I thought I had heard of just about every injunction under the sun, but a news story this week made my jaw drop. A federal judge temporarily forbade the Veterans Affairs Department from publicizing an offer of free credit monitoring to the 26.5 million people whose personal information was on a computer stolen from a VA employee.
The rationale for the injunction was that this offer of help might reduce any eventual monetary settlement in a class-action suit already filed against the government. This might be good law, but it is lousy economics.
The legal issue became moot at week’s end when the stolen computer was found. However, the broader policy issues raised by the judge’s action remain relevant. It is our underlying approach to damage suits that is important — not the details of a specific case.
By way of disclosure, I am one of the veterans whose name and Social Security number were on the computer. I have received a letter from the VA explaining this, but I have not been losing any sleep over it. Second, I am not an attorney, although some of my best friends are.
The economics in this incident hinge on how a society chooses to manage risk. There are two key questions: If society is hurt when people slip on icy sidewalks or lose money to identity thieves, how can we minimize such events? And, how do we compensate those who are hurt?
We can pass laws to minimize danger: For example, homeowners must shovel walks, and organizations with personal data must safeguard it. We can enforce such laws with fines or other punishments. And we can allow those who are hurt by the carelessness of others to sue for damages.
Laws allowing such “tort liability” suits have been a part of our legal tradition for centuries and play a vital role in managing risks to society. They constitute a two-edged economic sword, however.
If it is too hard to sue for damages, there won’t be enough incentives to reduce risk. If it is too easy to sue, resources will be wasted avoiding unjustified lawsuits.
If the VA is prohibited from offering practical help to those possibly harmed by disclosure of their data — simply because it might reduce some eventual payment — we clearly have crossed the line toward wasted resources.
Even before the computer was found, there was no evidence that any veteran suffered any fraud. I can’t imagine that hundreds of veterans spontaneously banded together to seek compensation in the few weeks since the theft was disclosed. Rather, some class-action specialists saw a well-publicized opportunity to make hay and raced to the courthouse to file papers.
This is not just silliness or petty greed. Yes, if veterans had been harmed because the VA’s laxity gave some con man access to his or her name and Social Security number, then some compensation would have been justified. But the possibility that a class-action suit could forestall other prudent measures is a symptom of a system that is seriously out of whack.
© 2006 Edward Lotterman
Chanarambie Consulting, Inc.