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Tort “Reform” Hurts Workers, Consumers, Investors

Tuesday, March 29th, 2011

A “tort reform” bill being debated in Tennessee would place big restrictions on “class action” lawsuits. In particular, the bill would ban all class action suits against violations of the state’s Consumer Protection Act and would also exempt class action suits involving securities.

A “class action” suit is one in which many people who have suffered the same injury are plaintiffs in the same suit. For example, if 100 people buy the same brand of hearing aid and find that the device made their hearing worse, all 100 people could file one suit together instead of 100 separate suits. This saves the courts a lot of time.

Well, if a class action suit is a time-saver, what’s the problem? Aren’t the “tort reform” people always complaining there are too many lawsuits “clogging” the system? (There’s no evidence that claim is true, by the way.)

From the hearing aid company’s view, the problem is that by pooling the expenses of 100 trials into one trial, class action may make it more worthwhile to sue. This is especially when the individual awards will likely be small. Class action makes it possible for some people to sue for damages who couldn’t have otherwise.

There are drawbacks to class action suits as well. For example, let’s say the 100 hearing aid wearers are offered a small settlement, and 99 of them decide to take it. The 100th plaintiff will have to take the settlement as well, whether he likes it or not.

Class action suits have been brought against asbestos manufacturers by employees and others suffering asbestos-related diseases, such as mesothelioma cancer. If the plaintiffs win their suit, the award would be divided among them equally. But some of the plaintiffs might be more injured than others and might have received a bigger award in an individual suit. For these and other reasons, some people are better served by pursuing an individual suit rather than joining a class action suit.

But back to the proposed law in Tennessee — one of the authors of the state Consumer Protection Act, state Rep. Mike Kernell, told the Memphis Commercial Appeal that he is disappointed with efforts to weaken the law.

“I have not heard of any complaints about it,” he said. “It’s not really been discussed so I don’t understand why it’s all of a sudden a problem. … It protects consumers and businesses from fly-by-night and fraudulent businesses.”

A state industry advocate group, the Tennessee Chamber of Commerce & Industry, told the Commercial Appeal that the state Consumer Protection Act has been “abused,” although no examples were provided.

What about securities? Simply put, the governor’s argument is that equities are regulated by federal and state laws and, in his mind, shouldn’t have to be subjected to personal injury suits also. But consumer advocates say that this “tort reform” would leave victims of ponzi schemes, for example, with no means to recover their losses.

As always, the argument behind this “reform” is to make Tennessee more “business friendly” and make more jobs available to residents. There’s no irrefutable evidence that any state’s tort reform laws have made a measurable difference in the number of jobs. Tort law makes a big difference to consumers, workers, and investors, however.