Tort Reform and Federalism


In a recent Cato Institute paper, George Mason law professor Michael Krauss and Cato scholar Bob Levy make a cogent case against most kinds of tort reform at the national level. "Our federal government is one of limited and enumerated powers," they write. "The making of tort law is not one of those powers."

While acknowledging the problems created by outrageous jury awards and extortion disguised as litigation, they conclude that the tort reform measures recently considered by Congress--e.g., caps on damages, limits on attorney fees, and bans on certain types of claims against companies in particular industries--are not authorized by the Constitution. At the same time, they suggest two procedural reforms that would pass constitutional muster, along with a list of specific reforms at the state level.

Krauss and Levy note that tort reform brings out "hypocrisy on both sides of the aisle": "Democrats opposed to federal tort reform suddenly profess abiding faith in federalism….Meanwhile, Republicans, self-styled defenders of decentralization, now argue that malpractice (for instance) is a 'national problem.'" Yet "the fact that a problem exists in more than one state does not make it a federal problem," and "public policy arguments cannot confer federal authority where none exists."

Although I share Krauss and Levy's concerns about national tort reform, it seems to me there ought to be some way for Congress or the federal courts to prevent the use of product liability suits to impose what are in effect nationwide taxes and regulations. This is what happened under the agreement that settled state lawsuits against the tobacco industry, and one can imagine similar arrangements for guns, fast food, alcohol, and so on. Through such agreements (or, if the cases go to trial, through injunctions), litigation in one or several states can change the way products are advertised or sold in others. It can even prevent people in other states from buying certain products: fruit-flavored cigarettes, say, or inexpensive handguns.

At some point, doesn't the cross-border effect of such rules become an interstate trade barrier of the sort that the Commerce Clause was supposed to address? With guns, as Krauss and Levy acknowledge, there is the additional concern of protecting Second Amendment rights. And as Thomas C. O'Brien argued in a 2000 Cato paper, arrangements like the tobacco settlement seem to violate the Compacts Clause, which requires congressional approval for interstate agreements.

Krauss and Levy do suggest reforms that would help preserve competition among tort systems and make it harder for one state to impose its policies on another. At the federal level, they would limit "long-arm jurisdiction" and establish new rules for which law applies in cases involving parties from different states. At the state level, they would ban contingency-fee arrangements between governments and lawyers (something states that have benefited from such arrangements are not likely to do). But I would like to have seen more explicit attention to the interstate impact of litigation aimed at changing the way companies do business.