Trial Lawyers Facing 3-Pronged Assault
Back when Santa Clara Valley prune orchards were plowed under to make way for the Silicon Valley, some technophobes labeled the computer revolution the Revenge of the Nerds.
Now that many of the guys with pocket protectors are millionaires, elements of the sophisticated high-tech industry say they are taking aim at lawyers, especially those flashy trial lawyers who sue them.
Led by Tom Proulx, a co-founder of software giant Intuit, several major Silicon Valley computer companies, venture capitalists and Wall Street investment houses are financing a package of three initiatives on the March 26 ballot aimed at reining in lawyers and various types of lawsuits.
“Lawyers and lawsuits are out of control,” says Proulx, a lanky and well-scrubbed 34-year-old who is one of those engineers who made millions by writing software. “They are costing us jobs.”
Propositions 200, 201 and 202 amount to the most direct assault on trial lawyers since the insurance industry launched its anti-lawyer initiative war in 1988, a campaign that cost a record $80 million and ended in failure for the insurance industry.
This latest fight won’t reach the frenzied levels of 1988. But by virtue of this month’s vote, California is at the front of the nationwide war between corporate interests and the plaintiff’s bar for control of civil law.
Republican Gov. Pete Wilson, decrying “lawsuit abuse,” has endorsed the measures, as have the state Chamber of Commerce and most other major business groups, with the notable exception of the insurance industry.
Trial lawyers, the gunslingers of the legal profession, aim to quash any measure limiting the right to sue. They’ve pumped more than $5 million so far into the campaign against Propositions 200, 201 and 202.
For public consumption, lawyers don’t discuss the income the initiatives would cost them. Instead, they cast the trio as anti-consumer propositions that will hurt victims of corporate wrongdoers. Even their campaign committee name, Consumers and Their Attorneys Against Propositions 200, 201 and 202, suggests attorneys’ interests are secondary.
“The rich Silicon Valley corporations don’t want consumers to have a fighting chance,” said Mary Alexander, president of the California trial lawyers association, renamed Consumer Attorneys of California. “Consumers need to have the ability to fight back.”
The reason lawyers aren’t taking an out-front role as public spokesmen against the initiatives is clear. Polls consistently show that the public distrusts them. They leave public appearances to their allies, such as professional consumer advocates, some of whom receive significant trial lawyer funding.
In their TV ads, the lawyers urge voters to “join Ralph Nader” in voting no on the measures--though Nader, based in Washington, cannot vote in California this month. Nader has stumped in California against the measures.
With two weeks left until the election, the lawyers seem to have momentum. In the final weeks of the campaign, when television ads often turn elections, the lawyers are significantly outspending Proulx and his Alliance to Revitalize California.
But if voters don’t get their fill of lawyers and lawyer-bashing in this campaign, trial attorneys will be back in November. They have qualified one initiative and are close to qualifying a second to repeal two of the three March initiatives, should they pass.
Proulx hopes to trump the lawyers with yet another initiative--call it a counter-counter initiative--in November. By the time it’s over, California’s 1996 litigation initiative war will cost $25 million, easy.
Despite all the attention, Propositions 200, 201 and 202 would not get at some of the most commonly perceived problems in the court system. There is no cap on punitive damages, for example. Nor is there anything to prevent lawsuits over spilled cups of hot coffee.
Proposition 200, however, would prohibit almost all suits over car crashes by creating a form of no-fault auto insurance. Proposition 202 would force early settlements of suits in cases involving personal injury, product liability and other wrongs, and would cap lawyers’ fees when those cases settle quickly.
Proposition 201 is the most narrow of the three. It’s also the main reason Proulx and Silicon Valley entrepreneurs are involved. The measure would sharply restrict suits by stockholders against publicly held companies over drops in stock prices.
“The average voter doesn’t get it. . . . It is not a commonly understood problem,” Proulx said. But for executives in the high-tech industry, he said, “You’re constantly living with this threat.”
Proulx and other proponents say 60% of the publicly traded companies in the Silicon Valley have been hit by shareholder suits. They blame over-aggressive attorneys, especially Bill Lerach, a San Diego attorney who specializes in the suits. Indeed, some people in Silicon Valley call 201 the “Get Bill Lerach Initiative.”
Lerach places the blame on fraud in the industry. “This proposition is not an attempt at reform,” he said. “It is an attempt to simply end a certain species of lawsuit.”
In 1994 and 1995, shareholder suits nationwide were settled for $3.2 billion, most of them in federal courts. Lawyers for those who sued received about 25% of that sum, placing their take at $800 million, according to the New Jersey-based Securities Class Action Alert newsletter.
Seeing the potential loss of access to the California courts for this lucrative source of revenue, Lerach and the handful of attorneys who specialize in such suits have raised $2.8 million to fight Proposition 201 and place a measure on the November ballot to expand the right to bring the litigation.
From a small office in downtown Menlo Park, Proulx (pronounced prew) makes fund-raising calls to executives whose names he gets from lists of corporate defendants of shareholder suits. He has raised more than $5 million. But the campaign ran short of money and was forced to pull its television ads for two weeks in February.
“These Silicon Valley guys say leave us alone,” Proulx says. “Engineers’ brains don’t deal with politics. Engineering brains look at problems and come up with solutions and they implement those solutions. Politics is anathema to that. It is a horrible process.”
Even for California, the campaign is strange. To run it, Proulx hired one of the most liberal campaign consultants around, Bill Zimmerman. In the 1970s, Zimmerman airlifted supplies to Native Americans at a Wounded Knee demonstration, and shipped food and medicine to North Vietnam.
Today, Zimmerman controls Voter Revolt, a campaign organization responsible for the one insurance-related initiative that passed in 1988, Proposition 103, which sought to slash auto insurance rates. Adding spice to the mix, Zimmerman is feuding with Harvey Rosenfield, who founded Voter Revolt and is appalled that its name is being used to trumpet three initiatives he opposes.
To balance his team and attract GOP support, Proulx brought on Orange County Republican political consultant Ken Khachigian. When Zimmerman was protesting the Vietnam War, Khachigian was working with Pat Buchanan in the Nixon White House as a speech writer.
Proulx himself is an unlikely participant. Intuit, which he co-founded in 1983, has never been hit with a shareholder suit, and Proulx does not seem to be especially political. Indeed, in an interview, he couldn’t recall if he voted for President in the 1980s, let alone who he voted for.
He was too busy writing software. After becoming intrigued with computers in a high school class in Huntington Beach, he went to Stanford, where, as a senior, he began writing the Quicken personal finance software.
Quicken turned Intuit into a corporation with 2,700 employees. It made Proulx a multimillionaire by his mid-20s. By his early 30s, his wealth was estimated at $55 million, and he was looking for new challenges.
Enter Andrew Tobias. A Miami- and New York-based financial writer for popular magazines, Tobias developed a fascination with insurance, specifically no-fault auto insurance.
Tobias and Proulx met in 1993, when Tobias was in California pushing no-fault auto insurance that would be paid for by a 40-cent per gallon tax on gasoline. His attempt to place the so-called Pay-at-the-Pump initiative on the 1994 ballot failed. But he managed to hook Proulx on the idea of changing the system.
“Here’s a big problem, a multibillion-dollar-a-year problem,” said Proulx, recalling why he quit Intuit to join the effort. “To put that back into the economy, it would be kind of exciting to be involved in that.”
With Zimmerman and consultant Michael Johnson as political advisors, Tobias dropped “pay-at-the-pump” and the group set about planning the broader strategy for 1996. The theme would be anti-lawyer.
‘It was strategic,” Proulx said, explaining why they decided on three initiatives. “Each would have a better chance in a package, where we could focus voters’ attention on a theme. . . . You don’t get into the details, because you can’t. So you’ve got to market the theme that’s common.”
With the measures to restrict shareholder litigation and force settlements, they could get corporate money. By keeping no-fault, they hoped to gain support from consumer activists, and from the insurance industry, long a supporter of no-fault, would dump in money. On that, they were wrong. Major auto insurance companies have given nothing.
“No one wants another endless initiative war,” State Farm spokesman Bill Sirola said.
In their ads, the proponents don’t get specific. Instead, they play on people’s prejudice against lawyers. To make the point that lawyers are out of control, Zimmerman is airing humorous TV spots showing rich lawyers in fancy cars with license plates that read “sue” and “big fee.”
As would be expected in a campaign run by computer guys, the Alliance to Revitalize California has a computer Internet site on the World Wide Web (http.www.legalreform.org). It includes a lengthy list of lawyer jokes.
“We have an electorate that’s convinced of the problem,” Proulx said.
The facts suggest the problem may not be so acute. Suits over car crashes have dropped by almost half since the late 1980s, and personal injury suits not related to car wrecks fell by almost 20%, according to the California Judicial Council, which tracks litigation.
Trial lawyers, who number about 5,000 of California’s 120,000 attorneys, are used to getting their way. They spend roughly $1 million a year on an aggressive lobbying effort in Sacramento, and about $1 million per election on state legislative candidates, almost all of them Democrats.
Polls show that their attack ads, portraying supporters as corporate “wolves” preying on small investors, are eroding support for the package of initiatives.
For good measure, the lawyers have an Internet site on the World Wide Web as well (https://seamless.com/consumer/index.html). In a rather personal swipe, it includes a picture of Proulx’s gated mansion in Atherton, a wealthy San Francisco suburb. As the lawyers see it, the picture is evidence that the initiatives are not written for the common Californian.
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Anti-Lawyer Initiatives
Here is a look at the package of three anti-lawyer initiatives on the March 26 ballot, their supporters, their opponents and major campaign donors.
Proposition 200
* What it is: Creates a form of auto insurance called pure no-fault. It would bar drivers from suing motorists who cause crashes in almost all instances.
* How it would work: Drivers would show proof of insurance to register their cars. They would have to buy a minimum policy of $50,000 in coverage. They could buy more. The policy would pay for injuries suffered by the driver and his occupants. Rates would rise for drivers who cause accidents, but not for those who aren’t at fault.
Insurance companies would determine the need for medical care. Motorists could sue their insurers for failing to cover them. They also could sue auto makers for defects, the government for road hazards and drunk drivers who cause accidents. A Rand Corp. analysis says no-fault insurance rates would be 11% to 44% less than current costs, depending on the policy.
* Supporter: Financial writer Andrew Tobias, who helped draft Prop. 200: “The big improvement is that if you’re hurt, you get compensated.”
* Opponent: Santa Monica lawyer Roy Ulrich, who is active in the consumer movement and supports some no-fault measures, but not this one: “Proposition 200 is a solution if you want to slash costs. But it’s not a solution if you want justice.”
Proposition 201
* What it is: Limits shareholder litigation. Stockholders in publicly traded companies now can sue when the stock price falls sharply and they believe that corporate officers misled them into thinking the stock was a solid investment.
* How it would work: Under 201’s “loser-pays” provision, plaintiffs risk having to pay the cost of defending shareholder suits if the plaintiff loses. The judge could waive a plaintiff’s liability, or require the plaintiff’s lawyer to pay the defense costs. If a plaintiff holds less than 5% of a company’s stock, he would need to post a costly bond to cover potential defense costs.
* Supporter: Assemblyman Louis Caldera (D-Los Angeles): “These lawsuits are hurting one of the industries that is creating jobs. It produces the kind of jobs California needs--high-wage, high-skill.”
* Opponent: San Diego lawyer Bill Lerach, who represents plaintiffs in shareholder suits: “The threat that keeps the entrepreneurs honest . . . is the threat of private litigation.”
Proposition 202
* What it is: Forces early settlements by requiring people who sue to reveal their cases at the start of litigation, and make settlement demands within 60 days. If the defense agrees quickly, plaintiff’s lawyers’ fees would be capped at 15%, rather than the 33% lawyers customarily charge in contingency fee cases.
* How it would work: Assume that a plaintiff has injuries costing $100,000. If the defense offers $10,000, and the plaintiff rejects it, the case proceeds. If in the end, the plaintiff receives the $100,000, the plaintiff’s lawyer would get 15% of the first $10,000, and a third of the additional $90,000, for a total of $31,500. The injured person would get $68,500.
If the defendant makes an opening offer of $75,000, and the plaintiff takes it, the plaintiff’s lawyer would receive 15%, or $11,250, and the person who sued would get $63,750, plus the benefit of receiving the money quickly.
* Supporter: Palo Alto lawyer David Marks, who helped write 202: “There are a lot more draconian measures out there. This is something that is livable and does not close the courts.”
* Opponent: Consumer advocate Ralph Nader, who defends the right to sue: “This is demonically clever in pressuring plaintiffs who are wronged by defective products to settle early before the legal discovery process gets under way and spills out all the skeletons.”
Top Donors to the Campaigns
* Pro: Symantex Inc., $400,000 loans and donations; Intel Corp. and its CEO, $350,000 loans and donations; Alan Shugart, CEO of Seagate Technologies, $250,805; Donald Fisher, CEO the Gap, $250,000, loans and donations; JP Morgan Securities, $232,600 loan.
* Con: A campaign committee funded largely by the San Diego law firm Milberg, Weiss, Bershad, Hynes & Lerach, $500,000; Los Angeles law firms of Greene, Broillet, Taylor & Wheeler; Rose, Klein & Marias, and Girardi & Keese; Claremont law firm of Shernoff, Bidart & Darras; San Diego law firm of Thornes, Bartolotta, McQuire & Padilla; Orange County law firm of Robinson, Phillips & Calcagnie, $100,000 each.
Sources: Interviews, campaign publications and campaign finance reports
