For Immediate Release
Office of the Press Secretary
December 15, 2004
President Discusses Lawsuit Abuse at White House Economy Conference
Ronald Reagan Building and International Trade Center
Washington, D.C.
Fact Sheet: Securing Our Economic Future
In Focus: Jobs and Economy
1:32 P.M. EST
THE PRESIDENT: Listen, thank you all for coming. I've just come
off a campaign -- (laughter) -- and spent a great deal of time talking
with the American people about how to make sure America is the best
place in the world to do business. And there was a lot of discussion
in the course of the last couple of months about what's the best
philosophy to make sure that jobs are created here, that the
entrepreneurial environment is strong, that small businesses can
flourish -- but, most importantly, that people find jobs close to
home.
And one of the things that I talked about was making sure that the
environment for risking capital was conducive for job creation. And I
tried to say that as plainly as I could. And one issue that I talked
about to make sure that costs were reasonable and that the cost of
capital was reasonable was legal reform, that the cost of frivolous
lawsuits, in some cases, make it prohibitively expensive for a small
business to stay in business or for a doctor to practice medicine -- in
which case, it means the health care costs of a job provider or job
creator has escalated, or is escalating. I talked about the
competitive advantage that we must have in America if we expect jobs to
stay here.
The cost of lawsuits, relative to countries that we compete
against, are high. In other words, the cost of litigation in America
makes it more difficult for us to compete with nations in Europe, for
example.
And so I want to thank our panelists for coming today to help add
some expertise to this notion that if we can achieve legal reform in
America it'll make it a better place for people either to start a
business and/or find work.
Now, there's much more to a comprehensive economic expansion
program than just legal reform, but a cornerstone of any good program
is legal reform. And there's a practical aspect to our discussions
today, because I want the people who get to decide whether we're having
legal reform to hear from experts -- and that would be members of the
House and Senate from both sides of the aisle. I am here to not only
thank our panelists, but to make it clear as I possibly can that I
intend to take a legislative package to Congress which says we expect
the House and the Senate to pass meaningful liability reform on
asbestos, on class action and medical liability. (Applause.)
I want to thank -- I want to thank my good friend, Don Evans, who
has served so well as the Secretary of Commerce. As you know, he has
made the decision to go back to the state of Texas -- I'm glad my
departure was delayed by four years. (Laughter.)
SECRETARY EVANS: So am I. (Laughter.)
THE PRESIDENT: But I do want to thank him for serving so
admirably, and I want to thank you for hosting this event. (Applause.)
SECRETARY EVANS: Mr. President, thank you so much. We have a very
distinguished panel, but a far-reaching panel. As you know, the issue
of lawsuit abuse has many, many facets to it. And so I'm delighted
that we have been able to assemble a number of people that look at it
from an economist perspective, an academia perspective, a small
business perspective, a health care perspective, because there's many,
many issues that relate to lawsuit abuse in this country.
I want to thank you, Mr. President, for your leadership on this
particular matter, your attention you've given to it. I'm one of the
-- one of those out there has -- that have seen your focus on it for
over 10 years. I remember full well in 1993, when you were running for
governor of the state of Texas, it was one of the very top issues on
your agenda. And after becoming governor, you led and you made a
difference in that state. And because of the difference you've made in
tort reform in the state of Texas, the state of Texas economy is a
stronger economy than it otherwise would have been. And you're
bringing that same leadership here to Washington, D.C. and the federal
government, because certainly there's things we can do in federal
government that will create a better environment for entrepreneurs and
small business owners to create jobs and grow our economy, and it had
to do with legal reform and lawsuit reform.
Mr. President, you mentioned that I have served here for some four
years as Secretary of Commerce, and one of the things I must say: One,
it was an honor to serve the American people, and it certainly has been
under your leadership. But as I've traveled across America, the one
thing that I hear time and time again among manufacturers, as well as
service companies, is the burdens of lawsuits, the burdens of junk and
frivolous lawsuits and how they continue to weaken our economy and make
it harder for us to compete domestically and internationally, and not
easier for us to compete domestically and internationally.
And that's -- and that's the one question we ought to always ask
ourselves when we make decisions in this town. Does this make it
harder for us to compete and create jobs in America domestically? Or
does it make it easier for us to compete? So everything we do should
say it makes it easier to compete and create jobs. And what lawsuit
abuse has done is it not only threatens our competitiveness and
innovation in the world, but it also -- it harms our health care
system, it raises the cost of health care in this country, it stifles
innovation, et cetera.
Last year, our department went around the country, and we held
roundtable discussions -- some small and medium-sized manufacturers all
across America. And we heard this same message, with an incredible
amount of passion and energy, not just from the manufacturers, but also
service companies, as well, and that is how important it is to deal
with lawsuit reform and deal with it now, because it's going to impact
the creation of jobs in this country for generations to come. It's not
only about today's economy, but it's the economy for your children and
your grandchildren. And it's time to deal with it now.
Mr. President, you referred to some of the cost of tort reform --
or tort costs in this country. It represents over 2 percent of our
Gross Domestic Product, over $250 billion in tort costs into our
economy. That is a lot more than most of our -- in fact, it is more,
as a percentage, as well as absolute terms, of those that we compete
with around the world. The manufacturing sector bears a
disproportionate share of that, about 4.5 percent. And so when you
think of the tort cost in manufacturing products in this country, then
compare it with wages and salaries in the manufacturing sector -- 17.5
percent of the cost of labor and wages is part of the cost, where only
-- where 4.5 percent is tort claims. So you can see how tort costs are
a significant price of cost in everything that we purchase in this
country.
I was in Missouri this last year, and I had a chance to really see
up close and personal how it's impacting the health care industry. I
talked to a David Carpenter, who is the CEO of North Kansas City
Hospital, and what he told me was that there had been 30 doctors that
had moved from Missouri to Kansas because Kansas had, indeed, passed
tort reform and had put some caps in place. So you see it happening
all across America, where doctors are moving around and trying to find
a more friendly environment.
Lawsuit abuse is just simply piling up cost on the backs of not
just companies, but the American people. I like to call it a tort
tax. If you take the total cost of tort claims and judgments in our
country and divide it by the number of people in the country, it's a
tort tax of about $809 per capita. So in everything that we purchase,
everything that we buy, in there someplace is a tort tax or a tort
cost. And so it's going to continue to drive up the cost of
automobiles, groceries that we purchase, work boots that we purchase --
whatever it is we purchase, it's going to continue to drive up those
costs if we don't do something about it, and it's also going to
continue to stifle innovation and the entrepreneurial spirit.
And what we ought to be doing is figuring out ways to lower risk
and increase rewards, and that's exactly the opposite of what junk and
frivolous lawsuits does in a society. What they do is they increase
risk and lower results. So -- and lower rewards.
So for us to continue to be the most competitive economy in the
world, the most innovative economy in the world, this is an issue that
we must deal with and we must deal with it now. Again, I'm delighted
to have this outstanding panel here to discuss this subject, important
subject and issue, and I would like to begin by calling on Professor
George Priest, who is the professor of Yale University, holds a John M.
Olin Professor of Law Chair there. George will take us through some of
the modern expansion of tort liability in America, and discuss some of
the reform possibilities that we ought to be considering.
Professor.
MR. PRIEST: Thank you, Mr. Secretary. Let me give you a little
history about the expansion of liability. This problem of lawsuit
abuse and the problem of excessive litigation is really pretty much a
modern problem. Prior to the 1960s, tort law was really a bath water.
It was dominated by principles of corrective justice; litigation was
minuscule. But ideas began to change, and there came to be a
conception that developed that tort law could be turned into an
instrument of public policy, according to which tort judgments, damage
judgments, could be used to internalize costs -- the harms the people
had suffered -- to persons and to the companies that had caused them.
And so the idea was, by internalizing these costs, there would be
incentives created to make products safer, to make other services
safer, and also to provide a form of insurance for individuals that had
suffered some type of harm.
The other advantage, or the thought that there was an advantage,
was that this could be done universally. That is, safety regulation,
direct safety regulation by agencies, applies only in a very few number
of industries. Using tort law as a regulatory mechanism, on the other
hand, could be applied to all activities in a society, and so it could
become universal. And based upon this conception, courts began to
expand liability. They began first in the products liability field,
but then it expanded to other areas more generally.
Now, I believe that this conception, this idea of internalizing
costs, has had some beneficial features, has had some beneficial
effects. That is, I think that it did enhance safety and reduce harm
over some range. But the problem that has arisen, and it really is a
problem that arose several decades ago, is that there are limits to the
extent to which tort law and litigation can be effective in increasing
safety and reducing harm. But the problem is that this conception of
internalizing costs doesn't recognize those limits, and so even though
those limits have been exceeded, courts have continued to expand
liability in area after area. And when liability is expanded beyond
the point where it can really effectively encourage greater safety,
beyond the point where these harms can practicably be reduced, there
are two forms of harmful societal effects that result.
The first is -- and it's the one you were talking about, Mr.
Secretary -- that the cost of litigation has to be passed on in the
prices of products and services, exactly as you say, it's a tax. And
it's a tax that every citizen and every consumer has to pay on every
product and service that they buy. Just to give an example -- and you
mentioned this, too -- in today's litigation environment, auto
manufacturers are basically absolutely liable anytime there's a serious
accident. They will always be sued and they will always have to settle
the case in some way. And what does that mean? That means that auto
prices have to increase. That litigation has no effect on safety, it
has no effect on the redesign of automobiles -- we have an agency,
NHTSA, that is charged with monitoring auto safety. The litigation has
no effect whatsoever, it simply adds to the cost. And adding to the
cost hurts most severely the low income in the society, because they're
the least able to pay these costs and they're the ones that get the
least return -- even if they do litigate, the damages they receive are
lower than those of other citizens.
Now, in other industries, however, the results are even worse.
That is, in some industries, liability has extended -- has been
extended to such an extent that the affected parties begin to make
investments that are unproductive, that are not necessary, in order to
try and shield themselves from liability. The medical industry is a
good example. Defensive medicine is, in essence, counterproductive and
it's an investment that's made to try and ward off litigation for no
useful purpose.
And the consequences of this whole -- of the regime that we've
created here is a legal system in which litigation is available with
respect to every activity of the society. And worse, I think -- and
Phil Howard will talk about this, too -- we have been developing a
culture in this society, in this country in which it's believed that
any conceivable social problem can be solved by litigation. And so we
have litigation trying to deal with every conceivable social issue.
Now, what can be done about it? Well, I think the most fundamental
reforms have to come from the courts. It's the courts that created
this problem and it has to come from the courts in redefining liability
rules. But what that means is it's extremely important to appoint or
elect judges who are committed to tort reform. Now, what can -- but
there are other things that can be done, and there are some things that
can be done at the congressional level and I think the three reforms
that the President mentioned are important reforms.
We need class action reform. The rules that were developed -- and
they were developed in the 1960s -- with the thought of controlling
class actions are quaint today, and there are many courtrooms in which
there are no controls on class action whatsoever. Now, the Class
Action Fairness Act takes a step; what it does is push these class
actions into the federal courts where there is going to be some more
control -- but, all respect, it's not a solution. It's going to help
-- it's a step that I think is a small step, but it's important --
it's an important step.
I think federal reform in particular industries -- such as in the
medical industry -- a reform of medical malpractice is important, too,
and it's a promising reform because all of the doctors and all of us
know that we have to control health costs, and all of us know, too, and
can see easily what the harmful effects of expanding liability against
needed medical services is. So medical malpractice reform is
important, as well.
Third, and you mentioned this, Mr. President, and I agree entirely,
Congress can attempt to do something about asbestos litigation.
Asbestos litigation is an extraordinary phenomenon. I've been studying
it the last couple of years. It's just extraordinary. Everybody knows
that there are hundreds of thousands of cases that have been filed and
that there are millions more that are going to be filed. But I think
few know exactly what kinds of cases these are. And let me just
give you one example illustrative of what this problem is.
A short time ago in California, a man recovered $4.5 million
against an asbestos -- a company that had used asbestos. And the only
exposure this man could document, the only time he had ever been
exposed to asbestos was one day when he was the child when his mother
and grandfather took him to their church, whose ceiling was being
remodeled. That was the entire exposure. One day of asbestos, and he
recovers $4.5 million. This asbestos litigation is a vast system of
redistribution within the society. And, indeed, by the standards of
that case, every American is a victim of asbestos. But I -- but I
certainly would say this: It is not a sign of a healthy society when
every citizen can qualify as a litigant and file suit.
So I think there's -- there is an important need for legislation in
many different areas to deal with this problem of excessive
litigation. These reforms are -- the three reforms that the President
has talked about are going to be helpful. I think, again, they are
small steps, but they're steps in the right direction, and they're
steps that it's important to take and that every American should
support.
Thank you.
THE PRESIDENT: Nice job.
SECRETARY EVANS: Yes, excellent job. Professor, thank you very
much, for laying that out.
Speaking about asbestos, our next panelist is somebody who is
personally being impacted by asbestos litigation, as are his 18
employees and the families that they're responsible for. And so, Mike,
an entrepreneur from Monroe, Louisiana, who runs a company there -- why
don't you give us your perspective of asbestos litigation as it relates
to your personal situation and company.
MR. CARTER: Well, I have a business back in Monroe, Louisiana,
Monroe Rubber & Gasket. And, hopefully, I can be a small voice -- or a
big voice -- for a lot of companies across the country that probably
are in the same condition I am.
Probably about three years ago, I started receiving lawsuits for
asbestos, and today I guess I've been inundated probably with about
upwards of a hundred now. And we're a small company; we can't legally
fight these battles. And what's happened is, over time, some of these
are being settled out of court. We've got an insurance carrier that,
back at that time, carried our insurance and helped us litigate some of
this stuff over time. But the problem is, is this is going to end very
soon, we've got about a million dollar cap. And if we have to get
involved in a suit in court, and we get a verdict handed to us, it's a
matter of us locking our doors.
But these things have been coming to us and coming to us, these
lawsuits, as it is today. I've been to Washington on a couple of
occasions, talking to our senators from the state. We tried to get
something passed within the state and failed to do that. But that's
not stopping the lawsuits. We're neither a manufacturer, nor an end
user. All we've ever done, and the thing we're guilty of is buying
what we thought over the years was a safe product, and reselling it to
an end user customer who asked for the product by name. And now,
because all of the bigger corporations and the manufacturers have
either gone bankrupt, or filed, or gone out of business, now they're
going to that next tier of companies, which is people like us, and
they're pulling us into this trap.
And we can't afford to fight this. The last couple of times I've
been to Washington, I pleaded with the people I thought could get
something done, and I told them this may be the last time I'm here. I
don't know how long this will go on. I've got probably seven or eight
court dockets this next year, and if I have to go to these -- that's
not to say I'll ever be back again. And, hopefully, this is going to be
an opportunity for me, like I say, to be just a voice for the small
business across America, and then, hopefully, we can get something done
this year.
It's just -- it's unfortunate that I've had to spend hundreds of
hours of my time away from the business trying to fight this stuff,
trying to get somebody to listen and to make a difference with what
we're doing. All we're trying to do is run an honest business, and
we've done that for so many years and it's just a shame that something
like this can take all that away from you. And after we're gone,
there's really nobody out there to hear you anymore.
And it's just becoming increasingly difficult to do business. And
as we go out now and try to buy products from other companies, they
tend to see our name on the -- I guess the Brad Street, Dunn & Brad
Street, is having all these suits against us. They don't want to open
us any lines of credit. We've reduced the amount of employees. We're
just not rehiring, is what we're not doing. We've had probably five or
six more at one point; we've got about 17 now. And we're trying to
grow our business into other states. We can't do that because we just
don't know what direction this is going to turn, and we don't want to
get more in the pot now than we have. So it's affecting us in a way
that we're not able to grow any more. We just -- it's just a
continuous fight, and we can't do anything. They just keep coming, the
lawsuits keep coming.
And we're getting suits from people -- the ones we're getting them
from are end users -- the mills, the chemical plants, the paper
industry -- that worked in those particular plans back years ago, and
these trial lawyers, they'll come and they'll set up a little hub and
have these people come in and do the advertising prior to them getting
there, have them come in, run a quick test on them. If they show
anything in their lungs -- which any of us could have something on our
lung, be it from smoking, be it from pollution, whatever it is -- but
they all of a sudden qualify to be in the suit.
And as this stuff continues to grow like this, it's a couple -- one
or two sick people with 10 or 15 non-sick people, and run them through
the courts, and you know, in the south, we're known to have very
sympathetic juries. And don't get me wrong, I'm very -- extremely
sympathetic to those individuals that are sick, and I think they need
to be taken care of. But the problem is, 90 percent of the people
filing suits today are non-sick individuals. They've just been
exposed. And I think everybody in this room has been exposed to
asbestos -- if you've ever walked through a school hallway or you've
ever been anywhere. I mean, it's just the way it is. But to allow
this to happen, those 90 percent of the people non-sick that are
getting this money right now, over the 10 percent of the people who are
not getting it, and they're the ones that deserve it.
But then again, I think those people should be responsible that
created this. And we, as just as an honest-ran business, have not
created this problem. And the gaskets and the things I've sold to
these plants, we've had people come in and actually gauge us cutting
the gasket out of the sheet, and there's no harmful asbestos dust or
nothing in the air. But because during that time frame we had asbestos
beside our name, they're coming after us.
SECRETARY EVANS: Mike, thank you very much. I appreciate your
story.
THE PRESIDENT: Let me make a comment on that. First of all,
justice ought to be fair. And those who have hurt ought to have their
day in -- those who have been hurt ought to have their day in court.
But a judicial system run amok is one that makes it really hard for
small businesses to stay in business. And I appreciate you sharing
your story with us. It's a -- frankly, a painful tale to listen to
because -- what makes it even more painful, there's a lot of people
like you.
Most new jobs in America are created by small business owners. And
when you hear a small business owner talking like that, and he says we
got a problem we'd better address now before it's too late, thank you
for sharing it with us.
MR. CARTER: Thank you.
SECRETARY EVANS: Yes, it's painful not only for you, but the 18
employees and their families that you're responsible for. And we hear
your story.
Here's a man that's responsible for about 350,000 employees. And
Bob Nardelli, of Home Depot, why don't you give everyone kind of your
insight as to the lawsuit abuse, the impact on your employees, as well
as on your company.
MR. NARDELLI: Well, thanks. First of all, Mr. President, thank
you for this opportunity -- Secretary Evans -- to participate on what I
think is probably the most important panel on the high cost of lawsuit
abuse in the overall economic conference that, Mr. President, you've
called together the next couple of days.
I think what all of us in this room probably share -- I think one
of the things that we really want to try to make clear, and I'm going
to reinforce in some of my comments what we've already heard, is that
we're really not asking to be resolved -- or absolved of our
responsibility. All we're asking for is fairness, Mr. President, just
as you said.
Lawsuit abuse is not a talking point anymore. I think it's a sore
point for all of us, and one that has to be addressed. Let me just put
in perspective, Mr. Secretary. Our customers, our 350,000 associates,
as you mentioned, and our supplier base, our shareholders of the
company that I run and the company that I love, are really being hurt
every day. They're being hurt every day by a legal system, quite
honestly, that's abusive. It's abusive to small businesses and big
businesses alike.
I think there's excessive and unreasonable awards each and every
day, that our taxpayers are paying more, Americans are being denied,
Mr. Secretary, as you said, the essentials of goods and services, and
perhaps most importantly, good paying jobs, wages, slowing investment
growth, which is really dampening the entrepreneurial spirit of our
country.
Let me give you an example. I like to think facts are friendly.
The U.S. tort system basically costs every American about $2,400 a
year, based on a recent survey that we looked at. Let me put that in
Home Depot terms. That would allow every family to buy a kitchen and a
complete home of appliances: refrigerators, washers, dryers, range,
microwaves, et cetera.
So when I look at this issue, I basically see about three pressure
points that I want to talk about today. First, it's the hijacking in
broad daylight that the tort system calls the class action lawsuit.
The second is the seemingly endless story of excessive awards in
asbestos litigation. We just heard Mike talk about that. And, third,
it is the excessive awards in medical liability suits. Quite honestly,
it won't be long before we see a line item on every doctor's bill
that's handed out in this country for litigation.
I think what all three of these have in common, unfortunately, is
that there's a fair and reasonable solution in hand just waiting for
implementation. That's what makes it so maddening, I think, to all of
us.
Let me expand. The class action dilemma is probably a good place
to start. Since it's a trial bar who really reaps the reward -- how
many of you in this room have received a check for $1.18 in recognition
for your participation in a class action suit that you didn't even know
you were part of? And what really happens is the millions of dollars
go to the lawyers. So is justice really being served, is the
question. In fact, I think only 20 cents of each dollar actually goes
to the claimants for real economic damages and lost wages and medical
expense.
So what you have today is business on one side, and you've got the
trial lawyers on the other side, and you have the worst combination of
all: You've got deep pockets colliding with shallow principles.
(Laughter and applause.)
Let me make another point, if I can, on this magnet court system.
There's a place like Madison County, Illinois, and I think a lot of us
know of that. There's been a 5000 percent increase, 5000 percent
increase in the number of class action filings since 1998. You know,
the issue at hand, they had nothing to do with anybody in that county
or that community, but the fact is, it hasn't stopped 49 other states
from filing into that county.
So we really have, you know, quite honestly, I like to use the
term, it's a "speed trap" for American civil litigation. I think
that's kind of what we would classify it. So if we move, I think, as
George said, our class actions into the federal courts, with standard
rules from coast to coast, we have a chance at getting things a little
more fair, a little closer to fairness. And people who have been hurt
will certainly have the ability to get damages and get recovery, but in
a much more fair environment, less abusive environment.
So if we continue to leave this issue, as I see it, of national
importance to the whims of the greedy, Mr. President, instead of the
needy, we're going to continue to have a huge price in this country to
pay for abusive litigation.
Let me kind of close out and make a few final comments. That's why
I think that this Class Action Reform Act is so important to be
passed. I think it's great that we've had a lot of bipartisan
support. I think what we need is some bipartisan action, Mr.
President, as you said in your opening comments. Also, I would take
this asbestos litigation, and we would classify it as the gift that
just keeps on giving to trial lawyers. Thirty years, and no end in
sight. According to RAND Institute, $70 billion has been spent on
asbestos litigation, 200,000 claims have been filed against 8,400
companies since 2002. So we see that continuing to grow.
The asbestos war, if you will, seems to be waged on -- 67 American
companies have been put into bankruptcy. Now, here's the way I kind of
like to look at that, is, while the lawyers are attacking corporate
America, it's corporate Americans that are suffering. That's the
issue. And we've had 60,000 corporate American jobs eliminated as a
result of that.
So let me just conclude, Mr. President, I really think that
something has to be done. There's no better person to do that than
you, in this term, in your second term. And we're tickled to death
that your exodus was postponed for four years, let me say that.
(Laughter.) A great deal has been said about this issue, but I think
the time is now. I think the emotion is high, and I'm here, Mr.
President, to join you in leading the charge for relief from what I'll
call, trial lawyer tax.
Thank you for the opportunity. (Applause.)
THE PRESIDENT: Good job.
SECRETARY EVANS: Thank you, Bob. Bob, thank you very much. I
think you're right. And when you talk about lawyers being on one side
and business being on the other, and it's the families that are paying
the price, the hardworking Americans. They're the ones caught in the
middle. They don't always see it because they don't see the line-item
-- maybe it's on a medical bill -- maybe it ought to be on a lawn mower
someday, what's the additional cost of a lawn mower because of tort
costs.
Hilda, thank you so much for being here. Hilda Bankston. She's
got a wonderful story to -- it's a heartbreaking story to tell, but
it's certainly a very moving story about the drugstore that she and her
husband built in Fayette, Mississippi.
MRS. BANKSTON: Thank you for the opportunity, Mr. Secretary.
My name is Hilda Bankston. I live in Fayette, Mississippi. I came
to the United States from Guatemala in 1958. I met my husband, Navy
Seaman 1st Class Mitchell Bankston while I was in the Marine Corps.
When we got married, we fulfilled our lifetime dream of buying and
operating a pharmacy. We worked hard and my husband built a solid
reputation as a caring and honest pharmacist in Fayette.
But one day, lawyers who were looking for -- to strike it rich in
Jefferson County, shook our world and dreams to their foundation.
Bankston Drugstore was named as a defendant in a national class action
lawsuit, putting Jefferson County against two of the biggest
manufacturers' drug companies -- the manufacturers of Fen-Phen, FDA
drug approved for weight loss. Though Mississippi does not allow for
class action lawsuits, it does allow for consolidation of lawsuits in
mass action.
Since ours was the only drugstore in Jefferson County and had
filled prescriptions for Fen-Phen, the plaintiffs' lawyers could keep
the case in a place already known for its lawsuit-friendly
environment. Overnight, our life's work had gone from serving the
public's health to becoming a means to an end for trial lawyers to cash
in on money-making class action lawsuits.
Three weeks after being named in the first lawsuit, my husband of
35 years, who was 58 years old and in good health, died of a massive
heart attack. Since then, we have been named in more than a hundred
mass actions against national pharmaceutical companies over a variety
of different drugs.
I had to sell the pharmacy, but I still spend countless hours
retrieving records for plaintiffs' lawyers, and getting dragged into
court again and again to testify. Attorneys handling these claims
compare their actions to winning the lottery.
The lawsuit frenzy has hurt my family, my community, and the state
of Mississippi. The county's reputation has driven liability insurance
rates through the roof, and businesses no longer locate there for fear
of litigation. No small business should have to endure the nightmare I
have experienced. I'm not a lawyer, but I know something is wrong with
our legal system when innocent bystanders are abused in the way I
was. Please, pass action to reform legislation to help fix our lawsuit
system before more small business owners and their families will get
hurt.
Thank you, Mr. President. Thank you, Mr. Secretary. (Applause.)
SECRETARY EVANS: Thank you, Hilda, very, very much.
Philip Howard, partner with Covington and Burling, author of the
book, The Death of Common Sense, Philip will provide an overview of the
medical liability explosion in our economy.
MR. HOWARD: Thank you, Mr. Secretary, and I really appreciate the
open-mindedness of you and the President in allowing a practicing
lawyer to join your panel. (Laughter.)
We forget sometimes why law is the foundation of freedom, and it is
because it's supposed to be reliable and people can count on it in
their daily lives. They make some choices in a free country to move
forward with their lives, whether it's to make investments or deal with
others or volunteer on the playgrounds or in Little League. Law is
supposed to be there to affirmatively defend reasonable conduct.
The law in this country is no longer reliable, and the cost of it,
I submit, is far greater than anything any of you have talked about
today.
And so, let's go to medical liability. We have heard, and you are
going to hear again, how horrible it is when our best trained
professionals, positions, get driven out of business. One out of seven
obstetricians in this country are no longer practicing obstetrics. One
out of four people in Pennsylvania last year had to change their
doctors because they either quit or moved out of the state. That's
because of the direct cost of litigation in this country. But that's
only the beginning. The cost of health care is out of control. We
can't even talk about containing the cost, but who's going to not order
an MRI that somebody demands if you might get sued for $10 million for
not doing it.
This group, Common Good, that I founded a couple of years ago hired
Harris Poll to survey all the doctors. Four out of five said that they
admitted to ordering tests that they didn't think were needed. It is
now part of the practice to waste money. We can't afford that. We've
got 45 million people who don't have insurance. We have -- and more
every day because small businesses can't afford it. You can't contain
costs, you can't provide health care for everybody until you have a
solid foundation of justice that people can count on.
Quality -- all of the quality experts have joined our coalition
because their studies show them that the quality of health care in this
country has suffered, and it has suffered because doctors and nurses no
longer feel comfortable speaking up. They're afraid they may be taking
responsibility.
So, you get -- and at the same hospital where you get miracle
cures, you'll have some mistake in a prescription, where somebody gets
500 milligrams, instead of five milligrams. Studies are all --
tragedies occur because people are afraid to speak because they don't
trust the system of justice. It's defended of the basis that it holds
bad doctors accountable. Well, in fact, it does just the opposite.
The current system of law -- and it's true with unreliable law,
generally -- favors whoever is in the wrong.
And so if you're a doctor -- if there's a doctor who is no good,
and every hospital has this story, you try to fire them, what do they
do? They hire a lawyer. They sue, or they threaten to sue. And the
typical result is that they're allowed to keep practicing because
people don't want to go through the five years of litigation for it to
happen.
So what is needed here is far more than just -- what is needed is
to restore reliability. We need the rule of law back again. And I
subscribe to everything that George -- my friend, George Priest, said
over there, and the other panelists, as well. We need to look at this
not as a problem of just a business, or just a doctor, we need to look
at it as a problem for the whole society and what it means to live
under the rule of law in a free country. Thank you. (Applause.)
THE PRESIDENT: Good job.
SECRETARY EVANS: Thank you, excellent job, Howard.
Barb Coen, Andy Kazar, both of Generations Women's Health Care, out
of Norton, Ohio. We certainly appreciate you being here to talk about
your story. Barb and Andy will explain how medical liability crisis
has caused, one, Barb to quit delivering babies, and the other, Andy,
to lose her doctor.
Barb.
DR. COEN: Thank you, Mr. President and Mr. Secretary, for the
opportunity to be here today. I appreciate the fact, Mr. President,
you've kept your promise to help physicians take better care of
patients by getting rid of the medical liability problem that we have
in this country.
I am an obstetrician/gynecologist who can longer call herself an
obstetrician. Three years ago, my partner, Dr. Susan Clark, and I
stared a small practice called Generations Women's Health Care, in
Norton, Ohio. We had the help of Barberton Citizen's Hospital for two
years. At the end of two years, we were to be independent from the
hospital and be operating on our own. At that time, we decided to look
for medical liability insurance and were stunned to find that our
premiums were going from $60,000 for our current space malpractice, to
$118,000 for claims-made liability.
At that time, we had 110 pregnant women in the practice and had
three weeks to tell they they had to find a new physician. Anyone who
has ever had a baby understands the relationship between the
obstetrician and that patient is so special. They're trusting you with
their most precious possession, the life of that child. And it was
awful to call those patients and tell them we couldn't take care of
them. I got notes saying, "I promise I won't sue you, please deliver
my baby." It was absolutely heartbreaking. Some people were due the
next week. It's an awful system that needs to be reformed.
The things that bother me the most about the medical liability
system in this country is the Trial Lawyers Association will come out
and tell you that medical liability is only 1 to 2 percent of the
health care cost every year. Well, when health care costs are $1.2
trillion, I think if you told anybody in this room "Your salary next
year is going to only be 1 to 2 percent of the national health care
cost," it would be a substantial raise, wouldn't it? I mean, I think
we'd all be pretty excited to be getting that.
The other thing that bothers me is 80 percent of frivolous -- of
lawsuits against physicians get thrown out. What if I was only right
20 percent of the time? What if that was the standard I was held to?
I see 30 patients a day. What if I only got it right on six of them?
What's going to happen to the other 24? I think we need to hold these
people to a higher standard, the same standard that physicians are held
to. And I appreciate the fact that you're all working on reforming the
system. Thank you. (Applause.)
SECRETARY EVANS: Thank you, Barb. Thank you very much. Nice
job. Andy?
MS. KAZAR: My name is Andy, and thank you, sir, first of all, for
having us here and letting us tell our stories. I appreciate it. I'm,
as you can't tell, 32 weeks pregnant, and also the practice manager for
Drs. Susan Clark and Barbara Coen. When the decision was made at the
end of August of '03 to no longer do obstetrics because looking at it,
you know, financially it wasn't feasible, it was like, oh, that's okay,
I can still see them. They've delivered my other two children, and I
think anyone here knows the relationship that you have with your
physician, you tell them stuff that you don't tell anyone.
And so with Barb and Sue doing my other two deliveries, it was
like, oh, we're not going to have any more kids, I'll get through this,
no big deal. Well, in May we're having another child. And came to an
issue of now who am I going to have, because the women that I trust
more than anything else in the world, who have entrusted in me to run
their practice and pay their bills and hire the employees an deal with
patients, I can't go back to them for my most important thing that's
going to happen to my husband and I.
So we decided that we needed to go find someone else, obviously,
since they can't deliver me, even if I sign a piece of paper. We made
a choice to see a midwife. And we have a wonderful midwife that we're
seeing, but we were informed on Friday that the physician that backs
her may not be continuing to practice.
So now, again, at 32 weeks pregnant, we are now on the look for
another provider of service. And I don't feel that anyone should have
to go through this. I mean, I know most of the physicians in town
because of working in medicine for so long. I don't know how the
normal average person who doesn't can go and say, okay, how do I pick
this doctor? You know, oh gosh, are they going to be here in six
months? They're leaving -- the physicians are leaving in mass exodus
out of Ohio, because it's not cost-effective to run a practice there.
And something needs to be done. And I'm asking you, please.
(Applause.)
SECRETARY EVANS: Andy, thank you.
THE PRESIDENT: It's not the first time she's asked. Can I make a
couple -- I'm the President.
SECRETARY EVANS: Oh, hold on just a minute -- (laughter.)
THE PRESIDENT: I met these two ladies before in Ohio. Philip said
that one in seven doctors are leaving -- in certain states, the number
is much higher than that. And in certain specialties, the numbers are
much higher than that. And just a couple of observations.
When I came to Washington, I thought that medical liability reform
was a state issue. I was a governor, and a person who said, we can do
it better at the states than the federal government. It turns out, so
far the states who have had medical liability reform have done it
better than the federal government because we haven't done anything yet
at the federal level. Nevertheless, I looked at the impact of the
defensive practice of medicine, at the unnecessary tests that doctors
prescribe in order to make a defense when they get sued -- not "if"
they get sued, but when. The odds are they'll be sued. And it costs
the federal budget about $27 billion a year.
And so when you cite the statistics from the trial lawyers, what
they don't talk about is the defensive practice of medicine as a cost
to society. There is a direct cost to the taxpayers. It's a
quantifiable number; it's a lot at $27 billion a year. And so I
decided it's a national issue that requires a national solution.
You know, there's a lot of rhetoric when it comes to medical
liability reform about accessibility and affordability of health care.
It's a nice mantra. We all should be for accessibility and
affordability. And so should members of the United States Senate, who
have blocked medical liability reform to date, because these lawsuits
are driving really fine, competent people out of the practice of
medicine, like Barb, which makes medicine less accessible.
And then you heard not only the cost to our budget, but the cost to
an individual doctor to practice medicine is passed on to patients,
which makes medicine less affordable. We need medical liability
reform. This is a vital issue for the quality of life of thousands of
people in our country. And I want to thank these two women for joining
us again. I met them first in Canton, Ohio. They were just as
articulate there as they are here, and their case is, unfortunately,
one that's being repeated in many states around this nation.
And so, I told you then and I'm going to tell you again, this is a
priority issue for not only me, but for a lot of people in the Senate.
I say the Senate -- it will pass the House. It is being blocked by a
few in the United States Senate, and the trial bar has made this the
number one issue for them. But it's, as I think you mentioned, Hilda,
the notion of a lottery -- we cannot have the legal system to be a
legal lottery. We want the legal system to be fair and balanced so
people can get good health care, so small businesses can afford to stay
in business, so we don't hear these horrible stories about someone drug
through this class action meat grinder that has caused her and her --
to go out of business.
And so I want to thank you for all coming. I am passionate on the
subject because I want America to be the best place in the world for
people to find work or to raise their family or to get good health
care. And I can assure you all that I intend to make this a priority
issue, as I stand before Congress, when I give the State of the Union,
and as I talk to leaders of the Congress about what I think ought to be
done in the upcoming legislative session. (Applause.)
SECRETARY EVANS: Do you want to say anything else? (Laughter.)
Thank you, Mr. President. You know, I'm also glad that this issue
is going to be right at the center of every kitchen table all across
America, because it's those Americans that are getting impacted by this
in such a serious and harmful way, and they need to be sending the
message to Washington, how they also want something done about it.
Well, we've got a few moments here for a couple of questions.
Professor, let me come at you, if you don't mind, just for a minute.
Can you share with us an example of how plaintiff's attorneys are using
leverage to threaten companies with settlements? And in addition to
that, I notice where you have taught in the past capitalism, insurance
policy, tort law, product liability, but you've added a new course
called "economic development." Are we starting to put this together
finally in America, how this litigious society that we are in is having
a dramatic impact on economic development in our country and job
creation in our country?
MR. PRIEST: Oh, I think it does have a dramatic impact on economic
development in this country. What my course does is look
cross-culturally, across countries to see how -- to see what the
determinants of development are. But I think there is no doubt that
it's our litigation system that's dragging our country behind and
keeping it from developing even faster.
Now, on your question about tactics that lawyers use, can you give
me two or three hours? (Laughter.) I could answer that. Actually,
the class action is one of the most powerful tactics that trial
attorneys use. You know, for all of the class actions that are filed,
there are very few that are ever litigated. There are some litigated
in the discrimination field, but of mass tort class actions, they're
never litigated. They're not even anticipating litigating them when
they file them. It's simply such a bludgeon that it's known that if
the class is certified -- which is a kind of legal technicality that
doesn't -- purportedly doesn't look at the merits of the case -- then
the companies that are sued have to settle, because, as Mike has
pointed out, they have to settle the case, because otherwise, the
company's going to go down the drain because of the stakes involved in
the case.
So there's this ideal of a class action of representing a wide set
of consumers repairing wrongs at a small level over a wide number -- it
doesn't work that way. It's almost entirely a bludgeon as it's
currently being employed by the trial lawyers.
THE PRESIDENT: Let me ask you something.
MR. PRIEST: Sure.
THE PRESIDENT: You said that the pending legislation -- I think
you referred to it as a "small" step or a "better" step? It was an
advantage which, frankly, wasn't a "huge" step. (Laughter.)
MR. PRIEST: It's not a huge step, no, no, no.
THE PRESIDENT: All right. Well, let me ask you something: What
should Congress do? I mean, for example, in the class action. The
bill, as I understand it, takes it from the states -- makes it more
difficult to keep it in the state court and moves it to the federal
courts, reflecting the inter-state nature of the lawsuits, which
therefore make it more difficult to achieve these -- help me out here.
MR. PRIEST: Well, what it does it take it out of the bailiwick of
the Madison Counties and the Jefferson, Mississippis that where local
judges who have close ties with plaintiff attorneys -- I don't want to
use the word "conspire," but they have a mutually symbiotic
relationship -- (laughter) -- in letting these class actions go
forward.
THE PRESIDENT: Got that part.
MR. PRIEST: So it will help to send the case to an Article III
judge, who -- in the federal courts that operates differently. But
that's not going to solve the problem.
THE PRESIDENT: Right. And so you said -- help us with some
solutions. Here's your chance.
MR. PRIEST: The most important solution in class actions -- but
it's going to take more than the Congress; the courts are going to have
to go along with this, too -- is, before certification, to have the
courts evaluate whether there's any merit to the class action, or not.
THE PRESIDENT: Got you.
MR. PRIEST: I mean, the problem -- even class actions that are
certified at the federal level can operate as bludgeons against the
defendants who face them. And it's harder to get it certified at the
federal level, and that's the benefit, the step that would be taken by
the class action legislation that is currently on the table. But it's
only a step. It's not going to solve the entire problem.
And what really has to be done is to get the -- what you call junk
litigation, the frivolous litigation, the litigation where there's
really no merit to the underlying litigation and it wouldn't succeed if
it were litigated, but it's too dangerous for the defendant to find
that out and to gamble on whether -- gamble the entire company on
whether its lawyers or the opponent's lawyers are going to be more
successful before the judge.
SECRETARY EVANS: Phil, do you want to jump in here?
MR. HOWARD: Yes, I do. I mean, judges in America today don't have
the idea that part of their job is to actually draw the boundaries of
what's a reasonable or excessive claim, or what's a frivolous claim or
not. People bring a claim and they act like referees. I was debating
the McDonald's hot coffee judge -- on Oprah, actually -- (laughter) --
it was really fun. But during a break he said, you know, your feelings
are fine, but who am I to judge? (Laughter.)
And there's this idea out there that justice is kind of an open
season. Well, it's not. The rule of law requires deliberate choices:
this is a valid claim, this isn't; this is an excessive claim, this
isn't. No one is making those judgments today, and the people who are
the victims are all Americans. Every day when they're in the
classroom, when they're going to their jobs and they're not saying what
they think, or they're not taking the kids out on field trips because
they're scared -- they're scared because they don't trust the system of
justice because the judges aren't doing their job.
SECRETARY EVANS: We just have a few moments left. And I want to
come over here to Mike and talk about jobs for just a minute, because
you really represent the backbone of the American economy. You're a
small business; they generate 70 percent of the new jobs in America.
Give us a feel of how this is impacting your ability to create jobs or
hire more employees. Can you give us any sense of that?
MR. CARTER: Well, it's impacting us directly because we're not
able to grow our business like we would like to grow it. We can't man
our business like we would like to man it. And as far as trying to
grow into another sector, into another state possibly, and have a
business, you don't know if you're setting yourself up for the fall. I
mean, it scares you to try to grow anything. And when you get to a
point like that, it's tough when you feel like you want to be
aggressive and you've got to just kind of hold back and pull the reins
and sit there and wait to see how this stuff is going to unravel. It's
just created -- and there are so many companies across the United
States in the same position that I'm in, but we've just not had anybody
hear us yet. And it's just a great opportunity, Mr. President, to be
here and be able to tell you this, and Mr. Secretary, as well --
THE PRESIDENT: Thanks.
MR. CARTER: -- to get this voice out. And hopefully this year, or
sometime in the near future, something can be done on this. And we'll
get this straightened out to where we can go on and do what we do best,
and that's run our businesses and grow our companies. And until that
happens, we've got to kind of hold back and wait and see what happens
with this because if we end up in one court with one verdict, like I
say we're upwards of a hundred different lawsuits right now, and we
just got pulled into a class action, as well. And we just don't know
--
THE PRESIDENT: Let me ask George something here.
You studied the legal systems of different countries compared to
the United States?
MR. PRIEST: Yes.
THE PRESIDENT: Give people a sense for the difference.
MR. PRIEST: Oh, well, it's entirely different. Most legal --
there's no legal system like the United States. There is no legal
system that has anywhere near the magnitude of litigation measured in
any terms, per capita, according to gross national product -- no, no,
no, we're by far the most litigious society that there has ever been.
In Europe, for example, one of our great and growing competitors,
litigation is nothing like this. Decisions are made chiefly by
judges. They don't have juries, which is a difference. And I'm not
saying we ought to get rid of juries. But it's a -- it's a much more
controlled and defined legal system. The numbers of lawsuits are
miniscule compared to the United States. And what's happening, of
course, is -- and the Europeans know, the Europeans aren't fools --
they're coming to the United States and trying to sue in the United
States courts for losses that they have suffered there. And some of
our courts are entertaining these lawsuits.
And it's not just the Europeans. We're having lawsuits brought in
the United States from citizens all over the world because, again, in
terms of litigation, if you're a plaintiff, this is the land of
opportunity. (Laughter.) That isn't what our county has been about,
of course.
SECRETARY EVANS: It's really an industry, yes.
THE PRESIDENT: I think it's important for people to understand
that, particularly people who are going to be deciding the fate of
these bills, that we live in a global economy, that we either have a
disadvantage or advantage based upon our regulatory system, legal
system, capital system. And this is an area, clearly, where we have a
disadvantage relative to competitors.
MR. PRIEST: Can I add one thing?
THE PRESIDENT: Yes.
MR. PRIEST: With regard to each of the three reforms that you've
talked about, Mr. President, those aspects of the legal system don't
exist in Europe or any other place in the developed world. There are
no class actions in Europe, England, anywhere. There are -- there's no
malpractice liability to the extent we have it here against doctors.
Typically, there's no lawsuits at all against doctors because they're a
different -- it's a different form of system. And, third, there's no
asbestos litigation. Again, the only asbestos litigation of any
magnitude in the world is here in the United States.
SECRETARY EVANS: Let me ask you about Canada, which happens to be
our number one trading partner. How would you stack up --
MR. PRIEST: Canada -- well, Canada is a good -- it's a good case,
actually. Canada comes from an English legal environment. The jury
system doesn't exist over a very wide range. There are some juries,
not very many, as in England. There are different sets of procedural
rules, such as the loser pays; if you file a lawsuit and you lose the
case, then you've got to pay cost to the other side. And so there has
been nothing like the litigation explosion that we've seen here over
the last three decades in Canada; nothing like it.
Now, Canada is starting to change a little, and they're starting to
entertain different forms of justice much like they see in the United
States, and that's not to the benefit of Canada and it's not to the
benefit of Canadian growth. But their way -- in terms of this
litigation explosion, they're not -- it's not close. It's not close.
SECRETARY EVANS: Bob, one last statement.
MR. NARDELLI: Let me just make two points, if I can. I think this
whole issue about corporate America, outsourcing America, that isn't
the case at all. And it's not even foreign countries winning jobs.
This is about lawyers pushing jobs out of this country. And Mr.
President, you said this, continuing from supplier to redistribution.
I mean, it's just added cost. Everybody has to pile on.
And I -- to Mike's point, let me just say, in America today, where
corporations would normally reach out and help these corporate
Americans who, through no fault of their own, are losing jobs, because
this continuum of responsibility or liability, acquisitions aren't
being made. People aren't reaching out, because the minute you make
one of these acquisitions, you take on that full responsibility. So
it's really stagnating entrepreneurship and capital investment.
SECRETARY EVANS: Bob, how does it impact your decision as to where
you're going to locate your next plant and the American workers that
you would, therefore, hire?
MR. NARDELLI: Well, we do a pretty rigorous job of identifying
family formation per capita -- for family income and so forth, Mr.
Secretary. So we pretty much have to go where the customers are, in
spite of these, what I'll call, swampland jurisdictional areas. We'll
still put a store in there because we're trying to serve our
customers. It's a market-customer-back approach. But I would tell you
that the cost, all the way up the supply chain, of everything that's
been talked about here today just keeps piling on. And while we keep
fighting to bring value to our customers, I think they become
disadvantaged in this -- just to take an example, of $2,400. You know,
their standards of living are impacted because of this.
SECRETARY EVANS: Thank you very much. Well, I just thank all of
you -- audience, everybody else -- for coming. I think it gave us a
chance to zero in on probably one of the central issues as it relates
to economic growth and job creation in this country, not only in the
near term, but for generations to come. We appreciate all this insight
very, very much. And believe me, we're going to work as hard as we can
to make sure that Congress understands your message, your thoughts, and
we get meaningful tort reform passed in this upcoming session.
Thank you all, very much. Appreciate it. (Applause.)
END 2:35 P.M. EST
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