Tag Archive for 'frivolous lawsuits'

Small business and the “Loser Pays” legal system

A recent study concluded that more is spent on the administration of civil lawsuits in America – not the total amount of the settlements, just the administration – than what Americans spend on automobiles each year. Here’s more: The U.S. Chamber has estimated that frivolous lawsuits cost small businesses $88 billion annually. But here’s the real sad news: Just one of these lawsuits – even one with no merit that in the end the plaintiff loses – can put a small business in jeopardy just in the cost of defending themselves.

So what is the answer to this plague? Well, incremental tort reform is one. For example, there has been significant reform in the past couple of years with regard to making class action suits less easy to bring. But what we need, it seems to me, is a wholesale change in the system.

Our current system, called the American Rule, requires for each party in a lawsuit to pay their own costs. It might surprise you to learn that this system is not the norm around the globe. In fact, it is in the minority if not unique to the U.S. The Europeans, and many other countries, use the “Loser Pays” system, which, by definition, requires that if you pursue a lawsuit and lose, you pay both sides of the legal bills. As you can imagine, only serious suits are pursued.

There are few elements of the European marketplace that I covet for Americans, but the lone exception to this stance is the Loser Pays system. One way the Obama administration could sell its universal health care system plans would be to package it with a conversion to Loser Pays.

Recently, on my radio program, The Small Business Advocate Show, I interviewed Marie Gryphon with the Manhattan Institute, an expert on the American Rule vs Loser Pays debate, and she had some excellent points to make which I encourage you to listen to. And of course, I encourage you to leave a comment or question.

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