The American legal landscape is a varied one and the system of federalism helps to ensure that variety. There are bad federal courts and good state judges, wise federal prosecutors and corrupt state attorneys-general. And there are certain obscure corners that are notoriously friendly to plaintiffs, no matter how spurious the claim may seem. Jefferson County, Texas, is one; Orleans Parish, Louisiana, is another.

These last venues have been called "magic jurisdictions" and the most magic of them is Illinois's Madison County - named after James Madison, the fourth president. The county, just across the Mississippi from St Louis, has drawn more cases involving illness and asbestos exposure than the nation's financial capital, New York. Tyson (charges of watery chickens), AT&T and Lucent, you name them, they have all been dragged up the steps of the court house in Edwardsville, the county seat. Not to forget Big Tobacco: Madison County's very own Judge Nicholas Byron just last year levied a $10.1bn judgment against Philip Morris.

Washington has the power to check arrogant states, but for years it has allowed the magic jurisdiction trend to continue. This inaction reflected weakness: the sort of trial lawyers who worked these jurisdictions also spent millions on campaigns to elect congressmen and senators. And for a certain embarrassing period the brother-in-law of one of the more legendary plaintiffs' lawyers actually held the seat of Senate majority leader (Richard Scruggs was the lawyer, Republican Trent Lott the senator). This summer reform finally seems close. The House has already passed a reform bill and there are sufficient votes in the Senate to pass leglislation. But the possibility of failure still exists: as of last Friday Democrats were threatening to kill the reform by insisting on appending an irrelevant amendment regarding the minimum wage.

How Madison County - or places like it - became magic is therefore worth recalling, if only because it makes clear the stakes involved in this legislation.

Madison County citizens are less educated and less well off than the average for their state. This in itself tends to make juries sympathetic to an underdog plaintiff and at times somewhat vengeful. Many jurors in Madison County have never considered that vulnerable grannies are also often shareholders whose pensions suffer when juries make big awards. They therefore do not hesitate to slap large penalties on big strangers. Last year a Madison County jury ruled that BOC, the British industrial gases group, should pay $1m to a welder who developed Parkinson's disease after being exposed to fumes. This, after numerous other courts had rejected similar allegations of a connection between such gases and Parkinson's. BOC dropped more than 7 per cent on the FTSE 100 share index on the day of the award, enough to make it the day's biggest loser. Mighty Madison County!

In countries such as the UK, cases are routinely tried in the defendants' local court. The federalism of the US, however, gives state judges power to choose what cases they will hear. Madison County judges choose to hear cases whose connection to Madison County is at best tenuous. All it took to launch a national class action against Ford was two Madison County citizens. The pair alleged that Ford had wronged owners nationwide by selling cars whose paint peeled years after purchase.

Madison County judges frequently decide to hear cases that other courts have refused to hear. The Ford paint case, for example, was filed after 13 similar class actions failed elsewhere.

For a class action to be tried in a court, a judge must first certify that the plaintiffs constitute a representative class. Madison County judges are prolific certifiers. In 2003 the county set the national record with 106 class-action filings. Most class actions in Madison County never make it to trial because judges and juries terrify companies so much they nearly always settle. The judges are, in effect, setting national precedents simply by certifying - often legitimising the flimsiest of claims.

One reason why Madison County judges are so generous may be that they must run for election to win and keep their office. An analysis of government records by the St Louis Post Dispatch found that judges running for election in Madison County in 2002 averaged more than $100,000 in campaign receipts, or 10 times the average in Chicago's (less magic) Cook County. Independent expenditures by third parties on candidates' behalf - some of which are considerable - are not included in that calculation.

The bill before the Senate assigns to federal courts the job of adjudicating larger class actions. It cuts many state judges out of the action by limiting forum-shopping. In short, it could de-magic the magic jurisdictions.

One can argue that states, not Washington, should do this work. Indeed West Virginia, Ohio, Texas and Mississippi have already taken steps to limit forum-shopping.

Still, legal reform would surely be a good thing for the rule of law in the US - not to mention the functioning of markets worldwide, as the BOC hiccup showed. While Madison County may be federalism's biggest embarrassment, the correction of the Madison County problem may prove one of federalism's small triumphs. After all, the US functions best when competing powers prevent each other's excesses. "Office should check office," as one sage said. His name was James Madison.

© Copyright 2004 Financial Times