Until the last part of the 20th century, it might have seemed excessive to be concerned with protecting assets from potential lawsuits. Lawsuits were not particularly common and jury awards were reasonable. In the 1980s, the number of lawsuits in the United States skyrocketed and outrageous jury awards became commonplace. This has been especially the case in employment and medical malpractice claims—two areas where Doctors are specifically targets. As such, Doc-tors have realized that protecting their assets from lawsuits needs to be the focus of any financial plan.
The Lawsuit Explosion
Why are there so many more lawsuits today? It may be because many Americans see a lawsuit as a way to “get rich quick” rather than as a way to make someone whole and ultimately achieve justice for being wronged by another. In our society, many people believe that misfortune is an opportunity to place blame and seek financial reparations—even if that person wasn’t at fault for the misfortune. Unfortunately, juries routinely adopt the idea that someone must pay for alleged wrong-doings and often disregard the facts of the case when reaching a verdict. Through emotion and bias, juries sometimes give away large sums of money to unfortunate victims, even when the defendants were not to blame for the misfortune.
To illustrate this point, let’s consider the decisions reached in some cases you may have read about in your daily newspaper:
Claim: A woman sues a franchise eatery because the coffee she spilled in her lap was too hot.
Decision: Woman receives $2.6 million.
Claim: A trespasser is injured while burglarizing a home.
Decision: Burglar receives thousands of dollars.
Claim: A Pennsylvania woman sues a physician claiming to have lost her psychic
powers during a routine set of tests.
Decision: Woman receives a jury award for $690,000.
After reading the large settlements these ordinary people receive, it seems rational that other people would begin to ask themselves, “Why not me?” The more press these cases receive, the greater the reinforcement of this belief. The greater the number of people who try to “work the system,” the greater the number of people who will eventually succeed. Each new outrageous success gains more press, and the vicious cycle of lawsuits continues.
Knowledgeable Doctors realize that this lawsuit trend cannot be ignored. They insist on having their advisors devise financial plans that address the protection of their assets. They realize that they have something to lose if they are sued, and that the plaintiff often has nothing to lose. This is especially true in the United States legal system.
American Rule Of Legal Fees
Did you know that in virtually every other legal system in the world, a plaintiff who sues un-successfully has to pay the defendant’s legal bills? That is correct. This rule, called the “British Rule,” effectively keeps people from suing others unless they truly think they have a case with merit. If a plaintiff does not have a very good case, he risks not only paying his own attorney’s fees, but also the defendant’s.
This is obviously not the situation in the United States. In U.S. courts we follow the “American Rule,” which dictates that each side pays their legal fees regardless of the outcome of the case. This rule was originally created so that people wouldn’t be discouraged from suing big businesses. Though this rule may have had some positive impact, it has created two negative consequences:
1. As a plaintiff, you have a lot less to lose if you bring a meritless case. In fact, with the prevalence of contingency fee attorneys, plaintiffs are literally in a no-lose situation as they have no “skin in the game.” This is because contingency fee attorneys do not charge their clients hourly fees. Their only compensation is a percentage of the judgment awards of the cases they win.
2. As a defendant, a winning outcome is still a losing proposition. We say this be-cause a successful defense of a lawsuit still results in significant out-of-pocket defense costs and legal fees. In addition, a legal defense results in time out of work and an unquantifiable amount of stress.
Evidently, the American Rule of legal fees encourages civil lawsuits. Proponents of the system still claim that it allows the poor access to the legal system and is a method for Americans to redress injustices. They may be right. Nonetheless, an unwanted side effect of this rule is that it also allows thousands, if not millions, of frivolous and dubious lawsuits to be filed each year.
People Abuse The Legal System
Whether it is caused by the American Rule of legal fees or not, it is clear that many people simply abuse the legal system for personal gain. This trend is so severe in California that the legislature passed the Vexatious Litigant Act, a law establishing a list of people who routinely abuse the legal system by filing too many frivolous lawsuits. These same individuals cannot be denied their constitutional right to sue. However, this act restricts them from filing suits without attorneys unless they receive a judge’s permission. This list is available to every lawyer in the state.
Who is on this list? The people on this list are those who, in the court’s opinion, have repeatedly filed lawsuits lacking merit or have engaged in other frivolous and abusive tactics.
At this point, we hope you realize what the wealthy have known for years. The American Rule of law has afforded people an opportunity to protect themselves through the courts. Unfortunately, many people have taken advantage of the system and a lawsuit frenzy has resulted in our country. In this litigious society, asset protection planning is an integral part of any comprehensive financial plan. For Doctors with greater liability than the average person, asset protection planning couldn’t be more important. Luckily, it can be integrated into a financial plan to protect assets from lawsuits, allow the Doctors to spend more time making money, and provide peace of mind. In the following chapters, you’ll learn the various tools and techniques you can implement to shield your wealth from lawsuits and other claims.