Tuesday, January 25, 2005

Excessive Litigation - Lawsuits or extortion?

A quick Google search: lawsuits 2005
Okay, you get the idea... everyone is doing it. That's nothing new. It's not so much that people and corporations are suing each other as much as the impact on each of us... yes, each of us... probably more indirectly than directly.

The issue is not that legal action is improper. The alternative to legal action would be far worse... large corporations using their economic power to ruin individuals and smaller competitiors... and, perhaps, violence by individuals or small groups against corporations in retaliation.

The issue is when does legal action become extortion? We hear about the $100 million damages awards and presume that the tort system is amok. By and large, it is a sound process that is a win-lose proposition which is used after all other means of settlement are exhausted.

Perhaps the legal system needs one small change: remove the penalty aspect of lawsuits from the jury process and establish a standardized, accounting approach for calculating the penalties. Another aspect of reform might be to limit legal fees to a cost-plus formula rather than a percentage of the award. Once again, the cost accounting should be standardized and reviewable by independent accounting firms. This would limit "padding" of the bills.

Right now, the system is just too tempting in its mechanisms that convert the concept of "damages" to "enrichment" and "protection" to "intimidation." Perhaps there are models from other countries that could be adapted to the U.S. system... or not. But it might be worth a look.