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The Liability Game: The Price of Getting It Wrong Speech - Remarks by Thomas J. Donohue
NCLC's Trans-Atlantic Challenge: Diverging Approaches to
Regulatory and Legal Reform in the United States and Europe
Remarks by Thomas J. Donohue
President and CEO, U.S. Chamber of Commerce
September 14, 2005
Thank you, Ambassador Korologos, for that warm introduction.
The Ambassador and I have known each other for many years long before he was an Ambassador. And you should all know that whether in government or the private sector, Tom Korologos has earned a well-deserved reputation as one of the most effective and respected individuals in politics and policy — in Washington and abroad. We are very fortunate to have him here representing American interests in the heart of Europe at this critical time.
I'd like to thank the National Chamber Litigation Center for organizing this program.
Steve Bokat has already described the role the NCLC plays in our effort to create a more business-friendly environment in the United States.
More than 25 years ago, the Chamber concluded that our economic and business environment is not only shaped by what legislators and Presidents do and say, but also by what the courts, the judges and the plaintiffs lawyers do and say.
We could not be effective business representatives without playing a large and aggressive role in the legal arena. And so, as Steve mentioned, we regularly sue the government of the United States on behalf of member companies doing business in our country.
Our record in court is nothing less than remarkable. Our victories over the years have saved businesses literally tens of billions of dollars.
Our in-house law firm is every bit as important as our lobbying presence, our expansive grassroots network of business activists, or any other Chamber asset.
At the same time, more recently we have launched an unprecedented effort to reform America's legal system and change our lawsuit culture.
Our society is now coming to understand what the business community has known for many years – that the litigation explosion in the United States represents a punishing tax on all citizens. It stifles innovation and job creation. And it has unfairly enriched a handful of lawyers while slowing the wheels of justice for those who truly deserve relief and compensation.
So, why this conference, and why here in Europe?
Quite frankly, the U.S. business community is very concerned about Europe's eagerness to import the worst features of our out-of-control legal system – specifically, class action lawsuits.
My simple, straightforward advice to our friends in Europe is: Don't do it! You will live to regret it. As economies here struggle to reignite growth and create jobs, adding the class action albatross to your economic system would be a terrible mistake.
Instead, I suggest you learn from our mistakes. The title of my speech is "The Price of Getting it Wrong." That's because U.S. businesses know the price of getting it wrong on matters of civil justice — $129 billion dollars a year.
That's the cost of the tort liability system to our businesses, according to a study released by the Chamber's Institute for Legal Reform last year.
The plaintiffs' bar will tell you that this money is a small price to pay as fair compensation for victims for injuries suffered at the hands of big, bad business.
But what they won't tell you is that the bulk of awards in jackpot legal settlements go right into their bank accounts – and that means little or no reward for the people who are truly injured and deserving of fair compensation.
Keep in mind that the companies that aren't driven out of business by this scheme are forced to raise their prices – and that means a higher cost of living for American consumers.
We all agree there needs to be a system in place to provide just compensation to those individuals who are truly injured. That is what America's civil justice system was created to do.
But unscrupulous trial lawyers are taking advantage of that system to use American employers and consumers as personal bank teller machines. The lawyers are fattening their wallets while emptying out others.
Some of the most egregious abuses occur in class action lawsuits.
Theoretically, class actions could be an appropriate part of the legal system. When properly used, they can permit the efficient resolution of suits involving multiple parties.
Unfortunately, that ideal has been twisted to serve the lawyers' interests.
Over the last decade, we've seen a disturbing trend in which most national class actions have moved from our federal to state courts, some of which routinely certify class actions where class treatment cannot reasonably be justified.
We are also seeing major class action settlements where class members receive tiny amounts of cash or even coupons for free or discounted products —while the plaintiffs' lawyers walk away with the money sometimes tens of millions of dollars.
In one recent lawsuit in infamous Madison County, Illinois – which, for those of you who don't know, was the world capital of class action lawsuits — AT&T and Lucent Technologies settled a class action with a class of 29 million consumers.
While those 29 million people had to split $8.4 million dollars, the 44 plaintiffs' lawyers pocketed $84.5 million. That's $10 for the lawyers for every $1 for a client.
It's these types of outrageous settlements that have caused a surge in forum shopping. Plaintiff's attorneys are flocking to a handful of out-of-the-way jurisdictions – like tiny Madison County, Illinois – to file frivolous claims with the promise of striking it rich.
Judges in these "jackpot jurisdictions" are allowing cases to be heard even if they have little or no connection to the jurisdiction.
For example, Madison County courts handed down a $250 million dollar asbestos settlement to a man who was from Indiana and was allegedly injured in Indiana – with no connection whatsoever to Illinois.
And lawyers from around the country flock to these local problem jurisdictions to file lawsuits against employers located across America.
The trial lawyers were delivered a major blow when President Bush signed the Class Action Fairness Act into law in February. The Chamber and its Institute for Legal Reform were instrumental in making that happen.
This new law puts interstate class action cases into federal court, more closely scrutinizes coupon settlements, prohibits settlements that benefit class members based on their proximity to the courthouse, and protects against settlements that would result in net loss for class members.
Class action reform was just one component of the Chamber's effort to restore fairness, common sense and balance to our legal system.
The Institute for Legal Reform, formed seven years ago, has become the nation's leading legal reform advocacy organization.
It is able to do what individual companies and, at times, their trade associations understandably won't or can't do. And by the way, we're examining recent actions by the European Commission to determine if we can also stand up for and intervene on behalf of our European-based members on legal reform matters on this continent.
In addition to our success on class action reform, we're working to advance the ball on medical liability and asbestos litigation reform.
We've helped educate voters about these issues — who in turn have thrown out unfair judges, while electing pro-legal reform state Supreme Court justices and state attorneys general across our nation.
And we've helped bring about legal reform in states with the worst liability environments.
Perhaps one of the biggest legal reform victories in U.S. history occurred last year in Mississippi when the governor of that state, Haley Barbour, signed a sweeping reform bill into law.
Governor Barbour was scheduled to give remarks here today, but he is dealing with the aftermath of Hurricane Katrina. Our thoughts and prayers are with all the people who have suffered from that terrible tragedy.
With every legal reform victory earned by the business community, the trial bar changes strategy and opens up new lines of attack. When we shut off one avenue, they look for another, and increasingly they are looking across the Atlantic for the next big opportunity.
As you know, some recent developments among European legal systems hint at the advent of class action and mass tort litigation on this side of the Atlantic.
A number of other developments, such as increased allowance of punitive damage awards, plaintiff lawyer advertising, and the dawn of what the Financial Times calls the "U.S.-style compensation culture" also provide early warning signs that frivolous litigation is on the march here in Europe.
We all know, given the deepening economic integration and interdependence of the transatlantic relationship, that legal abuses taking shape in Europe pose as big a threat to U.S. companies as they do to domestic firms.
The European and U.S. economic systems have become practically joined at the hip by extraordinary growth in transatlantic trade, foreign affiliates, mergers and acquisitions, and direct investment.
That means that both of our continents have a vital interest in the way the other taxes, governs, and regulates people and businesses. So lawsuit abuse is not your issue, nor is it exclusively an American issue – it's "our" issue.
In today's conference, we're going to examine legal trends in both the United States and EU and discuss potential reforms to root out abuses and encourage economic growth and opportunity.
We'll talk about the EU's move toward a more expansive view of the public's right to seek redress for defective products – and my country's move toward limitations on the abuses of such litigation.
These developments offer some distinct challenges for global businesses seeking to function under divergent systems.
And speaking of divergent systems – we're going to have a panel discussion on the increasingly complex and divergent regulatory environment that exists globally, and how that environment is tying businesses here and abroad in knots.
In addition, we're going to look at the differences in how Europe and the U.S. deal with specific Anti-Trust and Competition Laws.
It has been suggested that competitors dissatisfied with U.S. decisions look for a second bite at the apple in Europe and take advantage of different antitrust interpretations.
Meanwhile, U.S. regulators who have failed to block a merger or to break up a company may be prompting European regulators to pick up the case – which sounds like double jeopardy.
I mentioned earlier that the title of my speech is "The Price of Getting it Wrong." That implies that there is a way to "get it right."
And there is.
Consumers and companies do need to be protected by our legal systems. People do need to be allowed ample access to the courts to seek compensation if they are truly injured.
But that's not what we have today. Politicians in both the U.S. and the EU have opened up our respective legal systems to an opportunistic plaintiffs' bar and clamped down with a maze of regulatory schemes – both of which serve to put employers, workers, and consumers at risk.
We must strive to find the proper balance. And that's a big part of what we're going to discuss today.
We don't expect to arrive at all the answers – but this is a good start at raising awareness so we can tackle these challenges together.
So without further delay, I'd like to turn the microphone back over to Steve so that we can move on to the morning's agenda.
Thank you very much for being here. Thank you for listening to me. I hope you enjoy the program.