America’s litigation-friendly legal system continues to impose a heavy burden on our economy. The annual direct cost of American tort litigation—excluding much securities litigation, punitive damages, and the multibillion-dollar settlement reached between the tobacco companies and the states in 1998—exceeds $250 billion, almost 2 percent of gross domestic product. The indirect costs of excessive litigiousness (for example, the unnecessary tests and procedures characterizing the practice of “defensive” medicine, or the loss of the fruits of research never undertaken on account of the risk of abusive lawsuits) are probably much greater than the direct costs themselves.
Of course, tort litigation does do some good, and it does deter some bad behavior. The problem is that it deters a lot of good behavior, too. Indeed, the legal system does such a poor job of distinguishing between good and bad behavior that the high cost of litigation is effectively a “tort tax” paid by every American. The share of America’s economy devoted to lawsuits is far higher than that of other developed nations such as Germany and Japan. Yet America is hardly safer as a result.
As this report details, the causes of the staggering growth in the overall economic costs of litigation in America (see graph, right) are somewhat complex. A series of writings by academics and decisions by judges from the 1930s through the 1960s—many of which were well-intentioned—changed our legal rules to make it much easier to file and win lawsuits.
Alongside these doctrinal changes, the modern trial-lawyer lobby emerged. As the plaintiffs’ bar became wealthier, more organized, and more like an industry—we like to call it Trial Lawyers, Inc.—it grew into a major political force. Combining large-scale political giving with K-Street lobbying sophistication, the lawyers worked to maintain the legal shifts that had enriched them, as well as to initiate changes that would enrich them still more.
The litigation industry’s political strategy is multifaceted. Because tort law is state law in the United States, the states have been the focus of Trial Lawyers, Inc.’s political efforts. And because tort law is, for the most part, crafted by state judges rather than enacted by state legislatures, these efforts have centered on ensuring a friendly judiciary, whether appointed or elected.
With business groups now fighting back against Trial Lawyers, Inc.’s longtime grip on state judiciaries, the litigation lobby has turned its attention to state legislatures, where it is not only blocking tort reforms but working to expand its portfolio of litigation opportunities. Among other things, state legislators are authorizing new kinds of lawsuits, raising damage caps, and giving private lawyers authority to sue on behalf of the state.
Of course, the growth in federal regulation and law has made it necessary for Trial Lawyers, Inc. to lobby Congress as well. Thanks to large contributions, both to the Democratic Party and to individual legislators, lawyers have not only blocked most federal efforts at tort reform but are also working to coax goodies from Congress that pad their bottom line. Such efforts include:
- Lengthening statutes of limitations in employment law to make it easier to file discrimination suits;
- Spurring securities litigation by allowing suits to be filed against the vendors of corporations accused of fraud;
- Cutting contingent-fee lawyers a tax break worth over a billion dollars;
- Gutting arbitration contracts designed to encourage resolution of disputes that are too expensive to take to trial; and
- Allowing state juries to override federal regulations.
The litigation industry isn’t making political headway because it is popular. Eighty-three percent of Americans think that the legal system makes it too easy to assert invalid claims. The plaintiffs’ bar became so nervous about its public image that it changed its name: in 2006, the Association of Trial Lawyers of America rebranded itself the American Association for Justice.
But general public unease over the conduct of litigation today cannot combat the overwhelming influence that Trial Lawyers, Inc. has obtained in the halls of power. In the last decade, lawyers and law firms—excluding lobbyists—have injected $780 million into federal campaigns, on top of $725 million donated to state races. Lawyers’ giving is so lavish that it exceeds all other industries’, and likely would do so even if donations by defense firms were backed out of total contribution figures (see note ). Moreover, the plaintiffs’ bar strategically concentrates its giving, wielding disproportionate influence in contested state supreme court elections and over the leadership of both the U.S. Senate and key state legislatures.
The progress of the plaintiffs’ bar has not been entirely unimpeded. Since the Manhattan Institute issued, in 2003, its first report entitled Trial Lawyers, Inc., major tort-reform legislation in states such as Texas and Mississippi has forced plaintiffs’ lawyers to look for friendly new jurisdictions. Judges such as Janis Graham Jack have blown the doors off a program of manufactured testimony and medical examinations in the asbestos-lawsuit industry, producing a sharp drop in new case filings in that line of litigation. From 2004 through 2008, the cost of litigation to the economy rose more slowly than overall economic growth. And four key members of our original Trial Lawyers, Inc.’s “leadership team” have left the business altogether: federal prosecutors uncovered bribery and kickback schemes that led to the imprisonment of Dickie Scruggs, Bill Lerach, and Mel Weiss; and former U.S. Senator John Edwards has retreated from the public scene in ignominy.
But make no mistake: trial lawyers are reacting to recent setbacks not by licking their wounds but by flexing their political muscle. Newly enlarged Democratic majorities—swept into office by financial crisis, disaffection with the war in Iraq, and enthusiasm for “hope and change”—seem intent on rewarding their political benefactors. I hope that this report, by shedding light on their shenanigans, can help stem the damage.