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Greg Webb
Greg Webb
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Big Changes In The Economics Of Civil Litigation?

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The U.S. Chamber of Commerce has much to be happy about after the Supreme Court decided to cut the punitive damages in the Exxon Valdez oil spill case to only a week’s worth of Exxon profits after years of Exxon continuously appealing jury’s damage awards. This strategy was intended to bleed the plaintiffs and their attorneys dry so they would eventually have to let the case go. The chamber, through two of its affiliates, the National Chamber Litigation Center and the Institute for Legal Reform, has waged a decade long campaign to make it harder for companies to be sued for their errors or their fraudulent behavior and also limiting the damage awards that happen to get to a jury. This well-funded legal, legislative and public relations movement has had many successful wins, including the prosecution of three plaintiff’s attorneys who were brought up on charges of having abused the legal system, which has severely tarnished the image of the trial lawyer.

The biggest win of all, however, has been last week’s Supreme Court ruling that as a matter of federal common law, punitive damages should seldom exceed the so-called compensatory or economic damages awarded by a jury or judge. Although the court did see punitive damages as a way for society to exact a revenge for reckless behavior in order to deter others, Justice Souter, writing for him and four colleagues, asserts fairness demands the penalty to be “reasonably predictable in its severity”. This would allow the wrongdoers to look ahead and see the outcome in choosing one option over another. Though the court’s decision only pertains to federal cases decided on the basis of common law, many feel the Court will extend the cap on punitive damages to all state and federal cases based on the constitutional “due process” guarantee. Corporate America certainly hopes that plaintiff’s lawyers are going to be less likely to take on contingent-fee personal injury and class-action lawsuits because there will no longer be the prospect of winning punitive damage awards. Because of the resulting fewer lawsuits and lower damage awards, theoretically, businesses may feel more comfortable taking risks, good and bad; they may also effectively have immunity to negligently injure Americans with little concern about being held accountable. http://www.washingtonpost.com/wp-dyn/content/article/2008/07/03/AR2008070303239_2.html

While Souter did write for the Court’s majority, giving the chamber a legal victory, buried in his opinion is a rebuke to the fundamental rationale behind the organization’s campaign, specifically that excessive punitive damage awards have crippled U.S. business. The justice further writes that excessive awards have not been prevalent in American society, showing that in the country’s most populous counties, the median punitive damage award in civil jury trials decreased from 1992 to 2001.

What Souter and the Supreme Court may have shown United States businesses is that if they have enough money, eventually they may get a lower settlement by bleeding the little guy dry of funds. The Court apparently felt the need to reduce punitive damage awards. If that is the case, then there also needs to be a mechanism for limiting the abusive tactics of unscrupulous corporate defendants and/or their counsel; the latter, arguably, was not accomplished. The Court’s decision may make it much more difficult for the average person with legitimate claims against a large, well-heeled, and negligent company to receive just compensation.