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A beginner's guide to the litigation maze.

A HISTORIAN LOOKING back at our time might well find one of the distinctive and peculiar features of late twentieth century America to be the panic about litigation that gripped much of American society in the 1980s and persisted into the last decade of the century. America, we hear, has too much law, too many lawyers, too much spending on legal services, too much litigation, an uncontrolled activist judiciary, and an obsessively contentious population enthralled with adversary combat. It has become a commonplace that the United States is the most litigious nation on earth, indeed in human history, and that excessive resort to law marks America's moral decline and portends economic disaster in an increasingly competitive world market-place.

We do have more law and more litigation. Per capita rates of civil case filings have risen in most American courts during the past decades. Before these recent increases are taken as proof of runaway litigiousness, it should be noted that current rates are not historically unprecedented. Several studies document higher per capita rates of civil litigation in nineteenth and early twentieth century America. Rates of recourse to courts were, it appears, even higher in colonial America. The period from the depression through the postwar recovery seems to be an historic low tide of litigation, which forms the background against which we see these recent increases.

TWO RECENT MYTHS

We also have more lawyers than in the past. But we do not have 70 percent of the world's lawyers, a claim recently advanced by some critics. Dropped casually by Vice President Quayle in a speech in August, 1991, and parroted by President Bush, Cabinet members, and media experts, this is certainly an alarming figure. It suggests a monstrous deviation from the rest of the world and portrays lawyers as a kind of cancerous excrescence on American society.

The 70 percent claim is bunk. An informed guess would be something less than half of that. Counting lawyers comparatively is a daunting undertaking, plagued by poor data and a bushel of apples and oranges problems. Counting conservatively, and counting all those included in the U.S. lawyer category (including judges, government lawyers, and in-house corporate lawyers), American lawyers probably make up somewhere between 25 and 35 percent of all the world's lawyers, roughly our share of the world's GNP.(1)

Nor is it accurate that "the legal system now ... costs Americans an estimated $300 billion a year."(2) Where does that figure come from? The White House takes it from the Vice President, who has it from the Council on Competitiveness, whose Agenda for Civil Justice Reform borrows it from an article in Forbes, which in turn takes it from liability guru Peter Huber who, it is fair to say, made it up. From a single sentence of CEO Robert Malott in a 1986 roundtable discussion of product liability, Huber adopted an unsubstantiated estimate that the direct costs of the tort system were at least $80 billion a year, far higher than the estimates of careful and systematic studies of these costs. Huber then multiplied this surmise by three and a half, rounding it up to $300 billion as the indirect cost of the tort system. The three and a half multiplier is taken from a mention in an editorial referring to a study of the reported cost of physicians' changes in practice relative to increases in their 1984 malpractice insurance premiums. There is no discussion of the applicability of this multiplier to every other species of liability at every other time. Mr. Huber, who has recently taken to lecturing us on the dangers of "junk science," certainly knows whereof he speaks.

TRENDS IN LITIGATION

But what about trends in litigation? The vast majority of litigation occurs in state courts, but there are no reliable data on state court case filings earlier than the mid-1970s, limiting our knowledge of long-term trends in those courts. In the most recent decade, case filings in state courts have risen, the increases in property and contract filings slightly outpacing the rise in tort filings. Since 1986, increases in tort filings roughly parallel population increases in the twenty-three states for which data exist.

Our knowledge of federal litigation is broader and more reliable. Let us take a very brief tour through the dockets of the federal courts. Although only a small fraction of all American litigation takes place in the federal courts, there are several reasons for focusing on recent changes in those courts. First, information about federal courts is more comprehensive and continuous than for the state courts. Second, figures on federal courts are frequently cited as the proof of runaway litigiousness. Third, until a recent decline in federal case filings, the elevation of filings in the federal courts was more dramatic than in the state courts.

The total number of cases in federal courts rose substantially from 1960 to the mid-1980s. In 1960, 51,063 cases were filed in federal district courts; by 1985, 273,056 cases were filed. Controlling for population growth, the average annual rate of increase from 1960 to 1985 was just over 12 percent. But by 1990, total federal case filings dropped to 217,421, an average annual rate of decrease from 1985 of 4.7 percent.

Rates of increase and decrease in particular categories of cases are revealing. A large proportion of the increase in filings over the past thirty years was due to increases in just six categories of cases:

1. The very largest was recovery cases (suits by federal agencies to recover overpayments of veterans benefits or to collect unpaid student loans). Such suits increased from 2200 cases in 1960 to more than 58,000 in 1985, when they constituted over 20 percent of all federal cases. Changes in government policy led to a drastic curtailment: there were less than 11,000 in 1990.

2. Another contributor to the huge growth was social security cases. Their number mounted from 9,043 in 1980 to 19,771 in 1985, in response to Reagan administration policies curtailing disability benefits by summarily removing beneficiaries from the rolls. But social security case filings dropped after those policies were abandoned, and now there are less than a quarter as many as at their peak in the mid-1980s.

3. Prisoner petitions continue to increase, from 23,287 in 1980, to 33,468 in 1985, to 42,630 in 1990; but since the early 1980s filings have increased at a slower pace than the increase in prison populations.

4. Civil rights cases, which were almost nonexistent in 1960 (there were only 280 cases in that year), rose steadily until 1984, when they numbered 21,219. Since 1984, their number has declined slightly to 18,793 in 1990.

5. Contracts cases -- a little-noticed category -- grew substantially until the late 1980s, from 2,251 in 1960 to 47,528 in 1986; they remained at about 45,000 per year until 1990, when they dropped to 35,161, due in part to an increase in the dollar amount required to qualify for federal jurisdiction.

Torts, the final area of substantial growth in numbers since 1960, is also the type of suit that has excited the most concern in recent debate about the supposed litigation crisis. Tort filings increased from 19,586 in 1960 to a high of 44,961 in 1988. That is a substantial increase, but two facts must be noted. First, the increase in tort filings only barely outpaced the growth in the population until 1980, but accelerated after that -- although the rate of increase after 1980 was less than for federal filings as a whole.

Second, virtually all of the increase in tort filings after the mid-1970s resulted from an increase in products liability cases. To many observers, this is the fiery core of the litigation explosion. When, a few months ago, Vice President Quayle proposed to rescue the United States from a civil justice crisis that imposed on us "a self-inflicted competitive disadvantage," it was product liability litigation that lay at the heart of the matter. Escalating product liability litigation is blamed for discouraging innovation and undermining the competitiveness of American business.

But consideration of the recent history of product liability is instructive in how concerns about litigation take on a life of their own, wholly unjustified by careful analysis. In 1985, 12,507 personal injury product liability cases were filed in the federal courts; this number rose to 18,679 in 1990 -- a substantial, some might say alarming, increase of 49 percent in the course of five years -- but returned to the 12,000 level in 1991. Such figures are often cited as evidence of a menacing growth of product liability and a manifestation of growing litigiousness among ordinary Americans.

But these figures are deceiving. Matters look quite different if we separate the great epidemic of asbestos cases from cases involving other products. Figure 1 breaks down the total into asbestos cases and all other product liability cases. We then see a massive surge in asbestos filings that accounts for the entire increase in product liability filings. Indeed, if we look at the remainder, which includes cases involving every other product save this one, we find that something quite unexpected has happened.

The total of nonasbestos product liability filings has been shrinking, from 8,268 in 1985 to 5,263 in 1991, a decrease of 36 percent.

But is it legitimate to "put aside" asbestos cases? Asbestos litigation is a painful problem that displays much that is worst about our system of litigation -- high costs, repetitive relitigation, severe delays, inconsistent awards. Asbestos litigation presents a problem of assuring justice to victims (and to their injurers). It also presents a problem of congestion in many courts. But each of these real problems -- the justice problem and the congestion problem -- is quite distinct from the supposed problem of excessive product liability litigation.

Asbestos cases are unlike other cases in the federal courts. For the most part, these cases deal with events that happened decades ago. They are typically complicated by the presence of multiple defendants, about twenty in the typical case. They arose from the use of a product of unparalleled deadliness, to which there was massive exposure that continued long after the dangers of its use were suspected and information that could have mitigated those dangers was suppressed. Eventually, there will be no more asbestos cases, due first to the deadly effects of asbestos, and, second, to the powerful preventive effects produced by the asbestos litigation. No one can say that we cannot have another such epidemic with another product. But if we do, it too would be distinct from the pattern of ordinary product liability litigation, and it too would have no effect on the fortunes of the companies that make the tens of thousands of other products.

Based on declining numbers of nonasbestos product liability filings in federal courts, it appears that these other companies have experienced a significant decrease in their exposure to product liability. But our figures are only for filings in federal courts. Over 95 percent of civil cases are brought in the state courts. State court product liability filings might, perhaps, be going up while federal filings are going down. But the available evidence suggests that product liability filings in state and federal courts have varied together. There is no plausible basis for believing that this pattern has changed and that filings in state courts are now moving in the opposite direction from those in federal courts.

From studies by the National Center for State Courts and the General Accounting Office, we can infer that a sizable portion of product liability litigation, probably more than a third, takes place in the federal courts. And, since the federal cases involve higher stakes on the average, it is probable that most of the money that is awarded in product liability cases is awarded in the federal courts. At least for the federal courts, the evidence is clear that the number of product liability suits, other than asbestos suits, is shrinking. Other research findings also confirm that the product liability world is shrinking rather than growing:

1. Since the mid-1980s plaintiffs have been less successful at trial and defendants have secured favorable opinions from the courts in an increasing portion of cases.(3)

2. In nonasbestos product liability cases, the number of punitive damage awards (awards above and beyond the actual damages, designed to punish a defendant for egregious conduct) have fallen sharply since the mid-1980s.(4)

3. A new report by the General Accounting Office finds that the number of claims per $100,000 of product liability premiums dropped from 32.0 in 1984 to 17.1 in 1988, a 48-percent decrease.(5)

Rather than the runaway expansion of product liability claimed by the Vice President and some others, these studies depict a contraction of product liability exposure. This contraction suggests skepticism of the claim that product liability litigation has undermined American business competitiveness. It also suggests that our civil justice system contains a self-corrective capacity, and it calls into question the supposed mounting litigiousness of the American people.

As the product liability example illustrates, impressions about litigation trumpeted by those who seek to "reform" the tort system may be profoundly misleading. More broadly, the spotlight on tort litigation obscures other important changes in the use of litigation in our society.

In recent decades litigation involving business relations has grown more rapidly than tort litigation, at least in the federal courts. For example, a recent study found that over the period from 1960 to 1988, contracts filings in the federal district courts grew by 232 percent, outstripping the increase in tort cases, which grew by 128 percent in that period. The study found many indications of a significant increase in the use of courts in disputes among businesses -- cases involving the nation's 1,000 largest corporations grew faster from 1972 to 1987 than did the number of federal cases in general, and contract cases involving the large corporations grew more rapidly than tort cases involving them.(6) In addition, the large "corporate" law firms that provide services primarily to large corporations have increased in size and number at a pace far greater than the general growth of the legal profession.(7) Total expenditures for legal services in the U.S. have grown, but the proportion of legal services consumed by businesses has grown while the proportion consumed by individuals has diminished.

Although the data are incomplete and imperfect, it seems clear that businesses are more involved in litigation than they were two or three decades ago, and that a rising number of business disputes are not being resolved among the disputants but are being brought to the courts. In assessing the current changes in patterns of litigation and their meaning for American business, it is necessary to take into account not only the overestimation of product liability, but the neglect of the surge in other kinds of litigation that affect business.

If there were a generalized litigation fever, loosening the restraints that inhibit the making of claims, one would expect to find an increase in all categories of cases. But some kinds of cases are increasing while others are decreasing. Antitrust cases declined from a 1975 total of 1431 to a 1990 total of 472. Class actions, often viewed as an engine of legal aggression against business, declined from 3061 in 1975 to only 922 in 1990. The lesson is that the world of litigation is composed of subpopulations of cases that seem to respond to specific conditions rather than to global changes in climate.

EXPLAINING AND EVALUATING THE TRENDS

The shifting patterns of filings we observe are compatible with a general but uneven spread of higher expectations of justice and the growth of a sense of entitlement to protection from, or recompense for, many kinds of injury. But this sense is not self-activating and its presence does not sufficiently account for the patterns of court use. Its translation into litigation depends on the values and resources of claimants, and on the remedial options available to them. These in turn reflect changes in the wider institutional context in which disputes arise.

The aggregate data reviewed above suggest a moderate and modulated rather than a feverish and unrestrained use of litigation. This picture is confirmed by what is known of the experience of individual litigants. Wary of risks, delays, and costs, litigants do not act as if propelled by an unappeasable appetite for contest or public vindication. There is little evidence to suggest that more than a tiny minority of claimants correspond to that figure of folklore, the schemer who wants to turn a trivial injury into a bonanza. For plaintiffs as well as defendants, litigation is usually a miserable, disruptive, painful experience. Few litigants have a good time or bask in the esteem of their fellows -- indeed, they may be stigmatized. Even those who prevail may find the process very costly. For example, the firefighter who quit her job after winning a discrimination complaint (she had been forbidden to breastfeed her infant during free time on duty) explained: "Ever since my suit I was fair game ... I was the brunt of all their hostilities."(8)

We are a highly legalized society that relies on law and courts to do many things that other industrial democracies do differently. We use courts for more things. For example, we require individualized fault determinations to deliver compensation that in many countries is delivered by the welfare state. How do we compare with other countries? Litigation rates in the United States are at the upper end of the scale, but they are not as singular as is often claimed.

Notwithstanding abiding differences in the legal systems of industrialized countries, there are many similarities. We are all familiar with the very rapid growth of the legal profession in the United States since the 1960s. Interestingly, a similar massive increase in the number of lawyers has occurred in almost all of the countries of the western world. For example, since 1960 the legal professions in both Canada and England have been growing more rapidly than that of the United States.

There are other common trends. Several recent comparative studies of litigation emphasize the similarities that interlace the persisting differences in legal culture. A study comparing tort litigation in the U.S., Britain, and Germany concludes with the observation that "the differences that exist between the systems are much less spectacular than they are commonly believed to be once allowance has been made for differences in cost of medical care, standard of living and the cost and method of funding litigation."(9) A study of medical malpractice claims in England, Canada, and the U.S. describes the "similar growth in malpractice litigation during the 1970s and 80s" and takes this "parallelism |to~ suggest . . . that this growth must arise less from isolated doctrinal changes in one country than from changes in medical practice and social mores, which occur roughly simultaneously in most western countries."(10)

The use of the legal system has increased in part because of the benefits it produces. Even those ideologically disinclined to use the courts sometimes do so. People find themselves in a situation where they are affected by others but have no leverage to control those others and hold them accountable. Typically, this will be in dealings with strangers, but one may lack leverage to control intimates as well. In such a predicament, courts may be a recourse, usually a reluctant one. And modern society throws up more of these predicaments. Mobility enlarges the options of actors. Modern technology multiplies the indirect effects of actions. An increasing portion of dealings and of disputes are with remote actors. Increasingly personal transactions and disputes are not with other persons, but with corporate organizations. Thus, an increasing portion of serious disputes are between entities of different sizes -- typically between individuals and large organizations -- rather than between comparable entities.

The growth of knowledge enables increasing numbers of people to trace out these connections and to establish responsibility for these ramifying consequences. Education and wealth increase competence in visualizing remedies and using institutions. Law is a way to control and hold accountable remote and overwhelming actors. We use it more wholesale and ex ante in the form of legislation and administrative regulation; we also use it more in its retail and ex post form of litigation.

Current discussion of the litigation system usually focuses not on such benefits but on various kinds of costs, direct and indirect, that attend the system. We hear much of bizarre claims, immense jury verdicts, undeserved windfalls, the engorgement of contingency fee lawyers, financially devastated defendants and other things that befall the specific participants in specific cases. Beyond this, we hear much about the deleterious effects of litigation in the large -- that it dampens enterprise, distracts managers, makes doctors practice defensive medicine, increases the cost of products, keeps useful products off the market, etc. We hear much less of the benefits of litigation: in addition to direct provision of compensation, litigation supports a vast system of bargaining in which almost all disputes are resolved by negotiation, and litigation induces a range of preventive effects by threatening and educating those engaged in various activities that underlie injuries and disputes.

We do not claim that all of the effects of the litigation system are optimal, or that the benefits outweigh all of the costs, or that existing litigation patterns represent the best way to achieve these benefits. But it should be recognized that there are benefits, and that any assessment of the social value of litigation must take account of them and must consider the net effects of present litigation patterns and the proposed (or likely) alternatives.

CONCLUSION

It is a common belief that the United States suffers from a lawsuit crisis, a litigation explosion, and a civil liability system in danger of spinning out of control. The available evidence, however, suggests a more benign reading of our current situation.

1. America is not faced with an inexorably growing explosion of cases, but with a series of local changes, some sudden but most incremental, as particular kinds of troubles move in and out of the ambit of the courts.

2. Higher caseloads do not reflect a heightened appetite for adversarial combat; they represent people trying to cope with problems given the existing array of remedial alternatives.

3. The effects of litigation include an admixture of benefits as well as costs, as do the alternative ways of handling such troubles; speculation on "litigiousness" is not a useful means for determining the net effects of litigation or other alternatives.

Why the consternation about litigation? Why is the bad face of law so evident and its good face hidden to so many? The answer is surely complex, but a couple of things deserve mention. First, litigation implies accountability to public standards. The heightening of public accountability is in many quarters an unwelcome counter to deregulation. The sense of being held to account has multiplied far more than cases or trials, for it depends not on the direct imposition of court orders, but on the communication of messages about what courts might do. Law as a system of symbols has expanded; information about law and its working is more widely and vividly circulated to more educated and receptive audiences. In addition, the source of litigation has changed somewhat in recent decades. Most litigation, as always, is brought by dominant parties -- creditors, regulators, and the like. What is distinctive about postwar American litigation is that there has been an increasing portion of claims brought by victims of injury, discrimination, wrongful discharge, and so forth. It is such litigation "up" -- by outsiders and clients and dependents against authorities and managers of established institutions -- that excites most of the reproach of our litigious society.

The sense that America is uniquely cursed by rampant community-destroying legalism, which unravels the fabric of trust, distorts markets, and confounds authority, is yet another reincarnation of the worn cliche that America has declined from a former state of harmony into alienation and oppression. The American reality is more complex.

Marc Galanter is Evjue-Bascom Professor of Law and Director, Institute for Legal Studies, University of Wisconsin-Madison, and Charles R. Epp is Legal Studies Fellow, Institute for Legal Studies.

FOOTNOTES

1 For a detailed analysis, see Marc Galanter, "The Debased Debate on Civil Justice," Working Paper DPRP 10-10, May, 1992, Institute for Legal Studies, University of Wisconsin, Madison, WI.

2 Remarks by Vice President Quayle to the American Business Conference, Oct. 1, 1991 (Federal News Service).

3 J. Henderson and T. Eisenberg, "The Quiet Revolution in Products Liability: An Empirical Study of Legal Change," 37 UCLA Law Review 479 (1990). They summarize further evidence of these trends in T. Eisenberg and J. Henderson, "Inside the Quiet Revolution in Products Liability," 39 UCLA Law Review 731 (1992), concluding: "|T~he major story in our data |is~ the steadily declining |plaintiff~ success rates, the level median pretrial awards, and the post-1985 declines in awards, expected returns, and sums of awards...." Id., at 789.

4 Michael Rustad, Demystifying Punitive Damages in Products Liability Cases: A Survey of a Quarter Century of Trial Verdicts (Washington: Roscoe Pound Foundation, 1991). This research was also presented in Michael Rustad and Thomas Koenig, "Setting the Record Straight About Skyrocketing Punitive Damage Awards in Products Liability: An Empirical Study of the Last Quarter Century of Verdicts" (paper presented at the annual meeting of the Law and Society Association, Amsterdam, 1991).

5 General Accounting Office, Products Liability: Insurance Rate Levels and Claim Payments During the 1970s and 1980s |GAO/HRD-91-108~ (1991).

6 Marc Galanter and Joel Rogers, "A Transformation of American Business Disputing? Some Preliminary Observations," Disputes Processing Research Program, Working Paper DPRP 10-3 (University of Wisconsin, Institute for Legal Studies, 1991).

7 Marc Galanter and Thomas Palay, Tournament of Lawyers: The Transformation of the Big Law Firm (University of Chicago Press, 1991).

8 "Battle Won, War?" New York Times, May 18, 1980, p. E-7.

9 Markesinis, "Litigation-Mania in England, Germany, and the USA: Are We So Very Different?" (1990) 102 Studi Senesi 372, p. 415.

10 Dewees, Trebilcock, and Coyte, "The Medical Malpractice Crisis: Comparative Empirical Perspective," (1991) 54 Law & Contemporary Problems 217, 250.
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Author:Galanter, Marc; Epp, Charles R.
Publication:Business Economics
Date:Oct 1, 1992
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