A RECESSION-RESISTANT INDUSTRY
As U.S. economy sputters, Trial Lawyers, Inc. continues to rake it in.
The national economy struggled again in 2002, as the stock market declined more than 20%, retail sales weakened, and businesses put off new investments. But the lawsuit industry proved resilient, and Trial Lawyers, Inc. recorded a banner year.
Led by novel lawsuits making big scores in diverse sectors—reeling in ever-larger class action verdicts, expanding the scope of asbestos litigation, barraging doctors with unprecedented new levels of claims—the lawsuit industry once again proved among the most lucrative business sectors in America. Trial Lawyers, Inc. earned around $40 billion in revenues last year as settlements and claims reached record proportions.
The Lawsuit Industry
Despite the enormity of that sum, some people may find it strange to describe our civil justice system as an industry. After all, the classic conception of a plaintiff’s lawyer is an advocate who waits until he is approached by a client with a grievance to be resolved—by negotiation, if possible, and by court action only as a last resort. But that conception is far from the current reality, at least for the big plaintiffs’ at-torneys running Trial Lawyers, Inc.
These leading plaintiffs’ lawyers run complex, multi-million-dollar organizations that use sophisticated and expensive marketing to pursue clients through every com-mercial avenue, including the Internet. Like any business expanding its market presence, Trial Lawyers, Inc. uses sales tactics such as no-cost, no-risk offers. As one lawsuit industry–sponsored website declares, “Seek justice NOW by submitting your class action information online to be con-sidered for a FREE case evaluation!” These tactics are often designed to launch mass tort cases of the sort that have all but replaced the principle of fair and impartial justice with a new governing principle: winning through intimidation.
Free from the threat of antitrust actions, which have never been brought against the lawsuit industry, the industry is frequently organized into cartels: alliances of firms special-ize in particular kinds of lawsuits (e.g., asbestos or medical malpractice), trade information, share briefs, combine cli-ents, and jointly finance actions. Law professors acting as “new product” consultants and legal magazines acting as a trade press publish articles describing the latest practice areas that are likely to produce “gold” for advocates. The lawsuit industry even has its own venture capitalists—investors who back firms filing enormous, speculative class action suits with the hope that there will be rich rewards somewhere down the road—and its own secondary financial market, where shares in future legal fees are bought and sold.
The Cost of the Tort Tax
The overall cost of the tort tax over the next ten years may be almost triple the size of the 2001 and 2003 Bush tax cuts combined.
While this new and predatory style of law has been a bonanza for Trial Lawyers, Inc., it has been a drain on the American economy and a serious threat to the livelihood and lifestyle of many Americans. America’s tort system costs over $200 billion annually; even assuming that the underlying lawsuits have merit, much of this cost is wasteful and excessive—at least $87 billion, according to the president’s Council of Economic Advisors.
The overall cost of this “tort tax” on our economy over the next ten years will be more than $3.6 trillion, assuming tort costs increase at their 30-year trend. If tort costs increase at their 2001 pace, the ten-year cost of the tort tax will be over $4.8 trillion—almost triple the size of the 2001 and 2003 Bush tax cuts combined.
A Dangerous Racket
The impact of predatory litigation is staggering. Asbestos litigation alone has driven 67 companies bankrupt, including many that never made or installed asbestos, costing tens of thousands of jobs and soaking up billions of dollars in potential investment capital. Moreover, the negative social costs of Trial Lawyers, Inc. can be measured in more than just dollars and cents. In 2002, a dozen states experienced medical emergencies because doctors and hospitals could no longer afford malpractice insurance. Women scrambled for doctors to deliver their babies, seriously injured patients had to be airlifted out of some locations because there were no practicing emergency-room physicians available, and hospitals closed maternity wards to protect themselves.
And thanks to Trial Lawyers, Inc., the babies that do get delivered are vulnerable to deadly and thoroughly preventable diseases. Why? The litigation industry has used specious theories lacking scientific support to sue vaccine manufacturers for alleged harmful effects caused by vac-cines and vaccine preservatives. Recognizing that vaccines provide enormous public benefit but inevitably cause side effects in some recipients, Congress in 1986 saved the few remaining vaccine manufacturers from near bankruptcy by shielding them from lawsuits and setting up an alternative no-fault compensation system for those harmed by vaccinations. The lawsuit industry’s recent end run around this legislation, in an age of potential bioterrorism, threatens not only public health but also homeland security.
Trial Lawyers, Inc. and its defenders argue that they are providing a necessary service. They portray themselves as the friend of the “little guy” against incompetent doctors and uncaring corporations. Though this portrayal may have been accurate 30 years ago—and may be today for some attorneys—the kingpins of the lawsuit industry have pursued mass tort and class action suits and turned litigation into a multi-billion-dollar business.
More and more, the industry resembles a racket designed to do little more than advance the incomes and interests of its members—everyone else be damned. In most class action cases, Trial Lawyers, Inc. rakes in huge fees while individual plaintiffs walk away with pennies. In medi-cal malpractice cases these days, Trial Lawyers, Inc. often takes between 40% and 70% of the award for its fees and costs. In tobacco litigation, lawyers who never went to trial and never filed an original brief have claimed hundreds of millions of dollars in fees. Trial Lawyers, Inc. is truly a lucrative—and dangerous—racket.
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6. See id. The basis for Trial Lawyers, Inc. revenue is described in note 4; Trial Lawyers, Inc. revenue would equal $42.6 billion in 2002 given Tillinghast-Towers Perrin’s estimated overall tort cost of $224 billion.
7. See http://www.myclassactionlawsuit.com (including links to information about a variety of purported class actions and product recalls).
8. See Mary Alexander, Smart Searching, TRIAL, Nov. 2002, at 9 (touting ATLA’s members-only website, http://www.exchange.atla.org, which makes available litigation packets and contains features “that make it easier to tap into [AT-LA’s] database of pleadings, pretrial and discovery documents, articles, expert witnesses, depositions, and other vital information that will help members prepare—and win—clients’ cases”); see also C.L. Mike Schmidt et al., Manage Big Case Expenses Wisely, TRIAL, Nov. 2002, at 82 (explaining that one way “to spread out the expense of long-term litigation is to establish a joint venture with other small firms practicing in similar fields”).
9. See, e.g., Jason L. Riley, Salivating over Fast-Food Torts, WALL ST. J., June 30, 2003, at A16; James K. Glassman, A Pot Belly of Gold: Tobacco-Style Lawsuits Aimed at Food Processors and Restaurants, CAPITALISM MAG., Mar. 28, 2003, available at http://www.capmag.com; Robert Levy, Turning Lead into Gold, LEG. TIMES, Aug. 23, 1999, at 21.
10.See, e.g., Advertisement, National Lawsuit Funding LLC, Providing You with the Cash You Need Before Your Lawsuit Settles, http://www.nationallawsuitfunding.com; Press Release, RD Legal Funding LLC, Class Action and Personal Injury Attorneys Turn to RDLF for over $1,000,000 in Funding, http://www.legalfunding.com; see also http://www.lawyersfunding.com/attorney.htm (“Why invest your time and continue to put your money at risk when there are risk free alternatives? We provide practical, financial solutions to your cash flow problems. Use our money and we’ll assume 100% of the risk, if there’s no recovery.”) (emphasis in original).
11. See Gordon Fairclough & Vanessa O’Connell, Co-Dependent: Once Tobacco Foes, States Are Hooked on Settlement Cash, WALL ST. J., Apr. 2, 2003, at A1 (explaining how states plan to raise cash by issuing bonds backed by future payments from tobacco companies under the 1997 Master Settlement Agree-ment); Editorial, Smoke Screen, WALL ST. J., Feb. 20, 2001, at A22 (reporting that in February 2001, a group of tobacco plaintiffs’ lawyers “sold bonds to institutional investors backed by $1 billion in fee payments over the next 12 years, realizing $308 million in ready cash”); Jonathan Weil, Tobacco Deal May Back State Bonds, WALL ST. J., Mar. 31, 1999, at T1 (Texas state senator seeking to enact legislation allowing the financing of large construction projects by borrowing against proceeds of state’s tobacco settlement).
12. See TILLINGHAST-TOWERS PERRIN REPORT (2003), supra note 1, at 1.
13. See CEA REPORT, supra note 1, at 10.
14. See Jim Copland, Editorial, The Tort Tax, WALL ST. J., June 11, 2003, at A16. Analysis assumes that the $205 billion 2001 tort cost compounds annually at 9.11% or 14.34% for ten years; growth rates are derived from underlying Tillinghast-Towers Perrin data; see TILLINGHAST-TOWERS PERRIN REPORT (2003), supra note 1, at A3.
15. See generally Steven B. Hantler, Toward Greater Judicial Leadership on Asbestos Litigation, No. 41 CIV. JUST. F. (Manhattan Inst. Center for Legal Pol’y, Apr. 2003), available at http://www.manhattan-institute.org/cjf_41.pdf; Mark A. Behrens & Rochelle M. Tedesco, Two Forks in the Road of Asbestos Litigation, Vol. 18, No. 3, MEALEY’S LITIG. REP.: ASBESTOS 1 (Mar. 7, 2003).
16. See American Medical Association, The Medical Liability Crisis: Talking Points (Jan. 21, 2003), http://www.ama-assn.org/ama/pub/article/9255-7188.html; see generally OFFICE OF THE ASST. SECY. FOR PLANNING & EVALUATION, U.S. DEPT. OF HEALTH & HUMAN SERVS., CONFRONTING THE NEW HEALTH CARE CRISIS: IMPROVING HEALTH CARE QUALITY AND LOWERING COSTS BY FIXING OUR MEDICAL LIABILITY SYSTEM (July 24, 2002) [hereinafter “HHS REPORT”].
17. See id. at 3.
18. See, e.g., Causes of the Medical Liability Insurance Crisis: Hearing Before the Subcomm. on Labor, Health and Human Services, Education, and Related Agencies of the Senate Comm. on Appropriations (Mar. 13, 2003) (statement of Leanne Dyess).
19. See HHS REPORT, supra note 16, at 3.
20. See Editorial, The Truth about Thimerosal, WALL ST. J., Dec. 5, 2002, at A18.
21. See National Childhood Vaccine Injury Act, Pub. L. No. 99-660, Title III, § 301, 100 Stat. 3755 (1986).
22. For example, in one class action lawsuit in Texas, lawyers walked away with nearly $11 million in fees while plaintiffs received coupons worth $5.50. See Class Action Lawsuits: Hearing Before the House Comm. on the Judiciary (May 15, 2003) (statement of Lawrence H. Mirel, commissioner of insurance and securities for the District of Columbia) [hereinafter “Mirel Testimony”].
23. See Medical Liability Restructuring: Hearing Before the House Comm. on the Judiciary (Mar. 4, 2003) (statement of Lawrence E. Smarr, president of the Physician Insurers Association of America) (contingency fees in medical mal-practice cases can exceed 40% of the award, excluding costs).
24. See, e.g., Editorial, Spitzer’s Low Tobacco Record, WALL ST. J., Apr. 11, 2003, at A10 (stating that the six New York law firms representing New York in the state attorneys general tobacco litigation had “piggybacked onto a case that had mostly been won by others”); Milo Geyelin, Fat Legal Fees in Tobacco Cases Face Challenge, WALL ST. J., June 16, 1999, at B1 (noting that much of the Massachusetts state tobacco case was “ready-made”); Sueing L. Hwang, A Little-Known Lawyer, a Billion-Dollar Bill, WALL ST. J., Dec. 10, 1998, at B1 (reporting on efforts of Texas attorney general Dan Morales to obtain a $1.5 million share of the state attorneys general tobacco settlement for a Houston lawyer who “never took a deposition and never wrote a brief for the case”).