Administration Expands Anti-Lawsuit Push

The Bush administration’s drive this year to limit lawsuits will get off to a fast start next week, not in Congress but in the Supreme Court.

In a pair of cases, government lawyers will argue that pesticide makers should be shielded from being sued by farmers and that once-high-flying companies should be protected from lawsuits by angry investors who say a stock was inflated.

The cases involving Texas peanut farmers and a San Diego drug company illustrate that the fight against what President Bush calls “lawsuit abuse” is not confined to Congress.

The administration’s lawyers have repeatedly gone to the Supreme Court in hopes of erecting barriers to lawsuits. They have done so by siding with business officials and arguing that federal law should be read to block plaintiffs from taking their claims before juries.

They have had some big wins. Last year, the high court agreed with the administration’s argument and shielded most managed-care networks from being sued for damages by their patients.

Now the administration is siding with two companies, and against farmers and shareholders, in a pair of unrelated cases that also turn on whether lawsuits should be permitted.

In the first case, the administration is siding with Dow Chemical Co. in seeking to block a lawsuit by 29 peanut farmers from west Texas who say one of Dow’s weed killers destroyed their peanut plants.

In the second, the administration joined in defense of a small San Diego pharmaceutical company whose stock price plunged in 1998 after it revealed that its earlier predictions of strong sales growth were wrong. This seemingly small case could answer a billion-dollar question: Can investors and pension funds sue to recover their losses after the bursting of the dot-com bubble and the collapse of Enron and WorldCom?

The pesticide case began five years ago when a group of peanut farmers agreed to try a new weed killer made by Dow AgroSciences.

Ronnie Love, 63 and a lifelong peanut farmer, said he put the weed killer, Strongarm, on 150 acres when he seeded the field.

“They came up and just withered. They plain withered away,” he said of the crops. Despite a summer of heavy watering, Love said his fields were nearly dead by fall.

He and the other farmers say Dow reneged on a promise to compensate them for millions of dollars in crop losses, and they notified the company they planned to sue for damages under the Texas Deceptive Trade Practices Act. This measure allows consumers who are bilked or sold a defective product to sue for damages.

But before this state case could begin, Dow sued the farmers in a federal court in Lubbock. Its lawyers argued that the farmers’ claims were preempted, or blocked, by the federal law that regulated pesticides and related chemicals.

This 1972 law requires pesticide makers to register their products with the U.S. Environmental Protection Agency and to show the chemicals will not harm the environment. However, the agency does not certify that a weed killer will kill only weeds.

Dow’s lawyers and the Bush administration say that because federal law requires an approved warning label on the pesticide, manufacturers cannot be sued in state courts for failing to warn consumers of an unforeseen danger. Administration lawyers say the federal pesticide registration law “precludes state tort claims” against manufacturers.

In the 1990s, the Clinton administration had taken the view that pesticide makers could be sued, but the Bush administration reversed this position.

A federal judge in Lubbock and the U.S. court of appeals in New Orleans agreed with Dow’s argument, and it ruled the peanut farmers could not sue.

Their lawyer, Phil Watkins of San Antonio, appealed the case to the Supreme Court. He said it was “absurd” to think Congress intended to shield the chemical companies from paying for the damage caused by their products, whether to crops or humans.

The peanut farmers “were sold an expensive chemical, and they were also sold a story by Dow.”

After the 2000 growing season, Dow revised the warning labels on Strongarm to say it should not be used in the high-alkaline soils of Texas, New Mexico and Oklahoma.

Because lower courts were split on the issue, the Supreme Court will hear the case of Bates vs. Dow AgroSciences on Monday.

The securities fraud case will decide what investors must show in order to bring a lawsuit against a company.

In 1995, Congress sought to block “abusive and meritless suits” that vaguely alleged stock fraud based on the normal rise and fall of stock prices.

Investors may not sue for fraud, the new law said, unless they can show a particular false statement by the company “caused the loss” suffered by the investors.

Lower courts are split on how to apply that new standard.

“This is the most important securities litigation case before the Supreme Court in almost a decade,” said San Diego lawyer William F. Sullivan, who represents Dura Pharmaceuticals.

In 1997, the company said sales of its antibiotics and asthma medications were strong and growing. Its stock price grew too and hit a high of $53 on Feb. 23, 1998.

The next day, the company reported that sales were weaker than expected, and the stock lost 47% of its value in a single day. Its value continued to slide through the rest of the year as the company revealed more bad news.

A group of investors sued, contending they were cheated when they bought Dura’s stock at inflated prices. However, a federal judge dismissed the claim, saying the investors had not pointed to a particular false statement that caused their losses.

The U.S. 9th Circuit Court of Appeals revived the suit and said the investors should be given a chance to prove they paid inflated prices for Dura’s stock because of the company’s misleading statements.

Business lawyers and the Bush administration urge the justices to block all such lawsuits, except when investors can show their losses were triggered by a particular false statement.

“This is about weeding out frivolous class actions [suits] in securities,” said Robin S. Conrad, a lawyer for the U.S. Chamber of Commerce.

But big pension funds, including the University of California and California Public Employees’ Retirement System, urge the justices to allow investors to sue and to recover their stock losses whenever they can show the company misled them.

The court will hear the case of Dura Pharmaceuticals vs. Broudo on Wednesday.

The outcome could decide the fate of hundreds of class-action suits that were filed after the stock market plunged in 2000.

If companies and analysts can be successfully sued for having hyped the price of stocks, they could find themselves liable for the enormous losses when the bubble burst.