After reading an October 3, 2014 article in the Wall Street Journal, Lawsuits Rattle Nursing-Home Chains, I was shocked by the reader comments posted on the Journal’s internet site. The comments were overwhelming negative towards the nursing home lawyer featured in the article, calling him a “jackal,” accusing him of bringing down the entire U.S. economy, and blaming him for the unavailability of affordable nursing home care. The abusive comments made me wonder – how can so many people misunderstand the source of the problems that face our disabled and elderly citizens? My first thought was that the article must have been more inflammatory and slanted than I had realized. I know the Wall Street Journal is not exactly a liberal bastion, but I hadn’t been offended by the tone of the article. Upon closer examination, I recognized the author’s use of various “triggers” that were likely inciting some of the comments.
The first line of the article says that the featured lawyer has “found a lucrative niche as America ages: suing big nursing home chains.” This characterization is only supported by one other fact in the article – the lawyer “by his count has amassed more than $100 million in jury awards.” Let’s use a little deductive reasoning to determine whether the “lucrative” characterization is fair.
First and foremost, a jury verdict is not the same as collecting money. After any plaintiff receives a large jury award, the defendant is almost certain to appeal. The article includes an example of this fact, citing a $91.5 million dollar verdict that was reduced to $36.5 million on appeal. On many occasions, a plaintiff will choose to avoid the time, risk, and expense of an appeal by reaching a post-verdict settlement of the case for a significant discount from the amount of the verdict. In my experience, these discounts probably average 25% to 30%. So if the featured lawyer amassed $100 million in jury awards, he probably collected less than $75 million.
Second, the amount of a jury verdict doesn’t go to the lawyer. The verdict belongs to the injured plaintiff. The lawyer, under standard contingency fee contracts, collects only a minority percentage of that amount. The article itself says these contracts generally range between 30% to 45%. Given that lawyers compete for strong cases, it is safe to say that the more lucrative cases tend to fall towards the lower end of that scale. If the lawyer averages 35% as his share, the lawyer would only collect $26.25 million from $75 million in post-verdict collections.
Now I know what your thinking — $26.5 million is still a whole lot of money, and you’re right. But how many years did it take this accomplished trial lawyer to make $26.5 million? The article doesn’t say how many years it took to amass the verdicts, but it does say that the litigation started in the 1990s, and contains another reference to recent expansion of the lawyer’s strategy after two decades in Florida. Let’s use a conservative estimate of 15 years. If this lawyer netted $26.5 million over 15 years, that is an average of $1.75 million per year.
Finally, let’s keep in mind that this $1.75 million is the annual gross revenue generated by these verdicts. This particular lawyer has a partner and three younger lawyers working with him. He supports a staff of 5 paralegals. He pays office expenses for offices in 4 states and undoubtedly incurs significant expenses acquiring and evaluating cases. What is his net income? We don’t know, but from the numbers in this article, I would guess that he makes somewhere between $500,000 and $700,000 per year.
Is nursing-home litigation lucrative? Yes, but not dramatically so. A recent survey of 2,000 partners at large defense-oriented law firms revealed that these lawyers enjoy an average annual compensation of $681,000. If a leading nursing-home attorney makes $700,000, the average plaintiff lawyer (especially those in states which have enacted torteform) probably makes far less than defense lawyers.
The article also states, “Lawsuits alleging abuse and neglect may be driving up insurance costs, but they haven’t driven any big chains out of business, nor have they demonstrably diminished the supply of nursing home beds . . . .” Again, this isn’t exactly a neutral position statement, and it undoubtedly triggers concerns about the “costs” that this litigation imposes. Are these concerns valid?
How much of a burden does nursing home litigation place on the nursing home industry? The article doesn’t provide any such statistics, but it notes that nursing homes currently care for more than 1.4 million patients, and that number is expanding. At an average cost of more than $6,000 per month per patient, this industry generates gross revenue of over $100 billion per year.
If one of the most successful nursing-home lawyers generated post-verdict settlements of $5 million per year, that would equal only 5/1000 of one percent of the industry’s earnings. If there are 200 other law firms doing the same amount of business, the net impact on the industry would only equal 1%. Not exactly frightening numbers that warrant legitimate concerns about the viability of the industry or the availability of beds.
And most importantly, the cost of these lawsuits is not spread equally across the industry. The nursing homes that are understaffed and poorly managed are forced to bear the brunt of these costs, because insurance companies adjust their rates based on the claim history of each nursing home. We should applaud the fact that financial penalties are assessed against the negligently managed facilities. It is the most efficient way to ensure that nursing homes will not cut corners and place “profits above people.”
The article starts with a claim that the featured lawyer “and other alumni of a Florida law firm” have “spurred a litigation boom.” But the article makes later concessions that appear to undercut this claim. The author admits that the litigation has “moved into” certain states and “receded from others.” Towards the end of the article, she even admits “Nursing-home litigation has contracted somewhat since [the law firm’s] peak years.” That doesn’t sound like a “litigation boom” to me.
The author refers to states where the lawsuits are being filed in greater numbers as “tort-friendly,” in contrast to states where “lawmakers institute caps on noneconomic damages in court decisions.” The choice of the phrase “tort-friendly” is particularly odd, since this would literally mean that the states are in favor of its nursing homes being negligent. In fact, the opposite is true – these states hold their corporate citizens responsible for the full extent of the damages that they inflict on patients.
A fair representation of the issue would characterize the two groups of states as: (1) states that allow juries to determine the amount of actual damages; and (2) states that have imposed a maximum jury award, regardless of the amount of actual damages suffered.
The article clearly incited many reader comments that called for further tort reform. But the facts don’t support the idea that tort reform is a good idea. Tort reform advocates claim that without legislation, the jury system produces outrageous results. Does that argument hold water?
A jury consists of a cross section of citizens who listen to evidence and hear the arguments of both sides. They reach a consensus verdict on the value that should be placed on the pain and suffering that the plaintiff endured as a result of the nursing home’s negligence. While individual juries may stray from the norm, the jury system as a whole will produce results that are consistent with the majority view of our citizenry.
If we allow legislators to set the values that can be awarded, do we really expect that the results will be more fair than the majority’s consensus? Does anyone still doubt that torteform legislation is driven by special interests (insurance companies, corporations, etc.) who stand to profit from such laws?
Anyone who has experienced a catastrophic injury will tell you that the damage caps do not place a fair dollar value on their damages. What is the value of the physical pain and suffering that a nursing home patient suffers when a bed sore develops that eats away the flesh to the bone? What is the value of the family relationships that are lost when a grandparent is deprived of the opportunity to spend a few extra years watching their grandchildren grow up? What is the value of the mental anguish that is endured when a family loses their mother or father due to the incompetence of nursing home staff? To say that the value of these damages is less than the value of the cars driven by the nursing home’s three top executives is insulting.
And the degree of insult suffered increases every year. In Texas, the 2003 torteform package set a limit of $250,000 for all “non-economic damages.” This cap on damages is not indexed to inflation, and given the current political situation, it is unlikely that it will be increased in the foreseeable future. A jury award today of $250,000 has the same purchasing power as an award of $194,000 had in 2003. If the legislators determined that $250,000 was a “fair” award, why did they structure the law to allow that award to erode in value over time, due to inflation?