Congress overlooks plaintiff-lawyer abuses

In the wake of credit crises in both the mortgage and broader financial markets, Congress is busy conducting hearings and negotiating various proposals for regulatory reform with the executive branch. Following corporate accounting scandals at Enron, WorldCom and elsewhere several years ago, Congress quickly went to work tightening the regulation of corporate governance. So why has Congress yet to acknowledge, much less schedule a hearing, now that, within the past several months, three of the nation’s most powerful, widely known plaintiffs’ lawyers have all pled guilty to federal felonies in connection with their corruption of our civil justice system?

Melvyn Weiss of the firm formerly known as Milberg Weiss, his former law partner William Lerach, and Mississippi legend Richard “Dickie” Scruggs each copped to conspiracy charges — Weiss and Lerach for paying a stable of on-call shareholder clients used in trumped-up securities litigation, and Scruggs for bribing a judge over the distribution of lawyers’ fees in a Hurricane Katrina insurance lawsuit. Weiss and Lerach are largely credited or blamed, depending on one’s point of view, for inventing the modern securities class-action lawsuit, wherein investors sue corporations and their senior executives for alleged fraud when stocks lose value.

Since 1965, according to syndicated columnist George Will, Milberg Weiss had “won, often by tactics indistinguishable from extortion, $45 billion from corporations.” (The entire firm still faces federal racketeering charges.)

Scruggs, also an innovator and big-time operator, originally made a name for himself in asbestos cases. Then his so-called “home cookin’” helped force four tobacco giants into a landmark $246 billion settlement with 46 states and various private sector, personal injury law firms in 1998. Scruggs’s firm stands to gain nearly $1 billion from that settlement and had subsequently pursued numerous lawsuits and additional billions from insurers and other “deep pocket” defendants.

Talk about big business. Scruggs, Lerach and Weiss personified the industrialization of personal injury and securities litigation that, since the 1970s, has radically changed America’s legal climate, diminished the concept of personal responsibility and eroded the public’s respect for the rule of law, all while siphoning hundreds of billions of dollars in judgments and legal fees away from more economically productive use. Scruggs, Lerach and Weiss have given a whole new meaning to the term “criminal lawyers.” And while no credible critic of America’s litigation industry alleges that all plaintiffs’ lawyers are criminals, Bill Lerach himself, using an “everybody does it” argument to minimize his crimes in an online interview published on the eve of his February sentencing, gave readers the impression that the problem may be widespread. “Believe me, it was industry practice,” Lerach insisted, referring to lawyers’ unlawful payments to lead plaintiffs in class actions.

There’s also a growing body of bullet-proof evidence documenting comparably endemic corruption in asbestos and silica litigation, and a 2006 Harvard School of Public Health study concluded that four out of every 10 medical malpractice lawsuits filed in America each year are “groundless.”

But this Congress doesn’t seem to care. In the past, lawmakers showed an interest in reining in the trial bar’s abuses. The Class Action Reform Act, signed into law by President Bush in early 2005, has been credited with reducing the number of speculative, constitutionally questionable class actions that personal injury lawyers had previously shopped to friendly state court judges around the country, regardless of where the plaintiffs and defendants resided or did business, or where the alleged injuries in a given case may have taken place. The House a in 2004 also passed the Lawsuit Abuse Reduction Act (LARA), which aimed to reinstate serious sanctions for attorneys found by a judge to have filed a “frivolous” claim or motion. Both times, senators failed to consider the measure.

Without preventing plaintiffs from filing legitimate lawsuits in jurisdictions with actual connections to their alleged injuries, LARA would restore the mandatory sanctions for filing frivolous lawsuits that were eliminated in a controversial 1993 change to Federal Rule of Civil Procedure 11. These sanctions could include reimbursement of reasonable attorney’s fees and litigation costs. Many foreign countries with which America competes economically already maintain such commonsense safeguards against lawsuit abuse. And the crimes of Dickie Scruggs, Bill Lerach and Mel Weiss aren’t qualitatively different than the crimes of Dennis Kozlowski at Tyco or Jeff Skilling and the late Ken Lay at Enron.

So why aren’t chairmen of the House and Senate judiciary committees and other congressional leaders calling for hearings into apparent corruption within the litigation industry?

Joyce is president of the American Tort Reform Association, based in Washington, D.C.