed so far, as well as aid in our understanding of topics yet to be explored.

The Supreme Court addressed the constitutional limits of punitive damage awards in BMW of North America, Inc. v. Gore. ⁽⁴⁶⁾ The 1996 decision overruled a state court's decision to uphold a punitive damage award. The Supreme Court held that a constitutional boundary existed in terms of excessive awards and concluded that in this case, such boundary had been crossed.

BMW involved a car that had undergone undisclosed paint touch-up prior to sale. The owner-plaintiff was awarded $4000 in compensatory damages and $4 million in punitive damages. The jury arrived at the punitive damages amount by multiplying the number of instances that BMW had engaged in pre-sale refurbishing (approximately 1000 cars, nationwide) by the amount of the compensatory award. The Alabama Supreme Court reduced the amount of punitive damages to $2 million.

In a 5 to 4 decision, the U.S. Supreme Court declared that it is virtually impossible to "draw a mathematical bright line between the constitutionality acceptable and the constitutionally unacceptable that would fit every case." ⁽⁴⁷⁾ The Court stated that they would not draw a line which attempted to mark the limits of a constitutionally acceptable punitive damages award. Even so, the Court held that in this case, the "grossly excessive award imposed" transcended the constitutional limit. ⁽⁴⁸⁾ Three "guideposts" were utilized by the Court in reaching its decision that the award was excessive: "the degree of reprehensibility of the nondisclosure; the disparity between the harm or potential harm..and [the] punitive damages award[ed]; and the difference between this remedy and the civil penalties authorized or imposed in comparable cases." ⁽⁴⁹⁾ The Court also concluded that the most important indicium of the reasonableness of punitive damage awards "is the degree of reprehensibility of the defendant's conduct." ⁽⁵⁰⁾

The effect of the BMW decision is less than clear. The primary goal of the Court appears to be an attempt to give some guidance to state courts in ruling on the reasonableness of these types of awards. However, rather that delineating a bright-line rule (which would be - admittedly - an extremely difficult task), the Court relies on Haslip "factors" and BMW "guideposts." ⁽⁵¹⁾ Most agree that the practical effect of the BMW decision is to "pave the way for a judicial system that will be more willing to reduce punitive awards." ⁽⁵²⁾

Possibly in an effort to clear up some of the confusion resulting from BMW, the Supreme Court has recently ⁽⁵³⁾ agreed to hear arguments regarding the appropriate standard of review to be applied to a trial court's ruling on the constitutionality of punitive damages awards. ⁽⁵⁴⁾ Cooper Industries, Inc. v. Leatherman Tool Group, Inc., involves a suit brought by Leatherman Tool Group, Inc., alleging trademark violations, unfair competition, and false advertising. ⁽⁵⁵⁾ The jury found for Leatherman, the plaintiff, and awarded $50,000 in compensatory damages and $4.5 million in punitive damages. The defendant's motion to reduce the damages award was denied. The U.S. Court of Appeals for the Ninth Circuit affirmed, applying a deferential standard of review. ⁽⁵⁶⁾

Cooper sought Supreme Court review of two issues. The Court did not take up Cooper's request for review of the punitive damages award under the BMW criteria. ⁽⁵⁷⁾ The Court will consider only the issue of whether the Ninth Circuit erred in using an "abuse of discretion" standard in reviewing the trial court's ruling denying a reduction in the award amount. There is currently a split in the circuits as to the proper standard of review in these circumstances.

The forthcoming decision in Cooper will have a profound effect on the discretion that trial courts exercise when considering reductions of awards. The American Tort Reform Association's General Counsel Victor Schwartz points out that federal appeals courts have historically been inclined to reduce punitive damages awards. Therefore, if a de novo standard of review is adopted, business and industry may anticipate an increase in the reduction of such awards. ⁽⁵⁸⁾ Alternatively, if the "abuse of discretion" standard is maintained, trial courts would clearly retain a great deal of autonomy and would presumably be reversed less frequently.

The Contingency Fee. Returning to our hypothetical fact pattern at the beginning, assume that you are still lying in your hospital bed suffering from the third degree burns you sustained from contact with the smoldering coffee. Assume further that because you don't have a college degree you work as a cashier at the local Wal-Mart. You feel as though McDonald's has done you great harm by serving you the coffee that was dangerously hot. You don't have health insurance and the looming hospital bills combined with the time away from work will leave you "broke," if not bankrupt. In your mind, McDonald's should at least pay for a portion of your medical bills, perhaps more. If only you could pay for a lawyer to see to it that McDonald's is forced to take some responsibility. The "contingency fee" arrangement will be the means by which you secure legal services and thereby access the judicial system. ⁽⁵⁹⁾

A contingency fee is a fee charged for a lawyer's services that is payable only if the lawsuit is successful or is settled favorably out of court. ⁽⁶⁰⁾ The arrangement is used primarily on the plaintiff's side in litigation and typically the attorney will take between 20% and 50% of the amount recovered. Because of this, the incentive for attorneys to secure larger judgments is powerful. Proponents argue that in this way both parties - the injured plaintiff and the lawyer - are best served. Critics claim that this incentive degrades professional standards by encouraging meritless litigation, ambulance chasing, and accident faking. ⁽⁶¹⁾

The contingency fee has been touted as the "key to the courthouse." ⁽⁶²⁾ The most common argument in favor of the use of contingency fee arrangements is that the system provides counsel to those who would not be able to pay a fixed or hourly fee

-- like the plaintiff in our hypothetical -- for a competent lawyer. Without this system, those who lack the resources of their potential opponent may be frightened away by the seemingly unlimited amounts of money - and thus unlimited legal representation - of large corporate defendants. In our claim against McDonald's, not only aren't we able to pay for a lawyer on a hourly basis to pursue our suit, but even if we could the imposing nature of the corporation's resources may keep us from seeking redress.

The connection between contingency fee arrangements and tort litigation is obvious. The larger the damages amount, the more the lawyer takes in compensation. In tort suits against large corporations, a common tactic among plaintiffs' lawyers is to plead with the jury to "send a message" to the corporation. The implication is that small damages awards will have little or no effect on the gigantic corporation and that in order to "make them feel" the punishment, the award must be large enough to "hurt."

But does the contingency fee system really serve as the "key to the courthouse" as it is claimed? Do unscrupulous lawyers pray on the misfortune of the poor and as a result harm society? Does placing caps on the amount of punitive damages that may be recovered really affect access to the legal system? To answer these questions, it is necessary to analyze two factors:

• •Does the contingency fee serve to align the interests of the attorney and the client?

 
• •Do contingency fee arrangements correlate with ability to pay an hourly fee?

 

But a closer look identifies some competing interests between the lawyer and the client. Presumably, the client desires and expects the attorney to devote an amount of time and effort to the case which will maximize the client's recovery. By contrast, the lawyer has little or no incentive to work large numbers of hours. This is because the lawyer's goal is to get the largest amount of recovery with the least commitment of time. In this manner, each additional hour that an attorney works may potentially result in diminished returns on his or her time. Moreover, the lawyer and client have the same interests only when the case goes before a finder of fact. Until that time, the attorney has a strong incentive to settle which may be in direct conflict with the best interests of the client. ⁽⁶³⁾

It appears that individual clients are not always better off with attorney representation. Data compiled by the Insurance Research Council, indicates that even if a claimant recovers a larger award due to attorney representation, he or she may be worse off because of the amount paid in lawyers' fees. The report cites one particular example where average net payments after fees, expenses and economic losses for claimants with a back sprain averaged nearly $500 more if the did not have attorney

representation than if they did. Furthermore, among claims for all types of bodily injury, having an attorney netted plaintiffs merely six percent more on average than not having one. ⁽⁶⁴⁾

Ability to pay. If the justification for the contingency fee is to provide the poor with access to the legal system, then contingency fees should theoretically only be available to clients who cannot afford to pay on a fixed or hourly basis. One study indicates that 97% of lawyers in the United States accept personal injury cases without regard to the client's ability to pay at an hourly rate. ⁽⁶⁵⁾ The ABA Rules of Professional Conduct and the ABA Model Code of Professional Responsibility are similar in their approach as to when it is appropriate to bill a client on a contingent basis. The only substantive guideline for billing on a contingent basis is the requirement that the fee be "reasonable." ⁽⁶⁶⁾ This less than comprehensive standard of "reasonableness" allows individual lawyers broad discretion in their choice of billing method.

The reality is that many cases are billed on a contingent fee basis even when the client has the means to pay on an hourly basis. In these cases, the client's eventual recovery may be far less than if he or she would have been allowed to pay in the traditional hourly manner. The problem is exacerbated by studies which show that lawyers operating on contingent fee arrangements work, on average, seven hours less on a case that a lawyer hired on a hourly fee basis. ⁽⁶⁷⁾ It is likely that many clients who can afford to pay on an hourly basis would do so if the options were explained at the outset.

An analysis of these two factors leads this author to the conclusion that while the use of the contingency fee certainly allows for claims to be brought by those who may otherwise be unable to do so, the potential for conflicting interests between the lawyer and client and the clear abuse of discretion by lawyers in deciding on fee arrangements must be addressed. It appears that under a contingent fee system, lawyers can use the proceeds of huge awards to gamble on potentially frivolous cases. ⁽⁶⁸⁾ Even the threat of large punitive damages can be used as a "wild card" to encourage higher settlements. Yale law professor George Priest stated: "[T]he availability of unlimited punitive damages affects the 95% to 98% of cases that settle out of court prior to trial. It is obvious and indisputable that a punitive damages claim increases the magnitude of the ultimate settlement and, indeed, affects the entire settlement process, increasing the likelihood of litigation." ⁽⁶⁹⁾

Law & economics - and indeed common sense - tells us that a reduction in the amount of compensation that can be recovered by lawyers in certain types of actions will lead to fewer of these actions being commenced. In this respect, it appears that the appropriate question is not whether punitive damage caps confiscate the "keys to the courthouse" held by the poor. Rather, we should be asking ourselves whether the benefits of these caps outweigh the societal costs.

There is no doubt that placing limits on the amount of damages recoverable will reduce the prospects for the economically disadvantaged to recover for harm done to them. It has been estimated that the contingency fee system generates around $15 billion annually for attorneys. ⁽⁷⁰⁾ Trial lawyers involved in tort litigation can earn $1000 to $25,000 per hour. ⁽⁷¹⁾ As the potential for huge awards diminish, risk-averse lawyers will undoubtedly become increasingly unwilling or unable to represent poor plaintiffs who have been injured by large corporate defendants. ⁽⁷²⁾

But this clear discriminatory impact is not without its benefits. The social and economic costs of punitive damages awards are staggering. The same system that creates a windfall for trial lawyers also results in a recovery system which is anything but efficient. Of every dollar that passes through the system, 50 to 57 cents is absorbed by transaction costs, legal fees and court costs. ⁽⁷³⁾ As such, placing caps on punitive damage awards would help to alleviate much of the stress placed on the U.S. economy.

Punitive damages are generally inconsistent with the concept that damages compensate plaintiffs for harm suffered as a result of a defendant's actions. More specifically, punitive damages are designed to punish the wrongdoer, having little or no correlation to the nature and extent of the harm suffered. Absent reforms in contingency fee availability and administration, it appears that some form of punitive damage caps would benefit society.

The flexible model adopted by many states permitting punitive damages awards in the amount of three times the compensatory damages or some set dollar amount (i.e., $500,000), whichever is greater, appears to have gained popularity and support. This statutory scheme would appear to reduce some of the deterrent effect of massive punitive damages. Producers would have less incentive to manufacture and sell safer products. However, it would also likely reduce the associated economic burden that is often passed on to consumers.

Another effective way of protecting the public while reducing the incentives for frivolous litigation would be to prohibit the punitive damages award amount from going to the plaintiff or his attorney. Caps on damage claims seek to reduce the number of lawsuits by restricting their profitability. Prohibiting the plaintiff from collecting the value of the punitive damages award more directly attacks the financial incentive to litigate. By restricting a plaintiff's recoverable damages to that amount which is compensatory - economic and non-economic - their ability to be "made whole" or compensated for the injury would be retained. ⁽⁷⁴⁾ A reasonable award of attorney fees could be awarded by the court for a victorious plaintiff, thus retaining a compensation mechanism but reducing the occurrence of "gambling."

The twin goals of tort litigation - compensation and deterrence - would remain in place. The potential for large punitive damages awards would be unchanged and therefore corporate producers, medical professionals, and even the general tortfeasor would be deterred from negligent behavior. Distribution of the punitive damages could be made to a fund which provides incentives (or possibly insurance) for companies to develop products (i.e., drugs, vaccines, etc.) that would normally be non- cost-effective due to potential litigation and liability. 

1. For more tort litigation "horror stories," see <http://www.atra.org/hstories.f1ml>. This is a page put together by the American Tort Reform Association.

2. This amount was later reduced to a punitive damage award of $480,000 by the judge. This represents three times the compensatory damages.

3. See TORT POLICY WORKING GROUP, REPORT ON THE CAUSES, EXTENT AND POLICY IMPLICATIONS OF THE CURRENT CRISIS IN INSURANCE AVAILABILITY AND AFFORDABILITY (1986); TORT POLICY WORKING GROUP, AND UPDATE ON THE LIABILITY CRISIS (1987). The Group was formed in 1986 to look in to the "insurance crisis." The Group advocated a cap of $100,000 on non-economic damages, limiting contingent fees, eliminating joint and several liability, etc.

4. See Philip J. Hilts, Bush Enters Malpractice Debate with Plan to Limit Court Awards, N.Y. TIMES, May 13, 1991, at A1 (reporting on Bush Administration's proposal to withhold Medicare and Medicaid funds from distribution to the states if they fail to implement limits on malpractice awards for pain and suffering, allow for periodic payment of medical malpractice damages, and bolster state medical licensing boards).

5. Robert Pear, Clinton May Seek Lid on Doctor Fees and Liability Suits, N.Y. TIMES, Mar. 9, 1993, at A1; David Rogers, Initial Clinton Medical Malpractice Reform Plan Pulled After Resistence by Entrenched Interests, WALL ST. J., June 15, 1993, at A20.

6. See Restatement (Second) of Torts § 908 cmt. b (1977).

7. Komesar, Injuries and Institutions: Tort Reform, Tort Theory, and Beyond, 65 N.Y.U. L. Rev. 23,28 (1990).

8. Note however that advocates of tort reform claim that costs are often "passed on" to the consumer. For example, they assert that there exists a "liability tax" of 2.5 percent on the average product. "Built-in" prices for specific products that frequently attract lawsuits reach much higher levels, claims Spencer Abraham, "such as step-ladders (30 percent) an vaccines (95) percent." See Abraham, Litigation Tariff: The Federal Case for National Tort Reform. Found at <http://www.policyreview.com/summer95/thabra.html>

9. See note 8, above.

10. Tillinghast-Towers Perrin, Tort Costs Trends: An International Perspective (New York, NY, 1995), Appendix 2.

11. William B. Griffin, Tort Reform: All Journeys Begin With a Single Step. Found at <http://www.brobeck.com/docs/tort.htm> . Mr. Griffin also points out that this cost is two and a half times the average for European countries and Japan, yet less than 25 cents of every dollar spent on lawsuits actually compensates litigants for economic loss.

12. See Abraham, Litigation Tariff: The Federal Case for National Tort Reform. Found at <http://www.policyreview.com/summer95/thabra.html>

13. Stephen Magee, William Brock, and Leslie Young, Black Hole Tariffs and Endogenous Policy Theory (New York, NY: Cambridge University Press, 1989) 111.34. Wolfram (1986), 528 at note 21. See also United States Congress, Joint Economic Committee, Improving the American Legal System: The Economic Benefits of Tort Reform (1996). Found at <http://www.house.gov/jec/tort/tort/tort.htm>

14. The study was conducted by Business Roundtable. Abraham, Litigation Tariff: The Federal Case for National Tort Reform. Found at <http://www.policyreview.com/summer95/thabra.html>

15. As mentioned above, the pharmaceutical industry is one of the sectors that is most prone to product liability litigation. Fears of massive judgments reduces incentive to develop treatments for disease that affect only small numbers of Americans. In response to this, Congress enacted the Orphan Drug Act in 1983. The act provides incentives and protections for companies that undertake research and manufacture drugs for rare diseases.

16. This deterrent effect is widely believed to impact significantly on corporate negligence. However, there is also a clear effect on individuals and small businesses.

17. See Peter Charles Choharis, A Comprehensive Market Strategy for Tort Reform, 12 Yale J. on Reg. 435.

18. See Id.

19. 25 Hofstra L .Rev. 1005 at 1032.

20. See Michael Rustad, In Defense of Punitive Damages in Products Liability: Testing Tort Anecdotes with Empirical Data, 78 Iowa L. Rev. 1, 79 (1992).

21. Abraham, Litigation Tariff: The Federal Case for National Tort Reform. Found at <http://www.policyreview.com/summer95/thabra.html>

22. Id.

23. Id.

24. David N. Laband, Efficient Tort Reform Can Reduce Redistributive Litigation, 16 No. 1 Andrews Pharmaceutical Litig. Rep. 13.

25. Id.

26. A . Mitchell Polinsky & Steven Shavell, Punitive Damages: An Economic Analysis, 111 Harv. L.Rev. 870, 870 (1998). qtd. in Law & Economics and Tort Law: A Survey of Scholarly Opinion, 62 Alb. L. Rev. 667, at 684 (1998).

27. 1996

28. John C. Moorhouse, Andrew L. Morriss, and Robert Whaples, Law & Economics and Tort Law: A Survey of Scholarly Opinion, 62 Alb. L. Rev. 667, 686 (1998).

29. < http://www.atra.org/issues.f1ml?id=19 >

30. See Id.

31. Id.

32. Id.

33. Jean Hellwege, Constitutional Litigation Team Battles Tort 'Reform', 36-APR Trial 16 (April 2000). The action was filed under the lead of Senior Director Robert Peck in association with 10 organizations. (Florida Consumer Action Network v. Bush, No. 99-6689 (Fla., Leon County Cir. Ct. filed Dec. 8, 1999).)

34. Id.

35. Florida Passes Tort Reform; Plaintiff Attorneys to Challenge, 7 No. 3 Andrews Mass Tort Litig. Rep. 16 (June 2000).

36. In May of 2000, Oregon voters rejected Measure 81, which proposed to amend the state constitution to allow the legislature to impose limits on all types of damages in all forms of civil actions. See Tort Reform in the States, 36-AUG Trial 28 (August 2000).

37. Richard H. Middleton, Jr., Beating Bank Tort 'Reform', 8/7/00 Nat'l L.J. A19, (Col.1)

38. See Gourley v. Nebraska Methodist Health System, Inc., No. 944-250 (Neb., Douglas County Dist, Ct. June 1, 2000); Dickie v. Farmers Union Oil Co., No. 990389, 2000 WL 676110 (N.D. May 25, 2000).

39. See note 34.

40. H.R. 1075, 104^th Cong. (1995).

41. See Id. Also see Kathleen E. Payne, Linking Tort Reform to Fairness and Moral Values, 1995 Det. C.L. Mich St. U. L. Rev. 1207 at 1224-25.

42. See H.R. 1075 § 201(a).

43. The House attempt to override Clinton's veto fell short by 23 votes.

44. See Janet V. Hallahan, Social Interests Versus Plaintiff's Rights: The Constitutional Battle over Statutory Limitations on Punitive Damages, 26 Loy. U. Chi. L.J. 405, 435-37 (1995).

45. Challenges based on the Fourteenth Amendment's Due Process Clause certainly deserve a forum.

46. 116 S. Ct. 1589 (1996), rev'g 646 So. 2d 619 (Ala. 1994).

47. Id. at 1602 (quoting Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 18 (1991)).

48. Id. at 1604.

49. Id. at 1598-99. See also Troy L. Cady, Disadvantaging the Disadvantaged: The Discriminatory Effects of Punitive Damage Caps, 25 Hofstra L. Rev. 1005, 1019-1021 (1997).

50. Id. at 1599.

51. Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 111 S.Ct. 1032, 113 L.Ed.2d 1

52. Disadvantaging the Disadvantaged, at 1021.

53. October 10, 2000.

54. Supreme Court to Review Punitive Damages, <http://www.atra.org/alert.f1ml?aid=7026>

55. Id.

56. The Court of Appeals found that the trial court did not abuse its discretion.

57. Here the punitive damages award was 90 times the compensatory award.

58. Id.

59. This paper is not an exhaustive review of the contingency fee system. For a thorough analysis of the contingency fee arrangement, see Molly Vakulskas Joly, Contingency Fee, at <http://www.uiowa.edu/~cyberlaw/elp00/>.

60. BLACK'S LAW DICTIONARY 132 (pocket ed. 1996).

61. Mark Galanter, Anyone Can Fall Down a Manhole: The Contingency Fee and its Discontents, 47 DePaul L. Rev. 457 (Winter 1998).

62. Philip H. Corboy, Contingency Fees: The Individual's Key to the Courthouse Door, 1976 LITIG. 27 (1975-76).

63. Angela Wennihan, Let's Put the Contingency Back in the Contingency Fee, 49 SMU L. Rev. 1639, 1655 (1996).

64. Insurance Research Council, Trends in Auto Injury Claims, 2^nd ed., (Wheaton, IL, 1995).

65. Gordon Crovitz, Contingency Fees and the Common Good, Wall St. J., July 21, 1989, at A14.

66. MODEL RULES OF PROFESSIONAL CONDUCT Rule 1.5 (1996); MODEL CODE OF PROFESSIONAL RESPONSIBILITY EC 2-17 (1995).

67. Herbert M. Kritzer et al., The Impact of Fee Arrangement on Lawyer Effort, 19 Law & Soc'y Rev. 251, 272 (1985).

68. Frivolous claims include "unmeritorious cases brought with the intention of securing settlement from the defendant since the defendant's unrecoverable lawyer fees could run higher than the amount the plaintiff will accept to settle the case." Thomas D. Rowe, Predicting the Effects of Attorney Fee Shifting, 47 Law & Contemp. Probs. 139, 150 (1984).

69. <http://www.atra.org/issues.f1ml?id=19 >

70. Place Some Limits on Contingency Fees, Hartford Courant, Mar. 8, 1994, at B10.

71. Taming Runaway Lawyers, Wall St. J., Jan. 24, 1995, at A22.

72. Disadvantaging the Disadvantaged, at 1007.

73. Paul H. Rubin, Fundamental Reform of Tort Law, found at <http://www.cato.org/pubs/regulation/reg18v4b.html>

74. For more discussion on this alternative, see generally David N. Laband, Efficient Tort Reform Can Reduce Redistributive Litigation, 16 No. 1 Andrews Pharmaceutical Litigation Reporter (June 2000).