A Message from the Director
As director of the Center for Legal Policy at the Manhattan Institute, it is my pleasure to present Trial Lawyers, Inc.: A Report on the Lawsuit Industry in America 2003. This report attempts to shed light on the size, scope, and inner workings of an industry poorly understood by the media and the general public. As we shall see, the lawsuit industry today is truly a behemoth, but—unlike the major corporations in our regular market economy—it remains financially opaque. Whereas public corporations must disclose their financials in 10-Ks according to SEC regulations, trial lawyers practice in private partnerships that, under the guise of attorney-client privilege, have shielded their financials from public scrutiny.
Trial Lawyers, Inc., while not an annual report per se, presents a snapshot of the lawsuit industry as it exists today. The picture is not pretty. Total tort costs today exceed $200 billion annually, or more than 2% of America’s gross domestic product—a significantly higher percentage than in any other developed nation. Moreover, even as the economy has stagnated and the stock market has plunged, the lawsuit industry’s revenues have continued to skyrocket: in 2001, the last year for which data are available, U.S. tort costs grew by 14.3%. Over the last 30 years, tort costs grew at a compound annual rate of 9.1%; by comparison, the U.S. population grew 1.1% annually, the consumer price index grew 5.0% annually, and the gross domestic product grew 7.6% annually during the same period.
I hasten to emphasize that while our figures on the size of the lawsuit industry are estimates—due to the industry’s lack of transparency—those estimates are sparingly conservative. The above statistics were derived in studies conducted by Tillinghast-Towers Perrin that aggregated insured tort costs going to legal defense, plaintiffs, plaintiffs’ attorneys, and administrative overhead. Significantly, these estimates exclude the tobacco settlements, most contract and securities litigations, and most punitive damages, as well as the substantial fees generated by the legal profession outside the field of tort law (in such areas as corporate and real-estate transactional work, bankruptcy litigation, or trust and estate planning). And our analysis fails to account for many of the perverse side effects of over-litigation, such as reduced investment and innovation and costly protective practices like “defensive medicine.”
While many Americans may understand that the lawsuit industry in America has run amok—most people could quote anecdotal examples of silly cases generated by our “lawsuit culture”—the public tends not to appreciate that the litigation industry is nothing but Big Business. Given that 19% of all tort costs go to plaintiffs’ attorneys, we can imagine a corporation called Trial Lawyers, Inc. which rakes in almost $40 billion per year in revenues—50% more than Microsoft or Intel and twice those of Coca-Cola. The lawsuit industry’s lack of transparency prevents us from making an accurate profit estimate, but if its margins are as high as we suspect, Trial Lawyers, Inc. might well be the most profitable business in the world.
But is it really accurate to think of Trial Lawyers, Inc. as a “corporation”? While there are thousands of lawyers who don’t fit the mold, for the big class action and mass tort attorneys who receive the lion’s share of big awards, the answer, increasingly, is yes:
- Although not centrally organized, the plaintiffs’ bar tends to be dominated by tort kingpins who carve up their markets—a practice that in a non-litigation context would be called collusion, a violation of antitrust law.
- Just as corporations are organized around different “lines of business,” plaintiffs’ lawyers target different industrial sectors. These include:
- Traditional profit centers like asbestos, tobacco, pharmaceuticals, and insurance;
- Potential growth markets like lead paint and mold; and
- Suits that today seem outrageous, like those against the fast-food industry, but might well be called new product development.
- Plaintiffs’ lawyers are increasingly sophisticated in targeting their customer base; they aggressively and cooperatively solicit potential claimants through the Internet and traditional print, radio, and television media outlets.
- Although the trial bar likes to accuse corporations of having undue influence, the government relations and public relations arms of Trial Lawyers, Inc. are more powerful and focused than those of any other industry.
Indeed, the biggest difference between the lawsuit industry and most other industries is that Trial Lawyers, Inc. is in a noncompetitive market and that its takings are necessarily zero-sum, since the industry involves redistribution rather than free exchange.
Trial Lawyers, Inc. does not claim to be comprehensive. As a brief survey of the “litigation groups” listed by the American Trial Lawyers Association on page 23 makes painfully obvious, the lawsuit industry is slowly creeping into almost every aspect of American life. We have only focused on the industry’s highlights—or lowlights.
Since its founding in 1986, the Manhattan Institute’s Center for Legal Policy has been a leader in civil justice reform. Historically, our work has tended to be scholarly in nature. Senior Fellows Peter W. Huber and Walter K. Olson have been called the “intellectual gurus of tort reform” and have each written several influential books on malfunction in our legal system. We have published numerous policy papers by leading academics, judges, and practitioners. So Trial Lawyers, Inc. represents something of a departure for us. We are publishing this survey because the litigation industry remains woefully misunderstood by the public, and because we felt it useful to provide a single, readable source of information on the current practices and state of affairs in the litigation industry. We hope that you find Trial Lawyers, Inc. useful and informative, if alarming to read.
James R. Copland
Director, Center for Legal Policy
Manhattan Institute for Policy Research
1. See TILLINGHAST-TOWERS PERRIN, U.S. TORT COSTS: 2002 UPDATE, TRENDS AND FINDINGS ON THE COSTS OF THE U.S. TORT SYSTEM 19 (Feb. 2003) [hereinafter “TILLINGHAST-TOWERS PERRIN REPORT (2003)”]; TILLINGHAST-TOWERS PERRIN, U.S. TORT COSTS: 2000, cited in COUNCIL OF ECONOMIC ADVISERS, WHO PAYS FOR TORT LIABILITY CLAIMS? AN ECONOMIC ANALYSIS OF THE U.S. TORT LIABILITY SYSTEM 11 (Apr. 2002) [hereinafter “CEA REPORT”].
2. See TILLINGHAST-TOWERS PERRIN REPORT (2003), supra note 1, at 1.
3. See id. at A1. Compound annual growth rates are based on numerical calcula-tions using underlying data.
4. See id. at 17, 19. The $40 billion figure is derived by multiplying the 19% tort cost share of plaintiffs’ attorneys times the $205.4 billion overall tort cost. Revenue data for Intel and Coca-Cola are for full-year 2001, as published in the companies’ annual reports. Revenue data for Microsoft are for the final two quarters of FY 2001 and first two quarters of FY 2002, as publicly filed by the company, to correspond to the 2001 calendar year.
5. See id. The basis for the Trial Lawyers, Inc. revenue figure and revenue num-bers for Microsoft, Intel, and Coca-Cola are described in note 4. Pfizer revenue data are for full-year 2001 as published in the company’s annual report. Cisco revenue data are from the final two quarters of FY 2001 and first two quarters of FY 2002, as publicly filed by the company, to correspond as best as possible to CY 2001 (covering 1/28/01-1/26/02).