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CAN WE SUE OUR WAY TO PROSPERITY?: LITIGATION’S EFFECT ON AMERICA’S GLOBAL COMPETITIVENESS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON THE CONSTITUTION 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

MAY 24, 2011 

Serial No. 112–31 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

[Vacant] 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

[Vacant] 

SEAN MCLAUGHLIN, Majority Chief of Staff and General Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON THE CONSTITUTION

TRENT FRANKS, Arizona, Chairman 

MIKE PENCE, Indiana, Vice-Chairman 

STEVE CHABOT, Ohio 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

JIM JORDAN, Ohio 

JERROLD NADLER, New York 

MIKE QUIGLEY, Illinois 

JOHN CONYERS, JR., Michigan 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

PAUL B. TAYLOR, Chief Counsel 

DAVID LACHMANN, Minority Staff Director 

(III) 

C O N T E N T S 

MAY 24, 2011 

Page 

OPENING STATEMENTS 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Chairman, Committee on the Judiciary ..................................... 1 

The Honorable Trent Franks, a Representative in Congress from the State 

of Arizona, and Chairman, Subcommittee on the Constitution ....................... 3 

WITNESSES 

Paul Hinton, Vice President, NERA Economic Consulting 

Oral Testimony ..................................................................................................... 5 

Prepared Statement ............................................................................................. 7 

Charles Silver, McDonald Chair in Civil Procedure, University of Texas 

School of Law 

Oral Testimony ..................................................................................................... 18 

Prepared Statement ............................................................................................. 20 

John H. Beisner, Skadden, Arps, L.L.P. 

Oral Testimony ..................................................................................................... 28 

Prepared Statement ............................................................................................. 30 

(1) 

CAN WE SUE OUR WAY TO PROSPERITY?: 

LITIGATION’S EFFECT ON AMERICA’S 

GLOBAL COMPETITIVENESS 

TUESDAY, MAY 24, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON THE CONSTITUTION, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to call, at 2:08 p.m., in room 

2141, Rayburn Office Building, the Honorable Trent Franks (Chairman of the Subcommittee) presiding. 

Members present: Representatives Franks, Smith, Chabot, and 

Scott. 

Staff present: (Majority) Holt Lackey, Counsel; Sarah Vance, 

Clerk; Grant Anderson, Legal Research Intern; (Minority) David 

Lachmann, Subcommittee Chief of Staff; and Veronica Eligan, Professional Staff Member. 

Mr. FRANKS. This hearing will come to order. We want to welcome everyone to the Subcommittee on the Constitution, particularly the witnesses that are with us today. 

We want to welcome you all here today. As you heard, the votes 

have just been called, and we especially appreciate our witnesses. 

So what we are going to do for the moment here is we are going 

to defer to the full Committee Chairman, Mr. Smith, for an opening 

statement. 

Mr. SMITH. I thank the Chairman, and I also want to thank the 

Chairman and the Ranking Member for the special dispensation 

that allows me to sneak in an opening statement before I go vote. 

I am not necessarily going to be able to come back after votes, but 

I did want to make my statement. So, let me proceed, and once 

again, thank you. 

Today the Judiciary Committee continues to pursue its job creation agenda. The unemployment rate remains close to 9 percent 

as it has throughout this Administration. Congress should do everything it can to reduce the cost of creating jobs in America and 

to put Americans back to work. 

For the Judiciary Committee, this means making sure that 

America’s lawsuit system is efficient and fair. Both the Lawsuit 

Abuse Reduction Act, which reigns in frivolous lawsuits, and the 

Health Act, which limits non-economic damages in health care, are 

at the top of this Committee’s agenda. 

Today we continue this reform agenda by investigating ways that 

America’s bloated lawsuit system harms our global competitiveVerDate Aug 31 2005 11:03 Jun 28, 2011 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 H:\WORK\CONST\052411\66540.000 HJUD1 PsN: DOUGA
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ness. I hope that today’s hearing highlights some specific areas of 

the law that could be improved by reasonable common sense reforms. 

The Department of Commerce recently and correctly concluded 

that America’s inflated lawsuit costs are ‘‘an important U.S. competitiveness concern.’’ The U.S. spends twice as much on lawsuits 

as similar countries, which hurts American competitiveness in at 

least three ways. 

First, excessive lawsuit costs leave less for American companies 

to invest. Money that America spends on its litigation system is 

money that is not going to research, expansion, and job creation. 

Second, our lawsuit system puts American companies at a disadvantage when they are doing business abroad. American companies are increasingly being sued in domestic courts for wrongs that 

they allegedly committed abroad. Many of these suits have been 

marred by disturbing evidence of fraud, misrepresentation, and corruption by American and foreign trial lawyers. 

Third, our lawsuit system discourages foreign investment in the 

American economy. A 2008 study by the Department of Commerce 

concluded that the U.S. litigation environment harmed our competitiveness by discouraging foreign investment. That study found 

that for international businesses, the ‘‘United States is increasingly 

seen as a nation where lawsuits are too commonplace.’’ 

Global surveys of business leaders have shown that the high 

costs of our lawsuit system discourage foreign-owned companies 

from expanding businesses and creating jobs. Many of these problems share a common cause. Too many trial lawyers view the law 

as a business to make money for themselves rather than as a profession to achieve justice for their clients. This upside down view 

of the purpose of the law explains many of the most questionable 

practices we see today. 

Trial lawyers aggressively recruit clients to build massive and 

profitable class actions. They settle class action lawsuits on terms 

that pay them millions in attorneys’ fees while giving relatively little to the clients whom the lawsuit was supposed to protect. They 

encourage hedge funds to invest in their lawsuits as if they were 

any other startup business. 

None of this is consistent with the advice of the most revered 

lawyer in American history, Abraham Lincoln. Lincoln advised his 

fellow lawyers, ‘‘Discourage litigation. Persuade your neighbors to 

compromise whenever you can. Point out to them how the nominal 

winner is often a real loser in fees, expenses, and waste of time. 

As a peacemaker, the lawyer has a superior opportunity of being 

a good man. There will still be business enough.’’ 

I hope that today’s hearing illuminates ways that this Committee 

can help turn America’s legal system toward President Lincoln’s 

worthy standard. 

Thank you, Mr. Chairman, and I yield back. 

Mr. FRANKS. And I thank the Chairman. We are going to go 

ahead and recess now for the votes. And so, this meeting stands 

recessed until after the votes. 

[Recess.] 

Mr. FRANKS. The meeting will come to order. 

3 

We are reconvening the hearing here. I apologize that we have 

been waiting here for others, but it turns out that we had already 

opened it with a quorum, so we are in good shape. And you know 

how those things go. 

But I want to welcome you this afternoon again to the Subcommittee titled, ‘‘Can We Sue Our Way to Prosperity?: Litigation’s 

Effect on America’s Global Competitiveness.’’ 

America faces the highest lawsuit costs of any developed country. 

America’s tort lawsuit costs are at least double those of Germany, 

Japan, and Switzerland, and triple those of France and the United 

Kingdom. 

I believe as today’s testimony will show, these lawsuit costs serve 

as a tax on anyone who would create jobs in America. And of all 

of the taxes that can be imposed, this lawsuit tax is perhaps the 

most regressive, job crushing, and harmful to America’s global competitiveness. 

The lawsuit tax is regressive because it falls much harder on 

small businesses than on big businesses. According to a pending 

study conducted by one of our witnesses today, small businesses 

earn just more than one-fifth of business owner revenues in America, but bear more than four-fifths of the business lawsuit costs. 

Small businesses are less likely to have the level of insurance that 

larger businesses carry. Small businesses are not as experienced in 

the legal system and do not have all of the same access to elite lawyers. 

And precisely because they are small, small businesses are vulnerable to being wiped out entirely by just one lawsuit. This is 

why, though, it is relatively rare for large businesses to be driven 

completely out of business by a lawsuit. Probably every member of 

this House has met a small businessman or woman from their district whose livelihood has been threatened by a lawsuit. 

This lawsuit tax is particularly harmful to job creation because 

it is the kind of tax that businesses cannot anticipate and the only 

kind of tax that can cost more than the entire revenue and assets 

of the business itself. 

Now, while any tax can slow job creation at the margins, the 

lawsuit tax can stop job creating businesses in their tracks. The 

lawsuit system harms competition because it leads to America 

spending about twice as much on tort litigation as our major global 

competitors. The American tort system costs about 2 percent of 

gross domestic product as compared to about 1 percent or less of 

GDP in most other developed countries. 

Having the highest lawsuit tax rate in the developed world 

makes it harder for American businesses to grow their businesses, 

to create jobs, and to compete in the international economy. 

The trial lawyers, their political allies, and other defenders of the 

lawsuit status quo, often argue that these high costs are necessary 

to deter dangerous negligence and compensate the injured. 

Everyone agrees that we should minimize the amount of injury 

caused by negligence, and that Americans who are harmed by the 

negligence of others should be compensated. But there is little evidence that America’s additional tort lawsuit costs make Americans 

any safer. According to World Health Organization statistics, 

Americans die from unintentional injuries at a higher rate than 

4 

our peers in other developed countries. Among countries that the 

CIA designates as developed, only Finland and South Africa have 

higher rates of accidental death. And other modern developed countries justly compensate the injured while spending less than half 

of the amount on litigation that we spend here in America. 

America’s bloated lawsuit costs undermine American competitiveness because they only handicap those businesses that are trying to build wealth and create jobs in America. American businesses trying to grow to compete on a global scale face lawsuits 

and costs and risks that their international competitors do not. 

Americans doing business abroad must worry about being sued 

back home, and foreign businesses are much less likely to invest 

in America and create jobs that are here because they are concerned about America’s high lawsuit costs. 

In a competitive global economy, America cannot afford a lawsuit 

environment that is so much more burdensome than our competitors. To borrow a phrase, America cannot ‘‘win the future’’ while 

carrying the extra weight of the developed world’s highest litigation 

costs. 

And with that, I want to welcome the witnesses again. And we 

will introduce them, and we will begin. 

Indeed we have a distinguished panel of witnesses today. Our 

first witness, Mr. Paul Hinton, is the vice president of NERA Economic Consulting and has conducted empirical economic research 

on the costs of American litigation. He holds a B.A. from Oxford 

University and a master’s degree in public policy from the Kennedy 

School at Harvard. 

Our second witness, Mr. Charles Silver, is a McDonald chair in 

civil procedure at the University of Texas School of Law. Mr. Silver’s research and writing focuses on health care, law, and policy, 

civil procedure, complex litigation, and the professional responsibility of attorneys. He is currently an associate reporter on American Law Institute’s project on aggregate litigation and a member 

of the ABA TIPS task force on the contingent fee. 

Our third witness, Mr. John Beisner, is a partner and co-head of 

the mass torts and insurance litigation group at Skadden Arps, 

L.L.P. He has researched and frequently spoken and testified about 

alleged shortcomings in America’s Federal litigation system that 

exposes American businesses to undue liability. 

Each of the witnesses’ written statements will be entered into 

the record in its entirety. I ask that each witness summarize his 

testimony in 5 minutes or less. To help you stay within that time 

frame, there is a timing light on your table. When the light switches from green to yellow, you will have 1 minute to conclude your 

testimony. When the light turns red, it signals that the witness’s 

5 minutes have expired. 

Before I recognize the witnesses, it is the tradition of Subcommittee that they be sworn in. So, if you will please stand to be 

sworn. 

[Witnesses sworn.] 

Mr. FRANKS. Thank you. Please be seated. 

I now recognize our first witness, Mr. Paul Hinton, for 5 minutes. 

5 

TESTIMONY OF PAUL HINTON, VICE PRESIDENT, 

NERA ECONOMIC CONSULTING 

Mr. HINTON. Thank you, Chairman Franks and distinguished 

Committee Members, for inviting me to provide testimony today on 

the effects of litigation on competitiveness. 

Mr. FRANKS. Pull your mic a little bit closer to you, sir. Is it on? 

Mr. HINTON. How is that? Yes. 

Mr. FRANKS. Okay. 

Mr. HINTON. Okay, thank you. 

Yes, my name is Paul Hinton. Thank you for your introduction. 

I am a vice president at NERA Economic Consulting, which is a 

global firm dedicated to applying principles of economics, finance, 

and quantitative analysis to complex business problems, legal, and 

public policy challenges. 

I have co-authored and authored a number of empirical studies 

that estimate the direct costs of the legal system, and developed 

measures of the impact of the legal system on economic activity. It 

is the result of these studies that provide the basis of my testimony 

here this afternoon. 

I will also reference a widely-cited study on the tort costs by 

Towers Watson. 

U.S. litigation affects competitiveness by imposing additional 

costs on businesses operating in the United States. Towers Watson, 

the actuarial firm that reports U.S. tort costs of $250 billion a year, 

estimates that the U.S. ranks number one in tort costs as a percent 

of GDP, as you previously mentioned. Furthermore, by this metric, 

U.S. tort costs are more than double those of most other countries. 

A NERA study of tort costs found that higher tort costs from operating in the United States are a particular burden on small businesses. This potentially exaggerates the adverse effects on U.S. 

business activity because small businesses are responsible for creating 65 percent of the net new jobs in the country. 

We used the approach similar to Towers Watson. Starting with 

the premiums paid for liability insurance, we took the analysis a 

step further by using more detailed data on the insurance costs for 

individual businesses from the insurance broker, Marsh. We found 

that in 2008, small businesses with less than $10 million in revenues represented 22 percent of U.S. business revenues, but incurred 83 percent of the tort costs. These direct costs of the U.S. 

tort system can be described as having an effect on business similar to a tax and, like a tax, can affect the level of business activity. 

We are currently conducting a study commissioned by the U.S. 

Chamber Institute for Legal Reform in which we quantify the potential effect on jobs of differences in tort costs across the United 

States. The preliminary findings of this study indicate that the 

legal climate within a State substantially affect tort costs. The results from studies of changes in business activity due to taxes are 

then used to estimate potential employment effects attributable to 

differences in tort costs. 

Now, these direct costs of doing business are just the tip of the 

iceberg. Litigation also imposes indirect costs. The uncertainty created by litigation affects businesses’ borrowing costs and, hence, 

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nies are wary of becoming embroiled in U.S. litigation, which may 

deter foreign direct investment. 

Dealing with litigation can occupy management time, result in 

unproductive risk avoidance, and otherwise distort business decision making. These indirect costs imposed by the tort system reduce productivity. 

So, in another NERA study, we looked at productivity. We used 

the liability costs associated with U.S. asbestos litigation to show 

how tort costs slow U.S. labor productivity growth relative to other 

countries. 

We measured differences in productivity growth per employee in 

asbestos industries between the U.S. and 10 industrialized countries. We used comparisons of non-asbestos industries to control for 

other differences that were unrelated to the litigation, such as local 

market conditions and regulation. 

But what we found is in the industries heavily affected by asbestos litigation, our study measured half a percentage point slower 

productivity growth in the United States. Now, over 14 years of the 

study period, that meant productivity losses in the U.S. of over 

$300 billion, or $50 billion in 2000 alone. 

In conclusion, litigation imposes direct costs that are higher in 

the U.S. than in other countries, and these costs fall more heavily 

on small businesses. The direct and indirect costs of litigation together put the U.S. at a competitive disadvantage, slowing productivity growth. 

Thank you again, Chairman Franks and distinguished Committee Members, for this opportunity to testify today and for holding this hearing to bring attention to this important economic 

issue. 

[The prepared statement of Mr. Hinton follows:] 

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Mr. FRANKS. Thank you, Mr. Hinton. 

And, Mr. Silver, you are now recognized for 5 minutes, sir. Your 

microphone, sir. 


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Mr. SILVER. Push that. Sorry, thank you. 

Mr. FRANKS. You know, you think we have been doing this for 

about 100 years, and whenever we invented microphones. That 

happens all the time, and there are ought to be a smarter way just 

to turn those microphones on from up here, shouldn’t there? 

TESTIMONY OF CHARLES SILVER, McDONALD CHAIR IN CIVIL 

PROCEDURE, UNIVERSITY OF TEXAS SCHOOL OF LAW 

Mr. SILVER. All right. Thank you very much, Chairman Franks. 

It is an honor to be here today. 

The title of this hearing is, ‘‘Can We Sue Our Way to Prosperity?’’ Actually, the answer is yes. Civil justice systems contribute to the prosperity of the United States. In fact, the strongest 

proponents of civil justice systems that protect legal rights and enforce legal obligations are not lawyers, but institutional economists, 

including economists who have won the Nobel Prize. 

I will first demonstrate the connection between lawsuits and 

prosperity by talking about medical malpractice litigation, in particular about lawsuits against anesthesiologists. I will then discuss 

very briefly the larger literature on the connection between law 

and economic growth. 

To start with, medical errors make America poorer. The case of 

anesthesiology is very interesting. Until the mid-1980’s, anesthesiology was very dangerous, killed or severely injured thousands of 

patients every year. Malpractice lawsuits against anesthesiologists 

were common, and malpractice premiums for anesthesiologists 

were two to three times the average costs facing other physicians. 

In this situation, anesthesiologists could have run to State legislatures or Congress and demanded tort reform. That is what health 

care providers usually do. But instead, the leaders of the American 

Society of Anesthesiologists initiated a patient safety campaign. 

They studied closed medical malpractice claims to learn the root 

causes of medical errors. Then they took what they knew and applied it. They redesigned their equipment. They established mandatory treatment guidelines, and they took other steps to reduce both 

the frequency of mistakes and the harmfulness of mistakes. The results were spectacular. In approximately a decade, mortality rates 

fell to one in every 200,000 anesthesia administrations, a 10- to 20- 

fold improvement over the immediately prior period. 

Of course, as anesthesia became safer, the frequency and harmfulness of injuries declined, and lawsuits pretty much dried up. 

Malpractice costs fell. Premiums fell. In real dollars, anesthesiologists pay less for liability coverage today than they did in 1985. 

A 2005 Wall Street Journal article summarized the developments. I will quote from it. ‘‘Today anesthesia related adverse 

events and emergencies are rare, and anesthesiologist malpractice 

insurance premiums are low. Anesthesiologists pay less for malpractice insurance today in constant dollars than they did 20 years 

ago.’’ That is mainly because some anesthesiologists chose a path 

many doctors and other specialists did not. Rather than pushing 

for laws that would protect them against patient lawsuits, these 

anesthesiologists focused on improving patient safety. Their theory, 

less harm to patients, would mean fewer lawsuits. 

19 

Why did they act when they did? For a very straightforward reason—because they were beset by lawsuits and their insurance premiums were rising. To quote one of the leaders of the anesthesia 

patient safety movement, the campaign was set in motion because, 

‘‘A malpractice crisis was markedly reducing the incomes of anesthesiologists.’’ 

As a result of the movement, anesthesia is now the only segment 

of health care delivery that meets industrial standards of quality. 

Every other segment of the health care delivery system is beset 

with quality problems. There is a 2011 April peer reviewed issue 

of the journal Health Affairs, which published a series of articles 

finding things such as 33.2 percent of patients treated in hospitals 

experienced adverse events. Adverse events kill about 187,000 people in hospitals every year and cause 6.1 million injuries. The total 

cost of these errors run somewhere between $393 billion and $958 

billion estimated in terms of what people pay to avoid problems 

like that. 

We also know that health care providers can do better. In my report I cite instances recently where health care providers have reduced the number of mistakes, greatly increased the quality of 

their care. These improvements help make America prosperous. Patients who live contribute to America’s prosperity more than patients who die. Patients who are healthy contribute more to America’s prosperity than patients who are injured. And patients who 

are healthy do not need additional health care. So, we save money 

on health care costs when patient safety improves. 

My question is, why should any group of health care providers 

be allowed to follow any path other than the one that anesthesiologists took, which is to devote themselves to patient safety and improve their systems? And as far as I know, no one has answered 

that question. 

The last thing is, as I said, there is a very large literature on the 

connection between law and economic prosperity. That literature 

shows three things. Number one, that protection of human rights, 

including civil rights, greatly increases a society’s prosperity. Number two, countries with functioning legal systems tend to be much 

wealthier than countries without them. And, number three, countries with common law systems, like the United States, tend to fare 

better, to grow faster, than countries with civil law systems. These 

are findings that economists have generated, not law professors. I 

encourage the Committee to study this literature. 

Thank you very much. 

[The prepared statement of Mr. Silver follows:] 

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Mr. FRANKS. And thank you, Mr. Silver. You make a lot of compelling points. 


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Mr. Beisner, you are recognized for 5 minutes. Sir, am I saying 

your name correctly? 

Mr. BEISNER. You said it correctly. 

Mr. FRANKS. Okay, that is great? 

TESTIMONY OF JOHN H. BEISNER, SKADDEN, ARPS, L.L.P. 

Mr. BEISNER. Good afternoon, Chairman Franks, and thank you 

for inviting me to testify today about the effects of litigation on the 

global competiveness of U.S. businesses. 

Today’s hearing asks an important question: Can we sue our way 

to prosperity? And I guess I respectfully disagree with Mr. Silver. 

I think the answer to that question is a resounding no. Our nation’s love affair with litigation has substantially damaged our 

economy by hampering productivity and stifling innovation. 

Why is our legal system so prone to abuse? The key problem is 

that we have made lawsuits an attractive investment with few disincentives for bringing meritless cases. As a result, the parties 

themselves are becoming less and less relevant in litigation. The 

litigation process is being taken over by sophisticated investors. 

Today, I would like to address several examples of litigation 

abuse. In addition, I would like to discuss third party litigation 

funding and explain why, if not arrested, it will exacerbate those 

problems. 

Let me begin by addressing fraud in mass torts. Unfortunately, 

fraud is something that can occur at every step of the mass tort 

process. One source of that fraud is the increasing use of medicolegal screenings organized by lawyers. My sense has always been 

that lawsuits happen when someone thinks he has been injured, 

goes to the doctor, finds out what is wrong, and seeks treatment. 

If in the course of that he thinks his injury may have been caused 

by another person, the individual might retain a lawyer to consider 

pursuing a lawsuit. 

Medical screenings work exactly the opposite way. They serve to 

discover supposed injuries in people who never thought they were 

sick in the first place until they found out about the chance to be 

in a lawsuit. Simply put, they manufacture diagnoses to fuel litigation. 

The welding fume litigation discussed in my prepared statement 

illustrates how such recruitment practices lead to the filing of 

fraudulent claims. The lawyers in that litigation collected about 

10,000 plaintiffs through medico-legal screenings and claimed that 

all of them suffered from a rare neurological disease called 

manganism based largely on 5 minute diagnoses each. 

As the litigation progressed, it became apparent these diagnoses 

were not worth very much. Most plaintiffs did not seek medical 

care for this alleged ailment, and several were forced to dismiss 

their claims after it was revealed they had lied in discovery or 

faked their symptoms. In one instance, a man who claimed to be 

bound to a wheelchair was caught on videotape carrying groceries 

and raking leaves. Eventually, the judge required the plaintiffs in 

that case to produce medical opinions substantiating their claims, 

and at that point, thousands of people dismissed their lawsuits. 

In discussing medical screening practices, one must also mention 

the massive fraud uncovered in 2005 by the Texas Federal court 

29 

handling the silicosis-asbestos litigation. But the fraud and abuse 

so prevalent in early litigation practices has now spread to the current operations of so-called asbestos bankruptcy trusts that are effectively run by trial lawyers and appear to operate with no meaningful oversight or transparency. As such, these trusts facilitate 

fraudulent claiming practices and double-dipping, both of which 

threaten to siphon money away from more legitimate claimants. 

Another problem is the increase in lawsuits by citizens of other 

countries that have virtually nothing to do with the United States. 

In some of these cases, the record suggests that lawyers have gone 

so far as to fabricate evidence in foreign countries in the hope of 

cashing in on the generous U.S. legal system. 

A third area of concern is the so-called piggyback lawsuit phenomenon. In these lawsuits, private lawyers scour the news for 

government investigations, and then bring lawsuits echoing the 

government’s allegations. If the target company has done something wrong, that wrong will likely be remedied by a hefty fine. 

Typically, no further legal action is necessary or appropriate. 

The main beneficiaries of piggyback lawsuits are the lawyers 

who free ride on the government investigation and get big fees. The 

consumers or shareholders they claim to represent typically receive 

very little. 

To me, the picture is clear. Our legal system is increasingly rife 

with abuse and losing its original sense of purpose. Clearly, we 

need to return our legal system to its roots, to create more accountability and to reduce the influences of non-parties. Remarkably, 

however, we seem to be doing just the opposite, embracing new 

practices that encourage litigation and further marginalize the actual parties. 

The most troubling example is the growth of third party litigation financing in which an investor funds a lawsuit in exchange for 

a piece of the recovery. Traditionally, the doctrines of champerty 

and maintenance condemn these arrangements. Today, however, 

they are being touted as a way to increase access to justice. 

I commend the Subcommittee for holding today’s hearing and 

urge you to critically examine the fraud and abuse in our system, 

and begin a serious dialogue about what reforms are needed to restore a sense of responsibility and restraint in our American litigation system. 

Thank you very much. 

[The prepared statement of Mr. Beisner follows:] 

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Mr. FRANKS. Thank you, Mr. Beisner. 

I will now recognize myself for 5 minutes for questions. And I 

will begin the questions with you, Mr. Hinton. 

Mr. Hinton, you mentioned that there are studies that quantify 

the effect on business of taxes in general. How sensitive is the level 


66540C-23.eps
53 

of business activity to changes in the cost of doing business like 

litigation? 

Mr. HINTON. There are a lot of economists who have studied the 

question of the effect of taxes on business activity. And just as with 

taxes, tort costs raise the cost of doing business. So, looking at 

some of those studies can be instructive. 

A survey of studies of the effect on employment of taxes found 

that the median effect across the studies that had been surveyed 

measured any elasticity of minus .6. But turning that into English, 

that means that if you raise taxes by 10 percent, say, from 30 percent to 33 percent, it could result in a 6 percent reduction in employment. So, that is the sort of order of magnitude that you might 

expect to see if you adjust tort costs. 

Mr. FRANKS. Thank you, sir. 

Mr. Silver, I guess my next question would be to you, sir. Do not 

other countries with common law systems, such as the United 

Kingdom, create enforceable legal rights at less cost than the U.S.? 

Mr. SILVER. I am sorry. I could not hear. 

Mr. FRANKS. Okay. Do not other countries with common law systems, such as the United Kingdom, create enforceable legal rights 

at less cost than the United States? 

Mr. SILVER. I do not know what the answer to that question is, 

Mr. Chairman, because it really depends on how costs are counted. 

The costs of injuries are what they are, but the legal system only 

captures a fraction of those costs. So, in England, for example, the 

legal system will capture a very small amount in the damage 

award, but an additional amount will be transferred to the public 

health system, what they call, I guess, the National Health Service, 

which will care for the victim by providing medical services. So, in 

order to find out how much the total costs are, one has to look way 

beyond the legal system in other countries, and here as well because here the legal system also only captures a fraction of accident-related costs. 

Mr. FRANKS. Mr. Beisner, let me go ahead and give you a shot 

at the same question. Do other countries with common law systems, like the United Kingdom or others, do you think they create 

an enforceable legal rights system at any difference in cost to the 

consumers and to the society as a whole? 

Mr. BEISNER. I do not have a lot data to offer the Committee on 

that point, but from everything that I have seen, I think that the 

answer is yes. And I think it is reflected in the fact that when you 

talk with persons responsible for the administration of businesses, 

they certainly make a huge distinction in the environment that 

they find in European countries versus the United States in terms 

of the amount of resources that they need to divert to litigation. I 

think as a practitioner, one need only encounter a European business person for the first time who is engaged in having litigation 

in the United States to say, I have never experienced anything like 

this before in terms of the amount of resources and money I have 

to expend to deal with this matter. 

Mr. FRANKS. Well, I want to thank all of you for attending the 

Committee here this morning. I appreciate your testimony. It 

sounds like the question—sure. 

54 

Mr. SCOTT. Thank you. I did not have an opening statement. I 

would to ask—— 

Mr. FRANKS. No, we asked about questions because—you do not 

have an opening statement anyway. I mean—— 

Mr. SCOTT. Well—— 

Mr. FRANKS. But you are welcome—please. Please proceed? 

Mr. SCOTT. Thank you. I just wanted to ask Mr. Beisner, because 

he had recommended Rule 11 sanctions. Would you propose Rule 

11 sanctions for defense counsel who drag out litigation with frivolous defenses, denials of liability when liability is clear, and that 

kind of thing? 

Mr. BEISNER. Well, I think Rule 11 right now works both directions on that. I think the greater problem we have, though, is with 

lawsuits that should not be filed in the first place, and there is no 

consequence for that when they are filed. 

Mr. SCOTT. Well, there is a sanction that the lawyer who brings 

a meritless case does not get paid. But when I was practicing, 

when you would file a suit, you would get a response that would 

have a total denial of liability, even when liability was clear. 

Should a Rule 11 sanction be applied to that kind of response? 

Mr. BEISNER. Rule 11 applies, but I think often, you know, 

whether liability is clear is in the eye of the beholder. I think most 

plaintiffs’ counsel I have talked to say when they file the case, the 

liability is clear, and it often does not turn out that way. And I 

think up front, denial before the facts are fully developed is often 

fully appropriate. 

But again, to answer your question specifically, Rule 11 works 

both ways. If you do not have a sound basis—— 

Mr. SCOTT. Mr. Silver, have you ever heard of a defense who files 

a denial of liability, when liability is clear, ever sanctioned under 

Rule 11, because it is a boiler plate defense. They just deny everything. And have you ever heard anybody sanctioned under Rule 11? 

Mr. SILVER. No, I have not, and it is very common to file an answer that includes a very large number of defenses, most of which 

will drop out of the lawsuit at some point as the case proceeds. 

Mr. SCOTT. In terms of economic activity, is there any value to 

the tort system we have in the United States, which, because we 

have our tort system, people internationally know that products 

made in the United States are safe, and a feeling that they might 

not get from other countries that do not have as vigorous liability 

responsibility? 

Mr. SILVER. Well, I cannot say whether products that are made 

in America sell better abroad than products that are made elsewhere. Perhaps Mr. Hinton has some insight into that. However, 

it certainly is the case that what we are talking about is cost internalization. 

The discussion of tort costs is very interesting because it does not 

ever attempt to quantify the fraction of those costs that are wrongfully imposed costs. In other words, when we measure insurance 

costs, what we could be measuring are in fact costs that people 

wrongfully impose on other people. What that says is if you were 

to eliminate those costs, eliminate the tort tax, then what you 

would foster would be false growth. It would look like people were 

doing better economically, but in fact, they would be saddling a lot 

55 

of other people with very large billions or trillions of dollars worth 

of costs for which they were not accountable. And so, you would get 

a lot of false economic growth. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. FRANKS. Thank you, Mr. Scott. 

And thank all of you again. Everyone made some pretty salient 

points. I appreciate that. 

Without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions for the witnesses, 

which we will forward and ask the witnesses to respond as promptly as they can so that their answers may be made part of the 

record. 

Without objection, all Members will also have 5 legislative days 

with which to submit any additional materials for inclusion in the 

record. 

With that, again, I thank the witnesses, and I thank the Members and the observers. 

And the hearing is now adjourned. 

[Whereupon, at 3:29 p.m., the Subcommittee was adjourned.] 

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