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Monday, Aug. 27, 2001

It has become commonplace for us to hear reports of settlements that are far lower than the amounts demanded by plaintiffs when they file their lawsuit. Thus, it was hardly surprising to learn, last week, that Dr. Joel Rodriguez had agreed to settle his lawsuit against Firestone for $7.5 million, even though in his court filings he had claimed that according to Texas law, the damages suffered by his family equaled $ 1 billion.

The truth is, no one takes the numbers put down in court filings very seriously anymore. I cannot say for certain whether lawyers are blustering now more than in the past, but I can say with certainty that American lawyers today bluster much more than their European counterparts.

Indeed, German lawyers with whom I work find the American attitude towards the damage claims by plaintiffs a bit strange. In Germany, by contrast, a successful plaintiff usually receives what he or she requested in her complaint. Settlements are possible, but far less prevalent than in America.

Moreover, what a lawyer says in her complaint in Germany matters--it will be carefully scrutinized by the judge, and, as a result, it is usually what the plaintiff gets. In contrast, American tort complaints seem to be a bit of a game of bluff, in which a plaintiff names not the figure she ought to get, but one that may scare her opponent into settling.

The idea that tort law is, to some extent, a game of bluffing will probably already be familiar to those conversant with civil litigation in this country. However, there are three important questions that follow this observation.

First, why does the bluff happen? After all, it doesn't seem to occur in Germany. Second, who cares if the bluff happens? After all, what is the harm in lawyers making up numbers when they file lawsuits, if there is a chance to revise them later? Third, if we could, should we try to stop the bluffing? I will look at each question in turn.

First, it is difficult to say why the bluff happens, but it might help to look skeptically at some common answers.

One simple answer is purely cultural: American litigation reflects American society, which is very individualistic. Our adversarial system is designed to produce the truth through conflict. Our courts tolerate, and our system rewards, plaintiffs and their lawyers who push the envelope. Since one can be sure that the defendant will surely understate the damage he caused, it would be a foolish lawyer who didn't start by overstating her client's demands.

I am skeptical of this argument because, although there are cultural differences between American and European law, litigation occurs under the same pressures in both systems. A German plaintiff's lawyer wants to win for her client, as does the German defense attorney. In Europe there are pressures to overclaim, and there are few formal or informal sanctions for overstating one's client's injuries. But there, it doesn't happen. Why not?

I think that overclaiming happens in America not because lawyers are that much more aggressive or tactical than elsewhere, but because they operate in an informational vacuum. To put it differently, German lawyers don't ask for 400,000 DM in a car accident case worth 200,000 DM, because no one would believe them: the value of a personal injury case in Germany is much easier to determine than in the United States. In the U.S., by comparison, one cannot honestly say that Dr. Rodriguez was "crazy" to demand $1 billion. Rather, in light of the unpredictability of the tort system in America (especially in Texas), it is possible that, given the right jury, he would have received that amount.

The Unfair Variability of American Tort Plaintiffs' Awards

The strangest feature of the American tort system is not the large total amount of money won by plaintiffs. Indeed, one could make the argument that the high magnitude of this amount is simply proof that the tort system is doing its job: if lots of people are being wrongfully injured, than lots of defendants will be sued and will properly pay damages.

But what is not well understood about our tort system is that the money taken from defendants is distributed unfairly. The problem is not that plaintiffs win, or that they win a lot of money; it's that how much they win often has little connection to the merits of their case. No one knows for sure how much, on average, successful plaintiffs win in tort litigation in the United States. But a few fragmentary studies reveal that the reality (if it could be known) is that different people get very different awards for the same injury.

The two biggest sources of variation among the awards different plaintiffs receive are the calculation of non-economic damages, and the calculation of punitive damages. Economic damages -- losses that directly affect the victim's wallet, such as medical bills and lost wages -- are easy to evidence and calculate by objective standards. But non-economic damages -- those losses that are harder to measure, such as pain and suffering, loss of consortium, loss of enjoyment of life, etc. -- are much more subjective and difficult to assess.

Punitive damages are not designed to compensate for losses at all—they are designed to punish defendants for highly culpable conduct. The question of how much a defendant deserves to be punished, like the question how much a plaintiff should be compensated for his suffering, is a highly subjective one.

The evidence available to scholars suggests, accordingly, that there is almost no rhyme or reason to non-economic awards. Economic awards vary by a lot, but their variation is still nothing like the variation we see among pain and suffering awards.

For example, Professor David Leebron of Columbia Law School studied the amounts awarded to victims of fatal accidents for pain and suffering in their "last moments" before death. As Leebron points out, people in the same airplane crash probably should get close to the same amount of money, because they suffered approximately the same duration and type of death. But in the case of the 1994 KAL disaster, the awards the plaintiffs received ranged from 0 to 1.4 million dollars.

Other scholars have confirmed that compensation for pain and suffering in America varies in ways that cannot be explained by factors that relate even vaguely to the injury that was the subject of the trial. Indeed, one study has found that 60% of the amount of pain and suffering damages vary according to a purely random pattern. Another study has hypothesized that the variation in the amounts of pain and suffering awarded at trial is significantly affected by the race or gender of the victim.

The variation in punitive damages is even greater than in non-economic damages (such as pain and suffering damages), but I will not dwell on the topic of punitive damages. That is because, in the grand scheme of things, variation in punitive damages cannot be very important. While punitive damages awards are highly publicized, the truth is that they make up a very small portion of American tort litigation. (Less than 4% of all lawsuits end with punitive damages being awarded). In contrast, non-economic damages make up about 50% of all the money awarded in American in tort—about $40 billion per year. Thus, random variation in pain and suffering damages awarded is not something American lawyers can ignore.

How Lawyers Respond to Random Variation in Damages Awards

And, indeed, American lawyers do not, in practice, ignore the random variation in damages. Rather, they take account of it, in several ways.

One rational response to random variation in expected damages is to take a casual attitude towards framing initial damage requests for inclusion in tort plaintiffs' complaints. After all, if one can't control the amount of pain and suffering or punitive damages one's client receives, then there is no point spending scarce resources trying to determine the amount one's client "ought" to receive.

Another rational response to random variation in expected damages is to ask for an amount on the high end of the range of damages coming out of trial courts. After all, with randomness being what it is, you might actually get the figure you name -- even if it is high. Not surprisingly, then, naming a high figure is exactly what most good plaintiffs lawyers do. Hence, we get demands for $1 billion in cases that settle for $7.5 million.

Does Equality in Tort Awards Matter?

After all, one might point out, defendants are not being "overtaxed" by the tort system as long as the average award they pay is reasonable; they will groan at the high awards, gloat over the low ones, and it will all come out in the wash.

And as for plaintiffs, since no one can actually say how much pain and suffering is "really" worth, how can a given plaintiff complain when he receives $1000 for his 20 minutes of pain, while another plaintiff received $100,000 for pain of the same duration and intensity? Again, as long as the average of the two plaintiffs' awards is an acceptable number, who cares how we got to the average?

I care, for one. I may be in a minority, but it matters to me whether our tort system aspires to equal treatment or not. It is not enough to me that, on average, plaintiffs get the same amount for their pain and suffering. I would like our system to try to actually insure that plaintiffs are treated -- as much as possible -- similarly.

A system of damages that explicitly embraces the view that it doesn't matter whether identically situated citizens receive different damage awards seems to be taking the view that, since pain and suffering is subjective anyway, our society might as well treat pain and suffering awards like a lottery. But the analogy between a tort case and the lottery is seriously, and importantly, in error.

Why A Tort Case Is Not Like a Lottery Ticket

There are three basic things wrong with the view that a suit for pain and suffering damages is like buying a lottery ticket. First, it suggests to the defendant that he will be held liable for an amount of money that the court and the tort system cannot explain or justify. This can only erode our faith in the rule of law -- which, in the area of tort law, is already under some pressure.

Second, while large corporate defendants may pay out so many awards they need only worry about the average payout, small corporations and uninsured or partially insured individuals will not be so lucky. They may be unfairly bankrupted by a single, randomly large award that has little or nothing to do with their actions or culpability.

Third, the view that suing for pain and suffering is like buying a lottery ticket suggests to plaintiffs that the court does not treat citizens with the same injuries equally. I am not sure that even the winners in this sort of game will have much respect for the tort system after they walk out of court with their "winnings." And the losers, who may have suffered very serious injuries and undergone considerable pain, will never understand why their experiences are not valued as much as those of others.

Can the Lottery Effect Be Avoided?

Granted, most tort reforms (usually suggested by the defense bar) involve caps or ratios that would serve to lower average damages, not to spread damages more equally among similarly situated plaintiffs. But that simply suggests reform efforts should be different. They should not necessarily lower our average damages award; instead, they should try to make the amount of that award more rational.

The Europeans are on weak ground when they criticize the size of our pain and suffering awards. After all, who is to say whether their awards are too small, or ours are too large? But they are on stronger grounds when they look skeptically at the way our damages are distributed.

Some have suggested that to promote regularity, perhaps pain and suffering damages and even punitive damages should be calculated employing a schedule like that included in the Federal Sentencing Guidelines. After all, the Guidelines have succeeded in introducing at least some uniformity in federal sentencing -- which used to vary dramatically from judge to judge — by constraining the ranges of sentences from which judges must choose, and compelling judges to consider certain set factors in ascertaining what sentence should be imposed.

Given the widespread criticism of the Guidelines in recent years, this suggestion is, perhaps unfortunately, a non-starter. But I have another, simpler idea: why can't juries hear what other juries have awarded in similar cases?

Letting Juries Hear What Other Juries Awarded in Similar Cases

Right now, a lawyer is prohibited under the Federal Rules of Evidence (and, I believe, most state evidence codes) from making the following argument to a jury: In a similar case, another jury awarded $100,000 for pain and suffering (or punitive damages). You should award $100,000, too.

One might think that it would be very helpful to a jury to know what other citizens, in similar cases, gave to the plaintiff. But not only is it illegal to tell a jury what other juries awarded, the information is virtually impossible to find. The jury verdict reporters that one finds in states like New York or California are very useful, but they are not official documents and they are not comprehensive (nor do they claim to be).

In contrast, one book that every lawyer and judge in Germany owns is the Tabellan (or "tables"). Based on information gathered by the government, it lists, in descending order, every damage award from every trial court in Germany for a given year. It also lists the details of the victim's injuries, and any special details of the defendant's conduct (for instance, whether the injury was caused intentionally or not). It also breaks down the awards into their components: medical expenses, lost wages, property loss, and pain and suffering.

This book is used by German lawyers when they file their cases with the court, and it is used by the court when it calculates damages. Think of it: In Germany, the people deciding damages can see what happened in thousands of cases from the past thirty years.

The Tabellan strikes me as a very simple but incredibly powerful idea. When I tell German lawyers that not only is there nothing like the Tabellan in America, but that it would be illegal to introduce it into one's case, they are astounded. Why, they ask, would you want juries to determine damages blindly?

That is a very good question. And unless we in America can provide a better answer than we have so far, we might be well served by following the German example.

Anthony J. Sebok, a FindLaw columnist, is a Professor of Law at Brooklyn Law School, where he teaches Torts, among other subjects. Professor Sebok writes frequently on tort issues; his other columns on these issues for this site can be found archived here.

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