As regular viewers of late-night television know, commercial breaks are filled with endless ads recruiting potential victims of some product or treatment. Although seemingly innocuous, these ads comprise the tip of a huge and costly legal iceberg that repeatedly finds its way onto the path of our economy.
The lawyers behind the ads claim they want to help people. In reality, the primary beneficiaries of these lawsuits are the mega-law firms and their deep-pocketed financiers.
Advertising is the bread and butter for attorneys specializing in mass tort litigation or class-action lawsuits. They spend enormous amounts of money on ads (almost $7 billion from 2017 to 2021), casting a wide net to maximize their catch of potential claimants against large corporations. The more people they sign up, regardless of whether those individuals have a valid grievance, the better their chances of gaining a lucrative judgment or, more likely, an enormously profitable settlement.
Companies receiving these schemes often conclude that defending a mass tort claim is too expensive and time-consuming. Accordingly, they choose to settle, even when they would likely prevail in court. Attorneys filing massive lawsuits leverage this advantage while stringing out the process, knowing that more protracted and complex litigation improves their odds of success.
An organization dedicated to reining in spurious mass tort litigation, the American Tort Reform Association, has done extensive research into what they call the “three pillars” of this ethically challenged industry. Those pillars are third-party litigation funding, trial-lawyer advertising, and the unsubstantiated scientific evidence upon which the lawsuits are frequently based.
Third-party financing of mass tort suits usually consists of hedge funds or private equity companies providing the initial financial backing, banking on a significant payday. Taking their cut off the top before the attorneys and individual plaintiffs, the investors are attracted by the idea of making money that isn’t contingent upon stock market trends or economic cycles.
Litigation financing does more than cover costs; it actually creates lawsuits. By providing cash for legal advertising and the call centers that handle the resulting inquiries, outside financiers can help generate thousands of claims for generic illnesses vaguely tied to a commonly used product, generating sufficient pressure to force a settlement. Not only does mounting a defense waste a company’s time, money and legal resources, but every ad that links a corporation to a supposed injury, real or fake, devalues their brand. The public relations nightmare alone can push a company toward a settlement.
Targeted companies aren’t the only ones affected by mass tort litigation. Everyone feels the pain of lost economic output and stifled job creation. One recent report estimates that excessive tort costs equate to an annual loss of nearly $473 billion in economic output, resulting in more than 4.4 million fewer jobs. We all foot the bill for this “tort tax” while opportunistic attorneys and hedge fund managers rake in huge profits.
State legislatures can pass reasonable laws that curb the excesses of mass tort litigators. Florida, Kansas and Louisiana have all implemented regulations that make it more difficult for litigators to misuse the court system or intentionally mislead people with deceptive advertising. Every state should look hard at what excessive mass tort legislation is costing them — and all of us — and act accordingly.
