By Guest Columnist James Wootton:
Chairman of the Partnership for America and President of the Access to Courts Initiative. He is also a former partner of Mayer Brown LLP and the former president of the U.S. Chamber Institute for Legal Reform.
In the 2011-2012 election cycle, an estimated $30 million was spent by lawyers and corporations on state judicial elections. One study found that so many ads are run in these elections that 88 percent of Democrats, and 70 percent of Republicans believe campaign expenditures have a significant impact on courtroom decisions. In other words, the public thinks that there is payoff for donors to judicial elections.
Why so much money? Simple. The court system in which a case is tried often determines the outcome of the case. The premium a plaintiff lawyer can extract in a settlement is directly related to where the case would be tried if it didn’t settle. The more “plaintiff friendly” the court system, the higher the value of the case. As one general counsel remarked as we pushed for passage of the Class Action Fairness Act, removing a case to federal court takes the “extortion value” out of the case.
Current rules that give plaintiffs an almost free hand in choosing where to file a suit and those that make it difficult to remove a case to federal court—enable plaintiff lawyers to “forum shop” for plaintiff- friendly state courts and judges—some of whom they have helped elect or select. No crime in that. It would be malpractice if a plaintiff lawyer didn’t seek the most favorable venue for his clients.
In recent years, after decades of successful federal legal reform efforts, avoiding federal jurisdiction and preemptive rules has become an art form for the most sophisticated plaintiff lawyers. Sometimes the “artful pleading” works as in a Stanford Ponzi scheme case where the Supreme Court held that by filing state fraud claims involving a product that wasn’t a “covered security” on behalf of the citizens of just one state, the plaintiffs could avoid both the federal jurisdiction and substantive rules of the Securities Litigation Uniform Standards Act (SLUSA). On the other hand, the Supreme Court disallowed an attempt to thwart federal jurisdiction under CAFA based the unenforceable stipulation of the lead plaintiff the he would not seek to recover more the $5,000,000 jurisdictional amount of CAFA.
Without a return to first principles, this expensive and often disingenuous gaming of federal jurisdiction will continue. Fortunately, that key principle is hiding in plain sight. The Framers had the commonsense notion that an out-of-state defendant should have the right to remove its case to a neutral federal court—whenever any of the parties were citizens of another state.
The Framers wanted the new country to grow and knew that if a bank or business thought they could be subject to the “home cooking” of their partner’s or customer’s state courts—they might not choose to do business in that state. Based on extensive research by Constitutional experts—the current rule that all of the parties to a lawsuit have to be from different states is not consistent with the plain language of Article III, Sec. 2 of the Constitution or the clear intent of the Framers.
As revolutionary as it would be, enacting game-changing legislation which codified the essence of Article III, Sec. 2 might not be as daunting as it appears:
First, Congress has already stated that a primary purpose of CAFA was to “restore the intent of the Framers by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction.” And, as plaintiff lawyers become more sophisticated in their pleading, it is becoming increasingly apparent that CAFA only partially restored the intent of the Framers with regard to diversity jurisdiction because CAFA deals only with class actions and even for class actions, compromises were necessary to achieve passage.
Second, most potential diversity cases are already in federal court. This simple procedural rule change, which would not change anyone’s substantive right because the substantive law of the state where the case was filed would apply in federal court—likely only would affect large complex cases which could be handled very efficiently by the multidistrict litigation mechanisms already established for federal courts.
Finally, this reform could unite the Tea Party and mainstream wings of the Republican Party and enjoy the support of pro-business Democrats who, from time-to-time, are able to trump their leadership’s loyalty to trial lawyers.
By John Dunham:
Managing Partner, John Dunham & Associates
Greetings, my friends. We are all interested in the future, for that is where you and I are going to spend the rest of our lives. So began one of the great cult movie classics of all time, Ed Wood’sPlan 9 From Outer Space. The narrator of the film was a former radio announcer known as the Amazing Criswell. Criswell was famous for his bizarre predictions including a claim that the earth would be struck by a ray from space that would cause all metal to adopt the qualities of rubber, leading to horrific accidents at amusement parks. He also suggested that the end of the planet would happen on August 18, 1999. While Criswell never claimed to be a real psychic, and his bizarre prognostications were for entertainment only, many of those who make forecasts are not always so humble.
As usual, 2014 was full of predictions that were totally incorrect. At the beginning of the NFL season ESPN analyst Herm Edwards (former KC Chiefs coach) predicted that the Tampa Bay Buccaneers would win the Superbowl. Yesterday the 2-13 Bucs lost their game against the Packers and now head into an almost certain defeat in New Orleans. And who will forget Princeton University’s very own Sam Wang on the always politically correct Rachael Maddow show predicting that the Democrats would hold the Senate in 2014. In the economics profession, there was pretty much a total fail. For example the consensus forecast at the end of last year showed that economists predicted that the yield on the 10-year Treasury bill would be 3.25 percent. In actuality it is about 2.17 percent right now so the predictions are off by about 50 percent. Similarly the consensus price for oil was $98 per barrel for 2014, and it now sits at about $55 per barrel.
All of this suggests that we should all be wary of predictions, and particularly of the computer models that all of us rely on to make them. As economist John Kenneth Galbraith has been quoted as saying, “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.” With this in mind, how did JDA do in its predictions for 2014?
Well, when you are wrong you are wrong. We had thought that two things would happen in 2014. First, we thought that growth would pick up to a more normal rate of about 3.0 percent a year, and second, we thought that the country would return to a more normal interest rate environment as higher growth would lead to more inflation. In reality, we were dead wrong across the board. While the economy tanked in the 1st quarter, and then moved to a much higher growth level in the 2nd and 3rd, overall growth so far this year is tracking at just over 2.1 percent, well below our forecast of 2.8 percent. This may change if the 4th quarter comes in better than expected but the hiccup in the first quarter pulled overall GDP numbers down. Even so, faster growth should have started to push up inflation, and while our inflation forecasts have been higher than the consensus for some time, our overall 3.1 percent was well above the reported inflation of just 1.3 percent to date.
Like most economists, we did not foresee the fairly rapid drop in headline unemployment, forecasting that the rate would have fallen to just 7.0 percent by the end of the year. The current rate of 5.8 percent reflects a continued decline in labor force participation, but job growth has been faster through 2014 than most economists predicted. Finally, we envisioned that the Federal Reserve would have to react to increased inflation and would have been raising interest rates by now. In fact, we forecast that the target federal funds rate would be 0.75 by now. This would be reflective of higher interest rates across the board. In reality, there has not been much demand for money and market rates have held at historically low levels, and short-term rates have even fallen from last year.
That said, we will again go out on the proverbial limb and take a stab at forecasts for 2015.
While the US economy has started to pull out of the doldrums, the world economy is experiencing some difficulty. Partly this has been driven by conflict and crisis, and by over-stimulus on the part of governments. We think that the economy in China will continue to soften, and do not see much positive happening in the other BRIC countries in 2015. Europe will continue to strengthen albeit slowly, which along with faster growth in the United States will slightly buoy the world economy. We believe that geopolitical pressures and continued weak demand will keep energy costs in check, which will continue to put downward pressure on both prices and interest rates in the United States.
Offsetting weak world growth will be slightly stronger growth in the United States. We continue to forecast that the US economy will track toward more normal conditions, with growth averaging just under 3 percent on the year. This may be lower than some forecasters predict, but we forecast some softening going into 2016 as the current expansionary period begins to end its course. In fact, we think that 2016 may be the beginning of the next contraction. Continued growth plus low interest rates will lead to further reductions in unemployment, but wage growth will continue to be soft, suggesting that discouraged workers and those who have left the labor force for other reasons probably will not have the incentives to go back and look for jobs. This means that headline unemployment will continue to fall through 2015.
Also on the positive front, we think that divided government in Washington will have a dampening effect on the expensive anti-business regulatory agenda. This may finally lead to increased investment, which is reflected in the fact that consumption is growing at about the same rate as GDP in our forecast. If this occurs it could help lengthen the business cycle which would push recession off by two or maybe three years. On the other hand, if demand for capital starts to increase rapidly, inflation and interest rates could jump as market demand will begin to stoke short term rates, forcing the Federal Reserve to act.
Based on these general findings, most recent forecasts for 2015 are presented in the following chart.
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