Call for Ag Reform Growing

By Scott Sabatini
Legal News Line.com
August 15, 2008

CHARLESTON, W.Va. (Legal Newsline) -- First came the class-action lawsuit, followed by state attorneys general using the power of their office in connection with private plaintiff lawyers to pursue such lawsuits. Millions of dollars from ensuring settlements poured into state coffers.

Now, many say it's time for reform.

But trial lawyers, bar associations and many of the attorneys general say there is nothing to reform, that those multi-million -- or in some cases multi-billion -- dollar lawsuits are an act of reform itself.

When an attorney general sues a drug maker or mortgage company or even a software giant, they say they do so to reform those businesses that have made their billions in unethical or fraudulent ways.

Paying millions to settle huge lawsuits has a way of getting a major corporation's attention.
But the house is clearly divided when it comes to attorneys general.

Some of the most aggressive attorneys general past and present -- prominent names such as Florida's Bill McCollum, New York's Eliot Spitzer, California's Bill Lockyer and West Virginia's Darrell McGraw -- are the ones facing the most criticism for their twitchy litigious trigger-fingers and the class-action lawsuits they file.

"The fundamental concern for taxpayers," tort reform lawyer Amber Taylor said, "if the contracts are not subject to an open, public bidding process, is that the state is potentially getting a poor price for legal services. In cases in which the attorneys are paid on a non-competitive contingent-fee basis, less money ends up in the state treasury."

The pendulum appears to be swinging. State legislators are increasingly adopting restrictions upon their attorney general hiring outside counsel for large class-action lawsuits.

The legal system is now involved as well with challenges in West Virginia, California and Rhode Island reaching the state's highest court. Attorneys general also are beginning to change their methods, particularly as upstart new candidates seek to win voters with vows of reform, legal observers say.

Former Virginia Attorney General Jerry Kilgore said these concerns have brought increased scrutiny.

"The practice of appointing outside counsel has been given increased scrutiny both inside and outside an attorney general's office," he said.

While the debate may continue for years, the push for reform has gained traction and is changing the way attorneys general throughout the country do business.

"It appears AGs around the country," Kilgore said, "are less and less likely to hire firms ... without some policies and procedures."

While that may be true in many places, it rings hollow in the Mountain State.

Legislative reform has mostly failed over the years and Attorney General Darrell McGraw continues to appoint special assistant attorneys general and hire outside counsel -- most of whom are consistent contributors to his campaigns -- with little public oversight.

What's the problem?

The American Tort Reform Association, based in Washington, D.C., is among several groups pushing for change. In its Tort Reform Record of June 2008, it highlights the problems, which include plaintiffs failing to receive a fair portion of the settlements and campaign contributors being awarded these lucrative contracts without public scrutiny.
Class-action suits take cases with similar complaints and combines them into a single case. But the ATRA asserts, "class actions are now considered a means of defendant extortion. Today, some class actions are meritless cases in which thousands, or millions, of plaintiffs are granted class status."

Critics say the actual plaintiffs in these cases rarely receive compensation while attorneys earn millions in legal fees and settlements.

Such was the case in West Virginia, when outside counsel was paid $3.3 million in fees and expenses from a $10 million Oxycontin settlement, while the actual plaintiffs, three state agencies, received nothing.

Now the state's Department of Health and Human Resources has had federal funds held back because the federal government's Medicaid program did not receive its share of the settlement, thus potentially costing the DHHR millions for a suit the attorney general's office won on its behalf.

A second hot-button issue currently under the spotlight of reform is the cozy relationships between private attorneys and their state attorneys general.

Large campaign donors in states such as West Virginia and California have later been hired as outside counsel in multi-million dollar class action lawsuits.

"Contracts that are contingent-fee based on the size of recovery sets up a conflict of interest between the state's law-enforcement interests and the financial interests of the outside attorneys," said Theodore Frank, resident fellow of the American Enterprise Institute for public policy research.

"We would be very concerned if the state delegated criminal enforcement to outside officials who were paid for each fine collected or sentence imposed; there is no reason that the same principle and problem is not at issue in civil enforcement," Frank said.

Again, people around the country point to the contracts McGraw has given to his campaign contributors, a list West Virginia Citizens Against Lawsuit Abuse claims continues to grow despite increased public scrutiny.

"The attorney general's office has hired private attorneys to serve as Special Assistant AGs more than 25 times in the last three years," states a report issued by West Virginia's CALA in June 2007. "A vast majority of these appointments involve lawyers who have made large contributions to Darrell McGraw's campaigns."

McGraw is not alone. The San Francisco Examiner reported that then-New Mexico Attorney General Patricia Madrid "received more than a quarter of all her 2002 campaign donations from liabilities lawyers, some of whom received significant state contracts. Similar controversies have surrounded Oklahoma Attorney General Drew Edmondson and Missouri Attorney General Jay Nixon."
But the ATRA said these practices are not widespread across the country.

"Problems with activist or populist attorneys general are, thankfully, confined to several states and do not plague the nation as a whole," ATRA Spokesman Darren McKinney said this week. "Those states with attorneys general who have occasionally put their political interests and the interests of their trial lawyer supporters above the public interest include, among others, West Virginia, Mississippi, Alabama, Connecticut, Rhode Island and California."

All of this litigation is not without cost. According to a 2004 report, the cost of the U.S. tort system was $246 billion, or $845 per citizen. Costs increased by 35 percent from 2003 to 2004.

Types of reform

Though the wheels of change turn slowly in these matters, tort reform experts believe progress is being made.

While Virginia's attorney general, Kilgore supported legislation passed by the General Assembly that required the attorney general to competitively bid contingency-fee litigation, "to ensure the Commonwealth was obtaining the best deal," he said.

Connecticut passed similar legislation in 2005.

Nine states have enacted laws to better govern class actions, according to the ATRA. Some of these include procedures for certifying class actions, ensuring defendants receive adequate notice prior to a class-action certification and providing for an appeal of a class action certification.

Florida established a venue reform to prohibit out-of-state residents from filing class action lawsuits in Florida courts unless the claim occurred or emanated from the state. They also require that actual damages be proved to maintain certain class action suits.

Colorado passed legislation that requires monthly reports by outside counsel to include the number of hours worked and court costs in outside counsel relationships.

"In recent months," said a 2007 report in the National Law Review, "attorneys general in Ohio, New Jersey and California have instituted new policies that would require law firms to bid publicly for work or reduce confidentiality in hiring process."

Legislation in Kansas and Nevada is aimed at reducing the use of outside counsel, the report states.

West Virginia's first step of control over McGraw's use of outside counsel came during this year's first ordinary session when legislators passed House Bill 104, which requires the attorney general to notify the governor and legislator when filing a lawsuit and when entering into settlement agreements.

The step was admittedly a small one, according to Rep. Vic Sprouse, an outspoken critic of McGraw.
"I don't think this is progress because it is strictly a reporting requirement after the fact," Sprouse said. "I guess it's better than nothing, but it does show how scared the Legislative leadership is of \pard softlineDarrell McGraw that they only require him to tell them after he settles."

In 2007, the ATRA issued a voluntary transparency code in the hopes that attorneys general would adopt it to better police themselves. Kilgore supports the code and would like to see it become more widespread.

The transparency code calls for five standards in relationship to outside counsel contracts:

* all legal contracts to be publicly disclosed,

* contracts whenever possible to be open for competitive bidding,

* contingency-fee contracts to be subject to review by the state Legislatures,

* private attorneys hired by the state to disclose actual hours worked and fees incurred and

* funds obtained through settlements to be deposited to state treasury, not the attorney general's office budget.

The adoption of these standards as a uniform code would bring greater fairness and consistency among state attorneys general offices, ATRA President Sherman Joyce said.

Fighting back

In response to the call for reform, many attorneys general remain unmoved, claiming that the ATRA and other organizations are simply shilling for the major corporations stung by lawsuits in the past.

"Plaintiffs lawyers said the moves toward transparency are assaults by business groups on attorneys general who bring damaging cases against them," said a 2007 National Law Review story.

"Jack McConnell, partner in the Providence, R.I., office of Motley Rice, which represents the state of Rhode Island in a high-profile public nuisance case against several lead paint manufacturers, said the U.S. Chamber of Commerce and other business groups 'have worked very hard to convince the public that attorneys general's hands should be tied in their ability to take on bad actors in the business community."

McGraw's campaign Web site is similarly dismissive of the ATRA and other organizations pushing for reform.

"In reality, the American Tort Reform Association, The Competitive Enterprise Institute, and Citizens Against Lawsuit Abuse are the sophisticated lobbying tool of the National Chamber of Commerce, whose members are regulated by the Attorney General's Office under the laws of West Virginia," the Web site states. "Big tobacco and the insurance and pharmaceutical industries fund bogus studies, which spew misinformation with the intent to influence West Virginia's political process."

Similar charges have been made by Teresa Toriseva, head of the West Virginia Association for Justice, who is also both a campaign contributor of McGraw's and a lawyer appointed special assistant attorney general by him.

Toriseva called the ATRA "a front for billion-dollar organizations that issue bogus reports that attack our West Virginia courts."

Kilgore said he disagrees.

"ATRA is a front for open government and has gained a lot of support from state AGs and candidates for its openness agenda," he said. "The agenda is viable because it is the right agenda for taxpayers and transparent government."

The ATRA's McKinney said the attacks don't add up in light of the organization's agenda.

"Opponents of reform -- those with a vested interest in a corrupt status quo -- invariably resort to attacking ATRA, the messenger, because our message is unassailable," he said. "How can any reasonable, credible person be opposed to competitive bidding, public disclosure and scrupulous record keeping when it comes to government contracts of any sort? And how can anyone with respect for the constitutional separation of powers argue that an attorney general should usurp the legislature's exclusive authority to appropriate state funds?"

The battle continues within state legislatures as well, according to Joyce, the head of the ATRA.

Joyce issued a report in March documenting legislation throughout the country intended to scale back reform. He said more than 100 bills have been introduced in the last two years "seeking repeals or gains made in sunshine legislation."

It surely can be a challenge for the typical American voter to empathize with either side in a battle between millionaire trial lawyers and billionaire corporations.

But as Kilgore, Frank and others not tied to either side assert, issues of reform have less to do with the money, the lawsuits or the political gains, but more to do with the simple principle that public business should be done in the public eye.

To the Trenches: The Tort War Is Raging On

Beyond the Ambulance

By Daniel Ostrovsky
Daily Business Review
July 6, 2007

So why is he representing a client in a dispute over a brokerage commission and launching a consulting business to help large corporations reduce their commercial litigation costs?

"With the lessening of medical malpractice cases because of limited insurance coverage [carried by physicians], we’ve branched out into commercial litigation," said Babbitt, of Babbitt Johnson Osborne & LeClainche in West Palm Beach. "We are now actively seeking that kind of business."

He’s not alone. Other prominent South Florida personal injury lawyers also are looking to broaden their litigation practices beyond staples like medical malpractice, auto negligence, and product liability.

They are offering to represent clients in business disputes on a contingency fee basis, in contrast to the typical hourly billing approach. They argue they have far more trial experience than the average business litigator. "Very few commercial litigators have the jury-trial experience that we do because businesses tend to settle their cases," Babbitt said.

Prominent Miami personal injury attorney Stuart Grossman said some corporate clients are starting to realize the value of hiring top personal injury plaintiff lawyers to handle their cases.

"Aggressive companies that really feel they were wounded and aren’t happy with just the exchange of papers that take place with typical commercial litigators, those companies that have had it with the usual way of doing business, are turning more to trial lawyers," said Grossman, of Grossman & Roth in Miami.

South Florida personal injury lawyers cite a number of factors for seeking new fields of practice. In recent years, state and federal lawmakers have eliminated joint and several liability, imposed caps on noneconomic damages, made it harder to bring class actions in state court, and capped punitive damages. Meanwhile, a growing number of Florida physicians have stopped carrying medical malpractice insurance. So it’s tougher to collect judgments against them.

West Palm Beach litigator Gerald F. Richman is another successful plaintiff lawyer seeking to move beyond personal injury. "Our firm several years ago made the decision to not have any significant part of its practice being personal injury work, and put more emphasis on commercial litigation," said Richman, of Richman Greer Weil Brumbaugh Mirabito & Christensen.

The majority of commercial litigation cases handled by personal injury lawyers are plaintiff cases. But these litigators are also venturing into defense work, too.

In defense cases, they sit down with the client and assess the client’s exposure in the lawsuit. They then draw up a contingency arrangement where the firm gets a percentage of what the client saved by winning the litigation.

Mark Raymond, managing partner of the Miami office of Broad and Cassel, a 180-lawyer firm that handles many commercial litigation cases, said large corporations that hire large corporate law firms and pay by the hour will take notice if personal injury lawyers rack up big wins in commercial litigation.

"If these exceptional trial lawyers in the personal injury field have initial success in the commercial arena, it most certainly will cause sophisticated users of commercial trial lawyers to consider contingency when they may have never had considered contingency and [will cause clients to] go to nontraditional lawyers as opposed to the thousand-lawyer law firms," he said.

The idea of personal injury lawyers handling commercial litigation cases on a contingency basis is not new. In 1995, Willie Gary, who heads personal injury firm Gary Williams Parenti Finney Lewis McManus Watson & Sperando in Stuart, won a $500 million verdict in Mississippi on behalf of a local funeral home operator against a large Canadian funeral home chain.

In 2002, Gary filed a $10 billion trade secrets suit against Motorola in Broward Circuit Court. While a deadlocked jury led to a mistrial in the case, Gary recently was awarded nearly $23 million in attorney fees.

In 2005, Jack Scarola, of Searcy Denney Scarola Barnhart & Shipley in West Palm Beach, won a $1.6 billion fraud verdict for billionaire financer Ronald O. Perelman in Palm Beach Circuit Court against New York-based Morgan Stanley. That verdict was reversed in March by the 4th District Court of Appeal.

Scarola declined to discuss his fee arrangement in the Morgan Stanley case, but he said the "standard arrangement for this law firm is to work on at least a partial contingency fee basis."

His firm, too, is moving away from personal injury cases.

"The firm in general is doing more nonpersonal injury work than we have in the past and my own practice — including those attorneys who work directly under my supervision — is focusing increasingly more on nonpersonal injury litigation," he said.

In 2004, Grossman filed a $30 million legal malpractice suit in Broward Circuit Court on behalf of Lloyd’s of London against the law firms Carlton Fields and Cozen O’Connor. He sought to recover a $30 million settlement the insurance giant paid in a 2003 swimming pool negligence case. The parties recently reached a confidential settlement in the case.

Grossman said Lloyd’s hired him under an unusual contingency arrangement — his contingency percentage would rise as the amount of the recovery rose. He wouldn’t discuss the actual percentages or amounts. Typically, under Florida Supreme Court rules, plaintiff lawyers receive a declining sliding fee scale as the recovery increases.
"They retained us on a contingency fee basis and we were paid different percentages depending on the amount of the recovery," Grossman said. "I know that that’s happening more often."

Grossman added that while his law firm has not abandoned personal injury litigation, he and his colleagues have discovered their skills "translate elegantly" into commercial litigation work.

"I am result-oriented," he said. "I am used to working on a contingency fee basis. And I win, and that’s what keeps me going. For those who want to win, they know who the best trial lawyers are. Real trial lawyers prepare cases for trial — they don’t prepare them to settle after 65 dinners."

Kenneth J. Sobel, a plaintiff lawyer at Greenspoon Marder in Fort Lauderdale, said he and his colleagues are well-qualified to handle commercial cases and are seeking such work on a contingency fee basis.

"Litigation is litigation," said Sobel, who handles a significant amount of medical malpractice work. "The rules that we operate by in a medical malpractice case or the wrongful death case are the same rules that commercial litigators operate under. And in many cases when we are talking about damages, the theories are the same."

Personal injury lawyers say their experience with complicated medical malpractice and product liability cases has given them the intellectual and research skills to delve into complex commercial cases.

"In medical malpractice, you have to learn from scratch the same medicine that the doctor knows," Babbitt said. "So learning a commercial problem is less taxing, in my opinion, than trying to learn medicine as a nondoctor or learn engineering for a product liability case."

Grossman said commercial cases are different from personal injury cases in at least one way: "The big difference going into a tort case is you don’t know what your eventual outcome is going to be. When you have a commercial case, generally speaking, you have a pretty good idea as to what was lost."

The growing entry of personal injury lawyers into the commercial litigation field isn’t necessarily a threat to commercial litigators who bill by the hour.

That’s because the two sets of lawyers may appeal to different types of clients. Those who hire personal injury lawyers to represent them in such matters on a contingency basis typically cannot afford to pay by the hour, or they are eager to have their attorney share in the risk of litigation.

"Historically, commercial litigators have been loath to accept cases on a contingency basis," Sobel said. "There are [many] businessmen and corporations involved in legal disputes that can’t afford or don’t want to spend a large amount on attorneys in order to be able to make a recovery that they think they are entitled to."

But large commercial litigation firms seemingly do not see personal injury lawyers as a threat.

Babbitt said his firm’s marketing effort to score commercial litigation cases relies in part on asking large commercial litigation law firms for referrals of these types of clients and cases.

"I’ve met with several commercial or large firms and talked to them about referring contingency commercial litigation cases," he said. "A lot of large firms that do commercial litigation don’t do it on a contingent basis. They are just not set up for it. So we are looking for them to send us that kind of business."

Babbitt said his firm is also considering running TV ads targeted to small businesses. In addition, he and an accountant friend, David Ellrich, are starting a consulting business to help large corporations analyze the litigation they face.

Babbitt said he and Ellrich soon will send letters to chief executives and chief financial officers of every major corporation in the country touting his firm’s services.

He can offer corporate clients an insider’s perspective on the thinking of the plaintiff lawyers who are suing them. "We can sit down and look at the cases, evaluate them, and give them our advice about settling these, not settling those, what cases have value, what cases don’t have value," he said.

"We can say this is what we would want as a plaintiff lawyers on the other side in order to get this resolved, or we can say this is a case you shouldn’t pay on, this is something worth fighting on."

Babbitt said his firm is pushing into commercial litigation because, in the current legal environment, "there are just easier ways to make money" than litigating personal injury cases.

Torts Lawyers Sing the Blues . . . in Vegas, Baby

By Susan Beck
New York Lawyer
The American Lawyer
May 3, 2007

In late March the ground floor of Caesars Palace in Las Vegas buzzed, clicked and warbled like the money-making turbine it is. On the fourth floor, in a convention room, another once-vaunted money machine was on display, creaking and groaning. A couple of hundred members of the mass torts plaintiff bar had convened for the 14th edition of "Mass Torts Made Perfect," seeking some way, any way, to replace the gusher of mass tort work that has largely evaporated.

The seminar is the brainchild of plaintiff lawyer Mike Papantonio of Pensacola, Fla. The name partner of Levin, Papantonio, Thomas, Mitchell, Echsner & Proctor made his fortune in the heyday of mass torts litigation in the 1990s, largely by representing asbestos victims. For the price of $1,395, which included lawyer jokes delivered by Cedric the Entertainer and luncheon speeches from Al Sharpton Jr., and Robert Kennedy Jr., Papantonio showed how you, too, can make money from mass torts (and get continuing legal education credits at the same time).

Gone are the days when a swaggering plaintiff bar routinely took aim at targets like Big Tobacco, Big Alcohol and Big Guns. This year's seminar had the feel of a survivors support group and might have been better called "Mass Torts Made Barely Okay."

Papantonio led a parade of speakers who decried the legal and political forces that have slowed mass torts litigation. For Papantonio, who co-hosts with Kennedy the "Ring of Fire" show on Air America Radio, this is nothing less than a crusade against the forces of evil. Standing before a banner depicting Saint George slaying a dragon, Papantonio castigated his enemies, whose ranks include ABC News personality John Stossel ("a sociopath," claimed Papantonio), NBC Nightly News anchor Brian Williams ("a Republican lapdog"), and Vice President Dick Cheney ("We're going to hang Dick Cheney around the Chamber of Commerce's neck").

"You've heard the doom and gloom this morning. It's true," thundered Joseph Cotchett, from Burlingame, who spoke on the future of mass torts litigation. Securities litigation? Forget about it. "If you're doing securities work now, in 90 days you won't be," he darkly predicted, noting the discouraging recent oral arguments before the U.S. Supreme Court in Tellabs v. Makor, which addressed federal pleading requirements.

Geoffrey Fieger from Southfield, Mich., beat more drums of alarm: "The courthouse doors are shutting every day across the country! The Huns are at the gate! They're coming for us!"

Throughout the two-day event, these warriors for the people," as Fieger called the assembled, were shown how to strike back. Fieger has been running ads in Michigan decrying the attack on plaintiffs litigation. John Morgan, from Orlando, a co-presenter of the event, advised firms to abolish casual dress days to impress clients: "People want to see the lawyers they see on TV."

While plenty of sessions focused on mainstream issues like medical device litigation, Cotchett offered tips on growth areas, such as representing cities in lawsuits to collect billboard fees. Jan Schlichtmann, the hero of the book and movie "A Civil Action," has branched out to protect shade trees. With a picture of a dying gingho behind him, he described the creation of the Massachusetts Public Shade Tree Trust, which wants gas companies to compensate communities for trees damaged by poisoned groundwater.

Papantonio took the opportunity to unveil a new weapon aimed at turning the tide of big-business media domination: an Internet news network called GoLeft.tv. This site, which is scheduled to launch May 15, will show scripted studio interviews with plaintiff lawyers. "Killer Foods: Are You at Risk?" was the title of a segment he previewed, featuring a salmonella-tainted peanut butter sandwich.

One seminar, however, sent participants fleeing from the room. When Professor Lynn Baker of the University of Texas School of Law took the stage to lecture on ethics in group settlements, including new rules on fee disclosure, roughly half the audience swept through the doors.

Some dared to speak the unspeakable. James Arnold of Columbus, Ohio's Clark, Perdue, Arnold & Scott described how he had diversified his practice with some hourly rate commercial work, which now makes up 25 percent of his revenue. You won't make as much money, and you have to keep diaries, he stated as a sobering disclaimer. Most shocking, he gave the audience this piece of advice: Hire Republicans lawyers for their firms, because they can be smart and hardworking, despite their political leanings.

"You have to get past that," said Arnold, who admitted that he actually employs an associate who attended the 2004 Republican National Convention. Desperate times call for desperate measures.

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NY's State of Mind on Litigation Balmier, Survey Says

New York Lawyer
May 3, 2007
By Beth Bar
New York Law Journal

New York state courts are offering a more comfortable environment for businesses, according to a recent survey of corporate attorneys.

New York ranks 19th among the 50 states for court fairness in the latest study of "lawsuit climate" by the U.S. Chamber Institute for Legal Reform. That is an improvement from placing 21st in 2006 and 27th in 2005.

Respondents to the survey concluded, for the sixth year in a row, that Delaware had the fairest court system. West Virginia came in last.

Trial lawyers immediately attacked the survey as "propaganda," but the Institute for Legal Reform insisted it was an accurate reflection of business perceptions of the courts.

The pro-business organization attributed New York's improvement to the better marks it received for its treatment of class action and mass-consolidation lawsuits, as well an improvement in its treatment of punitive damages.

Harris Interactive asked 1,599 in-house general counsel or other senior corporate litigators to assign grades to 12 different factors shaping a state's lawsuit climate.

In addition to treatment of class action and mass-consolidation lawsuits and punitive damages, attorneys graded states on: having and enforcing meaningful venue requirements, overall treatment of tort and contract litigation, timeliness of summary judgment or dismissal, discovery, scientific and technical evidence, non-economic damages, judges' impartiality and competence and juries' predictability and fairness.

New York courts received their best ranking - third among the states - for their handling of class actions suits. Their worst ranking was a 31 for the timeliness of summary judgment motions.

But the American Association for Justice, a nationwide group of trial attorneys, accused the Institute for Legal Reform of using the survey to advance its agenda of gutting state tort laws.

"The latest propaganda is a made-up survey primarily of corporate lawyers earning millions of dollars defending their CEOs from being held accountable," Jon Haber, the association's chief executive, said in a statement. "The [Institute for Legal Reform] will stop at nothing to destroy the civil justice system in America."
The trial lawyers released a list of the 10 "worst states to be sick in." New York was not on that list.

Larry Akey, a spokesperson for the Institute for Legal Reform, countered that the survey was an accurate reflection of the business community's perception of the legal system.

"We believe it is an accurate representation of how America's largest employers view the court system in which they operate on a day-to-day basis," Mr. Akey said in an interview.

Matthew Maguire, director of communications at The Business Council of New York State, said his organization could not comment specifically on the value of the study.

Mr. Maguire said, however, that New York businesses consider the state's litigation climate to be a "competitive disadvantage."

"Many laws . . . that are friendly to the plaintiffs bar place too heavy a burden on businesses," he said.

In particular, Mr. Maguire cited Labor Law §240, the state's "Scaffold Law," under which building owners and general contractors are held liable for failing to provide proper safety equipment.

Mr. Maguire said this law drives up the cost of construction and makes it "excruciatingly difficult" for companies to find affordable general liability insurance.

The New York State Trial Lawyers Association, however, has said that the law is an essential protection for immigrant construction workers.

"Workers who speak little or no English, who may be in the country illegally are in no position to complain to their employer, a labor union or the government about work site safety lapses," the organization said in a 2004 release. "If the Scaffold Law is eviscerated, one of their few remaining protections would be gone."

In an interview, Gene DeSantis, a spokesman for the trial lawyers association, was critical of the Institute for Legal Reform findings.

"It isn't a study," Mr. DeSantis said. "It is a popularity poll, and the only ones that are being invited to participate are corporate counsel for $100 million corporations and up."

Mr. DeSantis said, however, that it is "probably true" that the litigation climate in New York generally ranks well when compared to other states.

"The quality of justice rendered by New York courts is pretty good, with the caveat that judges are constrained by laws that are woefully out of date," he said.
For example, Mr. DeSantis said New York is one of only seven states that measures wrongful death damages by the decedent's W-2 tax form. As a result, if a child or senior citizen is killed, he or she is of little or no economic value.

Mr. DeSantis also said that at least 40 states award prejudgment interest in tort claims, but that New York is one of a handful which does not. His organization would like this to change.

Additionally, New York does not allow plaintiffs suing in connection with bad faith insurance practices the right to recovery their attorney's fees or punitive damages. They are only able to recover contract damages.

Joseph P. Awad, president of the state association, said his organization would like these tort laws to be "modernized."

"New York should join the 21st century," said Mr. Awad, a partner at Silberstein Awad & Miklos.

Mark C. Zauderer, a partner at Flemming Zulack Williamson Zauderer, attributed much of New York's success with the business community to the Commercial Division of the Supreme Court.

"Since the Commercial Division was established a dozen years ago, it has produced a change in attitude among the business community about litigating in state court," Mr. Zauderer said. "A decade ago, businesses often avoided New York state courts whenever possible. But today, the state courts are viewed positively by in-house counsel. They recognize that it is a system that [is capable of handling] complex cases."

C. Evan Stewart, a partner at Zuckerman Spaeder, said the survey sounded "impressionistic," but said that from his experience he is not surprised that New York would receive a high ranking.

Mr. Stewart said New York has a "progressive, intelligent system."

Businesses Seek Protection on Legal Front

By Stephen Labaton
The New York Times
October 28, 2006

WASHINGTON, Oct. 28 — Frustrated with laws and regulations that have made companies and accounting firms more open to lawsuits from investors and the government, corporate America with the encouragement of the Bush administration is preparing to fight back.

Now that corruption cases like Enron and WorldCom are falling out of the news, two influential industry groups with close ties to administration officials are hoping to swing the regulatory pendulum in the opposite direction. The groups are drafting proposals to provide broad new protections to corporations and accounting firms from criminal cases brought by federal and state prosecutors as well as a stronger shield against civil lawsuits from investors.

Although the details are still being worked out, the groups’ proposals aim to limit the liability of accounting firms for the work they do on behalf of clients, to force prosecutors to target individual wrongdoers rather than entire companies, and to scale back shareholder lawsuits.

The groups hope to reduce what they see as some burdens imposed by the Sarbanes-Oxley Act, landmark post-Enron legislation adopted in 2002. The law, which placed significant new auditing and governance requirements on companies, gave broad discretion for interpretation to the Securities and Exchange Commission. The groups are also interested in rolling back rules and policies that have been on the books for decades.

To alleviate concerns that the new Congress may not adopt the proposals regardless of which party holds power in the legislative branch next year many are being tailored so that they could be adopted through rulemaking by the S.E.C. and enforcement policy changes at the Justice Department.

The proposals will begin to be laid out in public shortly after Election Day, members of the groups said in recent interviews. One of the committees was formed by the United States Chamber of Commerce and until recently was headed by Robert K. Steel.

Mr. Steel was sworn in last Friday as the new Treasury undersecretary for domestic finance, and he is the senior official in the department who will be formulating the Treasury’s views on the issues being studied by the two groups.

The second committee was formed by the Harvard Law professor Hal S. Scott, along with R. Glenn Hubbard, a former chairman of the Council of Economic Advisers for President Bush, and John L. Thornton, a former president of Goldman Sachs, where he worked with Treasury Secretary Henry M. Paulson Jr.

That group has colloquially become known around Washington as the Paulson Committee because the relatively new Treasury secretary issued an encouraging statement when it was formed last month. But administration officials said Friday that he was not playing a role in the group’s deliberations.

Its members include Donald L. Evans, a former commerce secretary who remains a close friend of President Bush; Samuel A. DiPiazza Jr., chief executive of PricewaterhouseCoopers, the accounting giant; Robert R. Glauber, former chairman and chief executive of the National Association of Securities Dealers, the private group that oversees the securities industry; and the chief executives of DuPont, Office Depot and the CIT Group.

Jennifer Zuccarelli, a spokeswoman at the Treasury Department, said on Friday that no decision had been made about which recommendations would be supported by the administration.

"While the department always wants to hear new ideas from academic and industry thought leaders, especially to encourage the strength of the U.S. capital markets, Treasury is not a member of these committees and is not collaborating on any findings," Ms. Zuccarelli said.

But another official and committee members noted that Mr. Paulson had recently pressed the groups in private discussions to complete their work so it could be rolled out quickly after the November elections.

Moreover, committee members say that they expect many of their recommendations will be used as part of an overall administration effort to limit what they see as overzealous state prosecutions by such figures as the New York State attorney general Elliot Spitzer and abusive class action lawsuits by investors. The groups will also attempt to lower what they see as the excessive costs associated with the Sarbanes-Oxley Act.

Their critics, however, see the effort as part of a plan to cater to the most well-heeled constituents of the administration and insulate politically connected companies from prosecution at the expense of investors.

One consideration in drafting the proposals has been the chain of events at Arthur Andersen, the accounting firm that was convicted in 2002 of obstruction of justice for shredding Enron-related documents; the conviction was overturned in 2005 by the Supreme Court. The proposals being drafted would aim to limit the liability of auditing firms and include a policy shift to make it harder for prosecutors to bring cases against individuals and companies.

Even though Arthur Andersen played a prominent role in various corporate scandals, some business and legal experts have criticized the decision by the Bush administration to bring a criminal case that had the effect of shutting the firm down.

The proposed policies would emphasize the prosecution of culpable individuals rather than corporations and auditing firms. That shift could prove difficult for prosecutors because it is often harder to find sufficient evidence to show that specific people at a company were the ones who knowingly violated a law.

One proposal would recommend that the Justice Department sharply curtail its policy of forcing companies under investigation to withhold paying the legal fees of executives suspected of violating the law. Another one would require some investor lawsuits to be handled by arbitration panels, which are traditionally friendlier to defendants.

In an interview last week with Bloomberg News, Mr. Paulson repeated his criticism of the Sarbanes-Oxley law. While it had done some good, he said, it had contributed to "an atmosphere that has made it more burdensome for companies to operate."

Mr. Paulson also repeated a line from his first speech, given at Columbia Business School last August, where he said, "Often the pendulum swings too far and we need to go through a period of readjustment."

Some experts see Mr. Paulson’s complaint as a step backward.

"This is an escalation of the culture war against regulation," said James D. Cox, a securities and corporate law professor at Duke Law School. He said many of the proposals, if adopted, "would be a dark day for investors."

Professor Cox, who has studied 600 class action lawsuits over the last decade, said it was difficult to find "abusive or malicious" cases, particularly in light of new laws and court decisions that had made it more difficult to file such suits.

The number of securities class action lawsuits has dropped substantially in each of the last two years, he noted, arguing that the impact of the proposals from the business groups would be that "very few people would be prosecuted."

People involved in the committees said that the timing of the proposals was being dictated by the political calendar: closely following Election Day and as far away as possible from the 2008 elections.

Mr. Hubbard, who is now dean of Columbia Business School, said the committee he helps lead would focus on the lack of proper economic foundation for a number of regulations. Most changes will be proposed through regulation, he said, because "the current political environment is simply not ripe for legislation."

But the politics of changing the rules do not break cleanly along party lines. While some prominent Democrats would surely attack the pro-business efforts, there are others who in the past have been sympathetic.

People involved in the committees’ work said that their objective was to improve the attractiveness of American capital-raising markets by scaling back rules whose costs outweigh their benefits.

"We think the legal liability issues are the most serious ones," said Professor Scott, the director of the committee singled out by Mr. Paulson. "Companies don’t want to use our markets because of what they see as the substantial, and in their view excessive, liability."

Committee officials disputed the notion that they were simply catering to powerful business interests seeking to benefit from loosening regulations that could wind up hurting investors.

"It’s unfortunate to the extent that this has been politicized," said Robert E. Litan, a former Justice Department official and senior fellow at the Brookings Institution who is overseeing the committee’s legal liability subgroup. "The objectives are clearly not to gut such reforms as Sarbanes-Oxley. I’m for cost-effective regulation."

The main Sarbanes-Oxley provision that both committees are focusing on is a part that is commonly called Section 404, which requires audits of companies’ internal financial controls. Some business experts praise this section as having made companies more transparent and better managed, but many smaller companies call the section too costly and unnecessary.

Members of the two committees said that they had reached a consensus that Section 404, along with greater threat of investor lawsuits and government prosecutions, had discouraged foreign companies from issuing new stock on exchanges in the United States in recent months.

The committee members said that an increase in stock offerings abroad was evidence that the American liability system and tougher auditing standards were taking a toll on the competitiveness of American markets. But others see different reasons for the trend and few links to liability and accounting rules.

Bill Daley, a former commerce secretary in the Clinton administration who is the co-chairman of the Chamber of Commerce group, expects proposed changes to liability standards for accounting firms and corporations to draw the most flak. But he said that the changes affecting accounting firms are of paramount importance to prevent the further decline in competition. Only four major firms were left after Andersen’s collapse.

Another contentious issue concerns a proposal to eliminate the use of a broadly written and long-established anti-fraud rule, known as Rule 10b-5, that allows shareholders to sue companies for fraud. The change could be accomplished by a vote of the S.E.C.

John C. Coffee, a professor of securities law at Columbia Law School and an adviser to the Paulson Committee, said that he had recommended that the S.E.C. adopt the exception to Rule 10b-5 so that only the commission could bring such lawsuits against corporations.

But other securities law experts warned that such a move would extinguish a fundamental check on corporate malfeasance.

"It would be a shocking turning back to say only the commission can bring fraud cases," said Harvey J. Goldschmid, a former S.E.C. commissioner and law professor at Columbia University. "Private enforcement is a necessary supplement to the work that the S.E.C. does. It is also a safety valve against the potential capture of the agency by industry."

                   Bush Wins War to Curb Big Lawsuits

By Vince Morris
New York Post
February 19, 2005

WASHINGTON - President Bush, savoring his first big legislative win since his re-election, yesterday signed a bill he says will end the "lawsuit culture" in America.

Bush said the class-action-reform measure discourages lawsuits by forcing people filing actions that seek more than $5 million to file in federal courts instead of state courts, which tend to be more generous.

"The bill will ease the needless burden of litigation on every American worker, business and family," said Bush, before signing the bill into law at a White House ceremony where he was joined by a bipartisan group of lawmakers.

The president noted some lawyers have in the past shopped around for sympathetic state court districts to file broad class-action suits.

This bill ends that and also puts new restrictions on how lawyers can profit from cases cutting back on outcomes when the plaintiff gets just pennies out of a million-dollar verdict.

"Victims can count on true compensation for their injuries," Bush noted. This bill "marks a critical step toward ending the lawsuit culture in our country."

Democrats, joined by a range of labor and environmental groups, claimed the legislation is skewed to help big corporations.

The bill was opposed by most Democrats, including Sen. Hillary Clinton (D-N.Y.), although Sen. Charles Schumer sided with the GOP in voting for it. After passing the Senate, it easily cleared the House earlier this week.

Congress OKs Law on Class Action Suits

By Jesse J. Holland
Associated Press
February 17, 2005

WASHINGTON - Congress sent President Bush legislation Thursday aimed at discouraging multimillion-dollar class-action lawsuits by having federal judges take them away from state courts, a victory for conservatives who hope it will lead to other lawsuit limits.

The legislation the House passed, 279-149, is the first of Bush's 2005 legislative priorities to win congressional approval. The Senate voted 72-26 for the bill Feb. 10. The president has described class-action suits as often frivolous, and businesses complain that state judges and juries have been too generous to plaintiffs.

"This bill is an important step forward in our efforts to reform the litigation system and to continue creating jobs and growing our economy,'' said Bush, who is expected to sign the bill Friday.

But Democrats say the legislation is aimed at protecting GOP business donors and hurting trial lawyers, a traditional part of their base. They also warn that Republican changes to the legal system will only make it harder for people to sue over injuries caused by corporations.

The legislation is "a payback to big business at the expense of consumers,'' said House Minority Leader Nancy Pelosi, D-Calif.

Changing the legal system - including class-action, medical malpractice and asbestos injury lawsuits - has been a priority of Bush, the GOP and the business community. They have criticized what they see as a litigation crisis that enables lawyers to reap huge profits while businesses and consumers are stuck with the bill.

"This is the beginning of meaningful efforts by the Congress to curb lawsuit abuse,'' said House Judiciary Committee Chairman James Sensenbrenner, R-Wis.

Under the legislation, class-action suits seeking $5 million or more would be heard in state court only if the primary defendant and more than one-third of the plaintiffs are from the same state. But if fewer than one-third of the plaintiffs are from the same state as the primary defendant, and more than $5 million is at stake, the case would go to federal court.

State courts have been known to issue multimillion-dollar verdicts like they did against tobacco companies. Critics of the current situation have said federal jurists are not as likely to let multimillion dollar class action lawsuits move forward.

Bush and other Republicans say greedy lawyers have taken advantage of the state class-action lawsuit system by filing frivolous lawsuits in certain states where they know they can win big dollar verdicts. Meanwhile, those lawyers' clients get only small sums or coupons giving them discounts for products of the company they just sued, GOP lawmakers