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Public Citizen Blasts Fraudulent Chamber of Commerce Ads Attacking the Legal System

Sept. 10, 2002

Public Citizen Blasts Fraudulent Chamber of Commerce Ads
Attacking the Legal System

Ad Buy Worth Up to $15 Million Appears Designed to Help Chamber-Backed Candidates in Elections and Divert Voters’ Attention from Corporate Fraud

WASHINGTON, D.C. – TV and newspaper ads being run by the U.S. Chamber of Commerce that attack the legal system are fraudulent, and appear designed to provide fodder for Chamber-supported candidates in competitive races and divert the attention of voters away from an unprecedented wave of corporate fraud, Public Citizen said today. The ad buy could cost as much as $15 million this fall, The Wall Street Journal has reported.

Since late August, the Chamber has been running a television ad in Alabama, Michigan, New Mexico, South Carolina and Texas that claims Americans pay a “lawsuit abuse tax” equal to 2 percent of the price of any goods they buy. In a print ad that began running Sept. 6, the Chamber asserts that class action lawyers have a “simple formula for splitting settlements” that leaves consumers with next to nothing in compensation.

“The claims made in the Chamber’s ads are about as accurate as WorldCom’s accounting statement,” said Joan Claybrook, president of Public Citizen. “They are as blatant as the lies told by so many corporations now under investigation for covering up illegal transactions. The real ‘abuse tax’ is the huge loss foisted on the public by Corporate America through an unprecedented wave of corporate fraud and abuse.”

To illustrate what it has labeled the “corporate fraud and abuse tax,” Public Citizen also released today an analysis of the stock loss experienced by 20 major corporations since government investigations of them became public or the companies admitted financial mismanagement through restatements or announcements of internal probes. Shareholder losses for those companies amounted to $236 billion, most of which occurred in the past year.

Public Citizen’s critique of the Chamber’s two ads follows. The ads, along with Public Citizen’s critiques of them and the analysis of corporate fraud and abuse taxes, are available here.

“Lawsuit Abuse Tax” Television Ad

The ad claims that a “Lawsuit Abuse Tax” caused by “phony lawsuits” costs the average family of four $1,900 a year in higher prices for consumer goods. The ad claims “phony lawsuits” add $500 to the cost of a car, $3.12 to a week’s worth of groceries and 70 cents to a pair of blue jeans. These misleading calculations are based on an assumption that 2 percent of the price of any good is due to “phony lawsuits.” According to the Chamber’s Web site, the 2 percent figure is based on a recent White House Council of Economic Advisors study that “calculates” the intermediate cost of excessive litigation to be $136 billion a year. The Chamber’s ad, which essentially suggests that all lawsuits are phony, is fraudulent because it is based on two absurd “assumptions”:

  • The Council labels $40 billion of the $136 billion of injury costs as non-economic damages and says they are excessive because they are “random.” In fact, these damages – compensation for pain and suffering, disfigurement, loss of fertility and more – are very real. By deeming them “excessive,” the Council doesn’t count more than half the compensation awarded by the tort system. Studies by Duke University, Ohio State University and McGeorge School of Law researchers have found that these damage awards are not random but are correlated with the severity of injuries.
  • The Council’s second assumption is that the transaction costs of the civil justice system — attorney fees and administrative costs — should be at the same level as those of the workers’ compensation system. As a no-fault system, workers’ compensation determines payments by a schedule, so a certain amount of money, for example, will be awarded for a particular back injury. The workers’ compensation system is a payment schedule, not an assessment of responsibility that addresses complex questions about product safety or corporate fraud and malfeasance, and sets minimum standards for consumer protection.

Class Action Print Ad

The ad suggests that in class action settlements, plaintiffs’ lawyers make out like bandits while their clients get a coupon worth next to nothing. Public Citizen has challenged several dozen class action settlements, more than any other organization to ensure that consumers get a fair shake when defense and plaintiffs attorneys settle class actions. Unfortunately, the Chamber’s ad is another example of false advertising and is part of a campaign designed to make it harder for consumers to prevail in class actions:

  • The Chamber ad suggests that it is wrong for attorneys’ fees to exceed the monetary benefit that a class action award provides to any individual consumer. In fact, judges are required to fix reasonable attorneys’ fees and do so by basing the fee on the entire sum of benefits provided to all class members, not the small amount that each class member receives as compensation for losses.
  • The Chamber ad suggests that it is common for consumers to have to “pay money out of their own pockets” to cover class counsel’s fees. In fact, there is only one such case on record; in almost every class action, consumers receive refunds for overcharges, unauthorized fees and other scams.
  • The Chamber ad trumpets the “Bill of Rights” provisions of H.R. 2341, legislation in the U.S. House of Representatives requiring “judicial scrutiny of coupon settlements.” The Chamber does not mention that a stronger version of the same provision is already due to take effect in 2003. Further, this legislation, which is opposed by leading national consumer groups, would give businesses a major advantage over consumers in class actions cases; the result will be that more corporate fraud and other wrongdoing will go unpunished.

“The Chamber appears to have two goals in mind with this ad campaign,” said Frank Clemente, director of Public Citizen’s Congress Watch. “It is providing a huge media buy in key state elections that will create a climate favorable to pro-business candidates who want to weaken the tort system, and it attempts to divert public attention away from corporate fraud and abuse that can be prevented with a strong tort system.”