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Jewish World Review June 22, 1999 /8 Tamuz 5759

Michael Barone

Michael Barone
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Econophone

Trying the lawyers

http://www.jewishworldreview.com --
AMERICAN COMMENTATORS on Russia almost unanimously agree that it needs to strengthen the rule of law. By that they mean that the law should be predictable, contracts enforceable, property safe from confiscation or arbitrary transfer. Alas, there has been little progress, despite the existence of courts and laws on the books. "The single greatest failure of the Yeltsin presidency," writes the Hoover Institution's John Dunlop, "is unwillingness or inability to institute the basic rule of law." Yeltsin's Russia has seen huge transfers of wealth, from state industries to a few "oligarchs," performed under color of law but in violation of basic principles of the rule of law. A few individuals have amassed enormous wealth and vast political power.

Something similar is happening in the United States. Trial lawyers who have been targeting major industries have been transferring vast wealth from major corporations to themselves. The prime example is the series of lawsuits filed by the states against the big tobacco companies. Enormous sums have been transferred from smokers, a downscale group, and tobacco companies, owned by many Americans through pension and mutual funds, to state governments and trial lawyers. Last December an arbitration panel awarded $8.2 billion to trial lawyers representing the four states that were not part of the national tobacco settlement, to be taken out of the $34.4 billion awarded the four states. Recipients include Mississippi lawyer Richard Scruggs, brother-in-law of Sen. Trent Lott. Fees have not been settled for the other 46 states, but it is clear that the tobacco cases will produce several dozen trial lawyers with the net worth–and potential political leverage–of Ross Perot or Steve Forbes. The difference is that unlike most entrepreneurs and heirs who hold other great fortunes, trial lawyers typically have the skills and political connections to become powers in their own right instantly. Only look at Democratic Sen. John Edwards of North Carolina, articulate and charming and hard-working enough to have made $40 million in accident cases, who spent $3.2 million of it and upset an incumbent last year.

Fat targets. Edwards is just small fry next to the trial lawyers who have organized to attack one industry after another and transfer corporate assets to themselves. First came asbestos. Today, after more than 20 years of litigation, 15 asbestos companies have gone bankrupt and 300,000 asbestos cases clog the courts, with 35,000 new cases every year.
Over half the monies recovered have gone to trial lawyers, a huge wealth transfer. Trial lawyers have fiercely rejected a proposal for an outside panel to determine awards, which has bipartisan support in Congress, and have bludgeoned all but one of the asbestos companies to oppose it, too.

The tobacco cases, like the asbestos cases, are filed under color of law but are inconsistent with principles of law. Asbestos and tobacco were legal businesses; destroying them through the courts has the odor of ex post facto law. The theory of the states' tobacco cases is factually ridiculous: States sued to recover money spent on tobacco-related illnesses, but the unhappy fact is that states saved money on balance because of early deaths. Nor were these arm's length adversarial proceedings. Class-action or multiple-plaintiff lawsuits, as Judge Richard Posner said in 1995, present a corporate defendant with the prospect of betting the company on a verdict that may come from a court where trial lawyers hold sway. In return for an agreement to limit their liability, tobacco companies were happy to help lawyers get more of their money and state governments less.

Tobacco is not the last target of trial lawyers. High-tech is another: San Diego trial lawyer William Lerach made hundreds of millions of dollars suing high-tech companies when their stock prices fell; when Congress passed a bill limiting such suits, it was vetoed by Bill Clinton (Lerach is a big Democratic contributor), then finally passed over his veto. Y2K lawsuits are another priority; Congress passed by wide margins bills to limit them and allow companies to work together to solve Y2K problems, but Clinton is expected to ask for changes. The gun industry, whose products are legal but whose image is unpopular, is being sued by several big cities. But gun companies tend to be lightly capitalized, and the big trial lawyers have steered clear: not enough wealth to transfer, evidently. A possible future target is Hollywood, for all its violent entertainment.

Trial lawyers seeking transfers of corporate wealth need political protection just like Russia's oligarchs. Texas's "big five" tobacco lawyers contributed $1.1 million to the Democratic Party. The leader of a tobacco class-action group brought in–with a $30 million potential fee–Hugh Rodham, a lawyer with no relevant experience but with the run of the White House as Hillary Rodham Clinton's brother. Former Texas Attorney General Dan Morales is under criminal investigation; a longtime friend he hired as a tobacco lawyer was awarded a $260 million fee, which he gave up rather than testify under oath about the fee. Americans urge Russians to move toward the rule of law. Why are we moving the other way?



JWR contributor Michael Barone is a columnist at U.S. News & World Report and the author of the biennialAlmanac of American Politics. Send your comments to him by clicking here.

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06/07/99: Facts on the ground

©1999, Michael Barone