This week we learned that the judge who filed the famous $54 million lawsuit over a missing pair of pants is finally getting his comeuppance. But something is missing from the stories following up on this crazy story. We wanted to know what happened to the defendants in the case. The last news we could find on the owners of the dry cleaning business Roy Pearson sued, Soo and Jin Chung, is not the happy ending you might expect.
Although the court ruled against “Judge Fancy Pants” and cleared the Chungs of all wrongdoing, they were forced to close down two of their three dry cleaning shops because the financial and emotional toll the lawsuit took on them was too great.
Unfortunately, this story is not unique. Small businesses across the country struggle to fend off lawsuits.
According to a study from the U.S. Chamber Institute for Legal Reform, small businesses bear 81% of all business tort liability costs, but take in only 22% of all business revenue. These numbers are shocking in and of themselves, but they are even more sobering when you consider that the impacts of litigation on small businesses are spilling over into the personal lives of the business owners.
That same study from the Chamber found that small businesses paid $35.6 billion of their tort costs out of pocket each year instead of relying on insurance like larger companies often do. In many cases, these out of pocket costs are coming directly out of the pocket of the business owner. The National Federation of Independent Businesses determined that their members make around $50,000 per year. They also figured out that settling a lawsuit costs their members an average of $5,000. That means each lawsuit takes away 10% of a small business owner’s income for the year!
The $5,000 average comes from cases that were settled. When small business owners are forced to litigate a case, like the Chungs were, the average cost rises to $100,000. In fact, over $100,000 was donated to the Chungs to help pay for their legal costs. However, this generosity, and all the free press their business received, was not enough to keep their doors open.
What facts and figures cannot capture is the emotional toll litigation takes on a small business owner. Pouring your heart and soul into a business only to see it targeted by frivolous lawsuits is something those of us who have not been in that position can hardly imagine.
What small business owners like the Chungs really need is some common sense legal reform so they are less likely to be targeted by abusive lawsuits. The New Jersey Civil Justice Institute has a list of 11 legal issues our state should tackle in order to improve our state’s legal climate.
Several of these ideas have been kicked around for years without action. Meanwhile, all of us, and small businesses in particular, are shouldering the burdens of lawsuit abuse. It is time for the legislature get serious about legal reform so the citizens and businesses of this state can get some relief.