WASHINGTON - Enacting legal reforms to encourage investment would help jumpstart the nation's economic recovery, U.S. Commerce Secretary Carlos Gutierrez said Wednesday.
"In order for the creative genius of American entrepreneurship to thrive, we must operate within a legal framework that does not unnecessarily encourage litigation," Gutierrez said.
The costs of frivolous lawsuits get passed to consumers, and "added financial burdens are the last thing this economy needs," said Gutierrez, a former chairman and CEO of the Kellogg Company, based in Battle Creek, Mich.
Speaking at the U.S. Chamber's annual Legal Reform Summit, Gutierrez said frivolous litigation prevents businesses from growing and discourages foreign direct investment, in addition to tying up the courts.
"Now let's be clear: legitimate cases and grievances should have their day in court," Gutierrez said in remarks prepared for delivery. "Our legal system was crafted to allow for just that. However, the Founders didn't intend for the legal system to be usurped for unwarranted complaints."
A Commerce Department study released Wednesday showed, among other things, that the U.S. litigation climate is seen by many foreign investors as a source of increased cost and uncertainty.
"When the United States loses out to foreign investment on account of an investor's fear of an overreaching litigation environment, it directly translates into fewer jobs and less economic opportunities for Americans," Gutierrez told Legal Reform Summit attendees.
He pointed to a U.S. Chamber Institute for Legal Reform study that found 46 percent of small business owners and managers have been threatened with a lawsuit. Legislation pending in Congress that would expand civil liability statutes could drive those numbers even higher in coming years, legal reform advocates say.
In all, there were 46 liability-expanding proposals introduced in the current congressional session, a number tort reform advocates say will likely spike if Democrats increase their majorities in the House and Senate on Nov. 4.
"For the trial lawyers' lobby, this Congress was only a dress rehearsal," said Institute for Legal Reform President Lisa Rickard. "During the next Congress it will once again launch its campaign to slip lawsuit-expanding provisions into all types of legislation, including financial regulatory reforms. The last thing our country needs is more lawsuits."
An annual survey released this month by the international law firm Fulbright & Jaworski LLP indicates that after experiencing a two year decline in the number of lawsuits filed against American companies, more than one-third of corporate counsel say they expect an uptick in civil and regulatory filings amid the souring economy.
"This year's survey appears to mark an inflection point for American business, between the end of a prolonged period of prosperity and the start of a period of economic challenge that is likely to fuel litigation over who is to blame and who should pay for the consequences," said Stephen Dillard, chair of Fulbright's global litigation practice.
Fulbright partner Robert Owen, who heads the firm's New York litigation group and is co-head of the firm's E-Discovery and Information Management practice group, said there are many changes that should be made to the U.S. litigation system, not the least of which are ways to cut unnecessary costs.
He said full document disclosure has added significantly to the cost of fighting lawsuits, noting that many corporations are spending about 20 percent of their litigation budgets to have "young lawyers sit in cubicles and review data sets page-by-page."
The United States is alone in the world in requiring full pretrial disclosure, Owen told Legal Newsline.
"It doesn't really contribute to a resolution of the case on its merits," he said. "It's just like busy work that has become part of the litigation landscape."
Legal Newsline is owned by the Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce.