I recently sat down with a reporter from the Ukrainian Service of the Voice of America to talk about the impact that lawsuit abuse is having on America’s small businesses. It seems she had stumbled across our Web site, IAmLawsuitAbuse.org, which brings home the sad reality that lawsuit abuse hurts working families and neighborhood businesses. As someone who is still trying to understand the unique legal culture of the U.S., the foreign-born reporter was shocked that even the most ridiculous of lawsuits has the potential to destroy a business or force it to lay off employees.
The media seems to enjoy the spectacle of an absurd lawsuit. The latest favorite is the woman who is suing Victoria Secret for an injury that was supposedly sustained when the pair of underwear she was putting on broke and hit her in the eye. The plaintiff was interviewed on the “Today” show and everyone had a good laugh. However, the impact these ridiculous lawsuits are having on our economy is no laughing matter.
The U.S. has the most expensive litigation system in the world, costing us all more than a quarter of a trillion dollars a year – which averages out to $3,200 per family of four.
Part of this cost can be attributed to America’s inefficient class action system. While intended to give large groups of consumers a means for righting a wrong, the multi-billion dollar class action industry is effectively padding the pockets of the trial lawyers at the expense of the rest of society. Businesses and their employees suffer from abusive suits when they are pressured to into huge settlements in order to avoid the chance of a catastrophic judgment. Consumers and investors who are plaintiffs in these cases also gain little on an individual basis, while lawyers go home with huge fees. For example, in a settlement of a class action lawsuit filed against a video rental company over late fees, plaintiffs’ lawyers were awarded $9.25 million in fees and expenses while the class members received a couple of coupons for free movie rentals.
So what is the impact of an abusive legal system that steals away 1.9 percent of U.S. GPD every year?
Lisa A. Rickard serves as president of the U.S. Chamber Institute for Legal Reform (ILR), where she provides strategic leadership to ILR's comprehensive program aimed at changing the legal culture that has resulted in our nation's litigation explosion.