David B. Mandell, New York City and J.F. Howell III, Amarillo, Texas

It may be difficult to be believe, but nearly 20 million new civil lawsuits will be filed this year in the state and federal court systems—about one every 14 seconds. This means that the odds of an adult American being sued in any one year are close to one in eight. If you are under 40 years old, you can expect at least four lawsuits against you in your lifetime. Add to this the specific dangers of malpractice for physicians, and you can see why litigation is a serious threat to financial security.

While only about 2 percent of lawsuits ever make it to trial, the cost of this litigiousness is truly staggering. Many studies have assessed the causes and effects of such litigation on the nation's economy as a whole. But what about its effect on everyday people? In other words, why do we sue so often and what can we do to shield ourselves from lawsuits? We'll try to answer these questions in this article.


1. Why We Sue So Often

Everyone wants a piece of the action. Why are there so many more lawsuits today? Partly, we think, because in today's society, the lawsuit is seen as a way to get rich quick rather than as a method of creating justice. Our culture seems to have embraced the belief that whenever something goes wrong, someone should pay, regardless of whether anyone was actually at fault. Unfortunately, juries have adopted this idea, as well. They often disregard the facts of the case and rule on emotion and bias, giving away large sums of money in the process.

You read about spectacular awards everyday in the newspapers. A woman receives $2.6 million because her coffee was a few degrees too hot; a homeowner is forced to pay thousands of dollars to a trespasser who was injured while trespassing on the homeowner's property. Would-be plaintiffs see these same awards and ask, "Why not me?" They want a piece of the lawsuit payoff. Their first step is to look for a person and a reason to sue. It may only be a matter of time until that person is you.

Too many lawyers. The excess of lawyers in this country also feeds the lawsuit fire. For every person with a lawsuit of questionable merit, there is a hungry lawyer ready and willing to file the suit. If you don't believe us, just open your local Yellow Pages or watch daytime television. You will see the many advertisements by lawyers waiting to start a lawsuit for you, even if you cannot pay the lawyer a dime. The lawyer may harass a defendant into a settlement or take a chance on a legal lottery at trial, whichever way he thinks he can get the most fees.

The legal profession has grown tremendously in the last 20 years. All these lawyers need ways to make a living, and the lawsuit is a great source of instant income, whether it be defending the suit or prosecuting it. In many areas of the country, there are just too many lawyers. That means each attorney has to go out and drum up business. Often, this "drumming up" means finding any client willing to sue, whether or not the suit is legitimate.

People are abusing the system. Another factor adding to the explosion of lawsuits is that many people are simply abusing the legal system for their own personal satisfaction. This trend has become so severe in California that the state legislature passed a law called the "Vexatious Litigant Act." This law created a list to which judges throughout the state can add names of people who are abusing the legal system by filing too many lawsuits without merit.

Of course, these individuals cannot be denied their constitutional right to sue, but they are prevented from filing suits without attorneys, unless they have a judge's permission. The list is available to every court officer in the state.

What type of people are on this list? People who, in a judge's opinion, have repeatedly filed, without attorneys, motions and lawsuits without merit or engage in other "frivolous tactics." Here are two awful examples:

  One man outside Los Angeles had filed more than 200 lawsuits over a seven-year period. Few of them were successful.

• A court clerk recommended to a judge that he put certain individuals on this list. When these individuals heard about his recommendation, the clerk became a lawsuit target himself. He has since been sued 11 times in two years —all unsuccessfully. The clerk's reaction: "I am not exaggerating when I say I am extremely frightened by some of these people."


What You Can Do about It

There are two things you can do to limit your exposure to litigation: 1) try to behave so as to reduce the chance that you will be sued (risk management) and 2) shield yourself from the damaging effects of lawsuits (asset protection).

Certainly reducing your liability exposure by changing your behavior is important (Mr. Mandell has co-authored a CME monograph entitled, Risk Management for the Practicing Physician). Nonetheless, no matter how carefully you behave, you may still become a lawsuit target. Better then to engage in asset protection to reduce the ability of a lawsuit to threaten your savings and property.

The goal of asset protection planning is to protect your assets from future potential lawsuits within the framework of your general financial plan. This goal is achieved by several methods: using existing state and federal exemptions to shield personal savings; creating protective legal structures, such as limited partnerships and trusts, to safeguard assets; and using real economic transactions involving the first two methods as much as possible. Even more importantly, asset protection planning often can discourage possible claimants from bringing lawsuits against you at the outset.

In today's litigious world, risk management and asset protection are desperately needed. With each endeavor approached wisely, you can significantly reduce your exposure to potential lawsuits and creditor claims.


Mr. Mandell is an attorney, lecturer and author of the books, The Doctor's Wealth Protection Guide and Wealth Protection, M.D. He is a co-founder of the Wealth Protection Alliance, (wealthprotectionalliance.com) a nationwide network of legal, accounting and financial firms. Mr. Howell is an attorney and shareholder at Sprouse, Shrader & Smith, P.C. To reach either of them, or the Wealth Protection Alliance, call 1 (800) 554-7233.

The information contained in this article is general in nature and should not be construed as comprehensive financial, tax or legal advice. As with any financial or legal matter, consult your qualified securities, tax or legal representative before taking action.