THE NEW AIRLINE STABILIZATION ACT:
Why The Choice Of A Special Master Is Crucial, And Why A Commission Should Fill That Role

The Airline Stabilization Act is a "bailout" law, designed to save the airline industry after the attacks of September 11. It is also one of the strangest tort reforms ever created by the federal government. Now that the first rush of panic and patriotism has ebbed, it is time to step back and ask some hard questions about the law.

Legislation Without Debate

The law was barely debated on the floors of either the House or the Senate — for two reasons. First, there was a natural sense of urgency driving the Congress. This sense of urgency was based entirely on the airlines' threat that, without protection from liability, they would be bankrupted. Whether the urgency was truly justified is something we will never be able to determine.

The second reason the law was not debated is that there was no natural constituency to oppose it. The airlines and the insurance industry liked the bill because it meant that the federal government would assume all their potential liability through an alternative compensation scheme paid by the U.S. taxpayer. Any remaining litigation would be channeled to the federal court in the Southern District of New York where the airlines' total exposure would be limited to their insurance coverage at the time of the attack.

Meanwhile, the plaintiffs' bar liked the bill because the alternative compensation scheme created by the bill does not cap the amount of money claimants can receive.

A Comparison with Proposed Asbestos Legislation

Getting agreement across the board on a bill that creates an alternative federal compensation scheme in the context of a mass tort is unusual. To understand just how unusual, recall that for the past three years the asbestos industry has been trying to get Congress to pass a bill that would achieve many of the same goals described by the proponents of the Airline Stabilization Act.

The asbestos bills have been the site of some of the most bitter and contentious fights between the Republicans and Democrats. Their respective allies, the National Association of Manufacturers and the American Trial Lawyers Association, have joined the fights, too.

The reasons the asbestos bills have failed where the airline bill succeeded are many, but two can be identified. First, under the bills, the asbestos industry would have to pay whatever the program deemed fair compensation — leading to potentially high monetary exposure for the industry. In contrast, the airline bill took the airline industry off the hook, so that it didn't care how generous the alternative scheme was; after all, the government was paying.

Second, the asbestos bills limited the number of potential claimants by requiring that someone exposed to asbestos wait until he had physical symptoms before he or she could receive any form of compensation. This limitation, too, was debatable — someone exposed, and almost certain to develop a disease, might want a settlement immediately to enjoy the years of healthy life left to him or her.

The airline bill, in contrast did not cut out any potential claimants (compared to those who could otherwise sue, had the legislation not existed). Nor did it cut out any types of claims, except those for punitive damages.

Legislation Without Limits

Explaining why the airline act was far less controversial than the asbestos bills, however, does not explain why the airline act was almost completely uncontroversial. The events of September 11, and the resulting call for unity, are, of course, part of the explanation. But even in this context, it is something of a mystery why the Republicans agreed to the airline bill.

Consider that the bill has no upper limit. That is, no one knew when it was passed how much money it would cost the U.S. Government. Compensation to victims in airlines crashes ranges between $10,000 to $2 million — a huge spread. Usually the Republicans are not comfortable promising unlimited damages to tort victims, especially when some of that money could end up in the hands of plaintiffs' lawyers — their greatest political enemy.

The Republicans are likely to be aware, too, that previously, when the government has promised to fund compensation without any limitation, the cost of liability rose at an alarming rate. Under the Swine Flu Act, the United States assumed from private pharmaceutical all tort liability for injuries caused by the Swine Flu vaccine. The Act produced tort judgments against the government averaging $500,000, and the legal costs of the program spun out of control.

To see just how much is at stake, compare the result in the Agent Orange mass tort litigation settlement with the Swine Flu Act result. In the Agent Orange case, the benefits were quite modest — probably far too modest (average death benefits were only $3400). The difference? In the Agent Orange case, Ken Feinberg, who determined compensation, was working with a limited pot of money, and the lawyers for the various veterans' groups who had settled the case, under the direction of Judge Jack Weinstein, knew that.

Because of the Swine Flu Act, Agent Orange, and other precedents, it would not have been unreasonable for Republicans to ask that at least some compensation limits be built into the airline act. That they did not is one testament to how extraordinary the times are.

Questions the "Special Master" Must Face

Granted, while the airline act provides no limits on compensation, it does provide for the appointment of someone to set such limits, or at least provide guidance of what compensation should be. That person is the "Special Master" who will be appointed to oversea the administration of the alternative compensation scheme.

Depending on who is proposed by the Justice Department to fill this position, the alternative scheme could look very different to different constituencies. The Special Master will have to decide a number of things at the outset of his or her tenure, and these decisions will be crucial.

First, how will the thousands of claims be heard? The Special Master cannot hear all of them. Will he or she appoint hearing officers to hear each individual case, the way Ken Feinberg did in the Agent Orange case? Or will there be an attempt to develop some sort of workman's compensation-like schedule, as was done in the case of the Black Lung Benefits Act, under which similarly-situated plaintiffs will automatically receive the same compensation?

Second, will the Special Master accept wide variations between awards? The law says that claimants should include evidence concerning the incomes of those who died and were injured in the attacks — but how much should that evidence be weighed, as compared to other factors?

Allowing evidence of income to be submitted is a fairly typical request from the perspective of conventional tort litigation. But it could mean that the Special Master might produce a small award for the death of a janitor — and a very large award for the death of a bond salesman. This may irritate the public and weaken support for the law.

The Special Master's Delicate Task

The Justice Department will, of course, be mindful of these considerations and is likely to pick someone who will keep the damages low and consistent, without much variability among the awards of similarly situated claimants, and possibly without huge contrasts between any two claimants' awards. But this could have other side effects — making the Special Master's task a delicate one.

If the plaintiffs' bar feels that the damage awards are too low, they will begin to advise clients to avoid the alternative scheme and to sue the airlines directly instead. Again, patriotism may play a role — claimants may not want to be litigious in this climate — but when families must live on an award, the amount may matter a great deal to them.

Moreover, if some lawyers sue on their clients' behalf quickly, others must go to court quickly too, or risk losing the litigation alternative entirely. Under the terms of the act, once the airlines' insurance money is used up, they will be effectively judgment-proof: that is, a plaintiff who sues too late could recover nothing.

Finally, the plaintiffs' bar many be very wary of any solution from the Special Master that resembles a workmen's compensation-like schedule — one that accords, for example, a particular award to the surviving family of someone who had a given age and income. Such schedules, they may worry, might become an easily-adopted template for future tort reform laws, such as a third attempt at an asbestos bill.

A Special Master Everyone Can Trust

It is imperative, therefore, that the Special Master be trusted by all the constituencies in the tort reform debate — for the Special Master will have to steer past some serious hazards.

If the Bush Justice Department proposes someone who is not respected as an honest broker by the plaintiffs' bar, there may be a chaotic rush to sue the airlines in tort, and bill will have failed. If the Special Master is not mindful of the need to produce consistent and rational results, the bill may lose public support. Finally, if the Special Master does not keep an eye on costs, and allows compensation payments to spiral out of control, the bill may lose support among the Republicans themselves.

I am not sure that anyone one person can perform the delicate political and legal balancing act that the bill requires. I therefore have a radical proposal: why not appoint a commission? The commission should consist of respected representatives of the various constituencies I have mentioned.

The advantage of a commission is twofold. First, with the input of various approaches to the question of compensation, the bill's compensation scheme is more likely to achieve its divergent goals.

Second, and more important, by including various constituencies now, the Justice Department reduces the chance of a rebellion later down the road. The first few steps taken by the Special Master are critical to making the act's alternative compensation scheme successful — both in the sense that most claimants will "opt in," joining the alternative scheme rather than suing, and also in the sense that most claimants who do opt in will feel the award they receive is fair.

The Justice Department should maximize the probability that the right steps are taken by bringing in different points of view — and working with a commission, not a single individual.