Can Tort Reform and Federalism Coexist?

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Critics of federal tort reform have usually comefrom the political left and its allies among the triallawyers, who favor a state-based system that canbe exploited to redistribute income from deep-pocketedcorporations to "deserving" individuals.We offer a totally different criticism--constitutionalin origin--that embraces the need forreform but reaffirms this principle: The existenceof a problem, however serious, does not justify federalremedies outside the scope of Congress's enumeratedpowers.

We begin with the Commerce Clause but findthat interstate trade does not, by itself, justifyfederalizing tort law. On the basis of examplesinvolving fast food, guns, and medical malpractice,we argue that substantive federal reformsare neither necessary nor proper. If states persistin imposing unjust rules on out-of-state defendants,federal procedural remedies are available.

Next, we consider the Due Process Clause ofthe Fourteenth Amendment and dissect theSupreme Court's recent State Farm decision coveringpunitive damages. We also discuss the controversiesover judicial activism and substantivedue process. Despite the limitations of substantivedue process, we conclude that the Court wascorrect to rein in punitive awards.

Most important, we recommend reforms thatare compatible with the tenets of federalism.Some reforms can be implemented at the statelevel—including solutions to excessive punitiveawards, curbs on joint and several liability, paymentof attorneys' fees when government is thelosing party in a civil lawsuit, the prohibition ofcontingency fee contracts between governmentand private lawyers, and restraints on litigationby government to recover expenditures made onbehalf of private parties.

At the federal level, we endorse two proceduralreforms. The first involves state "long-arm" jurisdiction,which determines whether an out-of-stateentity can be sued in a local court. Currently, out-of-state businesses find it exceedingly difficult toavoid oppressive state tort laws. A second federalreform concerns "choice-of-law" rules that determinewhich state's laws control a multistate suit.A federal choice-of-law rule would prevent statesfrom exporting discriminatory tort regimes.

Taken together, state substantive reforms andfederal procedural reforms can curtail abuseswhile respecting time-honored notions of dual-sovereigntyfederalism.

Michael I. Krauss and Robert A. Levy

Michael I. Krauss is professor of law at George Mason University. Robert A. Levy is senior fellow in constitutional studies at the Cato Institute. This paper will appear in Levy's forthcoming book, Shakedown: How Corporations, Government, and Trial Lawyers Abuse the Judicial Process (Cato Institute, November 2004).