Moore: Time to stop the trial lawyer tax
Trial lawyers have long been a contentious presence in the U.S. legal landscape, often viewed as a significant impediment to business and economic growth. The infamous case of Stella Liebeck, who was awarded $500,000 after being burned by scalding coffee at McDonald’s in the 1990s, exemplifies the controversial nature of tort law in America. Such high-profile cases have contributed to a perception of a litigation culture that disproportionately benefits lawyers at the expense of both businesses and consumers. A RAND study revealed that a staggering 80% of damages awarded in class-action lawsuits are consumed by legal and administrative costs, leaving only a fraction to reach the actual plaintiffs. This inefficiency is a major contributor to excessive litigation, which is estimated to cost the U.S. economy up to $500 billion annually, exacerbated by tort costs growing at a rate of 7.1%, significantly outpacing inflation.
While it is crucial to ensure that victims of corporate misconduct receive fair compensation, the line between justifiable lawsuits and frivolous litigation is often blurred. The past efforts by Republicans in the 1990s to curb excessive lawsuits through reforms may have provided some relief, but the landscape is shifting again. Trial lawyers are now aligning with conservative leaders, particularly in lawsuits targeting Big Tech and Big Media—industries that have historically faced scrutiny from the right. This new wave of litigation is compounded by the rise of “third-party litigation funding,” where investors finance lawsuits in exchange for a share of any potential winnings. This practice raises ethical questions, as it allows unknown entities to profit from the legal system while potentially undermining the interests of the plaintiffs they ostensibly support. In 2024 alone, these funds are expected to capture over $2 billion in financing agreements, with total assets ballooning to $16.1 billion.
In response to the growing concerns surrounding transparency and accountability in litigation funding, Rep. Darrell Issa (R-Calif.) has introduced the Litigation Transparency Act. This legislation aims to require the disclosure of third-party funding agreements in federal civil cases, ensuring that juries and the public are aware of the financial interests behind lawsuits. The implications of frivolous lawsuits extend beyond the targeted companies; they can diminish economic prosperity for everyone. As the debate over litigation reform continues, it is clear that finding a balance between protecting victims and preventing abuse of the legal system is more critical than ever.
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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.
Eric
Eric is a seasoned journalist covering General news.
