To jump-start economic growth and increase employment, the incoming Trump administration and GOP-led Congress should make reforming America's legal system a priority. Fortunately, much of it can be achieved without legislation, by reversing Obama-era administrative agency actions — though more lasting change would require congressional action. Here are three areas where the next administration can act.
End the fight against arbitration
Democratic Party leaders in Congress have long sought to advance legislation to curb the use of arbitration clauses in contracts, which would impose costs on all Americans but enable trial lawyers to collect substantially more fees. Yet evidence shows that, after controlling for variations in case characteristics, consumers are more likely to prevail in arbitration than in court and that there is no significant difference in awards between the two avenues.
Although these legislative efforts have been largely unsuccessful, the Obama administration has taken agency action to try to eliminate arbitration clauses in contracts involving nursing-home care, financial services and labor law. The Trump administration should move to reverse each of these executive-branch actions.
Make Room for Loser Pays
In the American legal system, unlike in almost every other country in the developed world, the losers in a lawsuit do not have to reimburse the winners' costs. In combination with open pleading standards and onerous civil-discovery rules, this feature of American law enables nuisance litigation: a defendant in a lawsuit knows that it will incur substantial costs to defend the suit, which gives substantial settlement value even to lawsuits with a low probability of success. Almost every economist who has studied loser pays predicts that it would, if adopted, reduce the number of low-merit lawsuits. A loser-pays rule would also encourage business owners and other potential defendants to try harder to comply with the law, which should produce fewer injuries.
The Federal Rules of Civil Procedure could be amended by Congress to incorporate loser-pays principles in federal courts. Rule 68 in the Federal Rules has an "offer of judgment" provision in which a party to litigation may make an offer to settle the case — and "[i]f the judgment that the offeree finally obtains is not more favorable than the unaccepted offer, the offeree must pay the costs incurred after the offer was made." These costs have not, however, included attorneys' fees. To avoid legal gamesmanship, an offer-of-judgment rule that included attorneys' fees would have to tie the amount of any fee award to the size of the parties' settlement offers, and courts would have to require parties to show capacity to pay fees — including through an insurance policy or assumption of risk by the plaintiffs' attorney — to proceed post-offer.
Reduce Federal Overcriminalization
There are now more than 300,000 federal crimes on the books, more than 98 percent of which were never voted on in Congress but were created through regulatory rule-making by administrative agencies. The overwhelming majority of these crimes do not involve conduct that we intuitively view as wrong — crimes like murder, rape, assault and burglary — but rather are violations of regulatory compliance. For example, walking a dog in a federal park area on a leash longer than six feet is punishable by up to six months in federal prison.
Traditionally, in American law and in the British law upon which it is based, the government had to show a "guilty mind" to convict someone of a crime, as opposed to levying a civil penalty. Now such protections are often the exception. A study by the Heritage Foundation and the National Association of Criminal Defense Lawyers found that 57 percent of the 446 nonviolent crimes proposed in the 2005-06 Congress lacked an adequate criminal-intent requirement. Twenty-three percent had no criminal-intent requirement whatsoever.
In November 2015, Democrats and Republicans on a bipartisan task force introduced legislation that would clean up the federal criminal code, require administrative agencies to report to Congress regulations that carried potential criminal penalties, and require the government to show criminal intent to obtain a criminal conviction unless Congress had expressly said otherwise — a requirement paralleling that in at least 15 states, as well as the Model Penal Code upon which most state criminal codes are based. A similar criminal-intent bill was introduced in the Senate the next day.
The Trump administration and GOP leadership in Congress should work to advance this commonsense legislation.
This piece originally appeared at the Washington Examiner
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James R. Copland is a senior fellow and director of legal policy at the Manhattan Institute. Rafael Mangual is the project manager for legal policy.
This piece originally appeared in Washington Examiner