American Legal System Myths

Two of the hot button issues in politics today are tort reform and immigration reform.  It is generally believed that illegal immigrants are taking American jobs, and trial lawyers are ruining the U.S. economy by filing frivolous lawsuits.  Consequently, American businesses and jobs are being driven overseas, the cost of consumer products are increasing, and insurance rates are spiraling out of control.

Many of these claims about the American legal system by politicians, lobbyists, some big businesses, and even lawyers themselves are self-serving and either overreaching or completely false and misleading.  Below are links to in-depth articles and studies on the U.S. legal system with some very surprising insites.  Some of these include anecdotes about frivolous lawsuits like the infamous McDonalds hot coffee case (and the untold story), as well as some statitics on immigration, employment law, and tort reform.

Our firm's motiviation in providing this resource page is not a for hidden political agenda.  We are a business law firm dedicated to promoting business.  We believe that the greatest asset for our clients is information.  With reliable information our clients are better able to analyze the real risks of doing business.

Tort Reform Agenda

In general, tort reform advocates contend that there are too many frivolous lawsuits.  The legal definition of a frivolous lawsuit is a legal action that cannot reasonably be supported under existing legal precedent or under a good-faith argument for a change in the law, or one that has no basis in fact.  The term has acquired a broader rhetorical definition in political debates about tort reform, where it is sometimes used by reform advocates to describe successful tort lawsuits that critics believe are without merit, or award high damages relative to actual damages.

Tort reform advocates argue that the present tort system is too expensive, that meritless lawsuits clog up the courts, that per capita tort costs vary significantly from state to state, and that trial attorneys customarily receive an unusually large percentage of the punitive damages awarded to plaintiffs in tort cases. High-profile tort cases are often portrayed by the media as the legal system's version of a lottery, where trial lawyers actively seek the magic combination of plaintiff, defendant, judge, and jury.  Advocates of tort reform also complain of unconstitutional regulation through litigation. Proponents further argue that litigation is used to circumvent the legislative process by achieving regulation that Congress is unwilling or unable to pass.

In response to lawsuits filed against gun manufacturers by several municipalities, a bill was proposed by the U.S. Congress in 2005 that would provide immunity to gun manufacturers for most negligence and product liability actions (and prohibit the Bureau of Alcohol, Tobacco, Firearms, and Explosives from revoking a dealer's license, even in cases where a dealer has been identified as selling a relatively high number of guns subsequently used in violent crimes).

In contrast, organizations such as the United States Conference of Mayors oppose gun manufacturer immunity legislation.  Others have argued that the legislation took "away the right of victims to be able to have their day in court," that the bill gave unprecedented immunity to a single industry, and that the law was unconstitutional to the extent that it conflicted with the Separation of powers.

A few of the changes frequently advocated include limits on punitive damages, limits on non-economic damages, limiting the collateral source doctrine, use of court-appointed expert witnesses, elimination of elections for judges, reducing appeal bond requirements for defendants faced with bankruptcy, "venue reform", which limits the jurisdictions within which one can file a lawsuit, limits on contingency fees, the adoption of the English Rule of "loser pays" (the defeated party must pay both the plaintiff's and the defendant's expenses), and requiring that class action lawsuits with nationwide plaintiffs be tried in federal courts, eliminating awards for pre-judgment interest.

Tort Reform Debate

How would tort reform affect safety?  Opponents of tort reform contend that supporters exaggerate the costs and ignore the benefits of the current tort system.  For example, opponents of tort reform contend that lawsuits encourage corporations to produce safer products, discourage them from selling dangerous products such as asbestos, and encourage more safe and effective medical practices.

Beginning in the early 1980s, Professor Stephen Teret and other faculty at The Johns Hopkins University School of Public Health argued that tort litigation was an important tool for the prevention of injuries.  Teret identified several ways that litigation can enhance safety for everyone, including:

1. to avoid paying future damages, the creators of dangerous products or conditions may voluntarily make them safer;
2. where conduct is particularly egregious, courts may award punitive damages to deter that conduct in the future; and
3. the process of gathering information prior to trial – called 'discovery' – can bring information to light that can be used by policy-makers to create new laws or regulations."

A 2006 study by Emory University professors Paul Rubin and Joanna Shepherd examined the effect of tort reforms on non-motor vehicle accidental death rates, and found that "caps on noneconomic damages, a higher evidence standard for punitive damages, product liability reform, and prejudgment interest reform lead to fewer accidental deaths, while reforms to the collateral source rule lead to increased deaths."

Controversy Over Job Loss Claims

Some advocates of tort reform posit that reforms can significantly reduce the costs of doing business, thus benefiting consumers and the public in the long run. Harvard Business School professor Michael E. Porter stated: "product liability is so extreme and uncertain as to retard innovation. The legal and regulatory climate places firms in constant jeopardy of costly and… lengthy product suits. The existing approach goes beyond any reasonable need to protect consumers, as other nations have demonstrated through more pragmatic approaches."  In contrast, critics dispute claims that the current tort system has a significant impact on national or global economies. The Economic Policy Institute wrote that the effect on the economy of job loss resulting from lawsuits is negligible.

In an April 2002 paper, the CEA (President Bush's Council of Economic Advisors) examined the economic impacts of the tort system in somewhat greater depth. But that paper, too, failed to demonstrate any employment effects of the tort system and made no prediction about the impact of tort law change. Even if we assume that asbestos liability legislation could somehow have prevented the loss of 2,500 jobs per year resulting from asbestos-related bankruptcies (by, for example, limiting compensation for non-economic damages to the victims or their survivors, or by denying awards of punitive damages), the effect on overall employment and the national unemployment rate in an economy with more than 130 million payroll jobs would have been imperceptible (a change of less than two-thousandths of 1%).

Dispute Over Litigation Explosion Claims

Opponents of tort reform deny claims of tort reform advocates that there is "litigation explosion" or "liability crisis", and they contend that the changes proposed by tort reform advocates are unjustified. Records maintained by the National Center for State Courts show that population-adjusted tort filings declined from 1992 to 2001. The average change in tort filings was a 15% decrease.  The Bureau of Justice Statistics, a division of the Department of Justice (DOJ), found that the number of civil trials dropped by 47% between 1992 and 2001. The DOJ also found that the median inflation-adjusted award in all tort cases dropped 56.3% between 1992 and 2001 to $28,000.

Tort reform supporters allege that these numbers are misleading. They claim that most liability costs come from pre-trial settlements, so the number of trials is irrelevant, and that the largest increase in the number of tort cases occurred between 1970 and 1992.  A study by Tillinghast/Towers Perrin claimed the cost of liability litigation outpaced the rate of inflation over the last half century, and represented 2.2% of GDP in 2004 vs. just 0.6% in 1950 and 1.3% in 1970.  It should be noted that Tillinghast/Towers Perrin is an interested party in the politics of tort reform with its operations as a major consultant to the insurance industry and as an insurance company itself with its reinsurance business. The Tillinghast/Towers Perrin study has been criticized by the Economic Policy Institute as unverifiable.

Tort reform opponents argue that corporations and insurance companies are the worst abusers of the litigation system. In particular, they contend, corporations often use their enormous resources to unfairly delay trial, pursue frivolous appeals, and contest claims in which liability is clear. In response, a number of tort reform supporters argue that that criticism is not a reason to oppose tort reform; such abuse would be deterred by proposed tort reforms such as "loser pays," which would prevent large corporations from using litigation as a cudgel against individuals and small businesses who cannot afford to defend themselves in court by providing an incentive for law firms to provide contingent defense. Opponents of tort reform contend that most private citizens would be afraid to sue wealthy corporations or insurers if they could be bankrupted by an award of the defendant's legal fees if they lost. This would limit legitimate claims, and effectively deny many citizens a forum to redress the harm caused them.

Illegal Immigration

Illegal immigration to the United States refers to the act of foreign nationals voluntarily resettling in the United States in violation of U.S. immigration and nationality law. Unsanctioned entry into the United States is a crime under the Immigration and Nationality Act, and those who have entered unlawfully are subject to deportation. Crossing the United States border without US Government authorization or failing to honor the terms of authorized forms of entry, such as tourist visas, represent the most common means of violation. Under the Immigration and Nationality Act illegal entry into the US constitutes a misdemeanor for first-time offenders, while persons who have been shown to repeatedly enter the US can be charged as felonys. Entering the US for seasonal employment without proper government authorization is also normally classified as illegal immigration, even when the individual plans to return to their country of origin when their employment ends. The United States Citizenship and Immigration Services (USCIS), a bureau of the United States Department of Homeland Security (DHS), is the primary federal agency tasked with enforcing the Immigration and Nationality Act.

In March 2006 the Pew Hispanic Center estimated the undocumented population ranged from 11.5 to 12 million individuals, a number supported by the US Government Accountability Office (GAO). Pew estimated that 57% of this population comes from Mexico; 24% from Central America and, to a lesser extent, South America; 9% from Asia; 6% from Europe, and the remaining 4% from elsewhere.

Economic Impact of Illegal Immigrants

The Economic impact of illegal immigrants in the United States depends on whether taxes paid by illegal immigrants and their contributions to the economy make up for the government services which they use, as well as the economic input of the immigrants themselves and the cost of externalities such as added strain on public health that they may add. Those who find that immigrants, including illegal immigrants, produce a negative effect on the US economy often focus on the difference between taxes paid and government services received, while those who find positive economics effects focus on added productivity and lower costs to consumers for certain goods and services.  Economists themselves overwhelmingly view immigration, including illegal immigration as a positive for the economy.

Participation in Free Market

In an article that appeared in the World Policy Journal (1994), Peter Andreas asserts that constraining the flow of illegal immigration in states such as California, may result in economic stagnation. One of the largest drivers of immigration both legal and illegal is economic supply and demand for labor and the natural human desire of people to participate in the economy and in so doing better their economic situation. Labor is a mobile economic factor of production, efforts to limit its mobility are attempts at limiting the free market (for labor). However, a free migration argument consistent with free market economy would require us to first have a free market and no welfare system.

A study by the RAND Corporation, conducted by Kevin McCarthy and Georges Vernez, came to the conclusion that immigrants do not have a negative effect on the earnings and the employment opportunities of native-born Americans.  Moreover, an increasing number of banks contend that providing undocumented residents with mortgages helps revitalize local communities, as they buy and rebuild run-down properties. According to the executive vice president of Banco Popular, the bank has found no higher rate of default in home loans to illegal immigrants than any other market the company serves.

Taxation

Chapman College law professor Francine Lipman writes in a 2006 paper in the peer-reviewed journal Tax Lawyer of the American Bar Association Section of Taxation that the belief that undocumented migrants are exploiting the U.S. economy and cost more in services than they contribute to the economy is "undeniably false". Lipman asserts that "undocumented immigrants actually contribute more to public coffers in taxes than they cost in social services" and "contribute to the U.S. economy through their investments and consumption of goods and services; filling of millions of essential worker positions resulting in subsidiary job creation, increased productivity and lower costs of goods and services; and unrequited contributions to Social Security, Medicare and unemployment insurance programs."

The Internal Revenue Service issues an Individual Taxpayer Identification Number (ITIN) regardless of immigration status because both resident and nonresident aliens may have Federal tax return and payment responsibilities under the Internal Revenue Code. Federal tax law prohibits the IRS from sharing data with other government agencies including the INS. In 2006 1.4 million people used ITIN when filing taxes, of which more than half were illegal aliens.

Healthcare

A RAND study concluded that the total federal cost of providing medical expenses for the 78% illegal immigrants without health insurance coverage was $1.1 billion, with immigrants paying $321 million of health care costs out-of-pocket. The study found that undocumented immigrants tend to visit physicians less frequently than U.S. citizens because they are younger and because people with chronic health problems are less likely to immigrate.

Social Security

Since 1986, when the Immigration Reform and Control Act set penalties for employers who knowingly hire illegal immigrants, most illegal immigrant workers have been using fake or stolen ID's and social security numbers to get a job.  Many employers who hire illegals (less than 10% do and over 90% do not)[citation needed], even when they know these cards are possibly fake, to avoid possible prosecution, withhold social security and income taxes and send the required numbers and tax payments on to the IRS and Social Security administration (SSA).  There is no mandatory verification of Social Security numbers for employers though there are voluntary ways such as the Basic Pilot Program and the Employee Verification System (EVS), to get social security number verification. Basic economics says that employers may have to use cheaper illegal labor if all or a significant fraction of their competitors are using it—so the almost lack of interior enforcement and document verification increases the hiring of illegal labor.[citation needed]

When Social Security numbers are already in use (possible stolen ID); names do not match the numbers or the numbers are fake, or the person of record is too old, young, dead etc., the earnings reported to the Social Security Agency are put in an Earnings Suspense file (ESF). The Social Security spends about $100 million a year and corrects all but about 2% of these. From Tax Years (TY) 1937 through 2003 the ESF had accumulated about 255 million mismatched wage reports, representing $520 billion in wages and about $75 billion in employment taxes paid into the over $1500 billion in the Social Security Trust funds. As of October 2005, approximately 8.8 million wage reports, representing $57.8 billion in wages remained unresolved in the suspense file for TY 2003.  This money represents income reporting mistakes, honest and otherwise of U.S. citizens and income paid by illegal immigrant workers and underground U.S. workers using counterfeit or stolen cards. The largest single source of this mismatched income is illegal immigrant workers. Assuming about $50 billion of this misreported income is due to illegal immigrant workers says they are paying about $4.0 billion/year of the total Social Security income (their illegal employers pay the same). To put this in persepective it should be noted that in 2005 SSA brought in $1045.2 billion dollars total of taxes and interest.