THE BLOG
05/24/2010 11:39 am ET | Updated May 25, 2011

Finally, Obama Gives Historic Speech on Tort Reform -- Likens Crisis to Health Care

President Obama gave a speech in June 2009 about reform of the health care industry, in which he mentioned legal abuse as another area in which change was needed. In a speech that has received surprisingly little media attention, the President singled out class actions as an area of particular concern:

Thank you. Thank you. Hello my fellow American citizens.

An essential step on our nation's road to prosperity is controlling the spiraling cost of litigation in America, which overwhelmingly and unfairly benefits lawyers at the expense of our citizens.

Our legal system is the bedrock that our economy and society are built upon. However, in recent years, the legal profession has become overly concerned with its profits at the expense of our nation's well being. Take just one example from California: a settlement in the Ford Explorer class action in which lawyers received $25 million in attorneys fees because they told the judge the class was receiving a benefit of $500 million. However, what class members actually received were coupons for $500 towards the purchase of a new SUV. Only 75 people redeemed the coupons for a total value of $37,500. It is shameful in our legal system that lawyers receive $25 million when the class members receive only $37,500.

In another class action, a shareholder in Enron complained about her lawyer's request for over $700 million in attorneys fees (that would pay one of the attorneys nearly $3000 an hour!). She noted that she would be receiving $6.79 for each share which she had purchased for $70. Should class action lawyers, whose time in the case was valued at $150 million based on their hourly rates, really be getting a $550 million bonus while our fellow citizens suffer such staggering losses? This is similar to the Wall Street bankers who received billions in bonuses while their companies' stock plummeted. Class members' staggering losses, class action lawyers' staggering gains - it's backwards. This is not America. Our legal system was not created to make lawyers rich, and no self-respecting legal system should allow this to continue.

Now let's talk a little about the costs associated with our class action system. Make no mistake: the costs of litigation threaten the vitality of our economy. Today, excessive litigation generally costs the U.S. economy roughly $865 billion a year, including both direct and indirect costs (indirect costs include things like doctors practicing defensive medicine). And too much of that money goes into the pockets of the lawyers since only 15 cents of each dollar actually goes to compensate plaintiffs. And, according to a report by the Manhattan Institute, trial lawyers as a whole earned $40 billion in 2002, 50% more than the profits of Microsoft or Intel and twice that of Coca-Cola. This is money that is taken out of businesses which could otherwise be used to create jobs and spur innovation.

In our current economic crisis, legal reform is no longer a luxury; it is a necessity. As the cost of litigation in America continues to climb higher -- as with healthcare -- the benefits to class members and society diminish. The result will be a lower standard of living for all Americans. Except lawyers, of course.

To say it as plainly as I can, other than health care and reform of Wall Street, legal reform is the single most important thing we can do for America's long-term financial health. Just as special interests groups have thwarted attempts at reforming health care, opponents of tort reform, led by trial lawyers, have used fear tactics to paint any effort to achieve reform in the legal system as an attempt to quash the American consumer's ability to fight back against corporate wrongdoing. We've heard this all before -- and because these fear tactics have worked, things have kept getting worse. The reality is that consumers are the ones who are most injured by a class action system that is supposed to be protecting them. Coupons, trivial amounts of money, and in some cases nothing or next to nothing, while the lawyers walk away with millions of dollars in fees are too common an occurrence to be ignored any longer. As in the health care industry, companies raise the cost of their products and services to make up for the costs of the litigation. It is lawyers who stand to gain from the status quo, and who, unless we do something fix this out of control system, will continue to use the same fear-mongering that has worked in the past.

The road to our nation's prosperity is not through lawsuits. Lawsuits penalize society. We need to start by reforming the way we compensate lawyers. We need to create incentives for lawyers to focus on the benefits received by their clients and not on their own fees. We need to reward lawyers for getting actual benefits for class members, not handing out coupons that are never used. We need to explore a whole range of new ideas about how to put consumers first. In my next speech I intend to discuss some solutions to this litigation crisis.

Together we can rebuild our legal system so that it benefits all of us, not just the lawyers. That future is within our reach. And if we are willing to come together and bring about that future, then we will not only make American consumers and businesses more prosperous, we will reaffirm the ideals of truth and justice that our legal system was built on. Yes we can. Thank you.

Okay, okay, so this is the speech I would liked to have seen Obama give on tort reform. We all know he's not quite there yet. Maybe after he fixes Wall Street.