[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]


4
 
   EXCESSIVE LITIGATION'S IMPACT ON AMERICA'S GLOBAL COMPETITIVENESS

=======================================================================



                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON THE CONSTITUTION 

                           AND CIVIL JUSTICE

                                 OF THE

                       COMMITTEE ON THE JUDICIARY

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 5, 2013

                               __________

                            Serial No. 113-7

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov




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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT, 
LAMAR SMITH, Texas                       Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama              ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     JUDY CHU, California
TED POE, Texas                       TED DEUTCH, Florida
JASON CHAFFETZ, Utah                 LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania             KAREN BASS, California
TREY GOWDY, South Carolina           CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada                  SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
KEITH ROTHFUS, Pennsylvania

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

           Subcommittee on the Constitution and Civil Justice

                    TRENT FRANKS, Arizona, Chairman

                    JIM JORDAN, Ohio, Vice-Chairman

STEVE CHABOT, Ohio                   JERROLD NADLER, New York
J. RANDY FORBES, Virginia            JOHN CONYERS, Jr., Michigan
STEVE KING, Iowa                     ROBERT C. ``BOBBY'' SCOTT, 
LOUIE GOHMERT, Texas                 Virginia
RON DeSANTIS, Florida                STEVE COHEN, Tennessee
KEITH ROTHFUS, Pennsylvania          TED DEUTCH, Florida

                     Paul B. Taylor, Chief Counsel

                David Lachmann, Minority Staff Director



                            C O N T E N T S

                              ----------                              

                             MARCH 5, 2013

                                                                   Page

                           OPENING STATEMENTS

The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona, and Chairman, Subcommittee on the 
  Constitution and Civil Justice.................................     1
The Honorable Jerrold Nadler, a Representative in Congress from 
  the State of New York, and Ranking Member, Subcommittee on the 
  Constitution and Civil Justice.................................     2
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     7
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on the Constitution and 
  Civil Justice..................................................     9

                               WITNESSES

Paul J. Hinton, NERA Economic Consulting
  Oral Testimony.................................................    11
  Prepared Statement.............................................    13
Rocky Flick, Miami, OK
  Oral Testimony.................................................    16
  Prepared Statement.............................................    18
Neil Vidmar, Ph.D., Russell M. Robinson II Professor of Law, Duke 
  University School of Law, and Professor of Psychology, Duke 
  University
  Oral Testimony.................................................    23
  Prepared Statement.............................................    26
Henry N. Butler, GMU Foundation Professor of Law, and Executive 
  Director, Law & Economics Center, George Mason University 
  School of Law
  Oral Testimony.................................................    34
  Prepared Statement.............................................    37

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable Jerrold Nadler, a 
  Representative in Congress from the State of New York, and 
  Ranking Member, Subcommittee on the Constitution and Civil 
  Justice........................................................     5

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Bob Goodlatte, a 
  Representative in Congress from the State of Virginia, and 
  Chairman, Committee on the Judiciary...........................    59
Material submitted by the Honorable Trent Franks, a 
  Representative in Congress from the State of Arizona, and 
  Chairman, Subcommittee on the Constitution and Civil Justice...    61
Supplemental Material submitted by Neil Vidmar, Ph.D., Russell M. 
  Robinson II Professor of Law, Duke University School of Law, 
  and Professor of Psychology, Duke University...................    64


   EXCESSIVE LITIGATION'S IMPACT ON AMERICA'S GLOBAL COMPETITIVENESS

                              ----------                              


                         TUESDAY, MARCH 5, 2013

                        House of Representatives

                   Subcommittee on the Constitution 
                           and Civil Justice

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 2:50 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Trent 
Franks (Chairman of the Subcommittee) presiding.
    Present: Representatives Franks, Goodlatte, Jordan, Chabot, 
King, DeSantis, Rothfus, Nadler, Conyers, Scott, Cohen, and 
Deutch.
    Staff Present: (Majority) Zach Somers, Counsel; Sarah 
Vance, Clerk; (Minority) David Lachmann, Subcommittee Staff 
Director; and Veronica Eligan, Professional Staff Member.
    Mr. Franks. The Subcommittee on the Constitution and Civil 
Justice will come to order. Without objection, the Chair is 
authorized to declare a recess of the Committee at any time.
    And I will say good afternoon to all of you. Thank you for 
being here. I apologize for the delay. There were votes on the 
floor, and we appreciate you being here.
    Welcome to the first hearing of the Subcommittee on the 
Constitution and Civil Justice for the 113th Congress. The 
topic for today's hearing is Excessive Litigation's Impact on 
America's Global Competitiveness.
    During this Congress, this Subcommittee will examine 
various proposals to reform our Nation's civil justice system. 
One of the animating factors behind all of these proposals will 
be how excessive litigation creates huge costs that 
unnecessarily burden and diminish the American economy, job 
creation and our global competitiveness.
    The unemployment rate today remains around 9 percent. And 
economic growth actually contracted in the last quarter. I 
believe that this hearing will reveal that part of the reason 
for America's high unemployment and sluggish economy is the 
excessive cost our litigation system imposes on U.S. job 
creators.
    Americans face the highest lawsuit costs of any developed 
country. Our tort lawsuit costs are at least double those of 
Germany, Japan, and Switzerland, and triple those of France and 
the United Kingdom. According to a recent study by economists 
at the Pacific Research Institute, America's tort system 
imposes a total cost on the U.S. economy of about $865 billion 
per year, which is equal for the total annual output of all six 
New England States or the yearly sales of the entire U.S. 
restaurant industry. This amounts to an annual tort tax of 
$9,827 on a family of four, and is equivalent to an 8 percent 
tax on consumption or a 13 percent tax on wages.
    Excessive tort costs hurt U.S. global competitiveness in at 
least three ways. First, excessive lawsuit costs leave less 
money for American companies to invest. Money that America 
spends on its litigation system is money that cannot be spent 
on research, innovation, expansion and job creation.
    Second, our lawsuit system puts U.S. companies at a 
disadvantage when they are doing business abroad. American 
companies are increasingly being sued in U.S. courts for wrongs 
allegedly committed abroad. Many of these suits have been 
marred by disturbing evidence of fraud, misrepresentation, and 
corruption by American and foreign trial lawyers.
    Third, our lawsuit system discourages foreign investment in 
the U.S. economy. A 2008 study by the Department of Commerce 
concluded that the U.S. Litigation environment harmed our 
competitiveness by discouraging foreign investment. This study 
found that for international businesses, ``The United States is 
increasingly seen as a Nation where lawsuits are too 
commonplace.'' This discourages foreign-owned companies from 
expanding business and in creating jobs in the United States.
    Despite the high costs of our tort system, it does not 
always appear that the system is promoting consumer safety or 
delivering fair and appropriate outcomes. In terms of safety, 
there is little evidence that additional tort lawsuits make 
Americans safer.
    According to World Health Organization statistics, 
Americans die from unintentional injuries at a higher rate than 
our peers in other developed countries. And in terms of fair 
outcomes, the U.S. Tort system returns less than $0.50 of every 
tort cost dollar to injured claimants, those it was designed to 
help. In other words, the United States is shouldering the 
burden of excessive litigation costs without receiving any 
perceivable benefit from those costs.
    Now, I look forward to the witnesses' testimony. I believe 
that this hearing will help shine more light on how our tort 
system burdens the U.S. economy, reduces job creation, inhibits 
capital investment, and stifles innovation. I hope that with 
this knowledge, we can moved forward in this Congress with 
civil justice reforms that enable American companies to better 
compete in the global marketplace and raise our productivity 
and the standard of living for all Americans.
    And with that, I want to thank again everyone in the new 
year for coming to the Committee and I would yield to the 
Ranking Member of the Subcommittee, Mr. Nadler, from New York.
    Mr. Nadler. Thank you, Mr. Chairman. Mr. Chairman, before 
we begin, I want to congratulate you on another Congress as 
Chairman of this Subcommittee.
    We have jurisdiction over some of the most important 
matters Congress is ever called upon to consider. It is a 
tremendous responsibility, and I know all our Members take the 
responsibility very seriously. I also want to welcome our 
Members from both sides of the aisle. I am sure we will have 
some very spirited debates, as we always do. That is 
appropriate. Many of the issues we tackle raise our most 
fundamental values. I am confident we will approach these 
debates with goodwill and mutual respect.
    Today's hearing revisits a perennial issue before our 
Subcommittee; namely, the question of the impact of the tort 
system on our economy. It is a fair question, and one we have 
debated for years. At its core, the purpose of the tort system 
is to apportion responsibility and to allocate costs based on 
how each of us observes or fails to observe our legal duties to 
one another. When someone is harmed because of another's 
negligence or wrongdoing, it is fair that the person whose 
negligence inflicted that harm compensate the injured party. 
This is not a cost to society, but, rather, a transfer to the 
injured party. It also ensures that there was an economic 
incentive for all of us to be careful, to take steps needed to 
ensure that our products are safe, that our property is safe, 
that the food we sell is safe, even if those steps involve some 
costs. It is also a way to ensure that when someone is wrongly 
harmed and faces medical bills or lost work that the 
responsible party will pay those bills. In other countries, 
there is less need to resort to the courts because the 
healthcare system, the social safety net, and government 
regulation address many of those concerns. I am not sure how 
many of the proponents of restricting the rights of plaintiffs 
would prefer that approach, but it is certainly an alternative.
    There have been some often cited studies that purport to 
demonstrate that the tort system as it is currently structured 
imposes a significant cost on society and on our 
competitiveness. Studies, most especially the series of reports 
by Towers Watson and the Pacific Research Institute's ``Jackpot 
Justice,'' have met with a great deal of criticism, some of 
which we will hear today. As Judge Richard Posner has observed, 
``The aim of liability is to induce potential injurers to spend 
more on safely, and so the fact that they do spend more cannot 
be judged a failure to improve social welfare.'' And, indeed, 
the authors of the Towers Watson report admit, ``We examine 
only one side of the tort system, the costs. No attempt has 
been made to measure or quantify the benefits of the tort 
system or to conclude that the costs of the U.S. tort system 
outweigh the benefits or vice versa.'' And, as Judge Posner 
correctly points out, there is a, ``difference between a cost, 
which in economic terms is a reduction of the amount of 
valuable resources, and a transfer of wealth from one person to 
another that doesn't reduce the total amount of resources but 
merely redistributes them.''
    We have also heard some real horror stories about the 
impact on lawsuits on businesses. But we don't always get all 
the facts or even accurate facts. So I hope that we will 
continue to look at those examples carefully to make sure that 
we draw the correct conclusions.
    Today, for example, we have as one of our witnesses, a CEO 
of Blitz, USA, a manufacturer of gas cans. Mr. Flick is being 
presented as a victim of excessive litigation and will tell the 
Subcommittee that his company was driven out of business by 
greedy trial lawyers representing people who poured gas on open 
flames, and that the people who were crippled, disfigured, and 
killed, including small children, were not really victims, but 
were actually predators destroying a blameless company. What 
Mr. Flick's testimony does not mention is that many of these 
victims did nothing more than fill a chain saw; or, in the case 
of 3-year-old Jenna Bullen, knocked over a can. She suffered 
second-degree burns on 95 percent of her body. She lost her 
fingers, her toes, and almost all of her skin. The can exploded 
when leaking fumes ignited on an open flame in a hot water 
tank. The fact that a simple device costing only pennies called 
a flame arrester could have prevented these tragedies. When gas 
outside a gas can ignites, the gas can will explode if the 
flame ignites the gas inside. Flame arresters have been used 
for years to prevent such explosions. According to a report by 
Consumers Union, ``Should fumes outside the can ignite as you 
pour or fill, a flashback is possible that could ignite the 
contents of the can itself. Such accidents can be prevented by 
a flame arrester, which we think should be legally required in 
all openings of containers like these. As it is, only the 
makers of the Jerry Jug and the Eagle Safety have bothered to 
provide an arrester. The Eagle Safety is a strainer-like wire 
mesh device in a single fill pour opening does give full-time 
protection.'' Mr. Flick understood this. He wrote a memo in 
which he said that within the next 2 years, his company should 
``develop and introduce a device to eliminate flashback from a 
flame source. Water heater incidents should be the test case 
for this. Once this is developed, we should advocate the device 
be standardized under ASTM's regs or law.'' That certainly 
places these accidents and Mr. Flick's victim claim in a 
different light. Perhaps that is why the company was ordered to 
pay $250,000 in sanctions for failing to produce this memo when 
sued by the heirs of Jonathan Green. The court found that ``The 
settlement would not have been not less than $250,000 higher if 
the plaintiff would have had the document. Particularly the 
court finds that the `wish list,' Mr. Flick's memo, which was 
not disclosed to the plaintiff, would have drastically 
increased the settlement value. The wish list would have hurt 
if not potentially eliminated the defense that they did not aid 
a flame arrester because it would not have been useful.''
    I ask unanimous consent for a copy of Mr. Flick's wish list 
memo be placed in the record.
    This is the victim the Chamber of Commerce has held up as 
proof that our legal system is broken. I would suggest they 
find someone else.
    Another of today's witnesses has this to say: ``Alternative 
legal rules should be evaluated in terms of how they guide 
behavior. A straightforward normative implication of this 
analysis is that we should create legal rules that provide 
businesses incentive to invest in injury avoidance so long as 
the marginal costs of achieving additional safety is less than 
the expected marginal benefit of increased safety.'' I am sure 
that little Jenna Bullen will be interested in that theory.
    I look forward to today's testimony, and I yield back the 
balance of my time.
    Mr. Franks. I thank the gentleman. And his mentioned 
document will be placed into the record.
    [The material referred to follows:]
    
    
    
    
    
    
                               __________

    Mr. Franks. And I would now yield to the distinguished 
Chairman of the full Committee, Mr. Goodlatte, from Virginia.
    Mr. Goodlatte. Thank you, Mr. Chairman. And I very much 
appreciate you holding this hearing on a very important 
subject. Before I give my opening statement, I would like to 
recognize and welcome a good friend and fellow Virginian, 
Professor Henry Butler, who has something in common with a 
former Member of this Committee. His father and my former 
employer without whose help and guidance, I would not be 
serving in the Congress today. So he is a good representative 
of great work done by the Butler family in an earlier 
generation. And, Henry, you are always welcome here. And thank 
you also for the good work you do at the Center for Civil 
Justice Reform at George Mason Law School, another great 
contribution to our whole effort to address this issue.
    With Americans facing high unemployment and stagnant 
economic growth, it is the role of every Congressional 
Committee to do its part to get America moving again. For the 
Judiciary Committee, this means, in part, doing what we can to 
remove the crushing burden that excessive litigation costs 
impose on our global competitiveness, economic growth, and our 
ability to create and retain jobs.
    Judge Learned Hand observed that litigation is to be 
dreaded beyond almost anything short of sickness or death. 
Unfortunately, the United States has become the world's most 
litigious country. This litigiousness has created what amounts 
to a tort tax which imposes an added cost on every product 
Americans purchase and every service we consume.
    We need a civil justice system that deters wrongdoers and 
fully compensates victims. But a prosperous free enterprise 
economy also depends on a tort system that is efficient and 
free of meritless litigation and excessive damage awards. As 
economists have pointed out, an efficient tort system produces 
greater trust among market participants through the fair and 
systematic resolution of disputes, thereby encouraging more 
production and exchange, creating a higher standard of living 
for individuals within a society. In other words, we can ensure 
that all injured parties have their day in court while at the 
same time enhancing our global economic competitiveness and 
creating and maintaining jobs for American workers.
    Regrettably, our civil justice system is not functioning 
toward this end. It is not fairly compensating victims who have 
to wait too long to get a case to trial and receive an average 
of only $0.46 of every dollar spent in litigation, even when 
they win. And it is hurting the economy.
    America's runaway litigation system harms the economy in at 
least four ways. First, the specter of undeserved, ruinous 
litigation makes it more difficult for small businesses to grow 
and become competitive on a global scale.
    Second, even those American businesses that are large 
enough to compete globally are saddled with litigation 
liabilities that their foreign rivals do not face.
    Third, America's lawsuit climate discourages foreign direct 
investment in the U.S. economy.
    And, finally, American companies' domestic liability for 
their actions abroad places them at a competitive disadvantage 
relative to foreign competitors seeking to do business in the 
same foreign markets.
    The real losers in all of this are ordinary Americans. 
American consumers are hurt in the form of higher prices, U.S. 
workers in the form of lower wages, and American retirees in 
the form of low returns on retirement accounts and pension 
funds. Those hurt by excessive litigation costs include people 
like the former employees of Blitz, USA, the company Rocky 
Flint, the second witness on our panel today, used to run. At 
its peak, Blitz, USA produced three out of every 4 portable gas 
cans nationwide and employed 350 people in the small town of 
Miami, Oklahoma. But over the last decade, a wave of costly 
litigation driven by the misuse of its products by others, a 
misuse over which the company had no effective control, took 
its toll. The lawsuits finally drove the company out of 
business. Blitz, USA is gone. But the lesson of the devastating 
impact lawsuits can have on real lives and real communities 
lives on. I am sure that Rocky will share much more with us 
today about the real-life impact excessive litigation costs had 
on Blitz and its employees.
    There has got to be a better way to solve issues with 
regard to technology and changes in products than to drive a 
good company employing 350 people out of business with lawsuits 
in which a large portion of the amount of money paid was not 
paid for economic loss and was not paid to the people who 
suffered, whether or not their claim was valid under the law.
    I look forward to our witnesses' testimony. I believe that 
it will be invaluable as we move forward in this Congress with 
reforms to improve our civil justice system.
    And, Mr. Chairman, I yield back. Thank you.
    Mr. Franks. And I thank the gentleman.
    And I would now yield to the Ranking Member of the 
Committee, Mr. Conyers from Michigan.
    Mr. Conyers. Thank you, Mr. Chairman. I welcome all the 
witnesses, particularly the one who hasn't been in this hearing 
room for a number of decades. We remember his father fondly, 
who was himself a Member of the Judiciary Committee.
    Mr. Hinton. Thanks.
    Mr. Conyers. Members of the Committee, this is a hearing 
that may produce seriously flawed studies, that may make it 
difficult if not impossible to form as a basis for serious 
policy making. We have a number of issues before us. But I 
think that we need to examine whether we want to change the 
system and how much we want to change it. One frequently 
criticized component of our trial system is punitive damages. 
And I would like to share with you that they are very few, they 
are rare, and reserved for only the most harmful kinds of 
cases. And they are not awarded to compensate injured 
plaintiffs, but the purpose is to punish and deter future 
wrongdoing. The whole idea is to inhibit wrongdoing by knowing 
that these kinds of legal results are available. They are used 
in cases where there is either intentional misconduct or 
grossly negligent activity. And so I want to try to turn off 
some of the wrath that may come down on punitive damages.
    Now, what we have found is that only about 5 percent of the 
plaintiffs were awarded punitive damages. And the median 
punitive damage award in these cases was $64,000. Punitive 
damages in excess of $1 million were awarded to only 13 percent 
of these cases. And so I want to improve the system in many, 
many ways. And I think that it is carefully occurring.
    Another issue that could be raised is the so-called 
explosion of litigation. And I enjoy all of your comments on 
that subject. But frivolous lawsuits, too, are also brought 
under this title of explosive litigation. But the frequency of 
tort cases in the courts to most of our surprise has steadily 
decreased in recent years. We found that the number of tort 
cases have declined by 79 percent. And tort filings continue to 
decline and represent only a small fraction of litigation in 
the United States. The National Center for State Courts shows 
tort cases account for 4.4 percent of all cases filed in State 
courts.
    And so I invite you to approach these discussions that we 
will hear today in a fair and balanced manner. And remember the 
great savings that occur by the examples set by punitive 
damages and the fact that cases, tort cases are really on the 
decline and not otherwise.
    I thank the Chairman for his courtesy and return any unused 
time.
    Mr. Franks. And I thank the gentleman.
    Without objection, other Members' opening statements will 
be made part of the record.
    So let me now introduce our witnesses. Welcome to all of 
you.
    Mr. Paul Hinton is the Vice President of NERA Economic 
Consulting. Mr. Hinton has over 15 years' experience in 
securities and finance litigation, commercial and contract 
disputes, bankruptcy and product liability cases. He has 
testified in litigation, arbitration, and before legislative 
committees such as this one. Prior to joining NERA, Mr. Hinton 
worked on Project Finance at Morgan Grenfell, and at the 
European Commission. He is a graduate of Oxford University, and 
has a graduate degree from the Kennedy School of Government at 
Harvard University. Mr. Hinton, welcome, sir.
    Mr. Rocky Flick is the former President and CEO of Blitz, 
USA. At its peak, Blitz, USA was the producer of three out of 
every four portable gas cans nationwide and employed 350 people 
in the small town of Miami, Oklahoma. But over the last decade, 
a wave of costly litigation driven by the misuse of its 
products by others, a misuse over which the company had no 
effective control, took its toll. Unfortunately, lawsuits drove 
the company out of business in August of last year.
    Professor Neil Vidmar is the Russell M. Robinson, II 
professor of law and professor of psychology at Duke Law 
School. Professor Vidmar's scholarly research involves the 
empirical study of law across a broad spectrum of topics in 
civil and criminal law. A social psychologist by training, he 
is a leading expert on jury behavior and outcomes and has 
extensively studied medical malpractice litigation, punitive 
damages, dispute resolution, and the social psychology of 
retribution and revenge. Welcome, sir.
    Professor Henry Butler has been noted already, a rather 
famous name around here, is the George Mason University 
Foundation Professor of Law, and Executive Director of the Law 
and Economic Center as George Mason University School of Law. 
Professor Butler has devoted much of his career to improving 
this country's civil justice system through judicial education 
programs. Professor Butler has held prior appointments at 
Northwestern University School of Law, the Brookings 
Institution, Chapman University, the University of Kansas, the 
University of Chicago, and Texas A&M University.
    Each of the witnesses' written statements will be entered 
into the record in its entirety, so I would ask each witness 
summarize his testimony in 5 minutes or less.
    To help you stay within that time, there is a timing light 
in front of you. The light will switch from green to yellow, 
indicating that you have 1 minute to conclude your testimony. 
When the light turns red, it indicates that the witness' 5 
minutes have expired.
    And before I recognize the witnesses, it is the tradition 
of the Subcommittee that they be sworn. So if you please stand.
    [Witnesses sworn.]
    Mr. Franks. Thank you, please be seated.
    And I would now recognize our first witness, Mr. Hinton. 
Sir, please turn on your microphone before speaking. Yes, sir, 
you got it.

                 TESTIMONY OF PAUL J. HINTON, 
                    NERA ECONOMIC CONSULTING

    Mr. Hinton. Thank you very much. I believe the microphone 
is on.
    Thank you, Mr. Chairman and distinguished Committee 
Members, for inviting me here today to testify on the effects 
of litigation on the U.S. Competitiveness.
    As was already said, my name is Paul Hinton. I am a Vice 
President at NERA Economic Consulting. NERA is a global firm 
dedicated to applying the principles of economics and finance 
and quantitative analysis to complex business, legal, and 
public policy challenges. I have coauthored a number of 
empirical studies that estimate the direct costs of litigation 
to businesses, including a forthcoming study commissioned by 
the U.S. Chamber Institute for Legal Reform that compares 
litigation costs across countries. It is the results of this 
forthcoming study comparing the costs of litigation in the 
United States with European countries and Canada that provides 
the basis for my testimony today.
    U.S. Litigation, whether arising in tort claims or 
otherwise, affects the ability of American companies to compete 
globally by imposing additional costs. But higher direct costs 
of doing business are just the tip of the iceberg. Litigation 
also imposes indirect costs. Uncertainty created by litigation 
may affect companies' borrowing costs and, hence, their ability 
to invest, grow, and create jobs. Many foreign companies are 
wary of becoming embroiled in U.S. litigation, which may deter 
foreign direct investment, and multinational companies may 
choose to limit the extent of their operations in the United 
States.
    Dealing with litigation can occupy management time, result 
in unproductive risk avoidance, and otherwise distort business 
decision making. These indirect costs imposed by the tort 
system reduce productivity.
    The actuarial firm of Towers Watson estimates that the U.S. 
tort costs exceed $250 billion a year, representing 1.7 percent 
of GDP. Our forthcoming study expands on this body of knowledge 
with separate data and estimates the U.S. litigation costs are 
about two and a half times the average level of the four 
largest Eurozone economies. That is Germany, France, Italy, and 
Spain. Furthermore, when compared to the least costly European 
countries, such as Belgium, The Netherlands, and Portugal in 
our study, U.S. litigation costs are estimated to be about four 
times as high as those countries.
    Our study uses prices of general liability insurance bought 
by businesses in the United States, Canada, and Europe provided 
by the insurance broker Marsh, Inc. as a basis for estimating 
relative litigation costs. General liability insurance prices 
provide a useful basis for analysis because they reflect the 
costs of litigation risk even though only a fraction of 
aggregate litigation costs may be insured. We also examine the 
differences in costs of automobile third-party liability 
insurance and corporate director and officers liability 
insurance, commonly known as D&O, to provide additional 
insights on different litigation costs. Automobile insurance 
represents about half of all liability insurance in the U.S. 
and an even greater proportion in Europe. It follows that 
automobile liabilities costs constitute a significant cost of 
all insured liability costs. And while differences in auto 
liability insurance across countries means that price 
comparisons are not very meaningful, comparisons of claim costs 
in different countries reveal that on average U.S. costs in 
2008 were almost four times the level in the largest Eurozone 
economies.
    Furthermore, D&O insurance is specifically designed to 
cover the costs of litigation. And so it is particularly 
relevant here. Litigation involving directors and officers is 
only a small component of the overall liability costs in each 
country. However, the large U.S. share of the global D&O market 
is an illustration of how differences in legal systems can 
affect liability costs. According to Alliance, which is a major 
global insurance company, U.S. aggregate D&O premiums for 2009 
amounted to between 5 billion and 6.7 billion, whereas the 
European aggregate was only 2 billion for an economy about the 
same size. However, it is important to note that European D&O 
costs of multinational companies in large part result from 
exposure to litigation in the U.S. And not to their domestic 
exposure. As a result, on average, domestic European D&O 
litigation exposure would be much less than a third of the U.S. 
level.
    Now, simple comparisons of insurance costs may not provide 
a reliable basis for comparing litigation costs across 
countries because there are many factors that affect liability 
insurance rates that are unrelated to the operation of the 
legal system in each country. The contribution of our latest 
study is to separate out the cost differences due to economic 
factors, demographics, healthcare costs, and separate out then 
the effects of the legal system.
    Just wrapping up--I see my time is up--I would say in 
conclusion that the U.S. costs are a lot higher. And, 
unfortunately, this means that under the assumption that 
countries have the same benefits to businesses of legal 
protection, higher litigation costs put U.S. businesses at a 
disadvantage competitively.
    Thank you, Mr. Chairman, and distinguished Committee 
Members for the opportunity to testify. And I will take any 
questions.
    Mr. Franks. Thank you, Mr. Hinton.
    [The prepared statement of Mr. Hinton follows:]

    
    
    
    
    
    


                               __________
    Mr. Franks. We would now recognize our second witness, Mr. 
Flick. Please turn on your microphone, sir.

              TESTIMONY OF ROCKY FLICK, MIAMI, OK

    Mr. Flick. Chairman Franks and Members of the Subcommittee, 
my name is Rocky Flick. I am the CEO of Blitz, USA. I 
appreciate the invitation to testify today.
    Today's hearing explores the costs of the U.S. legal system 
and its effects on global competitiveness. I am here to testify 
that these costs are real. In my experience with my company, 
these costs are borne by employers, consumers, and employees in 
the form of lost jobs, wages, market share, and higher prices 
for goods and services.
    Blitz, USA was a small company based in Miami, Oklahoma, 
the northeast corner of Oklahoma. When we filed for bankruptcy, 
we had about 120 good manufacturing jobs with better than 
average manufacturing wages and strong benefits. Healthcare was 
one of the benefits that we had at better than market levels 
for our employees.
    We had been in business about 50 years. And we were able to 
lead in a business, even as a small business, selling to some 
very large companies. Our customers were Wal-Mart and Home 
Depot and Ace Hardware, and the places that you all shop for 
durable goods. We manufactured approximately 15 to 20 million 
red plastic and metal gas cans every year. And our challenges 
weren't with Chinese competition or foreign competition. We did 
a very good job at competing, both domestically and 
internationally. But we could not survive the onslaught of the 
trial system.
    We as an industry and the gas container industry today 
continues targeted by the plaintiffs' lawyers. They have an 
organization where they organize around litigation, toward gas 
can lawsuits. And it is the biggest threat in the industry 
today.
    The people who lost their jobs when we filed bankruptcy 
lost those benefits. I had several people that had serious 
issues, like cancer, that then we were just unable to provide 
their insurance, and they went through significant issues after 
Blitz closed its doors.
    The way these lawsuits happen is the plaintiffs say that 
Blitz and other gas can companies should put a low-cost, simple 
device into a can to keep it from exploding. The large majority 
of the cases are when someone is pouring gas onto a fire. The 
second fact pattern is when some children get ahold of a gas 
can and get near to a hot water heater or a flame of some kind. 
There is no device that you can put on a gas can that will make 
it safe to pour gas on a fire. And this basic premise is what 
these lawsuits are about.
    Over the years Blitz had insurance. The insurance company 
settled because our litigation is very expensive. And then that 
attracted more cases and they settled and attracted more cases 
and they settled, and finally insurance got too expensive for 
us to buy. We went out of business. There are other people in 
the business today filling our void. And I believe that they 
will have the same fate as we do, unless the legal system 
changes.
    The CPSC studied this as far back as 1980 and determined 
that no device would help in this matter, that it shouldn't be 
regulated, that it was because of the way that people were 
misusing the can. I am not aware of any case of ours or others, 
other manufacturers, where there wasn't misuse involved in the 
product.
    And I see it is time for me to wrap up. But we declared 
bankruptcy. The lawsuits go on today. The trial bar is suing--
continues to sue Blitz. I am still the CEO, trying to wrap up 
the bankruptcy proceedings. Our assets have all been sold. But 
the plaintiffs' bar continues to sue the retailers and they sue 
the individual executives and they sue the owners and past 
owners of the company.
    This system in my view is not efficient and it is not just. 
And it needs change.
    Mr. Franks. Thank you, Mr. Flick.
    Mr. Flick. I appreciate the opportunity to testify and look 
forward to your questions.
    [The prepared statement of Mr. Flick follows:]
    
    
    
    
    
    
    
    
    
    


                               __________
    Mr. Franks. I would now recognize our third witness, 
Professor Vidmar.

    TESTIMONY OF NEIL VIDMAR, Ph.D., RUSSELL M. ROBINSON II 
PROFESSOR OF LAW, DUKE UNIVERSITY SCHOOL OF LAW, AND PROFESSOR 
                 OF PSYCHOLOGY, DUKE UNIVERSITY

    Mr. Vidmar. I want to be very clear, although I am have 
been a faculty member at Duke Law School for the last 26 years, 
I am not a lawyer by training, although I picked up a lot of 
law in the years there. And I did spend a year at Yale Law 
School when I became interested in the law. My approach to the 
kinds of questions that are before this Committee today and as 
part of this whole debate about the tort system, is actually to 
collect empirical data, sometimes collected by others, and also 
to critique the kinds of issues that are made before this 
Committee. One of my areas of specialization over the past 26 
years has been medical malpractice and for a slightly shorter 
period of time I have been studying punitive damages and 
related areas. But we are still going back 20 years or so with 
regard to the basic kinds of questions.
    Based on this quarter century of empirical work, there are 
many myths about the tort system, the American tort system, 
that are widely believed by members of our society due to 
simple misunderstandings or are myths created and perpetuated 
often by business groups and individuals that are self-serving 
and just flat out wrong.
    One of the things I still talk about in my class is the 
McDonald's coffee spill case of the poor woman that ``just 
spilled a little bit of coffee on herself and got a couple 
million dollars in an award.'' I have the pictures here today. 
I didn't put them into my materials, but if any Members of this 
Committee are interested in looking at the scars on that woman, 
they are pretty dreadful because McDonald's was selling its 
coffee at 190 degrees Fahrenheit when, in fact, the 
manufacturer had recommended 160 degrees. And the bottom line 
was that McDonald's continued to sell the coffee even though 
they had had over 700 complaints simply because it the coffee 
sold better, even though more people were burned. And if you 
see Stella Liebeck's scars, and I would be happy to pass those 
up, if you have a strong stomach.
    The coffee spill case is one of the kind of myths that has 
been perpetuated. And it is overseas as well, I should say, 
because I have given talks in Australia and New Zealand. And I 
talk about the criminal justice system. And the first thing 
they bring up is, ``Yeah, but what about the McDonald's coffee 
case?'' It is just wrong information.
    And the other thing is that, in fact, I published an 
article on medical malpractice in a leading medical journal. 
The doctors were shocked to learn that when they go to jury 
trial, that doctors prevail in three out of four cases. That is 
another one of these things, that we are always out to get you.
    Since this Committee's concern is with the issue of 
litigation against businesses, and especially punitive damages, 
including exploding gas cans, allow me to offer a few comments 
that I and my other colleagues, Professor Tom Baker, now at the 
University of Pennsylvania Law School and Professor Herbert 
Kritzer at the University of Minnesota Law School made; these 
are appended to my comments. And I urge the Committee Members 
to look at our paper on ``Jackpot Justice'' and the way that we 
systematically dissected it.
    There are reasons why our litigation level is a little bit 
higher than European countries, for example. One, these other 
countries have stronger regulatory mechanisms that eliminate 
the need for tort claims. Perhaps exploding gas cans. Second, 
the social welfare systems in these other countries reduces the 
medical costs to injured parties. I lived in Canada for almost 
20 years, although I was born in the United States. And one of 
the things that Canadians don't worry about are medical bills 
because they are taken care of. And tort bills are heavily 
driven by medical costs that are much higher in the U.S. than 
in other countries.
    In the brief period I have left, allow me to make just 
several points before my time is up.
    In 2005, there was a study by the National Center for State 
Courts. It found that 8 percent of initial claims asked for 
punitive damages. However only 31 cases were actually reported 
across the United States and the major cities in the United 
States. What happened to those initial claims? Well, what 
people often do not understand is how the tort system has 
mechanisms to eliminate frivolous claims. One is that the judge 
just looks at it and says, this is frivolous and I am not going 
to give it to the jury. That is it. Sometimes the judge says, 
well, we will let it go through. And before the jury is sent 
back to deliberate, the judge says, I won't give--I don't want 
you to consider the issue of punitive damages.
    The other issue that I think is important is that we do 
have some large punitive damages cases. But what is striking is 
they are often business versus business. One is TXO v. Alliance 
Research Corporation, where the Supreme Court itself said this 
case involved was egregious behavior. In one of the articles, 
the second articles that I have appended on punitive damages, 
we have a case which, again, the largest punitive one that we 
uncovered was a case involving a business against another 
business.
    So some of these things get blown out of proportion and are 
actually myths. And I keep going back, because I love beating 
this one to death, I love to beat the McDonald's coffee spill 
case. This is the fourth time I have referred to it. I really 
urge Members of this Committee to look up the McDonald's case 
on the Internet because this myth has just created incredible 
impression, the iconic example of our jury system gone awry. I 
have spent a lot of time studying juries. When I was doing 
medical malpractice I interviewed jurors, I followed them 
through. I was also involved in a unique research project in 
Arizona where we actually--the Arizona Supreme Court initiated 
this project--where we actually recorded in the jury room 50 
civil juries deliberating as well as the test. The thing--and 
some of these articles are written up. I talk about it in one 
chapter of my book with Valerie Hans--one of things that came 
through is every time these claims are made about runaway 
juries, they are an insult to the American citizens that serve 
on juries. I feel very strongly about that. Because what we 
found was juries are so conscientious and actually like 
accountants go through the evidence and say, well, you know, 
the plaintiff claimed X bills. They go through and they act 
like accountants: ``Wait a minute, this doesn't add up.''
    And so I think those are my final comments. I have actually 
got quite a bit of time left. But I think the point that I 
would like to make is one in addition to what I have also said 
is I want to go back to this, that you underestimate the common 
good sense of the American people when you insult the jury 
system.
    Thank you.
    Mr. Franks. I thank the gentlemen.
    [The prepared statement of Mr. Vidmar follows:]*
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    *See Appendix for the supplemental material submitted with this 
statement.


















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                               __________

    Mr. Franks. And I now recognize our fourth and final 
witness, Professor Butler. Sir, I hope you will also turn your 
microphone on.

TESTIMONY OF HENRY N. BUTLER, GMU FOUNDATION PROFESSOR OF LAW, 
 AND EXECUTIVE DIRECTOR, LAW & ECONOMICS CENTER, GEORGE MASON 
                    UNIVERSITY SCHOOL OF LAW

    Mr. Butler. Happy to be here today. Thank you.
    Chairman Franks, Ranking Member Nadler, and Members of the 
Subcommittee, thank you for the opportunity to be here today.
    The impact of our civil justice system on international 
competitiveness is a vitally important one. The premise of this 
hearing that we, in fact, have excessive litigation is one that 
I am willing to accept, although I cannot quantify the extent 
to which litigation is, in fact, extensive. One area of the law 
that has seen extraordinary amounts of litigation in recent 
years, and an area of particular interest to me, and which will 
severe as the focal point of my testimony, is State consumer 
protection law. I hope to make two points in my brief 
testimony. First, optimal. That is an economic rule. Optimal 
legal rules recognize the trade-off between the cost of 
accidents and the costs of accident prevention. Second, 
excessive litigation can tip this balance, leading firms to 
make socially wasteful expenditures, which ultimately harms 
both their global competitiveness and consumers.
    Tort law is perhaps the most analyzed area of law and 
economics. This framework of analysis can trace its lineage to 
one developed by Judge Learned Hand in the seminal U.S. v. 
Carroll Towing opinion over 60 years ago. Judge Hand opined 
that the determination of tort liability should be based on 
whether the alleged tortfeasor had failed to take additional 
precautions that would have cost less than their expected 
benefits in terms of reduced likelihood and severity injuries.
    A similar approach is found in the work of Judge, then law 
professor, Guido Calabresi. Calabresi famously wrote in his 
seminal book, ``The Cost of Accidents,'' that the goal of tort 
law should be to minimize the combination of the costs of 
avoiding accidents and the costs of accidents. That is in 
evaluating a legal regime we should think about the tradeoffs 
of costs and benefits. We can have too much safety, we can have 
too much consumer protection, we can have too much disclosure, 
and so forth. Because the marginal costs of accident reduction 
increases as the probability of accidents decreases, the law 
tolerates some injuries. That is, the optimal number of issues 
is not zero. And I know that sounds cold and harsh, but that is 
the way we think about it in law and economics, and I think the 
way the courts actually act. The benefits of holding American 
businesses liable for injuries and damages for consumers, 
customers, users of products and services are well known and 
have been summarized some by Ranking Member Nadler's comments. 
So it serves as a guide for the behavior that we expect of our 
businesses.
    A civil litigation system characterized by excessive 
litigation can lead to lower levels of production, employment, 
innovation, and business openings. Unfortunately, some areas of 
American law have strayed from the balancing approaches 
articulated by Judges Hand and Calabresi. Their common sense 
notions have become uncommon in some areas of American law. So 
State consumer protection acts, which I realize are not in your 
jurisdiction, are an unsettling example of an area where 
product litigation has strayed far from a common sense 
balancing approach. In my view, the amount of such litigation, 
which imposes a tremendous toll on all American businesses that 
directly interact with consumers, is clearly excessive. States 
pass these laws, often referred to as little FTC acts, because 
they were modeled after Section 5 of the FTC Act. They passed 
these laws for appeared to be sound economic reasons. In our 
modern mass-produced economy it is often uneconomical for 
individual consumers to bring lawsuits against manufacturers 
when they are dissatisfied with a product. To solve this 
problem, little FTC acts allow for private actions, awarding of 
attorneys' fees to a winning consumer, statutory damages 
oftentimes as high as $1,000 per occurrence, and relaxation of 
traditional common law requirements of reasonable reliance and 
actual injury. At about the same time that the States were 
adopting little FTC acts, the class action lawsuit was coming 
into favor as another solution to the uneconomical lawsuit 
problem. So somewhere along the way, the two solutions merged 
into the consumer class actions. And they now benefit from the 
procedural--the class actions now benefit from the procedural 
and substantive advantages that were found in the little FTC 
acts. This combination of solutions has brought about a perfect 
storm of litigation resulting in a dramatic increase of 
litigation during the first decade of the century, as 
documented by a study that I oversaw when I was at Northwestern 
University. Consumers ultimately pay the costs that excessive 
litigation imposes on business through higher prices. Of 
course, because the law of demands that higher prices will 
result in fewer goods being sold, some consumers will decide to 
go without products altogether, and firms will then need fewer 
workers. To the extent that businesses cannot recover all of 
these from consumers, moreover, they result in reduced profits 
which translate into lower returns for shareholders and other 
investors.
    I wanted to quickly summarize how this impacts--this type 
of litigation can impact on the global competitiveness of 
firms. Corporations have responded to these lawsuits; of 
course, they have to respond to these lawsuits. And every 
lawsuit that is filed against a business diverts resources from 
otherwise productive pursuits. The greater the expected cost of 
litigation, the more a company will invest in avoiding 
litigation. If there are problems with a product, the firm will 
invest resources to improve to avoid litigation. And even when 
there is nothing wrong with the product and no consumers have 
relied or been injured, however, the mere threat of class 
actions and potential liability under broadly interpreted State 
consumer protection acts can also lead companies to pour more 
resources into safety. The potential for enormous financial 
liability as well as the potential for unfavorable publicity 
can force even the most stable and rational businesses to 
settle cases that they believe they could win at trial. But 
because this increased investment is tied to the cost of 
handling unfounded legal claims rather than consumer injury, it 
is socially wasteful. In this matter, excessive litigation 
disrupts the balance between the marginal benefits and costs to 
precaution that tort law attempts to--that tort law and other 
areas of law attempt to strike as a balance.
    So the upshot of my brief remarks is that excessive 
litigation under something as benign sounding as State consumer 
protection acts can have serious adverse consequences for 
America's competitiveness.
    Thank you for allowing me the opportunity to express my 
views.
    [The prepared statement of Mr. Butler follows:]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Franks. Gentlemen, I thank you for your testimony. And 
we will now proceed under the 5-minute rule with questions. I 
will begin by recognizing myself for 5 minutes.
    I will address my first question to you, Professor Butler. 
I think it is commonly assumed that when U.S. companies are 
sued and excessive litigation costs are imposed that it is a 
nameless, faceless corporation that pays these costs. In your 
experience, who ultimately bears the costs of excessive 
litigation?
    Mr. Butler. Well, to the extent we have excessive 
litigation, I think it is fair to characterize it as a tax. And 
as Milton Friedman famously would say, only people pay taxes. 
If somebody has to bear that cost and that cost is either borne 
by consumers in the form of higher prices, employees in terms 
of lost jobs, shareholders in terms of lower rates of return. 
So there is no--there is no free lunch in this system; the 
costs are borne by someone.
    Mr. Franks. Yes, sir.
    Mr. Flick, I might follow up with you sort of in the same 
vein. Who paid the ultimate price for the lawsuits against 
Blitz, USA? I won't try to lead you in the question. Who paid 
the ultimate costs there?
    Mr. Flick. I think all three of those, the consumer--the 
prices of gas cans went up over the years from about $5 for a 
5-gallon gas can to more recently $20. People are paying more 
for the product, and the costs of litigation are in that. The 
costs of some environmental regulation are in that too.
    But the consumer certainly paid more, our people who lost 
their jobs paid with their jobs and their loss of benefits, and 
the shareholders ultimately had a company that was worth 
nothing.
    Mr. Franks. Thank you, sir.
    Mr. Hinton, let me ask you a question here.
    I was fascinated with the Professor Vidmar's comment that 
they recorded, I think, some of the juries deliberating in 
cases. I didn't know whether the juries knew that they were 
being recorded or not. If they did, I suppose that would change 
the dynamics of the deliberation pretty profoundly; if they 
didn't, it opens up a whole new set of questions.
    But Professor Vidmar's testimony, he states that the claims 
about negative effects of the American tort system have not 
stood up to scrutiny. I would like to just give you the 
opportunity to reiterate what your studies have shown about the 
effects of the American tort system and to respond to any 
points regarding Professor Vidmar's testimony.
    Mr. Hinton. Yes. Thank you. I think one of the points I 
would like to respond to Professor Vidmar that he raised was 
that if you look at Europe, they have much more extensive 
healthcare benefits and welfare benefits and so on. And so how 
can you be sure that higher tort costs in the United States are 
not just a result of that.
    And in the study that we have done, we actually relied on 
some research by Kermar and Schmidt, who tried to control the 
amount of government program spending in their comparative 
analysis and found that if you were to change the benefit 
system in Europe to the same level of benefits that they have--
we have in the U.S., it would only change the tort costs there 
by about 26 percent, which is a tiny fraction of the difference 
that we measure.
    So I think that in terms of the effects of the tort system, 
those cost differences, they are so large it is difficult to 
ignore them. The question of whether or not they affect 
competitiveness does depend a little bit on this issue of 
transfer rate; how much benefit is there coming from the tort 
system. The reason in our study that we think we address that 
is because we think that those types of benefits provided by 
the legal systems in these countries are of similar magnitude. 
And they are certainly not sufficiently different to explain 
why the U.S. tort system costs over two and a half times the 
European one.
    Mr. Franks. Well, thank you, sir.
    Mr. Flick, I might return to you, sir. I don't know if 
Blitz, USA would have qualified as a small business. I think 
you said at one point you had 120 employees, and that is 
certainly not a large corporation. But would it have been 
easier for Blitz to survive the lawsuits against it if it were 
a large corporation or a division of a large corporation?
    Mr. Flick. Yes, I believe so. I guess it would depend on 
how large and how much the large corporation wanted to put into 
fight----
    Mr. Franks. So you think there may be a disproportionate 
impact on small businesses?
    Mr. Flick. Well, a small business just can't get the cases 
to trial with the high costs. If it costs 2 or $3 million to 
win a case and your insurer--the insurance company is going to 
settle that case. And a large business can take a longer view 
due to their resources and fight the cases and shine more light 
on the truth.
    Mr. Franks. Well, thank you very much. And I am going to 
turn to Mr. Nadler and yield him for 5 minutes for questions.
    Mr. Nadler. I thank the Chairman.
    Professor Vidmar, I would like you to elaborate. I mean, we 
had a little debate here about the U.S. having higher 
litigation costs than Europe. Can you expand in your testimony 
about why these differences might exist and why Mr. Hinton is 
wrong in what he was saying?
    Mr. Vidmar. My view is that when some of these estimates--I 
have not seen those statistics. What I do know is that the 
issue that was brought up with the Jackpot Justice article, 
which were very similar to these, I mean, he has different data 
than we have now, but when my colleagues, Tom Baker and Herbert 
Kritzer and I went through the report, we just found so many 
flaws in the assumptions, that we decided it was not worth the 
paper it was written on.
    Mr. Nadler. So they were like all these studies that we 
were told here that when we amended the Bankruptcy Code, every 
credit card holder will get $400 savings in lower interest 
rates. They have that amount of validity.
    Mr. Vidmar. Yeah. It is----
    Mr. Nadler. Um----
    Mr. Vidmar. Oh, I am sorry.
    Mr. Nadler. Go ahead.
    Mr. Vidmar. No. I was just going to say, it is difficult 
sometimes in making these exact comparisons across the 
different countries.
    Mr. Nadler. Okay. Could you comment briefly on the 
assertion that some jurisdictions are legal hellholes driving 
out doctors, that OB/GYN's are leaving jurisdictions----
    Mr. Vidmar. Well, you know----
    Mr. Nadler [continuing]. Because of the tort system.
    Mr. Vidmar. Yes. That is something that I addressed a 
number of years ago about legal tort claims places. I have 
actually written about them--one of the places we know about is 
the Bronx jury. Everybody moves their cases to the Bronx 
because the Bronx juries are favorable to plaintiffs. In fact, 
I wrote an article with a colleague where we actually went in 
and looked at the data and compared the Bronx to Manhattan and 
to the other boroughs. We found no difference. That is the kind 
of work that I do.
    Mr. Nadler. So Manhattan and the Bronx are both legal 
hellholes?
    Mr. Vidmar. I am sorry?
    Mr. Nadler. So Manhattan and the Bronx are both legal 
hellholes?
    Mr. Vidmar. Yes. Well, I mean, it is one of those things. 
But that has been the pleasure for me in doing these things 
just as an intellectually interesting task is everybody 
believes about the Bronx jury.
    Mr. Nadler. So in other words, you found no evidence that 
the fact----
    Mr. Vidmar. We found no evidence whatsoever to support that 
position, with one tiny exception.
    Mr. Nadler. To support the position that doctors are 
leaving.
    Mr. Vidmar. With one tiny exception, which is not doing it 
justice. Yeah.
    Mr. Nadler. Okay. Mr. Hinton, in your testimony you cited a 
2011 report by Towers Watson, you referred to it, that U.S. 
Tort costs exceed $250 billion per year. In the report, they 
state, ``we examined only one side of the U.S. Tort system, the 
costs. No attempt has been made to measure or quantify the 
benefits of the tort system or conclude that the cost of the 
U.S. tort system outweighed the benefits or vice versa.''
    Have you calculated the benefits of the tort system? And if 
so, what is the net cost of the system after subtracting the 
benefits? Since we don't know the net costs, then everything 
else that you are talking about is irrelevant.
    Mr. Hinton. That is one of the reasons we developed this 
forthcoming study looking at across countries. So basically the 
idea of that study design is to say, let us choose some other 
countries where we think the regulatory environment and the 
compensatory benefits that are----
    Mr. Nadler. And that will show you the net benefits of the 
tort system?
    Mr. Hinton [continuing]. Are about the same, right, so we 
hold those constant, and that enables us then to infer from 
differences in the costs--if those differences in costs and the 
benefits are about the same, then we must be----
    Mr. Nadler. So that is a forthcoming study?
    Mr. Hinton. That is the forthcoming study.
    Mr. Nadler. So as of now, this touted $250 billion cost is 
a number that means nothing, because it is just one side of the 
equation. We don't know the other side of the equation. Until 
you come out with a forthcoming study, it is an irrelevant 
statistic. Correct?
    Mr. Hinton. I mean, I think it is an exactly what it says 
it was. It is an estimate by Towers Watson, not by me----
    Mr. Nadler. Okay.
    Mr. Hinton [continuing]. Of how big they think the tort 
system is in terms of its costs.
    Mr. Nadler. In terms of its costs, but it says nothing 
about its net benefits or net costs.
    Mr. Hinton. They didn't address that, I don't think.
    Mr. Nadler. Okay. Exactly. Thank you.
    Professor Vidmar, could you comment on Mr. Hinton's 
statement about the forthcoming study that by comparing--can 
you in fact compare these systems across different countries?
    Mr. Vidmar. Well, there are so many differences between 
different countries that you always get into the difficulty of 
confounded variables, I am using a technical term that we use 
in this field, but, I mean, it is just not the same. And, in 
fact, I think, if I understood the comment, is that some of 
these issues are just not controlled for in the study.
    Mr. Nadler. Okay. Thank you. Let me get back to Mr. Hinton 
before my time runs out. In your study with the $250 billion, 
the Towers Watson study, does the $250 billion include 
transfers from one party to another?
    Mr. Hinton. It includes all the costs that would----
    Mr. Nadler. So in other words----
    Mr. Hinton. It would include some transfers.
    Mr. Nadler. So you did not subtract the transfers from the 
costs?
    Mr. Hinton. Not in that study. That is my understanding, 
that----
    Mr. Nadler. So do you think transfers are net costs?
    Mr. Hinton. No. I think that the transfers are part of the 
benefit of the system. Right? They provide for the 
compensation, I think.
    Mr. Nadler. Okay. So in other words, even the cost figure 
is not a real cost figure, because it includes----
    Mr. Hinton. Well----
    Mr. Nadler [continuing]. Includes transfers. Transfers are 
not a cost.
    Mr. Hinton. Well, a cost----
    Mr. Nadler. As Judge Posner pointed out.
    Mr. Hinton. If I am paying you compensation, then the 
compensation is still a cost to me.
    Mr. Nadler. To you, but not to the system.
    Mr. Hinton. Well----
    Mr. Nadler. Because I have the money. Maybe I deserve to 
have the money and you shouldn't, because you punched me in the 
arm or whatever.
    Mr. Hinton. I think you are right that you have to be 
careful how you refer to the system when you are referring to 
costs.
    Mr. Nadler. Okay. My last--I think my time has expired. 
Thank you. I yield back.
    Mr. Franks. I thank the gentleman. And I would now 
recognize the gentleman from Pennsylvania, Mr. Rothfus, for 5 
minutes.
    Mr. Rothfus. Thank you, Mr. Chairman. Mr. Hinton, in your 
testimony, you talk about features of a country's legal 
environment and how it might impact on a country's overall 
litigation costs. Do you have an opinion on characteristics of 
our legal environment that you think have the biggest negative 
impact?
    Mr. Hinton. Well, in our study, we specifically looked at 
two features of the legal environment: whether or not you had a 
civil or common law tradition, and the number of lawyers per 
capita in that country. There are obviously other features that 
are important characteristics of the legal system. We didn't 
study those directly, but that may be a topic for further work.
    But one of the differences that is notable between the U.S. 
and Europe is the existence of class actions as a remedy and 
mass litigation procedures. And in the analysis we did of D&O 
insurance, it is certainly true that securities class actions 
represent a significant part of the costs of D&O insurance in 
the U.S. And so may make a contribution or explain in part why 
the U.S. makes up such a large fraction of the total global D&O 
costs.
    Mr. Rothfus. What about other countries and their treatment 
of punitive damages? For example, are European countries, do 
they have a punitive damages option available to litigants?
    Mr. Hinton. I am sorry. I didn't----
    Mr. Rothfus. Punitive damages. May litigants seek punitive 
damages in European courts?
    Mr. Hinton. I am sorry. I can't answer that question. I am 
not really an expert on that issue.
    Mr. Rothfus. What about, I mean, have you studied, you 
know, mechanisms that other countries may use to assess the 
viability of a claim before they would go to a court? Are there 
any stages to litigation in European countries before you get 
to a court that might weed out claims that don't have merit?
    Mr. Hinton. Again, I would have to do further study on 
those legal characteristics.
    Mr. Rothfus. Professor Vidmar, just a couple of questions. 
You made a statement in your written testimony about, this is 
on page 5, the important lesson--this is with respect to 
physicians. The important lesson is that the per capita number 
of physicians has steadily increased over 4 decades.
    Is that still a current assessment or is this study 
somewhat old, because I looked at some of the charts that 
accompanied your testimony, both on page 3, the patient care 
physicians per capita, and again on page 4, we had some 
specialties per capita, neurosurgeons and OB/GYN's? In looking 
at these charts, it looks as though, frankly, the number has 
flatlined over the last decade.
    Mr. Vidmar. They are going up. You can only take--is that 
on? Yeah. You can only take them up so far. But we actually 
have some data that have gone up through 2010. You reach a 
certain point that you just don't--you don't need more 
physicians or whatever it is, I mean, if you insisted that it 
go up.
    What has been very important in our research is to show 
they have--contrary to the claims. Illinois was one example. 
Doctors are leaving Illinois. Okay. That was the claim. We 
looked, and they weren't leaving Illinois. A related claims was 
that doctors in the rural areas were leaving. We looked and 
broke the data down by rural counties. They weren't leaving. I 
have done the same thing for Missouri, I have done the same 
thing for Florida, and consistently we find that these claims 
are just not legitimate. Or they are not supported by data is 
probably a better way to state it.
    Mr. Rothfus. A little bit about punitive damages. Again, my 
understanding of punitive damages is that they are meant to 
punish a wrongdoer. When you punish a wrongdoer, when society 
punishes a wrongdoer in the criminal context, we have a beyond-
a-reasonable-doubt standard of proof. It seems to me that if 
you are going to punish a wrongdoer, would you not consider 
that kind of standard of proof in a civil context?
    Mr. Vidmar. Well, in a civil context it is--in the ordinary 
case, it is more reasonable than not, but when you get to 
punitive damages, the standard is higher.
    Mr. Rothfus. A clear and convincing----
    Mr. Vidmar. A preponderance of evidence becomes much more 
accepted. It is not proof beyond a reasonable doubt, because 
people are not put in jail or not sentenced to die as a result 
of the verdict, but in fact in the punitive damages there is a 
higher threshold of doubt that the jury has to overcome.
    Mr. Rothfus. But you are punishing people, are you not?
    Mr. Vidmar. Yes, yes, for misbehavior. And the work that I 
have done, when you read these cases on a case-by-case basis, 
what you find is some of the defendants in these cases--I can't 
give examples right offhand, I can actually send some in, but 
reading the case studies, their behavior is absolutely 
egregious.
    Mr. Rothfus. When you punish wrongdoers, shouldn't the 
benefit go to society? When you extract a punishment from a 
wrongdoer, shouldn't it be applied more generally to the 
society?
    Mr. Vidmar. I didn't understand the question.
    Mr. Rothfus. Well, when you allow for punitive damages in a 
civil litigation context----
    Mr. Vidmar. Yes.
    Mr. Rothfus [continuing]. You are a private litigant 
litigating that----
    Mr. Vidmar. Yeah.
    Mr. Rothfus [continuing]. And when you are punishing a 
wrongdoer, it is not for the harm, it is for the bad act.
    Mr. Vidmar. It is for the bad act, yes.
    Mr. Rothfus. And doesn't society have an interest in taking 
the award for that bad act and making----
    Mr. Vidmar. Well----
    Mr. Rothfus [continuing]. Sure that victims are adequately 
compensated?
    Mr. Vidmar. In some instances, I would actually think that 
that might be the case, but that is the way our law has 
developed. And there is no more I can say about that, except 
that when you see these cases, it is a punishment. The 
behavior, you know, sometimes it has been sexual abuse, 
sometimes it is been just somebody who has been so totally 
reckless in what they have done, that any Member of this 
Committee, if I showed you some of those cases, you would say, 
yeah, that is a bad person. And this is one way, it is not a 
criminal sanction, but it is one way of punishing. It is a 
fine.
    But one of the things I want to reemphasize, I went over it 
very quickly, the jury just doesn't get these right away. Most 
of these claims that are made, some lawyers, and again, I am 
not going to defend the lawyers, almost automatically when they 
file a lawsuit they ask for punitive damages, but they know it 
is not going anywhere. And, in fact, the judge looks at it and 
says----
    Mr. Rothfus. Well, if they know it is not going anywhere, 
should there be Rule 11 sanctions?
    Mr. Vidmar. Well, they do it sometimes. It is just a matter 
of part of the negotiation tactics. The other side knows that 
they are not going to get----
    Mr. Rothfus. But if there is no merit for it----
    Mr. Vidmar. I am sorry?
    Mr. Rothfus. If there is no merit for it and----
    Mr. Vidmar. Well, but----
    Mr. Rothfus [continuing]. Somebody is putting it in a 
pleading, you know, shouldn't there be some kind of----
    Mr. Vidmar. Well----
    Mr. Rothfus [continuing]. Sanction for that?
    Mr. Vidmar.--I would almost agree with you, some of the 
time when they do this, it is just the lawyers getting out of 
control. I am not always going to defend lawyers. Remember, I 
am not a lawyer, so I don't have to defend them all the time.
    I think that sometimes some plaintiff lawyers do it a 
matter of pleadings, and they just figure, well, this will 
scare the other side, but what I can tell you is the other side 
says, this--they get into pretrial discussions and the other 
side says, this ain't going to go anywhere. If the plaintiff 
lawyer gets really recalcitrant, it gets to the judge, and the 
judge says, we are going to throw this out. And our data show 
that of the claims that are made, most of the time the legal 
system filters these cases out before they ever get to a jury. 
And I should add----
    Mr. Rothfus. Thank you, Mr. Chairman.
    Mr. Vidmar [continuing]. Another thing, that I do a little 
bit of consulting. Most of the time when I have done, because 
my law school position allows me do that, I am usually a 
defense expert rather than a plaintiff expert on these kinds of 
matters. So I see both sides of the cases.
    Mr. Rothfus. Thank you, Mr. Chairman. Yield back.
    Mr. Franks. I thank the gentleman. And I would now 
recognize the Ranking Member of the full Committee, Mr. 
Conyers, for 5 minutes.
    Mr. Conyers. Thank you, Chairman Franks. This has been 
pretty interesting, but Mr. Flick, your situation is 
prominently known. Were you sanctioned by the court, finding 
that Blitz hid information in the form of a handwritten memo by 
you that would have hurt, if not potentially eliminated Blitz's 
defense that the flame arresters weren't useful in preventing 
these explosions?
    Mr. Flick. Yes. Thank you for letting me talk about that.
    Mr. Franks. Sir, can you pull your microphone? Pull it 
toward you.
    Mr. Flick. Yes. Thank you. Blitz--I don't know how much 
detail I can get into that, because----
    Mr. Conyers. Is the answer yes?
    Mr. Flick [continuing]. Because the case is under appeal, 
but I don't think we were sanctioned for hiding anything. We 
produced some documents late, and we were sanctioned for that. 
It is under appeal, and----
    Mr. Conyers. What about destruction of documents and not 
turning certain other documents over?
    Mr. Flick. I don't think it has ever been shown that we 
destroyed any documents.
    Mr. Conyers. So is your answer yes or no?
    Mr. Flick. Would you----
    Mr. Conyers. To my question.
    Mr. Flick. The question--repeat the question, please.
    Mr. Conyers. Well, I was just trying find out if it is true 
that you had a handwritten memo, which I have a copy of, and 
that your defense would have been eliminated in preventing 
devastating explosions if that information had come forward.
    Mr. Flick. I don't think the defense would have been 
eliminated. There was a document that was found that was 
produced late, and we were sanctioned for that, and that is 
under appeal.
    Mr. Conyers. Okay. Well, what about the part where the 
court finds that the settlement would have been not less than 
$250,000 higher if the plaintiff would have had the documents 
discussed in this memorandum opinion, and particularly those 
which were not disclosed to the plaintiff would have 
drastically increased the settlement value? The court seemed to 
have had some problems, and--but since you are still in court 
with it, I won't pursue this any further. I didn't know that 
this was still under appeal.
    Professor Vidmar, you have been the subject of much comment 
even though you are one of the witnesses. You have heard 
references to the so-called tort tax. Have you ever examined 
that for any accuracy or do you have a view about it?
    Mr. Vidmar. I try to stick to my areas of expertise. That 
is not one. In economics--I mean, I understand economics as a 
general rule, but I tend to avoid areas that go beyond my 
expertise, and that, I feel, is one that I shouldn't jump into.
    Mr. Conyers. We have heard a lot about class action 
lawsuits, but it has been my experience that class action 
lawsuits are very complex, they are not easy to come by and 
very few of them get through. As a matter of fact, former 
President Clinton gave it a try at one time and wasn't very 
successful at it.
    Mr. Vidmar. Our legal system has its flaws, but it also has 
its good points. And many of the times you have an adversary 
system where plaintiffs go after--you know, the lawyers go 
after people, but our system does a pretty darn good job of 
weeding out most of these frivolous kinds of lawsuits, but of 
course that is not what we hear about. We hear about the ones 
that go through. But judges and others, they start applying the 
law and say these are just not appropriate lawsuits, so they 
don't get there.
    Mr. Conyers. Thank you, Mr. Chairman.
    Mr. Franks. And I thank the gentleman.
    And I would now recognize the gentleman from Florida, Mr. 
DeSantis, for 5 minutes.
    Mr. DeSantis. Thank you, Mr. Chairman. Thanks to the 
witnesses for your time and testimony. Mr. Hinton, you 
mentioned that you compared lawyers per capita. I didn't 
actually hear what the result was. I am assuming America has 
way more lawyers per capita than European countries.
    Mr. Hinton. Yes. That is right, but it is not just that the 
U.S. has more, is that we were able to measure how many, the 
number of lawyers in each country, and so see how much 
variation in the liability insurance prices followed the same 
pattern that existed across all the countries.
    Mr. DeSantis. No. I understand that. And in terms of the--
did you look at Great Britain, because you said there was civil 
versus common law countries? We are obviously common law. Great 
Britain is common law. Did you look at them or are they just 
continental European countries?
    Mr. Hinton. No. The U.K. was included in our study.
    Mr. DeSantis. Okay. In the U.K., is it true, I don't know 
if you looked at this, that they have basically a British rule 
where if you sue somebody and you lose, then you got to pay the 
winning party's attorney's fees?
    Mr. Hinton. Yes. That is my understanding, is that that is 
how the loser pays system operates.
    Mr. DeSantis. Is that something that the continental 
European countries also utilize?
    Mr. Hinton. It works differently in different countries.
    Mr. DeSantis. Okay. Mr. Flint, I guess in your experience--
I mean, you guys eventually got brought under because of 
excessive litigation, but had you been dealing with litigation 
before you went under? I mean, was this just a common 
occurrence that you would have to deal with lawsuits?
    Mr. Flick. Well, the lawsuits under this theory started 
about 10 years ago for our company, and they started slow and 
got excessively more in the last few years.
    Mr. DeSantis. So were you winning those early lawsuits? Or 
how was that----
    Mr. Flick. I was only able to get two cases to trial. We 
won one and lost one, the rest of them settled or are pending, 
or they are stayed in bankruptcy court currently.
    Mr. DeSantis. And so from your experience, were these cases 
driven by victims or by lawyers?
    Mr. Flick. In my experience, they were driven by the money 
that plaintiff's lawyers make. There are victims, and they are 
horrific injuries in each of these cases, but I think the 
driver was the money that the plaintiff's lawyers were making.
    Mr. DeSantis. And you guys--from your testimony, it sounded 
like they couldn't even tell sometimes whether it was actually 
your cans, but is it that they are going after you because they 
knew that you could pay a judgment?
    Mr. Flick. That would be speculation, but, you know, in 
lots of cases it was only testimony that said it was our can, 
because there wasn't any physical evidence. And we did buy 
adequate amounts of insurance, and I think that is a driving 
force for the plaintiff's attorneys as well. They are a 
business, and they go where they can get money.
    Mr. DeSantis. And did you settle any cases?
    Mr. Flick. Our insurance companies did, usually under 
protest of the company. We wanted to be able to tell our story 
more than we did.
    Mr. DeSantis. So knowing that you--so you may have a 
situation where you know it is going to cost more to pay the 
attorneys to actually litigate the case, but you wanted to do 
that rather than just kind of paying somebody a smaller fee 
just to kind of go away and drop the case?
    Mr. Flick. Yes, sir, that is correct.
    Mr. DeSantis. Okay. Thank you, Mr. Chairman. I yield back 
the balance of my time.
    Mr. Franks. And I thank the gentleman.
    And I will now recognize the gentlemen from Virginia, Mr. 
Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    Professor Vidmar, are there cases where companies changed 
their policies only because punitive damages changed the 
calculation that it would be cheaper to just go ahead and pay a 
lot of claims rather than fix a problem?
    Mr. Vidmar. I can't speak to that directly. I think there 
is some evidence for this. I do know the insurance companies, I 
think consistent with what you have said, often say, ``Look, 
settle this thing. We'll take care of it,'' rather than go 
forward, even though sometimes the defendant in these cases is 
protesting. So it is kind of a----
    Mr. Scott. Well, I mean, when the calculation in the 
boardroom is, rather than fix the problem, why don't we just 
incur the recurring lawsuits, because paying the lawsuits would 
be cheaper than fixing the problem, wasn't that what happened 
in one of the automobile cases where people were getting burned 
to death?
    Mr. Vidmar. I believe that is correct, that in the past, 
that this was a cost of doing business, we'll lose a few, but 
we'll win more often, because they have to make a calculation, 
a balance. To some degree----
    Mr. Scott. And only because punitive damages changed that 
calculation did they bother to stop killing people.
    Mr. Vidmar. As opposed to compensatory damages, that is one 
of the functions of punitive damages, is to simply override 
this, ``Well, it is cheap to pay somebody off.'' The punitive 
damages said, you are going to pay a penalty for doing this.
    Mr. Scott. Are you familiar with the numbers that said 
there are about a hundred thousand deaths due to preventable 
medical errors?
    Mr. Vidmar. Yes.
    Mr. Scott. And 15,000 medical malpractice cases?
    Mr. Vidmar. I think that is probably right.
    Mr. Scott. And so if there was a fair system, there would 
be not 15,000 cases, but a hundred thousand cases. Is that 
right?
    Mr. Vidmar. It is not clear in those instances from what I 
have seen about this. I am hesitant to make a direct kind of 
projection from that.
    Mr. Scott. But, I mean, when people say there are too many 
lawsuits, those numbers themselves suggest that that cannot be 
true.
    Mr. Vidmar. Well, that is probably true.
    Mr. Scott. Now, Mr. Hinton, you said that the average costs 
per incidence is high. I think Professor Vidmar pointed out 
that a lot of--just about every country outside of the United 
States, healthcare is not a cost. Is that one of the reasons 
our damages are higher?
    Mr. Hinton. Yes. That is an important thing to control for 
when you are comparing countries, both how much is paid for as 
a government benefit, as a social--part of social programs, but 
also there is differences in the private sector health 
insurance market. And we controlled for those things in our 
study.
    Mr. Scott. Well, do you also control for the fact that in 
the United States a lot of these lawsuits are so expensive to 
bring, that the smaller lawsuits aren't brought? And that would 
increase the average, wouldn't it?
    Mr. Hinton. I am not sure how that would affect our study.
    Mr. Scott. What is the--we are talking about 
competitiveness. What part of the product price is litigation 
costs?
    Mr. Hinton. What fraction of the product's price? That is 
an interesting question. It obviously depends very much on the 
product. And I know we heard today from Mr. Flick about their 
experience in the prices----
    Mr. Scott. Well, if you have a company that is getting sued 
a lot, it may be because they are not very careful in the way 
they do business, but, I mean, the product price, you have got 
one for litigation, and if it is not that big, and then the 
percentage of that that is negligence cases, because a lot of 
this is businesses suing businesses, isn't it?
    Mr. Hinton. Well, I do know of another example where some 
economists studied differences in drug prices between Canada 
and the United States--actually, I think it was vaccine 
prices--and it was around the time of--I think it was in the 
'80's.
    Mr. Scott. Where we provided immunity to offset that----
    Mr. Hinton. That is right. There was--that was the 
legislative solution. But at the time it was studied, they 
found that it was a big cost--a price differential, and that 
was attributed to cost of----
    Mr. Scott. I am running out of time. I would like Professor 
Vidmar to just tell us, typically what does a lawyer make for 
bringing a frivolous lawsuit?
    Mr. Vidmar. For a frivolous lawsuit, nothing.
    Mr. Scott. Thank you.
    Mr. Vidmar. The other thing that I discovered in the 
research is sometimes people are hurt very badly, whether it is 
medical malpractice or whether it is some other injury, but the 
evidence is so weak or it is so difficult, you are going to 
have to require so many experts to do this that they--and I do 
know of cases where the lawyers just say, I can't take the 
case, and so the person never gets compensation even though by 
some other standard, we would say they deserve it.
    Mr. Scott. So you are saying in a good case, they can't 
bring it because it is too expensive; in a frivolous case, if 
they bring it they don't get paid?
    Mr. Vidmar. That is roughly it, yes.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Franks. I thank the gentleman.
    And I will now recognize the gentleman from Florida, Mr. 
Deutch, for 5 minutes.
    Mr. Deutch. Thank you, Mr. Chairman. Mr. Flick, in response 
to a question earlier about who paid the ultimate cost, you 
talked about the number of your employees who lost their jobs 
and the cost of the gas can going from $5 to $20 per gas can. 
And then in your written testimony you said that Blitz 
shuttered its door because the trial bar got greedy.
    And I appreciate the majority's decision to hold a hearing 
about the excessive litigation's impact on America's global 
competitiveness. I don't know. I am still not sure what 
constitutes excessive litigation.
    And in the case of Blitz, I wonder if the trial bar, if it 
is greedy trial lawyers who brought the case of the 4-year-old 
who was burned to death in his garage after he knocked over a 
Blitz can and it exploded, or the 10-year-old from California 
who was burned 85 percent of his body when the gas can 
exploded, or the man who was walking down the street carrying a 
Blitz gas can when the static electricity from his body ignited 
the gas can and he was burned over 80 percent of his body.
    And I wonder if it was greedy trial lawyers who are 
responsible for bringing the case of the man whose lawnmower 
ran out of gas, and when he went to refuel, and while pouring, 
his can exploded and threw him through the barn door and then 
he burst into a ball of flame.
    I wonder if it was greedy trial lawyers who were 
responsible for bringing the case of the 4-year-old in upstate 
New York who was burned over 80 percent of his body, or the 11-
year-old who was roasting marshmallows around the campfire when 
the fire died and he went to pour some gas on, and the can 
burst into flames.
    And then finally, I wonder if it is greedy trial lawyers 
who are responsible for bringing the case of a young boy from 
Florida, where I am from, Jacob Joyner, who was 10 when he 
suffered second and third degree burns over half of his body, 
and after 6 weeks in intensive burn treatment facilities, he 
passed away.
    I understand there is this ongoing effort to demonize 
lawyers. In every one of these instances, the only way that 
these tragic circumstances were going to be addressed--the 
nature of our tort system is such that the only way that any of 
these individuals or their families could pursue justice is 
through the courts.
    And so it is my understanding, and this is just what I 
would like to chat a bit about, that as early as 1973, Consumer 
Reports had said that if fumes outside a gas ignite, a 
flashback is possible that could ignite the contents of the can 
itself. And they said then that such accidents can be prevented 
by a flame arrester, which they had suggested should be legally 
required in all gas cans.
    And so given--it is also my understanding, by the way, and 
I would just like your thoughts on this, frankly, that the cost 
of those flame arresters is about $0.04, significantly less 
than the jump from $5 to $20 per gas can.
    And, again, I just want to know whether it is the--you said 
the trial bar got greedy, and I want to know if it is the trial 
bar's fault that the decision was made by the company to 
manufacture something where there was plenty of evidence of 
what could be done to prevent these things from happening, and 
if 20 years ago when the company was first sued, or before 
that, when Blitz was first told that there was a way to prevent 
the explosions, if a flame arrester had been included in these 
devices, that the horribly mutilated and in some cases dead 
folks that I referred to wouldn't have been hurt.
    And, frankly, if that decision had been made, and 
ultimately there is a legitimate chance, isn't there, that the 
employees who we were told earlier are the ones who really paid 
the ultimate cost here rather than these victims, whether they 
might not still have their jobs?
    Mr. Flick. Well, that is a long question, and I would like 
to break it down as you presented it. Oh. Is this on? Okay. I 
think, to your first point, you know, do we just blame--do I 
just blame the plaintiffs' bar? No, I don't. I think they are a 
player in a system that is broken, and I believe if you----
    Mr. Deutch. But I am not asking about the system. I am 
asking about each of these individuals and their lawyers.
    Mr. Flick. Well, I think you have got a fair amount of 
misinformation in the statements that you have made. You have 
listed purposefully, I think, a few cases where it is assumed 
that there wasn't misuse, and I don't--and that doesn't----
    Mr. Deutch. I am only--I only want--I am going to run out 
of time. The only question I have is was there ever a moment 
where you considered putting flame arresters into the cans?
    Mr. Flick. Yes, yes, continually for years. And we studied 
it and we studied it deeply, and we felt that it would cause 
more harm than good, and we didn't feel that it would make the 
cans safer. And I think it is a false assumption to say that 
this $0.04 device, which isn't a $0.04 device, would----
    Mr. Deutch. How much does it cost?
    Mr. Flick. Well, I don't--it depends on how you do it, but 
then you get other unintended consequences. And it is easy for 
a plaintiff's lawyer to say, you could have done this and saved 
this person, but it takes more----
    Mr. Deutch. What is the unintended consequence by putting 
something in that could have prevented the explosions that 
wound up causing----
    Mr. Flick. You could encourage people to accelerate fires 
with the product, thinking it is safer than it is.
    Mr. Deutch. All right. I yield back, Mr. Chairman.
    Mr. Franks. And I would now yield to Mr. Cohen for 5 
minutes.
    Mr. Cohen. Thank you, Mr. Chair. This is a hearing that 
reminds me of the hearings I have been having in the 
Subcommittee on Regulations and Commercial Law. And it has been 
dealing with regulations, and everything has centered on what 
are the costs of regulations, and this is what are the costs of 
our litigation system. And in neither one of these Committees 
has the majority put forth the side of what are the costs to 
human beings who are affected by bad air and bad water, by 
torts. And that seems to be totally disregarded. And we see 
these numbers. The tort system costs us $265 billion or 
whatever. Well, that means there has been $265 billion of harm 
somewhere. Very little of it is punitive damages. Most of it is 
harm. And when somebody is injured by a drunk driver, that is 
part of that figure.
    Aren't the victims--Mr. Hinton, aren't the victims of drunk 
drivers who might lose a limb or a life entitled to damages?
    Mr. Hinton. They are in some cases, right. And I think the 
issue on competitiveness----
    Mr. Cohen. In some cases--let us say the cases were 
liable--in every case that goes to--there is a judgment, there 
is liability found----
    Mr. Hinton. Right.
    Mr. Cohen [continuing]. There has been a breach of duty.
    Mr. Hinton. I agree with that. I think to answer your 
question about why don't we talk about the cost to the--you 
know, the cost to society, you know, the harm to individuals, 
in the case of our study, at least, we were trying to address 
the question of international competitiveness or comparisons 
across countries, and so we deliberately compared countries 
where we felt that the rates of accidents were similar and the 
levels of protection and compensation paid were similar, and so 
that we could essentially avoid having to compute that number 
directly, but take account of the benefits of the legal system.
    No one is saying that having a legal system, legal 
protections is a bad thing per se. You know, it delivers 
justice and compensation. What we are trying to do is work out 
whether it can be done, you know, more cheaply, or less--you 
know, more efficiently, so we compared these countries where we 
feel that there are similar levels.
    Mr. Cohen. What countries were they that you looked at?
    Mr. Hinton. They were the core European, Eurozone 
countries, the U.K., Canada and the United States.
    Mr. Cohen. Okay. Well, if you take countries like India 
that are competitive countries, and I was in India recently and 
I heard from heads of companies that said, oh, our tax system 
is unfair. We need to have a tax system that lets us compete 
with Simmons and these other companies that we have to compete 
against. And what I heard from Mr. Goodlatte is we need have a 
tort system and a civil justice system that is like these other 
countries.
    Well, America is not like the other countries. America is 
in fact the best country in the world. That is one thing you 
realize from traveling. We are the best place in the world to 
live and we got the best stuff here, and our civil justice 
systems is the envy of the world. And in India and Pakistan, it 
takes 20, 30 years to get a case to judgment. That is one of 
the deficiencies of their government. That is why we have in 
our Seventh Amendment the right to trial shall remain 
inviolate. That has been 200 and something years of 
jurisprudence, and people look at us with envy. And for us to 
take the lowest common denominator of taxes and/or civil 
justice so that we can compete is not what America is about, 
and it never should be, because we take that, we scrap the 
civil justice system. We say, all right, we will just have the 
same system as India or we will have the same system as 
somebody else. And, you know, I just don't see that in any 
system. I think our country is doing pretty good and I just 
don't see the damages.
    And I am sure that the professor talked about some of this, 
but I picked up today's New York Times. A liability challenge. 
Generic drug makers defense faces a Supreme Court test. Karen 
Bartlett was left seriously injured and legally blind having 
taking a generic drug. I mean, are not the victims like Miss 
Bartlett, the victims who took Celebrex, the victims who got 
hip replacements from Johnson & Johnson after the company had 
known that 40 percent of the devices were expected to fail, 
aren't they entitled to getting justice? And how would that 
justice be different if it was handled in a different 
jurisdiction? How would it have happened in India?
    Mr. Hinton. That is a really good question and it is the 
sort of frame of reference to sort of think about the study 
that we did, right. We are not saying that there aren't 
Celebrex victims in other countries in Europe. Essentially the 
premise of the sort of law experiment is that, yes, there are 
people who took the drug are going to be equally at risk in the 
U.S. As they were in these European countries, and they are 
going to have their disabilities compensated and have their 
healthcare costs compensated in different ways in different 
countries, but to a similar extent. And it is because we are 
able to make that assumption that it is then fair to compare 
the cost side of the equation and say, at the end of the day, 
the U.S. is a much more expensive place to do that and to 
deliver that justice.
    Mr. Cohen. My time has expired, but I thank the Chairman 
for the opportunity to ask questions and to speak in terms that 
the Founding Fathers would have appreciated.
    Mr. Franks. Thank you, Mr. Cohen.
    And this concludes today's hearing. Thanks to all of our 
witnesses for attending.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the witnesses or 
additional materials for the record. And, again, I thank the 
witnesses. I thank the Members and, of course, I even thank the 
audience. This hearing is adjourned.
    [Whereupon, at 4:35 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 
  Congress from the State of Virginia, and Chairman, Committee on the 
                               Judiciary
    With America's facing high unemployment and stagnant 
economic growth, it is the role of every congressional 
committee to do its part to get America moving again. For the 
Judiciary Committee this means, in part, doing what we can to 
remove the crushing burden that excessive litigation costs 
impose on our global competitiveness, economic growth, and our 
ability to create and retain jobs.
    Judge Learned Hand observed that ``litigation is to be 
dreaded beyond almost anything short of sickness or death.'' 
Unfortunately, the United States has become the world's most 
litigious country.
    This litigiousness has created what amounts to a ``tort 
tax,'' which imposes an added cost on every product Americans 
purchase and every service we consume.
    We need a civil justice system that deters wrongdoers and 
fully compensates victims. But a prosperous free enterprise 
economy also depends on a tort system that is efficient and 
free of meritless litigation and excessive damage awards. As 
economists have pointed out, ``an efficient tort system 
produces greater trust among market participants through the 
fair and systematic resolution of disputes, thereby encouraging 
more production and exchange, creating a higher standard of 
living for individuals within a society.''
    In other words, we can ensure that all injured parties have 
their day in court while at the same time enhancing our global 
economic competitiveness and creating and maintaining jobs for 
American workers.
    Regrettably, our civil justice system is not functioning 
toward this end. It's not fairly compensating victims, who have 
to wait too long to get a case to trial and receive an average 
of only 46 cents of every dollar spent in litigation even when 
they win. And it's hurting the economy.
    America's runaway litigation system harms the economy in at 
least four ways. First, the specter of undeserved, ruinous 
litigation makes it more difficult for small businesses to grow 
and become competitive on a global scale.
    Second, even those American businesses that are large 
enough to compete globally are saddled with litigation 
liabilities that their foreign rivals do not face.
    Third, America's lawsuit climate discourages foreign direct 
investment in the U.S. economy.
    And finally, American companies' domestic liability for 
their actions abroad places them at a competitive disadvantage 
relative to foreign competitors seeking to do business in the 
same foreign markets.
    The real losers in all of this are ordinary Americans. 
American consumers are hurt in the form of higher prices, U.S. 
workers in the form of lower wages, and American retirees in 
the form of lower returns on retirement accounts and pension 
funds.
    Those hurt by excessive litigation costs include people 
like the former employees of Blitz USA, the company Rocky 
Flick, the second witness on our panel today, used to run. At 
its peak, Blitz USA, produced three out of every four portable 
gas cans nationwide and employed 350 people in the small town 
of Miami, Oklahoma.
    But over the last decade, a wave of costly litigation 
driven by the misuse of its products by others--a misuse over 
which the company had no effective control-- took its toll. And 
lawsuits finally drove the company out of business.
    Blitz USA is gone, but the lesson of the devastating impact 
lawsuits can have on real lives and real communities lives on.
    I'm sure that Rocky will share much more with us today 
about the real life impact excessive litigation costs had on 
Blitz and its employees.
    I look forward to our witnesses' testimony; I believe that 
it will be invaluable as we move forward this Congress with 
reforms to improve our civil justice system.




                                

 Material submitted by the Honorable Trent Franks, a Representative in 
 Congress from the State of Arizona, and Chairman, Subcommittee on the 
                     Constitution and Civil Justice






                               __________
                               
                               


                                

   Supplemental Material submitted by Neil Vidmar, Ph.D., Russell M. 
   Robinson II Professor of Law, Duke University School of Law, and 
                Professor of Psychology, Duke University


























































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