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October 26, 2011

The theme of the Institute for Legal Reform’s 12th Annual Legal Reform Summit today is hard to miss: “Jobs, Not Lawsuits.”  Everyone in the country is focused on getting our economy growing and helping the millions of unemployed or underemployed Americans find jobs.

We all know the statistics: 14 million Americans unemployed; over 6 million of them long-term; over 9 million – or 19 percent – underemployed. 

Job creation is the critical issue of our day, and the U.S. Chamber of Commerce has been on the front lines.  In fact, a giant “JOBS” banner hangs in the front of the Chamber.  It went up a few years ago and I wondered how long it would be there.  Well, it’s still there.  And getting people back to work is still the top priority of the Chamber.

Where do lawsuits fit into this?  How does America’s legal climate affect job creation?  Lawsuit abuse is simply one ingredient added to a potent mixture of job killers like over-regulation, high tax burdens, high costs, and volatility on Wall Street. 

Looking at litigation from a broader perspective, we see a few troubling trends:

First, the fear of lawsuits is discouraging economic growth, suppressing innovation and preventing new or lifesaving products from reaching the market.

Ask small business owner Mike Carter, for example, how litigation uncertainty is impacting his business.  His story was featured in ILR’s Faces of Lawsuit Abusecampaign.

Carter owns Monroe Rubber & Gasket Co., a small family business based in Louisiana.  He testified this year that due to hundreds of asbestos claims his company is facing, he cannot hire more employees, though he needs about ten more workers.  

The tragedy of his story is that Monroe Rubber & Gasket never manufactured any kind of asbestos product, yet since most manufacturers of asbestos have gone bankrupt, plaintiffs’ lawyers are casting a wider net, targeting solvent companies like his in the hope of finding plaintiff-friendly court systems to extort settlements from business. 

This is just one example of a much broader problem.  More than a third of small business owners have been sued or threatened with a lawsuit.

If targeted in a lawsuit, 71 percent of small business owners say, like Mike Carter, that they would have to hold back on hiring new employees.  Small businesses employ two-thirds of the private workforce, so this could add up to quite a few jobs lost to lawsuits or the threat of lawsuits.

We’re also finding that we can no longer afford to look at U.S. litigation developments in a vacuum.

Plaintiffs’ lawyers are increasingly cooperating across borders, and they’re actively pushing for the loosening of rules here in the U.S. and abroad.

One result of this is we’re seeing the migration of non-US claimants and claims into the U.S. courts to take advantage of the liberal features of the U.S. system. 

Another is the spread of global third-party litigation financing, which:  

  • Incentivizes frivolous lawsuits;
  • Raises ethical questions about who controls the lawsuit;
  • Weakens the attorney-client relationship;
  • Artificially inflates settlement values; and
  • Increases the volume of litigation, burdening the legal system.  It’s a simple fundamental of economics 101.  If you pour more money into the system, there will be more litigation.

The growth of third-party litigation financing will put more pressure on our legal system by bogging down our courtrooms.  The last thing we need is America’s courtrooms becoming investment markets, further overwhelming judicial resources and slowing the administration of justice in our country.  

Our state judiciaries are struggling enough as it is, receiving roughly only one percent of state budgets.  And in 2010, 40 of the 50 states reduced state court funding.

These reductions threaten to paralyze state judiciaries.  As a result, individuals and businesses throughout the country will find it increasingly difficult to access justice – and the consequent delays and interruptions of state judiciaries will wreak havoc on state economies. 

Some have estimated, for example, that the national cost of inadequately funded judiciaries is around $28.5 billion dollars per year. 

As a consequence, we need to make our courts more efficient – by taking such actions as creating specialized business courts in more states and increasing the use of alternative-dispute resolution or “ADR.” 

I’ve mentioned a few of our ongoing challenges; however, there is good news.  For example, 2011 was a great year for many important legal reforms, particularly in the states.  In fact, comprehensive bills encompassing a number of core reforms passed in Alabama, Oklahoma, Tennessee, Texas, Wisconsin and South Carolina this year.

We’ve also seen great progress in multiple states on legislation that puts some sensible parameters around state attorney general retention of outside counsel for contingency fee litigation – with Arizona, Indiana, and Missouri following Florida in passing bills.

Legal reform in the states is important because it has critical economic implications.

This was brought to light this year by the president of the Federal Reserve Bank of Dallas, Richard Fisher. 

Dallas Federal Reserve Bank economists looked at state-by-state employment changes since June 2009 and discovered that Texas added 37 percent of all net U.S. jobs since the recovery began (265,300 net jobs, out of the 722,200 nationwide.) 

When asked how Texas added 265,000 jobs while California lost 11,400 during the same period, Fisher said that Texas’s legal reforms and resulting record-low litigation costs were one of its biggest competitive advantages for creating and attracting jobs. 

With all this in mind, we organized this year’s Legal Reform Summit and panel discussions to explore and understand today’s litigation and regulatory environment, how they play a role in hindering job growth in America, and what can be done about it.

 

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