207, 211, 213 -- Tort Reforms
Background: If the expensive business of tort reform was cast as a volleyball game, the March ballot would have been the business team's serve -- and they blew it. Propositions 200, 201 and 202 attracted millions of dollars from Silicon Valley firms and other businesses seeking to limit so-called "strike suits," as well as to cap attorneys' contingency fees and institute a system of no-fault car insurance. Tort lawyers spent their own millions to defeat the three, and were ultimately successful in killing them all (see CJ February, May 1996). November now finds the ball in the trial lawyers' court, with two of three tort-related initiatives written and strongly backed by attorneys' groups.Only one of the three was born directly out of March's battle. What is now 207 started as an attempt by the state trial lawyers' association to blunt the impact of 202, which would have capped contingency fees -- payments based on a percentage of any final settlement. Its counter-measure, which protects such fee arrangements, was unable to gather signatures quickly enough to make the March ballot but qualified not long afterward. Although the business-backed 202 ultimately failed, trial lawyers argue that legislative efforts to limit fees justify continuing their initiative campaign.
The other two November initiatives grew out of the more global tort-reform battles being fought in Sacramento and Washington, D.C. One of the most significant recent victories won by business-backed reformers was last year's congressional overhaul of securities litigation law. The bill, supported by both Republicans and Democrats, made it more difficult for shareholders to file lawsuits alleging corporate stock fraud. Business supporters, who had made the issue one of their top priorities, said the bill would cut down on opportunistic "strike suits" targeting companies with volatile stock prices. President Bill Clinton vetoed the measure, but Congress overrode him. The new law governed only federal lawsuits, however, while securities cases can be brought in either state or federal courts. A ballot proposal, heavily funded by San Diego tort attorney William Lerach and other plaintiffs' lawyers, would block federal-type reforms at the state level and make it far easier for shareholders to file stock fraud suits and win in California state courts. This became 211, and its supporters rounded up early labor and senior group endorsees, casting the initiative as a bid to protect the savings of retirees and retirement funds. Lerach and other trial lawyers are some of the state's biggest contributors to Democratic Party coffers, so they managed to win the support of the state party over the strenuous objection of moderate and Silicon-Valley area legislators.
But the coalition of business groups that supported the March initiatives, anchored by deep-pocketed Silicon Valley firms, has regrouped to make the defeat of Lerach's initiative its highest priority. A national campaign has been mounted, since out-of-state companies could be subject to the new law if they have even one in-state shareholder. This translates into big dollars arrayed against the measure. Out-of-state trial attorneys are supporting it, however, since it would provide an extremely friendly venue for their shareholder suits. Many observers predict a $30 million campaign.
Proposition 213 -- which deals with the ability of drunk drivers to sue -- arises from a battle between Insurance Commissioner Chuck Quackenbush and legislative Democrats, who refused to pass a bill mirroring the proposition last session. Quackenbush began gathering signatures when his legislation was stuck in the Assembly; after the newly ascendent lower house GOP passed the measure this year, he tried to use the signatures as leverage with Senate Democrats, but they wouldn't budge.
Proposition 207
An initiative statute that protects an attorney's ability to charge contingency fees.
Proposal: Proposition 207 would protect attorneys' ability to charge virtually unlimited contingency fees and make it difficult for the Legislature to put a cap on such fee arrangements without seeking voters' approval. It would prohibit lawyers from harging "excessive" fees, as determined by a judge and would strengthen court sanctions against attorneys who file three "frivolous" lawsuits within five years.Arguments For: The Consumer Attorneys of California -- the trial lawyers' association -- argue that contingent fee arrangements are the only way some people can afford legal representation. The measure is necessary to protect such payment plans from legislative tampering, they say. While courts already have the ability to fine attorneys who file "frivolous" lawsuits, proponents argue the measure would increase the disincentives to such suits.
Arguments Against: Opponents, including the Association for California Tort Reform and much of the business coalition that supported March's Proposition 202, argue that the initiative is a thinly veiled attempt by trial lawyers to protect their high fees, and will actually increase frivolous lawsuits by protecting attorneys' contingent fees.
Proposition 211
An initiative statute that regulates lawsuits filed in California courts by stockholders against corporations.
Proposal: Proposition 211 is a far-reaching package of measures governing securities lawsuits filed in California state courts, ostensibly geared towards protecting retirees and pension funds from corporate fraud. The measure would hold companies liable to any person who suffers stock losses as a result of fraud. This would make it easier for single individuals, rather than stockholders as a group, to bring suit against a company. The burden of proof would be shifted away from plaintiffs, who currently must prove they depended on a company's fraudulent information, such as that contained in a corporate prospectus, when buying stock. Instead, a legal doctrine called "fraud on the market" would be applied to such suits; shareholders could bring fraud claims based on a precipitous drop in a stock's market price, and the court would automatically assume the plaintiff had relied on any existing fraudulent information. Individual officials of the company -- as well as lawyers, accountants or stockbrokers only tangentially related to the stock transactions -- could be held personally liable for the full value of the suits, although liability insurance could be purchased against such an event. Under current law, only people directly involved in the buying or selling are subject to securities law. Punitive damages could be included in the fraud suit; such damages would go to the state's general fund, with the notable exception of legal fees and court costs. Finally, the measure would protect the ability of attorneys to set their own fees in any kind of case, not just securities fraud suits, requiring another vote of the electorate to change the law.Arguments for: Proponents argue that the new federal laws have made it too difficult for small shareholders to recover damages in federal courts after being defrauded. They point to numerous cases of corporate financial shenanigans and outright fraud, and say that retiree and pension dollars must be protected against such wrongdoings. Originally funded and backed by San Diego securities lawyer William Lerach and other plaintiffs' attorneys, the measure has been endorsed by the state Democratic Party and a long list of labor, consumer and institutional investment groups.
Arguments against: Opponents argue that California courts would become a nationwide magnet for "frivolous" lawsuits no longer eligible for federal courts. They cite a study -- dismissed as entirely biased by the pro-211 campaign -- that argues the measure could cost state business more than $1.3 billion per year, and could send 159,000 jobs to other states over the next decade. The state GOP opposes the measure, as do a handful of Silicon Valley Democrats and Democratic state Controller Kathleen Connell. Both Clinton and Bob Dole have weighed in against the proposal, looking for the support of state business. The California Chamber of Commerce, the California Manufacturers Association, Silicon Valley businesses and national accounting firms all are allied with those seeking to defeat the initiative.
Proposition 213
An initiative statute that would limit the ability of uninsured or drunk drivers to sue after being in an auto accident.
Proposal: Proposition 213 would limit the ability of uninsured or drunk drivers to sue after being in an auto accident. Either would be able to seek damages for medical benefits, lost wages or vehicle damage but could not go for the potentially big-money "non-economic" damages such as pain and suffering. Uninsured drivers still would be able to sue if hit by a drunk driver. The measure also would prevent persons convicted of a felony from suing for damages or injuries sustained while committing or fleeing their crime. This provision would apply only if the losses were a result of some third party's negligence -- felons would still be able to bring "excessive force" or similar cases against police officers.Arguments for: Proponents, led by Insurance Commissioner Chuck Quackenbush, argue that drunk drivers and the uninsured cost law-abiding policyholders millions of dollars every year. The proposal would save insurance companies money, they say, which would be passed along to consumers under the provisions of Proposition 103, as enforced by Quackenbush.
Arguments against: Opponents -- including Harvey Rosenfield's Proposition 103 enforcement group, several liberal advocacy groups, and the trial lawyers' association -- focus on the measure's uninsured-motorist provision. They argue that 213 unfairly targets minorities, students and poor people who cannot afford car insurance, and in no way guarantees reduced insurance premiums. They say that the measure effectively -- though not explicitly -- will prevent uninsured motorists from winning even medical or lost-wages damages, since many contingent-fee lawyers will refuse to take their cases without the promise of the higher non-economic damage awards.
-- John Borland