America's Small Business Owners are Being Taken to the Cleaners by the Trial Lawyers

By Lisa Rickard
May 17, 2007

America's broken lawsuit system is hurting our nation's small businesses.

That statement won't surprise anyone who has heard the saga of the D.C. judge and his $65 million pants suit. If ever there was a frivolous lawsuit, this is it.

But is the Drycleaner case a curious anomaly? Unfortunately, no.

The Institute for Legal Reform has just released two new studies showing the devastating effect frivolous lawsuits have on America's small businesses.

The first study, Tort Liability Costs for Small Business, shows that small businesses (those with $10 million or less in annual revenue) bear 69 percent of the total cost of the tort system to all U.S. businesses. That's $98 billion a year, or $200,000 per year for a business with $10 million in revenue, on average.

It's no wonder, then, that the second study, Small Businesses: How the Threat of Lawsuits Impacts Their Operations, shows that, of those who expressed some concern about frivolous lawsuits, six in ten say the fear of lawsuits makes them feel more constrained in making business decision. And if they felt like they would be protected from lawsuit abuse, they would grow their businesses by:

• Improving their facilities or buying new equipment
• Increasing wages and benefits for their current employees
• Expanding the market for what they offer
• Hiring new employees
• Developing new products or services

Taken together, these two studies reveal a broken lawsuit system which impacts small businesses both directly, through actual costs, and indirectly, through negatively affecting business decisions.

To those that would argue the drycleaner suit is an aberration, these studies prove otherwise-lawsuits have a very real impact on America's small businesses, costing billions of dollars and taking away jobs.

For the Chung family of drycleaners, the American dream of entrepreneurship has turned into a trial lawyer nightmare - one unfortunately shared by millions of other American business owners.