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Ronald Reagan Presidential Library
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Collection: Roberts, John G.: Files
Folder Title: JGR/Testimony Approval
(03/10/1986-03/20/1986)
Box: 54
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THE WHITE HOUSE
WASHINGTON
March 10, 1986
MEMORANDUM FOR GREGORY JONES
LEGISLATIVE ATTORNEY
OFFICE OF MANAGEMENT AND BUDGET
FROM:
ASSOCIATE COUNSEL PR TO THE PRESIDENT
JOHN G. ROBERTS
SUBJECT:
DOJ Testimony on H.R. 4007
Counsel's Office has reviewed the above-referenced DOJ testimony
and finds no objection to it from a legal perspective.
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
ROUTE SLIP
Take necessary action
TO
Karen Wilson
e
Approval or signature
John Roberts
Comment
Frank Kalder
Prepare reply
Discuss with me
For your information
See remarks below
FROM
Greg Jones
DATE 3/7/86
REMARKS
Please comment by March 13, 1986.
Thank you.
CC: Jim Murr
OMB FORM 4
Rev Aug 70
DRAFT
STATEMENT
OF
JAMES I.K. KNAPP
DEPUTY ASSISTANT ATTORNEY GENERAL
CRIMINAL DIVISION
SUBCOMMITTEE ON CRIMINAL JUSTICE
SUBCOMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
CONCERNING
H.R. 4007
ON
MARCH 20, 1986
Mr. Chairman and Members of the Subcommittee, I am pleased
to be here today to present the views of the Department of
Justice on H.R. 4007. The bill would amend the Jencks Act by
inserting a provision requiring the government, upon request of a
defendant, prior to trial to make available promptly to such
defendant in a criminal case the name and address of each poten-
tial government witness and a copy of any statement made by the
witness about the subject matter of the case in the possession of
the government. The bill also includes a provision whereby the
government may move for an ex parte order denying, restricting,
or deferring the furnishing of this type of information about its
witnesses to the defendant if the court finds that such disclo-
sure "would constitute" an imminent danger to another person or a
threat to the integrity of the judicial process.
The Jencks Act (18 U.S.C. 3500) presently provides that in
federal criminal cases no statement or report in the possession
of the United States which was made by a Government witness or
prospective Government witness shall be the subject of a subpoena
or otherwise subject to discovery until the witness has testified
on direct examination. After a government witness has so testi-
fied, the court, on motion of the defendant, must order the
Government to produce any statement of the witness in its posses-
sion which relates to the subject matter as to which the witness
testified. Frequently, federal prosecutors in effect waive the
benefits of the Jencks Act by opening their files to defendants
in advance of trial and showing them not only the names of
prospective government witnesses but copies of their statements.
- 2 -
However, the practice is not universal and it is not followed in
certain cases, typically those in which the prosecutor believes
that opening his files in this manner will cause or facilitate
perjury on the part of the defense or harassment of government
witnesses. The provisions of section 3500 have repeatedly
withstood Constitutional challenge. 1/ Moreover, in those rare
instances where judges have attempted to order the Government to
disclose the statements of its witnesses prior to trial over the
prosecutor's objections, the Government has obtained writs of
mandamus to prevent judicial usurpation of the prohibitions of
the Jencks Act. 2/
Contrary to the current statute, H.R. 4007 would in essence
impose an "open file" policy on each and every United States
Attorneys Office and Organized Crime Strike Force Office. The
Department of Justice believes that such a policy is not neces-
sary to ensure the fairness of criminal trials. Moreover, and of
primary concern, the bill would have the effect of placing
witnesses in physical danger and of impairing the integrity of
the judicial process -- such as by allowing the defendant to
fabricate a defense through perjured testimony -- in spite of its
provisions intended to prevent these matters. Consequently, the
Department of Justice vigorously opposes this bill.
1/ See, e.g., Palermo V. United States, 360 U.S. 343 (1958).
2/ See, e.g., United States V. McMillen, 489 F. 2d 229 (7th
Cir., 1972), cert. denied, 410 U.S. 955; and see United States v.
Algie, 667 F. 2d 569 (6th Cir. 1982) (collecting cases).
- 3 -
As you no doubt recall, Mr. Chairman, this type of open
witness list provision has been considered and rejected by the
Congress in the past (and was altered from the extreme form in
which it is here proposed by the full House Judiciary Committee).
Specifically, in 1974, the Supreme Court promulgated certain
amendments to the Federal Rules of Criminal Procedure which were
originally due to become effective on August 1, 1974. However
the effective date was postponed for a year -- to August 1, 1975
-- to give the Congress more time to study the amendments. 3/
Among the proposed rules was a new rule 16 (a) (1) (E) which would
have required the government, in similar fashion to H.R. 4007, to
furnish the defendant upon his request a list of the names and
addresses of all witnesses that the government intended to call
in its case in chief, together with a record of their prior
felonv convictions. The Court's 1974 proposal, which was
strongly opposed by the Department, likewise would have allowed
the court to deny, restrict, or defer this type of discovery upon
an ex parte showing by the government of reason to believe that a
witness would be subject to physical or economic harm if his
identity is revealed.
The rules as proposed by the Supreme Court were considered
at some length by this Subcommittee in the 94th Congress.
Particular attention was given to proposed Rule 16 (a) (1) (E)
relating to witness lists. Subsequently, in 1975, the full
3/ See P.L. 93-361.
- 4 -
Judiciary Committee reported out a bill, H.R. 6799, which among
other things modified the witness list proposal in an effort to
alleviate the Department's concerns to provide that witness lists
need only be turned over to the defendant three days in advance
of trial. 4/ This modified witness list proposal continued to be
strongly resisted by the Department and was the subject of
considerable debate on the House floor. An amendment to strike
out the provision that the government furnish witness lists, even
though they would have to be furnished only three days in advance
of trial, was narrowly defeated, 216-199. 5/
Thereafter, when the Senate considered H.R. 6799, it deleted
the witness list provision from the bill. The Senate's views
prevailed in the ensuing House and Senate Conference, and were
4/ Neither the Rules amendments as proposed by the Supreme Court
in 1974, H.R. 6799 in the 94th Congress, nor the bill presently
before the Subcommittee, H.R. 4007, has any effect on the
provisions of 18 U.S.C. 3432 which require the government to give
the defendant the names of its witnesses three days in advance of
the trial of a capital offense. Section 3432 is the only
provision in either the federal statutes or Rules of Criminal
Procedure requiring such advance notice of government witnesses.
It would only be applicable in a prosecution for air piracy
resulting in death under 49 U.S.C. 1472 (i) or (n), since the
death penalty for all other federal offenses is presently
unenforceable in light of the absence of procedures needed to
comport with the Supreme Court's decisions in Furman V. Georgia,
408 U.S. 238 (1972), and subsequent cases. For other offenses,
like first degree murder, for which the death penalty is set out
as a possible punishment but is currently barred, courts have
held that a defendant is not entitled to the government's witness
list in advance of trial since the offense is not "capital." See
United States v. Kaiser, 545 F. 2d 467, 475.
5/ See Cong. Record, 94th Cong., 1st Sess., June 18, 1975, pp.
H 5650-5658.
- 5 -
ultimately accepted by the House, again after debate on the
witness list question. 6/
We firmly believe that the government should not be required
as a general principle of statutory law to open its files to show
defendants the names of witnesses who will testify against them.
We are not aware of any serious claim that federal trials are
presently unfair or that defendants' discoverv rights are
unreasonably limited. Indeed, the law now requires the giving of
very ample pretrial notice to defendants. The indictment itself
must contain a statement of all the essential facts. Defendants
may then he given bills of particulars elaborating on the facts
charged. Under Rule 16, defendants can obtain their own
statements and grand jury testimony, if any, as well as copies of
reports of examinations and tests, and of other books, papers,
documents, and tangible objects material to the case. In the
very rare case where a defendant may properly claim unfair
surprise from the calling of a particular government witness, a
continuance may be granted by the court.
In short, H.R. 4007 is not necessary to make federal trials
more fair. On the contrary, the enactment of H.R. 4007 could
make federal trials less fair. A mandatory open witness list
requirement would allow unscrupulous defendants to identify
government witnesses 50 that they could tailor their defenses and
6/ Cong. Record, 94th Cong., 2d Sess., July 30, 1975, pp. H
7859-7865.
- 6 -
fabricate alibis, thus increasing the chances that an unmerited
not guilty verdict would be returned. As the Subcommittee knows,
the government has the heavy burden of proving guilt beyond a
reasonable doubt. We fail to perceive how a person making an
honest defense will be interfered with by not being told the
names and addresses of the government's witnesses prior to trial.
Fairness surely does not require affording defendants the oppor-
tunity to make a leisurely study of every configuration of the
government's case so they can shape their tactics and defenses
accordingly.
We have another, even more important, concern with a general
open witness list requirement like that in H.R. 4007. Such a
requirement would jeopardize the safetv and lives of many govern-
ment witnesses. Back in the 94th Congress, in testifying on H.R.
6799, the Department furnished the House and Senate Judiciary
Committees with a document prepared by United States Attornevs
detailing over 700 instances of witness intimidation, assault, or
assassination arising out of all manner of prosecutions. Cer-
tainly the danger to witnesses is no less severe today than it
was a decade ago and common sense indicates it is probably a lot
worse. In combatting large scale drug trafficking rings, outlaw
motorcycle gangs, and traditional organized crime families we
often deal with persons with little regard for the lives of
others and who would not hesitate to have government witnesses
killed to avoid conviction. Indeed, Congress has recently
recognized that the danger facing many federal witnesses is real
and substantial by passing the Victim and Witness Protection Act
- 7 -
of 1982. Among other things, this Act greatly increased the
penalties for witness tampering. 71
Our concern with H.R. 4007 is not so much that it will make
the prosecution of easy or routine cases harder, but rather that
the harder cases will be made more difficult, and that complicat-
ed investigations will be somewhat less likely to bear fruit. It
is in the dangerous and difficult cases that the identities of
witnesses need to be kept secret for their sake and for
society's. H.R. 4007 would impact most adversely on the
Department's most significant cases, like those aimed at
organized crime families, major narcotics traffickers, and
terrorist organizations. Getting witnesses to cooperate with law
enforcement is a serious problem in all types of cases. At the
very least, witnesses usually have to sacrifice time and energy
and are under considerable emotional strain, although these are
sacrifices that society must insist upon and which a great many
witnesses are willing to make, even though many of them are very
concerned over possible intimidation or reprisal by the
defendant. It needs no elaboration to understand why these
71 To be sure, the Bail Reform Act of 1984 did make it somewhat
easier to place in pretrial confinement persons who pose a
serious risk of obstructing justice or intimidating or harassing
witnesses. But the fact that a person is in jail does not mean
he cannot arrange for a witness to be assaulted or killed. In
fact, major drug rings and organized crime families typically are
able and willing to carry out such a despicable act to prevent
one of their temporarily detained leaders from being convicted of
a crime.
- 8 -
concerns are the most justified in precisely those cases which
are the most important because the defendant represents a
substantial threat to our societv.
Mr. Chairman, we realize that H.R. 4007 would allow the
government to seek an ex parte order to prevent the disclosure of
the name of a witness if such disclosure would endanger the
safety of that person or of another person or would constitute a
threat to the integrity of the judicial process. But on examina-
tion this provision is at best of limited help. It may often be
difficult to show why the normal rule embodied in the bill of
requiring pretrial disclosure of witnesses should not be followed
merely on the basis of the kind of charges against the defendant,
his arrest record, or even his reputation. Certain crimes --
large scale cocaine importation by an organized gang, for example
-- carry with them a higher than average likelihood that any
government witness may be in considerable danger. But demon-
strating that the defendants in a particular cocaine case are
likely to harm witnesses may be very difficult especially if they
are foreign nationals whose arrest and criminal records may not
be available or accurate. 8/
8/ We realize that some states have an open file policy under
which witness lists are usually made available to the defendant.
Such a policy is informally in effect for at least some cases in
some of our federal judicial districts. Many state prosecutors
and some United States Attorneys Offices do not often have to
face the hardened and ruthless types of defendants who are
involved in the top priority drug and organized crime cases in
many parts of the country. Because an open file policy is in
(Footnote Continued)
- 9 -
In closing, Mr. Chairman, permit me to address what I
suspect is one of the central arguments of those who advocate an
open witness list rule, namely that allowing the government not
to reveal the names of its witnesses promotes an undesirable
"sporting theory" of justice. Actually, we agree with the
proposition that a criminal trial is not a sporting contest.
What it is supposed to be, of course, is a search for the truth
with the fact finder required to determine whether the defendant
committed the elements of the offense as charged. That search is
impaired, not advanced, if defendants are given an opportunity to
harass and threaten government witnesses and to get a perfect
picture of every detail of the government's case so they can
manufacture a defense.
In sum, the Department of Justice believes that the provi-
sions in H.R. 4007 would be very harmful, and, accordingly, we
strongly oppose its enactment.
Mr. Chairman, that concludes my prepared statement and I
would be happy to answer any questions the Subcommittee may have.
(Footnote Continued)
effect in some places is little reason for imposing such a policy
on a national scale.
THE WHITE HOUSE
WASHINGTON
March 19, 1986
MEMORANDUM FOR BRANDEN BLUM
LEGISLATIVE ATTORNEY
OFFICE OF MANAGEMENT AND BUDGET
FROM:
JOHN G. ROBERTS
ASSOCIATE COUNSEL TO THE PRESIDENT
SUBJECT:
DOJ Draft Testimony on S. 2162, the
Anti-trust Remedies Improvements Act of 1986
Counsel's Office has reviewed the above-referenced DOJ draft
testimony and finds no objection to it from a legal perspective.
ID #
CU
WHITE HOUSE
CORRESPONDENCE TRACKING WORKSHEET
O - OUTGOING
H - INTERNAL
I . INCOMING
Date Correspondence
Received (YY/MM/DD)
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/
Name of Correspondent:
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MI Mall Report
User Codes: (A)
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Subject: Department of Justice draft testimony ons.2162
the Anti-trust Remedies Improvement Act of1986
ROUTE TO:
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to be used as Enclosure
FOR OUTGOING CORRESPONDENCE:
Type of Response e Initials of Signer
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Comments:
Keep this worksheet attached to the original Incoming letter.
Send all routing updates to Central Reference (Room 75, DEOB).
Always return completed correspondence record to Central Files.
Refer questions about the correspondence tracking system to Central Reference, ext. 2590.
5/81
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
SPECIAL
March 19, 1986
LEGISLATIVE REFERRAL MEMORANDUM
SPECIAL
TO:
Department of Commerce - Joyce Smith (377-4264)
Department of State - Lee Ann Berkenbile (647-4463)
Department of Labor - Seth Zinman (523-8201)
Department of the Treasury - Carol Toth (566-8523)
U.S. Trade Representative - Lynn Johnston (395-3150)
Council of Economic Advisers
Federal Trade Commission
SUBJECT: Department of Justice draft testimony on S. 2162, the
Anti-trust Remedies Improvements Act of 1986.
The Office of Management and Budget requests the views of your
agency on the above subject before advising on its relationship
to the program of the President, in accordance with OMB Circular
A-19.
Please provide us with your views no later than COB -- MARCH 19, 1986.
(NOTE -- The Senate Judiciary Committee has scheduled a hearing on this
bill for 3/21/86. S. 2162 is one of the Administration's
anti-trust reform proposals recently transmitted to the
Congress jointly by Justice and Commerce.)
Direct your questions to Branden Blum (395-3454), the legislative
attorney in this office.
BrandasBer
for
James C. Murr for
Assistant Director for
Legislative Reference
Enclosure
CC: Fred Fielding
Karen Wilson
Chuck Goldfarb
John Cooney
Steve Eisner
STATEMENT OF
DOUGLAS H. GINSBURG
ASSISTANT ATTORNEY GENERAL
ANTITRUST DIVISION
BEFORE THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
:
CONCERNING
S. 2162
THE ANTITRUST REMEDIES IMPROVEMENTS ACT OF 1986
ON
MARCH 21, 1986
Mr. Chairman and Members of the Committee:
I am pleased to have the opportunity to appear before the
Committee to testify on 8. 2162, the "Antitrust Remedies
Improvements Act of 1986." This bill, introduced by the
Chairman on behalf of the Administration, would make a number
of timely and important improvements in the key antitrust
remedial provisions in the Clayton Act. S. 2162 is one of four
pending Administration proposals for improvements in the
antitrust laws themselves; the fifth of the Administration's
proposals involves amendments to the Trade Act regarding the
application of the antitrust laws in industries injured by
imports. I want to express our thanks to the Committee for
scheduling its hearings on this first bill 50 quickly. I look
forward to discussing the Administration's other proposals with
the Committee as soon as its schedule permits.
As its title suggests, 8. 2162 deals not with substantive
antitrust law, but rather with the equally important issue of
appropriate antitrust remedies. Businessmen and women,
lawyers, economists, and of course the Members of this
Committee well know the significance of remedies in antitrust
or indeed any legal system. Substantive law says how people
should behave; but applicable remedies determine how they will
behave.
We have three kinds of antitrust remedies. Criminal
prosecution is designed solely to punish and deter intentional
violations. Since about 1960, and particularly in the last
10 years or so, the indictment and incarceration of individuals
responsible for hard-core antitrust violations has played an
extremely important remedial role in antitrust. The Department
of Justice intends to see this role increased even more. We
also have preventive antitrust remedies: either the federal
government or a private party threatened with antitrust injury
may seek to enjoin a violation before it occurs. Finally, we
have compensatory remedies: private parties, the federal
government, and state attorneys general as parens patriae all
may sue to recover monetary damages for injuries caused by
antitrust violations. All of these remedies act together to
influence the behavior of those who may be accused of antitrust
violations as well as those who may be doing the accusing.
Such a panoply of remedies is by no means unique to
antitrust. Antitrust is somewhat unusual, however, in that
significant punitive, deterrent aspects were deliberately added
to its basic compensatory remedies. With a few,
recently-enacted exceptions, antitrust damages are always
trebled, and plaintiffs automatically are awarded attorneys'
fees if they prevail. These punitive features simultaneously
give potential plaintiffs strong positive incentives, and
potential defendants strong negative incentives, that ordinary
- 2 -
compensatory remedies do not. In short, we ask our
compensatory antitrust remedies to do a lot of things at the
same time, and each of them--compensation, punishment, and
deterrence--must be done correctly. After 90 years, there is
good reason to believe that some adjustments are necessary.
For some time now, and increasingly in the past few years,
the antitrust community generally and this Committee in
particular have been studying and working with the antitrust
damage remedies to see that they continue to provide fair
compensation, deter potential defendants from doing what ought
to be deterred, and give potential plaintiffs appropriate
incentives to challenge what ought to be challenged. The
Committee has recognized that not all antitrust violations are
clear, and that the punitive aspects of our damage remedies can
deter beneficial as well as anticompetitive activities. The
Committee also has noted that the private interests of
potential plaintiffs do not always coincide with those of the
public, and that punitive damages can sometimes give plaintiffs
an incentive to challenge procompetitive behavior.
Three times in the last four years, the Committee and the
Congress have responded to these concerns by adjusting
antitrust damage rules for specific types of cases. The Export
Trading Company Act of 1982, the National Cooperative Research
Act of 1984, and the Local Government Antitrust Act of 1984 all
- 3 -
recognized the continuing care that must be taken with a
compensatory remedy that also performs a punitive, deterrent
function, and accordingly in all three statutes Congress
detrebled, or in one instance eliminated, antitrust damage
recoveries. The Committee also has developed an extensive
record on the need to modify the rules that determine the
manner in which joint and several liability for antitrust
damages is apportioned among the responsible parties. S. 2162
is in very substantial part a product of this experience.
S. 2162 makes several adjustments to antitrust remedies,
each closely related to the others. All are intended to
function together to preserve and indeed enhance a strong
deterrent effect on unambiguously harmful conduct while
removing undue inhibitions on potentially procompetitive
activities. All continue to give potential antitrust
plaintiffs appropriate incentives to challenge anticompetitive
activities, while discouraging plaintiffs from using antitrust
damage remedies to restrain competition.
First, S. 2162 correlates the trebling of antitrust damages
to the type of injury caused by an antitrust violation. Under
the bill, private plaintiffs, state attorneys general suing on
behalf of consumers, and for the first time the United States
as civil plaintiff, could all recover treble damages for
injuries due to overcharges or underpayments by an antitrust
- 4 -
03/18/86
16:23
?
NO. 008
007
violator. Plaintiffs seeking to recover their profits lost as
the result of an antitrust violation would be entitled to
actual damages plus, for the first time, prejudgment interest
on their actual damages from the date of the injury. All
successful plaintiffs, of course, would continue to recover
their costs, including reasonable attorneys' fees.
Second, S. 2162 provides a right of claim reduction, to
counter "whipsaw" settlement tactics that can be used to
undermine the just resolution of antitrust cases. Today, a
plaintiff's trebled claim against non-settling defendants is
reduced only by the actual amount it receives from any settling
defendants. This bill would reduce the plaintiff's recovery by
at least the share of its damages fairly allocable to each
person that the plaintiff releases from liability. The formula
for determining a fair share would be based either on sales, as
in the typical price fixing case, or on relative responsibility
and benefit in other cases.
Finally, S. 2162 would provide costs and attorneys' fees to
prevailing defendants where private plaintiffs' conduct was
"frivolous, unreasonable, without foundation, or in bad
faith." With the Committee's permission, I would like briefly
to outline each of these features of S. 2162.
- 5 -
03/18/86
16:23
?
NO. 008
008
Treble Damages and Prejudgment Interest
The treble damage remedy is an important element in
antitrust enforcement. Public resources alone are not
sufficient to detect and prosecute all violations. Private
treble damage actions have served to help deter and redress
antitrust violations since the Sherman Act was passed in 1890.
S. 2162 would preserve, and in fact enhance, the
effectiveness of this important remedy. Antitrust violators
that harm consumers by raising the cost of goods and services
would continue to face automatic treble damage liability. For
the first time, such violators would also risk treble damage
actions when the United States is the victim of their
violations. Such clearly anticompetitive conduct as price
fixing and bid rigging for government contracts is costing the
taxpayers dearly. We have more than 20 grand juries
investigating such situations right now. But so long as the
United States is unable to recover punitive treble damages, we
cannot hope to protect the taxpayers adequately. The need for
a stronger deterrent to such practices is clear.
S. 2162 would also recognize, however, that treble damages
can deter a wide range of conduct that is not clearly
anticompetitive and that may be quite beneficial to consumers
and to our economy generally. The current punitive damage
6
in particular circumstances, be found to violate the antitrust
laws--no matter how close the question. In so doing, they have
to actually inhibit some procompetitive activities. In
selectively "detrebling" damages assessed against activities
that are often procompetitive, S. 2162 reflects that fact that
it simply makes no legal or economic sense for a punitive
remedy designed strongly to deter clearly harmful conduct like
price fixing to be applied equally to ordinary, open business
activities that, after a full trial on their economic effects,
may or may not be found to have been anticompetitive.
The logical shortcomings of the current treble damage rule
have long been recognized. Congress has considered proposals
to limit the application of treble damages since at least the
1950's, when a bill was introduced to make multiple damages
discretionary. In recent years, calls for one partial reform
or another have been constant.
Congress has in fact now twice limited antitrust damage
recovery to full compensation--actual damages plus prejudgment
interest-for certain categories of conduct found to hold
substantial procompetitive promise. The Export Trading Company
Act of 1982 responded to concerns that treble damage liability
and uncertainty over the application of the antitrust laws to
export activities were combining to constrain American export
trade. The National Cooperative Research Act of 1984 reflected
- 7 -
the same concerns as they relate to joint research and
development. This Committee found that the threat of private
litigation and the uncertain legal status of joint R&D efforts
"may have caused many firms to abandon their plans for such
efforts at the drawing board, even when the activities under
consideration posed little or no actual threat to
competition." 1/
The Local Government Antitrust Act of 1984 eliminated
damage recovery altogether in antitrust suits challenging
activity by local government entities. Once again, this
Committee found that "[t]he threat of antitrust treble damage
actions has caused local officials to avoid decisions that may
touch on the antitrust laws even when such decisions have
involved critical public services." 21
Other proposals to modify the rule of automatic treble
damages in particular antitrust actions continue to be made.
Bills are presently being considered to detreble damages in
cases challenging conduct involving trade or commerce with a
foreign nation, and in cases that concern the licensing of
intellectual property.
1/ Report of the Senate Committee on the Judiciary to
Accompany S. 1841, S. Rep. No. 427, 98th Cong., 2d Sess. 3.
(1984)
2/ Report of the Senate Committee on the Judiciary To
Accompany S.1578, S. Rep. No. 593, 98th Cong., 2d Sess., 3.
(1984)
- 8 -
The Administration believes that it is time to take what we
have learned from the extensive and lengthy debate over the
treble damage remedy and address the problem on a broader
basis. Years of court decisions, scholarly comment,
commissions to study the antitrust laws, Congressional
hearings, and limited revisions of the law have provided the
experience and guidance to fit the remedy to its proper task.
We believe that the primary goals in reforming the treble
damage remedy should be to maintain the strongest incentive for
plaintiffs to sue defendants who engaged in patently
anticompetitive conduct, thereby punishing and deterring such
conduct, and to provide a fully compensatory remedy for conduct
which may or may not be anticompetitive under the
circumstances, so as not to allow the threat of punitive
damages to inhibit innovative competitive activity. These
goals can be sought in several ways; indeed, a number of
alternative approaches have been suggested. While there is no
absolutely perfect approach, S. 2162 provides what we think is
clearly the best way in which to define the proper scope for
punitive damages in antitrust. Under S. 2162, treble damages
will continue to be recoverable for injuries in the form of
overcharges or underpayments by an antitrust violator. Other
antitrust injuries--the plaintiff's lost business profits--will
be redressed by actual damages plus prejudgment interest,
unless the award of all or part of such interest is unjust in
- 9 -
the circumstances. We believe that this approach has a number
of significant advantages.
S. 2162 properly places the weight of the punitive damage
remedy on clearly harmful conduct. Covert concerted practices
such as price fixing, bid rigging, divisions of markets, and
allocation of customers must be strongly deterred. Suits
brought by victims of these practices, often consumers or small
businesses, are generally based on overcharges or
underpayments. Injury in the nature of lost profits, however,
may result from practices with procompetitive potential.
Punitive damages for such practices, usually unconcealed, can
stifle innovative, competitively beneficial behavior. A fully
compensatory remedy for lost:profits will not inhibit vigorous
competition.
S. 2162 maintains a strong incentive for plaintiffs to
detect and challenge unambiguously anticompetitive behavior but
minimizes the incentive to bring suits intended to thwart
competition. Persons claiming antitrust injury due to
overcharges typically are consumers who are hurt by
anticompetitive practices, and who are motivated by a desire to
promote competition from which they, as customers, will
benefit. Rivals seeking lost profits, however, may be
suffering from an inability to compete effectively in the
marketplace rather than from any unlawful practice. The law
- 10 -
can
should not provide them with an enhanced ability or incentive
to challenge healthy, aggressive competition; by taking the
punitive element out of suits by rivals, S. 2162 accomplishes
this result. At the same time, it preserves a fully sufficient
incentive to competitors who have actually been harmed by an
antitrust violation to seek redress: a fully compensatory
remedy, which means actual damages and interest thereon from
the time they are injured to the time they collect their
damages, nothing less. Actual damages alone do not compensate
for the lost use of money from the time of injury to the time
of judgment.
The issue of prejudgment interest has been studied several
times in the last few years. In 1980, Congress enacted a
limited right to recover prejudgment interest on the basis of
dilatory conduct in treble damage actions. S. 2162 preserves
this right in cases in which damages will continue to be
trebled. When damages have recently been detrebled in
particular contexts, however, it has been recognized that
prejudgment interest should be awarded as a matter of course.
S. 2162 follows the lead of the National Cooperative Research
Act of 1984 in awarding prejudgment interest on actual damages
from the date of injury, unless all or part of such interest
would be unjust in the circumstances. S. 2162 does differ
slightly by giving the court more flexibility in choosing the
appropriate interest rate to best reflect a loss over a period
of fluctuating rates.
- 11 -
S. 2162 provides certainty and can be implemented easily.
The determination of when multiple damages are recoverable
turns on an element of proof already required in every case:
the plaintiff's damage theory. Alternative proposals to
detreble for certain categories of conduct would engender
lengthy litigation over the appropriate characterization of the
offense charged. Indeed, the number of Supreme Court cases on
the question whether particular conduct should be treated as
"per se" unlawful or instead subject to the "rule of reason" is
a stark reminder of the need for a distinction that is not
easily manipulated in order to turn actual damage cases into
punitive damage cases. Nor will an enumeration of particular
types of violations suitable. for one treatment or another prove
stable. If counsel can mischaracterize conduct in order to
raise the stakes of litigation they will do so; for example,
joint purchasing arrangements may be called boycotts or joint
selling arrangements price fixing. It is much more difficult,
however, to mischaracterize lost profits as overcharges. The
pre-litigation relationship between the parties immutably
determines the plaintiff's damage theory: if it wasn't a
consumer of the relevant product, it could not be overcharged
for it. Thus, S. 2162 avoids the potential for abuse that
conduct-oriented approaches to detrebling may create.
The remedies provided by S. 2162 are also consistent with
optimal penalty theory. Overcharges clearly indicate the
- 12 -
societal harm caused by an antitrust violation. Lost profits
are not closely related to such harm, however, and in fact may
well overstate it. Overcharges also typically result from
covert behavior and we can never be certain it is all being
detected; treble damages provide a needed multiplier to deter
volations that may not otherwise be detected.
Finally, S. 2162 promotes consumer welfare. Provable
overcharges reflect the transfer of surplus from buyers to
sellers that monopoly permits and competition prevents. When
overcharges are proven, trebled, and recovered. we have the
greatest confidence that the antitrust laws are being applied
in line with their intended function, the preservation of a
competitive economy.
Claim Reduction
S.2162 also addresses the issue of how best to distribute
the responsibility for damages among the defendants in
antitrust litigation in order to reduce perceived unfairness
resulting from the current antitrust damage allocation system.
The issue of antitrust damage allocation reform is, of course,
a familiar one for this Committee. Proposals to amend the
present scheme of allocating damage responsibility in antitrust
litigation have been before the Committee continuously since
- 13 -
1979. 3/ The Committee has held several sets of hearings on
the issue and twice reported legislation that would have
provided rights of contribution and claim reduction in
antitrust litigation. 4/ Thus, I will keep my remarks on the
need for damage allocation reform brief.
Liability for antitrust damages is joint and several, which
means that a plaintiff may sue any or all of the members of an
antitrust conspiracy and collect its damages in any proportion
from liable defendants. Furthermore, when a plaintiff releases
a defendant from liability for damages, only the actual amount
paid for the release is deducted from the plaintiff's claim
against the remaining defendants. Thus, if a plaintiff enters
into a settlement with any defendant for an amount that is less
than the share of the plaintiff's injury caused by the settling
defendant's own conduct, responsibility for the difference is
shifted to the remaining defendants. The term "whipsaw
settlements" has come to be applied to the deliberate use of
early, "sweetheart settlements" to raise the perceived
liability of nonsettling defendants to the point where they are
forced to abandon even meritorious defenses and settle out of
3/ See S. 1468, 96th Cong., 1st Sess. (1979); S. 995, 97th
Cong., 1st Sess. (1981); S. 380, 98th Cong., 1st Sess. (1983);
S. 1300, 99th Cong., 1st Sess. (1985).
4/ S. Rep. No. 428, 96th Cong., 1st. Sess. (1979); S. Rep. No.
359, 97th Cong., 2d 8ess. (1982).
- 14 -
DUY
the fear of facing ruinous liability should they litigate and
lose.
The extent to which either arbitrary defendant selection or
whipsaw settlements have resulted in unfairness worthy of
reform, and what manner of reform would be most appropriate,
have been debated at length for the last 7 years. Although
legal scholars have failed to reach a consensus on these
questions, 5/ I believe that the exhaustive hearing record that
has been developed before this Committee provides a firm basis
for congressional action at this time.
After examining the record on antitrust damage allocation,
we are convinced that there is a real problem to be solved,
namely the use or potential use of whipsaw settlements.
Plaintiffs have an obvious incentive to obtain the maximum
amount they can in settlements, and the present antitrust
damage allocation system encourages this incentive to the point
of excess by permitting whipsaw settlements. Antitrust
5/ See, e.g., Easterbrook, Landes, and Posner, Contribution
Among Antitrust Defendants: A Legal and Economic Analysis, 23
J. Law & Econ. 331 (1980) (costs of contribution and claim
reduction probably exceed benefits); Polinsky and Shavell,
Contribution and Claim Reduction Among Antitrust Defendants:
An Economic Analysis, 33 Stan. L. Rev. 447 (1981) (claim
reduction recommended over contribution or no change in
existing law); Sullivan, New Perspectives in Antitrust
Litigation: Towards a Right of Comparative Contribution, 1980
U. Ill. L. F. 389 (contribution should be provided in non-per
se cases only on a discretionary, comparative fault basis).
- 15 -
liability rules should encourage fair settlements, but not
whipsaw settlements.
Three types of reform legislation in this area have been
considered by the Committee: contribution, claim reduction,
and the elimination of joint and several treble-damage
liability. Contribution, which permits suits by liable
defendants who have paid more than their fair shares of the
plaintiff's damages against other liable defendants who have
not, basically deals with perceived unfairness where plaintiffs
make arbitrary choices to sue or collect damages from some but
not all of those responsible for antitrust injury. On the
other hand, claim reduction. which requires automatic deduction
from the plaintiff's remaining claim of the fair share of its
damages attributable to any person released by the plaintiff
from liability, addresses the whipsaw settlement problem
itself. Individual treble-damage liability (i.e. the
elimination of joint and several liability), eliminates both of
these problems--and more.
Over the last few years, the Department of Justice has
listened to the debate on these approaches, and studied their
relative effects on antitrust damage litigation. Of particular
concern to the Department is the relative effect that each
alternative would have on deterrence of hard-core criminal
behavior, such as price fixing, and on plaintiffs' incentives
- 16 - -
to discover and bring suit against it. I do not want to take
up valuable Committee time covering old ground; just last year
the Department presented a detailed statement of its concerns
in this area during the Committee's consideration of
S. 1300. 6/ I will, however, reiterate our belief that
eliminating joint and several liability, and to a lesser extent
providing a right of contribution, could reduce deterrence of
price fixing and bid rigging by reducing defendants' ex ante
expectations of liability from engaging in unlawful conduct.
Furthermore, complicating the litigation facing plaintiffs
could discourage some meritorious suits. Limiting defendants'
maximum potential liability by virtually eliminating any risk
of paying damages out of proportion to their market shares
could allow potential miscreants to more accurately assess the
costs of engaging in unlawful conduct. Of all of the
proposals, claim reduction appears least likely to have these
adverse effects on deterrence.
We also believe that individual treble-damage liability and
contribution would increase to a greater extent than claim
reduction the burden on the federal courts in resolving
antitrust disputes.
6/ Statement of Charles F. Rule, Acting Assistant Attorney
General for Antitrust, Before the Senate Comm. on the Judiciary
Concerning S. 1300 (July 29, 1985).
- 17 -
To summarize, the Department believes that the record
developed through congressional hearings on the antitrust
damage allocation system has disclosed a problem with whipsaw
settlements, and that claim reduction is an appropriate method
for resolving this problem. I urge the Committee favorably to
consider the claim reduction proposal in S. 2162.
Attorneys' Fees
Let me turn briefly now to those provisions in S. 2162 that
deal with attorneys' fees in private antitrust cases. The bill
provides for the award of costs, including a reasonable
attorney's fee, to a substantially prevailing defendant upon a
finding that the plaintiff has pursued baseless litigation.
This provision addresses concerns that the current imbalance in
antitrust law regarding the award of attorneys' fees
facilitates the potential abuse of antitrust remedies.
Sections 4 and 16 of the Clayton Act entitle only
prevailing plaintiffs to attorneys' fees; in general,
prevailing defendants do not receive attorneys' fees. Thus,
the antitrust laws embody both the English and American rules
on attorneys' fees, but in a manner that discriminates between
plaintiffs and defendants.
This statutory imbalance was knowing and deliberate.
Private enforcement of the antitrust laws is an important
- 18 -
complement to government prosecution. Antitrust cases can be
legally or factually complex, and Congress decided to
supplement treble damage recovery with the award of attorneys'
fees to provide even greater incentives to potential
plaintiffs. Unfortunately, the attorneys' fees imbalance also
creates a potential for abuse. This abuse may take the form of
a "strike suit" filed primarily to extract a settlement from a
defendant for something less than the defendant's anticipated
litigation costs, or a potentially lengthy injunctive suit by a
rival to convince a competitor to abandon its plans to compete
aggressively rather than incur substantial legal costs. Such
actions undermine the purposes of private enforcement and
increase the costs that litigation imposes on society generally.
S. 2162 recognises the possibility of such abuse by
awarding costs, including attorneys' fees, to substantially
prevailing defendants if the plaintiff's conduct has been
"frivolous, unreasonable, without foundation or in bad faith."
This standard is most familiar to the Members of this
Committee: it is the same standard used by Congress when it
recently decided to award attorneys' fees to prevailing
defendants in the National Cooperative Research Act of 1984.
Indeed, Congress has on more than one recent occasion
recognized and responded to the potential for abuse of the
antitrust process by creating the possibility of attorneys' fee
- 19 -
awards to prevailing defendants in such circumstances. The
Hart-Scott-Rodino Antitrust Improvements Act of 1976 permits
recovery of attorneys' fees by a prevailing defendant in a
state parens patriae case upon a showing that the suit was
brought "in bad faith, vexatiously, wantonly, or for oppressive
reasons." 1/ The Export Trading Company Act of 1982 awards
attorneys' fees to prevailing defendants as a matter of
course. 8/ And as indicated above, in its most recent
consideration of this issue in the National Cooperative
Research Act, Congress decided to permit recovery of attorneys'
fees by a prevailing defendant in cases challenging joint
research and development upon a showing that the plaintiff's
conduct was frivolous, unreasonable, without foundation, or in
bad faith. 9/ In reporting this standard, based on the Supreme
Court's Christiansburg Garment decision, 10/ the NCRA conferees
expressed their belief that it would "achieve the desired goal
of protecting law-abiding defendants from baseless and bad
faith attacks while ensuring that private enforcement of the
antitrust laws is not deterred." 11/ We concur in this
assessment, and recommend that this carefully drawn provision
be made applicable across-the-board in private antitrust cases.
7/ 15 U.S.C. 15c(d)(2).
B/ 15 U.S.C. 4016(b)(4).
9/ 15 U.S.C. 4304(a)(2).
10/ Christiansburg Garment vs. EEOC, 434 U.S. 412 (1978).
11/ H.R. Rep. 98-1044, 98th Cong., 2d Sess. 15 (1984).
- 20 -
*****
To summarize, Mr. Chairman, keeping our antitrust remedies
true to their purpose as substantive antitrust law evolves and
experience accumulates is an extremely important task.
Congress has already made some progress along these lines. We
believe, however, that the time for an industry-by-industry, or
1
activity-by-activity approach to the treble damage remedy has
passed, and that now is the time to make comprehensive,
integrated, but by no means radical or unprecedented
adjustments to the remedial provisions of the Clayton Act.
Mr. Chairman, this concludes my prepared statement. I
would be happy to address any questions the Committee may have.
- 21 -
THE WHITE HOUSE
WASHINGTON
March 20, 1986
MEMORANDUM FOR BRANDEN BLUM
LEGISLATIVE ATTORNEY
OFFICE OF MANAGEMENT AND BUDGET
FROM:
ASSOCIATE COUNSEL X THE PRESIDENT
JOHN G. ROBERTS
SUBJECT:
DOJ Testimony on Litigation Abuse Reform
Counsel's Office has reviewed the above-referenced DOJ testimony
and finds no objection to it from a legal perspective.
ID /
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THROJ01
DRAFT
STATEMENT
OF
RICHARD K. WILLARD
ASSISTANT ATTORNEY GENERAL
CIVIL DIVISION
U.S. DEPARTMENT OF JUSTICE
BEFORE
THE
SENATE JUDICIARY COMMITTEE
CONCERNING
LITIGATION ABUSE REFORM
ON
MARCH 26, 1986
Mr. Chairman and members of the Committee:
The Department of Justice appreciates the opportunity to
appear before the Senate Committee on the Judiciary to discuss
the liability insurance crisis and the need for meaningful
reforms of our tort civil justice system. Senator McConnell and
others have proposed legislation that attempts to address these
difficult issues. While the Administration is continuing to
study S.2046, many of its provisions propose constructive
answers to our current problems.
In my June 11, 1985 testimony before this Committee on
S.1254, Senator Grassley's contractor indemnification bill, I
identified two clear reasons why government contractors and
other commercial manufacturers were alarmed about products
liability and commercial risk exposure. Those reasons are the
innovative theories of tort liability applied by many courts and
the enormous growth in the size of awards being granted by many
juries and courts. These troubling trends in the tort system
are not confined to government contractors or to products
liability cases, but have generated uncertainty and instability
in almost every facet of the liability insurance marketplace and
have contributed significantly to the current liability crisis.
As this Committee has already heard, and other members of
Congress are undoubtedly becoming aware, liability insurance
premium rates have increased by up to 1000 percent, if not
more. Often, coverage is unavailable at any price; the results
to business, municipalities and individuals are devastating.
The liability crisis affects virtually every segment of American
society -- manufacturers, professionals, small businesses,
municipalities and nonprofit organizations. Many believe that
tort reform and insurance availability are the most important
issues facing commerce today.
The Cause of the Problem
While everyone agrees that the high cost or unavailability
of liability insurance is a major crisis facing American
society, not everyone agrees on the cause of the problem.
Some groups have been before Congress -- most notably the
National Insurance Consumer Organization and the trial
lawyers -- to suggest that the current crisis stems from the
insurance industry's own greed and shortsighted underwriting
policies. They would assert that the current price increases
are simply insurance industry efforts to recoup past losses
suffered as a result of insurance industry mismanagement.
Others contend that the problem is cyclical and will
disappear when low interest rates rise. Still others agree with
Ralph Nader, who has testified before Senate and House
committees that the entire crisis or problem is a hoax, a
conspiracy by the insurance industry to use the legislatures to
further defraud the insurance consumer.
- 2 -
Let me start by saying that the history of the insurance
industry has been cyclical. And it is also true that some of
the current increases in liability insurance costs are the
result of past competition for premium income as well as the
recent sharp decline in interest rates. However, while it seems
likely that the insurance industry will be able to work its way
out of its present economic straits, it is very unclear whether
more favorable market conditions and more deliberative
underwriting practices will significantly alleviate the long-
term insurance availablity and affordability problem. Early
indications are that insurers will continue to avoid areas that
present a high risk of tort liability and, in those areas where
insurance is offered, uncertainty about present and future
liability will continue to dictate high premiums. It is
becoming apparent that the insurance availability/affordability
crisis is but one symptom of the dislocations and problems
generated by a malfunctioning tort system. What is called for
is a cure for the disease, not a treatment for the symptom.
The Administration strongly believes that the essence of the
problem is the outrageous tort decisions of the last few years
in which courts, driven by plaintiff lawyers, have brought about
a vast expansion of civil liability and an enormous increase in
the size of damage awards. Our civil justice system is no
longer seeking to impose liability based upon traditional
- 3 -
doctrines of fault. Rather, the system seeks to compensate
plaintiffs at the expense of those who have the resources to
absorb the costs.
I would like to discuss four specific developments in tort
law that deserve particular attention, and perhaps legislative
redress, whether at the federal of state level.
1. The movement toward no-fault liability
As I have stated in earlier testimony before this Committee,
fault has been the centerpiece of tort law since the days of the
industrial revolution. It assigns liablity based on the
reasonableness of the actor's conduct or activity,
distinguishing socially beneficial, from socially harmful,
conduct. Stated differently, without basing tort law on the
concept of fault, we risk punishing those who do good -- whether
by cleaning up a toxic waste site or by manufacturing a
childhood vaccine. In effect, without fault, tort liability
becomes nothing more than a judicially imposed insurance scheme.
2. Undermining Causation
The gradual undermining of the requirement of causation
through a variety of questionable doctrines and practices, has
been used to shift liability to "deep pocket" defendants even
- 4 -
though their actions did not contribute to the underlying injury
or had only a limited or tangential affect.
While the attack on the requirement of causation cannot be
attributed to any single innovation, one principal vehicle has
been the expanded use of joint and several liability. The
doctrine of joint and several liability allows the plaintiff to
recover the full judgment from any one of several defendants,
rather than collect from each one individually according to his
degree of fault. The practical effect is that "deep pocket"
defendants guarantee the recovery of huge judgments rendered by
sympathetic juries, even in situations where they have been
found only slightly at fault.
This application of the doctrine of joint and several
liability is a radical departure from its originally intended
application in cases where multiple defendants were in "concert
of action" [cite Prosser]. Unfortunately, modern courts have
shown an increasing willingness to apply joint and several
liability as a viable means of securing a financially sound
source from which to recover.
3. The explosive growth in noneconomic and punitive
damages
Another identified problem area is the explosive growth in
the damages awarded in tort lawsuits, particularly with regard
- 5 -
to noneconomic awards, such as pain and suffering or punitive
damages.
A recent report by Jury Verdict Research, Inc. indicates
that the average medical malpractice jury verdict increased from
$220,018 in 1975 to $1,017,716 in 1985 -- an increase of 363%.
Average product liabilty jury verdicts during this same period
increased from $393,580 to $1,850,452, an increase of 470%.
Interestingly, much of this increase can be attributed to a
remarkable growth in verdicts above $1 million. The same study
notes that in 1975, there were three million-dollar medical
malpractice verdicts and nine million-dollar product liability
verdicts; by 1984, the number of medical malpractice million-
dollar verdicts had grown to 71 and the number of products
liability million-dollar verdicts to 86. This is an increase of
over 1200% in the number of such verdicts.
While it is not possible to quantify precisely how much of
these awards are for nonecomonic damages, it appears that
noneconomic damages, such as awards for pain and suffering and
punitive damages, are a substantial factor. These types of
damages are inherently unconstrained and subjective, and,
therefore, are subject to dramatic inflation and wide
variation. That is, in two cases involving similarly injured
plaintiffs, because of the existence of these types of
subjective damages, there is little chance that the two will
receive comparable awards. The outcome and size of a particular
- 6 -
award or settlement is becoming based more on the defendant's
perceived ability to pay rather than the extent of the injury to
the plaintiff.
4. Excessive Transaction Costs
Finally, another serious problem of the tort system that
should be noted is its extraordinarily high transaction costs.
It appears increasingly difficult to afford justice in this
country. In fact, some would argue that the system, intended to
benefit the injured and to do justice for all, only benefits the
lawyers and is reserved for those who can afford it.
A study of liability cases from asbestos-related injuries by
the Rand Corporation's Institute for Civil Justice indicates
that out of every dollar paid out by the asbestos manufacturers
and their insurers, an average of 62 cents is lost to
- 7 -
attorneys' fees and litigation expenses. 1 Rand found that a
typical asbestos court case results in a cost of $380,000. Of
this, $125,000 is for legal defense fees, $114,000 is for legal
fees paid by the plaintiff. It is difficult to justify such
exorbitant costs, particularly when these costs are usually
borne by the seriously injured or the innocent consumer through
higher prices for goods and services.
These are four major areas in tort law where reform is
necessary. Senator McConnell and others in the Congress have
demonstrated a willingness to address the problem. We, at the
Justice Department, look forward to working with this Committee
to cure this disease and relieve its symptoms.
That concludes my testimony, I will be pleased to answer any
questions you might have.
1 J. Kakalik, P. Ebener, W. Felstiner, G. Haggstrom & M.
Shanley, Variations in Asbestos Litigation Compensation and
Expenses xviii (1984). These costs, of course, include both
plaintiffs' and defendants' litigation expenses. In comparing
the costs attributable to plaintiffs' litigation expenses it is
useful to remember that defendants incur such costs whether or
not they prevail, and, indeed may incur substantial costs
defeating even clearly frivolous claims.
- 8 -