Moore: Time to stop the trial lawyer tax
In the ongoing debate about the impact of trial lawyers on the U.S. economy, the narrative has shifted significantly since the 1990s. Back then, high-profile cases such as the infamous McDonald’s coffee lawsuit, which resulted in a $500,000 judgment for a woman burned by scalding coffee, highlighted what many viewed as excessive litigation. Similarly, a Washington man’s $50 million lawsuit against a dry cleaner for losing a pair of pants exemplified the extremes to which some trial lawyers would go. A RAND study underscored the issue, revealing that around 80% of damages awarded in class action lawsuits went to legal and administrative costs rather than the victims themselves. This excessive litigation is estimated to cost the U.S. economy 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 crucial that victims receive compensation for corporate misconduct, the article argues that not every injury warrants a lawsuit against a company. The risk of frivolous lawsuits can stifle industries; for instance, if ski manufacturers were liable for every skiing accident, the sport itself could be jeopardized. Historically, the Republican Party attempted to curb the influence of trial lawyers through the “Contract with America” in the 1990s, which sought to protect businesses from frivolous lawsuits. However, a recent shift has seen trial lawyers aligning with conservative leaders to target Big Tech and Big Media, sectors that many conservatives view as oppositional to their values.
Complicating the landscape is the emergence of “third-party litigation funding,” a practice where investors finance lawsuits in exchange for a share of any awarded damages. This method raises ethical concerns, as it allows unknown investors to profit from legal disputes, often at the expense of the actual injured parties. With over $2 billion in new financing agreements anticipated for 2024, the total assets of these funds have ballooned to $16.1 billion. The article emphasizes the need for transparency in these arrangements, suggesting that juries may be misled into believing their awards are helping victims, while in reality, much of the compensation may go to investors. In response to these challenges, Rep. Darrell Issa has introduced the Litigation Transparency Act, which aims to mandate the disclosure of such funding agreements in federal civil cases. Ultimately, the article concludes that frivolous lawsuits not only harm targeted companies but also have broader economic repercussions, making everyone poorer in the process.
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.
