How Laws (Not Litigation) Stifle the Economy

Big business encourages government to enact legislation which stifles the economy, and causes big government to be created and maintained. Obviously not every law which is enacted is desired by big business, and not every big business can agree on which laws they would like to see passed.

There is the Business Roundtable, I might add, which is an association of the top companies in the United States, which does attempt to get a consensus from its big business members and lobby legislators, executives and administrators in Washington, D.C. and elsewhere, I suppose, to do things which big business in this collective form wish to have done, or not done.

Big business, especially in the fields of insurance and product manufacturing, and hospital and medical interests, have been pushing the idea for years that litigation is bad for the economy and that it must be contained (meaning, from their standpoint, eliminated as much as possible). The major news media have picked up this lobbying effort and are republishing the idea for the nation's voters to read, with some success, unfortunately.

It is probably generally understood by the public (erroneously, I might add at the outset) that there is too much litigation and that it should be stopped. How it should be stopped is of little concern to most people because they don't know much about the problem in any event and are merely parroting what is being presented to them in the major news media.

The value of litigation in the economy and in a democracy such as ours is as important as freedom of speech, and in fact it is closely related, for reasons which most people don't know.

When the U.S. Constitution was written, the framers conceived that there should be three co-equal branches of government, with each performing certain checks and balances on the other, and within the Legislature there being certain checks and balances between the two houses (elected in different ways, and representing different interests, in theory).

The Executive (the President of the U.S.) had the power to veto legislation; Congress had the power to override the President's veto; Congress could pass laws; the Courts could declare the laws unconstitutional if the U.S. Constitution warranted such determination; the Courts could enjoin the President from taking illegal action; judges were appointed for life to prevent them from having pressure brought upon them (threatening them with loss of their position); and other checks and balances.

It was shrewdly perceived that the judicial branch of government would be the way in which persons oppressed by the Executive or Legislative branches (and by implication the Administrative branch which had not yet come into existence) would go to obtain relief from the oppression, in what would be the way for oppressed persons to petition the government for a redress of their grievances.

Persons (meaning big business and big government) not wanting any effective relief from their actions instinctively saw that the judiciary has got to lose some of its power (some of the checks and balances) or the judiciary would be effective in cutting back the excesses and oppression of the Executive and Legislative branches when they did the bidding and dirty work of big business and the rich and powerful.

How has this been done? Well, let me count the ways. First of all, judges are not as independent as had been hoped. Many of the appointments are made from the ranks of the law firms representing big business, and their orientation towards big business and big government is somewhat expected. The most significant reduction of power has come quietly over the years by depriving the federal court system of the funds it needs to have sufficient facilities (including judges, magistrates, law clerks, clerks, other support personnel, files, equipment, buildings and courtrooms) to handle the amount of litigation which the public brings into the court system.

Underfinancing has resulted in case loads and backlogs for federal judges which often amount to thousands of cases for any one fulltime federal judge. The average federal judge can only try about 20 cases per year, and most of these cases are criminal, which is based upon the mandate of the Criminal Expediting Act which requires that all criminal cases be tried first, before any civil cases are tried.

By reason of this government-created court congestion, the judges have insufficient time to give justice and are forced to throw cases out of court to handle their work load. When civil cases are thrown out of court (to avoid a lengthy trial), the aggrieved party is the plaintiff, not the big business or big government defendant who the plaintiff is often suing.

Another technique for reducing the desire to litigate is award of sanctions against a party and/or the party's lawyer, which more often than not is against the plaintiff or the plaintiff's lawyer and not against the defendant or the defendant's lawyer. The sanctions, as everyone has seen from the O.J. Simpson trial, are the fastest part of the judicial system, coming within seconds after the perceived offense, and without benefit of any argument, pleadings (such as a complaint), discovery (to find out whether the defendant paid as much as he claimed for legal services, and what was done), trial (no evidence is taken, and no jury ever hears the sanctions issue). In other words, we have the judge sitting as judge and jury in a summary proceeding with the power to hit the plaintiff or his lawyer with a $1,000,000 judgment (called sanctions) without any due process, warning, or justification, other than a judge's statement that he finds an argument or claim frivolous, which is a code word for you lose, I'm going to take away all of the property you have amassed in the world to make you pay General Motors for its use of the highest-paid lawyers in the world.

The unfairness should be obvious to you, and the chilling effect which sanctions has on the poor and middle class, as well as their attorneys, usually drawn from the same economic ranks, cannot be overemphasized. The threat of sanctions is enough for any lawyer to refuse to represent a person, especially when the case is not open and shut. If a case involves a novel point of law, the defense will generally request sanctions, and the plaintiff and the plaintiff's attorney are exposed to the whims of the judge, which whims are already inclined to favor the defendant by reason of the judge's background and/or the court congestion problem.

Another thing you should know is that judges have learned how to avoid the constitutional protection of the right to a trial by jury. Judges merely state that under the facts claimed to exist, even if proven, there would be no right for the plaintiff to win the case, and the judge then takes away the party's right to a jury trial by the award of summary judgment. Guess which party is the losing party in most instances where summary judgment is granted. You're right, it's the plaintiff. That was easy, wasn't it?

Now that we have looked at the way in which litigation is being stifled, deliberately, let's consider for a moment what the benefits of litigation are.

We've already discussed the benefits of being able to petition government for a redress of grievances. An example of this would be to ask the court to strike down legislation which regulates for-profit career schools in New York State on an unbelievably microscopic basis, with associated costs which make the for-profit schools unable to function, other than as an overstaffed and bungling bureaucracy, while non-profit colleges and universities offering the same career programs have no regulation whatsoever. Guess what happened in federal court? The judge dismissed the case saying that the New York Legislature had the right to treat colleges and universities differently from their for-profit competitors.

You can see that the right to petition for a redress of grievances doesn't necessarily produce any meaningful results, and could well have caused me to lose my assets. The defendants made a motion to award sanctions against me and my clients, which motion (thankfully) was denied. One of the things troubling me is the failure of any sanctions to be awarded against the persons who make frivolous sanctions motions. You would think that if the courts were fair, they would impose sanctions on a person who wrongfully moves for sanctions, as a way of keeping sanctions motions down to a minimum. But I have never seen this happen.

The real value of litigation has not been stated. It is to provide a way for the economy to work out differences. It acts like grease to make the economy work most effectively. If someone breaks a contract, or steals an ideas illegally, there should be a remedy, and only the courts can provide such remedy. A demand letter from a lawyer is usually thrown in the basket (and not answered) after the recipient has a good laugh at the feeble effort being made by the letter to obtain justice. But a complaint filed in court is a different matter. It must be answered, and the dispute must be resolved at some point, even though too often the dispute is resolved against the plaintiff on grounds that are technical (such as failure to provide all requested discovery; failure to file other documents on time; failure to follow a court's order).

But at least is offers some possibility of relief from the problem and brings the problem to an end, one way or the other.

The economy, especially a vibrant complicated economy, has a growing number of disputes to resolve, and we have not financed our courts to take care of this highly desirable and ever-increasing business, causing the evils to small business of being denied justice, or having justice delayed (due to court congestion and the excessive costs of litigation) which is the same as justice denied.

We have seen that close to 20% of the nation's economy is devoted to health care. I have maintained for years that the economy needs about 3-5% devoted to the resolution of disputes, to maximize the efficiency of the other 95-97%. I think that at present the percentage of the economy devoted to resolution of (civil) disputes is less than 1%, but I'm not sure.

Let's turn now to consideration of the argument that laws stifle the economy. Why do laws restrain the economy? If a law permits conduct, why should it be so difficult to comply with the law? This is a reasonable question for a non-business person to ask. A person with small business experience should have no trouble in coming up with the correct answer.

If you had to first register with the government to become an inventor, or go to jail for illegal inventing without an inventor's license, a lot of would-be inventors would comply with the law by not inventing. The reason generally would be that the did not want to waste their time and money and undergo the uncertainty of license rejection or delay merely to have the right to lose their time and money trying to come up with a new idea which would probably prove unprofitable in the market place and would require an investment of thousands of dollars to patent. The burdens of inventing are formidable, and the requirement of a license would be sufficient additional burden and harassment to turn many people away from inventing which is as unprofitable to most inventors as acting and writing of novels is for others.

Employment is different, however. You could enact a law requiring persons to receive a license before taking a job and this would not discourage most persons from working. They have to work and would do what is required. But persons wanting to go into business would tend to avoid going into a business which required special licensing compliance, and look for something else instead.

Every time we pass a law prohibiting some conduct, we make it difficult for persons to engage in business.

Even if the law says that a person is allowed to engage in business if he meets, say, 20 different requirements, the problem is that the mere enactment of the law and the setting up of the barriers will deter most persons from going into that regulated business.

Even if the regulation said no more than you have to send a letter to the governor of the state to the effect that you now are in business at such and such an address. Any such minimal regulation would still deter persons from entering into the business because it is now regulated, the persons who would go into the business don't know what the regulations are; they would have to search out a lawyer and pay him/her (perhaps $500 or $1,000 or more) to comply with the requirements which are unknown when deciding to look for and hire a lawyer; and many persons don't have $500 to $1,000 to throw away on a mere idea. They decide instead to go into something where the barriers of entry are far less.

Just the existence of laws purporting to deal specifically with an area of business are enough to deter persons from going into the field, which is good for the persons already in the field and for others willing to find out what the law is, comply with it, and get into the field.

If we are trying to create opportunities for persons in small business in this country, to create profits for themselves, jobs for others, and competition for monopolistic or other big companies, we have to eliminate as much regulation as possible, and let business be free to develop and prosper.

Laws only restrain business, and are not needed to encourage business, because when designed to encourage business they generally give to a few and take from many. The best thing is to have no laws at all, other than laws which are absolutely necessary after analysis of the associated costs and benefits, and even then there should probably be a review possibility before a court, to ensure that the cost-benefit review took place according to law.

It is clear to me that litigation is good and laws tend to be bad for increasing the economic pie and assuring fairness in division of the pie.

Copyright © 1995 by Carl E. Person. Permission is given for non-commercial users to send a copy of the data processing file for this work by electronic means to a specific individual for his or her own use, and then only if the entire file is sent, including this copyright notice, but no permission is given for anyone to copy or transmit this file for or to any person for public viewing or downloading. It is intended by the author of this work that the work shall be made available in electronic form only through LawMall (tm).