U.S. Chamber Fights Litigation Abuse

The final piece in our yearlong series on the U.S. Chamber’s policy agenda examines efforts to fight for business in the courts, rein in lawsuit abuse, and create a legal system that is simpler, faster, and fairer for everyone.

The Challenge—Business at Risk

Tort law in recent decades has been a powerful weapon in the hands of trial lawyers. They have drawn blood from businesses repeatedly, sometimes winning monetary awards that are so astonishing that they attract nationwide attention. A relatively small group of class and mass action trial lawyers have devised a business model that lines their pockets while shortchanging their clients and clogging the courts.

Although trial lawyers tend to go after companies with deep pockets, small companies have become increasingly vulnerable to employment lawsuits. A 2007 study by the U.S. Chamber’s Institute for Legal Reform (ILR) and NERA Economic Consulting found that businesses with $10 million or less in annual revenue pay $98 billion in tort liability costs per year. The study also found that businesses with $1 million or less in annual revenue disproportionately bear the brunt of the broken lawsuit system, paying $31 billion in direct costs such as liability insurance and damages. Two-thirds of those costs are covered out of pocket, not through insurance.

Medical liability is driving up the costs of health care, forcing doctors to order more tests and treatments than are necessary solely to avoid lawsuits. Yet, as ILR points out, the current health care reform debate in Congress ignores the public outcry for medical liability reform—63% of voters say that they support meaningful medical liability reform as part of health care reform. Meanwhile, securities litigation is hurting investors. The mere filing of a securities lawsuit causes an average 3.5% drop in the company’s stock value, according to an ILR study.

As a result of widespread lawsuit abuse, businesses, governments, health care providers, community organizations, and others are becoming increasingly risk averse, threatening the competitiveness of the U.S. economy.

The Impact—A Small Business Story

Restaurant owner Rob Piazza is the target of a lawsuit by a "frequent filer" for hanging a bathroom mirror too high.

California is earning a reputation for serial plaintiffs who seek opportunities to file disabilities lawsuits. Nobody knows that better than Ron Piazza, the owner of a family-owned restaurant in Southern California who is being sued by a “frequent filer.”

After vandals destroyed the mirror in the men’s bathroom of his restaurant, Piazza’s employees installed a new mirror that hung two inches too high to satisfy disabilities regulations. Once Piazza was notified of the mistake, he immediately lowered the mirror. But it was too late. Piazza’s restaurant was sued. “It would have been very easy for the plaintiff to let us know that the mirror was a couple of inches too high, and we could have taken care of it right away,” Piazza explained.

The plaintiff visited the restaurant 27 times in three months before filing a lawsuit. “The multiple visits allowed the plaintiff and his lawyer to sue for damages per visit. Had I not lowered the mirror, they probably would have continued to log more visits,” says Piazza.

The Solution—The Chamber’s Plan of Action

The Chamber, through ILR, is taking a multistep approach toward reforming the nation’s legal system.

On the legislative front, ILR is fighting efforts in Congress to eliminate arbitration, expand consumer-related lawsuits, increase potential exposure to False Claims Act litigation, and chip away at federal preemption.
ILR is also active on the state and local levels, working with governors and legislators to enact legal reforms and educating voters about key issues in state attorney general and state Supreme Court races. It publicizes stories about small businesses and ordinary citizens being victimized by lawsuit abuse on FacesofLawsuitAbuse.org.

Through the National Chamber Litigation Center, the Chamber’s public policy law firm, the Chamber participates in court cases on legal issues of national significance, including punitive damages, class actions, securities litigation, labor and employment, environmental law, and patchwork immigration regulations. Since 1977, NCLC has been involved in more than 1,500 cases at every level of the judicial system. In 2008, NCLC entered 120 cases, winning a record 54 of them.

Learn more at www.uschamber.com/legalreform.