There’s Nothing Classy About Lawsuit Abuse

Recently, a notice arrived in the mail. The document was seven dense pages chock-full of legalisms. Apparently, I was identified as a member of a class action lawsuit. The notice was to let me know that I could drop out of the class if I took the time to write a letter to the Class Administrator to explicitly request exclusion from the class. Never mind that I never joined the class in the first place. These notices are commonplace today, another piece of junk mail filling mailboxes across the nation as lawyers troll for class action lawsuits with million dollar settlements. While mailings clog mailboxes across the country, lawsuits pile up in courtroom dockets and consumers are faced with higher prices and fewer products in the marketplace.

The “important legal notice” that arrived in my mailbox offers a clear example of the problems that plague our legal system. These mass production lawsuits clog our courtrooms and delay justice for Americans with real grievances. In my case, I was notified that a settlement offer has been made, and if accepted, I was entitled to $3.57, just like every other member of the class. The attorneys, on the other hand, would fare far better, collecting $2.5 million for their efforts—more than 700,000 times what the individual class member would receive.

Such class actions lawsuits are a favorite of trial attorneys, who stand to reap million dollar benefits while consumers are typically left with trivial monetary awards or coupons for future purchases. At the same time, these suits drive up the costs of goods and services while reducing productivity and employment opportunities. The issue has reached a point where Congress has proposed reforms to the current legal system. But while the House of Representatives has already passed the Class Action Fairness Act, real reform remains a challenge. The Democrat-controlled Senate has refused to act on class action reform, for fear of slighting the trial lawyers, one of their largest financial backers.

The problems with the legal system go beyond class action lawsuit abuse. For example, a jury recently awarded the state of Alabama almost $3.5 billion dollars in a royalty dispute with ExxonMobil. The problem arose over an alleged $40 million dollar underpayment of royalties by ExxonMobil. The jury award included $87 million to compensate for the underpayment plus interest. But the jury went further, piling on an additional $3.4 billion in punitive damages. Traditionally, punitive damages are to be reserved for those instances where a defendant engaged in willful misconduct or malevolent behavior. The case at hand is a contract dispute in an area where state law was not carefully explained, which makes the use of punitive damages here questionable. The Alabama Supreme court reviews the issue later this week.

While such excessive punitive damage awards may sound like good news for trial lawyers and the governor of a cash-strapped state with a bloated budget, such decisions distort the legal system and impose substantial costs on consumers. In the absence of reform, lawsuit abuse continues to be a major problem in America, which costs consumers billions of dollars. According to Business Week, the lawsuit industry cost Americans more than $165 billion in 1999.

Lawsuits can destroy whole industries or keep vital products from making it to the market, all for fear of lawsuits. For example, until the U.S. Congress stepped in, the single engine aircraft industry was virtually wiped out by lawsuits, at the cost of over 100,000 jobs. And lawsuits can drive up the costs of many products, such as health care, where doctors practice “defensive medicine” to protect themselves from lawsuits, or insurance where fraud and abuse lead to substantial legal costs that ultimately are borne by consumers. One recent study by RAND’s Institute for Civil Justice found that under the tort liability systme, 42 percent of soft tissue injury claims—sprains, strains, and other difficult to verify injuries—were for non-existent or pre-existing injuries.

While lawsuits may hold the allure of a million-dollar judgment, it is important to realize that the abuses of the legal system impose costs on all consumers while crowding out cases with legitimate legal grievances. A well functioning legal system is an important component of a free society. It offers an opportunity to resolve disputes, enforce contracts, and compensate victims for legitimate losses. Unfortunately, special interests have found ways to subvert our legal institutions for selfish gains. Without reforms that restore the legal system to it original purpose, the legal system will become a liability rather than strength of our free society. The following list includes a series of reforms aimed at improving out nation’s legal system:

Abolishing Joint and Several Liability In Most Cases. The current rules of law on joint and several liability are grossly unfair and inefficient. Requiring a person 1 percent at fault to pay an entire judgment creates higher insurance and product costs, and is destructive of property rights. The only instance where joint and several liability is appropriate is where it is impossible to apportion fault between those who cause the harm.

Reforming Class-Action Rules. The current use of Rule 23 of the Federal Rules of Civil Procedure has created a treasure-trove for plaintiffs’ class-action lawyers. The lawyers sometimes do not even need a client to collect millions from productive sectors of the economy. Moreover, if the goal of these actions is to put the plaintiff back in his original position but for the wrong, why is it that lawyers receive far more than plaintiffs? CSE supports changes to Rule 23 that mandate that a lawyer have an actual class that has sustained an actual injury.

Mandating a Higher Burden of Proof for Punitive Damages. Punitive damages are meant to punish defendants for engaging in harmful behavior. Just as in criminal cases, before a court can punish someone, it must satisfy a higher burden of proof.

Creating a Presumptive Cap for Non-Economic/Pain-and-Suffering Damages. Pain-and-suffering damages are highly speculative and vary greatly from person to person. For these reasons, it is difficult, if not impossible for defendants to predict these costs and change their behavior accordingly. Moreover, the excessively high pain-and-suffering awards often over-deter individuals and corporations from engaging in what normally would be socially valuable activities.

Eliminating Junk Science in the Court Room. State courts are allowing non-scientific evidence into the court room at an alarming rate. Plaintiffs’ lawyers use this “junk science” to prove causation that does not actually exist. CSE supports reining in the use of these junk scientists in the courtroom.

Adopting a Reasonable Statute of Repose. A statute of repose will encourage people to depend upon the safety or reliability of a product for only its useful life. Moreover, manufacturers will be able to devote more money to research and development instead of to lawsuit defense and insurance.

Strengthening Individuals’ Ability to Enter Contracts. This is at the heart of the tort-reform debate. If individuals can enter into court-recognized and court-sanctioned contracts that allocate risk and decide liability, billions could be saved in transaction costs.

Eliminating legislation through litigation. Impose sunshine requirements, open bidding for outside counsel, and other restrictions that would limit the ability of the government to sue private companies to pursue policy objectives.