A lot of dough going to the lawyers

There are some things I just canít figure out: The words which come after "Since she put me down" in "Help me Rhonda" by the Beach Boys. Why Maclean Stevenson thought leaving M*A*S*H was a good career move. And why we as a nation continue to let trial lawyers redistribute wealth (from us to them) in a way which would make Karl Marx proud.
    Last year I didnít get sued, sue anyone or get arrested and lawyers cost me $1200. You too. And your nephew, granddaughter, plumber and next-door neighbor. Each of us. Everyone paid that much in higher costs of everything we do or buy because of a sticky-fingered legal system. And thatís just non-smokers. Nicotine addicts will be paying an additional lifetime legal retainer of 25 cents a pack for the rest of their carcinogen-laced days.
    The $1200 is a bit of a guess. It could be a little more or a little less. It is the result of dividing total estimated legal fees (about $180 billion) by the United States population plus the estimated amount of the price of consumer products which represents insurance and other liability costs. The amount spent on legal fees is more than half of what is spent domestically on K-12 education and 2 ½ times what is spent on fire and police protection.
    But even if itís not an exact figure, we are certainly spending a gardenful of cabbage on lawyers. What we are receiving for our money? Not much. The Pentagon may spend 300 bucks on a hammer, but at least it get a hammer. Like the lottery, there are a few ordinary folks who score big in the lawsuit sweepstakes, but most of the do-re-mi goes to the folks running the scam.
    Class action lawsuits are a bigger bonanza for attorneys than Hoss or Little Joe ever dreamed about. The beauty of these for lawyers is that they ostensibly represent thousands, if not millions of plaintiffs, so that the ultimate award or settlement, even if insignificant to the individual victim, ends up being huge to the total on which the legal fees are based. Two varieties of this action are shareholder derivative and product liability actions.
    Whenever a stock price falls precipitously (hey, this is an economic boom, stock prices are only supposed to go up ĖĖ itís not like itís gambling or anything), there is the likelihood of a shareholder derivative suit. Lawyers file for permission to represent all shareholders against the company and sue on the basis that mismanagement caused the stock to drop. Weííre about to see one against Aetna, whose stock price has dropped in the last year from $80 to $50.
    Because these suits are enormously complicated and expensive to litigate, they are usually settled. Suppose a case against the Aetna gang over on Farmington Avenue settles for $100 million. The lawyers would get $25 million or so, and the rest would go to Aetna stockholders. There are 150 million shares outstanding, so shareholders would get 50 cents a share. But if the company has the $100 million lying around, the value of their shares reflect that anyway.
    Surprise, surprise, only the lawyers make out.
    The economics of product liability suits are similar. Cheerios, yes Cheerios those wonderful oatey Oís, got sued because they contained a food additive and were therefore not "all natural." The case settled with the lawyers receiving $2 million in fees and their "clients" receiving a coupon for . . . a free box of Cheerios.
    There is no shortage of stories like these, and they are the rule not the exception. This is not to defend the stuffed-shirts who sit around boardrooms counting their stock options and figuring out ways to transfer jobs to Mexico and Taiwan. If worst thing lawyers did was transfer wealth to themselves from corporate executives, it wouldnít be that big of a deal.
    But corporations are owned by the public, either directly or through pension and mutual funds. So the money going to the lawyers comes from us.
    Lawyers make the case that people are entitled to compensation for their injuries. A valid point perhaps, but the current system of providing it makes that $300 Pentagon hammer look like a model of economic efficiency. One research report concludes that 57 cents of every dollar spent on civil suits in this country go to pay lawyers and other legal costs like the public expenses of the court system.
    There are some sensible ideas out there for reform. One, the so-called "English Rule" where the loser of a lawsuit would pay the legal expenses of both sides is the most promising. Consumer advocates say this would limit the opportunity of the little guy to seek redress, but there are adjustments which can be made to the rule to allow for some flexibility.
    We probably wonít see any of these reforms, largely because the Trial Lawyers Association is one of the largest contributors to every political office holder from President to dog catcher. They make a lot of money and they spread a lot of it around to see that it stays that way.
    So things will go on the way they are, and each of us will be out that $1200 every year. Itís too bad ĖĖ I bet Maclean Stevenson could have used the money.

March 17, 2000