Tort Reform Texas Style
New Laws and Med-Mal Damage Caps Devastate Plaintiff and Defense Firms Alike
Posted Oct 24, 2006 4:38 AM CDT
By Terry Carter
While Texas plaintiffs lawyers have been leaving in droves from nursing home and medical malpractice litigation in the wake of tort reform, San Antonio’s Glenn Cunningham is still doing it—albeit with a radically different business model and a much thinner wallet.
Before the 2003 changes in state law, Cunningham would round up seven or eight experts, take 15 to 20 depositions and easily spend $85,000 to $100,000 to work up a case. Apparently, the effort persuaded defendants they had problems on the facts and the law, because he often settled for $1 million to $3 million.
But with new restrictions on medical malpractice suits, many otherwise meritorious cases are no longer economically practical, Cunningham explains. The limits include a $250,000 cap on noneconomic damages such as pain and suffering—a cap that hits the elderly and the poor especially hard, since they have little or nothing to show for lost earning power under economic damages.
(In cases with multiple defendants, the cap is set at $250,000 for noneconomic damages against all physicians, and $250,000 against one hospital or $500,000 against two or more hospitals for a total of $750,000. But plaintiffs lawyers say that is so unlikely as to be unrealistic, and the $250,000 cap is their reality.)
In fact, Cunningham says, many of the nursing homes he has been dealing with over the years have either stopped carrying insurance or have switched to $250,000 so called wasting policies. Under those policies, defense costs are subtracted from the coverage amount, leaving less for payouts to plaintiffs.
Cunningham is a sole practitioner whose nine lawyer firm broke apart after the 2003 tort reform. He now takes only the clearest cut cases as far as liability is concerned, and he works them on the cheap: He holds total expenses to $15,000 or less, takes a couple of depositions and hopes to settle for about $150,000.
Many nursing home lawyers have moved on to other work, and former plaintiffs lawyers who know him send Cunningham their cases.
“I haven’t decided whether I’m a crusader or profoundly stupid,” he says.
A shakeout among the plaintiffs lawyers was expected with the significant change in the laws—after all, they’re the bogeymen targeted in tort reformers’ campaigns. But over on the other side of the litigation fence, tort reform is also forcing lawyers to switch gears or risk stalling out completely.
Dallas defense lawyer Rob Roby has seen his firm, Gwinn & Roby, shrink to less than half its former size since the 2003 reforms, from the mid-40s to the low 20s in number of lawyers. His health care industry clients—doctors, hospitals and nursing homes—don’t get sued nearly as much as before. “Some of our significant clients, such as large hospital groups and similar entities, have little or no work to assign now,” Roby says.
Roby was president of the Texas Association of Defense Counsel when the state legislature was working up the laws enacted in 2003, though his group did not take a stand on the issue. Those initiatives built on significant earlier reforms, particularly from 1995, and added a smorgasbord of restrictions on suits against the health care industry as well as in some other areas.
Added to this mix is the fact that all nine justices on the Texas Supreme Court are Republicans, 11 of 14 courts of appeal are majority Republican (including seven with all Republican judges), and nearly two thirds of Texas’ state district trial judges are Republican. Tort reform was one of the major issues pushed by George W. Bush in his successful run for Texas governor in 1994, and he has continued that push at the federal level since becoming president. It is favored by the business coalitions that largely support Republicans and also has been touted as a way to take money from Democrats, who get a lot of funding from plaintiffs lawyers.
Consumer watchdog groups complain judicial decisions since 2003 have tightly enforced and amplified restrictions in most tort matters. Tort reformers say amen.
Other areas have been cut back severely, too, such as class actions. And automobile accident cases are down, lawyers involved on both sides say, in part through tighter laws but largely because the advertising blitz for tort reform has made juries stingy.
“They saw the ads about runaway juries, and they don’t want to be seen as the ones giving away tons of money,” says Robert A. Kraft, a Dallas plaintiffs lawyer who takes fewer auto cases now.
More than a dozen prominent Texas defense lawyers declined to respond to repeated requests for interviews about their new lines of work or the breakups of their firms, and a few who did would not be quoted on the record. They said they fear losing what little work they’re still getting if they cross the health care industry by criticizing the new laws. When legislative proposals for reform were in the hopper, it seems most defense lawyers chose to lay low rather than express an opinion, especially if it was critical. “A lot of defense lawyers wouldn’t get involved in the campaign, but behind the scenes they would say this was not good,” says Deborah Hankinson, a Republican who was on the supreme court from 1997 to 2002. “And the scuttlebutt is the defense side is really hurting from it now.”
The Road to Reform
In 1988, the state high court had struck down noneconomic damage caps as unconstitutional. And in 2003, Hankinson, now a Dallas appellate lawyer, led an expensive and unsuccessful battle against a constitutional amendment to lock in the cap on noneconomic damages. (More than $17 million reportedly was spent by the two sides.) “I did it to try to protect the constitution,” she says.
But not all defense lawyers were mum.
“Some of us on the defense side were telling legislators that they were going way overboard on some aspects, and the problems today bear it out,” says Roby, the rare defense lawyer willing to speak out on the issue.
In an interview, Roby outlined criticisms that could come straight from a talking points memo from the Texas Trial Lawyers Association:
• There are a few plaintiff friendly jurisdictions in lesser populated areas, but big city courts had few suits that did not involve medical error and “a legitimate bone to pick.”
• Stay-at-home mothers, children and the elderly often don’t have enough income or proof of future income to qualify for significant economic damages. Thus the cap on noneconomic damages makes their cases too costly for plaintiffs lawyers to pursue.
• The dramatic decrease in litigation takes away incentive for risk managers and others to ensure carefulness in medical care.
But the legislature heard all that as well as the opposing stories about physicians and insurance companies fleeing the state. And sympathy for lawyers in the Lone Star State runs about as deep as the Rio Grande in a summer drought.
So a lot of Texas lawyers are retooling.
Some, like nursing home lawyer Cunningham, have changed their business model or are cherry picking cases with well off clients who can show economic damages. Others are trying new practice areas such as commercial litigation. A number of struggling plaintiffs side medical malpractice lawyers have been showing up at intellectual property seminars, for example, and defense firms are advertising expertise in family law and criminal matters.
Firms are breaking up or dropping whole practice groups. Some lawyers have simply retired or left the profession.
More than a few plaintiffs lawyers are taking their cases and skills to other states and associating with lawyers there. Defense lawyers don’t have that option—they typically do not have portable portfolios.
“There has been a sea change,” says Paula F. Sweeney of Dallas, a former president of the Texas Trial Lawyers Association and a well-respected plaintiffs medical malpractice lawyer in the state. “And it noticeably hit the defense side hardest first. Their practices are drying up.”
Sweeney’s Web site notes her own recent metamorphosis. It notes she “originally practiced only in the demanding area of plaintiffs medical negligence litigation” but “now additionally handles serious injury and death cases arising from negligent trucking, products liability and some environmental cases.”
“I used to file 10 or 15 medical malpractice cases a year, and now it’s maybe two,” Sweeney says. “It’s not hard retooling for other work technically, but some doctors want to be anesthesiologists rather than orthopedists for a reason. My basic skill set is the same in these other areas, but it’s not my preference. I now represent mostly the well off with economic damages in medical malpractice.”
The Texas Office of Court Administration does not keep statistics separating medical malpractice or nursing home lawsuits, which would come under medical malpractice, from other torts. Neither does Dallas County, the state’s biggest court system. But Harris County, which covers Houston’s courts, does keep such records, and they show a sharp drop.
The number of medical malpractice cases filed there in 2005 was down 41 percent from the average number of filings during the six years before 2003. Between 1997 and 2002, the average number of cases filed each year was 435. The 2003 rush to file before the new law took effect pushed that year’s tally to 1,203. The following year, only 204 cases were filed, and that number rose only slightly in 2005, to 256.
The University of Texas System Professional Medical Liability Plan, which insures more than 10,000 physicians and medical students at its six medical centers throughout the state, recently reported a 55 percent decline in new lawsuits filed when comparing 2002 and 2005.
“Fewer cases filed, fewer cases to defend, and some firms have basically gone away. They just don’t exist anymore,” says Charles Bell, who left his partnership in Roby’s firm, which has been prominent in health care litigation but also does a variety of other kinds of work. Bell now is with a Dallas firm that does strictly health care matters. “I’m fortunate in the sense that I’m busy and continue to do all medical malpractice defense.” Yet reform advocates say the dropoff was both intended and expected.
“The intention was to move nonmeritorious, marginal cases out of the system, and from everything we can tell, it has had that effect,” says Hugh Rice Kelly of Houston, a co founder of Texans for Lawsuit Reform. The group was instrumental in formulating the legal intricacies of the 2003 legislation as well as earlier changes in 1995.
“I have no doubt that with the number of filings down, the number of lawyers doing this work is going to be down,” Kelly says. “Some are going to be out because they’re used to making huge money and can make huge money somewhere else.”
Though staying in for the good fight, Cunningham, the San Antonio lawyer still doing nursing home cases, admits he has seen a change in finances: “My income has dropped to probably 10 percent of what I made in 2003. The good news is that I made some good money back then, so I can live on 10 percent now. A lot of others didn’t.”
Taking It to Voters
Sweeping or significant tort reform has been enacted in other states, such as Wisconsin, Ohio and Illinois, only to have the laws knocked down by high courts. The Texas Supreme Court had done just that in 1988, invalidating a 1977 statute limiting noneconomic damages in medical malpractice cases to $500,000. The court found the limit violated a section of the Texas Constitution guaranteeing access to the courts. Lucas v. United States, 757 S.W.2d 687.
So in 2003, tort reformers got legislators to put an initiative on the ballot for a constitutional amendment permitting caps on noneconomic damages. The vote was moved to several weeks before the rest of the November elections, which critics say avoided the big voter turnout, and the measure won with 51 percent of the vote.
For the most part, the tort reformers hammered the theme of high medical malpractice insurance rates driving both insurers and physicians out of the state. The fear of losing doctors carried other tort reform measures along in its wake. Indeed, the law’s name is the Medical Malpractice and Tort Reform Act of 2003. That linkage clearly made the difference, activists on both sides of the issue say. Supporters cite Texas’ net gain of more than 4,000 physicians since tort reforms were enacted in 2003, when about 38,000 physicians were practicing there. But Texas Medical Board spokeswoman Jill Wiggins says more significant is the 44 percent increase in physician licensure applications in just the past year—a hike she says is only partly because of an influx of Louisiana physicians in the aftermath of Hurricane Katrina.
But what is really important is whether underserved areas have seen improved access to health care, says Alex Winslow, executive director of Texas Watch, a consumer group that keeps tabs on insurance issues. “The data on that is clear. Areas of the state with large indigent or Medicaid dependent populations—south Texas, rural Texas—continue to lack the access to physicians that they need.”
Extending The Caps
Ominously, critics say, while the constitutional amendment made bulletproof the new cap on noneconomic damages in matters concerning the health care industry, it also left the door open for the legislature to do the same in other areas of tort law.
The amendment authorizes the legislature to determine limits on noneconomic damages for “any claim or cause of action based or sounding in tort, contract or any other theory or any combination of theories of liability.” Texas Constitution, Article 3, 66(b). That left a lingering fear of other shoes dropping.
Dallas medical malpractice plaintiffs lawyer Michael Sawicki has seen his own practice hit hard, though he, like Sweeney, can handpick cases with well to do clients. But, he says, “My partner does solely product liability, and I think those guys are closing their eyes and praying they’ve been overlooked.”
One result championed by tort reformers has come quickly. The aggregate impact of Texas tort reform over the past decade, particularly with the 2003 changes, has prompted the Pacific Research Institute, a California based think tank that champions free markets, to put Texas at No. 1 on its list rating the most business friendly state legal environments. Its study is called the U.S. Tort Liability Index: 2006 Report.
At a news conference in May to announce the ranking, Republican Gov. Rick Perry and others spoke of possible further measures, including a cap on contingent fees. Just the same, some in Texas are speaking of a pushback on legislators concerning the 2003 changes.
That was the main topic at a meeting of the Dallas Bar Association’s Tort & Insurance Practice Section in July. Two panelists defense lawyer Roby and George Christian, an Austin lawyer lobbyist who represented the tort reform group Texas Civil Justice League, which helped push the 2003 changes—explained the possibility of the legislature rolling back some of them.
Christian did not respond to requests for interviews. Several others in attendance say he told the group that some legislators are saying the reforms went too far in some areas and are unfair, particularly concerning women, children and others without demonstrably significant income. Christian also pointed out that key leaders of the legislative efforts in both houses of the legislature are no longer in those positions, they say.
Roby told the group there is a possibility the cap on noneconomic damages might be raised, tied to the consumer price index to keep up with inflation, or exceptions carved out for severe misconduct or injuries that are severe or permanent. In an interview, Roby says some conservative legislators told him in 2003 the per party cap probably should be in the neighborhood of $500,000 to $750,000. Those apparently are the magic numbers to plaintiffs lawyers who turn away what they otherwise believe are meritorious cases. This is what legislators reportedly are hearing now in face to face meetings with constituents who complain that, thanks to the reforms, they are unable to find representation for their meritorious cases because the estimated recovery no longer justifies the effort and expense.
“We’re looking toward the next legislative session for maybe some carve outs to the cap, maybe an increase, though of course we think it ought to be abolished altogether,” Winslow says. His group offered advice and helped “dozens if not hundreds” of people contact their legislators.
But to Kelly, co founder and general counsel for Texans for Lawsuit Reform, talk of the pendulum swinging too far for plaintiffs and now too far back the other way is just that talk.
“We do polling, and people don’t think we’ve fixed all the problems yet,” Kelly says. “And the plaintiffs’ complaint that they can’t file marginal cases has to be weighed against better health effects in the aggregate, the overall effect on the health care system.”
Feeling the Effect
There certainly has been an effect on the legal system. Even the laws of unintended consequences surely would not have bypassed the sweeping Texas tort reform. Consider the impact on one Austin employment defense lawyer’s quiet practice niche.
Texas is the only state that permits employers to forgo workers’ compensation insurance and instead go it on their own as so called nonsubscribers. They can develop a network of approved physicians and absorb the costs themselves.
“My business was a nice, quiet little area of the law till the recent tort reform,” says Gary A. Thornton, who has been handling nonsubscriber work for 20 years. “Now it’s inundated with people making small cases into huge ones and causing both sides of the bar more expense.”
Those new faces Thornton sees as interlopers are going after personal injury cases in employment settings. He says he’s seeing increases in discovery requests, depositions and lists of expert witnesses in cases that used to be routinely lean.
Interestingly, the 17 year old statute that created Thornton’s niche also had a bigger, broader impact at the time by cutting into the fees of plaintiffs lawyers.
The Texas Workers’ Compensation Reform Act of 1989 that permitted private companies to eschew the state workers’ compensation system also strictly limited attorney fees to 25 percent of the award, to come out of the client’s recovery, or $150 an hour, whichever is less.
Either way, the lawyer’s portion of a typically small award came, in effect, out of the client’s pocket. And for the most part, that killed off a practice area that for years had been the litigation training ground for many Texas lawyers.
“We’d pull up five workers’ comp cases every Monday morning, settle three and go try the other two,” says Guy Choate of San Angelo, a former president of the Texas Trial Lawyers Association. “Our firm was probably the fifth biggest in the state in workers’ comp. We didn’t do any after the new law, and we cut staff by a third to half.”
The statute survived court challenges and, according to statistics from the Texas Office of Court Administration, workers’ compensation filings in state courts are down more than 98 percent from the levels of 1991 and earlier.
“You just have to replace practice areas the law takes away from you,” says Frank Branson, a Dallas plaintiffs lawyer. “We’ve added a business section doing contingency fee cases, including intellectual property.”
Branson hired two commercial litigators last year, “and they’re staying busy,” he says. He and some others believe plaintiffs lawyers moving from injury cases over to commercial litigation may change the latter. Branson has been surprised at how much less trial experience the other side in commercial litigation has compared to the insurance defense lawyers he has been up against most of his career.
“I get the impression they haven’t tried quite as many jury trials,” he says.
Finding Refuge from Reform
News stories in Texas have painted Marshall, an east Texas city of about 25,000 not far from the Louisiana border and Shreveport, as the destination for untold numbers of Texas lawyers hurt by tort reform who are eager to get in on the intellectual property litigation there. Marshall, and the region in general, has long been considered plaintiff friendly. Its federal court (some say because it isn’t so mired in drug and other criminal cases as courts in the bigger metro areas) has a so called rocket docket attractive to corporations needing quick decisions on their patents and trademarks.
This has been particularly good for local lawyers who know how the courthouse works, which sometimes can make or break a case, because they have more opportunities to associate with bigger firms from outside.
Carl Roth, one of the best known plaintiffs lawyers in Marshall for decades in medical malpractice and personal injury, has become the go to local lawyer for companies bringing intellectual property cases.
“The first two thirds of my career were PI, and now it’s IP,” quips Roth, albeit truthfully. He got into intellectual property in the early 1990s, long before many other Texas plaintiffs lawyers. And his intellectual property portfolio has tripled since 2001; it is about 70 percent of his practice. (Like many Texas lawyers, he cut his litigation teeth with about 100 workers’ comp cases.)
Meanwhile, some Texas plaintiffs lawyers are trekking farther than Marshall. Take Joe K. Longley, an Austin sole practitioner and longtime plaintiffs lawyer who specialized in class actions. Changes in class action law drove him from his Texas based practice, he says, especially the 2003 tort reform package that permits state agencies to take many cases out of the courts and deal with them administratively and the appellate decisions that turn back certifications of class actions. “I’ve learned that 50 percent of something is better than 100 percent of nothing,” says Longley, who has been working cases in Arkansas, California, Louisiana and New Mexico. “Class action practice is pretty well gone at the state level in Texas.” The state office of court administration does not keep statistics on class actions, but many Texas lawyers agree with Longley.
Even the growing popularity of mediation hasn’t offered a safe harbor for reform fleeing lawyers. Since fewer cases are being brought, fewer cases are being mediated, lawyers say—and the mediator market is already inundated.
“I’ve met with some who want to go into mediation and arbitration because of the downturn after tort reform, and I’ve told them it’s difficult to build up and maintain a practice,” says Michael Wilk of Houston, the immediate past chair of the State Bar of Texas’ Alternative Dispute Resolution Section. “Throw a rock out of a window here, and you’ll hit a mediator.”
One longtime mediator has cut back on that work the past couple of years for other ventures. Thomas W. Pauken of Dallas says that after the 2003 tort reform, many insurers took a hard line at mediation, simply going through the motions because judges require it at the outset of litigation.
With stakes significantly lowered by the new laws, “they weren’t willing to budge and looked like they were trying to drive plaintiffs lawyers out of filing cases,” says Pauken, who chaired the Texas Republican Party from 1994 to 1997, when it was in transition from minority to majority status. “I favor a balanced system, and clearly it had become imbalanced one way, but the question is whether we’re running the risk of it becoming unbalanced the other way.”
Dallas plaintiffs lawyer Sawicki certainly thinks so. He has the luxury of cherry picking cases thanks to earlier success, especially a headline grabbing $606 million jury verdict in a pre 2003 law case tried in 2005 that ultimately resulted in a $2 million payout. He does other work, including a specialty in drunken driving accident injuries.
“The irony is that if a doctor runs through a stoplight and kills somebody, there’s virtually no cap on what you can get,” Sawicki says. “But if he’s drunk and does the same in the operating room, the damages are capped.”
That is the sort of argument being presented more and more to state legislators with “flesh and bloody” examples.
“There have been some stories in the newspapers saying some people couldn’t pursue claims because they couldn’t get a lawyer to take their case,” says Ralph Wayne, president of the Texas Civil Justice League. “I think those complaining are not giving a lot of the facts on it, which a lot of us have been known to do on occasion.”
Wayne seems more open to the criticisms than the leaders of Texans for Lawsuit Reform.
“We would not want to undo the gains we’ve made, but having said that, if there has been error too painful or inappropriate,” Wayne says, “we will meet with anybody on it, and if they can show us that, we will address it.” And his inflection says, “Show me.”
Tort Reform by the Numbers
Both sides pretty much agree on one thing in the Texas tort reform battles: That the catalyst for the sea change goes by the name of Joe Jamail.
Specifically, it was the glad handing, back slapping bragging by the famed Houston trial lawyer as he was filmed for a 1987 CBS 60 Minutes investigation of money pumped into elections for the state supreme court. Jamail had by then donated hundreds of thousands of dollars to state supreme court candidates over the years, and he also had recently seen his $10.5 billion victory for Pennzoil against Texaco upheld by the high court—without so much as a hearing.
Since then, tort reformers have worked steadily and incrementally, with a few leaps, to take back what they believe was a legal system gone casino wild. Many plaintiffs lawyers admit Texas judges and juries had gotten very friendly, and sometimes overly so, but now they say the pendulum has swung too far the other way.
More than a few defense lawyers agree.
Building on significant tort reform in 1995, the Texas legislature in 2003 dealt a near death blow to the practices of a lot of Texas lawyers, both for plaintiffs and defendants, particularly in health care litigation. Here are some highlights of those changes. In 1995:
• Punitive damages are limited to the greater of $200,000 or two times noneconomic damages plus economic damages of up to $750,000. The 2003 cap on noneconomic damages in health care cases thus limits the amount of punitive damages derived from that formula. In 2003:
• A $250,000 cap on noneconomic damages from health care providers is established, locked in by constitutional amendment. The legislation also includes a $250,000 per facility cap on noneconomic damages from health care facilities, to be capped at $500,000 for all such facilities. Realistically, many lawyers say, the cap is thus held at $250,000. The legislation includes a number of other restrictions, such as requiring plaintiffs to file an experts’ report after taking only two depositions in a case.
• Class action certification is subject to interlocutory appeal, and cases can be moved to administrative remedy with state agencies when applicable. No more contingency fees are allowed; instead, fees are based on time worked and expenses.
• In product liability, a presumption is adopted that a product is safe if it meets mandatory government standards or has Food and Drug Administration approval.
• A unanimous jury decision is required on punitive damages, and the jury is to be made aware of this requirement.
• An “early offer of settlement” provision, which can be initiated only by the defendant but subsequently by the plaintiff as well, awards costs and fees. If the plaintiff declines a settlement offer and fails to get a judgment for at least 80 percent of that offer, the plaintiff must pay legal fees and costs that follow the settlement offer. On the other side, if the defense declines a settlement offer and fails to get a judgment for 120 percent of that amount, it must pay the plaintiff’s lawyer fees and costs incurred after the refusal. In 2005:
• Asbestos lawsuits are limited to those with demonstrable impairment from exposure, and no more “bundling” of numerous claims is allowed. Cases must be tried separately. Mass screenings of potential victims are no longer permitted.
• Trial judges are allowed to dismiss cases with little or no connection to Texas, restoring earlier versions of the law.
Terry Carter is a senior writer for the ABA Journal.