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Stossel's program last evening was an excellent review of the damaging effects of nuisance and class action litigation on the economy, innovation, and defendants. And, of course, who is the major beneficiary of the settlements? The lawyers. Contingency fees range from 20 to 30 percent, and fees and expenses in major class action suits are in the millions.
I received a settlement notice the other day as follows:
Alliance Capital Management - market timing and late trading
Settlement: $74,586,650 before $16,409,000 (22%) attorney's fees and expenses
Plaintiffs recovery from $0.0007 to $0.3655 (less the 22%) per share depending on which fund invested in.
If you owned 100 shares of this investment, you could receive anywhere from $.07 to $36.55. WOW!
The lawyers received the $16,4 million. Also the companies and insurers have to pay their own legal expenses which are not included in the $16.4 million above.
Who was hurt? Obviously everyone except the lawyers. The companies, the companies' investors, the companies' customers who pay higher prices, the insurers, everyone who insures themselves against these suits at ever increasing costs.
Nuisance suits are also clogging court dockets and destroying individual defendant's financial stability whether guilty or not. One example used on the Stossel segment was the dry cleaner who lost a lawyer's pants. He is suing for millions of dollars and the court did not throw the case out. It has been going on for over a year and the defendants have had to sell 2 of their 3 cleaning locations to cover the cost of their defense.
The lawyer has nothing to lose but time, and I am sure, hoped for a quick settlement. The immigrants that own the cleaners are losing everything.
Many of these nuisance suits are settled by the individuals or their insurers even though innocent. The high cost of litigation in many cases makes a settlement the least cost option. Many litigants rely on this.
According to Stossel, most of Europe has what they call "loser pays".
This is an extract from an article at Reason.com titled "Civil Suits":
Balance out the rule's theoretical vices with its virtues. The first is fairness. If someone drags you to court and costs you plenty in legal fees, and you finally show you were right, why should they walk away? If they'd hurt you in any other way, wouldn't they have to compensate you?
The practical case for loser-pays is equally compelling. Litigants naturally think too well of their cases; loser-pays pushes them to size up their prospects more realistically. It also curbs the brand of extortion, so routine in American law as almost to have lost its ethical taint, by which lawyers use the costs of the process itself, or the risk of a fluke outcome found in any trial, to strong-arm their opponents into settlement. Such abuse runs in both directions: Many plaintiffs with shoddy claims get paid off, while many defendants who are liable as charged get off with paying less than full freight by threatening to inflict the cost of trial. Thus valid legal claims are often paid earlier and more fully in Europe than here. Although the ABA calls loser-pays a "tax on the right to litigate," it could just as easily be called a subsidy for litigating in a rightful cause.
Society has good reason to discourage unnecessary litigation. Aside from their appalling expense, lawsuits are acrimonious and divisive, a breach of the social peace. They may be an inevitable part of life, but they needn't cost as much as here, and in fact they cost far less in Europe. Liability insurance also costs less there, as a share of the economy, by a factor of two-and-a-half or three to one, resulting in big savings for driv-ers, municipal taxpayers, business owners, and so on. Lawyers are far fewer in number and less powerful.
Those that say "loser pays" would prohibit the underprivileged their day in court, are, per Stossel, misinformed. Insurance policies can be purchased for very nominal amounts to cover them in case they lose.
It is about time the US goes to this system and removes these useless costs from the American economy.
Unfortunately, we have an obstacle in the way of any such legislation. 36.7% or 162 of 441 members of the House of Representatives are lawyers. Also 54% or 54 of 100 Senators are lawyers. On a State level, I don't know if the same relationship exists but it is probably close.
This would be a perfect addition to any tort reform legislation the new Congress undertakes.
Open Thread
5 hours ago
As an aside, the FDA restricted the sale of Avandia a few days ago, and guess what. I’ve already seen 3 different ads on TV looking for people to sue the drug company. When I was younger, we use to call these same lawyer types “ambulance chasers”, and they were considered the dregs of the profession.
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