Questionable Litigation, Large Awards Targeted : Jury Still Out on Bill Limiting Damages

Legislation negotiated in secret to head off an all-out political war among California’s special-interest superpowers would, if signed by Gov. George Deukmejian, help eliminate questionable lawsuits and make it tougher to collect big damage awards, according to legal experts and lawyers in the field.

But the measure, which legislative leaders have called the “hallmark” of their 1987 session, would probably have only a limited effect on the highly publicized, multimillion-dollar judgments that have been used as examples of the nation’s “litigation explosion,” the experts say. That is because the behavior of defendants in those cases is usually so heinous that juries would award damages even under the stricter standards required by the legislation.

Interpretation Needed

The full import of the bill would not be known until California courts interpreted its many ambiguous elements, some of which were intentionally left unclear as the only way to ensure agreement among the opposing factions that sponsored the legislation.

Still, it is evident that the bill would have some impact on lawsuits involving everything from $10,000 automobile accidents to $10-million product liability cases. Experts say the bill likely would curtail suits against tobacco companies over the effects of smoking on health.

It would save California insurance companies millions of dollars in attorneys’ fees. And while it would allow plaintiffs’ lawyers in malpractice cases to collect a larger share of damage awards, it also would make those awards harder to obtain.

Not Supported 100%

Support for the measure is far from unanimous.

Consumer groups, some lawyers and several law school professors interviewed by The Times say the bill went too far in preventing victims from obtaining adequate compensation for their injuries. Many also objected to the private negotiations at which the po2003137126er in the Legislature or through ballot initiatives.

That unprecedented agreement, which has come to be known as a “non-aggression” pact, was key to persuading the Legislature to accept the controversial measure on the last day of the session, when it was approved after a single, hastily called “informational hearing” rather than the full-scale public review such a bill normally would receive.

Part of the measure was drafted on a white linen napkin at Frank Fat’s Restaurant near the Capitol as Assembly Speaker Willie Brown (D-San Francisco) and Sen. Bill Lockyer (D-Hayward) shuttled from booth to booth in an effort to mediate a dispute between the special interests that threatened to sink the deal.

“This is the Legislature at its finest,” scoffed Jim Schultz, a policy analyst for Consumers Union. “It tells you that we really are watching a group of people who have ceased to see themselves as lawmakers and really see themselves as brokers of power. When the special interests can broker themselves, the Legislature has no other duty than to ratify the deal.”

Governor Silent

Deukmejian has not said whether he will sign or veto the measure, but he has hinted that he will sign it. The governor told reporters Wednesday that he would have preferred the Legislature had negotiated and acted on the bill openly, but said that would not affect his deliberations on whether to approve it.

“Things are done sometimes not totally in accordance with the rules, but I don’t think it’s up to me to be making a decision on a bill based on whether or not there’s been a violation, let’s say, of the legislative process,” the governor said.

The consumer movement has also leveled bitter criticism at the trial lawyers’ group, a powerful lobby long considered an ally of the consumer groups, especially in battles with the insurance industry. In the past, the trial lawyers have used their influence to stop similar legislation in its tracks, but this time the lawyers acquiesced.

The lawyers felt they had little choice.

Voters’ Choice

The success of Proposition 51 on the June, 1986, ballot, which limited the ability of victims to collect damages for “pain and suffering,” made it clear that the voters could be sold, in 30-second commercials, major changes in legal doctrine that the Legislature was unwilling to enact.

And the Assn. for California Tort Reform, a major backer of Proposition 51, was prepared to launch a follow-up initiative for 1988 which, if successful, would have slashed lawyers’ fees and implemented even more dramatic protections for defendants in civil suits.

“Tort lawyers working on contingency fees have spent centuries to develop a body of law that they saw had the potential to be entirely destroyed on one day in the voting booth by people who would not be well informed on the issues,” said Harvey Levine, a San Diego attorney and vice president of the Trial Lawyers Assn. “The stakes were very high.”

Effective Threat

Gene Livingstone, chairman of the Assn. for California Tort Reform, said it was his group’s threat, coupled with the knowledge that the trial lawyers might try a counter-initiative, that brought both sides to the negotiating table toward the end of the 1987 session. The ballot initiative campaigns were expected to cost $15 million or more.

“It’s a bit like nuclear war,” Livingstone said. “The initiatives were our weapons aimed at each other. If you unleash those, you harm not only the other side but yourself as well. If we can reach agreement through summits, that’s what we should do.”

In general, the idea behind “tort reform” is to get people who could be victims of civil wrongdoing to relinquish some of the rights they now have to seek compensation for any damages they might suffer. They should do this, proponents say, in order to make the civil justice system more efficient for everyone, to protect themselves in case they are sued, and possibly to reduce insurance premiums, which companies say are being driven higher by unnecesary litigation and huge damage awards.

Significant Changes

The bill that Livingstone, Levine and others drafted and the Legislature rubber-stamped on Sept. 11 would make significant changes in the liability system. Among the most significant could be new protections the measure would provide against punitive damages--the awards given to plaintiffs as a way of punishing the defendant for especially malicious behavior.

Under current law, to collect punitive damages, plaintiffs must prove through a “preponderance of evidence” that the defendant acted with malice, oppression or fraud.

The compromise bill approved by the Legislature would increase that standard of proof to “clear and convincing evidence,” a level closer to the hard-to-prove standard of “beyond a reasonable doubt” that the law requires for a criminal conviction. The bill would also strengthen the legal definition of malice to include “despicable conduct” carried on with a “willful and conscious disregard” for the rights of others.

Legal experts agree that the increased burden of proof would make it tougher for plaintiffs to collect punitive damages. But how much tougher is still open to question.

“Where there’s punitive conduct, courts are going to find it,” said Linda Lipsen, an attorney with Consumers Union in Washington. “You don’t win punitive damage cases for negligent conduct. It’s for outrageous deviations from the standard of care. When there’s that kind of outrageous action, the burden of proof does not make that much difference.”

Others added that it makes sense to have a higher standard of proof for punitive damages because these penalties are intended to punish the defendant beyond the level needed to compensate the victim. This makes punitive damages the civil justice system’s closest parallel to a criminal conviction.

The other major change the bill would make in the punitive damage statutes is the addition of the word “despicable” to the definition of malice. Plucked from a thesaurus by lawyers negotiating the language of the bill, “despicable” has never been defined by California courts.

“This will require the jury to look at the conduct itself as opposed to guessing what the person’s state of mind was,” said Donald F. Miles, a San Francisco civil defense attorney who helped draft the bill. “It provides a very substantial safeguard in measuring when punitive damages should or should not be awarded.”

‘Very Nasty Overtones’

Mark Franklin, a law professor at Stanford University, described the term “despicable” as a “word heavily laden with some very nasty overtones.” UCLA professor Gary Schwartz said the proposed change was a “novel notion” never tried in another jurisdiction. Like other attempts to toughen the definition of malice, this one could be weakened by case law, he said.

“What kind of test would it take to establish not only bad, but despicable?” Schwartz asked. “Looking at it alone, it looks like very strong language that would be quite significant in reducing awards.”

Several experts agreed that the changes affecting punitive damages were likely to have more impact on trial judges and appellate courts than on juries. More cases might be reversed on appeal by justices who found that the jury lacked sufficient evidence to award punitive damages.

“Juries decide punitive damage cases on whether or not it offends their sense of justice,” said Joe Cotchett, a prominent San Francisco attorney whose clients have been awarded $50 million in punitive damages in the last five years. “That’s the bottom line.”

Considerable Confusion

In another section of the bill, the Legislature’s change in products liability law probably has caused the most confusion among legal observers, perhaps because even those who drafted the language do not agree on its importance. The trial lawyers argue that this part of the measure would be narrowly interpreted by the courts, while representatives of business and manufacturers say the statute would apply to a broad range of products.

The provision seeks to protect manufacturers or sellers of products that are “inherently unsafe” from liability stemming from any damage, injury or death caused by their products. It eliminates liability when it can be shown that the person who used the product should have known that it had unsafe features. The provision is expected to curtail about 30 pending suits by smokers or their heirs against cigarette companies.

“These are the kinds of cases that don’t belong in the system,” said Browne Greene, president of the Trial Lawyers Assn. “They’re an embarrassment. This is not the kind of case lawyers in the products field who really know what they are doing are going to take and move with and invest in. They don’t win.”

But the lawyers who are trying such cases and some law school professors who have studied the trend say that eventually a case could have been found that was strong enough to pin some liability on the cigarette makers. The proposed law, however, would block access to the legal doctrine upon which such a case would rest.

“It looks to me like this makes it impossible to sue tobacco companies,” said John Robinson, an Oakland attorney who represents about 20 clients who have such cases pending. “I’m trying to find a way around it, but I can’t find one.”

Other observers say the provision might go much further than simply stopping cigarette-related lawsuits. It could extend to recreational goods, such as skis and skateboards, and even drugs and automobiles--if their makers could convince a jury that the products were “inherently unsafe.” The measure might also apply to bystanders or indirect users who are injured by a product, an idea that worries attorneys who were preparing lawsuits over fetal-alcohol syndrome, which afflicts babies of women who drank alcohol while pregnant.

“I think the language is broad enough that it might include any number of products,” said Archie Robinson, president of the California Defense Counsel, a group of attorneys who defend against civil liability suits. “When I heard about that, I said, ‘Well hell, what a deal!”’

Livingstone, of the Assn. for California Tort Reform, also predicted that the statute would extend to consumer products beyond cigarettes and alcohol. But he acknowledged that the issue was far from clear.

“Ambiguity often becomes the basis of compromise,” he said.

Financial Ramifications

Two other issues touched by the measure, though of less significance legally, carry important financial consequences for the parties involved in the compromise.

One part of the bill sets down limits on the rights of insurance policy holders to hire their own attorneys and charge their insurance company for the costs. Under the measure, such lawyers could be required to have five years experience in the field at issue and carry lawyers’ malpractice insurance. Their fees would be set at the prevailing local rate or, in a dispute, settled in arbitration.

Insurance industry representatives say these changes could save the industry millions of dollars a year in legal expenses piled up by lawyers who abuse the system because they know the insurance company, not the client, is paying the tab.

Another portion of the measure would raise the limits, in place since 1975, on contingency fees lawyers can receive in medical malpractice cases. Current law limits those fees to about $142,000 on a $1-million award. The new limits would allow fees on the same award to climb to as much as $221,000.

It was this provision for which the trial lawyers were most criticized. Consumer activists accused the lawyers of selling out the interests of their clients by seeking an increase in their own fees while agreeing to leave in place a $250,000 limit on “pain and suffering” damage awards in malpractice cases. The limit was adopted in 1975 at the height of a malpractice insurance crisis that doctors said was making it too expensive for them to practice medicine.

“The victims get less and the lawyers get more,” observed Lipsen, of the Consumers Union.

WHAT THE LAW WOULD DO

Awaiting Gov. George Deukmejian’s signature is major legislation aimed at protecting private industry and individuals against personal injury and other civil lawsuits. The following is a comparison of the provisions of current law and the new legislation (SB 241).

Product Liability

Current law: Under several legal doctrines, a manufacturer or seller of a product may be liable for injuries, death or damages caused by the product.

SB 241: Provides that manufacturers or sellers of common consumer products intended for personal use are not liable if their product is known to be unsafe by the average consumer who uses the product with the knowledge common to the community. Could curtail lawsuits by smokers against cigarette companies and might extend to lawsuits over “second-hand smoke” and damage to babies of mothers who drink alcohol while pregnant. Might extend to lawsuits on products such as prescription drugs, automobiles, skis and skateboards.

Punitive Damages

Current law: To collect punitive damages, which are meant to punish a defendant beyond what is claimed for actual losses, the person suing must prove that the defendant’s action showed “malice,” “oppression” or “fraud.” Malice may be either expressed directly or implied through the defendant’s actions. Requires proof for such damages to be established by a “preponderance of evidence.”

SB 241: Would define malice and oppression as including “despicable conduct” that is carried on by the defendant with a willful and conscious disregard of the rights or safety of others. The standard of proof required to collect punitive damages would be increased from a “preponderance of evidence” to “clear and convincing evidence.” Also prevents plaintiffs from asking for a specific amount in punitive damages and separates trials into two parts, one to determine liability and the other to set the level of punitive damages.

Medical Malpractice

Current law: Allows plaintiff to make claim for punitive damages against a doctor at the time a complaint is filed in court.

SB 241: Prohibits plaintiff from making claims for punitive damages unless it can be demonstrated to the court that there is a “substantial probability” that the plaintiff will prevail at trial. The defendant doctor’s financial worth could be introduced as evidence only after a jury found the defendant liable for damages.

Attorney’s Fees

Current law: Limits lawyers’ contingency fees in malpractice cases to 40% of the first $50,000 in damages, 33% of the next $50,000, 25% of the next $100,000 and 10% of any amount over $200,000. The formula provides a $141,000 maximum fee for a $1-million award.

SB 241: Raises fees for malpractice lawsuits but not for other cases. The new fees for malpractice would be limited to 40% of the first $50,000 in damages, 33% of next $50,000, 25% of the next $500,000 and 15% of any amount over $600,000. A $1-million malpractice award would carry a maximum fee of $221,000.

Insurer/Client Conflicts

Current law: Allows insurance company clients to hire a defense attorney at the company’s expense when the clients are being sued for damages that the insurance company does not promise to pay.

SB 241: Allows insurance companies to require that attorneys retained by their clients have at least five years of experience in the field and have lawyers’ malpractice insurance coverage. Fees paid to such attorneys could be limited to prevailing local rates or, if in dispute, settled by binding arbitration.