The Law School Magazine The New York University School of Law


The System Everyone Loves to Hate

The complexity and sophistication of our institutions and services—government, banking, health care, and communications, to name a few—have grown beyond the grasp of all but those who specialize in them. And sometimes things go wrong. So it’s no surprise that even the once basic tort is emerging as a hotly contested area of law where the Supreme Court weighs in on whether private lawsuits can be brought in areas regulated by the federal government, and billion-dollar corporations seek cover from thousands—even millions—of individuals claiming to have been injured by their products. At NYU Law, a dedicated group of faculty is thinking through the ramifications of torts today and how to shape a legal system that will serve our needs into the future.

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In Fall 2008, Jared Roscoe ’11 admits a bit sheepishly, he began his 1L Torts class not quite knowing what a tort even was. “I knew it covered things like ambulance chasing, medical malpractice…but I didn’t really know,” Roscoe says. By the end of that class, followed by an advanced one, both taught by Catherine Sharkey, Roscoe, like generations of law students before him, well understood the basics of a tort suit. But he also saw how in recent years torts have collided with the regulatory state, as corporations began seeking federal regulation as a shield from potentially big-ticket state lawsuits. Put simply, the question is this: Who’s best at determining how to keep people safe and at what level of risk—a federal bureaucrat or a bunch of jurors? And although torts remain predominantly a state issue, the Supreme Court has been increasingly stepping into important tort reform cases to answer that question. “This is where torts is most relevant to today. I found that really fascinating,” says Roscoe, who is now clerking for Judge Roger Gregory of the U.S. Court of Appeals for the Fourth Circuit.

The faculty of the NYU School of Law has in many ways led this tort evolution. Three of its members—Richard Epstein, Mark Geistfeld, and Catherine Sharkey—are focused principally on their scholarship and teaching in torts, and are co-authors of leading casebooks in the field. Other equally distinguished faculty members have made significant contributions to the field even while devoting much of their intellectual energy to other areas. “There’s no better faculty in torts,” says torts scholar Gregory Keating of the University of Southern California Gould School of Law. Most other law schools are lucky to have one serious tort expert, notes Robert Rabin, Stanford Law School’s top tort scholar, who teaches at NYU Law every other year. And many of the people who do teach it elsewhere don’t consider torts their primary field. By contrast, most tort classes at NYU Law are taught by professors with a strong grounding in the field.

Richard Epstein

Each of the NYU Law professors is working to improve a tort system everyone loves to hate. But their approaches diverge in critical ways. Epstein, Laurence A. Tisch Professor of Law, is the preeminent writer on torts from a libertarian viewpoint, a longstanding and vocal proponent of strict liability who greatly favors using contracts rather than torts to resolve personal injury cases. Geistfeld, Sheila Lubetsky Birnbaum Professor of Civil Litigation, is a self-described liberal-egalitarian guy and product liability expert who meshes economics with notions of justice in setting tort policy. Sharkey, steeped in law and economics, is doing pioneering work at the intersection of tort and administrative law, especially the issue of federal preemption of state tort actions. “Each of them has carved out a kind of distinctive path and is engaging in first-class scholarship,” says Rabin.

But NYU Law’s outstanding tort scholarship doesn’t stop there. Jennifer Arlen ’86, Norma Z. Paige Professor of Law, while generally known for her expertise in law and economics and corporate crime, has written ambitious papers in the area of vicarious liability— concerning to what extent a company should be liable for the actions of its employees. She’s probably best known for her often provocative work in medical malpractice litigation, which remains highly controversial and politicized at the state level. She has advocated for holding managed care organizations liable for their physicians’ errors, and argues that caps on damage awards are unfair, especially to people who are seriously injured. She is in the midst of editing a book, The Research Handbook on the Law and Economics of Tort, tentatively set for publication in 2012.

Roderick Hills Jr., William T. Comfort, III Professor of Law, whose interests center on public law, dips his toe into torts at the intersection of preemption and federalism. Noted civil procedure expert Samuel Issacharoff, Bonnie and Richard Reiss Professor of Constitutional Law, has extensive experience in mass litigation such as the Vioxx cases. University Professor Richard Stewart, an authority on environmental and administrative law, has made important contributions to the study of punitive damages, and recently testified on tort issues surrounding the BP oil spill. He was also a chief reporter for the influential American Law Institute study on enterprise liability for personal injuries. Troy McKenzie ’00, a specialist in bankruptcy law, is exploring the use of bankruptcy court to handle mass torts. Geoffrey Miller, Stuyvesant P. Comfort Professor of Law, who predominantly focuses on financial institutions and corporate and securities law, is an expert on class actions. And finally, Lewis Kornhauser, Alfred B. Engelberg Professor of Law and a microeconomics ace, and Dean Richard Revesz, Lawrence King Professor of Law and a noted scholar of environmental and regulatory law and policy, have written seminal pieces on vicarious liability and joint and several liability. (Epstein, Geistfeld, Kornhauser, Miller, and Sharkey are all contributing chapters to Arlen’s book.)

A feather in the cap of the torts faculty at NYU Law: Two of the leading torts casebooks are currently being revised in new editions by professors here. Geistfeld and Rabin are co-authoring one of them, Tort Law and Alternatives, and Epstein and Sharkey the other, Cases and Materials on Torts.

NYU Law also hosts a meeting of tort scholars known as the NYC Tort Theory Group. Each month the group of 10 or so meets on the fourth floor of Vanderbilt Hall to hear presentations and critique scholarly papers. Professors fly in from around the world to participate. Earlier this year, for example, USC’s Keating presented “Is Tort a Remedial Institution?” Ariel Porat of Tel Aviv University discussed “Risk of Death.” The discourse can be vigorous. Epstein recalls commenting at one meeting that recent Supreme Court decisions meant, unfortunately to him, that drug manufacturers could no longer expect federal regulatory approval to shield them from state tort actions (the preemption concept). Few agreed with him and weren’t shy about letting him know, he says with delight.

At the same time, NYU Law professors are engaged in the modern world of torts, a front-page topic, as evidenced in recent drug and car safety cases. About a half-dozen preemption cases were before the Supreme Court in the 2010-11 term. In one, Bruesewitz v. Wyeth, Geistfeld filed an amicus brief arguing that a federal vaccine law does not bar people injured by an injection from filing state tort suits (the Court, however, ruled 6–2 that it mostly does). Sharkey is advising the Administrative Conference of the United States on dealing with the collision between regulation and tort law. Epstein lambasted the Supreme Court’s decision in Wyeth v. Levine for permitting a state tort case to go forward against a Wyeth drug, rather than allowing federal regulations to govern. “‘Awful’ does not begin to capture what I think of that decision,” he says. “This is really an extraordinary point in American tort law,” says Issacharoff. A field that “used to be defined by common law doctrines,” he says, “is now becoming thought of in terms of its regulatory role and how it fits into an increasingly administrative society.”

Torts for 1Ls
If a 1L has any knowledge of what a tort is, it’s often a negative view, especially “if one of your parents is a physician,” Geistfeld quips. Yet by the end of the first-year course, students have learned that, as Sharkey likes to tell her class, “all roads lead back to torts.” Along with Procedure and Contracts, Torts is a core law school requirement. “It teaches students fundamental ways of thinking about law as an institution-regulating system,” Sharkey says. She adds: “It’s a fabulously interesting class to teach, as long as you don’t teach it myopically.” It shows students how the various mechanisms that strive to achieve optimal deterrence of risky behavior work together, such as private suits, government regulations, criminal law, and damages. Different intellectual approaches to torts are explored, such as the debate between the law and economic view and the corrective-justice view. “It gets students to think about deep questions that go beyond memorizing causes of action,” Sharkey says.

Unfortunately, too many law schools dragoon professors to teach a course in which they have little interest. The result is professors who impart a cynical view of torts. Those who dismiss torts as an unexciting area of practice, Sharkey says, are “wrong.”

The heart of the Torts class is negligence liability, on which the vast majority of suits turn, according to Geistfeld. He spends half or more of the semester teaching its various elements: duty, breach of duty, causation, and damages. He and other NYU Law professors also teach the intentional torts, the earliest torts, which typically involve a crime as well, such as punching someone in the face. Many laws schools have dropped this area as irrelevant, but Geistfeld insists it remains historically and conceptually interesting. A couple of weeks are then devoted to products liability, a complicated and challenging but hugely important area of study. “The raw numbers in dollars involved” in those cases warrant the focus, says Geistfeld, who also teaches an advanced class in products liability.

Although the essentials remain the same in Sharkey’s class, she says her approach is “unbelievably different” from the one in the Torts class she took as a J.D. student. New cases have arisen that enliven the class. For example, an old arcane tort known as trespass to chattels—someone interferes with another’s property—might have been glossed over. Now, thanks to the Internet, the concept is back in such cases as Intel Corp. v. Hamidi, in which the chipmaker claimed an employee’s use of its e-mail system to criticize the company constituted trespass to chattels. (It lost before the California Supreme Court.) Conversion, another old tort that’s similar to theft, arises in cases involving stealing of domain names or patents.

Sharkey notes that some of the basics learned in the Torts class feed into upper-level courses, which Jared Roscoe also observed. He graduated in May with an elective advanced torts class under his belt as well: Torts and the Administrative State. His understanding of tort issues such as preemption came in handy when he took Constitutional Law, for instance. Skills learned are translatable, too, he says. Just as in showing a tort (duty, breach, etc.), a lawyer has to break out each element when proving a crime.

Beyond that, Roscoe argues that although law schools need to focus on the “big, sexy” questions that come before the Supreme Court, the real judicial business of courts is dealing with the large volume of tort suits. “It’s not as immediately appealing as gay marriage,” he says, but hugely important. Remember, this is from a student who as a 1L wasn’t quite sure what a tort was.

Taking Positions
Richard Epstein joined the NYU School of Law faculty full-time in Fall 2010, bringing his polymathic scholarship, prolific writing, contrarianism, collegiality, and bluntness.

As I prepare to interview him in his fourth-floor office, I place two digital tape recorders on a stack of papers covering his desk.

“Two?” he asks.

“I don’t trust technology,” I answer.

He peers at them. “They’re the same brand, so they will make the same error,” he says.

I chuckle at his joke, but it’s soon clear he is making more than a joke. He is parlaying my two similar tape recorders into a point about the failings of the modern tort system.

“You know Ludwig Wittgenstein, the philosopher? He read something in the paper, and to make sure it was correct he got another copy.”

I laugh again.

“It’s called common mode failure: all sorts of things that you think are independent but are all resting on a single particular function.”

“OK, but let’s get back to torts,” I say.

“But it is torts!” Epstein bellows. “Common mode failure is one of the essential themes in tort law.”

The concept helps explain the massive growth of tort liability in the 20th century, an expansion that Epstein decries. Tort liability has expanded, he says, “from idiosyncratic events to systematic wrongs” as seen under common mode failure. To help curb that growth, Epstein is a strong proponent of preemption, the idea that federal regulation of a product—say, drugs or cars—overrides or preempts state tort actions.

On Preemption
Federal preemption invokes a host of important legal and policy threads that have been dissected by NYU’s law professors. What does the Constitution’s Commerce Clause say about whether the federal government or state tort law governs certain tort liability, and how and when? Who is best at setting national safety standards? Congress? Agencies such as the Food and Drug Administration? Private state suits and juries? Is federal regulation a more efficient way to reduce risk and liability, or are after-the-fact tort suits more effective at compensating injuries and deterring behavior to reduce the risk of accidents?

It’s a highly politicized issue. Trial lawyers, traditionally Democratic supporters, loathe preemption in that it blocks their lucrative state tort suits, and federal regulations don’t allow for damages to injured parties. Business generally prefers the consistency of federal regulation and the avoidance of potentially big jury awards at the state level.

And for students, preemption, despite the eye-glazing nature of the word, is a favorite part of her tort class, according to Sharkey: “It engages them because it’s not a historical or theoretical discussion, and it’s not about horses and buggies in the 19th century. They hear ‘torts’ and think it’s not for them, but this makes the subject come alive.”

Among the faculty, the clashes play out in academic papers and debates. Epstein, as always, knows where he stands. “I’m in favor of preemption almost across the board,” he says. Tort suits brought in state courts should be tossed out—“all of them, one and all”—on grounds that federal regulation of the activity protects against liability at the state level. “I’ve had this position for close to 40 years,” Epstein says, noting his long-ago preemption work for Philip Morris in the cigarette litigation. (“I worked for them when they won, and when I stopped they started to lose,” he says. “It’s not quite a causal relationship, but I’ll take it.”)

His essential reasoning is that the FDA, to name one federal agency, has already carried out extensive fact gathering on a drug and has issued a rule. This alone “should rule out state tort causes of action based on the inadequacy of any drug label,” he wrote in the Tulsa Law Review in 2009. Allowing state tort suits does not “let you make a better judgment.” Writing in the 2010 New York University Annual Survey of American Law, Epstein notes the “massive disruption” that “even a single trial causes to a blameless product.” These tort suits lead to “an absolute brawl,” he says, in trying to determine causation or whether a warning was adequate, as both sides need to hire batteries of experts. “You’re talking billions of dollars in wasted money, and God knows what it does to innovation,” Epstein says in our interview.

In his NYU Survey article, Epstein notes that tort law and the FDA lived in a “peaceful co-existence” before the mid-1960s. But the “huge expansion” of state product liability law since has led to the current collision between state torts and federal regulation generally. Epstein gives this example of the ballooning of liability in the last 50 years: “The original definition of a defective car was when it exploded because of a gasoline leak into the carburetor. Now the definition is in effect a car that won’t protect you when you crash—drunk—into a steel pole at 85 miles an hour.”

And yet, he adds, the safety of products, from cars to TVs, toasters to drugs, has grown enormously. “The safety probability error rate is one-one-thousandth of what it was in 1950—and the liability is a thousandfold what it was. Something is obviously out of whack,” Epstein says.

Roderick Hills Jr. expresses a far different view. He argues that state tort suits serve as an incentive to business to help federal agencies regulate products. “Federal agencies like the FDA just do not have the resources or the personnel to monitor industry,” says Hills, who explored the topic in a 2007 NYU Law Review article, “Against Preemption: How Federalism Can Improve the National Legislative Process.” He explains that the FDA’s clinical trials on a drug are done only once and on a relatively small number of people compared with the number who often take the drug—like Lipitor, for instance. The FDA can’t possibly anticipate the complete array of risks associated with a product. When a problem arises after approval, he says, a drugmaker has little obligation (and no incentive) to go back to the FDA for a new rule. That’s the role state tort suits should play. The threat of huge payouts, legal fees, and bad publicity should create an incentive for a company to ask the FDA for new rules—an updated warning label, for instance—that would also serve to block any future suits on preemption grounds.

“I don’t care if state tort suits are stupid and inefficient; you need some kind of prod,” Hills says. “The point is to force industry to help the FDA get it right.” He adds that opponents to tort suits have never offered up another mechanism to induce industry and agencies to update their regulations.

Sharkey has carved out an approach to tort suits and preemption that she has dubbed the “agency reference model.” She believes that federal rulemaking should block tort suits when the regulatory agency can show it has done its homework in investigating a product. Too many times, she says, agencies merely declare that their regulations require preemption (in a preamble, for instance) without a factual basis. Or they might be subject to ideological considerations—they don’t like torts, for instance, so they’ll reach for preemption in an arbitrary way. Courts, by looking to agencies to determine if they’ve done a thorough job, can make more informed decisions about whether the regulation was an optimal one or not—and hence, whether it should trump state action. Says Sharkey: “Courts are making decisions about whether there is preemption, but they are not well equipped” to parse the complicated regulatory process.

Is her model gaining any traction? Courts are starting to recognize that agency input is important, she says, but she won’t claim that the Supreme Court has embraced it. At the root of the issue is how Congress handles—or mishandles—the federalism question when enacting product liability laws. Sometimes Congress knows what it wants to do, so it expressly bars state tort suits. In those cases there is no ambiguity: suit dismissed. But often it writes muddled, conflicting language, declaring in one passage that the federal law trumps state law jurisdiction, while insisting in another that nothing in the law prevents the filing of state suits. In effect, Congress is punting the question to courts and agencies.

So what’s a poor judge to do when faced with a tort action? Here, too, courts must confront what Sharkey calls “two warring strands of jurisprudence” in administrative law. On the one hand, judges can go with the notion that there exists a presumption against preemption—and allow the suit to go forward. On the other, there’s Chevron deference (after a landmark Supreme Court decision), meaning judges should defer to agency interpretation the Supreme Court hasn’t squarely addressed it,” she says.

Epstein, however, has squarely addressed Sharkey’s agency reference idea—and doesn’t much like it. “As I told Cathy, compared to what Justice Stevens has ruled, I ought to embrace and kiss you,” Epstein says. But he maintains that federal agencies already carefully study products before issuing regulations. Her model will generate “too many fact-dense inquiries to work well in hard cases,” he has written.

The professors’ differing views play out in the Supreme Court’s Wyeth v. Levine. Stevens, writing for the 6-3 majority, said the fact that the FDA had approved a drug’s warning label doesn’t shield it from tort liability in Vermont. The plaintiff had lost her hand to gangrene when she was injected with Phenergan, an anti-nausea drug made by Wyeth.

Was it a bad decision, I ask Epstein? “It’s a level of institutional unawareness and incompetence beyond which you cannot compare,” he answers. The physicians who administered the drug made mistake after mistake and admitted as much, but insisted that if the label had told them more, they would have been more careful, according to Epstein. The suit should have been tossed out, he says. (“The state court ought to be put on a funeral pyre and left to burn,” he suggests in typical understatement.) Instead, the Wyeth decision means drug companies will find it almost impossible to obtain protection from state liability, Epstein concluded in his Annual Survey article.

Hills, again, disagrees with Epstein, insisting the Court’s decision to allow the suit was the right one. Wyeth’s Phenergan label was inadequate, Hills says, by failing to discuss the risks as compared with the benefits.

[SIDEBAR: It’s Not Easy Being Green: Litigating Environmental Disasters]

Sharkey is unhappy with the ruling, though for different reasons. She says the Supreme Court should have remanded the case to a lower court, which, using her agency reference model, could have explored more of the “indeterminate,” in her word, regulatory record on Phenergan. She thinks Epstein is reading the decision too broadly to say that it largely shuts the door on preemption. But she laments that lower courts seem to be interpreting it that way, too. “They’re putting the bar way too high,” she says.

Sharkey grew interested in the preemption debate while working with Samuel Issacharoff on a paper published in the UCLA Law Review in August 2006. At the time she was working on punitive damages issues, while Issacharoff was focused on class-action law. Their joint article, “Backdoor Federalization,” addressed what they called the Supreme Court’s “quiet federalization” of areas of law historically governed by state law, referring, in part, to preemption decisions. They argued that in doing so, the Court was attempting to capture the benefits that flow from “national uniformity” and to protect commercial markets from “unfriendly state legislation.”

Sharkey says the question in her mind was how to tap the expertise of agencies but not bow to them indiscriminately. To achieve this balance, she devised her agency reference model. “It places federal agencies front and center in a realm in which they have often lurked just out of focus,” she wrote in her paper for the George Washington Law Review in April 2008.

Sharkey’s ideas did not go unnoticed. Her paper on the agency reference model was read by Paul Verkuil (LL.M. ’69, J.S.D. ’72), who had recently been appointed by President Barack Obama to head the Administrative Conference of the United States, which issues recommendations on administrative law matters. (Revesz is a public member of the conference.) Verkuil invited Sharkey to lunch in May 2010 and proposed that she work up some practical ideas flowing from her academic papers, she recalls.

Catherine Sharkey

Intrigued, she accepted and began intensive research. The issue of preemption was especially high-profile at the time, and highly politicized. Just months after taking office in 2009, Obama had issued a presidential memo condemning how agencies such as the FDA and the National Highway Traffic and Safety Administration were too aggressive under former President George W. Bush in asserting blanket preemption of state law, known as preemption by preamble.

Over the summer of 2010, Sharkey interviewed officials in charge of preemption at various agencies in Washington, including the FDA, NHTSA, EPA, and Consumer Product Safety Commission. Her goal was to learn an agency’s inner workings—who specifically made decisions about preemption, how they reached those decisions, with whom they consulted. After undertaking an exhaustive review of agency rulemaking and intervention in court cases, she prepared a series of recommendations for the Administrative Conference, which were subsequently adopted. They boiled down essentially to her agency reference model.

Sharkey was that most unusual of law school students—she actually liked torts. She had gone to Yale as an undergraduate economics major. Embracing the intersection of policy and problem solving, she took off her first semester of senior year to pursue an independent study of the bail bond system in New Haven, Connecticut. Her paper, which concluded that private bail bondsmen tend to treat minority clients better than the courts do, won Yale’s prize for the best original economics thesis.

She went on to get her master’s in economics from Oxford, where she was a Rhodes Scholar. After attending Yale Law School, and falling under the law-and-economics sway of professor and Second Circuit judge Guido Calabresi, and then clerking for two years (for Calabresi, then Justice David Souter), she worked for three years in private practice, handling appellate litigation involving product liability and punitive damages. “I liked that because it had a law-andeconomics spin,” she says. She then accepted a research fellowship at Columbia Law School, where she wrote a paper on punitive damages.

She had the chutzpah to send the paper to Epstein, then at the University of Chicago, whom she did not know. “He was unbelievably critical,” Sharkey recalls with a smile. Responds Epstein: “She gives as good as she takes.” At one point, Sharkey found herself editing a piece Epstein had written on preemption. “It was an insane experience,” she recalls in awe. “He’d send me something at 3 in the morning, then I’d get something back to him at 5, and at 7 he’d be back to me. He was very engaged.” The two went on to become good friends and colleagues, and Sharkey speaks admiringly of his extraordinary support for students.

Sharkey became interested in preemption just before the Supreme Court jumped in and made it a hot issue. She says the Court’s focus on the issue has “kept me in the subject probably longer than I otherwise would.”

On Punitive Damages
Another area of state torts into which the Supreme Court has injected itself, raising some of the same constitutional and federalism issues as preemption, is punitive damages. In three cases starting in 1996, the Supreme Court rejected excessively large punitive damage awards by state juries on grounds they violated the defendant’s due process rights under the Constitution. The controversial rulings sparked renewed interest in the area from several professors, including Geistfeld and Sharkey.

Both wrote about the 2007 smoking case Philip Morris USA v. Williams, which involved an Oregon only $821,485 in compensatory damages. The Supreme Court vacated the award in part on grounds that the punitive award far outweighed the compensatory damage. (The Court, in an earlier ruling, had suggested a proper ratio requires that punitive damages be less than 10 times the size of the compensatory award.) But Oregon courts, after a protracted back-and- forth with the Supreme Court, upheld the smoking award.

In law review articles, Sharkey criticized the “heavy-handed direction” of the Supreme Court and also attacked the punitive-compensatory ratio as “theoretically bankrupt,” saying it lacks any correlation with the underlying deterrence and retributive goals of punitive damages.

Geistfeld took another tack, dissecting the Philip Morris decision to explore the novel question of how to justify and calculate punitive damage awards in a wrongful death case. In the Court’s two previous punitive damage cases, the plaintiffs had suffered economic damages—in one, diminished value in a new BMW that had been repainted; in the other, fraudulent insurance reimbursement. Those damages became a baseline to determine the size of the punitive award. But in the Philip Morris case the plaintiff, Jesse Williams, was dead. Wrongful death cases typically produce minimal, if any, compensatory awards. So, how to figure out the baseline to multiply for punitive damages?

Geistfeld scrutinized the award through the lens of the individual tort right to compensation. He first borrowed from government data that puts a value of $6.1 million on a person’s statistical life (used when assessing a proposed regulation’s cost versus its benefit in saving lives and preventing injury). But the risk of death from smoking is so high and clear that it yielded an injury measure between $10 million and $20 million, according to Geistfeld’s estimate. A single-digit multiplier, as specified by the Supreme Court, could then easily get punitive damages to the $79 million awarded by the jury. “I did everything from the perspective of what Jesse Williams’s rights might require,” Geistfeld said.

That emphasis on rights marks a substantial change in Geistfeld’s original thinking on tort issues. Geistfeld received an economics degree from Lewis & Clark and a master’s in economics from the University of Pennsylvania. Early on, he was interested in using the lessons of economics to figure out legal issues. As applied to tort law, this well-established school of thought evaluates liability rules in terms of their ability to minimize the social cost of accidents. That line of inquiry led him to the law. He returned to school for a joint Ph.D. in economics and law at Columbia.

Unlike Sharkey, he didn’t find torts in law school to be so interesting. “Kind of cookie-cutter,” he says. But in the mid-1980s, the tort reform movement and product liability cases were the rage, all of which Geistfeld found fascinating to observe through his economics lens. “I started writing papers [for his Columbia mentor, Susan Rose-Ackerman, a professor of law and political science now at Yale Law School] and did my dissertation on product liability,” he recalls. He graduated in 1990, and joined NYU Law two years later.

Mark Geistfeld

Geistfeld happened to have an office in Vanderbilt Hall near two of the most revered figures in the study of legal philosophy: Ronald Dworkin, Frank Henry Sommer Professor of Law, and University Professor Thomas Nagel. Influenced by them, he grew intrigued by a vision of torts that invokes fairness and justice, the idea that if you hurt someone you have committed a wrong and hence have a responsibility to pay for any losses. “I took the justice argument seriously because I was surrounded by really superb philosophers. I couldn’t just dismiss it out of hand as something I didn’t have to worry about,” Geistfeld recalls. “So I started on an exercise to try to figure out if I, as an economist, can make sense of what the fairness is that people are talking about in tort law.”

The result for Geistfeld was a kind of hybrid philosophy, the incorporation of economics into the justice view of torts. Most scholars insisted it had to be one or the other. But, wrote Geistfeld in a chapter of the 2009 book Theoretical Foundations of Law and Economics, “The idea that economic analysis is incompatible with or irrelevant to a rights-based principle of justice is mistaken.” In fact, he argues, economic analysis is “integral” to any rights-based tort system, an argument he has since defended by showing how this conception can resolve a number of doctrinal issues that have long vexed the tort system.

Of his new focus on fairness, one thing is clear to Geistfeld: “If I had been somewhere else and not here at NYU, I’m not sure I would have gone in that direction.”

On Medical Malpractice
There’s probably no area of torts more controversial in the public arena than medical malpractice litigation. That’s where Jennifer Arlen has made her mark, employing economics reasoning to debunk conventional wisdom about such suits. No surprise there: She has an economics B.A. from Harvard and a Ph.D. in the field from NYU. In between she earned her J.D. at NYU Law.

The overall tort system, she says, acts essentially as a corrective to the market: “Markets often don’t work, and you can’t regulate everything, so you need what I think of as a potentially market-enhancing system: the tort system. It can make markets function better. It’s not an opponent.”

That’s the argument she presented in a 2003 NYU Law Review article suggesting that the market alone was not sufficient to ensure optimal medical care. The article dealt specifically with managed care organizations (MCOs) and the extent of their tort liability. MCOs, which rose to vast influence in the 1990s, affect patient care by holding the power to approve or deny medical treatments selected by affiliated physicians (in a process known as utilization review). But federal law barred most state tort actions against MCOs.

Arlen, with co-author W. Bentley MacLeod, argued that MCOs should be held liable for their coverage decisions that ended with negligent medical care. The most obvious reason is when an MCO denies a costly treatment that, in fact, was appropriate for the patient. But the less obvious reason, they argued, is that physicians are less likely to invest in gaining “expertise” about medical procedures if their MCOs deny their use. Using the tools of economics in a follow-up 2005 paper for the RAND Journal of Economics, they showed how utilization review acts as a disincentive for physicians to gain that expertise to make better treatment choices. All in all, they wrote, the lack of liability results in less effective medical care and more negligence. “The cost of not having medical malpractice is increased patient deaths and injuries,” says Arlen. “Those are a real cost in an economic perspective. We have to see that as being as much of a cost as a dollar spent on care.”

In 2004 the Supreme Court ruled in Aetna Health Inc. v. Davila, its biggest case on MCO liability, that the federal Employee Retirement Income Security Act takes precedence over state tort suits. “We’ve lost this battle,” Arlen says.

She has also written extensively on the proposal, pushed by Epstein and others, that one way to reform medical malpractice is to use voluntary contracts between doctor and patient. In this scheme the parties agree on the level of liability—Cadillac or Kia— based on how much each patient is willing to pay for levels of safety. The patient then gives up the right to sue. The idea is that this would reduce the overall cost of liability in the health-care system and allow for more patient autonomy.

But Arlen, writing in a 2010 University of Pennsylvania Law Review article, argues that contracting over malpractice liability would not benefit patients, even well-informed ones, or do much to reduce health-care costs. The economic incentives are all wrong, she suggests. The problem is that physicians’ incentives to improve care by investing in technology, expertise, and safety measures arise from their expected liability to all patients, not just individual patients. So the quality of care that each patient receives does not depend primarily on her own decision to impose liability; it depends on choices made by patients collectively. Each patient knows that her decision to waive liability would not materially affect her provider’s expected liability costs. Therefore, the patient would be rational without something they can get for free?” Arlen asks. As a result, most patients would waive, and in turn doctors would have too little incentive to invest in patient safety, to the detriment of all patients.

Markets and Venues
Troy McKenzie is exploring a novel, and he thinks better, model to handle mass tort cases: bankruptcy. It was used in the 1980s when Johns Manville filed for bankruptcy as a way to aggregate all its asbestos liability in one place. But McKenzie thinks bankruptcy concepts can be applied more broadly now to handle other mass tort claims. “By its nature, the bankruptcy court and code are quite good at dealing with large-scale creditor claims that might be widespread and of high value,” he notes. That’s similar to when a manufacturer of a defective product is sued by hundreds of thousands of claimants—like creditors filing claims in bankruptcy.

His proposal is a reaction to the current debate over the right way to handle mass tort injuries. Courts are increasingly slamming the door on class-action suits as questions arise over certifying a class of victims. So plaintiff lawyers have moved to what McKenzie calls quasi–class actions, meaning aggregating mass torts claims but without the formal appointment of class counsel and court certification of the class. Yet courts grappling with quasi-class actions continue to rely on concepts that do not fit a post-class action world.

Bankruptcy would provide a model of aggregation different from the class action. One advantage is that bankruptcy courts can deal better with future or contingenct claims. In mass tort cases, courts now are often bedeviled by new claims of injuries popping up post-settlement. The Johns Manville bankruptcy provided for a future claims representative. Bankruptcy is also better at coordinating claims—making sure claimants who are in the same boat are treated in similar ways and that compensation levels are truly pegged to the level of injury. Now, the first plaintiff in a suit could get a $2 million award, the second nothing, and the third $500,000. “It shouldn’t matter when you file your suit; that shouldn’t determine the level of compensation or the chance you’ll succeed,” McKenzie says. The downside, he says, is that bankruptcy is expensive and that companies might feel a stigma filing for it. He nevertheless believes it provides lessons for handling mass tort claims even if defendants do not actually end up in bankruptcy court. If nothing else, he wants to inject some “mild skepticism” into the view that aggregated court actions must be modeled on class actions.

That view is warranted, according to Issacharoff, who has worked on several mass actions in private practice, including the 2007 $4.85 billion mass aggregate settlement by Merck for its painkiller and anti-inflammatory drug, Vioxx. “Bankruptcy has the right mindset of a workout,” he says, “whereas the litigation system still seems mired in individual-by-individual responsibility.”

Issacharoff explored this area in “Private Claims, Aggregate Rights,” a 2008 Supreme Court Review article. He noted that courts, including bankruptcy, are more flexible when overseeing private, non-class-action, mass litigation compared with the “formalism” they bring to traditional class-action cases.

Each NYU Law professor, in his or her own way, is dealing with “big, hard problems of justice,” as Geistfeld puts it. Their particular view of justice will influence how they think. But any tort suit stripped down to its bare facts involves the conflict between one party exercising liberty and another getting killed or injured by it.

Thus, to Geistfeld, the question for all is this: “How do you balance life and liberty in the pursuit of happiness? I think that is the fundamental tort problem.”

Larry Reibstein is an executive editor at Forbes Media.

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