NASP 2007 conference

Jan 1, 2008 by

NASP 2007 Conference in New Orleans

The keynote speaker at last year’s NASP Conference was Kathleen Flynn Peterson. Peterson has been a trial attorney for 26 years and is the current president of the American Association for Justice. Her practice focuses on medical malpractice.

She started her address with statistics that demonstrated a dramatic drop in the number of cases actually tried by juries at the federal level, compared to previous years. The number of filings has increased, as would be expected from the increase in population, if nothing else, but the count of jury trials is actually less than in previous years.

Her primary explanation is that more and more cases are handled through the arbitration process instead of litigation. There are certainly strong economic benefits to this trend, but there are also drawbacks. We all understand that trial attorneys have a vested interest in not seeing the number of trials decrease. Her point was that it is wise to consider some of the unintended consequences of this trend, and to compare them to the benefits to get a true picture of the situation.

Her first point was that the arbitration process that we currently experience has introduced a fundamental shift in how we view law and justice as a society. In the past, we viewed law as solid and more or less unchangeable (ignoring legislative fiat). It was reliable, you could depend on it. Citizen A in Los Angeles would get the same treatment as Citizen Z in New York. Equal treatment under the law is a cornerstone of our society.

The concept of legal precedent means we can rely upon the wisdom of previous generations and not have to reinvent the wheel every time we try a case. The participants know the outcome of a trial will be based upon the facts of the case and upon the established law. Given the same facts and the same law, you get the same outcome. This predictability has great economic benefit. Now with the current arbitration process, the concept of precedent is thrown out the window.

The arbitrator is not bound by legal precedent, nor does he set legal precedent. Why is this important?  Your result is now controlled by what the arbitrator considers fair. The concept of fairness varies greatly from one person to the next. You cannot now depend on law, you depend on the charisma of the presenters, and frequently, the sympathy generated.

If you are a manufacturer faced with faulty product claims, you fight the same battle a thousand times and the outcome is always in doubt. Many arbitrators adopt a “split the baby” attitude in the interests of “fairness”. In the product liability arena, we have seen arbitration decisions fall to either side (or split the difference) when it is the same failed product, producing the same damages, which should have produced that same judgment.

As a society, we have now introduced uncertainty in the process and we now have to take defensive actions to protect ourselves from that uncertainty. These defensive actions have a hidden cost, but just as real as the cost of frivolous lawsuits.

Peterson’s next point was that we have entered a new era in litigation, where the results of settlements are sealed. On the face of it, this seems reasonable, whose business is it anyway? The unintended consequence is that repeat malfeasors are now protected from public scrutiny. The same activity may settle for $1 million in the first case and a $10,000 in the second case because the first case had a better negotiator. When later cases are brought for the same activity, there is no record of previous settlements. Repeat malfeasors are shielded from the consequences of their previous actions.

From my point of view, it doesn’t matter if the repeat malfeasor was a manufacturer making a faulty product, a credit bureau that ruined a reputation due to careless errors, or a security broker that breached its fiduciary duties. The manufacturer that spends the extra money to make safe products, the credit bureaus that spend the extra time to insure they get correct information, and the brokers that take the extra effort to protect their clients are put at a competitive disadvantage.

Those who take shortcuts and injure others are not brought up short by the market place, because the market doesn’t know what really happened. Sealing settlements does not improve our society. To quote a proverb, sunlight is the best disinfectant.

The last point that I’ll mention is that Peterson pointed out that arbitration clauses and sealed settlement agreements have become standard contract operating procedure. Credit card applications, car rental agreements, insurance applications (medical, auto, home owner), real estate sales contracts, real estate lease contracts…these all contain (increasingly mandatory) arbitration clauses. Usually they are in a font so small as to require a magnifying glass to read them.

Last month when I visited the dentist for a broken tooth, the very first form that I had to sign was an agreement waiving my right to sue him if he should commit malpractice on me. Peterson’s point was that we frequently, and usually unknowingly, give away our right to trial. This is not progress, it is a step backward.