Overlawyered: Chronicling The High Cost Of Our Legal System

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Dozens Added to Providence Nightclub Fire Suit

In 2003, a terrible fire in a Providence night club killed a hundred people and injured many more. The fire apparently started when Great White’s (the live band) pyrotechnics ignited soundproofing foam around the stage. The victims initially filed suit against “four dozen defendants, include club owners Jeffrey and Michael Derderian and former Great White tour manager Daniel Biechele.” Biechele recently plead guilty to a hundred counts of involuntary manslaughter for igniting the pyrotechnics, and the club owners are fighting the same charges.

Now, as the statutory deadline (3 years apparently in Rhode Island) for new suits approaches, and perhaps given the disappointing depth of the current defendants’ pockets, the victims and their families have filed suit against “dozens” of others in the fire. The suit now names individual members of the band, the company that distributed the acoustic foam, and even Home Depot, for not “warning of the potential hazards” of the insulation they sold the club, despite the fact that the insulation Home Depot sold “is different from the foam ignited by the pyrotechnics”. (Eric Tucker, “New complaint filed in nightclub fire case”, Houston Chronicle, Feb 15)

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Shareholder Suits Reach New High

Apparently, 2005 was a record year for class-action securities settlements, (Patti Bond, “Class-Action Securities Settlements Set Record, Indianapolis Star, Feb 13)

If it has not become abundantly clear already, I am not a lawyer, so I can’t comment on the legal ins and outs. But from a philosophical standpoint, shareholder suits have never made much sense to me. While I can understand the shareholders of the company suing a minority shareholder who might be enriching themselves disproportionately (e.g. Rigas family at Adelphia), suits by shareholders against the company they own seem… crazy.

Any successful verdict for shareholders against the company would effectively come out of the pockets of the company’s owners who are.. the shareholders. So in effect, shareholders are suing themselves, and, win or lose, they as a group end up with less than if the suit had never been started, since a good chunk of the payout goes to the lawyers. The only way these suits make financial sense (except to the lawyers, like Bill Lerach) is if only a small subset of the shareholders participate, and then these are just vehicles for transferring money from half the shareholders to the other half, or in other words from one wronged party that does not engage in litigation to another wronged party who is aggressively litigious. Is there really justice here?

OK, you could argue that many of these shareholders are not suing themselves, because they are past shareholders that dumped their stock at a loss. But given these facts, these suits are even less fair. If these suits are made by past shareholders who held stock (ie, were the owners) at the time certain wrongs were committed, they are in fact paid by current and future shareholders who may well have not even owned the company at the time of the abuses, and who may in fact be participating in cleaning the company up. So these litigants are in effect making the argument that because the company was run unethically when they owned it, they are going to sue the people who bought it from them and cleaned it up? Shouldn’t the payment be the other way around, with past owners paying current owners for the mess they left?

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Making Everyone a Lawyer

This is a bit off-topic from litigation, but one of the issues I touch on from time to time in my own blog is just how hard the government makes it to conduct business. While Ted and Walter seem to enjoy what they do, not all of us want to shuffle documents through the legal system every day.

As brief background, my small business runs recreation facilities on public lands under concession contracts. This week we won our first contract with the National Park Service, to run a restaurant and a couple of marinas in Colorado. Since this is our first foray into that state, there are a lot of legal hoops we must jump through to get all the permissions we need to conduct business in Colorado. In fact, as I describe on my blog, my work list is up to 20 fairly time-consuming approvals we need to obtain. And I am sure this list will grow. Even after years in a state, we still can have some random inspector coming by looking for our (fill-in-the-blank) licence, which we had never heard of to that point. My favorite so far is probably Kentucky’s requirement that I get a licence to sell eggs.

About six months ago, a business school professor asked if I would just write down what I was working on that day, as a part of a lesson in entrepreneurship for his students. Later, I posted the list on my blog. I ended the post by saying, “An alien from another planet in reading this post might question whether I am really working for myself or this ‘government’ entity”

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Asbestos Trust-Fund Legislation Defeated

The Senate has apparently defeated the bill that would create a $140 billion trust fund to pay asbestos claims (Charles Hunt, “The Senate Defeats Asbestos Trust-fund Legislation” The Washington Times, Feb 15).

Whether this represents a final defeat of the measure is unclear, since there seem to be a number of procedural questions surrounding the bill. The Wall Street Journal ($) had an interesting editorial yesterday (2/14), which described the bill basically as deeply-flawed legislation to try to correct a deeply-flawed litigation situation.

You can see the vote count here, but, in a fairly unique outcome in these hyper-partisan times, both Democrats and Republicans were split on this one.

Update: Made a few changes to the links to try to better match Ted and Walter’s style

Ted has more on the bills prospects at Point of Law, as well as a whole archive of following the asbestos mess.

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And Now, Stepping Up to the Plate…

Greetings, Overlawyered readers. My name is Warren Meyer, and Walter, who generally strikes me as a sane and stable person, has had some odd lapse in judgement and asked that I come in and guest blog this week. After blogging on my own site for a little over a year now, I feel like a long-time minor leaguer finally stepping up to the plate in the majors for his first at-bat.

I am particularly pleased to be here, since Overlawyered has the distinction of being the first blog I ever regularly read, long before I even knew what a blog was. As a small business owner, I often found myself asking, “am I crazy?” Ted and Walter, via the stories they write about outrageous litigation in Overlawyered, help give me some comfort that no, maybe its the rest of the world that’s gone nuts.

My regular home is at Coyote Blog, where I stray off-topic far more than Ted and Walter, but I generally focus on issues related to business, government, and libertarian philosophy. I appreciate Walter’s lending me the keys to his blog for this week, and I will try to keep it between the lines better than I do at my own site.

Maquiladoras caused birth defects? $17M later, maybe not

In 1991 portions of Texas’s Rio Grande Valley saw an upsurge in babies born with neural-tube defects. Litigation resulted:

Residents and lawyers had blamed pollution, and General Motors and other U.S.-owned factories paid $17 million without admitting wrongdoing to settle a lawsuit accusing their border factories of poisoning the air.

The claimed linkage of cause and effect between the factory pollution and the birth defects was, to say the least, much controverted at the time, and is looking even less impressive in hindsight:

no chemical links to the disease were ever proven, and Texas health officials began suspecting fumonisin, a toxin in corn mold. Experts had noted a high concentration in the corn harvest just before the outbreak. Some Texas horses died from brain disease caused by the toxin.

Now, a study in the February issue of the journal Environmental Health Perspectives adds impetus to the corn-mold theory:

The study found that pregnant women who ate 300 to 400 tortillas a month during the first trimester had more than twice the risk of giving birth to babies with the defects than did women who ate fewer than 100 tortillas.

Blood samples indicated that the higher the level of fumonisin, the greater the risk of neural tube defects.

Tortillas are an inexpensive dietary staple along the Texas-Mexico border, and studies suggest that the average young Mexican-American woman along the border eats 110 a month.

(“Study: Bad corn caused birth defects”, AP/Seattle Post-Intelligencer, Feb. 8). See also Dallas Morning News, Mar. 4, 2001; AP, Jan. 2001; Nicole Foy, “Border birth defects are tied to poverty”, San Antonio Express-News, Apr. 9, 2004.

Among its other implications, the episode may suggest the safety gains to be had in the shift from a pre-modern food regime based on local farm and home production to the sort of industrially based food regime more familiar to most Americans. Even aside from the issue of folic acid fortification, a big-city tortilla factory run by a large company would probably have had a better likelihood of screening out moldy batches of corn.

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Calgary Muslims may sue over cartoons

“The head of Calgary’s Muslim community is considering a civil lawsuit against two local publishers for reprinting controversial Danish cartoons of the Prophet Muhammad — images that have sparked deadly riots overseas. “Syed Soharwardy, president of the Islamic Supreme Council of Canada, said he would consult lawyers to see whether it was possible to sue the Jewish Free Press and conservative Western Standard, which have published the cartoons; the general-circulation Calgary Herald has not. More: Feb. 10, etc. (Emma Poole, Calgary Herald/National Post, Feb. 13).

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United Farm Workers’ libel-suit threats

The United Farm Workers, the agricultural labor union that rose to prominence under the leadership of the late Cesar Chavez with the support of countless Sixties idealists, has recently been the subject of unflattering coverage in the Los Angeles Times, Bakersfield Californian and L.A. Weekly, among other places. Now journalist Marc Cooper, who wrote the L.A. Weekly piece, says the union has sent him a demand that he retract or correct his piece on pain of being sued. Cooper says the L.A. Times and Bakersfield papers have received similar threats. “Even some lonely bloggers who have recently written about the UFW have been contacted by the union or its hired PR agents and directly warned not to continue criticizing it.” (Marc Cooper, “Gag Me With a Grape”, L.A. Weekly, Feb. 8; Cooper blog entry and comments, Feb. 8) (via Romenesko). The UFW’s side of the underlying controversies is here.

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