Moore: Time to stop the trial lawyer tax
**The Rising Tide of Litigation: A Double-Edged Sword for U.S. Employers**
For decades, trial lawyers have been a contentious issue for U.S. employers, often seen as a source of excessive litigation that hampers economic productivity. Iconic cases from the 1990s, such as the infamous $500,000 judgment awarded to a McDonald’s customer who suffered burns from hot coffee, and a $50 million lawsuit against a dry cleaner for losing a pair of pants, serve as prime examples of what many perceive as frivolous lawsuits. A RAND study highlighted the staggering inefficiency of the legal system, revealing that about 80% of every dollar awarded in class action lawsuits goes to legal and administrative costs, leaving only a meager 20 cents for the actual plaintiffs. This excessive litigation is estimated to shrink the U.S. economy by up to $500 billion annually, with tort costs rising at an alarming rate of 7.1% per year—more than double the inflation rate.
While it is undeniable that victims deserve compensation for corporate misconduct, the line between legitimate claims and opportunistic lawsuits can be blurry. The notion that every injury warrants a lawsuit poses a significant risk; for instance, if skiers could sue ski manufacturers for accidents, it could lead to the end of the sport altogether. Historically, the Republican Party has sought to curb the power of trial lawyers, particularly during the 1994 “Contract with America,” when they enacted reforms to protect businesses from excessive harassment lawsuits. However, the landscape is shifting as trial lawyers are now targeting Big Tech and Big Media, industries often viewed by conservatives as antagonistic to their values.
Adding to this complex scenario is the rise of “third-party litigation funding,” where investors finance lawsuits in exchange for a share of any potential winnings. This practice raises significant ethical questions, as it allows unknown investors to profit from legal disputes while the injured parties may see little benefit. In 2024 alone, these litigation funds are expected to secure over $2 billion in new financing agreements, bringing total assets to a staggering $16.1 billion. Critics argue that this system obscures the true motivations behind lawsuits, misleading juries into believing they are supporting victims when, in reality, the bulk of the damages may end up enriching investors. In response to these concerns, Rep. Darrell Issa (R-Calif.) has introduced the Litigation Transparency Act, aiming to require disclosure of these funding agreements in federal civil cases. The implications of frivolous lawsuits extend beyond the targeted companies; they ultimately make society poorer as a whole. As the debate continues, it is clear that balancing justice for victims with the need for economic stability remains a critical challenge for lawmakers and society alike.
https://www.youtube.com/watch?v=kgJC_6YjypU
Trial lawyers have been the bane of U.S. employers for many decades.
The most famous case was back in the 1990s when the courts awarded a $500,000 judgment to a McDonald’s customer who claimed she was burned by coffee that was too scalding hot. Then there was the Washington man who sued a dry cleaner for $50 million for losing a pair of pants.
A famous RAND study found that roughly 80 cents of every dollar in damages paid to class action victims were absorbed by legal and administrative costs, and less than 20 cents made its way the plaintiffs.
Excessive litigation is estimated to shrink the U.S. productive economy by up to $500 billion a year. Tort costs have exploded in recent years at an annual return of 7.1%, more than twice the inflation rate.
Yes, victims deserve to be compensated for corporate bad behavior, as a matter of justice and to deter dangerous and unlawful behavior.
But just because you have an injured party doesn’t mean you have a company villain. If everyone who breaks a leg skiing could sue the manufacturer of the skis, there would be no skiing.
Back in the 1990s, Republicans put a muzzle on the most rapacious lawyers and passed laws to protect businesses from the most outrageous harassment lawsuits. Lawsuit reform was part of the Republicans’ 1994 “Contract with America.” At that time about 80% or more of the trial lawyers’ political contributions went into the coffers of the Democratic Party.
But now trial lawyers are courting the GOP and conservative leaders with a spate of lawsuits against Big Tech and Big Media, two industries that conservatives have traditionally felt are hostile to free markets and conservative values.
Compounding the problem is the new scam called “third-party litigation funding,” which allows law firms to court investors who will fund lawsuits in exchange for getting a share of the judgment if there is a guilty verdict.
Under this practice, unknown investors secretly bankroll lawsuits with “dark money” in the hopes of scoring big verdicts. What’s really nefarious is that the third-party investors, not the injured party, often walk away with the bulk of the jackpot awards.
These lawsuit investment funds are growing rapidly and captured more than $2 billion in new financing agreements for 2024. The total assets of these funds have grown to $16.1 billion.
This method of encouraging and funding lawsuits is of questionable legality. But it most certainly should be transparent so that defendants and the public know the real economic interests behind those suing employers.
The problem with these arrangements is that juries think they are aiding the victim, when the jackpot award for damages can just as readily be directed to the bank accounts of the investment funds.
The good news is that Rep. Darrell Issa (R-Calif.) has sponsored the Litigation Transparency Act, which would require disclosure of these agreements in federal civil cases.
Frivolous lawsuits make us all poorer — not just the company that gets targeted.
Stephen Moore is a former Trump senior economic adviser and the cofounder of Unleash Prosperity.
