NCPA - National Center for Policy Analysis

Corporations Digging in Against Trial Lawyers' Suits

January 21, 2002

For many years, corporate defense lawyers have often elected to settle lawsuits, rather than go to court and fight them -- regardless of the merits of the case. The rationale often was that a possible loss would be more expensive to their company than an outright settlement.

But that inclination seems to be changing, says former Attorney General Dick Thornburgh. With plaintiffs' lawyers becoming bolder and suits more inventive, the cost of settling has itself become too high.

  • Some companies have found that being prudent and setting aside a fund to cover the possibility of a successful product liability suit, for example, simply encouraged plaintiffs' lawyers to look around and sign up claimants.
  • The lawyers also discovered that publicly threatening a lawsuit would put downward pressure on a company's stock price -- thereby coercing the company into a large settlement.
  • Then lawyers experiencing a windfall settlement turned around and plowed the funds back into more suits against the same company or others which were politically vulnerable.
  • The game became so established that the Association of Trial Lawyers of America now offers courses in how to sue particular companies.

But corporations such as DuPont, DaimlerChrysler and Wal-Mart have abandoned the old settlement model and let it be known that they will no longer lie down and roll over. As a result, the rate of new lawsuits against some of these companies has declined since word got around that they were prepared to fight. That has been the experience of Wal-Mart, for one.

Legal experts note that there are some downsides to the strategy, however. One is the burden on the courts. Last year, there were about 250,000 civil suits pending in federal courts. The only reason our courts have not folded under such a load is that about 95 percent of the suits are settled out of court.

Source: Dick Thornburgh (former U.S. Attorney General), "Just Say No to Tort Blackmail," Wall Street Journal, January 21, 2002.

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