Moore: Time to stop the trial lawyer tax
**The Rising Tide of Trial Lawyers and the Impact on U.S. Employers**
For decades, trial lawyers have been viewed as a significant hurdle for U.S. employers, with their actions often leading to excessive litigation and substantial financial burdens on businesses. A notorious example from the 1990s involved a McDonald’s customer who was awarded $500,000 after claiming she was burned by excessively hot coffee. Similarly, a Washington man infamously sued a dry cleaner for $50 million over a lost pair of pants. These cases epitomize the perception of a legal system that can sometimes prioritize sensational claims over reasonable justice. A RAND study highlighted the inefficiencies in class action lawsuits, revealing that approximately 80 cents of every dollar awarded to victims goes towards legal and administrative costs, leaving less than 20 cents for the plaintiffs themselves. This inefficiency contributes to an estimated shrinkage of the U.S. productive economy by up to $500 billion annually, with tort costs rising at a rate of 7.1%—more than double the inflation rate.
Despite the need for victims to receive compensation for corporate misdeeds, the notion that every injury warrants a lawsuit is problematic. If individuals could sue manufacturers for accidents like skiing injuries, it could stifle recreational activities altogether. In the 1990s, Republicans attempted to mitigate the influence of trial lawyers through legislative reforms aimed at curbing frivolous lawsuits, a movement encapsulated in their “Contract with America.” Historically, trial lawyers predominantly supported Democratic candidates, but a recent shift has seen them aligning with conservative leaders, particularly as they target Big Tech and Big Media—industries often viewed as adversaries to conservative values.
Compounding the litigation landscape is the controversial practice of “third-party litigation funding,” where investors finance lawsuits in exchange for a share of the potential winnings. This practice raises ethical concerns, as it allows unknown investors to profit from legal disputes, often at the expense of the actual injured parties. In 2024 alone, over $2 billion in new financing agreements for these funds are projected, contributing to a total asset pool of $16.1 billion. The lack of transparency surrounding these arrangements can mislead juries into believing they are aiding victims, while in reality, the bulk of the awarded damages may benefit the investors. In response to these challenges, Rep. Darrell Issa (R-Calif.) has introduced the Litigation Transparency Act, which seeks to require the disclosure of third-party funding agreements in federal civil cases. As frivolous lawsuits continue to burden the economy, it is crucial to ensure that the interests behind litigation are transparent, safeguarding both defendants and the public from hidden agendas.
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.
