Small Business Focus: Lawsuits tax businesses

Published 12:00 am Monday, February 11, 2002


All across America, taxpayers are opening their mailboxes to find envelopes entitled: “Important Tax Notice.” The April 15 tax deadline is rapidly approaching.

But there is another kind of “tax” that is hidden from view – the $600 or more you were “taxed” for lawsuits last year. Lawsuits? Not me, you say.

Yes, you. According to the Public Policy Institute, every American coughs up about $616 a year to support the costs of litigation.

That humming sound you hear is not the first hummingbirds of spring or the daily activities of America’s entrepreneurs busy at work. It’s the lawsuit mill grinding away at our courts, where an average of one new lawsuit is filed every two seconds.

Consider one of the highest-profile cases of recent years: Microsoft. Even after 40 states and Microsoft accepted a judge’s settlement, the lawyers’ meters are ticking, and it’s likely consumers will pay more for software and other products in the future and that innovation has been slowed during the process.

Litigation has become the nation’s top growth industry, growing four times faster than the economy. Today, the civil legal system costs more than $165 billion a year and guess who’s paying the bills? You can bet it’s not those preparing legal briefs.

Everyone who wears a pacemaker pays thousands of dollars more than the device actually costs to support liability fees. And that new car you bought? You won’t see it on the invoice, but hidden in the final tally are costs that allow trial lawyers to dip into your wallet for an average of $500 per car.

Saving for retirement? Don’t worry about some Enron-type collapse eating into your earnings. Your nest egg is at greater risk from attorneys who can tap into your savings by just threatening to file a lawsuit against a company or the products of an industry where you have investments.

Small businesses are most vulnerable to the lawsuit filers who view them as an easy source of income. NFIB surveys show that, in some states, one-third of small-business owners have been sued and that many more reported lawsuit threats. In a national study, nearly one-fourth noted that they were so afraid of being dragged into court they refused to introduce new products or improve existing ones.

To make matters worse, they’re having a tough time finding affordable liability coverage. Those that do are foced to spend money on preventive measures that would normally be used to create more jobs and expand their business.

Small-business owners want relief. Here are two steps Congress can take to begin reforming this legal shakedown: Cap punitive damages and abolish joint liability for non-economic damages for businesses with fewer than 25 employees. It won’t be easy, because the trial lawyers are well-connected and well-financed – with your money.

But if we begin right now identifying and supporting congressional candidates who will work to end lawsuit abuse, Election Day, Nov. 5, could come to be known as Refund Day – the day America took its money back from the trial lawyers.

JACK FARIS is president of the National Federation of Independent Businesses, the nation’s largest small-business advocacy group. Information is available online at