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Fire & Smoke
Government, Lawsuits and the Rule of Law
By Michael I. Krauss
The Independent InstituteCopyright © 2000 The Independent Institute
All rights reserved.
Government lawyers suing corporations in tort, as a solution to perceived "social problems," are subverting our legal institutions and the rule of law.
For many readers, the previous sentence may seem a contradiction in terms. One might think that government creates all law — so how can government suits violate the rule of law? Isn't one of government's jobs to root out and repress maleficent behavior? Don't the recent lawsuits against tobacco companies, firearm makers, paint manufacturers and the like serve that very purpose? And courts will dismiss the lawsuits if they are ill-founded, won't they? So what harm can their filing cause?
As this Independent Policy Report will show, government behavior can indeed be inimical to the rule of law. The recent so-called "recoupment" suits, involving government demands for "reimbursement" of social outlays allegedly brought about by negligent manufacturers, are not merely destructive of the tort law they profess to apply: they are injurious to our entire legal structure.
From the Civil War to the Civil Rights revolution, American society has weathered several crises of constitutional law. Attorney General Reno and her state and municipal counterparts, however, have provoked what may be our first crisis in tort law. They have attempted to transmute tort law, a fundamental common-law bastion of our liberties. Our legal system's rejection of this mutation is vital to the preservation of these liberties.
To understand the gravity of this unprecedented attack on tort law, it's important to grasp how tort law "fits" in the legal order of a society of free and responsible individuals. To see this, in turn, it's vital to understand the differences between the two basic types of legal rules in a free society: rules of private ordering and of public ordering. This Policy Report will briefly describe these differences, then situate tort law as an intrinsic component of private ordering.
The Report will then examine government recoupment litigation. It will focus on the municipal (and forthcoming federal) firearm litigation, and on the state and federal tobacco lawsuits. It will examine the basis for the recoupment suits and will show why they denature tort law. It will canvass the effect of this abuse on our legal structure. In closing, the Report will suggest what we can and should do to revive tort and the rule of law.
Private Ordering v. Public Ordering: A Primer
Public law, involving relationships between citizens and the state, is all the rage. Constitutional litigation makes headlines, as it should. And criminal trials are often appropriate front-page fodder. It is curious, though, that in a free society like ours private law issues are not more widely recognized as vital. For private law (roughly, rules regulating the allocation of rights and obligations by citizens) and private ordering (the possibility for people to self-determine through private law without direct state involvement) are what distinguishes free societies from totalitarian ones. All countries have public law institutions. But only in free countries does private law govern the acquisition and exchange of rights. It does this by allowing citizens to transfer risks, voluntarily through contract law and involuntarily for two reasons: when one wrongfully causes harm to another (tort law) and because one has family obligations.
Tort law, which assigns private obligations to wrongdoers who cause harm, is an essential complement to contract law as a basis for private ordering. What is the essence of tort law? This important question is perhaps best answered by sketching what tort is not:
Tort is not essentially about insurance. Tort law does not exist in order to provide insurance against risks. Free societies have a very "thick" (competitive) contractual market for insurance policies that do just that.
Tort is not essentially about the compensation of innocent victims. Many innocent people suffer losses for which there is no tort recovery. Indeed, the vast majority of good people to whom bad things happen have no recourse in tort. The woman struck by lightning, the man who loses everything he owns to a more efficient business competitor, the baby born with a birth defect, the congenitally unintelligent or unattractive, find no solace in tort law.
Tort's essence is not the compensation of innocent victims as such, although of course tort does compensate certain innocent victims in certain circumstances. The essence of tort law is to reallocate risks when one person has wrongfully and without consent caused harm to another (Weinrib, 1990). The "consent" requirement implies that tort is properly subjugated to the contractual transfer of risks. If I assume a risk voluntarily, I cannot sue my contract partner in tort if the risk materializes. If I purchase a home in a one-industry town, then blame my seller ten years later because the factory has shut down and my house has lost value, I will have no claim in tort. Nor will I have a contract claim unless my seller has committed some wrong that vitiates the contract. Taking a seat as a passenger in a car that one knows is being driven by a drunk driver is a good example of a different kind of implied contractual assumption of risk. When a victim expressly or implicitly assumes a risk of loss, tort law declines to shift the risk elsewhere.
It is important to repeat that tort regulates interaction through private ordering. Tort suits are adjustments of risks between private parties. They are very different from public legislation, criminal and regulatory, in several important ways.
Significantly, tort law happens without state intervention. Government is not a party to a tort suit — unless of course the government (through one of its employees, say) has committed a tort, or has suffered wrongful damage in its private capacity (as when a motorist negligently runs into government property).
Tort suits are about private adjustments of risks — they are not a mechanism to express public outrage. Vindication of public offense is the province of criminal law, a principal component of public ordering. Crimes don't even need victims, by the way; torts do: there are crimes like attempted murder, or treason, for example, with no individualized, harmed victims.
Tort law is not about punishment. Criminal adjudication punishes the culprit: common law torts require compensation only.
Common law tort suits are not properly concerned with the enactment of "public policy," which is of course a quintessential output of public ordering. Any concerned citizen has the right to intervene in the legislative process that "produces" public policy, but only the parties to a tort suit can intercede in those proceedings. It is our legislative process, which guarantees all sides the right to voice their views, that is the only constitutional forum for policy- making.
Finally and crucially, tort suits were not designed as, and are totally inappropriate vehicles for, state-coerced redistribution of money from the Peters to the Pauls of this world. Such redistribution is the province of tax and welfare law, other components of public ordering. Coerced transfers through public ordering are often based on conceptions of distributive justice. In tort law, however, forced transfers of rights and obligations between private parties are based on notions of corrective justice that have no distributive punch: if a defendant, however poor and pitiful, wrongfully harms a victim, however rich and powerful, then and only then is compensation owing in tort (Weinrib, 1990; Krauss, 1992).
Just as we cannot imagine a free society without freedom to hold property and to contractually exchange that property, free nations have always also had rules of tort liability, transferring property following wrongfully caused private losses. Tort law, in other words, is essential to private ordering. To see this, imagine that tort was replaced by state insurance: i.e., that every loss was deemed a public loss, because government provided massive social protection against all risks, and that government proceeded to prosecute all those who caused "claims" on its resources. In such a society there would be no need for tort law: government recoupment would proceed from tax and criminal law considerations. There would also be no contract law — if all risks are socialized then private individuals could not own property (to own property is to assume the private risk of its loss). Socialization of risks substitutes public for private ordering; regulations and criminal statutes for contract and tort. Wrongs against persons become offenses against the state. Political decisions, not private actions, would determine who gets entitlements and who loses them. As private ordering recedes in this way, freedom is replaced by collectivism.CHAPTER 2
The Firearms Lawsuits
Basis for the Suits
On October 30, 1998, New Orleans became the first city in the nation to file suit against the gun industry, followed two weeks later by Chicago. Within a year, twenty-seven additional cities and counties filed suit against over forty gun manufacturers, dealers and trade associations. On December 7, 1999, the White House announced that it was preparing a class action suit against firearm manufacturers on behalf of local public housing authorities. The suit would be based upon the same legal theories as the litigation by the twenty-nine municipalities.
Most of the governments suing the gun industry contend that firearms are "defective and unreasonably dangerous" products as currently manufactured and marketed. The cities demand damages for harms allegedly caused by those defects. So far, so good: this claim, on its face, does not violate established principles of tort law. It alleges that the firearm manufacturers acted wrongfully. The common law has long allowed a victim to sue Coca-Cola, for example, if he or she is injured by an exploding and defectively manufactured Coke bottle. But the prima facie validity of the firearm suits ends here. For city governments are not claiming their property was lost or damaged by exploding, defective guns. Rather, they seek to recover medical costs they incurred by treating victims of gun-related violence in city hospitals, by paying for police overtime, and by losing tax revenue as property values dropped in crime-ridden neighborhoods.
The bankruptcy of those damage claims will be dealt with shortly. It's important to note right away, however, another theory (additional to the "defective gun" theory) underlying a few of the firearm lawsuits (notably, those of Chicago and Wayne County, Michigan). The Windy City does not claim that firearms are defectively manufactured. Rather, it charges that the firearm industry's negligent marketing tactics have created a "public nuisance" which jeopardized Chicagoans' safety. Manufacturers allegedly created this nuisance by legally selling "too many" guns in some areas of Illinois (i.e., the suburbs of Chicago). The manufacturers should have known, it is alleged, that purchasers would illegally transport some of these weapons to the City of Chicago.
Many of the cities' suits seek, in addition to the damages sketched above, complex court orders that do not resemble tort awards at all. For example, Chicago seeks an injunction prohibiting:
sales to people who have purchased guns in the last thirty days.
sales in excess of "lawful demand"; and
sales of "firearms that by their design are unreasonably attractive to criminals."
Plaintiffs often ask that defendants be commanded to obey existing laws. But no existing laws contain any of the requirements that Chicago seeks. This award, if granted, would amount to a criminal gun control statute enacted by the courts. This is public ordering — a first sign that the cities' lawsuits are an abuse of tort law. But there is more.
The Legal Flaws of the Firearms Suits
Let's examine the "defective firearm" suits first. How are the manufacturers' firearms alleged to be defective? Is it averred that they misfire, or fire inaccurately? Not at all. Rather, these lawsuits claim the defendants' guns are defective because criminals can use them.
It turns out that the "defective firearm" suits contain so many of their own serious legal defects that they constitute a travesty of tort law. Mindful of the fact that a tort suit involves a claim that a defendant wrongfully damaged an innocent victim, these defects can be explored sequentially.
The most serious defect relates to plaintiffs' entitlement to any damages, even assuming for a moment that some wrongful behavior by defendants is established. To recall, not one of the plaintiff cities argues that its property was hit by gunfire; rather, the cities contend that they lose revenue when others are harmed by gunfire.
It is important to note that no one but the direct victim of damage, or his assignee, may recover in a tort suit. Suppose that Abner carelessly drives his car, injuring Bobby, and that Charlie had contractually promised to compensate Bobby if Bobby was ever injured for any reason. So Charlie pays off Bobby's losses, and then sues Abner to obtain reimbursement. Charlie's suit is the claim of an insurer seeking indemnity. Insurers like Charlie are called subrogees – they don't stand in their own shoes when suing Abner (because they weren't directly injured by Abner). Rather, they must acquire the rights of the direct victim, Bobby (through a subrogation clause in the insurance contract) if they wish to obtain reimbursement. If Charlie is subrogated, then and only then may he stand in Bobby's shoes, as it were, and sue Abner. Charlie's subrogation claim against Abner will have all the strengths and all the weaknesses of Bobby's lawsuit. If Bobby had a good tort case against Abner, then Charlie will have just as good a case against Abner. But if Abner has a defense against Bobby, that defense will prevail against Charlie. For example, if Abner did not wrongfully harm Bobby, Charlie's suit will fail. Similarly, if Abner could invoke "assumption of risk" against Bobby (imagine that Bobby and Abner had gone drinking together, and that Bobby had knowingly taken a seat in a drunken Abner's car), then Charlie's claim will fail just as Abner's would have failed.
All this seems clear enough: Charlie can't sue Abner if Bobby could not sue Abner. Now suppose that the law is clear that Bobby has no tort suit against Abner, but that Charlie nonetheless claims he somehow still may successfully sue Abner. Charlie is making a kind of demand that tort law has never recognized in 250 years of common law adjudication. Charlie is claiming that as an insurer, or subrogee, he has acquired more rights than his insured possessed.
The rule against indirect recovery is a fundamental part of tort law. When someone injures someone else, whether in a car accident or a shooting, hundreds of people and companies in addition to the injured party will suffer. Strangers may fear they might become victims one day. Employers of the victim may lose a productive worker. Friends may lose the value of the injured person's fellowship. Governments will be deprived of the tax revenue the victim would have paid. And the corner grocery store will miss the profit on the gallon of milk the victim would have purchased. Yet only the direct victim, and his insurer if subrogated, can sue in tort. And these direct victims have rights only against the person who wrongfully shot the victim. They have no claim against those who made the firearm.
Without exception, direct suits by gunshot victims against firearm makers have been spectacularly unsuccessful unless the shooting was the result of a defect in the firearm, or unless the manufacturer in some way conspired with the shooter. Accordingly, cities in their capacity as "insurers" of shooting victims have suffered no damages recoverable from firearm manufacturers.
The cities' claim for indirect damage flies shamelessly in the face of fundamental principles and of modern tort law. In 1998, in Seafarers' Welfare Plan v. Philip Morris, a federal court held that "the longstanding rule [against recovery for indirect harm] bars Plaintiffs' claims in this case, notwithstanding Plaintiffs' artful re-characterization of them" as direct. And in City of Flagstaff v. Atchison, Topeka & Santa Fe Railroad Co., a municipality was not allowed to recover the costs of evacuating its residents following a derailment, even though the railroad was at fault. The court stated:
"If the government has chosen to bear the cost for reasons of economic efficiency, or even as a subsidy to the citizens and their businesses, the decision implicates fiscal policy; the legislature and its public deliberative processes, rather than the court, is the appropriate forum to address such fiscal concerns."
No Proximate Causation
The damage issue alone constitutes a fatal flaw in the government suits against gun manufacturers. Even if gun manufacturers proximately caused damage to someone, they did not proximately cause damage to the plaintiffs.
But the cities' proceedings fail the next requirement of tort suits as well. For the firearms manufacturers proximately caused harm to no one. Courts are unanimous that the manufacture and sale of firearms does not proximately cause any criminal shootings. Rather, the free and deliberate choice of a shooter to wrongfully use a firearm is the proximate cause of the criminal act.
Excerpted from Fire & Smoke by Michael I. Krauss. Copyright © 2000 The Independent Institute. Excerpted by permission of The Independent Institute.
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Table of Contents
2. The Firearms Lawsuits,
3. The Tobacco Lawsuits,
About the Author,