Home » FOCUS » More lawsuits in a bad economy?
Seems there is no easy answer

More lawsuits in a bad economy?

There is one school of thought that maintains that a downturn in economy breeds lawsuits. The stress from the lack of money makes going after settlements in court more attractive.

Others say this theory is full of holes. The lack of money makes hiring a lawyer and going to court prohibitive.

So, who is right? It seems that depends on whom one asks, and what study is cited. Even some of those in the field of law are unsure if a bad economy leads to a more litigious society.

Matthew Steffey, professor of law at the Mississippi College School of Law in Jackson, said he has no hard and true facts to back up either argument. However, he feels it is undeniable that there is a correlation, at least from law firms’ point of view.

“There is a historical uptick in the criminal dockets — petty theft, homelessness, things of that nature — during a recession,” Steffey said. “When people are in times of need, I think there is a sense of there being more litigious.”

Using himself as an example, Steffey was in a recent fender-bender that involved possible medical claims by him. Steffey had insurance, and chose not to harm the other party by suing.

“I didn’t sue because I didn’t have to,” he said.

Steffey said one area of law does see a decline during hard economic times. Transactional work takes a beating as fewer deals are going forward. He pointed to a large out-of-state law firm that recently let go hundreds of transactional attorneys. Interestingly, he said the firm did not touch its litigation staff.

Dr. Ron Rychlak, associate dean for academic affairs at the University of Mississippi School of Law, said he was not sure of any study that gives a clear answer. He pointed to an article by Eric D. Patrick, an attorney and chief operating officer of Consumers Insurance Agency Inc., who provides evidence that there is an increase in lawsuits during tough economic times.

Patrick’s article gives a large amount of data, and particularly looks at the economic slowdown of 2001-2002. He said as the economy struggled during that period, charges filed with the U.S. Equal Employment Opportunity Commission grew by more than six percent.

However, others strongly disagree. Florida attorney Wade Coye goes so far as to call it “the big lie.” He finds that there are factors that lead to lawsuits during a struggling economy. As example, if a person is out of work and has no health benefits, he or she may be forced to recoup costs through the court system. However, he feels that most of the debate is bogus. He wonders how there could be more job injuries with less people working, or more car accidents when less people are driving. He believes such talk is an attempt to limit lawsuits “by extremists.”

One study finds that business attorneys are at least expecting more lawsuits during the recession. The international law firm of Fulbright & Jaworski, LLP, has released its fifth-annual Litigation Trends Survey, and it found nervous companies.

After two consecutive years of reporting declines in the number of new lawsuits and regulatory proceedings, including a drop in large-dollar cases, U.S. companies now expect a growth in new actions and government probes. They are also looking to beef up their in-house litigation staff to handle the anticipated caseload, and are hiring more outside legal talent.

While the survey found that case filings slowed in 2008, there was a spike in specific types of actions. For instance, there was a nearly one-third increase in reports of multi-plaintiff suits stemming from wage-and-hour claims by employees. There was also a 29 percent increase in discrimination cases.

The survey also found that 45 percent of U.S. businesses are currently spending a minimum of $1 million annually on litigation, a one percent rise over the prior year.

Stephen C. Dillard, chair of Fulbright’s global litigation practice, said, “This year’s survey appears to mark an inflection point for American businesses, between the end of a prolonged period of prosperity and the state of a period of economic challenge that is likely to fuel litigation over who is to blame and should pay for the consequences. Given that we were polling in-house counsel on the cusp of that transition, it’s no wonder that this year’s findings highlight both the evident calm before the storm as well as the sense that disputes are on the rise.”

Contact MBJ staff writer Wally Northway at wally.northway@msbusiness.com.

About Wally Northway

Leave a Reply

Your email address will not be published. Required fields are marked *

*