It is the purpose of this study to suggest that the expansion of the individual's right to successfully sustain a law suit at the expense of the employer's ability to make basic business decisions has gone too far, thereby limiting to a far-too-great extent the ability of the free market to function fairly and effectively in the distribution of resources and opportunities. The ability of the employer to determine what he produces and how he runs his workplace has been limited too severely by a concerted judicial effort to provide court access and remedies to employees in the workplace and as consumers. As a result, we as a collective society have been harmed. Our collective ability to choose the best and most creative products, to choose the most challenging and promising jobs, to take advantage of workplace and marketplace incentives, to make tile most of the resources society makes available to us, has been severely constrained. The growth of litigation is destroying the free market, and consequently our freedom of choice.

Litigation is exploding in our society, both in terms of the number of cases being filed and the substantive costs associated with litigation (such as settlement costs, damage awards, attorneys fees, etc.) For example, the federal courts have seen an amazing increase in civil litigation. While criminal case filing have remained relatively stable since 1970 (39,959 were filed in the 12-month period ending June 30, 1970, while 41,490 were filed in the same 12-month period ending June 30, 1986), the number of civil case filings has absolutely mushroomed. Using the same periods ending each June 30, the number of civil cases filed in U.S. District Courts in 1970 were 87,321. By 1980, this number had grown to 168,789. In 1986, the number had grown to 254,828 (a staggering 192% increase in case filings compared to 1970). [1]

Private party litigation in the federal courts increased by 57,837 case filings per year in just the six-year period from 1980 to 1986. Within that period, contract cases went from 24,989 to 40,095; personal injury cases went from 21,505 to 32,741; labor cases went from 6,399 to 11,600; civil rights cases went from 11,485 to 17,872. The reasons for this increase are complex and varied, but the sheer size of the increase gives credence to the claim that there is a "litigation explosion" in contemporary American society.

Similar results are being found at the state level. A study comparing the 1976 and 1985 annual reports of the Judicial Council of California revealed that the number of personal injury, death and property damage lawsuits filed in California between 1974 and 1984 increased 55.3% while the population of the state increased only 21%. [2] According to a 1986 Time report, the number of civil lawsuits in state courts grew four times as fast as the American population from 1977 to 1981. [3] In 1984 there was one private lawsuit for every 15 Americans, with 16.6 million private civil suits filed in state courts. [4]

It should come as no surprise that this "litigation explosion" has been accompanied by a dramatic surge in the number of practicing lawyers. As of December of 1988, the American Bar Association estimates that there were 713,456 active practicing attorneys in the United States, compared to 326,842 in 1970 and 574,810 in 1980. Since 1950, the number of lawyers has increased at a rate twice as fast as the nation's population. Since 1970, that increase has been at a rate more than six times as fast. Approximately 35,000 new lawyers now enter the profession every year. Lawyers seem to be everywhere, with approximately one lawyer for every 350 Americans. Ofthese practicing attorneys, the number of trial lawyers engaged in litigation appears to be increasing with particular rapidity, if membership in the Association of Trial Lawyers of America is any indication. Since 1970, membership in that organization has more than tripled. [5]

In 1986 and 1987, a group of senior federal executive branch officials representing eleven federal agencies, including seven serving as chief legal officers for their agency, (Working Group) issued two reports on insurance availability which exposed the tremendous increase in tort litigation. [6] The Working Group found the role of tort law central to the crisis in insurance availability, citing the shift toward liability without fault, the undermining of traditional concepts of causation, explosive growth in damage awards, and excessive transaction costs. The group seemed to run out of superlatives, citing the "extraordinary growth in damage awards", the "massive increase" in tort lawsuits outside the automobile accident area, and the increase in "immense punitive damages awards".

A look at some of the specifics reveals trends which are indeed shocking. Here is litigation which does not grow incrementally, but exponentially. The Institute for Civil Justice (Institute) released a study in 1987 summarizing civil jury verdicts over a 25-year period in two jurisdictions, Cook County, Illinois, and San Francisco, California. [7] The Institute found that the average personal injury jury award (in inflation adjusted dollars) increased in Cook County from $59,000 in 1960-64 to $187,000 in 1980-84 (an increase of 217%). The increase in San Francisco was 358%, going from $64,000 to $302,000. The rate of increase was most dramatic in the 1980's. Within a mere 5 years, the average personal injury award increased by $57,000 in Cook County and by $169,000 in San Francisco.

Simultaneously with the increase in jury awards, the Institute found increases in the number of cases where plaintiffs prevailed with juries. Focusing on product liability and medical malpractice, the analysis revealed that for products in Cook County and for both in San Francisco, plaintiffs doubled the percentage of tried cases in which they prevailed (from approximately one-quarter in 1960-64 to one-half in 1980-84).

One of the most valuable calculations made by the Institute was to show the increase in "expected jury awards" (the average jury award multiplied by plaintiff's likelihood of success). This is the calculation which most effectively shows the trend of rapidly increasing jury awards and its potential cost and behavioral impact on defendants. Using inflation-adjusted dollars, the expected award for personal injury jury verdicts increased from $28,000 to $114,000 in Cook County (an increase of 307%) and from $33,000 to $181,000 in San Francisco (an increase of 448%). Again, the most dramatic portion of this increase was in the early 1980's, with the increase being double or triple the entire increase in the previous twenty years.

The substantial increase in the size of awards has been compounded by the growing willingness of juries to award punitive damages. The original Institute analysis and a follow-up study [8] show a dramatic increase in the size of punitive damages. The Cook County average punitive award in a personal injury lawsuit went from $28,000 in 1970-74 to $1,934,000 in 1980-84. The number of Cook County punitive awards increased from 3 in 1960-64 to 75 in 1980-84, while San Francisco punitive awards in the corresponding period went from 14 to 51. In San Francisco, almost one out of every seven plaintiffs' verdicts in the 1980-84 period included a punitive damage award.

The willingness of juries to award spectacularly large damages to plaintiffs, primarily through non-economic and punitive awards, creates an uncertainty that makes the settlement of cases that much more expensive. Nearly 92% of all cases filed in the legal system settle prior to verdict [9] and the dramatic increase in average jury awards naturally has a corresponding impact on the settlement value of cases. As the Working Group noted, "settlements by their very nature reflect the range of verdicts available to tile plaintiffs. Thus, as jury verdicts skyrocket, so do settlements." The Working Group concludes that the most accurate measure of the rate of increase of settlements probably is provided by the expected jury award, which as indicated previously, is climbing at percentage rates in the hundreds.

The numbers associated with litigation growth are almost too large to comprehend. All sense of proportion and balance between loss and award seems to have been lost. If one looks at just one particular defendant (in this case, the largest of them all – the United States Government), the sheer magnitude of the problem is sobering. According to the report of the Working Group, on October 1, 1985, the Torts Branch of the U.S. Department of Justice (which handles all civil actions filed against the government) was defending 11,000 lawsuits seeking a total of $200 billion in damages.

What are the direct economic costs of this litigiousness? A 1986 report by the Institute for Civil Justice [10] indicates that total expenditure nationwide for tort litigation in 1985 was between $29 billion and $36 billion. This figure includes compensation paid to plaintiffs, legal fees and related expenses, insurance company claims processing costs, value of litigants' time spent in litigation, and court operating costs, for the approximately 866,000 tort lawsuits terminated in state and federal courts of general jurisdiction in 1985. Of this amount a remarkable $16 billion to $19 billion was spent on the non-compensation costs of the tort litigation system – this in order to produce $14 billion to $16 billion in net compensation. Taking out non-litigant expenses, plaintiffs received only approximately 56% in net compensation. The percentage goes down to 43% if you exclude auto torts. In short, only about half the costs that go into tile litigation system are actually used to compensate the injured party.

One should note in particular the costs of the courtroom incurred by defendants. In 1985, defendants' legal fees and related expenses ranged from $4.7 billion to $5.7 billion. The average tort lawsuit resulted in an estimated $5,400 to $6,600 in legal fees and related expenses. Such figures are important in analyzing tile behavioral impact of litigation on businesses, since such casts must be avoided by either avoiding the lawsuit entirely or by settling the lawsuit as soon as possible, before the legal fees and expenses can accumulate to a value greater than the settlement amount.

What do these figures reveal? Why assault the reader with so many statistics? The answer in part lies in the demands that supporters of the current litigation system have made on critics. These supporters insist that anecdotal evidence – the singular case with a particularly large damage award, the establishment of a new cause of action under particularly grievous case facts, the application of non-economic or punitive awards to a deep-pocket defendant with minimal fault – is insufficient to demonstrate a change in the nature of the litigation system. These supporters demand "facts" (i.e., statistics) demonstrating patterns of substantial change. However much the statistical research into contemporary litigation may be in its infancy, the figures already solidly confirm what concerned legal scholars and businessmen have been saying about the "litigation explosion". Statistics also avoid the charge that the "litigation crisis" is a mere fabrication by the insurance industry, or (even more devilishly, the result of an international insurance industry conspiracy), since they look directly at the litigation experience, and not the indirect costs charged by insurance companies for such experience. The crisis in litigation, with explosive growth in case filings, plaintiff verdicts. jury damage awards, and settlement values, is very real.