Trial Lawyer Tax: How Class Action Lawsuits Drain the U.S. Economy

For decades, trial lawyers have acted as a relentless drain on America’s prosperity, extracting vast sums from businesses and ultimately from consumers through inflated legal costs.

This destructive trend reached absurd heights during the 1990s when courts awarded massive settlements that bore little resemblance to actual damages suffered by individuals or companies. Consider McDonald’s paying $500,000 for burns caused by excessively hot coffee – a trivial injury requiring an outsized judgment. Or the Washington man demanding $50 million in compensation after losing pants at a dry cleaner, a lawsuit devoid of merit that bankrupted the business.

The situation worsened dramatically with frivolous litigation targeting industries like Buffalo Wild Wings, which fought class action claims based on subjective interpretations of deboned chicken wings – absurd standards applied to products. Such baseless lawsuits should be dismissed outright, not entertained in federal courts.

A RAND study revealed the true extent of this economic hemorrhage: less than 20 cents out of every dollar paid as damages actually goes to injured parties, while administrative and legal costs consume over 80%. This massive redistribution mirrors a hidden tax on businesses, funded by litigation against American consumers instead of foreign governments.

Third-party litigation funding has compounded the problem. Unknown investors now bankroll lawsuits seeking tens of millions in judgment awards, completely disconnected from any genuine injury or harm. These funds have exploded to $16.1 billion, siphoning money away from productive investments and into speculative legal claims.

The good news is that solutions exist. Representative Issa has championed legislation requiring transparency in litigation funding arrangements – a crucial step toward exposing this scam. This won’t discourage donations but will ensure accountability when frivolous lawsuits are funded by outside interests masquerading as victims’ representatives.

States like Florida, with Governor DeSantis at the helm, have shown how effective tort reform can be, creating hundreds of billions in savings nationwide through simple measures that reject the trial lawyer racket.