Note to Small Business: There is no Lawsuit Plague

by Fred Abramson on September 27, 2010 · 3 comments

Mark Henkins, writing in bnet.com puts forth a persuasive rebuttal to the argument that our current “litigious” climate has produced an avalanche of frivolous lawsuits that have hurt small businesses.

According to Mr. Henkins, the rhetoric espoused by this view goes like this: “Lawsuit abuse that clogs our courts and raises the costs of goods and services,”  as warned by the National Federation of Independent Business, which calls itself ”The Voice of Small Business.” What’s more, “many small businesses become innocent victims of this sue-thy-neighbor mentality.”

Similarly, groups like the American Tort Reform Association argue that excessive litigation has caused pain for small businesses. The ATRA state that “these lawsuits compromise access to affordable health care, punish consumers by raising the cost of goods and services, chill innovation, and undermine the notion of personal responsibility.”

However, the facts demonstrate that the risk to small businesses from being destroyed by a frivolous lawsuit is remote.

  • According to The National Federation for Independent Business when it asked 3,500 small business owners to rank the problems they faced. “Costs and Frequency of Law Suits/Threatened Suits” came in 65th of 75, barely beating out “Solid and Hazardous Waste Disposal.”
  • The number of civil tort cases shrank by more than 31 percent from 1996 to 2005, according to a U.S. Department of Justice examination of state courts in the nation’s 75 most populous counties.

Small businesses should not discount the risk of lawsuits. If you enter into a business dealings without a written contract, you are placing your business at risk.  However, a lawsuit without merit can often be defeated by making an early motion to dismiss the claim, with minimal legal costs.  Simply put, the argument that there is an increase of law suit plague is not supported by the facts.

What do you think? Has your business been subject to lawsuit that was without merit? What do you think the legal system could do to better address this issue?

The Law Office of Frederic R. Abramson represents small businesses in New York State. If you have any questions regarding litigation, call me at 212-233-0666.

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