GRPA Series: Business Beware of Regulation Through Litigation

As President Trump continues to roll back government regulations, businesses large and small have sprung into full sprint, unshackled by excessive regulatory burdens that previously hampered investment and innovation. But danger lurks on a cliff high above, where a coyote is ready to drop an anvil on the path of economic growth. The anvil is not from Acme Corporation (Wile E. Coyote’s preferred source for products of mass destruction). It comes from a place called “Regulation Through Litigation.”

Victor Schwartz — attorney, scholar, and co-author of the pre-eminent text book on tort law — has spoken eloquently on the topic.  He has observed that when some judges and elected officials perceive that Washington, D.C. is going too far in eliminating regulations, they are more willing to step into the breach and embrace new, expansive theories of liability — in effect, regulating through litigation.  As Mr. Schwartz notes, the purpose of tort law is to compensate people harmed by a defendant’s misconduct.  It was never intended to serve as a back-door mechanism for regulating industries through the threat of massive liability exposure.     

Activist judges may wish to regulate from the bench, but since their opportunity arises only when a case is brought before them, they need willing accomplices.  And they certainly have them in the wily plaintiffs’ lawyers who are all too eager to file lawsuits against deep pocket corporations.  Trial lawyers salivate at the prospect of massive attorneys’ fees.  State attorneys general and mayors relish the political benefit of appearing to care and fight for the health and safety of voters.  Municipalities covet the opportunity to extract millions of dollars from private industry to bolster public coffers.  So, all the characters in this cartoon have every incentive to “get creative” with lawsuits based on expansive and distorted versions of tort law.

We have seen this phenomenon play out time and again as plaintiffs’ lawyers contort legal theories to try to hold car manufacturers liable for the effects of climate change.  State attorneys general and the mayor of New York City are suing oil companies, claiming they are the ones responsible for climate change and its adverse effects.  Cities are attempting to use public nuisance theory to hold a company that manufactured PCBs in the 1930s liable for cleaning up pollution caused by someone else. 

Those who defend regulation through litigation argue that when elected representatives fail to protect the public’s health and safety, judges and the legal system have an obligation to fill the gap, even if it means stretching established legal principles beyond all recognition to achieve the desired result.  Former Secretary of Labor, Robert Reich, first coined the phrase “regulation through litigation” and initially promoted it as a way to force companies to “do the right thing.”  Later, however, he conceded that “using the courts to circumvent the political process was ‘faux legislation,’ which sacrifices democracy.”  Indeed, the politically accountable branches of government are far better-suited than courts to evaluate all stakeholder perspectives and set public policy.  Writing for a unanimous Supreme Court, Justice Ruth Bader Ginsburg explained why:

“[J]udges lack the scientific, economic, and technological resources an agency can utilize…[J]udges are confined by a record comprising the evidence the parties present…[J]udges may not commission scientific studies or convene groups of experts for advice, or issue rules under notice-and-comment procedures inviting input by any interested person, or seek the counsel of regulators…”[1]

In other words, the legal system does not have the tools necessary to undertake an objective, comprehensive evaluation of complex public policy matters and determine the proper course of action that benefits the entire community, state or country.  Such is the work of legislative bodies and administrative agencies. 

To continue with the Road Runner analogy, regulation through litigation is a fake tunnel; any attempt to drive through it surely will flatten the economy.  The damage is potentially permanent and widespread.  When a court renders a decision, it creates a precedent that can adversely affect all businesses that produce goods or services and is not easily overturned. 

In December 2017, the American Legislative Exchange Council’s Civil Justice Task Force expressly called out the perils of regulation through litigation and unanimously passed a resolution urging courts to refrain from the practice.  ALEC’s strong statement comes at a critical time.  Given the animus towards President Trump and his de-regulatory agenda, we can expect more frequent and brazen attempts at regulating business conduct through the legal system. 

What should the business community do about it?  Help educate the public about this growing threat to business.  Write op-eds and participate in media interviews whenever a lawsuit arises that presents a threat of regulating from the bench.  Shining light on the danger will put the judiciary on notice that people are paying close attention to their decisions. 


[1] American Electric Power Co. v. Connecticut, 564 U.S. 410, 428 (2011)

Author

Cynthia E Berry, Esq.

Client Director, Interel US

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