The testimony below concerns the new controversy of the status of tobacco as a product in the U.S.
TESTIMONY OF JONATHAN TURLEY
SHAPIRO PROFESSOR OF PUBLIC INTEREST LAW
GEORGE WASHINGTON UNIVERSITY LAW SCHOOL
BEFORE THE UNITED STATES SENATE
COMMITTEE ON THE JUDICIARY
NOVEMBER 2, 1999
Thank you, Mr. Chairman.
Mr. Chairman, members of the Judiciary Committee, my name is Jonathan Turley. I am a professor at George Washington University Law School where I hold the J.B. and Maurice C. Shapiro Chair for Public Interest Law. I sincerely appreciate the opportunity to speak with you today about the recent government lawsuit and the mass tort actions against the tobacco industry and other domestic industries.1 Of course, only Dante could construct a more devilish bargain for an academic: you can speak at length on your most cherished subject . . . so long as you can do it in five minutes. Mercifully, the Committee has accepted a longer statement for the record and my oral testimony today will only summarize those written remarks.
At the outset, I want to make clear that I come to this hearing with no prior involvement with this litigation. Specifically, I have never accepted money from any of these industries or served in a consultative capacity to any of these companies. What draws me to the controversy is the process, not the products, involved in the lawsuits. I believe that core principles underlying our government are being eroded under the pressures of political impulse and convenience. As the beneficiaries of a great constitutional legacy left by men like James Madison, we have a duty to consider not only the political ends but the constitutional means used to pursue contemporary goals. It falls to this body to protect that legacy when the political passions overwhelm legal judgment.
We all inevitably bring some baggage to a hearing of this kind. Products like tobacco and guns resonate with every citizen and legislator in a different way. These are products that have attained powerful symbolic value that unleash passions on every side of the debate. All of the witnesses today, like the public at large, will see the issues surrounding these lawsuits through a lens of personal experience or perspective. For my part, I come to this hearing with something of an idiosyncratic academic perspective. I am an unabashed Madisonian. In that sense, I tend to see political conflicts through a lens of Madisonian principles divorced from their merits or ultimate outcome. I have spent most of my academic career studying, writing, and teaching in the area of Madisonian theory and the legislative process. I have written roughly two dozen academic works and over 70 articles on constitutional and legal issues. Much of this work incorporates or relies on the principles of James Madison who was the central architect of our governmental structure. In addition to my academic work and litigation in the constitutional area, I have also taught torts and product liability for over a decade.
In the midst of the current controversy, I realize that the views of a Framer, even James Madison, may appear to be something of an academic caprice for modern legislators. Certainly, while he grew tobacco for a living at Montpelier, Madison’s writings offer little indication on how he would have felt about the merits of the claims against the tobacco companies. The Framers had no true comparison to contemporary litigation. Certainly, the concept of a mass tort or an action like the federal lawsuit would have been quite foreign to Madison and his cohorts. Madison, however, has much to say about how we, as a people, should resolve this and any political controversy. In a Madisonian democracy, it is more important how we resolve questions than what we resolve. In our system, we are not immune from bad decisions but our process protects the integrity of the system and gives it a direction. As Alexis de Tocqueville noted in his masterful work Democracy in America, Americans are constantly in motion. De Tocqueville was astonished that we appeared to be always veering in different directions. Yet, he noted that we somehow still managed to get from point A to point B before any other government. It is the integrity of our political system that allows this hyperkinetic energy to be released without seriously damaging our country. To be blunt, Madison gave us a system that is truly idiot-proof so long as we stay within its simple rules. The only threat to a Madisonian system is when one branch attempts to act extra-constitutionally or to circumvent the tripartite process of governance. It is this problem, what I refer to as the problem of “circumvention,” that will occupy the majority of my remarks today. While I will suggest an alternative process for dealing with mass tort litigation, I would like to focus on the process by which this controversy should be resolved regardless of its merits.
II. THE MADISONIAN MOMENT AND ROLE OF THE LEGISLATIVE PROCESS IN RESOLVING FACTIONAL DISPUTES.
If there is a quintessential Madisonian moment, it is the contemporary debate over tobacco. Tobacco is a factional dispute involving fundamental questions of personal responsibility versus corporate conduct. It involves complex questions of the actual costs of this product on the federal and state governments. It raises questions of the government’s own culpability in the subsidization and taxation of an industry that is now targeted for damages. It involves questions concerning the future of this industry and the priority of any federal payment vis-à-vis the state settlements and private mass tort verdicts. It is a debate that has been joined by a vast array of different interest groups and organizations representing medical, legal, financial, and political interests. It is precisely the moment that Madison had in mind when he crafted our system.
A. Factional Politics and the Tripartite System.
Before addressing the specific questions raised by the federal tobacco litigation, a brief review of the foundations and principles of the Madisonian democracy may be useful. It is important to be clear as to what is meant by the Madisonian principles before reaching conclusions as to how the federal lawsuit could pose a threat to those principles.
While it has evolved since its conception by James Madison and other Framers, the tripartite system continues to reflect the genius and character of Madison. Madison spent much of his life studying systems of government. When the time came for a design of a new governmental structure after the failure of the Articles of Confederation, Madison had achieved an almost unrivaled knowledge and appreciation of the various governmental antecedents. Madison was particularly interested in the ancient systems such as the Achean confederacy of Greece and the Helvitic confederacy of Switzerland. Madison was most interested in the causes for failure in democratic systems. In the course of his studies, he came to conclude that one of the chief causes of system failure was the corrosive influence of factions. This problem was exacerbated by the failure of prior systems to recognize the inevitability of factions and to effectively channel the pressures produced by such divisions. Madison noted that these earlier models tended to be based on documents espousing the common values and collective goals of a nation. They often bordered on the poetic in their articulation of the aspirational values of government. They also tended to fail as factional pressures grew beneath the surface and exploded into the streets of Paris or Athens. The Athenian model of direct democracy was rejected by Madison precisely because it “admits of no cure for the mischiefs of faction.”
The Madisonian system can be aptly called government without romance. Like Madison himself, the system is remarkably understated and unpretentious. Where other systems built structures around a view of the common values of a people, Madison designed a system to deal with the things that divided us. Madison left the vanities of other systems behind in favor of a starkly pragmatic system of government. It was a system primarily designed not to inspire, but to last. Since its creation, the Madisonian system has withstood pressures that would have easily crushed many other systems. It has lasted because it was based on an ultimate expression of realism in the matching of a government structure to the demands of a pluralistic society. Madison was faced with the most pluralistic nation on Earth with the promise of religious, economic, political, and racial factions. Madison concluded that “the causes of faction cannot be removed and that relief is only to be sought in the means of controlling its adverse.”
The bicameral legislative model was central to Madison’s vision in dealing with factional pressures. Madison recognized that factions and divisions within a nation can, if left unresolved, fester into open conflict or “convulse the society.” Madison saw the natural inclination of citizens to divide on issues of importance in a democratic system since “[t]he latent causes of faction are . . . sown in the nature of man.” Madison wanted to create a system that would force such divisions into the open where they could be transformed into majoritarian compromises. The bicameral system was a result of this deliberative democratic concept. The key was to deal with the inevitable formation of factions in a free government while not suppressing liberty itself. Under this system, factional interests and preferences were coaxed to the surface of a legislative process in which such interests could be realized in whole or in part only by majoritarian agreement. In order to secure such agreement, compromise would be required in both houses of Congress with an appeal to values or interests outside any particular narrow interest group. Through the bicameral process, factional interests can evolve in the crucible of debate and deliberation into majoritarian resolutions. Certainly, this is the “deliberative ideal,” albeit sometimes unrealized.
B. The Separation of Powers and the Circumvention of the Legislative Process.
Just as Madison was strikingly pragmatic about the tendencies of citizens to divide, he also had no delusions about the motivations of individuals in politics or the institutional tendencies of the three branches that they would lead. “If men were angels,” he stressed, “no government would be necessary. If angels were to govern men, neither external nor internal controuls on government would be necessary.” Throughout our history, there has never been a Congress that did not want to act like the president; a president who did not want to act like Congress; or judges who did not want to act like both. Madison preserved the balance of power by denying any branch the ability to govern alone. In some ways, our system is held together by the simultaneous pressures of each of the branches, a type of inverse pressure that holds the three parts as one. Madison relied on the self-interest of each branch to maintain this level of institutional pressure, including acts of self-defense in the face of circumvention. Madison believed that the solution for opportunistic elements in the political system was for “[a]mbition . . . to counteract ambition.”
The separation of powers was understood to be vital to this new model. The problem of circumvention or usurpation would have to be checked to prevent a consolidation of power, for even a brief period, in any one branch. This belief in the separation of powers was heavily influenced by John Locke. While Locke referred to a separation of powers in two rather than three parts, he viewed the separation as essential to defeat the “great temptation to human frailty” when those with “the Power of making laws” are the same as those with “the power to execute them.” Montesquieu emphasized the need to separate the power of government among various branches.
Through the separation of powers and the system of checks and balances, Madison sought to achieve the difficult goal described in his Federalist No. 51: “In framing a government which is to be administered by men over men, the great difficulty lies in this: You must first enable the government to controul the governed; and in the next place, oblige it to controul itself.” This goal required not only the separation of governmental powers among “departments” but also a system of checks and balances: [T]he great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others . . . This policy of supplying, by opposite and rival interests, the defect of better motives might be traced through the whole system of human affairs, private as well as public.
Our system is designed to compel the two political branches, sometimes against the inclinations of their leaders, to deal with each other in an open and deliberative way. It is only by passing divisive issues through the legislative system that factional interests can be brought to the forefront and reconciled. Once either political branch circumvents the other branch in the process, the center of gravity for the Madisonian system is displaced with potentially dangerous consequences. It is the Judicial Branch that often preserves this balance.
Threats to the Madisonian system can come in a variety of different forms. The greatest temptation in the system is to avoid the inconveniences or costs of the political process in favor of an attempt at judicial intervention. The threat of circumvention is most profound when one of the two political branches attempts such an end-run around the legislative process, though individual suits can also challenge the integrity of the system by raising political questions with the courts.
The courts have been particularly vigilant in preventing unilateral action of one of the political branches to circumvent the other political branch. United States v. Standard Oil Company of California reflects the adherence to this principle. In that case, the Executive Branch sought to recover tortious damages from Standard Oil after one of its trucks injured a serviceman. Advancing a common law claim for recovery for medical expenses and wages, the Executive Branch sought damages that were available to litigants in state court. The Supreme Court, however, ruled that such a theory raised separation of powers problems. The claim of the Executive Branch constituted a circumvention of the right of Congress to determine the circumstances under which the government could claim a cause of action.
The tobacco litigation is the prototypical example of factional pressures and the need for “institutional settlement” within the political system. The tobacco litigation by the federal government is ultimately based on a core of largely unresolved questions of policy. First, there is the question of the continued sale of tobacco as a product. While various leaders, like President Clinton, have denounced tobacco as a leading killer of Americans, there has been no general call from the White House or most congressional opponents to ban the product. There appears to be a consensus that citizens will be allowed to continue to use this product despite its addictive and harmful characteristics. Yet, if this litigation is successful, there is a question of whether the industry would withstand the exposure to liability by the government as well as private actions like Engle v. R.J. Reynolds and the massive payments as part of the state settlements. Likewise, there is the question of the future of the industry and the continued role of the government in promoting or discouraging the sale or use of the product. Some of the most direct impact of this litigation will tend to fall on consumers in the form of increased prices for tobacco, a distribution question for which Congress is uniquely qualified to answer. Second, there is the question of the responsibility of individual smokers for their injuries and the equity of pursing the industry after years of federal governmental support and acquiescence. The public has strong views on issues of personal autonomy and responsibility that could significantly affect this debate. Third, there is the question of the right of the federal government to claim damages against any citizen or company. Citizens have a right to determine the conditions under which the federal government can seek additional funds or damages, including the moral or ethical basis for such recovery. Fourth, there is a factual question of whether the government has actually lost money on tobacco and, if so, to what extent. Finally, there is the cost-benefit determination of how a federal claim for tobacco money would affect other federal programs or the state settlements.
None of these questions belong in a federal court. They belong in a congressional committee room. Whether tobacco continues to be sold and the role of the federal government in such sales is ultimately a political, not a legal, question. No court is truly prepared or competent to explore the myriad of issues and calculations needed to determine the true cost or benefits of tobacco sales to the federal government. While courts do make difficult determinations on damages, such complex matters are generally left to congressional committees and agencies which have the resources and expertise to competently render a determination. There are few issues as volatile as tobacco or subject to more disagreement as to the underlying facts. Like gun and HMO liability, it is an area that produces only factionalized views without a single majoritarian resolution.
Politics works as a prism that spreads different views across a spectrum as it has in the tobacco controversy. The legislative process works to take this spectrum and produce a common focal point that is acceptable to the majority. Until tobacco is considered in the legislative process, the views contained in any federal filing are merely the single view of the Executive Branch and not the entire public for which it should speak. Moreover, these theories create uncertainty as to the relevant legal obligations in this area. This produces gross inefficiencies within the market that should be able to rely on Congress as the forum for new policy and liability decisions. When the focus of governmental policy debates shifts from the Legislative Branch to the judicial branch, the stability and equity of the system is lost with a myriad of negative political and market consequences.
III. THE MADISONIAN NIGHTMARE AND THE CIRCUMVENTION OF THE LEGISLATIVE PROCESS.
The decision of the Clinton Administration to pursue a judicial remedy converted the quintessential Madisonian moment into a Madisonian nightmare. The passions evident in the debates over tobacco are precisely the reason this issue belongs in the Legislative, not the Judicial, Branch. It is in Congress that factional interests can be reconciled and, ideally, transformed into majoritarian views. The Madisonian nightmare is the removal of a highly factionalized dispute from the Legislative Branch to the Judicial Branch. As unelected governmental officers, judges can bring highly unrepresentative and unaccountable views into a matter of national importance. These filings invite federal courts to determine questions that divide the nation. It is an invitation for judicial activism. By seeking a judicial legislative act, a branch avoids the costs of some insular political fight at a prohibitive cost to the system.
As noted earlier, Madison could not have anticipated the degree to which social or policy issues could be litigated in the court system. While he anticipated the danger of judicial activism, Madison assumed that Congress would be the dominant branch in such questions. The influence of litigation as an alternative to political action is, therefore, a largely unanticipated and exogenous factor in the Madisonian system.
The federal law suit may fall into the category of an Executive Branch policy advanced with the best motives and the worst methods. Administration officials clearly feel strongly about the costs and dangers of this product. Yet, while many members of the Administration have had distinguished careers in public interest causes, their prior method of seeking judicial intervention is wholly inappropriate to their current status. Rather than fighting a resistant government, they are now the government. As part of the governmental structure, their effort to circumvent the political branch invites the very dangers that Madison sought to avoid. In using the courts as an alternative method for policy implementation, the Administration undermines the protections against tyranny of the minority and judicial activism. The smallest reliance on such means adds a corrosive element to the system that will only undermine its foundations in time.
The federal filing appears in part motivated by a judgment of the White House that Congress would not support an independent cause of action. The White House had already failed in its effort to secure funding for the lawsuit and, previously, Congress barred the federal government from claiming money that is part of the state settlements. It is certainly understandable why a political judgment would favor the circumvention of Congress in the hopes of reaching the same objectives through a federal court. However, the decision to advance creative statutory claims does little to change the effort to secure a judicial legislative act. Returning to Standard Oil, the Court rejected the use of creative analogies in that case to obscure the fact that what the government sought was an important change in policy — without congressional involvement.
For grounded though the argument is in analogies drawn from that field, the issue comes down in final consequence to a question of federal fiscal policy, coupled with considerations concerning the need for and the appropriateness of means to be used in executing the policy sought to be established. . . . [These analogies to tort law are] advanced as the instrument for determining and establishing the federal fiscal and regulatory policies which the Government’s executive arm thinks should prevail in a situation not covered by traditionally established liabilities.
The Court returned to first principles in sending the Executive Branch to Congress, and through the Madisonian process, to achieve such objectives.
Whatever the merits of the policy, its conversion into law is a proper subject for congressional action, not for any creative power of ours. Congress, not this Court or the other federal courts, is the custodian of the national purse. By the same token it is the primary and most often the exclusive arbiter of federal fiscal affairs. And these comprehend . . . securing the treasury or the government against financial losses however inflicted, including requiring reimbursement for injuries creating them as well as filling the treasury itself.
The only difference between the current filing and the failed effort in Standard Oil is the pretense of a statutory basis. Yet, any statutory source could be commandeered to serve as the basis for a new liability system. The government was simply more straightforward in Standard Oil in acknowledging that it sought to construct a new cause of action through analogies to common law doctrines. The courts must still determine if there is any congressional intent to create such a cause of action. Under the statutory sources in the federal filing, there is plainly no such intent.
Without debating the merits of each of the claims, it is important to note the extraordinary statutory interpretation theories that the Administration was required to maintain in order to avoid seeking an independent cause of action. One of the claims made by the government is that it can seek reimbursement under the Medical Care Recovery Act (MCRA). MCRA was the belated response to the Standard Oil decision through which the Congress, fifteen years after the decision, gave the federal government a right to recoup the costs for medical care and treatment paid by the government. While the 1996 amendment specifically allowed the government to proceed independently against individual tortfeasors, it has never been used for Medicare reimbursement. This limited statute was designed for a clear and limited purpose. The federal lawsuit would convert this limited statute into a massive Medicare recovery program without any debate as to the merits or efficiency of such a conversion. Moreover, MCRA extends a right of recovery to the government only when an individual is harmed “under circumstances creating a tort liability upon some third person.” Such “circumstances” are found in state tort laws, which differ dramatically in terms of the elements and defenses of tortious liability. The court would have to allow the government to litigate an unprecedented number of individual cases without reference to their underlying state issues. The question for any federal court concerned about the separation of powers is whether it should (1) manipulate the language of a statute clearly designed for a different purpose (2) in order to achieve a massive public policy objective that (3) was never submitted to Congress.
The government also seeks to use the Medicare Secondary Payer (MSP) provisions to secure compensation. This theory frankly borders on the frivolous. MSP was created to allow the government to seek reimbursement for Medicare funds. This act was also amended to expand the government’s cause of action in 1984. However, the entire Act is designed to pursue insurers of tortfeasors, not the tortfeasors themselves. The court would have to find, among other things, that the tobacco companies constitute covered parties. In this sense, the self-insurance of the companies would have to be construed as a “primary plan,” a highly unlikely event. Moreover, that statute allows for recovery under the auspices of the Health Care Financing Authority (HCFA) only through satisfaction of certain claim filings requirements that are highly difficult to apply to tobacco companies. Finally, the MSP refers to the recovery of payments that should be paid “promptly.” Yet, there is no plausible argument why the tobacco companies should have expected to pay promptly costs that HCFA has never suggested should be paid. There is nothing in the statute or past practice to suggest to a tobacco company that it should pay anything at all, let alone on a prompt basis.
Under both MCRA and MSP, courts would not only have to ignore the original intent behind these statutes but resolve a host of problems in advancing the government’s case. These include statute of limitations problems. MCRA has a three-year limitation, which begins to run as soon as the government knew or should have known that it had a cause of action. MSP has a three-year limitation, though the operations of the regulations could practically reduce this to one-year due to a notice requirement. Moreover, the court would have to aggregate the claims on questions of proximate causation; employ statistical methods of proof; bar individual defenses; and resolve different choice of law problems relating to the tort laws from each of the states involved in the pool of injured parties. Aggregation has never been used in a MCRA action against any defendant and there is no authorization under the Act for such an action. This is a great deal of water for a court to carry to maintain a cause of action on a question that the Executive Branch has refused to submit to Congress.
The strongest basis for recovery in the federal lawsuit is under the claim brought under the Racketeer Influenced Corrupt Organizations Act (RICO). Congress has long known that such claims are routinely applied to areas far removed from the Act’s origins in fighting organized crime. In fact, RICO contains an express invitation for liberal interpretation of its application. The Supreme Court has accepted the language of the law as requiring federal court to “read broadly” the law due not only to “Congress’ self-consciously expansive language and overall approach but also its express admonition . . .” This may allow the government to get beyond the threshold question of congressional purpose and intent. However, this still leaves the court with a host of subsidiary issues, including questions of how to prove the injuries. In Homes v. Securities Investor Protection Corp., the Supreme Court held that any RICO claims must show “some direct relation between the injury asserted and the injurious conduct alleged” to satisfy proximate causation. This requirement has led to dismissals in lower courts. While distinguishable on some points, these cases share this fundamental and questionable element as well as difficult interpretative hurdles. While RICO has been shown to be susceptible to the wildest interpretations, the court must still face a series of insular statutory and proof issues.
Inevitably, a federal court will have to deal with the question of circumvention and the question of judicial competence in this lawsuit. The circumvention of legislative process in this area has occurred in other litigation, which should only heighten judicial concerns. Putting aside the response of the federal courts, however, there is a separate question as to the proper response of Congress to such circumvention. It is to that final question that I would now like to turn.
IV. THE INSTITUTIONAL ROLE OF CONGRESS IN THE FACE OF CIRCUMVENTION.
As noted above, the maintenance of the balance between the branches is left to the self-interest of each branch to jealously guard its own constitutional domain. Madison’s vision of government anticipated the branches being in a continual parry and thrust over institutional prerogatives. Ironically, the greatest threat is not an attempt at circumvention by one branch. Such attempts happen with fair regularity. Rather, the greatest danger is when one branch attempts such circumvention and the other branch does nothing in response. In this system, the failure of one branch to defend its constitutional territory produces a vacuum of authority that is itself destabilizing. The defense of the separation of powers is not left to the courts alone but to each branch in the use of its constitutional powers in defense of its institutional interests.
Madison gave Congress a powerful institutional interest in deterring the circumvention of the legislative process through judicial filings by the Executive Branch. That interest can be defended in a variety of ways. The power of the purse given to Congress is not simply a check on specific programs requiring appropriations. Rather, Congress can use its appropriations authority to respond to circumvention in the general budget authorizations for the affected agencies. Appropriations are a signal of agreement between the two branches on the conduct and goals of the government. If a majority of Congress views the Executive Branch as pursuing extra-legislative means for policy, it is entirely legitimate to withhold public support for such unilateral behavior. Likewise, Congress may use its oversight authority to demand answers to questions over the constitutionality or propriety of executive actions. Finally, Congress can directly legislate to bar legal theories by the Executive Branch or to create protections of targets pursued by the Executive Branch. Such measures are not only permitted but encouraged in such conflicts. Obviously, Congress can also overstep its bounds in the use of such authority. However, in the case of the federal tobacco lawsuit, a major policy question has been removed to the courts to avoid a vote of Congress. It is essential for this body to respond to such circumvention to reestablish the need for legislative debate and resolution.
The need for congressional action is magnified by two other developments in this area. First, the Administration has attempted to regulate tobacco under the Food and Drug Administration. In a case before the Supreme Court, an enormously important policy question will be answered without a decision of Congress. While the statutory arguments are closer in the Brown and Williamson case than the federal tobacco lawsuit, this case still represents a creative effort to avoid a question that belongs in the political not the judicial process. Second, and more importantly, the recent spate of mass tort actions in the tobacco area has recently created a new and compelling basis for federal intervention. While this is not the focus of this hearing, I would like to make a few brief comments about the latter phenomenon of mass tort litigation. As with the federal tobacco lawsuit, these class actions involve questions with truly national significance that are being decided outside the legislative process. While this is not a matter of circumvention, it is a matter of an interstate importance that is being left to the operations of individual state courts.
Mass tort represents a small portion of tort litigation. By mass tort, I am referring to legal actions that can encompass thousands or even millions of injured parties. My concern is primarily with a subset of this subset of product liability litigation. Recently, we have seen the emergence of mass tort actions seeking, in some cases, hundreds of billions of dollars in compensatory and punitive damages. Where past lawsuits focused on individual products, these suits over such things as tobacco, guns, and paint appear to target entire industries. Some of these lawsuits may be well-founded in their underlying claims but the national impact of these lawsuits demands a national process of adjudication.
Under the current system, a single state court can cripple or kill an industry. Moreover, litigants in mass tort actions today are participants in a contest that has far more in common with a lottery system than a legal system. There is no better example of the workings of this lottery system than proceedings that began yesterday in Engle. In the second phase of that tobacco case, a jury of six people will be asked to come up with a figure on punitive damages against the tobacco industry. Some projections suggest that the figure could go as high as $300 billion. What is extraordinary is that this single state court could demand most of the liquid capital of an industry. Such a verdict could ultimately prevent payments on the tobacco settlements to some states and, more importantly, leave other litigants with valid but valueless claims. All of this would be done without any political debate or public consensus. Whole industries may fall, not by a vote of Congress, but by massive blows delivered in mass torts law suits.
Mass torts cases present unique national issues in terms of the scope of the injuries and the pool of victims. However, in a type of tragedy of the commons problem, a single state can move to acquire the assets of a company or industry through generous class action rules and hostile appellate procedures. Each state has a perverse incentive to attempt to fully recover the maximum amount of damages for its citizens. Consider again the Engle case. The tobacco industry is eager to appeal a series of decisions by the trial judge, Judge Robert Kaye, who has made some highly controversial rulings in this case. However, under Florida law, in order to appeal a final decision from Kaye, the companies would have to post a bond for the entire monetary judgment plus twenty percent interest. Such a bond could bankrupt the defendants. While the industry has promised billions to the states, these payments are spread across a number of years and tied to future sales. Even if the industry could post such a bond, the tobacco stocks would likely go into a free fall. Yet, if tobacco does not post a bond, they may be prevented from appealing and then get hit with the total bill for the punitive damages. This Catch-22 may face other industries, which find themselves subject to fifty different state laws and an incentive of each state to secure as much of the damages as possible.
This is what fuels the Litigation Lottery. If you are the first in line to demand punitive damages, you may receive awards in the billions. Later injured parties generally receive less as courts tend to reduce damages after an initial punitive award. They may receive nothing if the first award killed the company or the industry. None of this makes much sense, of course. There is no reason why one group of litigants in one state should receive the lion’s share of damages to the deprivation of hundreds of thousands of other injured parties. Moreover, there is no reason why one state should be able to impose this result over other states when the problem and the victims are shared by the nation as a whole.
There is an alternative to the current mass tort system. While I have long opposed many tort reform proposals, I believe that it is time for federal intervention to deal with some mass tort actions. Congress can establish a national system for mass torts that would remove these cases from the state courts to the federal courts. This will prevent the ability of a state to gut an industry and would allow for consolidation of cases for a national resolution. Narrow criteria can be used to remove only those cases with truly national impact and the greatest interstate dimensions. These cases would be taken from a larger pool of litigation involving class actions in which punitive damages are sought. The removed cases would be class actions that are part of a product liability theory with injuries and anticipated cases distributed across the country. This would avoid the current danger in which each state has the ability to hit an industry with a massive or even fatal award to the deprivation of other states with similarly situated victims. It would reduce the race to the courthouse and the potential for windfall damages to the swiftest litigants or the most aggressive state process. It would avoid the injustice of one state court forcing domestication of an award when other states have citizens with equal claims. Finally, it would add a degree of predictability and uniformity for the markets. The markets have experienced highly inefficient responses to the uncertainties of mass tort liability. Since any state law could potentially seize the assets of an industry in mass tort, the mere exposure of an industry results in expenditure of capital and resources in efforts to hedge or insure against such losses. Regardless of the ultimate liability of an industry like tobacco, the nation should create a system that affords greater structure and continuity to avoid such economic deadweight losses.
This federal process would also bring a greater degree of equity to the distribution of damages in mass tort actions. Since compensatory damages would be paid upon final judgment and appeal, the payout from punitive awards can be delayed by a brief period to allow for the consolidation of cases and to avoid premature exhaustion of the fund. Congress could then mandate that punitive damage awards be placed in a single pool to be divided more evenly among injured parties. Finally, Congress should create caps for legal fees. This is not an effort to radically slash attorney fees common to contingency litigation, which often serve as a necessary incentive to bring many worthy suits. Rather, the caps would only reduce the percentage that an attorney could take on punitive damages to prevent a repeat of the state tobacco scandals where attorneys are entitled to billions of dollars (a rate in some cases of $200,000 per hour). It would also avoid the spectacle of single firms or attorneys claiming literally billions of dollars in attorney fees.
This is a general outline of only one approach to deal with mass torts. The merits of this proposal are less important than the need for a legislative response to the problem. While interstate issues are easiest to understand in the form of pollution or market barriers, it is now necessary to view some liability questions in interstate terms. The issues raised in cases like Engle produced highly factionalized debate that touches on the role of lawyers, the role of tort liability, the conditions for business enterprise, and the right of states to control tort judgments. It is a debate that does not belong in a state trial court. It is a debate that belongs here with the representatives of the entire populace and the involvement of both of the political branches.
In the law of product liability, there is a legal term called “foreseeable misuse.” This term refers to the doctrine that a manufacturer may still be liable for the misuse of a product if the misuse was foreseeable. Legislative circumvention is the constitutional counterpart to foreseeable misuse. Like any responsible product designer, James Madison anticipated such misuse and created a system to function in light of such conduct. The safety mechanism in the Madisonian design was a system of checks and balances in which circumvented branches could force correction and adherence to the original design. Such corrections or responses occur continually in the inevitable tension of a tripartite system. The mere presence of conflict, therefore, is not alarming. It is the possibility of acquiescence that is the danger to this system. Once one branch allows circumvention of its constitutional authority, the system becomes dangerously unstable.
This is not to say that the Republic will fall due to the filing of a federal tobacco lawsuit. To the contrary, the Madisonian democracy is a system that can take enormous abuse and still retain its integrity. However, the taste for legislative circumvention only increases with time. We have seen disturbing examples of recent circumvention and the negative effects of this trend should not be underestimated for the future. Our nation is one of the most pluralistic nations on Earth. We all come from different cultural, racial, and religious traditions. We share, however, one constitutional tradition. It is highly proceduralistic and pragmatic. It is magnificent in its simplicity. It requires little of us. The Madisonian democracy asks for only one thing, a type of covenant with its people. We must be willing to submit to the supremacy of a democratic process and the judgment of the majority. This judgment is found in the dialogue between the two houses of Congress and between the two political branches. The pressure of rivaling constituencies and institutional perspectives can transform factional politics into a national consensus. This is the Madisonian moment. What makes us unique as a people are not our problems but how we chose to solve them.
I would be happy to answer any questions that the Committee may have on my testimony.