Regulation and Taxation Through Litigation

Victor Schwartz is one of America's most distinguished commentators and practitioners of tort law. He has been dean of a major law school, principal drafter of the Model Uniform Product Liability Law, and co-author of the most widely used law school textbook on torts. He is general counsel of the American Tort Reform Association and a senior partner in a large Washington law firm.

His national reputation brought a roomful of lawyers and legislators together in Middlebury earlier this month to hear Schwartz (who vacations at Lake Dunmore) speak on a very timely topic: "Regulation and Taxation through Litigation". The seminar was sponsored by the Ethan Allen Institute.

Most Vermonters believe that popularly elected legislatures vote to impose taxes, and their members answer to the voters at the next election. We believe that regulation is carried out by state regulatory bodies, like the Environmental Board, which (supposedly) apply the laws enacted by the legislature. We believe litigation is a method for resolving in a courtroom the competing claims of two or more parties, Victor Schwartz told us to wake up.

There's a new game in town, and Schwartz handed out a recent op-ed piece from Robert Reich, President Clinton's very liberal ex-Secretary of Labor, that explains it. "The era of big government may be over, " Reich wrote, "but the era of regulation through litigation has just begun." Reich argued that Congress, since 1994 under the control of pro-business conservatives, will not enact liberal proposals for regulating and taxing the tobacco and firearms industries, and it won't change the antitrust laws to benefit the competitors of Microsoft. Therefore, wrote Reich, forget Congress - we'll sue. He concedes that this regulation through litigation isn't efficient, and may not serve the public interest, but "perhaps regulating through lawsuits is better than not regulating at all."

The result of this new strategy has been a rash of novel lawsuits and expansive judicial holdings, pressed by flamboyant trial lawyers allied with liberal politicians. Thanks to their aggressive advocacy, courts are abandoning long- established tort law precedents to hand down what only yesterday were considered to be purely legislative decisions. In 87 recent cases that Schwartz catalogued, courts have overturned legislatively-enacted limits on extravagant damage awards.

Courts are even awarding damages where no injury has been demonstrated. As an example of the latter, Schwartz cited a recent case where the Louisiana Supreme Court held that an asbestos manufacturer had to pay a huge judgment in a case where the plaintiff workers were in perfectly good health, on the theory that some day they might get sick. While the workers were being "monitored", their lawyers would be getting very rich. (The state legislature subsequently removed the basis for the holding.)

Here in Vermont, a group of out of state trial lawyers appeared three years ago to propose to the attorney general that he appoint them to sue the tobacco industry. Unlike traditional tort suits, where a lifelong smoker seeks damages for health injuries from smoking, this new attack would be brought on behalf of the State itself. Instead of putting smokers on the witness stand where they could be cross-examined, the State would only need to exhibit Medicaid statistics on smoking-related Medicaid expenses. When the tobacco companies agreed to a multi-state settlement earlier this year, Attorney General Sorrell's "special assistant attorneys general", who had done little more than fill in the blanks on a standard complaint, became entitled to collect $10.5 million of the state's award.

The ultimate goal of this "regulation and taxation through litigation" is to force selected industries to the wall. It threatens them with extinction, then lets them off in return for accepting judicially-decreed regulatory controls and paying what amounts to extortion, up to a third of which ends up in the pockets of the plaintiff attorneys. This is profoundly anti- democratic. No legislator ever votes on this regulatory control, and the cost of the judicially-imposed regulations turns up as an unlegislated hidden tax in the price of the products. Tobacco, affluent but unpopular, has already been put through this wringer. Firearms manufacturers are facing dozens of extortion suits from city governments. The fast food, pharmaceutical, alcohol, automotive, and possibly even the dairy industries will be next. Maybe when Sorrell's "special assistant attorneys general" turn up in Washington County Superior Court to sue Ben and Jerry's for making artery-clogging high butterfat ice cream and cleverly marketing it to unsuspecting minors, some Vermonters who like the idea of "regulation and taxation through litigation" will take a different view of the matter.

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August 1999