What distinguishes ‘us’ from ‘them’, we learnt in the bomb-shelter era, is ‘the rule of law’. We’ve got it; they don’t.
Watching foundations and universities over a couple of generations launch legal scholars to hector ‘lesser breeds without the law’ made me mutter madly about the attention they were diverting from our ‘rule of law’ problems at home.
Columns this week by two writers I respect, the New York Times Joe Nocera and Slate’s Emily Bazelon, make my point.
On Friday, the Times ran on its front page a story headlined, ‘Chinese Search for Infant Formula Goes Global’. Parents in the PRC are driving up demand for powdered formula worldwide because they deeply distrust domestic manufacturers.
The next day, Joe Nocera riffed off the infant formula story. China, he argued,
keeps bumping up against problems that could prevent it from becoming the kind of economic power it so clearly longs to be. These problems are almost entirely self-inflicted.
Some paragraphs later, he lists the problems (of which I’ve omitted the first):
With corner-cutting deeply ingrained as a Chinese business practice, it’s really up to the government to change that ethos through regulation and enforcement. But while the central government is more than happy to pass nice-sounding laws, there is virtually no enforcement, and no real culture of regulation either. That’s problem No. 2. Provincial governments that are supposed to oversee, say, the food supply, are often either in on the scam, or look the other way because they fear that a crackdown might impede economic growth. And officials are evaluated almost exclusively on the basis of growth. Problem No. 3: bad incentives.
And if your car does break down in six months because a supplier sold faulty parts – or your child dies from tainted infant formula? There’s not a thing you can do…. Nor is there any way to seek recompense in the courts; in the West, that has long served to help keep companies on the straight and narrow. The lack of a real rule of law is problem No. 4.
To appreciate Mr. Nocera’s argument, you require two bits of history.
First, whatever culture of regulation and enforcement exists in this country emerged only since Theodore Roosevelt and the Progressive era. For the first third of that time, business, traditional Republicans and Southern Democrats, and the Supreme Court fiercely resisted regulation.
Books like Upton Sinclair’s The Jungle (1906) on slaughter houses made clear, ‘corner cutting’ was as ‘deeply ingrained’ in unregulated American businesses then as amongst Chinese companies today. The behavior is neither new nor disputable nor unique to non-western businesses.
The ‘ability to seek recompense in the courts’ has not ‘long served to help keep companies on the straight and narrow’. It’s a phenomenon that really dates to the end of World War II.
Second, over the last third of the regulation era, the same forces that resisted its inauguration regrouped and are fighting again the battles many thought Franklin Roosevelt and Lyndon Johnson had resolved – from the rights of organised labor to the right to vote.
Under many guises – ‘tort reform’ is the most widely used; ‘standing to sue’ the most descriptive – statutes and precedents allowing consumers to protect themselves have been gutted.
We are retreating to the state of the Chinese consumer, the state of our ancestors before World War II.
Which brings us to Emily Bazelon’s ‘The Case of the Moldy Washing Machines’.
The first astonishing number … is this one: 1.3 million. According to the U.S. Court of Appeals for the 6th Circuit, that’s how many calls Whirlpool got about odor and mold in its front-loading machines (which … are sold under the Kenmore brand). And that’s just between 2003, when the complaints started, and the end of 2006.
Whirlpool told frustrated customer after customer to leave the doors of their washing machines open when they weren’t in use and to switch cleaning products. The mold still wouldn’t go away. In 2007, the company started selling a special cleaning product, called Affresh, which was supposed to solve the mold problem. And here’s the second astonishing number: $195 million. The 6th Circuit said that’s the top estimate for the revenue Whirlpool expected Affresh to bring in.
Affresh didn’t cure the problem; Whirlpool’s design changes didn’t either. But Whirlpool kept selling 200,000 units a year.
An internet search yielded a price range at Sears today for Kenmore front-loads of $630 to $1700. Some buyers upset about the mold have sued. Now, back to Bazelon:
Because the moldy washing machine owners are suing in groups, their lawsuits are called class actions. This is the efficient way to go—a couple of mass cases instead of a zillion individual ones. For a problem like a moldy washing machine, where the damages for each person are relatively small, a class action is often the only way to find a plaintiff’s lawyer willing to invest time in the case.
Now comes some ‘inside baseball’, but as with Moneyball: the Art of Winning an Unfair Game, you have to understand the process to get to what’s at stake.
Class actions only took their modern form in 1966 as a result of a major change in the Federal Rules of Civil Procedure.
The Rules require trial court judges to determine at the start of the case whether the plaintiffs’ claims have substantially common issues of fact and law. If so, the judge will ‘certify’ the class and allow discovery to begin. Unlike almost all other preliminary orders, the losing party can immediately appeal an order on class certification rather than await the trial court’s final judgment.
Since the conservative ascendency on the Supreme Court began in the 1980s, it has decided a number of cases which have slowly throttled class actions.
Two Federal Courts of Appeals had upheld class certifications in moldy washer cases. Here’s Bazelon, again:
In one of the two appellate rulings, Judge Richard Posner of the 7th Circuit [wrote]…: “Sears argues that most members of the plaintiff class did not experience a mold problem,” he wrote. “But if so that is an argument not for refusing to certify the class but for certifying it and then entering a judgment that will largely exonerate Sears….” Posner also pointed out that “every class member who claims an odor problem will have to prove odor to obtain damages.”
This spring, the Supreme Court further limited the ability of plaintiffs to bring class actions and told the Appeals Courts to rethink the moldy washer class certifications. The US Chamber of Commerce has launched a media campaign toward ending them. Bazelon concludes:
Here’s what’s at stake in these cases: If you buy a $1,000 appliance expecting it to last for 10 years only to find that it’s faulty, can you get back at least a few hundred dollars, or does the company get to keep your money, and everyone else’s, too? That’s the sucker punch the consumer class action blocks. Unless they can band together, each customer walks away with nothing. As Judge Posner wrote in a 2004 opinion: “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.” The moldy washing machine cases are such a pungent example that I wonder if the Chamber of Commerce and the corporate defense bar are making a mistake by urging the Supreme Court to take this case. This is the one they just have to lose.
No, this is the one they just have to win.
If they are to kill regulation and with it the Progressive controls on business, the ability to bring class actions must be destroyed – just as the ability of individuals to enforce environmental and securities statutes have largely been.
The ‘rule of law’ Joe Nocera extolls as keeping ‘companies on the straight and narrow’ has been disappearing for a generation. On consumer protection as on surveillance and civil liberties and voting rights, we have lost any credibility when we lecture other cultures, like the Chinese.
What we can do about it, I have lots of notions. But they’re not worth working out even in my mind, since I see no will to effect the political change required to restore ‘the rule of law’.
1. The linked Wikipedia article is reliable only for skeletal facts. Its analysis is heavily biased against class actions. It is also skimpy on the latest litigation.