Downturn causing lawsuit uptick?

In online survey, 129 respondents note firms' fears

Friday, May 15, 2009

"Every lawsuit costs money and so therefore, it obviously costs the company," said the treasurer of Reliable Contracting Company Inc., a Millersville-based firm that has offices in White Plains. "That's just easy math."

An overwhelming percentage of small business executives in Maryland share Baldwin's outlook, according to a recent survey commissioned by Maryland Citizens Against Lawsuit Abuse and the state chapter of the National Federation of Independent Businesses.

Ninety-one percent of survey participants responded that lawsuits filed against corporations are having a negative impact on the state's business climate, even though trial lawyers' groups say there's no evidence linking the prevalence of lawsuits with the state's entrepreneurial atmosphere.

The report, which is based on 129 online responses from state NFIB members between November and February, asked participants 15 questions ranging from trends in the number of liability lawsuits, whether personal injury lawyer advertising encourages unwarranted claims and whether insurance liability costs have increased or decreased in the past few years.

 "Our judicial system is far too quickly becoming seen as an opportunity of greed and there's real ramifications for our state when that mindset takes a hold and indeed continues to even grow," said Todd Lamb, executive director of the lawsuit abuse group.

No margin of error was applied to the survey, because it was not considered a scientific poll, Lamb said. He could not say how many businesses the survey was sent to.

Wayne M. Willoughby, public information committee chair for the trial lawyers' Maryland Association for Justice Inc., said the survey is flawed because it doesn't take into account how the legal system ensures businesses are held accountable for their actions.

"Someone has to keep corporations in check to make sure their profit motive doesn't trump public safety," he said, referencing the Ford Pinto scandal in which company executives did not order a recall despite being aware of a design flaw in the 1970s-era vehicle that increased the chances of a gas-tank explosion in the event of a rear-end collision.

The U.S. Chamber of Commerce estimates that the "out-of-control" legal system costs more than a quarter of a trillion dollars annually. In 2008, Maryland ranked 30th in the nation in the fairness of its litigation environment, according to the Chamber's Institute for Legal Reform. That's a 10-position drop from 2006, when Maryland placed 20th in the nation.

It's common sense that the cost of liability insurance and the cost of defending a business is a factor in the state's overall business climate, said Ronald W. Wineholt, vice president of government affairs for the Maryland Chamber of Commerce.

"The more you spend [on liability coverage], the less you have to invest in your products and services," he said.

However, a 2008 National Federation of Independent Businesses survey ranked the costs and frequency of lawsuits 65th among the top 75 concerns of small businesses.

With the economy reeling, Baldwin believes more people who have lost their jobs are considering filing wrongful termination and discrimination grievances against their former employers in the hopes of reaching a settlement.

It's not atypical to see an increase in the number of those types of claims to be filed in down economic times, said Christopher J. Heffernan, a Baltimore-based lawyer and mediator who chairs the Maryland State Bar Association's Litigation Section Council.

As a result, there's more trepidation in the marketplace with regard to litigation.

"If businessmen and businesswoman see an atmosphere where they're being sued on a more regular basis, it will chill their interest in doing business here," he said. "That, I think, is just a fact of life."

But Heffernan said he has also seen an increase in the number of commercial and individual disputes being resolved through a third-party mediator due to the expense of litigation and the uncertainty of "casting their future with an unknown judge or jury."

Reliable Contracting, which installs water and sewer lines and does grading and clearing for road projects, has two such cases pending, Baldwin said.

She alleged employment lawyers encourage people to file suit by offering to represent them on a contingency basis, meaning the client doesn't pay unless they win the case. Meanwhile, businesses incur costs whether they win the case or agree to a settlement, Baldwin said.

"It's only the attorney taking the risk and the company gets stuck footing the bill," she said. "We'll end up spending thousands of dollars on legal fees to defend that case."

But Heffernan said those arrangements are typically restricted to personal injury cases, not business litigation.

James F. Farmer, principal of Farmer & Pyles P.A. in Waldorf, refuted Baldwin's claim and said employment lawyers are very selective about the cases they take on because only the strongest cases are worth the time and money that must be invested.

"There's many employment cases that have no merit whatsoever," said Farmer, who has been practicing for 32 years. "I dispose of most of them over the phone."

He went on to dismiss the survey's overall findings. "These business owners don't want anybody to sue them for anything."

Baldwin's company recently wound up on the wrong end of a wrongful termination suit.

A Baltimore City Circuit Court jury last month ordered Reliable Contracting to pay $117,325 to an employee the company let go after he returned from a work injury and refused to accept a job assignment at Patuxent River Naval Air Station that was roughly 70 miles from his Millersville home, according to the Maryland Daily Record.

The company claimed that Gary E. Davis was not laid off, but voluntarily resigned when he turned down the new assignment. A lawyer for Davis argued that the ultimatum came in retaliation after Davis filed a workers' compensation claim after he broke his foot on the job in 2004, the paper reported.

"Companies like that who are found to have wrongfully terminated their employees should be worried about getting sued because their conduct is egregious," said Willoughby, who is immediate past president of the trial lawyers' group.

But Lamb maintained that the survey reveals the need for legal reform in Maryland to deter frivolous lawsuits and the jarring consequences that lawsuits pose for small businesses.

Nearly six in 10 respondents said they have increased their costs, reduced services or changed products they offer. Fourteen percent of participants said they have even considered closing their business as a result of lawsuits.

"We hope that it will be a wake-up call and a reminder that the people who [create] jobs in our state and are the backbone of our economy are really concerned about it," said Lamb. "We need to think about ways we can protect small businesses from being the first victim of that mindset."

abrody@somdnews.com