The Coming Lawsuit Tsunami [Part I]

It's bad enough to be in the middle of a global financial panic that could be worse than the Great Depression.  But if you're an American, even if you manage to avoid investment losses, you could be wiped out by the coming "lawsuit tsunami."

People sue because they're angry, desperate, or think they can get some easy money from a deep pocket.  And in a depression, there's plenty of anger and desperation.  Here's a preview of what you can expect on the lawsuit front in the next few months:

  • A blizzard of litigation against anyone with even a remote connection to Wall Street. Worldwide, $60 trillion or so of wealth has disappeared in the last year; perhaps $15 trillion in the USA alone. Investors are suing investment advisors, money managers, credit rating agencies and anyone else they can think of. Those who avoided losses aren't necessarily safe. For instance, investors who get out of Ponzi schemes before they blow up can be sued by those who didn't. Think of it as spreading the wealth around, or at least what's left of it.
  • A huge increase in litigation related to food safety. If your business has anything to do with food, better call a lawyer. Recent deaths caused by ingesting salmonella-contaminated food will lead to a crackdown on food producers, distributors, retailers and restaurants. Victims of poisoning, or their families, will sue anyone even remotely connected to the food industry. Opportunists suffering from nothing worse than indigestion will want a slice of the pie, too.
  • A proliferation of lawsuits by the disabled. Under the federal Americans with Disabilities Act, you must do what is "readily achievable" to make your business accessible to disabled customers. You must also make reasonable provisions to accommodate disabled employees (including, incredibly, employees that suffer from schizophrenia and other serious mental illnesses). Under some state laws, you must do even more.  California is especially inviting to litigants like Jarek Molski, a paraplegic who has filed more than 400 lawsuits against California businesses alleging discrimination. In that state, your business can lose a lawsuit if it there is any discrimination or distinction in the way it provides goods or services to the able-bodied and disabled. Even If you fully comply with the ADA—but only the ADA—a disabled litigant can win damages against your California business.
  • A big jump in "abandoned property" lawsuits forcing owners of vacant homes to maintain them, or risk losing them. As U.S. real estate prices collapse, thousands of vacant homes have been abandoned by their owners. Some are boarded up; others are occupied by the homeless, drug dealers, gang members, and prostitutes.If you own a building that you fail to maintain, the sheriff can seize it and sell it to anyone who will occupy the property and have enough income or cash to maintain it. If that's not enough, the Supreme Court has upheld the right of local and state governments to use "eminent domain" laws to seize private property. Developers in cahoots with local governments can then demolish whatever buildings are on the property, and in their place build sports stadiums, universities or anything else deemed to increase the property's economic value.

But just to be sure trial lawyers are gainfully employed, the Obama administration has introduced legislation that, if enacted, will invite a frenzy of litigation against employers. I suspect that includes a lot of people who read this blog.  Just what we need in these hard times! Especially since the single largest predictor in the long-term growth trend of employment-related case filings is the national unemployment rate.

In my next post, I'll give you a rundown of what Obama has in mind to punish employers, and present some suggestions to deal with the rising lawsuit tsunami.  But in the meantime, here's some food for thought:

In 2007, the Pacific Research Institute published a landmark analysis of the total costs to the U.S. economy, both direct and indirect, of lawsuits aimed at giving an injured party compensation for damages.  Such "tort" lawsuits, according to PRI, cost us all $865 billion in 2006.  In terms of U.S. GDP, that's a hidden 13% tax on everything you earn (or if you'd rather, a hidden 8% consumption tax).  The annual "tort tax" for a family of four is $9,827.

Small potatoes, I suppose, compared to the cost of the various bailouts Congress is considering, but if Obama gets his way, the tort tax will be a lot higher in years to come.

I hope you have a good asset protection plan in order.  If you don't, I'll describe some of the first steps you should consider in my next blog.

Copyright © 2009 by Mark Nestmann

(An earlier version of this post was published by The Sovereign Society.)

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