Tort tax cut

When George W. Bush took office in 2001, his top domestic priority, and accomplishment, was a large cut in personal income taxes. Mr. Bush's first domestic policy win of his second term, likewise, will be a sizable cut in Americans' taxes, albeit a different kind of tax: the insidious "tort tax" that consumes more than 2 percent of our gross domestic product and is significantly larger than the U.S. corporate income tax.

Last Thursday, the Senate passed the Class Action Fairness Act by a strong bipartisan majority, 72-26. The Act will allow large national class-action cases to be heard in federal court and thus stop plaintiffs' lawyers from shopping cases to remote county courts that provide overly favorable treatment.

President Bush has already signaled his strong support for the legislation, and the House has passed a similar measure in each of the last three Congresses only to have the legislation stymied by President Clinton or Democratic filibusters in the Senate. Thus, the bill's passage is all but inevitable, and it will be the president's first success on his tort reform agenda.

The class-action reform deals a serious blow to the litigation lobby of what we at the Manhattan Institute have dubbed "Trial Lawyers, Inc." As my colleague Walter Olson noted on overlawyered.com, "Such defeats have been so rare that [the Class Action Fairness Act], though hardly radical and not a little watered down from earlier versions, probably constitutes the most ambitious tort-reform measure to pass at the federal level in recent decades."

Predictably, the plaintiffs' bar and their "pro-consumer" allies have howled. Todd Smith, president of the Association of Trial Lawyers of America, whined, "Every American's legal rights are diminished by this anti-consumer legislation."

But such complaints ring hollow. The class action reforms at the heart of the Class Action Fairness Act are among the most defensible federal reform proposals being considered, which is why 18 Democrats signed on to the measure.

The Act is in many respects the policy culmination of substantial intellectual efforts we have undertaken at the Manhattan Institute: Over the last four years, we have published four different Civil Justice Reports on the magnet court phenomenon that the Act is designed to address. These studies have documented the very high incidence and growth of nationwide class-action filings in county magnet courts; how magnet courts have abused plaintiffs' rights to the benefit of their attorneys; and the growing "mass action" tort problem in non-class-action jurisdictions.

Many leading plaintiffs' attorneys themselves are embarrassed by such jurisdictions. Some have even gone on record, such as Richard "Dickie" Scruggs, the billionaire tort lawyer from Mississippi who spearheaded the state lawsuits against the tobacco companies. Mr. Scruggs called these courts "magic jurisdictions... where the judiciary is elected with verdict money.... and it's almost impossible to get a fair trial if you're a defendant."

Though it is far from perfect, the Class Action Fairness Act will begin resolving the magnet court problem and to restore to Congress its constitutional powers by preventing backwater county court judges "elected with verdict money" from making decisions that have a huge effect on the American economy as a whole. Federal courts will have somewhat tighter rules for certifying a "class" of plaintiffs, and wrong decisions will be appealable before trial to protect defendants' rights and prevent them from being forced to the settlement table rather than "betting their company" before an unpredictable jury.

Nevertheless, the Class Action Fairness Act is only the first step in fixing U.S. lawsuit abuse. In a just-released Manhattan Institute report, Yale Law Professor George Priest calls the legislation a "helpful, but largely a modest reform."

As Mr. Priest notes, "Class action litigation has proven a problem in this country because of... the adoption of very loose procedural requirements for class certification[;]... the adoption of vastly looser substantive standards... for allowing claims to reach juries; and the expansion of liability standards since the mid-1970s based upon largely simple views about how liability judgments can improve societal welfare."

The Class Action Fairness Act does not fix all these concerns and just scratches the surface of the panoply of problems underlying our excessive tort tax. But it is a significant positive step and a rebuke to the lobbying might of the nation's most pernicious unregulated industry, the plaintiffs' bar. As such, now is a time for celebration.

Jim Copland is director of the Center for Legal Policy at the Manhattan Institute and managing editor of the Institute's Web magazine PointOfLaw.com.