The lawsuit abuse problem in a nutshell 

America’s legal system cries out for reform when a solicitation described by a federal judge as “junk mail” can expose a mortgage company to as much as $16 billion in liability for allegedly failing to provide 16 million recipients with a sufficiently “clear and conspicuous” notice of one of their rights under the Fair Credit Reporting Act.

The prospect of having to face so massive a liability forced the company to settle a class-action lawsuit filed against it by plaintiff lawyers, who then received from the defendant $3.5 million in fees.

The lawyers got something else, too — a promise from the company they sued that its executives would not criticize the lawyers in public regarding any issue in the case. The company is prevented from talking about the settlement in critical terms but this newspaper is not: We agree with Class Act Watch executive director Lawrence Schonbrun that the case represents “the class-action mess in a nutshell.”

First, because the FCRA stipulates such heavy fines — mandatory statutory damages for violations range from $100 to $1,000 per violation — the class-action lawsuit becomes in the hands of aggressive trial lawyers a legal weapon of mass destruction. Thousands of such suits have been filed in the past two decades by trial lawyer sharks epitomized most prominently by the recently jailed William “Circle of Greed” Lerach and Dickie “King of Torts” Scruggs.

Many of these suits never went to trial, not because the defendants were guilty, but simply because they were paralyzed by the fear of losing and thus being forced to pay billions in damages and legal fees. It was cheaper, to say nothing of being a matter of corporate survival, to just settle, thus effectively paying the trial lawyers to go away.

Second, Schonbrun notes that in the mortgage company case, the trial lawyers who filed the suit received $3.5 million in legal fees despite significant doubts about whether that amount was even remotely justified. “This was in spite of the fact that none of the tasks billed by the six lawyers who worked on the case were billed at a rate lower than the partner rate of $450 per hour,” Schonbrun said. “One senior attorney billed at $550 per hour for answering telephone calls from class members.” The American Tort Reform Association and the U.S. Chamber of Commerce’s Institute for Legal Reform have documented hundreds of cases in which similarly questionable legal fees went to the trial lawyers involved.

Finally, such lawsuit abuses impose costs on everybody. Corporations forced to pay multibillion-dollar settlements pass the cost along to consumers. Professionals, especially doctors, have to pay unnecessarily high premiums for liability insurance, and to practice “defensive medicine” — ordering unneeded tests just in case of a suit alleging malpractice. Experts estimate that medical malpractice reform alone could save consumers up to $200 billion. How much longer must America wait for lawsuit reforms that will bring such abuses to an end?

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