Stop the Trial Lawyer Tax

        Trial lawyers have been the bane of U.S. employers for many decades, sucking blood out of the economy like a swarm of mosquitos.

        The most famous case was back in the 1990s when the courts awarded a $500,000 judgment to a McDonald’s customer who claimed she was burned by coffee that was too scalding hot. Then there was the Washington man who sued a dry cleaner for $50 million for losing a pair of pants.

        My favorite was the lawsuit against Buffalo Wild Wings alleging that their “boneless wings” weren’t actually made from deboned chicken wings. Buffalo Wild Wings retorted: “Our hamburgers contain no ham. Our buffalo wings are 0% buffalo.” A federal judge dismissed the class action lawsuit.

        Trial lawyers are often “ambulance chasers” who profit from others’ misery and misfortune, often through class action suits that make tens of millions of dollars for themselves but only a fraction of that for the injured parties. What a deal.

        A famous RAND study found that roughly 80 cents of every dollar in damages paid to class action victims were absorbed by legal and administrative costs, and less than 20 cents made its way the plaintiffs.

        Excessive litigation is estimated to shrink the U.S. productive economy by up to $500 billion a year. Tort costs have exploded in recent years at an annual return of 7.1%, more than twice the inflation rate.

        Yes, victims deserve to be compensated for corporate bad behavior, as a matter of justice and to deter dangerous and unlawful behavior.

        But just because you have an injured party doesn’t mean you have a company villain. If everyone who breaks a leg skiing could sue the manufacturer of the skis, there would be no skiing.

        Back in the 1990s, Republicans put a muzzle on the most rapacious lawyers and passed laws to protect businesses from the most outrageous harassment lawsuits. Lawsuit reform was part of the Republicans’ 1994 “Contract with America.” At that time about 80% or more of the trial lawyers’ political contributions went into the coffers of the Democratic Party.

        But now trial lawyers are courting the GOP and conservative leaders with a spate of lawsuits against Big Tech and Big Media, two industries that conservatives have traditionally felt are hostile to free markets and conservative values.

        Compounding the problem is the new scam called “third-party litigation funding,” which allows law firms to court investors who will fund lawsuits in exchange for getting a share of the judgment if there is a guilty verdict.

        Under this practice, unknown investors secretly bankroll lawsuits with “dark money” in the hopes of scoring big verdicts. What’s really nefarious is that the third-party investors, not the injured party, often walk away with the bulk of the jackpot awards.

        These lawsuit investment funds are growing rapidly and captured more than $2 billion in new financing agreements for 2024. The total assets of these funds have grown to $16.1 billion.

        This method of encouraging and funding lawsuits is of questionable legality. But it most certainly should be transparent so that defendants and the public know the real economic interests behind those suing employers.

        The problem with these arrangements is that juries think they are aiding the victim, when the jackpot award for damages can just as readily be directed to the bank accounts of the investment funds.

        The good news is that Rep. Darrell Issa (R-Calif.) has sponsored the Litigation Transparency Act, which would require disclosure of these agreements in federal civil cases.

        Some conservative groups are worried that this means they would have to disclose their donors, which could discourage giving. Issa tells us that this is absolutely not the case — donors don’t receive compensation, so they wouldn’t be disclosed in such cases.

        Frivolous lawsuits make us all poorer — not just the company that gets targeted. This reduces investment, wages and risk-taking.

        Florida Gov. Ron DeSantis just recently announced billions of dollars in insurance premium savings in part due to curtailing frivolous lawsuits advanced by trial lawyer sharks. In other words, a good way to increase affordability is to reduce legal costs and the trial lawyer tax.

        The rest of the country should emulate Florida and end the scams behind third-party litigation.

        Stephen Moore is a former Trump senior economic adviser and the cofounder of Unleash Prosperity, which advocates for education freedom for all children.

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