COMMENTARY : Huge Damages Turn Justice on Its Head : Besides such state reforms as no-fault auto insurance, we need limits on punitive judgments.

House and Senate conferees this week are preparing to hammer out final legislation to reform our civil justice system. How far they go and whether President Clinton signs or vetoes this measure will determine whether we will restore the rule of law in America’s lawsuit system.

Does that sound overwrought? The President’s most recent Supreme Court appointee, Justice Stephen Breyer, asked in oral arguments in a recent landmark punitive damages case: “Is a jury free to transfer the entire gross national product or any significant portion thereof under a standard that has no limits?�

That case involved a $2-million punitive judgment upheld by the Alabama Supreme Court over a $600 paint job on a wealthy doctor’s BMW. This was exactly 100 times the fine in Alabama for murder or rape. A nearly identical case, also in Alabama and involving the same attorneys, resulted in no punitive fine. Does that even remotely resemble equal justice under the law? Does it suggest that there are any limits to a jury’s ability to destroy defendants?

Punitive judgments build criminal-like sanctions into civil law, creating a loophole in the heart of our constitutional protections. A common criminal enjoys the knowledge that he faces a knowable punishment for a definite offense. But Justice Lewis Powell complained in 1986 that jurors “are called upon to impose potentially limitless civil fines with neither sufficient experience nor adequate information and without any of the procedural safeguards that ordinarily protect against arbitrary punishment.� This, he said, inevitably produces “bizarre results.�

California, which had 850,000 lawsuits in 1992, is certainly no stranger to bizarre justice. For years, Californians have been regaled by stories of such “justice�--the burglar in Redding who fell through a skylight and was awarded $250,000 for his trouble; the cab company in the Bay Area that was out $68,000 after one of its drivers pinned a mugger to a wall with his front bumper.

These anecdotes illuminate the arbitrary nature of the system. But greater social costs to consumers, taxpayers and anyone who drives a car arise from the mundane accident cases where damages are multiplied from the specious inclusion of an innocent deep-pocket defendant (a corporation, a city, a church, a charity). These costs are largely invisible, unknowingly paid by us all.

One conservative estimate calculates that the cost of litigation in California--the lawsuit tax, if you will, added onto the cost of goods and services--is at least $10 billion annually. Local legal reformers report that two-thirds of medical claims from auto accidents are phony, costing every California motorist an additional $250 a year for auto insurance. Over the past year, Los Angeles taxpayers have had to pay out $21.9 million for civil liability awards against the city--tax dollars not available for libraries, teachers or additional police or fire protection.

Why this is happening is obvious. West Los Angeles has more lawyers than Japan. With 12% of the nation’s population, California has 17% of its lawyers. They are the most potent force in Golden State politics. California trial lawyers feed more money into the national and state political systems than both the Republican and Democratic parties or the top 10 oil companies and the Big Three auto makers combined.

State reform is desperately needed. The Legislature is considering limitations on punitive damages. Californians will vote next year on three initiatives to bring about a no-fault auto insurance plan, to limit attorneys’ fees and to place reasonable limits on shareholder strike suits.

But even if reform measures succeed in California, lawsuit abuse will still victimize citizens of the Golden State. Punitive damage awards will remain as limitless as the imaginations of judges and juries. And California companies will still be exposed to excesses in other states, including joint-and-several liability that will leave defendants at risk even when their involvement in an offense is marginal.

California has shown America the extent of lawsuit abuse and now is intent on showing the way to reform. It was California that put limits on medical malpractice suits in the 1970s and elevated civil justice reform into the subject of a statewide electoral debate in the 1990s. But Californians will receive the full protections they deserve only if Congress acts to place reasonable limits on punitive damages and to replace the hunt for the deepest pockets with a system of proportional liability.

What Congress and the president do next will either restore or further undermine our sense that this is still one nation, under law.