Asymmetrical Information

While the press has been occupied with the fatso and his McDonalds case, virtually nothing has been said about the mother of all class action suits: Wal-Mart v. Visa. Wal-Mart is essentially accusing Visa of tying its products (under the Sherman Act) and seeking damages somewhere in the neighborhood of $40B.

http://www.forbes.com/business/newswire/2003/01/09/rtr842814.html

The real question is whether the original Amazon.com investors will ever recoup their investment? Or, are they perhaps what I cynically describe as unwitting altruists? They may have helped the overall society by funding Amazon.com during its precarious early years. However, will they ever succeed in making a few bucks off the deal? There’s no doubt that those who purchased Amazon.com at $5.00 a share are happy campers. But if my memory serves, there were a high number who bought their shares at somewhere around $90.00 each.

Little has been said of where much of Amazon's profits come from. Much in the same fashion as AOL they bought numerous viable businesses with stock of outrageously inflated value. Once the bubble burst and the market returned to sane numbers those businesses were still owned by new corporate parents who'd paid nearly nothing for them.

Amazon has had two profitable quarters EVER, not consecutively. This has been the fourth quarter of 2001 and fourth quarter of 2002. It isn't nearly as impressive when one considers that retailers do most of their business in the holiday shopping season.

Don't be so quick to dismiss the worth of a jury's opinion. I work in Texas, which is the only state which allows juries to decide family law cases. That's a big issue. There's a lot of cases which we would never try to the bench but that we would try to a jury (and we think that we're right, and that the judge would rule incorrectly if we tried it to the bench).

That's not to say that there are not abuses. But most personal injury attorneys I know are close to starving, or getting out of the business. That's largely due to the tort reform which was instituted here recently.

People always pick out ridiculous examples of abuses of the courts, which we can all say are egregious. But the fact of the matter is that the courts perform workmanlike service on all sorts of problems which couldn't be solved any other way, and the only way to service all problems (worthwhile and not) is to give all arguments equal weight.

Don't be so quick to dismiss the worth of a jury's opinion. I work in Texas, which is the only state which allows juries to decide family law cases. That's a big issue. There's a lot of cases which we would never try to the bench but that we would try to a jury (and we think that we're right, and that the judge would rule incorrectly if we tried it to the bench).

That's not to say that there are not abuses. But most personal injury attorneys I know are close to starving, or getting out of the business. That's largely due to the tort reform which was instituted here recently.

People always pick out ridiculous examples of abuses of the courts, which we can all say are egregious. But the fact of the matter is that the courts perform workmanlike service on all sorts of problems which couldn't be solved any other way, and the only way to service all problems (worthwhile and not) is to give all arguments equal weight.

"Amazon has had two profitable quarters EVER, not consecutively. This has been the fourth quarter of 2001 and fourth quarter of 2002. It isn't nearly as impressive when one considers that retailers do most of their business in the holiday shopping season." -- from Manish (above)

I believe these two quarters also coincide with the only two quarters where Amazon has not charged shipping. Go figure.

If you watched their earnings report, they're taking SuperSaver year round.

I'm not one of those people who froths about personal injury suits. I'm more worried about class actions, because the lottery-like payoff structure encourages widescale abuse, just as it does in investment banking. I agree that a jury is a great way to decide family law, because most jurors have families and basically understand how they work. Most jurors do not, on the other hand, have degrees in medicine, chemistry, and epidemiology, and we expect them to decide those cases too. That's a problem, when you consider in a lot of cases juries apparently just disregard evidence they don't understand.

For a more detailed (and entertaining) explanation of the Amazon phenomenon, and other "New Economy" businesses, see Stan Liebowitz's, "Re-Thinking the Network Economy".

http://www.amazon.com/exec/obidos/ASIN/0814406491/qid=1043680341/sr=2-1/ref=sr_2_1/002-1534040-1880063

I have long wondered about the viability of our current jury system. In the very early years of our country’s history a trial usually took only a day to resolve. Today, only the unemployed or government workers (who receive full benefits while serving on a jury) can afford the overwhelming financial costs. We definitely need to revamp this outdated system and adopt a more pragmatic solution for our modern era.

Forget fast food. The big class action lurking out there for some enterprising lawyer is the beer-belly lawsuit. Who knew that swilling all this beer was going to give me a humungous gut? There isn't even one shred of nutrition information, let alone warning, on the can. Of course, it may be more difficult to line up children as sympathetic lead plaintiffs.

Hmm, so what's the replacement to class-action jury suits?

For starters, I'd like to see plaintiff's attorney fees capped at some multiple of the defense fees -- say, 3 or 4 times, to adjust for risk. There's no reason that attorneys shouldn't do just as well as the defense guys at the big firms, but there's no reason to make them billionaires. And before you ask, I am generally an ardent capitalist, but in the case of investment bankers, class action attorneys, and some other professions, their fees are almost entirely a function of the current regulatory structure of the market, so I have no problem at all with altering the structure of the market so as to reduce them.

If the problem is the regulatory structure of the market, then isn't the answer to fix the bad regulation, instead of more government interference to cap compensation?

Also Jane, it seems to me that your arguments regarding the capping of attorney's fees would apply about as well to CEOs and corporate executives as well. The lottery like structure of stock option compensation encourages widespread abuses, and CEO pay is also dependent on government rules regarding corporate governance, financial disclosure, etc.

I say just go back to the steeply progressive tax code we had in the 40s, 50s, and 60s. That would certainly decrease the incentive for individuals to seek outsize compensation. And, although it's a theoretical possibility, there's no actual evidence I can find showing that progressivity in the tax code decreased growth during that era.

I realize that I am just an idiot when it comes to money or business, but I am also a person interested in history (I live in Dearborn, Mich. so the Henry Ford Museum is very familiar to me). Back in the 1990's I had the thought that e-tailing was just a new way of doing catalog sales, similar to the way Mr. Sears had done at the end of the nineteenth century. The same problems that the old catalog retailers faced would be present for the new e-tailers (other than the rumored fate for all the catalogs "down on the farm". Can't do that with a silicon chip). Has anyone done any research on this?

I realize that I am just an idiot when it comes to money or business, but I am also a person interested in history (I live in Dearborn, Mich. so the Henry Ford Museum is very familiar to me). Back in the 1990's I had the thought that e-tailing was just a new way of doing catalog sales, similar to the way Mr. Sears had done at the end of the nineteenth century. The same problems that the old catalog retailers faced would be present for the new e-tailers (other than the rumored fate for all the catalogs "down on the farm". Can't do that with a silicon chip). Has anyone done any research on this?

Re: the litigation industry. Why aren't these criminals in prison?

That isn't a bad suggestion, Jane. Unlike damage caps.....

I agree that damage caps are perhaps not the right way to go. How about this idea: forbidding any ownership of a percentage interest in a settlement. It would outlaw contingency fees. What are the negatives behind this idea? Obviously, the richer you are, the more likely you are to able to afford the initial investment.

Have you got any empirical evidence to suggest that judges are less likely to grant directed verdicts and/or summary judgments now?

JT,

The problem with outlawing contingency fees altogether is that it really does throw out the baby with the bathwater: it ensures that genuinely meritorious suits will not be brought on behalf of plaintiffs with no ability to pay by the hour. Caps and other restrictions are one thing and I'm all for them, but abolishing contingency fees outright would be a bad idea.

David Thomson,

Good luck repealing the Seventh Amendment. Or were you not aware that the right to a civil jury trial (in actions at law, generally meaning for damages) is guaranteed by the federal constitution?

All,

A major part of the solution to much of this would be federal tort reform. While substantive tort law is the province of the states, Congress could probably help considerably by expanding the diversity jurisdiction of the federal courts out to its constitutional limit, instead of leaving them with the "complete diversity" requirement they've been working under since the Judiciary Act of 1789 (under which, all the parties on one side must be from different jurisdictions than all those on the other side). Not to be snobbish, but a massive multiparty, multijurisdiction class action does not belong in a rural county courthouse in Mississippi; the Framers recognized this and it's exactly why they provided the federal courts with diversity jurisdiction to hear cases arising under state law. As it is, the present statutory requirement of complete diversity makes dogding out of federal court absurdly easily, simply by naming tenuously-connected local parties to whichever side one needs in order to defeat complete diversity.

Getting these massive cases into federal court would reduce the excesses of plaintiff forum-shopping, since federal jury pools are larger, and (while it admittedly still varies by District and by individual) federal judges with lifetime tenure are considerably more likely to dispose of these cases before they ever reach a jury than are elected state judges.

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