Reining in the Madison County
The Financial Times
The American legal landscape is a varied one and
the system of federalism helps to ensure that variety. There are
bad federal courts and good state judges, wise federal prosecutors
and corrupt state attorneys-general. And there are certain obscure
corners that are notoriously friendly to plaintiffs, no matter
how spurious the claim may seem. Jefferson County, Texas, is one;
Orleans Parish, Louisiana, is another.
These last venues have been called "magic jurisdictions"
and the most magic of them is Illinois's Madison County - named
after James Madison, the fourth president. The county, just across
the Mississippi from St Louis, has drawn more cases involving
illness and asbestos exposure than the nation's financial capital,
New York. Tyson (charges of watery chickens), AT&T and Lucent,
you name them, they have all been dragged up the steps of the
court house in Edwardsville, the county seat. Not to forget Big
Tobacco: Madison County's very own Judge Nicholas Byron just last
year levied a $10.1bn judgment against Philip Morris.
Washington has the power to check arrogant states,
but for years it has allowed the magic jurisdiction trend to continue.
This inaction reflected weakness: the sort of trial lawyers who
worked these jurisdictions also spent millions on campaigns to
elect congressmen and senators. And for a certain embarrassing
period the brother-in-law of one of the more legendary plaintiffs'
lawyers actually held the seat of Senate majority leader (Richard
Scruggs was the lawyer, Republican Trent Lott the senator). This
summer reform finally seems close. The House has already passed
a reform bill and there are sufficient votes in the Senate to
pass leglislation. But the possibility of failure still exists:
as of last Friday Democrats were threatening to kill the reform
by insisting on appending an irrelevant amendment regarding the
How Madison County - or places like it - became
magic is therefore worth recalling, if only because it makes clear
the stakes involved in this legislation.
Madison County citizens are less educated and less
well off than the average for their state. This in itself tends
to make juries sympathetic to an underdog plaintiff and at times
somewhat vengeful. Many jurors in Madison County have never considered
that vulnerable grannies are also often shareholders whose pensions
suffer when juries make big awards. They therefore do not hesitate
to slap large penalties on big strangers. Last year a Madison
County jury ruled that BOC, the British industrial gases group,
should pay $1m to a welder who developed Parkinson's disease after
being exposed to fumes. This, after numerous other courts had
rejected similar allegations of a connection between such gases
and Parkinson's. BOC dropped more than 7 per cent on the FTSE
100 share index on the day of the award, enough to make it the
day's biggest loser. Mighty Madison County!
In countries such as the UK, cases are routinely
tried in the defendants' local court. The federalism of the US,
however, gives state judges power to choose what cases they will
hear. Madison County judges choose to hear cases whose connection
to Madison County is at best tenuous. All it took to launch a
national class action against Ford was two Madison County citizens.
The pair alleged that Ford had wronged owners nationwide by selling
cars whose paint peeled years after purchase.
Madison County judges frequently decide to hear
cases that other courts have refused to hear. The Ford paint case,
for example, was filed after 13 similar class actions failed elsewhere.
For a class action to be tried in a court, a judge
must first certify that the plaintiffs constitute a representative
class. Madison County judges are prolific certifiers. In 2003
the county set the national record with 106 class-action filings.
Most class actions in Madison County never make it to trial because
judges and juries terrify companies so much they nearly always
settle. The judges are, in effect, setting national precedents
simply by certifying - often legitimising the flimsiest of claims.
One reason why Madison County judges are so generous
may be that they must run for election to win and keep their office.
An analysis of government records by the St Louis Post Dispatch
found that judges running for election in Madison County in 2002
averaged more than $100,000 in campaign receipts, or 10 times
the average in Chicago's (less magic) Cook County. Independent
expenditures by third parties on candidates' behalf - some of
which are considerable - are not included in that calculation.
The bill before the Senate assigns to federal courts
the job of adjudicating larger class actions. It cuts many state
judges out of the action by limiting forum-shopping. In short,
it could de-magic the magic jurisdictions.
One can argue that states, not Washington, should
do this work. Indeed West Virginia, Ohio, Texas and Mississippi
have already taken steps to limit forum-shopping.
Still, legal reform would surely be a good thing
for the rule of law in the US - not to mention the functioning
of markets worldwide, as the BOC hiccup showed. While Madison
County may be federalism's biggest embarrassment, the correction
of the Madison County problem may prove one of federalism's small
triumphs. After all, the US functions best when competing powers
prevent each other's excesses. "Office should check office," as
one sage said. His name was James Madison.