Tort Tribute
How Democrats repay the plaintiffs bar.
BY KIMBERLEY A. STRASSEL
Friday, April 27, 2007 12:01 a.m. EDT
Most Republicans viewed Barney Frank's recent hearing on subprime mortgages as nothing more than typical Democratic corporation-bashing--and nobody is happier about that than Barney Frank. The House Financial Services chief is surely grinning that so few picked up on his bigger purpose: bestowing a big, wet smooch on the trial bar.
Democrats devoted their first months in the majority to paying back unions for their electoral support. Now it's time for the other huge campaign bankrollers. And don't think the trial bar, beat down by years of GOP tort reform, isn't expecting to feel the love. Since 1994, law firms and lawyers have thrown a half-billion dollars at getting lawsuit-friendly Democrats back in the majority. They've also taken care to get their own to Washington. Of the 30 House seats Dems won in 2006, 14 were claimed by former attorneys.
Don't expect anything so brazen as the House bill to eliminate secret ballots in union elections or the Senate drive to organize airport screeners. The Democratic majority might be willing to nakedly use their power to help Big Labor, but are wary of doing the same for a billionaire industry that these days would lose a popularity contest with the Mob. Even the tort bar understands how deeply loathed it is by the American public. The Association of Trial Lawyers of America didn't last year change its name to the bland "American Association for Justice" for nothing.
So no, even the old liberal lawsuit bulls such as Henry Waxman or Mr. Frank won't start calling for the repeal of the 2005 Class Action Fairness Act, or for other blatant legislative assists to the trial bar. Instead, Democrats intend to reward the legal industry with more subtle payoffs. The most obvious gift will be a moratorium on further legal reform. Beyond that, Democrats will rely on two tried-and-tested tools to aid and abet the legal community. They've employed both in the past few weeks.
The first is hearings, which gets us back to Mr. Frank's subprime gathering. The stated point of that event was to give outside groups an opportunity to publicly advise Congress on how to create oversight of these so-called "predatory" loans. Mr. Frank listened, but he also pointedly used the hearing to further a notion of his own--namely, that any company that has ever touched a subprime loan should be held legally liable if a homeowner later defaults.
As Mr. Frank knows only too well, this has been a goal of the tort bar for years. Lawyers don't spend time suing companies that are broke, which is often the fate of an exploding mortgage bank. The real money is in suing those (to use Mr. Frank's words) "up the chain"--investment banks that package these loans or even purchasers of these packages on the secondary market. The biggest trial firms have already been testing these uncharted legal waters, with a few, limited successes. The Ninth Circuit in December affirmed a jury's judgment against investment bank Lehman Brothers, which flowed from a subprime class action brought by such tort titans as the Scruggs Law Firm and Milberg Weiss.
As Mr. Frank also knows, all too well, a few carefully planned hearings can go a long way toward turning what has so far been a tough legal sell into a new jackpot for his lawyer friends. This first hearing was designed to get the press interested in the issue, and to gin up some adverse media coverage of companies that are, or will be, facing suits. Later hearings--and there will be more--will focus on subpoenaing information from investment banks and other legal targets and then selectively leaking the damaging parts. That "public" information can then be used in lawsuits.
Using hearing and subpoena power to aid the trial bar is an old play, and was common when Democrats were last in control. Remember the 1998 Big Tobacco settlement, one of the biggest paydays in trial-lawyer history? The groundwork was initially laid in Congress with Mr. Waxman's 1994 hearings, in which he lined up tobacco executives to accuse them of adding nicotine to their products and of lying in their testimony. These fishing expeditions helped to publicly vilify the industry, softening it up for a later legal collapse.
When Democrats lost power in 1994, the "investigatory" role passed to liberal state attorneys general such as New York's Eliot Spitzer, who used their own power to embarrass companies and leak details that helped their trial-lawyer friends. Which industries will receive the most congressional summonses in the next 18 months? The very same the trial bar has been trying hardest to crack in recent years: MTBE manufacturers, pharmaceutical companies, oil giants. Bet on it.
Meanwhile, as companies are dragged in to explain past actions, Democrats will be working on their second strategy: ensuring industries' future actions are also more open to lawsuits. This will come in the form of small, seemingly innocuous additions or subtractions to legislation--what might best be termed "trial lawyer earmarks." For a sense of how these work, consider the current $120-plus billion Iraq war supplemental, which includes a section about chemical security.
That section was recently the subject of a furious, if very quiet, lobbying effort spearheaded by that same blandly named Association for American Justice. Thanks to the group's efforts, language in that bill was altered to make it easier for citizens to file lawsuits against chemical manufacturers. The change was small and technically complex--having to do with something known as an "implied cause of action"--which suits AAJ just fine. Democrats and the trial bar are betting the White House will be too focused on troop withdrawal deadlines and peanut pork to make a stand over a few legal technicalities that are difficult to explain to the public.
So it will be going forward. A Democratic Congress means far more regulation, and any new regulation is an opportunity to insert a line or two giving the tort bar greater rights to sue. These provisions will be subtle and technical, designed to escape notice. But just in case they do raise a red flag, they'll also be tucked into bipartisan or must-pass legislation (such as the Iraq supplemental), making it that much harder for Republicans or President Bush to shoot them down.
It's a measure of how well Republicans played tort abuse to their political advantage that Democrats today are reluctant to brazenly flack for the legal class. If the GOP wants to keep it that way, it will have to start working harder to expose the quiet ways in which the left is now helping trial lawyers bilk the system.
Ms. Strassel is a member of The Wall Street Journal's editorial board, based in Washington. Her column appears Fridays.
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