American Tort Law Tells Us How It Really Feels About Law and Economics

Anita Bernstein —

Funny thing about the intersection of tort and law and economics. For decades this school of thought has been ascendant in scholarship and intellectual understandings of this field, as it has throughout private law generally. No one can teach or write competently about torts without giving thought to law and economics fundamentals like cost-benefit analysis, cost as a social problem, the cheapest cost avoider, default rules, incentives, and wealth maximization.  On the one hand.

On the other hand, American tort law as practiced will stick a thumb in the eye of law and economics. Rather than defer to familiar microeconomics tenets taught in classrooms and quoted for truth in law reviews, it often refuses to learn the curriculum, disrupts order, and even refutes a few basics by not cooperating with their premises. It is worth cataloguing a few examples of these resistances:

1. Scarcity? What Scarcity? Law and economics teaches us that we can’t spend the same dollar on both guns and butter or, as a student microecon text tut-tuts, “You cannot decide to allocate 10 hours a day to sleeping, 5 hours to studying, and 10 hours to hanging out with friends because you do not have 25 hours available.” Maybe not—but some people enjoy a Torts goodie they cannot afford: the opportunity to prosecute their personal injury claims without paying a lawyer for the work they need.

Plenty of people acquire what they cannot afford, of course, as mountainous consumer debt and the wreckage of well-known retail businesses acquired and destroyed in leveraged buyouts attest. But the contingent fee is unique in how genuinely “free” it is to plaintiff clients. In a standard fee arrangement, these persons do not borrow money. If they choose the alternative of litigation finance (for example, from a well-known business named Bridgeway) they do acquire a debt, but not to pay for the legal services and redress opportunity they receive. Instead, they gain a cash advance up front that they have to repay only if their claim succeeds.

To be sure, the contingent fee does not abolish scarcity for persons who suffer personal injury attributable to someone else’s lapse. A study published in 2014 found that most plaintiffs’ lawyers who specialize in medical malpractice turn away more than 90% of the cases that come to them. Trial wins for injured persons who succeed in finding lawyers are scarcer than the fifty percent or so that a famous law and economics paper said back in 1984 that they should expect. Nevertheless, the contingent fee continues to defy the tenet that individuals can invest or expend only what they have.

2. Tort Loves, Rather Than Abhors, Costs. Richard Posner helped make the Hand Formula famous by reading it to equate negligence with aggregate social cost that exceeds aggregate utility. Robert Cooter, writing about the “value foundations” of Law and Economics for a symposium on “the moral lawyer,” identified efficiency as the most central of these values and on the first page of his paper defined efficiency as “without waste,” in particular “without wasting money.”

Identify any goal or raison d’être of tort, however, and one can get there more cheaply via an alternative route. If the purpose of tort is compensation, then first-party insurance or public spending would deliver much more value per dollar spent. Like deterrence better? Scrap tort, with its pesky insistence on causation and substantive standing, and install criminal fines or a Pigouvian tax in its place. Among the rationales for tort, only fairness (sometimes equated with what gets labeled corrective justice) might justify sticking with the extraordinarily costly apparatus of American civil liability; it is vague enough to be present as the stated end of any scheme. But a cheaper alternative might deliver even more fairness. If tort law really were committed to what Steven Shavell has phrased as “the minimization of total social costs,” one would expect to find explicit bookkeeping that identifies benefits of the apparatus that are worth paying for.

In an important 2015 article Brooke Coleman reviews reforms of civil liability installed in the name of efficiency, faulting changes to the Federal Rules of Civil Procedure and Supreme Court decisions that made civil redress harder to obtain. Efficiency should not be equated with cheapness, she argues. To the extent that efficient means cheap with respect to the particulars that Coleman addresses, however, American tort law is not efficient.

The catchphrase “tort deform” pithily notes that what Coleman criticizes is foreign to tort. Money-saving constraints are pushed by constituencies and institutions that do not include tort courts. Until tort reformers pinch it shut, this area of the law welcomes complaints, and from there it decrees that profuse spending will follow.

Judges can take tort claims from the jury, a move that in principle saves the cost of a trial: but of the four elements of the dominant American tort, only duty is a question for the court. As a plenary kind of wrong, negligence gets past the barrier of “plausibility pleading” that the Supreme Court erected to kill claims at the complaint stage: most claims about a breach of duty are plausible. Discovery spends money like a spigot. Permitting lawyers to bring personal injury claims on a contingent-fee basis does indeed stir up litigation, as critics have long been asserting: and to stir up litigation is to stir up costs.

3. Juries as anti-rational actors in tort adjudication. Negligence law classifies breach of duty, actual cause, and proximate cause as jury questions, leaving only duty in the dominion of the judge. Other doctrinal categories of tort—intentional torts, strict liability, nuisance, defamation, statutory causes of action—also assign powers and prerogatives to the jury. To say that this powerful institutional role diminishes the construct of the rational actor, so prominent within law and economics, is not to say that the jury is irrational. Scholars praise the American civil jury for reaching results that appear well-grounded in reason and are mostly consistent with what judges as factfinders determine.

Laura Gaston Dooley, reviewing a long record of skepticism about juries, has found telling parallels with even older views about the Female. Civil jurors, Dooley argues, have been called just as irrational, impulsive, foolish, swayed by emotion, and in need of stern control as women. My rational-actor point about juries is narrow. Any field of law that assigns power to the jury (most frequently present in shadow form, as few tort cases go to trial) has expressed its irreverence for expertise, mechanical calculation, and predictability as an aspiration.

4. Principals and Agents United. Another law and economics article of faith, the principal-agent problem, notes that although principals hire agents to work toward their ends, agents tend not to invest much in the task, these ends not being their own. Business-entity responsibility familiar to tort looks like a quintessential principal-agent problem. People who do the company’s work (including the firm’s wrongful acts and omissions) don’t part with money when entity liability ensues. They won’t suffer from tort, then, will they?

They will. Even when a firm pays the financial side of a tort bill, its human employees are the ones who feel the lash of plaintiff-initiated discovery, as I argued in a 2004 paper. Fourteen years later, however, with more stringent pleading demands and more conservative courts, there may well be less of this discovery going on. Still, compliance rules created to anticipate discovery have upped burdens on workers, and the continuing shift in document-production from photocopied papers to bytes, has made discovery harder rather than easier to live with.

I am not claiming that life at the receiving end of interrogatories, depositions, requests for admissions, and having to deliver documents to adversaries will ever hurt as much as a severe impact of negligence. Even Leslie Bender’s bold suggestion that officers of corporate tortfeasors be forced to give their victims hands-on caregiving aims less pain at these employees than the hurt some tort plaintiffs experience. That said, while agents and principals still have different interests, tort does impose detriments on the human constituents of defendant entities.

***

“Assume a can opener,” goes the old economics punchline. Tort doesn’t. Law and economics classics like The Economic Structure of Tort Law and The Positive Economic Theory of Tort Law, celebrating the alignment of tort with efficiency, mistake a part for the whole. Doctrinal choices—negligence over strict liability, vicarious liability for some activities or relations but not others—might sound good to Pareto, Kaldor, and Hicks. But tort consists of more than its doctrines. Jury powers, procedural requirements, and sociopolitical conditions that expand and limit access to the courts are as central to American tort law as any blackletter rule.

 

Anita Bernstein (@bernsteinanita) is the Anita and Stuart Subotnick Professor of Law at Brooklyn Law School.

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