Litigation - cost of litigation to US businesses - includes related articles - CE Roundtable - Panel Discussion

Chief Executive, The, Jan-Feb, 1995 by Lorri Grube

A Chief Executive/Deloitte & Touche litigation survey (CE: November/December 1994), found that 55 percent to 75 percent of companies responding had been sued in the past five years. And there's no sign that this business of bringing lawsuits is slowing down. CEOs now are forced to run their companies in the shadow of potential litigation - and that means they must make some painful decisions.

Glenn W. Bailey (Keene Corp.): Now that extortion of companies has been legalized, I never again would build a major corporation. I've decided to build each company as a separate enterprise and if one of them gets trapped in litigation extortion, I would sacrifice it to the lawyers. The others would not become involved, as the ones in Keene did.

Keene bought a company for $8 million, one of some 50 acquisitions. That small company had a total of $15 million in sales from asbestos-containing insulation. Keene went bankrupt after spending $530 million to settle over 100,000 asbestos-related claims. About $40 million went to 10,000 people who deserved some compensation. The remaining 90,000 - mostly non-meritorious and some even fraudulent claims - cost Keene the other $490 million, with most of the money going to lawyers.

J. Michael Cook (Deloitte & Touche): The accounting profession has become the target of many lawsuits. This stifles our innovation, because we're unwilling to take the risks inherent in moving into new areas. For example, when one of our large accounting firms disclosed forward-looking information, it went out of business. The firm was buried beneath an avalanche of litigation that didn't take into account the possibility that such information could have been wrong. Today, more and more public companies are severely restricting the information they make available to investors.

J. Carter Beese Jr. (Alex. Brown International/former SEC commissioner): This also pertains to international firms. The SEC has tried to attract foreign companies to list in the U.S., but most refuse, because they fear the threat of litigation.

Taking The Stand

J.P. Donlon (CE): David, as a senior attorney who represents the ABA's thinking on tort litigation subjects, do you think plaintiff layers feel there's a problem?

David C. Weiner (Hahn Loeser & Parks): I believe so. It's difficult to keep the unmeritorious suits out of the system, which eats up too much of our resources and lakes too long to resolve cases.

Maurice (Hank) R. Greenberg (American International Group): The procedures in place for discovery, for example, are legal extortion. They just build up hours for lawyers on both sides.

Weiner: Granted, too much money is spent on transactional cost, as opposed to dispute resolution.

Greenberg: Fine. Why don't you do something to change that?

Weiner: Much has been done. A rule went into effect in December 1993 in federal court that requires defense counsel and plaintiff counsel to produce information central to their lawsuits without going through a labored discovery process.