“Hot Coffee,” Jamie Leigh Jones And Why Mandatory Pre-Dispute Arbitration Is Still A Bad Idea For Consumers And Employees

Hot Coffee.jpgSeveral weeks ago, I blogged about “Hot Coffee,” a new documentary airing on HBO, that exposes the radical ways in which tort reform advocates are taking Americans’ rights hostage, much to the obliviousness of the typical American. “Hot Coffee” focuses on four legal obstacles that tort reform has placed in the way of ordinary people.
One of those roadblocks is mandatory pre-dispute arbitration. The term is a mouthful but “Hot Coffee” powerfully explains this kind of arbitration through the story of Jamie Leigh Jones. Jones was an employee of Halliburton subsidiary Kellogg, Brown & Root (KBR), working in Iraq. She sued Halliburton/KBR for a brutal rape and false imprisonment that, she said, took place at the hands of her coworkers.
But Halliburton/KBR wouldn’t let Jones get her day in court. As soon as she filed in court, Halliburton asked that her case be forced out of the court system into arbitration. When Jones had signed on with Halliburton, she signed a lot of paperwork, including an agreement stating that, if she ever sued Halliburton, Halliburton had a right to force the case into arbitration.
Halliburton managed to keep Jones in arbitration until Sen. Al Franken got a law passed that prohibited defense contractors from enforcing such arbitration agreements. Jones finally got her day in court and last week she lost, a Texas jury finding against her. Now, a number of commentators in the legal blogosphere are using Jones’ loss to undermine “Hot Coffee’s” critique of arbitration.
Despite the Jones verdict, however, mandatory pre-dispute arbitration agreements remain a bad idea. They cost consumers billions. They encourage dishonest and sharp practices by business. They are profoundly un-American.
First off, I should probably be clear about what I mean by “mandatory pre-dispute arbitration.” I’m referring to a private system for dispute resolution. There are no jurors, there are no jury trials in arbitration. Either a single arbitrator or a panel of arbitrators hears your case and decides it. Either one or both of the parties to arbitration pays the arbitrator a fee to hear the case, fees that vastly exceed what it costs to file a case in court.
Who are these arbitrators? They may or may not be lawyers. There really are no legal requirements for who can be an arbitrator.
If the lack of credentialing requirements makes you worried if you’ll get a fair hearing in arbitration, you should also be worried because there’s no right of appeal. If you lose in our civil justice system, you can appeal to a higher court. But if you lose in arbitration, there is no authority higher than your arbitrator.
It used to be the case that if an arbitrator came up with a completely off-the-wall ruling, you could appeal to a court under a “manifest disregard of the law” standard. If you could show that the arbitrator’s ruling was in manifest disregard of the law, you could get a court, a real court with judges and jurors, to overturn the arbitrator’s decision. But the US Supreme Court, in the 2008 decision of Hall Street Associates, LLC v. Mattel, Inc., took away this grounds for appeal. You can no longer appeal an arbitrator’s decision to a Court — even when you can show that the arbitrator manifestly disregarded the law (in other words, completely ignored the law) in reaching his or her decision.
Of course, even if the “manifest disregard of the law” standard were still around, it would be an uphill climb to prove that your arbitrator disregarded the law because arbitrators very rarely write any written opinions explaining their decisions. If an arbitrator does not write an opinion explaining her decision, it is very hard to prove that the arbitrator made a legal error.
The widespread acceptance of tribunals that do not write down or explain their opinions represents a pretty radical break with the Anglo-American tradition of jurisprudence. America, like England (and a lot of former English colonies), has a “common law” system of justice. The common law tradition can be contrasted with the “civil code” system of justice that exists in continental Europe and virtually everyplace else.
In both traditions, a legislature, or some other authority, may promulgate a code of laws that people must follow. But legal codes usually speak in sweeping generalities; there are always ambiguities and questions of how to apply the codes in particular cases. This work of applying the verbiage of legal codes to the facts of particular disputes is the province of judges (and, well, arbitrators).
In the civil system, followed in continental Europe, judges make their decisions and those decisions apply in the case before them and for the case before them only. The judge’s decision has no weight of precedent; there is no requirement that the judge’s decision be followed in other cases. By way of contrast, in the common law tradition, judge’s decisions form precedents. These precedents must be followed in later cases.
The net result of the common law tradition is that America and other common law countries have a much richer body of law than countries who follow the civil code system. In the common law system, there is a lot more guidance out there on what is legal and what is not. There is also a lot more debate on what legal rules are good ones and what ones are bad.
The body of precedent that develops in a common law country helps people avoid litigation, by allowing them to know what they can do and what they cannot. The body of precedent in a common law country represents what economists call a “public good.”
But increasingly, due to the ubiquity of arbitration, we are moving toward becoming a civil code country. Congress will pass a law and relatively few of the cases will make it into the courts because of mandatory pre-dispute arbitration agreements. This was happening, for instance, with the Sarbanes-Oxley whistleblower law that Congress passed in the wake of the Enron collapse; many whistleblowers were getting pushed into arbitration under employment agreements that they signed, the same way that Jamie Leigh Jones was. This pattern stifles the doctrinal development of the law. Fortunately, last summer the Dodd-Frank financial reform law invalidated arbitration agreements that require the arbitration of whistleblower claims.
But arbitration remains ubiquitous in other areas – such as contract disputes with your phone company or bank. Walling these areas of life off from the courts means that the law will become ossified. A century from now, we’ll still be following the same law in that field of human life that we are today because the number of legal precedents issued by courts will either completely stop or slow to a trickle. That may not sound like much but go take a look at the contract law of the nineteenth century and decide whether you’d want that law followed today.
Arbitration also affects your pocketbook. It’s a virtual certainty that you have entered into a number of mandatory pre-dispute arbitration agreements. Your contracts with your cell phone company, your credit card company (although credit car companies are moving away from arbitration in some cases) and your mortgage lender likely contain arbitration clauses.
So if you discover that, say, AT&T is ripping you off by adding bogus extra charges to your bill, in complete violation of your contract, you can’t head into court to sue AT&T. You have to head to arbitration.
If the bogus charges that AT&T levies against you are part of a scam that rips off other AT&T cell customers, you might think, “No problem, I’ll head to arbitration and I’ll have my lawyer file a class action arbitration against AT&T. That will teach them. AT&T will have to end this fraudulent policy and refund us all the overcharges.”
If we were living in the halcyon days of 2010, such a tack might have worked. But, if you’re an AT&T customer, your contract with AT&T contains a clause that forbids you from bringing a class action in arbitration. And in April 2011, in the case of AT&T Mobility v. Concepcion, the US Supreme Court upheld the anti-class action provision in AT&T’s cell phone contracts.
So, now, if AT&T does something to rip you off on your cell phone bill, you have to go it alone in arbitration. But if AT&T only rips you off for $30 or so what lawyer is going to want to take your case? $30 won’t pay your lawyer. The only way a lawyer would take on your case is if she could aggregate all the $30 overcharges into a class action. That would mean real money that would make the issue worth fighting over and that would force AT&T to play by the rules.
Justice Breyer pointed out this obvious truth in his dissent in AT&T Mobility, where he wrote: “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”
So mandatory pre-dispute arbitration means that your cell phone carrier can get away with completely fraudulent charges against you and you have absolutely zero remedy because, if the fraud is small enough, you won’t be able to attract a lawyer to take on your case.
Is it any surprise therefore that, according to this recent study by the Commerce Department, Americans are overcharged on their phone bills by $2 billion a year in “mystery fees”?
Mandatory pre-dispute arbitration. So far as consumers and employees are concerned, it’s still a bad idea.

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Review Of “Schools For Misrule”

Schools For Misrule Cover.jpgWilliam F. Buckley once quipped that he’d rather be ruled by the first 100 names in the Boston phone book than the Harvard faculty. Well, if Walter Olson’s to be believed, we’re already being ruled by the Harvard faculty – or at least Harvard’s law school faculty – it’s just that most of us don’t know it.
Olson, a senior fellow at the Cato Institute, is the author of Overlawyered.com, one of the oldest and most heavily trafficked legal blogs, and a prominent proponent of tort reform. I’ve been critical of some of his work in the past – in particular his lack of positive proposals for compensating the victims of mass torts – while supportive of some of the newer elements of his legal program, such as advocating for the reform of existing copyright and patent law and his criticisms of certain overzealous federal criminal prosecutions.
Olson’s latest work, “Schools For Misrule: Legal Academia and an Overlawyered America” has just been published by Encounter books and I had the opportunity to read an advance copy a few weeks ago. In “Misrule,” Olson turns his sights from the tangles of legal practice to what he regards as the seedbed of pernicious legal ideas – the American law school. Olson believes the ideas that permeate the legal academy should concern us all because:

“Bad ideas in the law schools have a way of not remaining abstract. They tend to mature, if that is the right word, into bad real-life proposals. Bad ideas in university French departments are of self-limiting importance, given that people on the outside are likely to go on speaking French in the usual way. Bad law can take away your liberty, your property, or your family.”

Whatever else you might think about “Schools For Misrule,” Olson is surely right in arguing that the ideas incubated in law schools can have a lot of real world significance. At least in my experience, Olson is also correct in arguing that law school faculty members are overwhelmingly liberal and law school instruction has a left-leaning bias. I part company with Olson on the issue of whether these facts should be cause for alarm, but, whether you agree with Olson’s conclusions or not, there is a lot that you can learn from “Schools For Misrule.”
For starters, Olson’s new work is a valuable corrective for those of us who tend to believe that law school pedagogy has remained essentially frozen in amber since Christopher Columbus Langdell instituted the use of the Socratic method and case study at Harvard in the late nineteenth century. “Schools For Misrule” points up exactly how much legal education has changed since Langdell’s time.

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Babies Drowning In Puddles, CVS Pharmacists And Duties Of Care

CVS Pharmacy.jpgHaving studied philosophy as an undergraduate, I remember arriving at law school and quickly being disabused of the idea that my law school experience would be something akin to “The Paper Chase,” with imperious law professors kicking about mind-wracking hypotheticals. I think I learned this sometime in the first week of my first-year torts class, where we studying intentional torts and I deployed a thought experiment concocted by the philosopher John Searle: a man resolves to kill his enemy and gets into his car to drive to his enemy’s house, where he believes his enemy to be. En route to his enemy’s house, he accidentally runs over his enemy, who was out for a jog and who had darted in front of the car. Was the killing intentional? I remember asking the professor if a claim for an intentional tort like battery could lie on those facts, since Searle’s hypothetical appeared to fulfill all of the elements of battery, and was quickly reminded we were not there for a philosophy seminar: we were there to learn legal principles and learn how to use them to predict the outcomes of realistic cases.
About the only time legal education delved in the world of completely fanciful hypotheticals was in the hoary tale of the baby drowning in a puddle. The baby drowning in a puddle hypothetical runs like this: A man comes upon an infant, unknown to him, drowning in a shallow puddle. No one else is around and the baby will drown if the man does not act. The man can save the baby without any danger to himself, but does not act. The man walks away and the baby drowns. What tort has the man committed? None. As noted by one law professor in a recent law review article, “…there is a virtually universal consensus throughout the common law world that no duty is owed the baby in these circumstances.” In the absence of some legally cognizable relationship between them, people have no duty to act to help strangers.
The baby-drowning-in-a-puddle case is sort of an unusual legal principle because it’s not based upon any cases. There is no case of Smith v. Jones, where a baby drowned in such a puddle. It’s really straight out of the realm of the imagination.
And it’s not unfamiliar to philosophers. In his famous essay, “Famine, Affluence and Morality,” the Princeton ethicist Peter Singer argued that if you believe that it is morally wrong for a man to allow an infant drown in a puddle, you must believe it is morally wrong not to act to help those in the Third World. Other philosophers, like Peter Unger, have added their own embellishments to this thought experiment/hypothetical.
A few years ago, Singer published a book entitled: “The Life You Save: Acting Now To End World Poverty” that collected some real-life examples of babies drowning in puddles: police officers in Manchester, England who watched a ten-year old drown in a pond, instead of attempting to save him (because “they had not been trained to deal with such situations”) and many other scenarios where people walked past a virtual “baby in the puddle.”
All of this is offered as sort of a run-up to a story this week about a CVS pharmacist who refused to sell a $21 asthma inhaler to a woman in the midst of a life-threatening asthma attack who only had $20. You can read about the story here. According to the reports, while this woman flailed on the ground, the CVS pharmacist refused to give or sell her the inhaler because she was short by a little over a dollar.
It’s a fairly remarkable story and, unfortunately, the news reports leave unanswered a lot of questions, including: 1.) Were there other people around? Why didn’t they do anything to help? 2.) Was this CVS her pharmacy? 3.) What, if any, physical injuries did she suffer?
As much as the tort reformers and others say that we have too many lawsuits and people can sue for practically anything in America, this poor asthma-stricken woman, even if she had died, might have as few legal remedies as a baby in a puddle. So, I’ll toss it out there to the legal minds of the blogosphere: What viable claims might this woman have? (Let’s assume, to make it more interesting, that she died as a result). What other facts would you like to know? For anyone who wants to do the statutory research – are there any state statutes analogous to EMTALA that might have required a pharmacy to dispense emergency care to her?

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The $28 Million Nursing Home Verdict: The Law And The Public Policy

Last week, I blogged about how Pointoflaw, a tort reform website run by the Manhattan Institute think tank, misleadingly (to my mind) described a $28 million jury verdict against a nursing home. My post received the attention of Eric Turkewitz and his New York Personal Injury Law Blog, who included it in a link roundup. Eric’s post on his blog led to a response by Pointoflaw, defending the original post and further criticizing the verdict and nursing home litigation in general. Rather than engage in back-and-forth about whether Pointoflaw originally misstated the case, I thought I would take this opportunity to discuss the legal and public policy issues surround this $28 million verdict and nursing home litigation generally.
I. The Law
Ted Frank criticizes me failing to recognize the “utter lawlessness of the verdict.” So was the verdict unlawful? That’s a question that needs to be unpacked a bit before it can be answered.
I agree with Frank that the verdict will almost certainly be “reined in by the trial or appellate courts.” The reason is that in State Farm Mutual Auto Ins. Co. v. Campbell, the Supreme Court announced that a “single-digit ratio between compensatory and punitive damages” is the ratio most likely to comport with the Due Process requirements of the Fourteenth Amendment. While the Court declined to announce a bright-line or per se rule that double-digit multipliers are unconstitutional, the Court essentially encouraged lower courts to review double-digit multipliers skeptically and lower courts have diligently followed these instructions. The 25.5:1 ratio of punitive to compensatory damages in the California nursing home case means that a Court is likely to conclude that the damages are excessive.
It’s worth noting however that the Court’s two stalwart conservatives, Justices Thomas and Scalia, do not believe that the Court’s curtailment of punitives represents good law. Justice Scalia and Thomas believe that, “the Constitution does not constrain the size of punitive damages awards,” and that the Court’s reversal, since 1996, of certain punitive awards, constitutes, “an unjustified incursion into the province of state government.” Scalia and Thomas believe that the Court’s punitive damages jurisprudence is so badly flawed that it is not entitled to stare decisis, i.e., being treated as binding precedent.
Lastly, to the extent that Frank suggests that it was legal error for the jury to hear evidence of the defendant’s balance sheets, he would find himself in a distinct minority camp.
II. The Public Policy
Today, 1.5 million Americans live in nursing homes. As Baby Boomers age, this number will only increase. No one would dispute that some nursing home residents are abused and neglected by staff – the only questions are how pervasive the neglect is, what approaches we can take to reduce it, and the costs of those proposals to reduce abuse and neglect.
Obviously, one method of reducing nursing home abuse is to allow patients to sue their nursing homes for compensatory damages caused by the nursing home’s negligence. Ideally, such lawsuits force nursing homes to absorb the cost of the injuries they cause, insuring they will go bankrupt if, on balance, they are doing more harm than good.
Punitive damages also have an important place in such a framework. Ideally, the award of punitive damages in a nursing home neglect case serves to deter both the defendant nursing home and other nursing homes from engaging in such tortious conduct in the future. One economist, whose work is cited favorably in a recent Pointoflaw post, has proposed an efficient punitive damages regime wherein the amount of punitive damages would approximate the number of times the defendant “got away with it,” although the Supreme Court rejected such a framework in BMW v. Gore, where it noted that economic efficiency is not the criterion by which it decides its cases and that the Constitution, “does not incorporate the views of the Law and Economics School,” nor does it “require the States to subscribe to any particular economic theory.”
So the question becomes what social science data do we have to suggest that lawsuits against nursing homes are having a pernicious effect on society? Frank offers the experience of Florida, where the Florida AARP supported the repeal of a strict liability statutory scheme that held nursing homes liable for certain injuries to nursing home patients, regardless of whether the nursing homes were negligent in the treatment of the patients. But the failure of a strict liability regime is of marginal relevance to the assessment of a fault-based system.
Like the AARP in a 2003 white paper, I favor the imposition of a negligence-based standard of care on nursing homes and oppose caps on noneconomic damages on the grounds that they, “may have harmful consequences on quality of care and access to compensation for injured residents and their families.”
At risk of sounding like someone afflicted by epistemic closure, I also think nursing homes should look to draw upon an underutilized resource in their midst – their patients who are alert enough to be attentive to their roommate’s health. Rodin and Langer’s famous (or rather infamous) 1970s nursing home social psychology experiment (described in the Leonard Mlodinow blog post) shows that giving nursing home patients responsibilities for themselves or others dramatically improves their health and mortality. While having nursing home residents report on the health of those around them would not satisfy the nursing homes’ legal duty of care, it might reduce liability by by reducing the number of critical incidents.

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Tort Reform And Epistemic Closure

Closed Mind Image.jpgThere’s been a lot of talk in the political blogosphere lately about whether conservatism is suffering from “epistemic closure.” Epistemic closure is a term that has become shorthand for the closing of the conservative mind – the idea that conservatives are recycling the same ideas over and over when they should be inventing new policy solutions. The debate about whether conservatives are suffering from “epistemic closure” has prompted some soul-searching by conservatives about whether they’ve simply curled up like hedgehogs in response to challenges to their belief system.
And it seems like we’ve seen plenty of challenges to that belief system lately, especially conservatives’ free market fundamentalism. On Wall Street, we’ve seen unchecked markets lead to grotesque executive compensation schemes, where traders earn massive bonuses by taking short-term risks and pass the long-term costs of their risks onto shareholders and the government. In our health care system, we’ve seen how unrestrained markets lead to insurance companies freezing out people who are the most in need of health insurance and doctors running up the bills, instead of being incentivized to promote preventative care.
Epistemic closure was much on my mind recently when I went back to read “The Litigation Explosion: What Happened When America Unleashed The Lawsuit,” a nearly two-decade old book by Walter K. Olson, a think tank fellow who recently departed the Manhattan Institute for Cato and who does a lot of work in the field of tort reform. What made me read a twenty year old book by a policy wonk, a title obscure enough that I was able to buy a used hardcover copy on Amazon.com for ninety-eight cents?

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What Do Tort Reformers Believe In? (Hint: It’s Not The Free Market)

We’re all familiar with the arguments that trial lawyers are the bane of this country’s existence. We hear that the cost of lawsuits and regulation challenges businesses’ ability to compete and create jobs. What we need, we are told, are caps on damages – limitations on the amount that patients can recover for pain-and-suffering in medical malpractice cases, the elimination of treble damages provisions in consumer protection laws.
It sounds like these complaints from the tort reform movement put them on the side of individual liberty and free markets. But when you take a closer look, it’s obvious how much distance there is between tort reformers and free market economics.
In a recent column, Paul Krugman linked to this old videotaped interview with the late Milton Friedman, the Nobel Prize winning economic adviser to President Reagan, famed for his free market thought and favor of deregulation:

What should be interesting about this interview to many who sympathize with the tort reform movement, is how unabashedly pro-tort law Friedman is. In case you don’t have time to watch the whole interview, Friedman says that we should have less government regulation of business and allow tort law to force business to absorb the cost of its accidents. Friedman, like most of his Chicago school colleagues, including Judge Richard Posner (whom I’ve blogged about before here) favored a regime without much government red tape, where businesses would be forced to behave responsibly by trial lawyers who forced them to internalize the costs of their misdeeds.
Many businesses are able to externalize the costs of what they do on an innocent and unsuspecting public. So, for example, a company may be able to emit smoke from its smokestack without having to pay for the negative effects of its pollution. A legal system that prohibits that noxious pollution and allows the factory’s neighbors to sue the factory helps promote efficiency by forcing the factory to internalize the costs of its pollution. This is how we insure that, on balance, net-net, businesses’ activities are doing less harm than good. The price of the goods that the factory produces may be driven up as a result, but this legal change causes the goods to be priced according to their true cost to society, and thus is efficient in an economic sense.
But it is clear that this sort of legal regime, favored by extremely market-oriented thinkers, is not what the tort reformers endorse. They want to interfere with lawsuits and keep caps on damages. Thus, this week in Congress we saw Republican Senator Lisa Murkowski block a bill that would have amended the Oil Protection Act of 1990 to raise its cap on damages from $75 million to $10 billion. We wouldn’t want a federal law that would force BP to pay for all of the coasts of the oil spill cleanup would we? Think of the poor BP shareholders who might not receive a dividend! Best to let government foot the bill, the same way it did with AIG and the rest of Wall Street.

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