It’s Time to Curb America’s Appetite for Lawsuits

Published at Seattle Post-Intelligencer

A woman at McDonald’s spills hot coffee in her lap and a jury awards her $2.7 million. Another jury awards a man $4 million from BMW because he wasn’t told that his new car had received a minor paint touch-up before he bought it. Yet another man is awarded $12.3 million, most of it in “punitive” damages,” because he fractured his neck on a Slip ‘n Slide lawn toy whose wrapper, he charges, did not warn him adequately that adults could get hurt playing with such a thing. (It just shows that we must keep toys out of the hands of grown ups.)

Winning the lawsuit sweepstakes in today’s America is a lot easier than winning the lottery, and while news of enormous legal awards arouse amazement and anger in most of us, it evidently incites a drooling appetite to sue in the rest. No wonder we now have 14 million lawsuits a year, one for every 17 Americans.

The western district of Los Angeles alone has more lawyers than all of Japan. California as a whole is definitely a Golden State for trial lawyers; 99 of 100 auto accidents, including fender benders, result in lawsuits. Overall, Americans’ chance of being in a suit is now three times that of Canadians. And it isn’t just big businesses that gets hit, but also mom and pop stores, charitable groups and local governments–anyone, however remotely connected to a problem, with “deep pockets” that can be invaded when the real source of a grievance is poor.

When lawsuits hit the jackpot, who do you think benefits almost as much as the alleged victim (who gets an average of 43 percent of awards)? That’s right, the lawyers get about 33 percent, and the rest goes to administrative and other costs. Top corporate lawyers in America do very well in life, but the top trial lawyers eclipse them, some raking in $15-$90 million a year, a recent review inForbes magazine shows. Especially well-rewarded are those who figure out how to get a parade of new clients to sue the same company for the same problem over and over and to get “punitive damages” each time in order to “send a message”–a message that sometimes reads “bankruptcy.” Juries are not allowed to learn about this tactic, or they would rebel more often.

And who, in addition to the manufacturer or store owner, pays? Right again: you do–in higher insurance premiums, higher consumer prices and lowered stock values in your personal or pension portfolio. Even though some of the most outrageous suits are later reduced by judges, the whole litigious system in this country, according to a study by the management consulting firm of Tillinghast/ Perrin Towers, is freighting our economy with a burden $140 billion annually. That is money that otherwise could create new jobs, raise pay and productivity.

Before the trial attorneys and the professional “consumer advocates” they so often support race to their word processors to protest my bias (or maybe start a class action suit!) let it readily be acknowledged that businesses and ordinary citizens do sometimes commit terrible blunders that harm others, and that “tort law” is an entirely proper corrective. Lawsuits often have forced negligent companies, doctors and other entities and individuals to accept proper financial responsibilities and to improve safety standards. Even the “contingency fee” arrangement that assures a plaintiff that he will not pay the lawyer unless he wins the case can be defended on the basis that it allows poor people access to justice in a system that favors wealth.

The problem, however, is that the system has slowly gone nearly out of control and has become counterproductive. Trial attorneys’ jaundiced eyes and wily ways may have motivated some otherwise indifferent firms to act more responsibly, but at least as often the fear of legal action reaches a point where companies are driven out of business by ruthless legal speculators. Doctors stop entering certain fields that have become overly attractive to lawsuits. In some states, people who might otherwise be good Samaritans when confronted by a person in distress, instead refuse to help because of a wholly rational fear of being sued. Another example of the chilling effect of over-litigation is the growing trend among employers to avoid giving objective references for former employee because they know that certain trial attorneys’ latest speculative field is “wrongful termination” (cases doubled between 1991 and 1994). The result is that many employers are wary of new hiring altogether.

Recognition of these consequences of over-litigation has finally created a backlash. This year alone some 20 states have passed tort reforms. A study by the National Bureau of Economic Research shows considerable stimulus of economic growth in those states where tort reforms have been enacted, and a drag on the economies of states where lawsuits hobble enterprise, and that kind of study will fuel still more reform.

Nationally, trial attorneys are used to calling the shots in Washington, D.C. , perhaps because they are generous campaign contributors, last year, for example, donating $14 million. But they are conspicuously apprehensive that Congress might pass serious tort reform legislation in this session; indeed, in the next few weeks. The Republican-controlled House of Representatives, led by Rep. Henry Hyde of Illinois, passed a fairly broad bill, including caps on punitive damages and much-needed malpractice limitations. But the Senate, where floor-leader Slade Gorton of Washington feared that too narrow a victory would invite a Presidential veto, came up with a much more limited reform bill that mainly covers product liability. (Another bill to limit frivolous class action suits by supposedly aggrieved stockholders disappointed at the failure of managers to anticipate stock price fluctuations seems to be coasting to a surprisingly easy victory and Presidential signature.)

But, while the trial attorney lobby believed that House-Senate differences were too great to allow any bill to pass this year, the two houses’ “Conference Committee” suddenly appears close to a resolution. Reform-minded senators now think that their present veto-proof majority might be willing to accept certain obviously reasonable aspects of the House bill–for example, a financial limit on civil actions that don’t involve physical injury or suffering, and a limit on actions taken against non-profit organizations and local governments.

If Congress passes any tort reform bill this session, the cause of major reform will not be drained of energy, as some reformers fear, but reinvigorated. A public appetite for suing one another took us down the present path, and an appetite for restoration of a more civil society can now be stimulated through the steady introduction of successive and successful steps toward the thorough overhaul our system really needs. Legal utopianism paradoxically diminishes the very justice it claims to seek. We have another, better tradition, and that is common sense. It has a much better record of achieving justice in this all too imperfect world.

Bruce Chapman

Cofounder and Chairman of the Board of Discovery Institute
Bruce Chapman has had a long career in American politics and public policy at the city, state, national, and international levels. Elected to the Seattle City Council and as Washington State's Secretary of State, he also served in several leadership posts in the Reagan administration, including ambassador. In 1991, he founded the public policy think tank Discovery Institute, where he currently serves as Chairman of the Board and director of the Chapman Center on Citizen Leadership.