Should the three tort reform measures
on the primary ballot be approved?
by Tom Proulx
Tom Proulx, chair of the Alliance to Revitalize California, is the creator of the personal finance computer software Quicken and is co-founder of the software firm Intuit.
This month's election is a once-in-a-lifetime chance for Californians to curb abuses in the legal system
by Mary E. Alexander
Mary E. Alexander is a partner with Cartwright, Bokelman, Borowsky, Moore, Harris, Alexander & Gruen Inc. in San Francisco, where she specializes in personal injury, products liability and toxic chemical litigation. She is president of Consumer Attorneys of California.
Make no mistake about the dire message: Civil courts will no longer be the venue to resolve civil disputes
On March 26, California voters will have a chance to reform their legal system. It's a once-in-a-lifetime opportunity to curb the most serious abuses that are bringing discredit to the legal profession.
Simply put, California is suffering from too many lawsuits. Every one of us, from individual consumers to large corporations, is paying a huge, unnecessary lawsuit tax. Our state's economic recovery is being slowed by the costs of these suits.
Our once-great legal system is so seriously out of balance that today it permits uninsured drivers to collect $1 billion a year by suing insured drivers. It encourages people to file lawsuits seeking billions of dollars in fraudulent claims. It lets people who get drunk, smash up their cars and injure themselves and others sue the bartender who served them their drinks.
Propositions 200, 201 and 202 will go a long way toward putting a stop to this nonsense. At the same time, these initiatives will do absolutely nothing to hinder the rights of consumers and others who have been genuinely wronged. In addition, by unclogging our courts, they will make it easier for victims with legitimate grievances to obtain justice.
The Alliance to Revitalize California is a coalition of businesses and consumers who have figured out that the current legal system promotes unnecessary conflict that really benefits only lawyers. We know these reforms will save consumers and businesses a lot of money. The only losers will be those lawyers whose practices are based on filing large numbers of meritless lawsuits.
Let me tell you the facts about Propositions 200, 201 and 202.
Proposition 200 will establish in California the first pure no-fault auto insurance system in the country. We call it our no-fraud plan because it will cut the fraud out of cases involving auto accident injuries.
No reason to sue
It's really very simple: If you are injured in a car accident, you collect from your own insurance company. You will have no reason to sue the other driver to collect your damages. And it will protect you from being sued by other drivers looking to strike it rich in the lawsuit lottery.
Today, you have an unfettered ability to sue and the strong likelihood that when you do, you will get little or nothing to cover your losses. In fact, in serious accidents, where the costs to treat injuries exceed $100,000, the average recovery by victims is a mere 9 percent of their annual out-of-pocket losses.
Proposition 200 lets you decide how much coverage you want. Everyone will have to carry at least $50,000 in coverage but you can buy up to $5 million in insurance if you want at a much lower cost than liability insurance costs today.
Every child automatically will be covered by at least $50,000 in injury insurance and every pedestrian, bicyclist and skateboarder will be covered by $1 million if they are hit by a car.
Proposition 200 is a giant step toward solving the problems caused by the huge number of uninsured drivers on the road today.
Proposition 200 finishes the job started by Proposition 103 in 1988. That initiative limited the profits of insurance companies. Proposition 200 will cut out the $2.5 billion to $3.5 billion in legal costs that make California auto insurance among the most expensive in the nation.
That means auto insurance premiums will decrease significantly. (The RAND Corporation, which has done the only independent study of Proposition 200, predicts the cost of auto insurance will drop by 24 percent to 35 percent under the plan.)
Stopping costly class actions
Proposition 201 will put the brakes on abusive class action shareholder lawsuits that are costing some of our most promising industries billions of dollars and siphoning off money from pension funds and small stockholders.
The modified loser-pays system established by Proposition 201 will be an effective, fair way to filter out the bad suits that are giving all lawyers black eyes while still permitting the legitimate lawsuits to proceed.
Proposition 202 will put a limit of 15 percent on contingency fees when lawsuits are settled within 60 days.
This cap on fees will put more money into the pockets of consumers, encourage both sides in a dispute to reach a settlement before further clogging our courts and take the profit out of frivolous lawsuits.
It is the same plan first drafted by Lester Brickman, professor of law at Benjamin Cardozo Law School, and supported by a wide range of jurists.
California's legal community should take a serious look at these modest, targeted reforms. The voters in this state are growing angrier and more frustrated at a legal system that seems to serve only lawyers.
Let's work together to restore our legal system to the stature it deserves.
The Alliance to Revitalize California packaged three initiatives for the March 1996 ballot designed to deny ordinary citizens access to civil courts: Proposition 200 (no-fault), Proposition 201 (shareholder loser-pays) and Proposition 202 (contingent fee caps). What do automobile insurance and shareholder derivative actions have in common?
In the minds and rhetoric of the initiative proponents, lawyers are the thread that ties the otherwise incompatible propositions together.
Instead of the familiar battle cry of Shakespeare's Dick the Butcher, "The first thing we do, let's kill all the lawyers," the cry is more subtle: Let's do away with what some lawyers do.
While many members of the bar may take comfort in being spared the knife in this initiative battle, make no mistake about the dire message sent about the entire legal system: civil courts will no longer be the venue of resolving civil disputes.
The first of the three initiatives is no-fault; it is far more draconian than any measure before proposed either on the ballot or in the halls of the state legislature. Proposition 200 abolishes tort liability for personal injuries sustained in motor vehicle accidents. Most no-fault plans acknowledge that in serious cases, human suffering must be compensated. Not Proposition 200.
Only those who are wealthy enough to purchase special "pain and suffering" coverage will ever receive payment for loss of enjoyment of life. Ironically, Proposition 200 does not include claims for property damage; consumers will still have to sue to get their cars fixed.
In exchange, there is absolutely no guarantee that auto insurance rates will go down. States with mandatory no-fault systems saw their liability rates increase an average of 36.7 percent between 1989 and 1994. California's premiums decreased more than 1 percent over the same period. Combined average premiums in mandatory no-fault states increased 45.6 percent, while tort states increased an average of only 33.7 percent.
What is the justification for drastically limiting the rights of those injured in automobile accidents? Proponents rely on worn-out arguments about a mythic litigation explosion and distorted data on automobile claim costs.
However, data from the Judicial Council refutes claims of a "litigation explosion." Since the filing peak in 1986-87, personal injury filings declined 39 percent. Motor vehicle filings, which peaked in 1988-89, now show a decline of 46 percent.
Oft-cited RAND projections about cost savings are based on closed claims studies from 1987 and 1988. That was before Proposition 103, before Royal Globe was overruled, and at the peak of automobile lawsuit filings.
A failed experiment
No-fault is a failed experiment, soundly rejected by California voters in 1988. Connecticut, the District of Columbia, Georgia and Nevada all repealed their no-fault systems. The reason is simple: no-fault does not work.
Next on the Alliance's agenda is Proposition 201, or shareholder loser-pays. It would severely restrict the ability of defrauded shareholders to prosecute those who defraud them. It imposes a superficially attractive loser-pays provision in such cases on the theory that such a provision will deter meritless lawsuits.
In a step guaranteed not only to chill legitimate investor claims but to deny access, investors owning less than 5 percent of a corporation's stock must post a bond to cover potential attorneys' fees. Attorneys' fees in these cases run in the millions - hardly a sum approachable for most investors.
Corporate defendants will hardly fear the loser-pays provision as much as defrauded consumers, who already have lost money because of fraudulent acts. Under Proposition 201, even an investor who wins in court can still lose. That is because if a judgment comes in even one dollar less than a defense offer, the plaintiff has to pay the defense legal fees.
The vast majority of investors are not the rich, but middle-class Americans, with investments in IRA accounts, 401k plans and in securities they hope will allow them to retire in comfort. The prime targets for securities fraud are the elderly.
According to Barry Guthary, president of the North American Securities Administrators Association, "State securities regulators around the country report that the elderly make up a disproportionate share of the number of victims in their investment fraud caseload."
He cites estimates that while the elderly make up about 12 or 13 percent of the total U.S. population, they make up about 30 percent of all scam victims.
The access issue
Recently enacted federal legislation largely does away with the disclosure requirements and anti-fraud rules of the last 62 years in shareholder litigation. With severely restricted access to federal courts, access to justice in state court becomes imperative.
However, with the loser-pays penalty for stockholders who dare to sue management and fail for any reason, the doors to the court of last resort slam before investors.
Finally, Proposition 202 limits contingent attorneys' fees to 15 percent of a defense offer. The basic trigger for a contingent fee limitation is the existence or nonexistence of an offer by a defendant. If a claimant accepts an early offer, fees are limited; if a claimant rejects an early offer, fees are limited; if there is no offer, there is no limit on the amount of the contingent fee.
The most pernicious aspect of Proposition 202 is the demand provision. A contingent fee attorney must send a demand for compensation to all defendants. Extensive documentation must accompany the demand, including medical records. If the attorney fails to make a demand, or omits material information from the demand, the fee is capped at 15 percent.
An attorney must lay out the entire case up front or risk being second-guessed later and having the entire fee capped at 15 percent. Consider the fate of a woman who is injured by a product that causes intra-uterine bleeding. Her attorney may feel compelled to reveal her client's entire sexual history in the demand, whether or not relevant, rather than risk having her fee capped later.
Further, an early demand might also serve to deter investigation that could disclose "smoking gun" documents. How is justice served by a Kafkaesque litigation procedure that pits a lawyer against his or her client? As noted by Lawrence J. Fox in the National Law Journal, May 29, 1995, "It is unjust to force clients and lawyers to follow specific litigation strategy based on the way the lawyer is paid."
When proponents talk about an explosion of lawsuits that Proposition 202 will limit, one must ask what kind of lawsuits are being referred to. Contract disputes? No, the proponents were careful to draft Proposition 202 to only apply to "tort" claims.
Therefore, the increasingly common practice of businesses to use contingent fee attorneys in contract disputes remains unhampered.
Only the lawsuits filed against insurance companies who refuse to pay for losses incurred after earthquakes and fires, lawsuits filed by senior citizens bilked out of their life savings in cases like the Lincoln Savings and Loan scandal, or lawsuits filed against manufacturers of dangerous products fall within the reach of Proposition 202.
Unfortunately, all three initiatives sweep broadly to eliminate kinds of lawsuits rather than target "frivolous" lawsuits or defenses. Our system is not perfect.
However, rather than just getting rid of the kinds of lawsuits that proponents do not like, we should explore ways to target "frivolous" litigation (such as found in CCP §128.7) that preserve the essential purpose of our civil justice system, peaceful resolution of disputes.