Now and then events converge to remind us of how often plaintiffs’ lawyers pervert our lawsuit industry for personal and political gain, under the indulgent eyes of judges, without rectifying any injustices, at the expense of the rest of us.
We have recently witnessed the spectacle of three of the nation’s richest and most famous plaintiffs’ lawyers heading to federal prison for various criminal frauds. More on them later. First, let’s consider an especially egregious case that the Supreme Court allowed on May 12, for lack of a quorum, to move ahead in lower federal courts. These consolidated lawsuits, which are seeking more than $400 billion from companies that did business in South Africa during apartheid, score high on what I call Taylor’s Index of Completely Worthless Lawsuit Indicators:
• The lawsuits will do victims of wrongdoing little or no good.
• They will penalize no human being who has done anything wrong.
• They will deter more conduct that is beneficial than harmful.
• The legal costs and any damages will come at the expense of the general public.
• The lawsuits therefore serve no purpose at all but to enrich lawyers and provide ideological power trips for some judges as well as lawyers.
A weakly reasoned federal Appeals Court decision in the apartheid case has the additional defects of thumbing its nose at the Supreme Court and insulting the current, democratically elected government of South Africa, which is led by victims of apartheid.
American Isuzu Motors v. Ntsebeza is a class action purporting to represent all of the more than 20 million black South Africans who were held down by the brutal apartheid regime between 1948 and 1994. The claimed $400 billion would come from more than 50 of the big American and multinational companies that usually end up in the dock when plaintiffs’ attorneys are looking for deep pockets to pick.
Lawyers led by Michael Hausfeld of Washington, D.C., and Paul Hoffman of Los Angeles have accused these companies of "aiding and abetting" international law violations dating back 60 years simply by selling products and doing other business in South Africa during apartheid.
The sprawling scope of the lawsuits, and the self-indulgence of the justices, account for the embarrassing lack of a six-justice quorum: Four of the nine recused themselves because of stockholdings in or other ties to defendant companies. This outcome was especially scandalous because the justices could easily avoid most such recusals by selling their individual stocks (tax-free, under a 2006 law) and reinvesting in broad stock index funds.
Apartheid was monstrous. But even on the debatable assumption that the companies were wrong to do business under it, this case is no remedy. Rather, it rubs salt in apartheid’s wounds, according to South Africa’s current government. Specifically:
The lawsuits will do victims little or no good. The more than 20 million surviving blacks who lived under apartheid are unlikely to get more than a couple of quarters apiece, if anything. The $400 billion claim is frivolous. Even the most fecklessly PC judges are not going to order a vast reparations program for 20 million South Africans at the expense of (mostly) U.S. consumers. And even if Hausfeld and Hoffman succeed in using burdensome court-approved fishing expeditions and inflammatory publicity to extort nuisance settlements of, say, $20 million, that would come to about 50 cents for each "plaintiff," assuming that legal fees and costs consume the usual 30 to 60 percent.
They will penalize no human wrongdoer. The defendants include none of the leaders or supporters of the apartheid regime, and none of the corporate chieftains who did business in South Africa under apartheid. In any event, whether right or wrong then, these executives are retired or dead now.
They will deter more beneficial than harmful conduct. While timely lawsuits against real wrongdoers can deter future misconduct, that’s not likely here. Not many companies are interested in aiding and abetting human-rights violations. The conduct likely to be deterred is the private-sector trading and investing that our government has long encouraged to engage the many foreign countries whose governments have–like our own–been accused of human-rights violations.
The money comes from us all. The companies’ defense costs and any damage payments would not come from corporate big shots. Rather, in the aggregate such costs are spread to us all in the form of higher prices and insurance premiums; of downward pressure on the stockholdings of the big pension funds and tens of millions individual investors; and of lost jobs, when companies are hit really hard or bankrupted, as more than 60 have been by the asbestos-litigation scam. (See my January 3, 2004, column, p. 8.)
These are among the reasons both the State Department and South Africa’s current, black-run government strongly urged dismissal, with the latter asking the courts not to "intrude upon and disrupt our own efforts to achieve reconciliation and reconstruction" and warning that the case could "discourage much-needed direct foreign investment in South Africa." Then the Supreme Court suggested, in an extraordinarily pointed footnote in another case, that perhaps the apartheid lawsuits should be dismissed. And federal District Judge John Sprizzo did dismiss them.
But in October, Judges Robert Katzmann and Peter Hall of the U.S. Court of Appeals for the 2d Circuit, in New York, brushed aside all these warnings and used an expansive interpretation of the cryptic 1789 Alien Tort Statute to reinstate the apartheid lawsuits. Their strained reasoning–ably shredded by Judge Edward Korman’s dissent and denounced as "judicial imperialism" by South African President Thabo Mbeki on the floor of Parliament–is emblematic of the lengths to which some judges will go to keep worthless litigation alive. Now the case will probably drag on for years, consuming countless millions of dollars in legal costs and irritating both South Africa and our best allies, whose companies are among the defendants.
Perhaps it should come as no surprise that two titans of the plaintiffs’ securities bar–now headed for prison–were systematically paying kickbacks to recruit "name plaintiffs."
The apartheid lawsuit is one of dozens seeking to pervert the Alien Tort Statute to mulct companies for ordinary commercial conduct in countries accused of human-rights violations. Caterpillar, for example, was sued for selling bulldozers that Israel used to destroy suspected Palestinian terrorists’ homes. (The case was dismissed.) "The American bar is actively soliciting alien plaintiffs" to try out novel theories, State Department legal adviser John Bellinger noted in a recent speech. Because so many federal judges have smiled on such suits, Bellinger added, foreign governments increasingly regard the U.S. judiciary "as something of a rogue actor."
Meanwhile, countless cases in other fields also score high on the Index of Completely Worthless Lawsuit Indicators. Examples:
• Lawyers have recruited a coastal Eskimo village in Alaska and others harmed by weather patterns arguably caused by global warming to sue a bunch of big companies for the combined effects of carbon emissions by the entire human race, and for seeking to sow doubt about the threat.
• Officials in Rhode Island and elsewhere are teaming with trial lawyers to extort billions of dollars from the paint industry for sales of lead-based pigment and paint that ended more than 50 years ago. These lawsuits would not compensate a single victim of lead poisoning. Their ostensible purpose is to force the companies to pay to strip lead paint from hundreds of thousands of buildings. In fact, this strategy is not the best way to prevent lead poisoning, and little paint-stripping needs to be–or will be–done. And a recent Rhode Island health department report shows a dramatic decline in unhealthy lead levels in children.
• Most of the shareholder class actions that have taken hundreds of billions of dollars from companies in the past 25 years are a court-supervised "extortion racket," as professor Lester Brickman of Yeshiva University’s Cardozo Law School has explained. They do little or nothing to penalize or deter wrongdoers. Rather, they "transfer wealth from current shareholders of a company to previous owners of the stock. Since many investors at a moment in time are both present and previous owners of various stocks, the net aggregate effect … is to transfer wealth from shareholders’ left pockets to their right pockets less the billions of dollars in fees paid to the class-action lawyers."
Perhaps it should come as no surprise that the two titans of the plaintiffs’ securities bar, William Lerach and Melvyn Weiss, formerly of mega-firm Milberg Weiss, were systematically paying kickbacks to recruit "name plaintiffs," so as to beat other lawyers to the courthouse door when companies’ stocks dropped. Lerach and Weiss are now headed to federal prison, as is Richard (Dickie) Scruggs, the billionaire Mississippi trial-lawyer kingpin who got caught trying to bribe a judge.
And perhaps it should come as no surprise that Lerach told The Wall Street Journal that the lawyers in his field routinely paid kickbacks to clients. He called it an "industry practice." This industry is rotten.
This article appeared in the Saturday, May 17, 2008 edition of National Journal.