Money & The EconomyOpinion

Legal Abuses Are Costing Americans Billions

Tort litigation, especially in class action suits, is very costly while making lawyers rich.

Inflation and supply chain disruptions are two of the most often discussed economic woes facing the American economy, but another often overlooked issue has also made significant contributions to the economic pain that families are feeling today.

Specifically, mass tort litigation, civil lawsuits involving numerous plaintiffs who claim similar injuries or damages and join into a “class,” has grown exponentially in recent years. This growth is not because American businesses are acting in a more negligent way than they used to act. No one will disagree that if someone has been wrongfully harmed, they should be justly compensated. However, more frivolous lawsuits are being pushed by some trial attorneys and the third-party funders that back them financially, in an attempt to turn the legal system into a vehicle for profit.

This has happened to the detriment both of American businesses and in some cases where claims are legitimate, victims who have suffered actual harm. A recently released report, for example, uncovered that mass tort litigation is extremely costly but rarely benefits anyone except the attorneys and their financial partners pushing the suits. They profit handsomely while the plaintiffs receive little to no compensation after the lawyers take their cut.

Using their “playbook,” these trial lawyers lure plaintiffs with arguably deceptive legal service advertisements. By bombarding them with late-night TV or internet ads that tell viewers they may be eligible for monetary compensation if a faulty medical device, consumer product, or medication has impacted them. They use aggressive tactics to pull in potential claimants for mass tort lawsuits, regardless of whether they have suffered any real injury, causing further confusion and alarm.

It’s a numbers game for these trial lawyers, who know that if they can engage large numbers of claimants, sometimes in the thousands, the likelihood of winning a judgment or, more often, a money-making settlement dramatically improves. Even targeted companies that have done nothing wrong will sometimes settle to avoid the expense and bad publicity of defending themselves in a public courtroom.

Such abuses of the civil justice system cause excessive damage to the U.S. economy. The costs, in terms of lost economic output and the subsequent losses of jobs and government revenues, are in the hundreds of billions of dollars. This burden ultimately falls on taxpayers and consumers, as businesses facing frivolous lawsuits may increase prices, reduce their workforce, or put a hold on new product development. Companies that are left with no better option than to settle in mass torts often lose out on the funding for increased job opportunities and product investments that could benefit consumer welfare and job growth opportunities.

While not all trial lawyers operate this way, the practices of the unscrupulous few not only damage the economy but also erode public trust in the legal system. This makes it more difficult for legitimate victims to seek and obtain justice. It’s why it is so important for legislators and regulators to take meaningful steps to curtail the trial lawyer “playbook” and rein in dubious mass torts.

For starters, states could enact legislation that restrains misleading legal services advertising. Full disclosure at the very beginning would help ensure that only people who have legitimate grievances become involved in litigation. This transparency would prevent those with unsubstantial claims from being misled into joining mass tort actions. We must also address one of the biggest drivers of these lawsuits today, the funding trial lawyers receive from hedge funds and other third-party investors who provide money at the forefront in exchange for a share of any award that is ultimately secured.

Such financial backing incentivizes the filing of numerous lawsuits, many of which may lack genuine merit. But unfortunately, lax disclosure laws often mean these agreements happen without the knowledge of the courts, obscuring the true intentions behind some of these lawsuits. Given the fact that our judicial system depends on all parties in litigation acting truthfully and in good faith, even when it is inconvenient or unfavorable, we cannot allow the funding arrangements that increasingly underpin superfluous mass tort litigation to continue to go unregulated and undisclosed.

A few state legislatures have already taken actions that would curtail these excesses of mass tort litigation. Yet while these actions can serve as a model, it is imperative that such laws are passed uniformly across the country and at the federal level as well. Comprehensive reforms are needed to restore integrity to our judicial system and prevent the exploitation of mass tort litigation that is harming the American economy. By implementing these changes, we can safeguard the legal process and ensure it serves those with genuine grievances rather than enriching a select few at the expense of consumers and businesses

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Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.

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