The Litigation Lottery

The Litigation Lottery
October 28, 2002
by John Bloom

Prince Charles is getting hammered by the London press for writing a series of letters to the Lord Chancellor trying to influence government policy. Okay, nothing new about that. He must have been protesting the plan to ban fox hunting, right?

Nope--the target of the angry crown prince was what the English call "compensation culture," the creeping tendency of the populace to emulate America and sue corporations for every broken toenail that occurs in the course of everyday life.

Frankly I don't think the English have much to worry about, because they still have a strong judiciary. For example, in a replay of the McDonald's hot-coffee case, 31 people in England sued McDonald's over coffee burns suffered between 1996 and 1998. In America the scalded 79-year-old woman had been awarded $3 million, but in Britain the plaintiffs got zip.

The judge's reason? "I am quite satisfied," he wrote, "that McDonald's was entitled to assume the consumer would know that the drink was hot, and there are numerous commonplace ways of speeding up cooling, such as stirring and blowing."

Now what kind of cockeyed legal reasoning is that?

At any rate, Prince Charles' livid response to these lawsuits reminds me of my childhood in West Texas, when we would make fun of Mexico for its strict laws equating cash payments with human suffering. We thought it was exceedingly strange to hear stories about the guy who was crushed by a city bus, only to make his family rich when they were given a concession stand at the Mexico City airport as compensation. Or the stories about people who remained in Mexican jails for months after traffic accidents, because there was a dispute over how much blood money should be paid. It seemed at best Old Testament, at worst barbarian.

And yet today we've not only made blood money a part of our legal system, we've come up with the concept of virtual blood money--payments for blood that hasn't been spilled yet. For example, you can be a plaintiff in an asbestos class-action suit even if you've never gotten sick. You can collect money for the potential that you might get sick in the future.

But commentators who periodically write about "tort reform" never quite get down to the simple historical reason that we ended up with this mess in which tens of thousands of people play Litigation Lottery every year, hoping they can prove they were harmed in some way so that they can retire for life.

The reason is the tobacco settlement of 1998. For 40 years the tobacco companies had won every single lawsuit brought against them. Often they would lose at the jury level, but win on appeal. They had two lines of defense: 1) cigarettes didn't cause your illness (because in fact cancer and heart disease have multiple causes), and 2) you were warned and re-warned, so you were aware of the risks when you took up smoking.

To use an analogy, if you have a dangerous construction site, you're required to put up warning signs all around it. If someone fails to read the warning signs and dies as a result, you're still not responsible as long as the signs were prominently displayed and there were plenty of them.

Is there any product in the history of commerce surrounded by as many warning signs as cigarettes? The first Surgeon General's alert occurred in 1956. The first warning on the cigarette pack itself was in 1965. And those warnings have grown steadily more severe over the years, so that now there's a rotating series of warnings about lung cancer, heart disease, emphysema, pregnancy, and just general bad health news, not just on the package, but on every single advertisement for cigarettes.

And yet now we have judges who allow plaintiffs to argue that they were not aware of the risks of smoking cigarettes, and so they're entitled to billions of dollars in damages after they get sick. The implication is that the person didn't make the correct decision because he was given the wrong information.

Impossible. Absolutely impossible.

A periodic Gallup Poll asks the question: "Is smoking one of the causes of lung cancer?" Even in the 1950s, 70 percent of the population answered either "Yes" or "Undecided." By 1997, 96 percent answered "Yes" and only 1 percent were "Undecided."

But there's an even better indicator as to how well the public has been warned. Beginning in 1985, there was a series of "smoking risk belief surveys" conducted by academics and consultants. In 1991 a Harvard University study asked the following question: "Among 100 smokers, how many of them do you think will die from lung cancer, heart disease, throat cancer, and all other illnesses because they smoke?"

The average answer among non-smokers was 54. Smokers answered 47.

The real answer is 6 to 13.

This indicates to me that not only has the public been warned--the public has been warned so many times, in such strident terms, that no rational person could ever make the argument that people smoke because of lack of information. Even the smokers rate the danger four to five times worse than it actually is.

So how could we possibly have judges who allow these tobacco suits to proceed? As far as I know, there's no theory of law that says you have to inform every single citizen of the full range of dangers and hazards and then have him acknowledge that he's been warned. It's necessary to post signs and warnings--and that's it!

But the climate changed, as I said, in 1998, after all 50 states had sued the tobacco companies under a novel legal concept. They argued that they should be paid for the actual money they had spent taking care of sick smokers through Medicare. The normal remedy for a product that costs society money is the excise tax. You tax gasoline, for example, in order to cover wear and tear on the road. In fact, testimony in the depositions of these trials proved that the smokers didn't cost the states anything at all. They already had high excise taxes on cigarettes. Nursing home care--the single largest line item in Medicare--wasn't affected by smokers because actuarial tables showed that they died at an earlier age than non-smokers.

Nevertheless, the tobacco companies were in the mood to change their image with the public, and so--even though they thought they would eventually win the 50 lawsuits--they made a settlement offer. They ended up paying $243 billion to the states, plus legal fees. (And dozens of lawyers became overnight millionaires, including lawyers who had done little or no work on the case. What was THAT about? Why weren't the cases just handled by the Attorneys General? Isn't that their job, to sue people on behalf of the state?)

Why would the tobacco companies do such a thing? For the same reason corporations settle out of court all the time. To end the litigation, and to avoid litigation in the future.

Unfortunately, far from ending the litigation, it just made everything worse. If the companies were paying that kind of money, the reasoning went, they must be guilty of something. The federal government filed its own suit--even though the states had already collected the feds' share of Medicare costs. Insurance companies filed suits to recover money they had paid out to sick smokers. Even foreign countries filed suits against Big Tobacco, hoping they could get a similar windfall judgment.

In Los Angeles a smoker won a $3 billion judgment, despite testimony that he was also a heroin user. (The amount was eventually reduced to $100 million by the judge.) In Florida a jury awarded $145 billion--enough to bankrupt the entire industry--in a class action suit that didn't even name any individuals who had been harmed. And earlier this month a Southern California jury awarded $28 billion to a Newport Beach woman who had smoked from the age of 17 till the age of 63, when she contracted lung cancer. It was more than the amount of the tobacco company's annual sales--not just its profits, its sales.

Here's the practical effect of all this. Even if you're in favor of runaway mob juries inflicting vigilante justice on a legal business that happens to be unpopular (especially in California), the tobacco suits are only the beginning. The lawyers in these cases generally take home one-third of the judgment, and they don't invest that money in mutual funds--they use it to finance more and more litigation.

The lawyers in the tobacco lawsuits brought by the states were billing at levels of $100,000 to $200,000 per hour. The lawyers working for the state of Mississippi, to use one example, earned $1.43 billion in legal fees. The Florida lawyers got $3.43 billion, the Texas lawyers $3.3 billion.

And, like all good businessmen, they ploughed much of that money right back into their business. Alcohol lawsuits. Gun- manufacturer lawsuits. Asbestos lawsuits. Lead paint lawsuits.

Earlier this week we had a lawsuit filed against McDonald's claiming that the hamburger chain has acted exactly like the tobacco companies. By withholding information and not issuing proper warnings, the company is responsible for harming the health of New York City children, including one child who is five-foot-nine and weighs 270 pounds. Giving away toys at McDonald's, the suit argues, is the same as "Joe Camel" cartoon advertising.

The plaintiffs attorneys, in other words, have started playing the lottery themselves. Find a harmful substance. Find a successful corporation that makes it. Find someone sick who lives in a low-income area, preferably a working-class area where people hate big corporations. Find the weakest judge in the district. Who cares if you have to file 50 of these before getting the perfect combination? Eventually the slot machine will pay off.

This is the way it's done. We do it even better than they ever did it in Mexico. Don't tell Prince Charles, though, he's already too upset.

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