June 3, 2011
A Texas Roundhouse for the Trial Lawyers
By making litigants pay for filing frivolous lawsuits, the Lone Star State will protect jobs and spur growth.
By CHUCK NORRIS AND STEPHEN DEMAURA
Two women get into a fight in the ladies' restroom at a restaurant. Afterward, they sue the restaurant owner, claiming someone should have been in there to break up the fight. It costs the small-business owner $2,000 to pay each plaintiff to drop the complaint, which was cheaper than fighting the lawsuit would have been.
This completely ridiculous story is true, and the restaurant owner was one of us, Mr. Norris. Fortunately, the lawsuit didn't cripple the family restaurant, Woody's Wharf in Newport Beach, Calif. But nationwide, groundless lawsuits strain businesses' bottom lines and threaten their very survival.
This week, Texas Gov. Rick Perry signed a law that will help free Lone Star State businesses from the threat of frivolous lawsuits by enacting "loser-pays" tort reform. Prior to the legislation, litigants faced a no-lose situation, while defendants stood to lose everything—even for the most outrageous, bizarre and wrongful accusations.
Even when defendants won, the legal fees associated with protecting themselves could add up to tens of thousands of dollars. As a result, many pre-emptively settled out of court, as the settlement payment would be less than the legal fees. Under Texas's new legislation, however, litigants will be forced to pay for the defendant's attorney fees if the case is determined groundless. This will compel would-be litigants to consider the practicality of their complaint before taking legal action, and it will protect defendants from the dire financial impact of frivolous cases.
The Texas legislation should serve as a national model, especially as we recover from the Great Recession. America has the most expensive civil-justice system in the world, costing $255 billion in 2008, or nearly 2% of gross domestic product, according to a 2009 study by the firm Towers Perrin (now Towers Watson). That's more than twice as much as any other industrialized nation as a percent of the GDP.
Small businesses—the engines of our economy and the creators of 64% of American jobs—are usually the target of frivolous lawsuits. In fact, small businesses paid 81% of business tort liability costs in 2008. On average, a small business earning $1 million must spend $20,000 annually on lawsuits—money they could have otherwise spent on product development or new job creation.
Softening the threat of frivolous lawsuits sparks economic activity. In 2003, for example, Texas put limits on non-economic damages in medical malpractice cases. Since then, the number of doctors applying to practice in the Lone Star State has jumped by 60%. The same can be expected of businesses that no longer have to fear the financial impacts of civil-lawsuit abuse.
Frivolous lawsuits also clog the legal system, making courts more difficult to navigate for those who have legitimate claims. Approximately 1 in 10 civil lawsuits in America is groundless. In states that have instituted "loser-pays" provisions, that proportion is reduced. For instance, in Alaska—which has a more restricted version of "loser-pay" than Texas now does—tort suits account for just 5% of civil legal matters.
Lawsuit abuse—and the serial litigants who often drive it—costs every American $838 a year, according to Towers Perrin. Tort reform is a matter of fairness, of leveling the playing field between litigants and defendants. If a legitimate case is brought before a court, the victim should not bear the financial responsibility of bringing justice. But if a frivolous, get-rich-quick case is built against an individual or business, the defendant should not be financially liable for a wrongful accusation.
We can't roundhouse kick every groundless lawsuit out of this country, but we can work to reform a broken system. States such as Florida, South Carolina and Georgia are already looking to imitate Texas's new loser-pay legislation.
It is our responsibility as business owners, consumers and citizens to ensure that trial lawyers don't dictate the speed of our economic recovery or the fairness of our legal system. Texas—a trailblazer in pro-growth policies and, as a result, home to one of the nation's lowest unemployment rates and strongest business climates—has developed a model for reform, and its example should be replicated.
— Mr. Norris, an actor, is the founder of kickstartkids.org. Mr. DeMaura is president of Americans for Job Security.
This article appears in The Wall Street Journal Online: A Texas Roundhouse for the Trial Lawyers