[Weekly Compilation of Presidential Documents Volume 40, Number 51 (Monday, December 20, 2004)]
[Pages 2949-2963]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
Remarks in a Panel Discussion on the High Cost of Lawsuit Abuse at the 
White House Conference on the Economy

December 15, 2004

    The President. Listen, thank you all for coming. I've just come off 
a campaign--[laughter]--and spent a great deal of time talking with the 
American people about how to make sure America is the best place in the 
world to do business. And there was a lot of discussion in the course of 
the last couple of months about what's the best philosophy to make sure 
that jobs are created here, that the entrepreneurial environment is 
strong, that small businesses can flourish but, most importantly, that 
people find jobs close to home.
    And one of the things that I talked about was making sure that the 
environment for risking capital was conducive for job creation. And I 
tried to say that as plainly as I could. And one issue that I talked 
about, to make

[[Page 2950]]

sure that costs were reasonable and that the cost of capital was 
reasonable, was legal reform, that the cost of frivolous lawsuits, in 
some cases, make it prohibitively expensive for a small business to stay 
in business or for a doctor to practice medicine, in which case, it 
means the health care costs of a job provider or job creator has 
escalated or is escalating.
    I talked about the competitive advantage that we must have in 
America if we expect jobs to stay here. The cost of lawsuits, relative 
to countries that we compete against, are high. In other words, the cost 
of litigation in America makes it more difficult for us to compete with 
nations in Europe, for example.
    And so I want to thank our panelists for coming today to help add 
some expertise to this notion that if we can achieve legal reform in 
America, it'll make it a better place for people to either start a 
business and/or find work.
    Now, there's much more to a comprehensive economic expansion program 
than just legal reform, but a cornerstone of any good program is legal 
reform. And there's a practical aspect to our discussions today, because 
I want the people who get to decide whether we're having legal reform to 
hear from experts, and that would be Members of the House and Senate 
from both sides of the aisle. I am here to not only thank our panelists 
but to make it clear as I possibly can that I intend to take a 
legislative package to Congress which says we expect the House and the 
Senate to pass meaningful liability reform on asbestos, on class action, 
and medical liability.
    I want to thank my good friend Don Evans, who has served so well as 
the Secretary of Commerce. As you know, he has made the decision to go 
back to the State of Texas. I'm glad my departure was delayed by 4 
years. [Laughter]
    Secretary Evans. So am I. [Laughter]
    The President. But I do want to thank him for serving so admirably, 
and I want to thank you for hosting this event.
    Secretary Evans. Mr. President, thank you so much. We have a very 
distinguished panel but a far-reaching panel. As you know, the issue of 
lawsuit abuse has many, many facets to it. And so I'm delighted that we 
have been able to assemble a number of people that look at it from an 
economist perspective, an academia perspective, a small-business 
perspective, a health care perspective, because there's many, many 
issues that relate to lawsuit abuse in this country.
    I want to thank you, Mr. President, for your leadership on this 
particular matter, your attention you've given to it. And I'm one of 
the--only one of those out there has--that have seen your focus on it 
for over 10 years. I remember full well in 1993, when you were running 
for Governor of the State of Texas, it was one of the very top issues on 
your agenda. And after becoming Governor, you led and you made a 
difference in that State. And because of the difference you've made in 
tort reform in the State of Texas, the State of Texas economy is a 
stronger economy than it otherwise would have been. And you're bringing 
that same leadership here to Washington, DC, and the Federal Government, 
because certainly there's things we can do in Federal Government that 
will create a better environment for entrepreneurs and small-business 
owners to create jobs and grow our economy, and it had to do with legal 
reform and lawsuit reform.
    Mr. President, you mentioned that I have served here for some 4 
years as Secretary of Commerce, and one of the things I must say: One, 
it was an honor to serve the American people, and it certainly has been 
under your leadership. But as I've traveled across America, the one 
thing that I hear time and time again among manufacturers as well as 
service companies is the burdens of lawsuits, the burdens of junk and 
frivolous lawsuits and how they continue to weaken our economy and make 
it harder for us to compete domestically and internationally and not 
easier for us to compete domestically and internationally.
    And that's the one question we ought to always ask ourselves when we 
make decisions in this town. Does this make it harder for us to compete 
and create jobs in America domestically, or does it make it easier for 
us to compete? So everything we do should say it makes it easier to 
compete and create jobs. And what lawsuit abuse has done is it not

[[Page 2951]]

only threatens our competitiveness and innovation in the world, but it 
also--it harms our health care system; it raises the cost of health care 
in this country; it stifles innovation, et cetera.
    Last year, our Department went around the country, and we held 
roundtable discussions--some small- and medium-sized manufacturers all 
across America. And we heard this same message, with an incredible 
amount of passion and energy, not just from the manufacturers but also 
service companies as well, and that is how important it is to deal with 
lawsuit reform and deal with it now, because it's going to impact the 
creation of jobs in this country for generations to come. It's not only 
about today's economy, but it's the economy for your children and your 
grandchildren. And it's time to deal with it now.
    Mr. President, you referred to some of the cost of tort reform or 
tort costs in this country. It represents over 2 percent of our gross 
domestic product, over $250 billion in tort costs into our economy. That 
is a lot more than most of our--it in fact, it is more, as a percentage, 
as well as absolute terms, of those that we compete with around the 
world. The manufacturing sector bears a disproportionate share of that, 
about 4\1/2\ percent. And so when you think of the tort cost in 
manufacturing products in this country, then compare it with wages and 
salaries in the manufacturing sector--17\1/2\ percent of the cost of 
labor and wages goes--is part of the cost, where only--where 4\1/2\ 
percent is tort claims. So you can see how tort costs are a very 
significant price, a cost in everything that we purchase in this 
country.
    I was in Missouri this last year, and I had a chance to really see 
up close and personal how it was impacting the health care industry. I 
talked to a David Carpenter, who is the CEO of North Kansas City 
Hospital, and what he told me was that there had been 30 doctors that 
had moved from Missouri to Kansas because Kansas had, indeed, passed 
tort reform and had put some caps in place. So you see it happening all 
across America, where doctors are moving around and trying to find a 
more friendly environment.
    Lawsuit abuse is just simply piling up cost on the backs of not just 
companies but the American people. I like to call it a tort tax. If you 
take the total cost of tort claims and judgments in our country and 
divide it by the number of people in the country, it's a tort tax of 
about $809 per capita. So in everything that we purchase, everything 
that we buy, in there someplace is a tort tax or a tort cost. And so 
it's going to continue to drive up the cost of automobiles, groceries 
that we purchase, work boots that we purchase, whatever it is we 
purchase. It's going to continue to drive up those costs if we don't do 
something about it, and it's also going to continue to stifle innovation 
and the entrepreneurial spirit.
    And what we ought to be doing is figuring out ways to lower risk and 
increase rewards, and that's exactly the opposite of what a junk and 
frivolous lawsuit does in a society. What they do is they increase risk 
and lower results so--and lower rewards.
    So for us to continue to be the most competitive economy in the 
world, the most innovative economy in the world, this is an issue that 
we must deal with and we must deal with it now.
    Again, I'm delighted to have this outstanding panel here to discuss 
this subject, important subject and issue, and I would like to begin by 
calling on Professor George Priest, who is the professor of Yale 
University, holds a John M. Olin Professor of Law chair there. George 
will take us through some of the modern expansion of tort liability in 
America and discuss some of the reform possibilities that we ought to be 
considering.
    Professor.
    George Priest. Thank you, Mr. Secretary. Let me give you a little 
history about the expansion of liability. This problem of lawsuit abuse 
and the problem of excessive litigation is really pretty much a modern 
problem. Prior to the 1960s, tort law was really a backwater. It was 
dominated by principles of corrective justice; litigation was minuscule. 
But ideas began to change, and there came to be a conception that 
developed that tort law could be turned into an instrument of public 
policy according to which tort judgments, damage judgments, could be 
used to internalize costs, the harms the people had suffered, to persons 
and to the companies that had caused them.

[[Page 2952]]

    And so the idea was, by internalizing these costs, there would be 
incentives created to make products safer, to make other services safer, 
and also to provide a form of insurance for individuals that had 
suffered some type of harm.
    The other advantage, or the thought that there was an advantage, was 
that this could be done universally. That is, safety regulation, direct 
safety regulation by agencies, applies only in a very few number of 
industries. Using tort law as a regulatory mechanism, on the other hand, 
could be applied to all activities in a society, and so it could become 
universal. And based upon this conception, courts began to expand 
liability. They began first in the products liability field but then it 
expanded to other areas more generally.
    Now, I believe that this conception, this idea of internalizing 
costs, has had some beneficial features, has had some beneficial 
effects. That is, I think that it did enhance safety and reduce harm 
over some range. But the problem that has arisen--and it really is a 
problem that arose several decades ago--is that there are limits to the 
extent to which tort law and litigation can be effective in increasing 
safety and reducing harms. But the problem is that this conception of 
internalizing costs doesn't recognize those limits, and so even though 
those limits have been exceeded, courts have continued to expand 
liability in area after area. And when liability is expanded beyond the 
point where it can really effectively encourage greater safety, where--
beyond the point where these harms can practicably be reduced, there are 
two forms of harmful societal effects that result.
    The first is--and it's the one you were talking about, Mr. 
Secretary--that the cost of litigation has to be passed on in the prices 
of products and services. Exactly as you say, it's a tax. And it's a tax 
that every citizen has and every consumer has to pay on every product 
and service that they buy. Just to give an example--and you mentioned 
this too--in today's litigation environment, auto manufacturers are 
basically absolutely liable any time there's a serious accident. They 
will always be sued, and they will always have to settle the case in 
some way. And what does that mean? That means that auto prices have to 
increase. That litigation has no effect on safety. It has no effect on 
the redesign of automobiles. We have an Agency, NHTSA, that is charged 
with monitoring auto safety. The litigation has no effect whatsoever. It 
simply adds to the costs. And adding to the costs hurts most severely 
the low-income in the society, because they're the least able to pay 
these costs and they're the ones that get the least return. Even if they 
do litigate, the damages they receive are lower than those of other 
citizens.
    Now, in other industries, however, the results are even worse. That 
is, in some industries, liability has extended--has been extended to 
such an extent that the affected parties begin to make investments that 
are unproductive, that are not necessary, in order to try and shield 
themselves from liability. The medical industry is a good example. 
Defensive medicine is, in essence, counterproductive, and it's an 
investment that's made to try and ward off litigation for no useful 
purpose.
    And the consequences of this whole--of the regime that we've created 
here is a legal system in which litigation is available with respect to 
every activity of the society. And worse, I think--and Phil Howard will 
talk about this too--we have been developing a culture in this society, 
in this country in which it's believed that any conceivable social 
problem can be solved by litigation. And so we have litigation trying to 
deal with every conceivable social issue.
    Now, what can be done about it? Well, I think the most fundamental 
reforms have to come from the courts. It's the courts that created this 
problem, and it has to come from the courts in redefining liability 
rules. But what that means is it's extremely important to appoint or 
elect judges who are committed to tort reform. Now, what can--but there 
are other things that could be done, and there are some things that 
could be done at the congressional level, and I think the three reforms 
that the President mentioned are important reforms.
    We need class action reform. The rules that were developed--and they 
were developed in the 1960s--with the thought of controlling class 
actions are quaint today, and there are many courtrooms in which there 
are no controls on class actions whatsoever.

[[Page 2953]]

Now, the ``Class Action Fairness Act'' takes a step. What it does is 
push these class actions into the Federal courts where there is going to 
be some more control. With all respect, it's not a solution. It's going 
to help. It's a step that I think is a small step, but it's important. 
It's an important step.
    I think Federal reform in particular industries, such as in the 
medical industry, a reform of medical malpractice, is important too, and 
it's a promising reform because all of us need doctors and all of us 
know that we have to control health costs. And all of us know too and 
can see easily what the harmful effects of expanding liability against 
needed medical services is. So medical malpractice reform is important 
as well.
    Third--and you mentioned this, Mr. President, and I agree entirely--
Congress can attempt to do something about asbestos litigation. Asbestos 
litigation is an extraordinary phenomenon. I've been studying it the 
last couple of years. It's just extraordinary. Everybody knows that 
there are hundreds of thousands of cases that have been filed and that 
there are millions more that are going to be filed. But I think few know 
exactly what kinds of cases these are. And let me just give you one 
example, and it's illustrative of what this problem is.
    A short time ago in California, a man recovered 4.5 million against 
an asbestos--a company that had used asbestos. And the only exposure 
this man could document, the only time he had ever been exposed to 
asbestos, was one day when he was the child when his mother and 
grandfather took him to their church, whose ceiling was being remodeled. 
That was the entire exposure. One day of asbestos, and he recovers 4.5 
million. This asbestos litigation is a vast system of redistribution 
within the society. And indeed, by the standards of that case, every 
American is a victim of asbestos. But I certainly would say this: It is 
not a sign of a healthy society when every citizen can qualify as a 
litigant and file suit.
    So I think there is an important need for legislation in many 
different areas to deal with this problem of excessive litigation. These 
reforms are--the three reforms that the President has talked about are 
going to be helpful. I think, again, they are small steps, but they're 
steps in the right direction, and they're steps that it's important to 
take and that every American should support.
    Thank you.
    The President. Nice job.
    Secretary Evans. Yes, excellent job. Professor, thank you very much, 
for laying that out.
    Speaking about asbestos, our next panelist is somebody who is 
personally being impacted by asbestos litigation, as are his 18 
employees and the families that they're responsible for. And so, Mike, 
an entrepreneur from Monroe, Louisiana, who runs a company there--why 
don't you give us your perspective of asbestos litigation as it relates 
to your personal situation and company.
    Mike Carter. Well, I have a business back in Monroe, Louisiana, 
Monroe Rubber and Gasket. And hopefully, I can be a small voice--or a 
big voice--for a lot of companies across the country that probably are 
in the same condition I am.
    Probably about 3 years ago, I started receiving lawsuits for 
asbestos, and today I guess I've been inundated probably with about 
upwards of 100 now. And we're a small company. We can't legally fight 
these battles, and what's happened is, over time, some of these are 
being settled out of court. We've got an insurance carrier that, back at 
that time, carried our insurance and helped us litigate some of this 
stuff over time. But the problem is, is this is going to end very soon. 
We've got about a million dollar cap. And if we have to get involved in 
a suit in court and we get a verdict handed to us, it's a matter of us 
locking our doors.
    But these things have been coming to us and coming to us, these 
lawsuits, as it is today. I've been to Washington on a couple of 
occasions, talking to our Senators from the State. We tried to get 
something passed within the State and failed to do that. But that's not 
stopping the lawsuits. We're neither a manufacturer nor an end user. All 
we've ever done and the thing we're guilty of is buying what we thought 
over the years was a safe product and reselling it to an end user 
customer who asked for the product by name. And now, because all of the 
bigger corporations and the manufacturers have either gone bankrupt or 
filed--or gone out of business,

[[Page 2954]]

now they're going to that next tier of companies, which is people like 
us, and they're pulling us into this trap.
    And we can't afford to fight this. The last couple of times I've 
been to Washington, I pleaded with the people I thought could get 
something done, and I told them this may be the last time I'm here. I 
don't know how long this will go on. I've got probably seven or eight 
court dockets this next year, and if I have to go to these--that's not 
to say I'll ever be back again. And hopefully, this is going to be an 
opportunity for me, like I say, to be just a voice for the small 
business across America, and then hopefully, we can get something done 
this year.
    It's just--it's unfortunate that I've had to spend hundreds of hours 
of my time away from the business trying to fight this stuff, trying to 
get somebody to listen and to make a difference with what we're doing. 
All we're trying to do is run an honest business, and we've done that 
for so many years, and it's just a shame that something like this can 
take all that away from you. And after we're gone, there's really nobody 
out there to hear you anymore.
    And it's just becoming increasingly difficult to do business. And as 
we go out now and try to buy products from other companies, they tend to 
see our name on the--I guess the Bradstreet--Dunn & Bradstreet, as 
having all these suits against us. They don't want to open us any lines 
of credit. We've reduced the amount of employees. We're just not 
rehiring, is what we're not doing. We've had probably five or six more 
at one point; we've got about 17 now. And we're trying to grow our 
business into other States. We can't do that because we just don't know 
what direction this is going to turn, and we don't want to get more in 
the pot now than we have. So it's affecting us in a way that we're not 
able to grow any more. We just--it's just a continuous fight, and we 
can't do anything. They just keep coming; the lawsuits keep coming.
    And we're getting suits from people--the ones we're getting them 
from are end users, the mills, the chemical plants, the paper industry, 
that worked in those particular plants back years ago. And these trial 
lawyers, they'll come, and they'll set up a little hub and have these 
people come in--and do the advertising prior to them getting there--have 
them come in, run a quick test on them. If they show anything in their 
lungs--which any of us could have something on our lung, be it from 
smoking, be it from pollution, whatever it is--but they all of a sudden 
qualify to be in the suit.
    And as this stuff continues to grow like this, it's--they will 
couple one or two sick people with 10 or 15 nonsick people and run them 
through the courts. And you know, in the South, we're known to have very 
sympathetic juries. And don't get me wrong, I'm very--extremely 
sympathetic to those individuals that are sick, and I think they need to 
be taken care of. But the problem is, 90 percent of the people filing 
suits today are nonsick individuals. They've just been exposed. And I 
think everybody in this room has been exposed to asbestos if you've ever 
walked through a school hallway or you've ever been anywhere. I mean, 
it's just the way it is. But to allow this to happen, those 90 percent 
of the people, nonsick that are getting this money right now, over the 
10 percent of the people are not getting it, and they're the ones that 
deserve it.
    But then again, I think those people should be responsible that 
created this. And we, as just an honest-ran business, have not created 
this problem. And the gaskets and the things I've sold to these plants--
we've had people come in and actually gauge us cutting the gasket out of 
the sheet, and there's no harmful asbestos dust or nothing in the air. 
But because during that timeframe we had asbestos beside our name, 
they're coming after us.
    Secretary Evans. Mike, thank you very much. I appreciate your story.
    The President. Let me make a comment on that. First of all, justice 
ought to be fair. And those who have hurt ought to have their day in--
those who have been hurt ought to have their day in court. But a 
judicial system run amok is one that makes it really hard for small 
businesses to stay in business. And I appreciate you sharing your story 
with us. It's a--frankly, a painful tale to listen to because--what 
makes it even more painful, there's a lot of people like you.
    Most new jobs in America are created by small-business owners. And 
when you hear

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a small-business owner talking like that, and he says we got a problem 
we'd better address now before it's too late--thank you for sharing it 
with us.
    Mr. Carter. Thank you.
    Secretary Evans. Yes, it's painful not only for you but the 18 
employees and their families that you're responsible for. And we hear 
your story.
    Here's a man that's responsible for about 350,000 employees. And Bob 
Nardelli of Home Depot, why don't you give everyone kind of your insight 
as to the lawsuit abuse, the impact on your employees as well as on your 
company.
    Bob Nardelli. Well, thanks. First of all, Mr. President, thank you 
for this opportunity--Secretary Evans--to participate on what I think is 
probably the most important panel on the high cost of lawsuit abuse in 
the overall economic conference that, Mr. President, you've called 
together the next couple of days.
    I think what all of us in this room probably share--I think one of 
the things that we really want to try to make clear, and I'm going to 
reinforce in some of my comments what we've already heard--is that we're 
really not asking to be resolved--or absolved of our responsibility. All 
we're asking for is fairness, Mr. President, just as you said.
    Lawsuit abuse is not a talking point anymore. I think it's a sore 
point for all of us and one that has to be addressed. Let me just put it 
in perspective, Mr. Secretary. Our customers, our 350,000 associates, as 
you've mentioned, and our supplier base, our shareholders of the company 
that I run and the company I love, are really being hurt every day. 
They're being hurt every day by a legal system, quite honestly, that's 
abusive. It's abusive to small businesses and big businesses alike.
    I think there's excessive and unreasonable awards each and every 
day, that our taxpayers are paying more, Americans are being denied, Mr. 
Secretary, as you said, the essentials of goods and services and, 
perhaps most importantly, good paying jobs, wages, slowing investment 
growth, which is really dampening the entrepreneurial spirit of our 
country.
    Let me give you an example. I like to think facts are friendly. The 
U.S. tort system basically costs every American about $2,400 a year, 
based on a recent survey that we looked at. Let me put that in Home 
Depot terms. That would allow every family to buy a kitchen and a 
complete home of appliances, refrigerators, washers, dryers, range, 
microwaves, et cetera.
    So when I look at this issue, I basically see about three pressure 
points that I want to talk about today. First, it's the hijacking in 
broad daylight that the tort system calls the class action lawsuit. The 
second is the seemingly endless story of excessive awards in asbestos 
litigation. We just heard Mike talk about that. And third, it is the 
excessive awards in medical liability suits. Quite honestly, it won't be 
long before we see a line item on every doctor's bill that's handed out 
in this country for litigation.
    I think what all three of these have in common, unfortunately, is 
that there's a fair and reasonable solution in hand just waiting for 
implementation. That's what makes it so maddening, I think, to all of 
us.
    Let me expand. The class action dilemma is probably a good place to 
start. It--since it's a trial bar who really reaps the reward. How many 
of you in this room have received a check for $1.18 in recognition for 
your participation in a class action suit that you didn't even know you 
were part of? And what really happens is the millions of dollars go to 
the lawyers. So is justice really being served, is the question. In 
fact, I think only 20 cents of each dollar actually goes to the 
claimants for real economic damages and lost wages and medical expense.
    So what you have today is business on one side, and you've got the 
trial lawyers on the other side. And you have the worst combination of 
all: You've got deep pockets colliding with shallow principles. 
[Laughter]
    Let me make another point, if I can, on this magnet court system. 
There's a place like Madison County, Illinois, and I think a lot of us 
know of that. There's been a 5000 percent increase, 5000 percent 
increase in the number of class action filings since 1998. You know, the 
issue at hand may have nothing to do with anybody in that county or that

[[Page 2956]]

community, but the fact is, it hasn't stopped 49 other States from 
filing into that county.
    So we really have, you know, quite honestly, I like to use the term, 
it's a ``speed trap'' for American civil litigation. I think that's kind 
of what we would classify it. So if we move, I think, as George said, 
our class actions into the Federal courts, with standard rules from 
coast to coast, we have a chance at getting things a little more fair, a 
little closer to fairness. And people who have been hurt will certainly 
have the ability to get damages and get recovery, but in a much more 
fair environment, less abusive environment.
    So if we continue to leave these issues, as I see it, of national 
importance to the whims of the greedy, Mr. President, instead of the 
needy, we're going to continue to have a huge price in this country to 
pay for abusive litigation.
    Let me kind of close out and make a few final comments. That's why I 
think that this ``Class Action Reform Act'' is so important to be 
passed. I think it's great that we've had a lot of bipartisan support. I 
think what we need is some bipartisan action, Mr. President, as you said 
in your opening comments. Also, I would take this asbestos litigation--
and we would classify it as the gift that just keeps on giving to trial 
lawyers, 30 years and no end in sight. According to RAND Institute, 70 
billion has been spent on asbestos litigation, 200,000 claims have been 
filed against 8,400 companies since 2002. So we see that continuing to 
grow.
    The asbestos war, if you will, seems to be waged on--67 American 
companies have been put into bankruptcy. Now, here's the way I kind of 
like to look at that, is, while the lawyers are attacking corporate 
America, it's corporate Americans that are suffering. That's the issue. 
And we've had 60,000 corporate American jobs eliminated as a result of 
that.
    So let me just conclude, Mr. President, and I really think that 
something has to be done. There's no better person to do that than you, 
in this term, in your second term. And we're tickled to death that your 
exodus was postponed for 4 years, let me say that. [Laughter] A great 
deal has been said about this issue, but I think the time is now. I 
think the emotion is high, and I'm here, Mr. President, to join you in 
leading the charge for relief from what I'll call trial lawyer tax.
    Thank you for the opportunity.
    The President. Good job.
    Secretary Evans. Thank you, Bob. Bob, thank you very much. I think 
you're right. And when you talk about lawyers being on one side and 
business being on the other, and it's the families that are paying the 
price, the hard-working Americans. They're the ones caught in the 
middle. They don't always see it because they don't see the line item. 
Maybe it's on a medical bill. Maybe it ought to be on a lawnmower 
someday. What's the additional cost of a lawnmower because of tort 
costs.
    Hilda, thank you so much for being here. Hilda Bankston. She's got a 
wonderful story to--it's a heartbreaking story to tell, but it's 
certainly a very moving story about the drugstore that she and her 
husband built in Fayette, Mississippi.
    Hilda Bankston. Yes, sir. Thank you for the opportunity, Mr. 
Secretary.
    My name is Hilda Bankston. I live in Fayette, Mississippi. I came to 
the United States from Guatemala in 1958. I met my husband, Navy Seaman 
1st Class Mitchell Bankston while I was in the Marine Corps. When we got 
married, we fulfilled our lifetime dream of buying and operating a 
pharmacy. We worked hard, and my husband built a solid reputation as a 
caring and honest pharmacist in Fayette.
    But one day, lawyers who were looking for--to strike it rich in 
Jefferson County, shook our world and dreams to their foundation. 
Bankston Drugstore was named as a defendant in a national mass action 
lawsuit, putting Jefferson County against two of the biggest 
manufacturers' drug companies, the manufacturers of Fen-Phen, FDA drug 
approved for weight loss. Though Mississippi does not allow for class 
action lawsuits, it does allow for consolidation of lawsuits in mass 
action.
    Since ours was the only drugstore in Jefferson County and had filled 
prescriptions for Fen-Phen, the plaintiffs' lawyers could keep the case 
in a place already known for its lawsuit-friendly environment. 
Overnight, our life's work had gone from serving the public's health to 
becoming a means to an end for

[[Page 2957]]

trial lawyers to cash in on money-making class action lawsuits.
    Three weeks after being named in the first lawsuit, my husband of 35 
years, who was 58 years old and in good health, died of a massive heart 
attack. Since then, we have been named in more than 100 mass actions 
against national pharmaceutical companies over a variety of different 
drugs.
    I had to sell the pharmacy, but I still spend countless hours 
retrieving records for plaintiffs' lawyers and getting dragged into 
court again and again to testify. Attorneys handling these claims 
compare their actions to winning the lottery.
    The lawsuit frenzy has hurt my family, my community, and the State 
of Mississippi. The county's reputation has driven liability insurance 
rates through the roof, and businesses no longer locate there for fear 
of litigation. No small business should have to endure the nightmare I 
have experienced. I'm not a lawyer, but I know something is wrong with 
our legal system when innocent bystanders are abused in the way I was. 
Please, pass action to reform legislation to help fix our lawsuit system 
before more small-business owners and their families will get hurt.
    Thank you, Mr. President. Thank you, Mr. Secretary.
    Secretary Evans. Thank you, Hilda, very, very much.
    Philip Howard, partner with Covington & Burling, author of the book 
``The Death of Common Sense''--Philip will provide an overview of the 
medical liability explosion in our economy.
    Philip K. Howard. Thank you, Mr. Secretary, and I really appreciate 
the openmindedness of you and the President in allowing a practicing 
lawyer to join your panel. [Laughter]
    We forget sometimes why law is the foundation of freedom, and it is 
because it's supposed to be reliable and people can count on it in their 
daily lives. They make some choices in a free country to move forward 
with their lives, whether it's to make investments or deal with others 
or volunteer on the playgrounds or in Little League. Law is supposed to 
be there to affirmatively defend reasonable conduct.
    The law in this country is no longer reliable, and the cost of it, I 
submit, is far greater than anything any of you have talked about today.
    And so, let's go to medical liability. We have heard, and you are 
going to hear again how horrible it is when our best trained 
professionals, physicians, get driven out of business. One out of seven 
obstetricians in this country are no longer practicing obstetrics. One 
out of four people in Pennsylvania last year had to change their doctors 
because they either quit or moved out of the State. That's because of 
the direct cost of litigation in this country. But that's only the 
beginning. The cost of health care is out of control. We can't even talk 
about containing the cost, but who's going to not order an MRI that 
somebody demands if you might get sued for $10 million for doing it.
    This group, Common Good, that I founded a couple of years ago hired 
Harris Poll to survey all the doctors. Four out of five said that they 
admitted to ordering tests that they didn't think were needed. It is now 
part of the practice to waste money. We can't afford that. We've got 45 
million people who don't have insurance. We have--and more every day 
because small businesses can't afford it. You can't contain costs, you 
can't provide health care for everybody until you have a solid 
foundation of justice that people can count on.
    Quality--all of the quality experts have joined our coalition 
because their studies show them that the quality of health care in this 
country has suffered, and it has suffered because doctors and nurses no 
longer feel comfortable speaking up. They're afraid they may be taking 
responsibility.
    So, you get--and at the same hospital where you get miracle cures, 
you'll have some mistake in a prescription, where somebody gets 500 
milligrams instead of 5 milligrams. Studies are all--tragedies occur 
because people are afraid to speak up because they don't trust the 
system of justice. It's defended on the basis that it holds bad doctors 
accountable. Well, in fact, it does just the opposite. The current 
system of law--and it's true with unreliable law, generally--favors 
whoever is in the wrong.

[[Page 2958]]

    And so if you're a doctor--if there's a doctor who is no good--and 
every hospital has this story--you try to fire them. What do they do? 
They hire a lawyer. They sue, or they threaten to sue. And the typical 
result is that they're allowed to keep practicing because people don't 
want to go through the 5 years of litigation for it to happen.
    So what is needed here is far more than just--what is needed is to 
restore reliability. We need the rule of law back again. And I subscribe 
to everything that George--my friend George Priest said over there and 
the other panelists as well. We need to look at this not as a problem of 
just of business or just of doctors; we need to look at it as a problem 
for the whole society and what it means to live under the rule of law in 
a free country.
    Thank you.
    The President. Good job.
    Secretary Evans. Thank you. Excellent job, Howard.
    Barb Coen, Andy Kazar, both of Generations Women's Health Care out 
of Norton, Ohio. We certainly appreciate you being here to talk about 
your story. Barb and Andy will explain how medical liability crisis has 
caused, one, Barb to quit delivering babies, and the other, Andy, to 
lose her doctor.
    Barb.
    Dr. Barbara L. Coen. Thank you, Mr. President and Mr. Secretary, for 
the opportunity to be here today. I appreciate the fact, Mr. President, 
you've kept your promise to help physicians take better care of patients 
by getting rid of the medical liability problem that we have in this 
country.
    I am an obstetrician/gynecologist who can longer call herself an 
obstetrician. Three years ago, my partner, Dr. Susan Clark, and I 
started a small practice called Generations Women's Health Care in 
Norton, Ohio. We had the help of Barberton Citizen's Hospital for 2 
years. At the end of 2 years, we were to be independent from the 
hospital and be operating on our own. At that time, we decided to look 
for medical liability insurance and were stunned to find that our 
premiums were going from $60,000 for our current space malpractice to 
$118,000 for claims-made liability.
    At that time, we had 110 pregnant women in the practice and had 3 
weeks to tell them they they had to find a new physician. Anyone who has 
ever had a baby understands the relationship between the obstetrician 
and that patient is so special. They're trusting you with their most 
precious possession, the life of that child. And it was awful to call 
those patients and tell them we couldn't take care of them. I got notes 
saying, ``I promise I won't sue you. Please deliver my baby.'' It was 
absolutely heartbreaking. Some people were due the next week. It's an 
awful system that needs to be reformed.
    The things that bother me the most about the medical liability 
system in this country right now is the Trial Lawyers Association will 
come out and tell you that medical liability is only 1 to 2 percent of 
health care costs every year. Well, when health care costs are $1.2 
trillion, I think if you told anybody in this room, ``Your salary next 
year is going to only be 1 to 2 percent of the national health care 
cost,'' it would be a substantial raise, wouldn't it? I mean, I think 
we'd all be pretty excited to be getting that.
    The other thing that bothers me is 80 percent of frivolous--of 
lawsuits against physicians get thrown out. What if I was only right 20 
percent of the time? What if that was the standard I was held to? I see 
30 patients a day. What if I only got it right on six of them? What's 
going to happen to the other 24? I think we need to hold these people to 
a higher standard, the same standard that physicians are held to. And I 
appreciate the fact that you're all working on reforming the system.
    Thank you.
    Secretary Evans. Thank you, Barb. Thank you very much. Nice job. 
Andy?
    Aundria D. Kazar. My name is Andy, and thank you, sir, first of all, 
for having us here and letting us tell our stories. I appreciate it. 
I'm, as you can't tell, 32 weeks pregnant, and am also the practice 
manager for Drs. Susan Clark and Barbara Coen. When the decision was 
made at the end of August of '03 to no longer do obstetrics because 
looking at it, you know, financially it wasn't feasible, it was like, 
``Oh, that's okay, I can still see

[[Page 2959]]

them.'' They've delivered my other two children, and I think anyone here 
knows the relationship that you have with your physician--you tell them 
stuff that you don't tell anyone.
    And so with Barb and Sue doing my other two deliveries, it was like, 
``Oh, we're not going to have any more kids. I'll get through this, no 
big deal.'' Well, May, we're having another child. And it came to an 
issue of now who am I going to have, because the women that I trust more 
than anything else in the world, who have entrusted in me to run their 
practice and pay their bills and hire the employees and deal with 
patients--I can't go back to them for my most important thing that's 
going to happen to my husband and I.
    So we decided that we needed to go find someone else, obviously, 
since they can't deliver me, even if I sign a piece of paper. We made a 
choice to see a midwife. And we have a wonderful midwife that we're 
seeing, but we were informed on Friday that the physician that backs her 
may not be continuing to practice.
    So now, again, at 32 weeks pregnant, we are now on the look for 
another provider of service. And I don't feel that anyone should have to 
go through this. I mean, I know most of the physicians in town because 
of working in medicine for so long. I don't know how the normal, average 
person who doesn't can go and say, ``Okay, how do I pick this doctor?'' 
You know, ``Oh gosh, are they going to be here in 6 months?'' They're 
leaving--the physicians are leaving in mass exodus out of Ohio, because 
it's not cost-effective to run a practice there. And something needs to 
be done. And I'm asking you, please.
    Secretary Evans. Andy, thank you.
    The President. It's not the first time she's asked. Can I make a 
couple--I'm the President.
    Secretary Evans. Oh, hold on just a minute. [Laughter]
    The President. I met these two ladies before in Ohio. Philip said 
that one in seven doctors are leaving. In certain States, the number is 
much higher than that, and in certain specialties, the numbers are much 
higher than that. And just a couple of observations.
    When I came to Washington, I thought that medical liability reform 
was a State issue. I was a Governor and a person who said, ``We can do 
it better at the States than the Federal Government.'' It turns out, so 
far the States who have had medical liability reform have done it better 
than the Federal Government because we haven't done anything yet at the 
Federal level. Nevertheless, I looked at the impact of the defensive 
practice of medicine, at the unnecessary tests that doctors prescribe in 
order to make a defense when they get sued--not if they get sued but 
when. The odds are they'll be sued, and it costs the Federal budget 
about 27 billion a year.
    And so when you cite the statistics from the trial lawyers, what 
they don't talk about is the defensive practice of medicine as a cost to 
society. There is a direct cost to the taxpayers. It's a quantifiable 
number. It's a lot at 27 billion a year. And so I decided it's a 
national issue that requires a national solution.
    You know, there's a lot of rhetoric when it comes to medical 
liability reform about accessibility and affordability of health care. 
It's a nice mantra. We all should be for accessibility and 
affordability. And so should Members of the United States Senate who 
have blocked medical liability reform to date, because these lawsuits 
are driving really fine, competent people out of the practice of 
medicine--like Barb--which makes medicine less accessible.
    And then you heard not only the cost to our budget but the cost to 
an individual doctor to practice medicine is passed on to patients, 
which makes medicine less affordable. We need medical liability reform. 
This is a vital issue for the quality of life of thousands of people in 
our country. And I want to thank these two women for joining us again. I 
met them first in Canton, Ohio. They were just as articulate there as 
they are here, and their case is, unfortunately, one that's being 
repeated in many States around this Nation.
    And so I told you then and I'm going to tell you again: This is a 
priority issue for not only me but for a lot of people in the Senate. I 
say the Senate--it will pass the House. It is being blocked by a few in 
the United States Senate, and the trial bar has made this the number one 
issue for them. But it's, as I

[[Page 2960]]

think you mentioned, Hilda, the notion of a lottery--we cannot have the 
legal system to be a legal lottery. We want the legal system to be fair 
and balanced so people can get good health care, so small businesses can 
afford to stay in business, so we don't hear these horrible stories 
about someone drug through this class action meatgrinder that has caused 
her and her--to go out of business.
    And so I want to thank you for all coming. I am passionate on the 
subject because I want America to be the best place in the world for 
people to find work or to raise their family or to get good health care. 
And I can assure you all that I intend to make this a priority issue as 
I stand before Congress, when I give the State of the Union, and as I 
talk to leaders of the Congress about what I think ought to be done in 
the upcoming legislative session.
    Secretary Evans. Do you want to say anything else? [Laughter]
    Thank you, Mr. President. You know, I'm also glad that this issue is 
going to be right at the center of every kitchen table all across 
America, because it's those Americans that are getting impacted by this 
in such a serious and harmful way, and they need to be sending the 
message to Washington, how they also want something done about it.
    Well, we've got a few moments here for a couple of questions. 
Professor, let me come at you, if you don't mind, just for a minute. Can 
you share with us an example of how plaintiff attorneys are using 
leverage to threaten companies with settlements? And in addition to 
that, I notice where you have taught in the past--capitalism, insurance 
policy, tort law, product liability, but you've added a new course 
called ``economic development.'' Are we starting to put this together 
finally in America, how this litigious society that we are in is having 
a dramatic impact on economic development in our country and job 
creation in our country?
    Mr. Priest. Oh, I think it does have a dramatic impact on economic 
development in this country. What my course does is look cross-
culturally, across countries to see how--to see what the determinants of 
development are. But I think there is no doubt that it's our litigation 
system that's dragging our country behind and keeping it from developing 
even faster.
    Now, on your question about tactics that lawyers use, can you give 
me 2 or 3 hours--[laughter]--I could answer that. Actually, the class 
action is one of the most powerful tactics that trial attorneys use. You 
know, for all of the class actions that are filed, there are very few 
that are ever litigated. There are some litigated in the discrimination 
field, but of mass tort class actions, they're never litigated. They're 
not even anticipating litigating them when they file them. It's simply 
such a bludgeon that it's known that if the class is certified, which is 
a kind of legal technicality that doesn't--purportedly doesn't look at 
the merits of the case, then the companies that are sued have to settle, 
because, as Mike has pointed out, they have to settle the case, because 
otherwise the company's going to go down the drain because of the stakes 
involved in the case.
    So there's this ideal of a class action of representing a wide set 
of consumers repairing wrongs at a small level over a wide number--it 
doesn't work that way. It's almost entirely a bludgeon as it's currently 
being employed by the trial lawyers.
    The President. Let me ask you something.
    Mr. Priest. Sure.
    The President. You said that the pending legislation--I think you 
referred to it as a ``small'' step or a ``better'' step? There was an 
adjective which, frankly, wasn't a ``huge'' step. [Laughter]
    Mr. Priest. It's not a huge step, no, no, no.
    The President. All right. Well, let me ask you something: What 
should Congress do? I mean, for example, in the class action--the bill, 
as I understand it, takes it from the States--makes it more difficult to 
keep it in the State court and moves it to the Federal courts, 
reflecting the interstate nature of the lawsuits, which therefore make 
it more difficult to achieve these--help me out here.
    Mr. Priest. Well, what it does is take it out of the bailiwick of 
the Madison Counties and the Jefferson, Mississippis, that--where local 
judges who have close ties with plaintiff attorneys--I don't want to use 
the word

[[Page 2961]]

``conspire,'' but they have a mutually symbiotic relationship--
[laughter]--in letting these class actions go forward.
    The President. Got that part.
    Mr. Priest. So it will help to send the case to an Article III 
judge, who--in the Federal courts that operates differently. But that's 
not going to solve the problem.
    The President. Right. And so you said--help us with some solutions. 
Here's your chance.
    Mr. Priest. The most important solution in class actions--but it's 
going to take more than the Congress; the courts are going to have to go 
along with this too--is to have--before certification--to have the 
courts evaluate whether there's any merit to the class action or not.
    The President. Got you.
    Mr. Priest. I mean, the problem--even class actions that are 
certified at the Federal level can operate as bludgeons against the 
defendants who face them. Now, it's harder to get it certified at the 
Federal level, and that's the benefit, the step that would be taken by 
the class action legislation that is currently on the table. But it's 
only a step. It's not going to solve the entire problem.
    And what really has to be done is to get the--what you call junk 
litigation, the frivolous litigation, the litigation where there's 
really no merit to the underlying litigation and it wouldn't succeed if 
it were litigated, but it's too dangerous for the defendant to find that 
out and to gamble on whether--gamble the entire company on whether its 
lawyers or the opponent's lawyers are going to be more successful before 
the judge.
    Secretary Evans. Phil, do you want to jump in here?
    Mr. Howard. Yes, I do. I mean, judges in America today don't have 
the idea that part of their job is to actually draw the boundaries of 
what's a reasonable or excessive claim or what's a frivolous claim or 
not. People bring a claim, and they act like referees. I was debating 
the McDonald's hot coffee judge--on Oprah, actually. [Laughter] It was 
really fun. But during a break he said, ``You know, your theories are 
fine, but who am I to judge?'' [Laughter]
    And there's this idea out there that justice is kind of an open 
season. Well, it's not. The rule of law requires deliberate choices. 
This is a valid claim; this isn't. This is an excessive claim; this 
isn't. No one is making those judgments today, and the people who are 
the victims are all Americans. Every day when they're in the classroom, 
when they're going through their jobs and they're not saying what they 
think, or they're not taking the kids out on field trips because they're 
scared--they're scared because they don't trust the system of justice 
because the judges aren't doing their job.
    Secretary Evans. We just have a few moments left, and I want to come 
over here to Mike and talk about jobs for just a minute, because you 
really represent the backbone of the American economy. You're a small 
business. They generate 70 percent of the new jobs in America. Give us a 
feel of how this is impacting your ability to create jobs or hire more 
employees. Can you give us any sense of that?
    Mr. Carter. Well, it's impacting us directly because we're not able 
to grow our business like we would like to grow it. We can't man our 
business like we would like to man it. And as far as trying to grow into 
another sector, into another State possibly, and have a business--you 
don't know if you're setting yourself up for the fall. I mean, it scares 
you to try to grow anything. And when you get to a point like that, it's 
tough when you feel like you want to be aggressive, and you've got to 
just kind of hold back and pull the reins and sit there and wait to see 
how this stuff is going to unravel. It's just created--and there are so 
many companies across the United States in the same position that I'm 
in, but we've just not had anybody hear us yet. And it's just a great 
opportunity, Mr. President, to be here and be able to tell you this, and 
Mr. Secretary as well----
    The President. Thanks.
    Mr. Carter. ----to get this voice out. And hopefully this year or 
sometime in the near future, something can be done on this, and get this 
straightened out to where we can go on and do what we do best, and 
that's run our businesses and grow our companies. And until that 
happens, we've got to kind of hold back and wait and see what happens 
with this because if we end up in one court with one verdict, like I 
say, we're upwards

[[Page 2962]]

of 100 different lawsuits right now, and we just got pulled into a class 
action as well. And we just don't know----
    The President. Let me ask George something here.
    You've studied the legal systems of different countries compared to 
the United States?
    Mr. Priest. Yes.
    The President. Give people a sense for the difference.
    Mr. Priest. Oh, well, it's entirely different. Most legal--there's 
no legal system like the United States. There is no legal system that 
has anywhere near the magnitude of litigation measured in any terms, per 
capita, according to gross national product. No, no, no, we're by far 
the most litigious society that there has ever been.
    In Europe, for example, one of our great and growing competitors, 
litigation is nothing like this. Decisions are made chiefly by judges. 
They don't have juries, which is a difference. And I'm not saying we 
ought to get rid of juries. But it is a much more controlled and defined 
legal system. The numbers of lawsuits are miniscule compared to the 
United States. And what's happening, of course, is--I mean the Europeans 
know; the Europeans aren't fools--they're coming to the United States 
and trying to sue in the United States courts for losses that they have 
suffered there. And some of our courts are entertaining these lawsuits.
    And it's not just the Europeans. We're having lawsuits brought in 
the United States from citizens all over the world because, again, in 
terms of litigation, if you're a plaintiff, this is the land of 
opportunity. [Laughter] That isn't what our country has been about, of 
course.
    Secretary Evans. It's really an industry, yes.
    The President. I think it's important for people to understand that, 
particularly people who are going to be deciding the fate of these 
bills, that we live in a global economy, that we either have a 
disadvantage or advantage based upon our regulatory system, legal 
system, capital system. And this is an area, clearly, where we have a 
disadvantage relative to competitors.
    Mr. Priest. Can I add one thing?
    The President. Yes.
    Mr. Priest. With regard to each of the three reforms that you've 
talked about, Mr. President, those aspects of the legal system don't 
exist in Europe or any other place in the developed world. There are no 
class actions in Europe, England, anywhere. There are--there's no 
malpractice liability to the extent we have it here against doctors. 
Typically, there's no lawsuits at all against doctors because they're a 
different--it's a different form of system. And, third, there's no 
asbestos litigation. Again, the only asbestos litigation of any 
magnitude in the world is here in the United States.
    Secretary Evans. Let me ask you about Canada, which happens to be 
our number one trading partner. How would you stack up----
    Mr. Priest. Canada--well, Canada is a good--it's a good case, 
actually. Canada comes from an English legal environment. The jury 
system doesn't exist over a very wide range. There are some juries, not 
very many, as in England. There are different sets of procedural rules, 
such as the loser pays. If you file a lawsuit and you lose the case, 
then you've got to pay cost to the other side. And so there has been 
nothing like the litigation explosion that we've seen here over the last 
three decades in Canada--nothing like it.
    Now, Canada is starting to change a little, and they're starting to 
entertain different forms of justice much like they see in the United 
States, and that's not to the benefit of Canada, and it's not to the 
benefit of Canadian growth. But their way--in terms of this litigation 
explosion, they're not--it's not close. It's not close.
    Secretary Evans. Bob, one last statement.
    Mr. Nardelli. Let me just make two points if I can. I think this 
whole issue about corporate America, outsourcing America, that isn't the 
case at all. And it's not even foreign countries winning jobs. This is 
about lawyers pushing jobs out of this country. And Mr. President, you 
said this continuum from supplier to redistribution, I mean, it's just 
added cost. Everybody has to pile on.
    And I--to Mike's point, let me just say, in America today, where 
corporations would normally reach out and help these corporate

[[Page 2963]]

Americans who, through no fault of their own, are losing jobs, because 
this continuum of responsibility or liability, acquisitions aren't being 
made. People aren't reaching out, because the minute you make one of 
these acquisitions, you take on that full responsibility. So it's really 
stagnating entrepreneurship and capital investment.
    Secretary Evans. Bob, how does it impact your decision as to where 
you're going to locate your next plant and the American workers that you 
would therefore hire?
    Mr. Nardelli. Well, we do a pretty rigorous job of identifying 
family formation per capita--for family income and so forth, Mr. 
Secretary. So we pretty much have to go where the customers are, in 
spite of these, what I'll call swampland jurisdictional areas. We'll 
still put a store in there because we're trying to serve our customers. 
It's a market-customer-back approach. But I would tell you that the 
cost, all the way up the supply chain, of everything that's been talked 
about here today just keeps piling on. And while we keep fighting to 
bring value to our customers, I think they become disadvantaged in 
this--just to take an example, of $2,400. You know, their standards of 
living are impacted because of this.
    Secretary Evans. Thank you very much. Well, I just thank all of 
you--audience, everybody else--for coming. I think it gave us a chance 
to zero in on probably one of the central issues as it relates to 
economic growth and job creation in this country, not only in the near 
term but for generations to come. We appreciate all this insight very, 
very much. And believe me, we're going to work as hard as we can to make 
sure that Congress understands your message, your thoughts, and we get 
meaningful tort reform passed in this upcoming session.
    Thank you all very much. Appreciate it.

Note: The panel discussion began at 1:32 p.m. at the Ronald Reagan 
Building and International Trade Center.