FindLaw Forum: Assessing the U.S. system of awarding damages By By Anthony J. Sebok FindLaw Columnist Special to CNN.com

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(FindLaw) -- It has become commonplace for us to hear reports of settlements that are far lower than the amounts demanded by plaintiffs when they file their lawsuits. Thus, it was hardly surprising to learn last week that Dr. Joel Rodriguez had agreed to settle his lawsuit against Firestone for $7.5 million, even though in his court filings he had claimed that, according to Texas law, the damages suffered by his family equaled $1 billion.

The truth is, no one takes the numbers put down in court filings very seriously anymore. The idea that tort law is, to some extent, a game of bluffing is already familiar to many. But it raises three important questions: Why does the bluff happen? Who cares if the bluff happens? (After all, what is the harm in lawyers making up numbers when they file lawsuits, if there is a chance to revise them later?) And finally, should we try to stop the bluffing?

I will argue that there is a good reason that we bluff (whereas Europeans generally do not), that we should indeed care about the bluffing, and that there is a simple way for us to stop it.

Why do plaintiffs and their lawyers bluff?

First, why do we bluff? I believe overclaiming happens in America essentially because lawyers here operate in an informational vacuum. The value of a personal injury case in Germany, for example, is much easier to determine than in the United States.

One book that every lawyer and judge in Germany owns is the "Tabellan" (or "tables"). Based on information gathered by the government, it lists, in descending order, every damage award from every trial court in Germany for a given year. It also lists the details of the victim's injuries, and any special details of the defendant's conduct (for instance, whether the injury was caused intentionally or not). It also breaks down the awards into their components: medical expenses, lost wages, property loss and pain and suffering.

Thus, when German lawyers file their cases with the court, they can see what happened in thousands of cases from the past 30 years, and frame their damages demands accordingly. In the United States, by comparison, one cannot honestly say that Dr. Rodriguez was "crazy" to demand $1 billion. Rather, in light of the unpredictability of the tort system in America (especially in Texas), it is possible that, given the right jury, he would actually have received that amount.

In Germany, the "Tabellan" is also used by the court when it calculates damages. Think of it: There, the people deciding damages can see what happened in thousands of cases from the past 30 years.

The unfair variability of U.S. tort awards

The strangest feature of the U.S. tort system is not the large total amount of money won by plaintiffs, but rather, how unfairly the money taken from defendants is distributed. How much plaintiffs win often has little connection to the merits of their case.

No one knows for sure how much, on average, successful plaintiffs win in tort litigation in the United States. But a few fragmentary studies reveal that the reality (if it could be known) is that different people get very different awards for the same injury.

The two biggest sources of variation among the awards different plaintiffs receive are the calculation of non-economic damages and the calculation of punitive damages. Economic damages -- losses that directly affect the victim's wallet, such as medical bills and lost wages -- are easy to evidence and calculate by objective standards. But non-economic damages -- those losses that are harder to measure, such as pain and suffering, loss of consortium, loss of enjoyment of life, etc. -- are much more subjective and difficult to assess.

Punitive damages are not designed to compensate for losses at all -- they are designed to punish defendants for highly culpable conduct. The question of how much a defendant deserves to be punished, such as the question how much a plaintiff should be compensated for his suffering, is a highly subjective one.

The evidence available to scholars suggests that there is almost no rhyme or reason to non-economic awards. For example, Professor David Leebron of Columbia Law School studied the amounts awarded to victims of fatal accidents for pain and suffering in their "last moments" before death. As Leebron points out, people in the same airplane crash probably should get close to the same amount of money, because they suffered approximately the same duration and type of death. But he found wild variations in the awards the plaintiffs received, which ranged from zero to $1.4 million.

Other scholars have confirmed that compensation for pain and suffering in the United States varies in ways that cannot be explained by factors that relate even vaguely to the injury that was the subject of the trial. Indeed, one study has found that 60 percent of the amount of pain and suffering damages vary according to a purely random pattern. Another study has hypothesized that the variation in the amounts of pain and suffering awarded at trial is significantly affected by the race or gender of the victim.

The variation in punitive damages is even greater than in non-economic damages (such as pain and suffering damages). Still, while punitive damages awards are highly publicized, the truth is that they make up a very small portion of U.S. tort litigation. (Less than 4 percent of all lawsuits end with punitive damages being awarded). In contrast, non-economic damages make up about 50 percent of all the money awarded in the United States in tort.

As a result, random variation in pain and suffering damages awarded is not something U.S. lawyers can ignore. In practice, they take account of it in several ways. They take a casual attitude towards framing initial damages requests. And they ask for an amount on the high end of the range of damages coming out of trial courts. After all, with randomness being what it is, you might actually get the figure you name -- even if it is high.

Equality in tort awards matters

Equality matters -- not just the total amount of damages received by all plaintiffs, but whether what each plaintiff receives is fair. Our system should try to actually ensure that plaintiffs are treated -- as much as possible -- similarly. Right now, we are woefully far from that goal.

A tort case is different from a lottery ticket, for several reasons. First, defendants should be able to expect that in a tort suit, society will be able to explain and justify the award imposed. Otherwise, our faith in the rule of law -- which, in the area of tort law, is already under some pressure - will be eroded.

Second, while large corporate defendants may pay out so many awards they need only worry about the average payout, small corporations and uninsured or partially insured individuals will not be so lucky. They may be unfairly bankrupted by a single, randomly large award that has little or nothing to do with their actions or culpability.

Third, if justice is to be served the court has an obligation to treat citizens with the same injuries equally. I am not sure that even the winners in this sort of game will have much respect for the tort system after they walk out of court with their "winnings." And the losers, who may have suffered very serious injuries and undergone considerable pain, will never understand why their experiences are not valued as much as those of others.

Letting juries hear damage awards in similar cases

Defenders of the current system claim that the lottery effect is an inevitable consequence of having lay juries measure something as inscrutable and mysterious as pain and suffering or punitive damages. But if that contention were correct, damage awards in Europe would be as random as ours are -- and in fact, they are not.

What is the reason for the difference? In a nutshell, we prohibit decision-makers from hearing what other decision-makers have done, while European systems virtually require the comparison.

Not only do we lack an equivalent of Germany's "Tabellan" but, worse, under our system, a lawyer is prohibited under the Federal Rules of Evidence (and, I believe, most state evidence codes) from making the following argument to a jury: In a similar case, another jury awarded $100,000 for pain and suffering (or punitive damages). You should award $100,000, too.

One might think that it would be very helpful to a jury to know what other citizens, in similar cases, gave to the plaintiff. But not only is it illegal to tell a jury what other juries awarded, the information is virtually impossible to find. The jury verdict reporters that one finds in states such as New York or California are very useful, but they are not official documents and they are not comprehensive (nor do they claim to be).

I believe that one reason that German tort litigation does not display the sort of bluffing and randomness that we see in America is very simple. The "Tabellan" produces a norming effect on the practice of asking and awarding damages in their legal system. The book largely explains why plaintiffs often get just what they ask for in German: Both the lawyer writing the complaint and the court calculating damages have a strong, rational basis for the figure they arrive upon, so no wonder those figures are often the same.

When I tell German lawyers that not only is there nothing like the "Tabellan" in the United States, but that it would be illegal to introduce it into one's case, they are astounded. Why, they ask, would you want juries to determine damages blindly?

That is a very good question. And unless we in America can provide a better answer than we have so far, we might be well served by following the German example.

Anthony J. Sebok, a FindLaw columnist, is a professor of law at Brooklyn Law School, where he teaches Torts, among other subjects.

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