May 30, 2004
Taxes and Tort Reform
Only Arnold could come up with a scheme like this. Interestingly billed as a new tax (from a Republican? the horror!), Gov. Schwarzenegger plans to inject a little reform into torts suits in the great golden state. Here's how I understand the proposal (bear with me, I'm still fairly heavily medicated from surgery!):
1) Tortfeasors can only be held liable once for similar conduct. - Depending on how they define or determine "similar," I may be OK with this. Provided, of course, this relaxation of liability is coupled with more stringent mandatory class action laws.
2) The state takes 75% of any punitive damage awards. - Huh? And this is not a taking, how? Don't get me wrong, it's a lovely concept: punitive damages are meant to deter and punish, not reward, so any benefit derived from them should go to society. That's fine, except for the fact that it doesn't work like that. Punitive damages are viewed as an award entitlement to plaintiffs. If the government wants them, the government must pay for them.
3) Plaintiff's attorneys will only be able to calculate their fees based on the 25% actually paid to Plaintiffs. - In other words, P wins $1 million in puntive damages, the state takes $750K, P's attorney gets about $85K (roughly 33% of 25%), and P gets the rest ($165K). And, presumably, P will get taxed on his final award also, leaving him with roughly $100K. The winning plaintiff loses 90% of his award. The attorney loses over $250K in fees. But, the state is able to "tax" the jury award. Twice.
I'm no genius, but this system seems troublesome. If you strip the lawyers' fees to such an extent, you also strip the ability for most people to get their case heard at all (if the lawyer can't make money, he won't take the case). Furthermore, if you strip away 90% of the awards Plaintiffs ultimately reap, fewer plaintiffs will deem it worth the hassle to pursue the case, even if a lawyer was willing to take it. In the end, the deter/punish aspect of punitive damages is destroyed because cases aren't brought and companies aren't held liable.
So, in one fell swoop, Schwarzenegger's little plan does nothing to improve the system, but only leads to increased negligence and less liability. Less suits will be brought, less damages awarded. As such, CA's dream of reaping huge profits from punitive damages ($450 million) will never come true. In fact, the decline of cases being brought will likely result in an overall decline in revenue generated from jury awards through standard taxation...
1) Tortfeasors can only be held liable once for similar conduct. - Depending on how they define or determine "similar," I may be OK with this. Provided, of course, this relaxation of liability is coupled with more stringent mandatory class action laws.
2) The state takes 75% of any punitive damage awards. - Huh? And this is not a taking, how? Don't get me wrong, it's a lovely concept: punitive damages are meant to deter and punish, not reward, so any benefit derived from them should go to society. That's fine, except for the fact that it doesn't work like that. Punitive damages are viewed as an award entitlement to plaintiffs. If the government wants them, the government must pay for them.
3) Plaintiff's attorneys will only be able to calculate their fees based on the 25% actually paid to Plaintiffs. - In other words, P wins $1 million in puntive damages, the state takes $750K, P's attorney gets about $85K (roughly 33% of 25%), and P gets the rest ($165K). And, presumably, P will get taxed on his final award also, leaving him with roughly $100K. The winning plaintiff loses 90% of his award. The attorney loses over $250K in fees. But, the state is able to "tax" the jury award. Twice.
I'm no genius, but this system seems troublesome. If you strip the lawyers' fees to such an extent, you also strip the ability for most people to get their case heard at all (if the lawyer can't make money, he won't take the case). Furthermore, if you strip away 90% of the awards Plaintiffs ultimately reap, fewer plaintiffs will deem it worth the hassle to pursue the case, even if a lawyer was willing to take it. In the end, the deter/punish aspect of punitive damages is destroyed because cases aren't brought and companies aren't held liable.
So, in one fell swoop, Schwarzenegger's little plan does nothing to improve the system, but only leads to increased negligence and less liability. Less suits will be brought, less damages awarded. As such, CA's dream of reaping huge profits from punitive damages ($450 million) will never come true. In fact, the decline of cases being brought will likely result in an overall decline in revenue generated from jury awards through standard taxation...
