Guardian of the Lawyers' Honey Pot

By Max Boot
Copyright 1999 Wall Street Journal
September 19, 1996

YONKERS, N.Y. -- At the sprawling headquarters of Consumers Union, publisher of Consumer Reports, giant rollers knead mattresses to test their durability. Computers analyze stereo sounds in a mock living room, complete with wall panels to simulate curtains. Food tasters pick apart peanut butter and cookies while breathing specially filtered air.

"David Letterman wanted to come here," says R. David Pittle, CU's technical director, as he leads a visitor on a tour. "Our answer was no. We take this stuff very seriously, we don't want to make it into a joke." This is the image CU would like to project: an organization whose dedication to quality control and objectivity borders on the neurotic. It's a lucrative aura: Consumer Reports has 4.5 million subscribers and Consumers Union has a budget of $136 million, mostly financed by those subscriptions. The nonprofit organization supports 457 employees.

What the public may not realize, though, is that CU uses its prestige to advance a host of controversial political positions that aren't exactly laboratory-tested. As a former staff member says, "CU has always been unabashedly activist and liberal." The organization has raised alarms about Alar and bovine growth hormone, protested cuts in social spending, and lobbied for anti-redlining legislation in the insurance industry. But longtime president Rhoda Karpatkin appears to be oblivious to her group's bias. Asked about the organization's support for the kind of Canadian-style single-payer health plan rejected even by the Clinton administration, Ms. Karpatkin said, "I wouldn't call it Left. I'd call it common sense."

Although Consumers Union still has high public prestige, the organization's credibility has been challenged in recent years by auto makers and other manufacturers. The group's Achilles' heel is that, like the rest of the "consumer movement," it often appears to be in a tacit and sometimes not-so-tacit alliance with trial lawyers.

Consumer Reports, after all, is a virtual bulletin board of big-money lawsuit ideas. The October issue, for example, will carry a report denouncing two sport utility vehicles -- the Isuzu Trooper and Acura SLX -- for allegedly being unstable in sharp turns. Two class action suits citing those findings, which were unveiled last month, already have been filed in Florida. Isuzu, which makes both vehicles, responded by taking out full-page newspaper ads and holding a press conference to denounce CU's tests as "unreliable and misleading." CU says its procedures are based on government standards, but Isuzu's Norihiko Oda argues that it is easy "for the driver to knowingly or unknowingly influence the outcome."

The Isuzu controversy is a virtual replay of a battle between Consumers Union and Suzuki that has been raging since July 1988. That month, Consumer Reports announced that it would publish an article rating the Suzuki Samurai, another sport utility vehicle, as "Not Acceptable" because the vehicle supposedly exhibited a dangerous tendency to roll over in tests. Suzuki general counsel George Ball says, "This caused a precipitous drop in sales and a precipitous increase in lawsuits."

Suzuki has settled many of the 194 suits filed so far, but it's won three out of the four cases that have been decided by juries. Like the preponderance of juries, federal regulators have doubts about Consumers Union's claims. The National Highway Traffic Safety Administration refused to recall the Samurai. In its ruling, NHTSA held that CU's "test procedures do not have a scientific basis and cannot be linked to real-world crash avoidance needs, or actual crash data." The data, NHTSA found, do "not show that the Samurai has been involved in a greater rate of rollovers than comparable vehicles." Similar conclusions were reached by government agencies from Britain to New Zealand. Suzuki now has filed a defamation suit in federal court in Orange County, Calif., against Consumers Union, claiming its tests are rigged.

Mr. Pittle, CU's technical director, defends his tests of the Samurai and says his organization has no ax to grind with Suzuki or any other company. But months before the CU report came out, the Center for Auto Safety had already asked for a recall of the Samurai. The center, co-founded by CU and Ralph Nader, is run by Clarence Ditlow, a long-time CU board member. While insisting that board members like Mr. Ditlow have no impact on CU's testing, Ms. Karpatkin says that "there was clearly contact at the time" between the two groups. Mr. Ditlow confirms that Consumer Reports often calls his center for "background information."

Those contacts are troubling because Mr. Ditlow has a rich history of providing fodder for lawsuits. He popularized the story about "exploding" General Motors pickup trucks, which NBC subsequently had to retract. In 1993 Mr. Ditlow accused a GM lawyer of destroying evidence about the pickups; the lawyer sued for slander, and Mr. Ditlow's insurance company (over his protests) settled for $500,000. During that case, a Detroit judge fined Mr. Ditlow for "gross misconduct" for sharing a sealed document with a plaintiffs' lawyer suing GM. An appeals court overturned the fine, but determined that Mr. Ditlow's outfit and the plaintiffs' lawyer had "mutual back-scratching arrangements." Even more explicitly, on March 8, 1994, a California judge overseeing a class action against Nissan held that Mr. Ditlow's center had acted "in active concert with, and as agents of" two Texas trial lawyers (Mr. Ditlow's lawyer claims the order is somehow invalid).

No wonder Suzuki is irate. Large auto companies, however, are not the only businesses crosswise with Consumers Union. Frank Rumpeltin, president of Century Products in Macedonia, Ohio, remembers July 24, 1995, as Black Monday. That afternoon he received a fax saying that CU planned to hold a press conference in two days to denounce his best-selling infant car seat, the 590 model, as "Not Acceptable." In CU's tests the 590 flew off its base in a 30-mile-an-hour head-on collision. "I was shocked," Mr. Rumpeltin recalls. "We'd sold over two million units, and our record on injuries was incredibly good." No matter.

Within 24 hours of the CU press conference, a class action suit was filed in Illinois, citing the CU report. Within 48 hours another suit was filed in Tennessee. A third was filed within a week in Ohio. What's remarkable, however, is that none of the suits actually claim that a baby was injured because a car seat flew off its base. The plaintiffs are generally asking for the difference in cost between the 590 and another, less expensive car seat -- not for any personal injury damages. The plaintiffs' lawyers stand to make $5 million to $10 million, but Glen Berman, an attorney suing Century in Illinois, says, "I'm not aware of any cases where an infant was injured." If even the lawyers can't round up mangled plaintiffs, the car seat may not be so unsafe after all.

Indeed, both Century and the government tested the seat, and didn't find the problems reported by CU. As a result, NHTSA turned down CU's petition to recall the 590 and to change the standards for baby seats. "After carefully reviewing CU's petition," the Federal Register reported, "NHTSA has determined that safety is best served by denying it." Mr. Pittle says, "We stand by our tests."

Aside from providing lawsuit ideas, Consumers Union has put its prestige behind political causes favored by the plaintiffs' bar. The group has opposed almost every measure to rein in the runaway legal system -- even the securities lawsuit reform passed by a two-thirds majority of Congress. In the past, the one issue on which CU diverged from the trial lawyers was no-fault auto insurance, which CU supported. But the organization opposed a comprehensive no-fault initiative on the California ballot this year, on the grounds that it would have foreclosed too many lawsuits. CU did file an ethics complaint with the California State Bar accusing the lawyers of misusing the organization's name in a mailing, but that was after the election, when it no longer mattered.

CU claims the current legal system is pro-consumer, and that tort reform would benefit "drunk drivers" and "careless corporations." Yet every American pays a heavy "tort tax" in the form of higher rates for insurance and many products, while RAND's Institute for Civil Justice found that plaintiffs get just 50 cents of every dollar paid out in personal injury litigation, and substantially less in major cases.

It's no surprise that CU doesn't highlight these facts, given its Naderite ties. In addition to Mr. Ditlow, CU's board includes Joan Claybrook, president of Public Citizen, which sells litigation kits to lawyers suing over breast implants, pedicle screws and other products. (To its credit, Public Citizen, like the Center for Auto Safety, does sometimes challenge lawyers' fees in class actions.) Another link between Consumers Union and the plaintiffs' bar: CU's legislative director, Linda Lipsen, moved over to work for the Association of Trial Lawyers of America. But while CU is a key ally of the lawyers, its employees are not always eager to publicize that connection. Trudy Lieberman, Consumer Reports' senior investigative editor, wrote a lengthy article for the Columbia Journalism Review attacking this page for assorted "errors," many in articles relating to tort reform, without ever mentioning her employer's position on the issue.

Consumers Union's opposition to tort reform is especially suspect because the organization seems to have developed a direct financial stake in the litigation explosion. Its West Coast office has received money from class-action suits at the direction of plaintiffs' lawyers.

Two of CU's biggest benefactors have been attorneys James and Patricia Sturdevant of San Francisco. The Sturdevants (who are now divorced) developed a lucrative practice suing financial institutions under an obscure California law that prohibits many late fees for credit cards. These class actions often net millions for the Sturdevants, but the actual class members are eligible for only a few dollars apiece in compensation, so a lot of the money goes unclaimed. Under a legal doctrine known as cy pres, the Sturdevants have gotten judges to award the unclaimed proceeds to so-called consumer groups. In 1984, the Sturdevants convinced a judge to give CU $1.5 million from a settlement with Avco Financial. In 1993, the Sturdevants helped redistribute $703,060 from Wells Fargo to CU. Judith Bell, co-director of CU's West Coast office, says that in the past 20% of her budget has come from such awards; the figure is now down to 9%, she adds.

Consumers Union's president, Ms. Karpatkin, herself a lawyer, claims the cy pres loot doesn't compromise her group's independence because it's awarded by the courts. Technically true, but in fact the money is given at the express recommendation of the plaintiffs' lawyers. In the Wells Fargo case, CU and other cy pres recipients even had to report to the Sturdevants twice a year to get their disbursements. California Assemblyman Bernie Richter sponsored a bill two years ago to redirect cy pres money to a state scholarship fund. The measure went nowhere after active lobbying by CU.

"Consumers Union and the whole consumer movement have a real credibility problem on the tort reform issue because of their relationship with the trial lawyers," says California consumer advocate (and tort reformer) Bill Zimmerman. For serving up a smorgasbord of litigation ideas, protecting the lawyers' honey pot and feasting from the class action trough, Consumers Union's approach to the legal system deserves a rating of "Not Acceptable."

Mr. Boot is deputy features editor of the Journal editorial page.