Dickie Scruggs is a Mississippi trial lawyer who led the charge against Big Tobacco in the 1990s, thereby helping 46 states win a $246 billion settlement, once described the features of a “magic jurisdiction” in America's tort system. When speaking at an asbestos conference in 2002, he said that such a place would have judges elected with “verdict money”, trial lawyers who were cosy with those judges, and huge numbers of voters “in on the deal”. In this trial lawyers' paradise, Mr. Scruggs assured his audience that “cases aren't won in the courtroom, they're won on the back roads long before the case goes to trial.”

In the view of corporate America, many doctors and the Republican Party, there are too many magic jurisdictions in America. Places such as Madison County, Illinois, have become famous for awarding large punitive damages and for cosy relationships between trial lawyers and judges. They become magnets for class-action lawsuits, which bundle hundreds, maybe hundreds of thousands, of small claims that would not justify the costs of a stand-alone case. These suits have surged in Madison County from just two in 1998 to 106 in 2003.

Trial lawyers and Democrats have protested that Big Business exaggerates the woes of America's tort system in order to tilt the system in favor of rich defendants. If true, this evil plan is certainly working. Recently the Senate approved by 72 votes to 26 the Class Action Fairness Act, which is designed to push class-action suits away from places like Madison County to the more fair federal system. And it looks like the House will pass the bill too, giving President Bush a chance to sign it into law when he returns from Europe.

In political terms, this is a big victory for the President, who pushed class-action reform in his reelection campaign. The President can also boast bipartisan support: 18 Democrat senators deserted the lawyers' lobby, which has given their party so much. In fact, the lawyers were out-muscled by the US Chamber of Commerce, which focused its fury on the former Democrat minority leader, Tom Daschle, last November, forcing this blocker of tort reform out of his seat in South Dakota.

Both President Bush and his business allies are now keen to move on to the other two parts of his tort-reform plan: Sorting out the asbestos-litigation mess and medical-liability reform. However, the question is what will this week's new measure achieve? Opinion is split between the lawyers, who think it goes too far, and the reformers, who wish it had would go much further.

The bill hits trial lawyers in their pockets by limiting their fees to a proportion of the amount of money the plaintiffs actually collect rather than the theoretical amount awarded to them, if the award is in coupons rather than cash. (In a big case, companies often compensate plaintiffs with coupons, which are usually too small to redeem.)
But the bill's main aim is to stop “forum-shopping”, i.e., looking for magic jurisdictions. It says that any big class action (one that has more than 100 plaintiffs and more than $5 million at stake) must go to federal court. However an important exception, which was won by Democrats, ensures that a class-action suit must be filed in a state court if the chief defendant and at least two-thirds of the plaintiffs reside in that state.

A great part of the debate regarding the effect of the new bill revolves around how bad forum-shopping actually was. The Democrats protest that “judicial-hellhole” states usually tidy up their act sooner or later; eight states recently passed laws making class actions more difficult to file. The Republicans reply that barely has one “ hellhole” been closed than another opens up elsewhere. The merry-go-round has moved from Alabama and Texas to Mississippi and now to southern Illinois and West Virginia.
Both sides agree that it will be nearly impossible to get a nationwide class-action suit off the ground. Should the bill pass, it would bar such suits from being filed in state courts. Meanwhile, federal judges face a myriad of constraints before they can certify multi-state suits. Consumer-protection law, which is often the basis of class-action suits, is often vague and varies from state to state.

There are some exceptions: Securities-law class actions are dealt with at the federal level. But lawyers complain that federal courts are kinder on defendants than places like Madison County. And there is a huge backlog in federal cases. Federal judges, who opposed the bill because they were overburdened, may decide on giving civil class actions lower priority than criminal cases or lazily dismiss them on technicalities.

All this explains why Harry Reid, the new Senate Minority Leader, is claiming that the bill “slams the courthouse door on a wide range of injured plaintiffs.” But, the new law still leaves open the possibility for single-state class actions in state courts; the minimum requirement for in-state plaintiffs is quite low. Trial lawyers could simply duplicate their actions by filing simultaneous class actions in separate state courts if they are forbidden to bundle them together.

In fact, the claim that this is the toughest tort-reform package in a decade is no great boast. Since trial lawyers have prevented all chances of reform locked in their vise-like grip, there is virtually nothing to compare it with. The new law could restrict the number of class-action lawsuits, but it doesn’t do anything about the underlying principles of the tort system, especially the ability to sue for punitive damages (on top of the actual compensatory damages suffered for the victim) along with the fact that those punitive damages, which tend to be the spectacular ones, are shared by both victims and their lawyers.

A more radical plan may have simply changed the system to remove the punitive incentive to sue, for instance, by paying all punitive damages to the state in the form of a fine for bad behavior. In the absence of such fundamental change, a lot still depends on whether the President is able to push through his other two proposals.

In the case of asbestos, various lawsuits on behalf of victims have bankrupted over 70 companies. The Republican solution is to establish a $140 billion industry-backed trust fund to settle all the claims in exchange for ending all litigation. However, there is a problem that a brawl would ensue between insurers and manufacturers, with each wanting the other to pay more into the fund. Another worry of Conservatives is that trial lawyers will get a cut.

With medical-liability cases, the President wants to cap awards for “pain and suffering”, which are given after patients have been reimbursed for lost earnings and medical expenses, at $250,000. That would bring some certainty to doctors, but it strikes people as too low a limit for botched operations. Even if they get most of what they want, the Republicans will merely have curbed the more outrageous abuses; they will not have pushed through structural reform.

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