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Dodd, Dancing with “Scheme Liability” Lawyers

In Stoneridge v. Scientific-Atlanta, the Supreme Court Ruled in 2008 that companies cannot be sued just for doing business with another firm that had committed fraud. In tandem with another precedent in Central Bank of Denver v. First Interstate Bank of Denver, the ruling put a check on what the Wall Street Journal has termed “’scheme liability’, in which trial lawyers seek to rope in parties acting legally for having done business with parties that don't.”

U.S. Sen. Chris Dodd, accused by some of his opponents of playing patty cake with corporate campaign contributors, is on an anti-business head trip just now. In the dust and dirt of battle, it has been forgotten that Dodd, at one point in his sterling career, set his face against lawyers who unjustifiably drove up the cost of doing business through excessive litigation.

One of the reasons doctors send their patients to so many specialists, driving up insurance coverage and medical costs, is because by so doing they are buying protection from suit happy law firms. Whispering in the whirlwind, some Republicans have demanded tort reform, so that doctors once again can practice medicine without padding themselves up in protective gear to avoid the kinds of lawyers who make their living by chasing ambulances.

The Consumer Protection Department should have forced Angelo Mozillo, the CEO of Countrywide, now bankrupt, to have tattooed on his puffed up chest “Made in the US Congress.” Countrywide, as well as Fannie and Freddie Mac, were government created monopolies.

Before congress offered special perks to monopolies that came crashing down upon his head, Dodd was a leading champion of tort reform. The Private Securities Litigation Reform Act of 1995 was, according to the WSJ, “Senator Chris Dodd's finest hour. Joining with House Republican Chris Cox, Mr. Dodd led an override of a Bill Clinton veto to end the scourge of 'strike suits.' Prior to the law, trial lawyers would wage legal blitzkrieg against companies guilty only of a falling stock price. Since its enactment, lawyers have had to present some evidence of actual fraud before launching fishing expeditions under the civil discovery process.”

The falling of the house of Countrywide upon Dodd’s head has had the predictable effect of scrambling his brains.

By passing Section 984 of the Draft Dodd bill, which in effect overturns the Supreme Court decision in Stoneridge v. Scientific-Atlanta, the legal blitzkrieg against companies that do business with fraudulent companies – such as, for example, accounting firms -- will commence anew. And the author of the new legislation is…. Envelope please... Chris Dodd, the former scourge of lean and hungry scheme liability lawyers. The Security and Exchange Commission, it should be noted, already has the authority to bring cases against those who aide and abet fraud.

The anti-business provision in Dodd’s bill will, according to the WSJ, “allow private cause of actions and extend liability to accounting firms, lawyers, suppliers and anyone else that has a commercial relationship with a company that commits a securities fraud,” paving the way for unscrupulous law firms to sue innocent plaintiffs to force settlements and enrich law firms that certainly will want to express their gratitude to Dodd in the form of campaign contributions.

The Banking Committee over which Dodd presides as chairman probably will take up his bill by Thanksgiving, after which Dodd’s campaign coffers will undou btedly be filled by grateful lawyers.

Dodd’s political problems have been sufficiently ventilated in Connecticut’s media. In order to escape these toils and trials, the senator has permitted himself a quick makeover, little realizing that the political graveyard is littered with the bodies of incumbent politicians who have failed to read correctly the signs of the times. Businesses are suffering both from an ebbing recession and a future inflationary period that will reduce the capital necessary for business expansion and jobs. This may not be the time to turn over the remains of dying businesses to scheme liability lawyers.

It would seem, from efforts of this kind to placate fervent anti-business proponents on the left, Dodd has moved quickly without any visable discomfortfrom the scalding pot to the red hot frying pan .


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