Federalism and Tort Reform

Cornell lawprof William Jacobson detects a potential contradiction in Republican politicians’ view on constitutional federalism [HT: Steve Bainbridge]. Many of them claim that the Obamacare individual mandate falls outside of Congress’ power, but simultaneously support federally mandated tort reform that would override state tort law:

If we are against the federal government forcing us to purchase health insurance, shouldn’t we also be against the federal government telling us which state common law remedies we can pursue and on what terms? Isn’t this a matter for the states? …

I think there are distinctions which could be drawn between the mandate and tort reform, since tort reform does not require that one purchase a product. Most people who are against the mandate would acknowledge that the federal government can regulate the health care system, but that the mandate is a step too far….

Tort reform needs a careful airing of the constitutional issues before any vote; but at this point I’d be inclined to leave it to the states. If you don’t like your state’s tort system, do the same thing you would do if you didn’t like its tax or other systems: Move.

Federally mandated tort reform is surely permissible under current Supreme Court precedent, which allows Congress to regulate virtually any “economic activity.” Certainly, tort litigation falls within that category as currently defined by the Court, which encompasses any activity involving the “production, distribution, and consumption of commodities.” By contrast, the individual mandate goes beyond this by regulating inactivity and forcing individual citizens to purchase products they don’t want. So if your only objection to the individual mandate is that it goes beyond what current Supreme Court precedent allows, you can still consistently believe that it is unconstitutional, while federal tort reform is not.

In my view, however, current precedent is badly misguided in allowing Congress to regulate virtually any “activity.” Therefore, I think most federally mandated tort reform is in fact unconstitutional, even if the Supreme Court would permit it to go forward.

Federal reform is also largely unnecessary to solve the problem of excessive tort awards. Interstate competition can be just as effective as federal mandates, often more so. If a state allows excessive tort suits, many businesses will refuse to operate there or charge higher prices. This in turn reduces state tax revenue, forcing state legislatures to curb their courts. Over the last 20 years, numerous states have enacted tort reforms that do just that. Even Alabama, notorious for being the nation’s worst tort “hellhole” in the 1980s and 90s, has to a large extent cleaned up its act. Alabama ultimately replaced its pro-plaintiff state supreme court justices with ones that took a dimmer view of tort litigation. State leaders worried that Alabama would lose business if they did not. In most cases, “voting with your feet” is an excellent solution to the problem of runaway state tort law.

For a more extensive discussion of the reasons why federal tort reform is both unconstitutional and largely unnecessary, see this 2004 paper by my colleague Michael Krauss and Bob Levy. As Krauss and Levy point out, federal controls may be needed to curb state efforts to use tort law to regulate economic activity that takes place outside their borders. Voting with your feet is far less effective if the state can “come after you” even after you have left. That, however, is a limited intervention permissible even under a fairly narrow view of federal power. After all, the original meaning of the Commerce Clause was precisely to limit states’ ability to constrain interstate commerce and extend their regulatory authority beyond their borders.

UPDATE: I previously wrote about the same issue in this 2007 post.