LAWSUITS AND THE ECONOMY
On November 21, 2006, Treasury Secretary Henry Paulson called the civil justice system “an Achilles heel for our economy. This is not a political issue,” said Paulson. “[I]t is a competitiveness issue …”1 The only data he used to support this statement were Tillinghast Towers-Perrin statistics about the so-called “cost” of the tort system, data that is wildly-exaggerated and easily debunked by experts.2 In fact, litigation is down in almost every sector,3 including securities class actions.4
Despite the lack of any credible evidence to support Paulson’s claim, the notion that lawsuits, judges, juries and lawyers are to blame for economic problems that may exist in this country is a common myth often perpetuated by business lobbies to justify pressure on lawmakers to restrict the legal rights on injured Americans. 5 It is without any basis in fact.
NO CREDIBLE STUDY BLAMES THE U.S. LEGAL SYSTEM FOR ANY U.S. COMPETITIVENESS PROBLEMS
IN OTHER FORUMS, “TORT REFORM” ADVOCATES AND THEIR WHITE HOUSE ALLIES TOUT THE U.S. ECONOMY AS STRONG.
U.S. INDUSTRIES ARE HAVING PARTICULAR SUCCESS INNOVATING AND COMPETING WORLDWIDE.
INDUSTRIES WITH HIGH LIABILITY EXPOSURE ARE HAVING GREAT SUCCESS INNOVATING AND COMPETING IN WORLD MARKETS. If the U.S. civil justice system was harming U.S. competitiveness, companies in sectors with high liability exposure, like the pharmaceutical industry, would be having a difficult time profiting, developing new products or succeeding in worldwide competition. But evidence suggests that the opposite is true.
4 “The number of securities fraud class actions filed in 2006 was the lowest ever recorded in a calendar year since the adoption of the Public Securities Litigation Reform Act (PSLRA) of 1995, notes the Securities Class Action Filings 2006 Year in Review report released today by the Stanford Law School Securities Class Action Clearinghouse, a joint project between Stanford Law School and Cornerstone Research. The study reports securities fraud class actions decreased by 38 percent since 2005, plunging from 178 filings to just 110, making this year’s numbers nearly 43 percent lower than the ten-year historical average of 193. …The study attributes the record low numbers of securities fraud class action filings in 2006 to three primary factors. First, the strengthened federal enforcement environment reflected in the pressure that the SEC and Department of Justice now bring to bear on corporations to conduct internal investigations that implicate the individual executives responsible for the fraud, may be reducing the amount of fraud in the market. Second, a strong stock market combined with lower stock price volatility typically reduces the number of cases filed. Third, the overwhelming majority of securities fraud class actions that were filed in the late 1990s to the early 2000s are now behind us. While the boom and bust cycle of this era may have contributed to the peak, the numbers in 2006 are low even when compared to pre-peak activity. News Release, “Securities Fraud Class Actions Tumbled to an All-Time Low in 2006, Finds New Study by Stanford Law School and Cornerstone Research; Strong Federal Enforcement Activity and Stable Stock Market Contribute to Decline,” January 2, 2007. http://securities.stanford.edu/.
5 See., e.g., The National Association of Manufacturers, “The Escalating Cost Crisis: An Update on Structural Cost Pressures Facing U.S. Manufacturers,” September 27, 2006 (“The burden of litigation and tort costs increased only modestly since the 2003 study, largely due to legislative and judicial developments that have reduced incentives to file frivolous lawsuits.”) The NAM report, which seeks to outline the overall costs to business from factors including “health care benefits, regulation, litigation and energy,” places a much heavier emphasis on what they deem the negative costs associated with our judicial system. In fact, the report is seemingly designed to provide business interests with “evidence,” as the Washington Post’s Steven Pearlstein puts it, which they can then use to “warn of impending economic ruin unless the government adopts the Republican agenda of less regulation, lower taxes, tort reform, and relieving companies of health-care and pension costs.” Pearlstein, Steven, “No Longer No. 1, and No Wonder,” Washington Post, September 27, 2006.
6 Marcus Walker, “Economic Forum Warns U.S. Of Budget Deficit's Ill Effects,” Wall St. Journal, September 27, 2006; http://blogs.usatoday.com/ondeadline/2006/09/us_falls_from_f.html
7 Peter Coy, “Is the U.S. Losing Its Competitive Edge?,” Business Week, September 27, 2006
13 Adam Segal, “Is America Losing Its Edge?,” Foreign Affairs, 17 November 2004
15 Terence O’Hara, “Oil Industry Seeks to Cast Huge Profits as No Big Deal,” Washington Post, October 28, 2005
16 Alex Berenson, “Pfizer and Other Drug Makers Report Higher Profits,” New York Times, October 20, 2006.
20 Alex Berenson, Pfizer and Other Drug Makers Report Higher Profits, New York Times, October 20, 2006.
21 Amy Barrett, “Merck could use a few pep pills,” Business Week, December 17, 2001
22 Alex Berenson, “Revamping At Merck To Cut Costs,” New York Times, November 29, 2005.