The U.S. Chamber Institute for Legal Reform (ILR) today released a study by NERA Economic Consulting showing that the U.S. has the world’s most costly legal system as a share of its economy.
Click here to view the full report.
The study compared liability costs as a percentage of GDP using general liability insurance sold to companies in Canada, Eurozone countries, and the U.S. because it covers similar types of costs in each country. Data shows that as a percentage of its economy, the U.S. legal system costs over 150 percent more than the Eurozone average, and over 50 percent more than the United Kingdom.
“America is known as the land of the free, but it is also the land of unnecessary lawsuits,” said Lisa A. Rickard, president of the ILR. “As the U.S. experience has shown, excessive litigation creates enormous costs for businesses, workers, consumers, and the overall economy.”
The study controlled for factors across countries that could account for significant differences in liability costs including the mix of businesses in a country, spending on government social programs, and the cost of private healthcare. It concludes that features of a country’s legal system explain most of the variation in liability costs.
In conjunction with the study, ILR also unveiled the results of a new national opinion survey showing that voters overwhelmingly view the civil legal system negatively, see it as more abuse-prone than a decade ago, and are concerned that it primarily benefits lawyers.
Click here to view a slidedeck with the survey findings.
The national opinion survey of voters was conducted in April 2013 by leading polling firms Penn Schoen Berland and Public Opinion Strategies. The poll showed that 87% of voters view the number of lawsuits in the country as a problem and that 69% say that there has been increased abuse of the legal system over the past decade. Furthermore, one-in-three voters – and 43% of small business owners – report having either been threatened with or involved in a civil lawsuit.
Only 14% of those who were part of a class action lawsuit report having received something of meaningful value, such as a cashed check or redeemed coupon, as a result of the lawsuit. In contrast, four-in-five voters that had been involved in a civil lawsuit said that lawyers benefit the most from class action lawsuits.
“America’s costly legal system inhibits our global competitiveness, and impedes our ability to grow our economy and create jobs,” said Rickard. “Global businesses consider the cost of litigation in deciding where to locate. These results underscore that our system puts us at a competitive disadvantage.”
Former New York governors Mario Cuomo and George Pataki coauthored an op-ed in the Wall Street Journal, calling on the state’s attorney general office to drop its case against former AIG chairman Hank Greenberg. The litigation is being pursued under the Martin Act, which gives the New York Attorney General “extraordinary powers to investigate and litigate financial fraud.”
The governors point out that “the attorney general's office has decided to deplete its resources and consume more of the court's time by raising claims for injunctive relief against Mr. Greenberg that were long ago abandoned and that, in any event, are without merit and serve no conceivable purpose.”
The authors, one a Democrat and one a Republican, continue:
“We both recognize that the Martin Act can be an effective tool for regulating New York businesses, but it must be used with caution and care. Misuse of the act, as in this case, sends the wrong message to the business community, putting New York at risk of losing jobs and damaging its economy.”
It doesn’t get much more ridiculous in the world of ridiculous lawsuits than last month’s winner of our Most Ridiculous Lawsuit Poll: A woman who was suing for “severe and permanent injuries” because of a car accident nevertheless managed to finish a half-marathon (13.1 miles, that is) with the respectable time of 2 hours 43 minutes. While running 12-minute miles won’t win you any Olympic gold medals, it certainly puts you on the healthier end of the “severe and permanent injuries” scale.
Which doesn’t mean we’ve run out of ridiculous lawsuits for our readers. Quite the contrary. Part of our purpose in letting readers vote on the most ridiculous lawsuit of the month is to drive home the point that ridiculous lawsuits happen every day – and will continue to happen until we reform our tort system.
This month’s nominees for “Most Ridiculous Lawsuit” certainly meet the high bar set by our half-marathoner (click here to vote):
- A non-disabled customer sued a local fast food restaurant after he slipped and fell on the wheelchair ramp. The restaurant is accused of “creating a dangerous ramp, failing to warn and failing to remedy an unreasonably dangerous condition.”
- After frogs swarm his land, a homeowner seeks punitive damages because of his “frog phobia.” The man already received $1.6 million in compensation following a runoff accident that flooded his land, but apparently the little green hoppers are so terrifying he needs just $250,000 more.
- A pro basketball fan reportedly sued his favorite player (Derrick Rose) because Rose missed the regular season with a knee injury. The Bulls still made the playoffs despite Rose’s absence, which we guess wasn’t enough to ease this fan’s emotional stress.
- A cop who got arrested for a DUI has sued the city that fired him. Claiming a violation of his rights under the Americans with Disabilities Act, the (former) police officer is seeking $6 million in the suit.
So which one is the most ridiculous lawsuit of the month? Cast your ballot now.
Don Briggs, president of the Louisiana Oil and Gas Association, today invokes his state's 49th-in-the-country ranking in ILR's Lawsuit Climate survey, in making the case for the need for common sense lawsuit reforms in the Pelican State.
Writing in the Louisiana Record, Briggs points out:
Specifically in the oil and gas industry, nearly 300 legacy lawsuits have been filed against oil and gas operators who have drilled in Louisiana, with some of the drilling activity dating back five and six decades ago. Over 2,500 defendants are listed in the cases.
These legacy lawsuits, as Briggs points out, are those "filed by a landowner claiming that oil and gas operations, often many years ago, allegedly caused his/her property to become polluted and contaminated."
In fact, ILR President Lisa Rickard wrote in a commentary last year that these legacy lawsuits are costing Louisiana jobs:
Legacy lawsuits are having a detrimental impact on the future growth of the oil and gas industry in Louisiana. By 2010, of the top 50 crude oil producers in the state, 28 companies had been named in legacy lawsuits.
Both Rickard and Briggs cite a study released by the LSU Center for Energy Studies which shows that legacy lawsuits have cost Louisiana 1,200 new oil and gas wells over the past eight years, $6.8 billion in lost drilling investments and 30,000 jobs. The study also shows that, due to the suits, Louisiana has lost $1.5 billion in wages for those directly and indirectly employed in the oil and gas industry.
Will the state's policymakers take action to rein in these legacy lawsuits? As Briggs writes in his piece today, to say that Louisiana needs lawsuit reforms is the "understatement of the year."
Today, a Colorado appeals court heard arguments in an important case testing whether Colorado law places any limits on out-of-control lawsuit lenders. Colorado courts are among the first in the country to decide whether consumer lending laws apply equally to lawsuit lenders, or if – as the lawsuit loan sharks have argued – they have unfettered freedom to exploit borrowers with interest rates as high as 100% or more. The case is Oasis Legal Finance Group, et al. v. Suthers.
As the U.S. Chamber’s Institute for Legal Reform has highlighted, the controversial practice of “lawsuit lending,” where a lender offers money to an individual plaintiff cover living expenses at sky-high interest rates to be repaid from the winnings, has met increasing resistance at the state level. The meteoric rise in the practice is raising new and serious concerns about lending abuse.
Take for instance Brooklyn resident Elwin Frances who borrowed $27,000 from lenders Case Cash and Law Bucks in connection with a trip-and-fall case. After settling his case for $150,000, the lenders took almost two thirds, and after lawyers’ fees he was left with a paltry $111. Frances sued his lawyers for failing to warn him that the loan would consume most of his award, and lost.
Or ask Oklahoma native Jeff Hall, who suffered extensive injuries after falling off a truck onto a fork lift and filing a workers’ comp claim. After taking out two loans from Oasis Legal Finance for a combined $6,600 during the litigation, he ultimately had to repay roughly $13,500, which he did in spite of declaring bankruptcy and losing his home.
Today’s court argument arises out of a preemptive lawsuit brought by Oasis Legal and LawCash, two of the country’s biggest lawsuit lenders, to attempt to block the Colorado Attorney General from regulating the company under the state’s consumer lending laws, known as the “Uniform Consumer Credit Code” (UCCC). A state judge ruled against the lawsuit lenders, who appealed. The U.S. Chamber’s litigation arm, the National Chamber Litigation Center, filed a “friend-of-the-court” brief in support of Colorado’s attorney general.
The Litigation Center’s brief dissects the lawsuit lenders’ bogus claim that they’re not really “loaning” money to would-be plaintiffs, and therefore the companies should get a pass on regulation under consumer lending laws. Despite the lawsuit lenders’ creative labeling for their transactions – like “nonrecourse purchase of litigation proceeds” – at the end of the day, they are loaning money at exorbitant interest rates. Lawsuit lenders’ practice of disguising exorbitant interest rates is precisely the type of conduct the UCCC is designed to prevent. As the New York Times recently explained, that’s why consumer rights groups also oppose lawsuit lending.
Regulating lawsuit lenders under Colorado consumer lending laws is not only the right legal conclusion; it is also the right policy. Regulation of this industry under the UCCC will help to curb the myriad ills caused by lawsuit lending, and will bring the practice into conformity with other regulated consumer lending activity.
The Wall Street Journal yesterday featured the U.S. House Judiciary Committee’s creation of a bipartisan task force to tackle the problem of overcriminalization “in the most expansive re-examination of federal law since the early 1980s.” Recommendations by the task force will be taken up by the House Judiciary Committee, its Chairman Representative Bob Goodlatte (R-Va.) said in the article.
The U.S. Chamber Institute for Legal Reform (ILR) has worked extensively to correct some of the worst overcriminalization overreaches, in particular advocating for clarification under the Foreign Corrupt Practices Act, modernization of the Lacey Act, and for legislation to promote fairness in the legal discovery process.
ILR applauds the Judiciary Committee for creating this task force and looks forward to working with it to make meaningful improvements to the federal code. We hope that we can work together to rein in overreaches that unduly stymie employers from creating jobs.
"This is a disgrace to both professions."
Those are the words of Dr. Jerome Kassirer, former editor in chief of the New England Journal of Medicine, as quoted in this week's Wall Street Journal (subscription required) report about the close relationships between doctors who treat mesothelioma patients, and the plaintiffs' attorneys who litigate asbestos lawsuits.
This report details significant contributions to mesothelioma research made by some such attorneys, as well as some asbestos lawyers sending "elaborate gift baskets" to doctors, providing tickets to "professional sporting events," or offering "paid work as expert witnesses."
Some attorneys also use doctor testimonials as a marketing tool.
According to Dr. Raja Flores, chief of thoracic surgery at Mount Sinai Medical Center, taking such financial gifts "could influence" his treatment of patients.
Said Dr. Flores:
"When you add financial incentive it muddies the waters. We did not take the Hippocratic Oath for that."
Cross-posted from FacesofLawsuitAbuse.org
Question: How much does it cost a grocery store to install 69 cameras and six DVRs?
Answer: About $250,000.
Question: How much does it cost to maintain the store’s recording system?
Answer: About $100,000.
Rafael Cuellar, the owner of a grocery store in Passaic, NJ, estimates he has spent around $350,000 to install and maintain his store’s camera and recording devices. Doesn’t that seem like an awful lot of money to spend to repel or catch shop lifters?
Yes, it is. Which is why preventing shop lifting wasn’t the reason Mr. Cuellar invested in his security network in the first place. The cameras and recording devices are in place to monitor every inch of his store to protect Mr. Cuellar from frivolous lawsuits.
“Yesterday alone we had a consumer who came back in [the store] and claimed she fell,” Mr. Cuellar recounts in the video, Supermarket Swindle. “Once the loss-prevention director said, ‘Let’s pull it up on the camera,’ she goes, ‘No, I just twisted my ankle.’ And the story changed all of the sudden.”
Indeed, Mr. Cuellar said that one-third to half of all the lawsuits filed against his company every year are fictitious or overblown. Fictitious or not, however, all those lawsuits raise Mr. Cuellar’s insurance premiums, which are his second largest expense behind payroll.
In other words, spending nearly half a million dollars on cameras and DVRs is a drop in the bucket compared to what Mr. Cuellar would spend on a reward settlement, which could be in the millions.
Just one such reward settlement has the power to wipe out Mr. Cuellar’s small business.
But it’s not just store owners who suffer the expenses of frivolous lawsuits. Consumers pay as well. The Food Institute estimates that feeding a family of four will cost $4.16 per week more this year than last. That’s an extra $200 a family must spend this year.
Rising food prices are just one consequence of frivolous lawsuits. Mr. Cuellar notes that he could have invested a lot of the money he spent on cameras to hire more employees or cut prices. But the danger is too great.
“Being an entrepreneur, you always want to continue to grow,” Mr. Cuellar says. “But I do think twice about it, because of the things I can’t control.”
Unless we enact measures to combat lawsuit abuse, small business owners like Mr. Cuellar will continue to funnel their hard-earned money into protecting what they have, not building what they want.
You can learn more about Rafael's story here.
“This is not pretty,” writes Alison Frankel in ThomsonReuters.
She’s referring to a dispute between a plaintiffs’ law firm and a lender that provided it a loan in order to litigate an antitrust class action. Now that the class action case has settled, the lender has filed a suit seeking $28 million as repayment for the loan.
The breach-of-contract suit claims that under a 2004 lending agreement, [plaintiffs’ lawyer] Alioto owes [funder] LFG $28 million of the $49 million he has been awarded as co-lead counsel to a class of indirect purchasers of liquid crystal display screens. LFG asserts that it holds a lien on all of the Alioto firm's fees and receivables via an $18.3 million credit facility extended by the lender. Alioto, meanwhile, told me Monday that he has repaid $11 million to LFG, which includes "most if not all" of his $7 million to $9 million in principal, plus interest. According to Alioto, the lender is improperly attempting to cash in on his fees from the LCD case.
Third-party funding of litigation raises a host of ethical issues, including the introduction of an outsider with an entirely financial stake into the attorney-client relationship. This case shows what happens when the relationship between the lawyers and lenders goes bad. Not pretty at all.
The Louisiana State Senate Commerce Committee yesterday advanced a measure that would protect consumers from the growing lawsuit lending industry.
Melissa Landry, executive director of Louisiana Lawsuit Abuse Watch, writes in The Pelican Post:
Louisiana lawmakers are considering a proposal to appropriately regulate the lawsuit lending industry. Senate Bill 166 by Sen. Dan Claitor from Baton Rogue will bring these companies in line with other lenders and better protect Louisiana consumers and our courts from lawsuit loan sharks.
Earlier this week, FoxBusiness.com featured ILR’s position on the burgeoning lawsuit lending industry. You can read that story here.