“When there are too many policemen, there can be no liberty.
When there are too many soldiers, there can be no peace.
Where there are too many lawyers, there can be no justice.”

- Lin Yu-Tang Chinese Writer and Inventor
Frivolous Lawsuits
Identity Theft
Financial Fraud
    What is Frivolous Lawssuit?

Why Do We Care?

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What is Frivolous Lawsuit?

Imagine you are the owner and CEO of a successful business. You graduated from one of the most prominent universities in the country and after years of hard work, you finally worked your way to the top. You and your loving family live in a vintage house surrounded with white picket fences. Life cannot be better as you are living the American dream.

But not every story ends with a happy ending. One day you got a call from your attorney. He informed you that one of your employees attempted to call his coworker regarding a meeting while he was driving. Right when he took his eyes off the road, he crashed into the car in front and severely injured the 78-year-old driver. After a series of trials, the court found you liable and the jury awarded $21 million against your business. While you have trouble paying the penalty, your attorney calls again. This time an employee is suing you because he spilled hot coffee over his lap which burned his thigh. The employee argued that the coffee from the office coffee machine was “too hot” and asked for $3 million in compensation.

Shocked and angered by the outrageous claim, you immediately consulted your attorney but only to be disappointed again. Your attorney explained, “It is obvious we’ve became the victim of frivolous lawsuit. We can only pray that we get lucky in this lawsuit lottery”. While the legal fees started to build up, you watch powerlessly as your whole life’s work evaporate before your very eyes.

The examples above might sound over exaggerated but don’t be surprised as they are real cases of frivolous lawsuits. Under similar scenarios, Dykes Industries of Little Rock received a $21 million judgment and fast food giant McDonalds ended up paying $640,000 to the plaintiff. These major companies survived, but countless other businesses did not and they became the prey of frivolous lawsuits.

We, the U.S. Financial Education Foundation, are entrusted to educate the public about the risks of frivolous lawsuits and how to protect personal assets against lawsuit abuse. Most people don’t realize the importance of asset protection until it’s too late. Join us now in order to secure your wealth against financial predators.

Frivolous Litigation is the practice of starting or carrying lawsuits that have infinitesimal chance of winning. In legal terms, the claim/defense is said to have no legal merit and the plaintiff is well aware of the case being futile from the beginning. Thus many frivolous lawsuits can be easy identified by its ridiculous claim.

Financial predators such as predator-attorneys bear interests in the financial outcome of litigation. It’s estimated that over 40 million lawsuits are filed every year in the United States and the total number of registered lawyers exceed one million. The proliferation of excessive litigation has given predator-attorneys the power to abuse the legal system and transform it into a “lawsuit lottery”, where everyone is forced to join. If the predator-attorney got lucky, he could get rich quickly at the public’s expense. Furthermore, predator-attorneys often use forceful tactics to intimidate and mislead plaintiffs in order to achieve financial purposes.

In short, frivolous lawsuit can be treated as a form of “legal extortion” and every year excessive tort costs sums up to an estimated $589 billion in the United States. To learn more about frivolous lawsuits, take a look at the two famous examples below:

McDonald’s Coffee Case

On February 27, 1992, Stella Liebeck, a 79-year-old woman ordered a cup of coffee from the drive through window of a local McDonalds restaurant in Albuquerque, New Mexico. She placed the cup of coffee between her knees so she could add cream and sugar. However as she tried to open the lid, she spilled the coffee over her lap and suffered third degree burns on six percent of her skin. She had to undergo skin grafting and remained in the hospital for eight days. Unsatisfied with the settlement, she sued McDonalds claiming that the coffee was “too hot” and McDonalds was negligent about its potential danger. Her attorney argued that McDonalds prepared coffee at 180–190 °F (82–88 C) which was sufficient to produce a third degree burn. If only the coffee was prepared at a lower temperature, the victim will have more time to react thus avoiding severe injury. The twelve-person jury reached its verdict and awarded Stella $2.86 million in damages which was later reduced to $640,000.

This case, dated almost two decades ago, is often quoted as the poster child of excessive lawsuits. In fact the Stella Award, an award established to mock outrageous lawsuits, was named after this case.

Dry Cleaners Case

On May 3, 2005, Roy L. Pearson, an administrative law judge in the District of Columbia, sued the owners of Custom Cleanings over a lost pair of trousers. The pair of pants was mistakenly taken to another dry cleaners shop and was returned five days after the initial pick up date. However, Pearson refused to accept it, claiming that it wasn’t the original pair which he left with the cleaners, and demanded an amount of over $1,000 as compensation. Later on, Pearson filed a lawsuit against the Chungs, the owners of the dry cleaning shop, demanding a combined amount of over $67 million for “inconvenience, discomfort, mental distress and attorney fees”. Pearson argued that the “Same day service” and “Satisfaction Guaranteed” signs advertised outside the store was misleading and thus fraudulent. Throughout the case, the Chungs presented three settlements of $3,000, $4,600 and $12,000, but Pearson rejected all three offers. In the end, Judge Judith Bartnoff ruled in favor of the dry cleaners and Pearson was sanctioned $12,000 for creating unnecessary litigation.

The case drew International attention and is often held as an example of frivolous lawsuit. Chris Manning, attorney for the Chung family, said that the Chung family experienced the “American Nightmare”, an ironic comparison to the “American Dream”.

Why do we care?

It’s funny to laugh at ridiculous frivolous lawsuit cases but it is no laughing matter when you become a victim yourself.

Recall the Pearson v. Chung case: The Chung family was lucky because their case went public quickly. Many people, especially Korean families like the Chungs, aided their fund raising efforts and contributed to the legal fees. When Pearson lost the case, he was fined and soon later lost his job as a judge. However this didn’t bring a happy ending for the Chung family. Due to accumulated legal fees and mental stress, the Chungs were forced to close down their dry cleaners shop and were considering moving back to South Korea. This shows that even if you win the case, you still lose, not even to mention hundreds of hours time spent in court.

According to the National Federation of Independent Business, each frivolous lawsuit case costs small companies $100,000 on average to fight. Small companies are vulnerable targets because of the heavy legal cost, hence they can be easily forced into settlement rather than going to court. Yet small businesses typically spend about $5,000 to settle one legal dispute, about 10 percent of a small business owner’s average salary . In today’s litigation-prone atmosphere, people are willing to go after quick cash at your expense. Lawsuits, taxes, accidents and all sorts of financial risks could put one’s assets at stake
So don’t stand still and wait till someone hit you in the face.

How do we protect ourselves?

Ultimately there is no way to reduce risk unless you cut off all contact with the world. Hence the best way is to reduce the business’ exposure to risk through implement asset protection techniques.

Asset protection is the positioning of assets to make it legally unreachable by creditors. Many people have the wrong impression that asset protection is the same as hiding assets or evading taxes but this is not true. Asset protection helps you avoid “unnecessary” liabilities Consider asset protection as a form of economic self-defense to shield against financial predators.

Follow the 5-3-1 Plan

Five Asset Protection Goals:

       1.      Minimize risk of loss
       2.      Establish asset anonymity
       3.      Prevent future lawsuits
       4.      Preserve financial security
       5.      Create artificial poverty

Three Basic Asset Protection Concepts:

       1.      Asset Placement:

Transfer liabilities to other persons or entities, for example trusts and corporations. If you’re a business owner and there are other employees in your company, consider incorporating a subchapter “S” or “C” company or a limited liability company. Since the corporation is considered a separate legal entity, your personal assets will be protected when your business is affected by frivolous lawsuits.

In addition, never sign personal guarantees for business obligations. Always maintain a clear distinction between personal assets and corporate assets. Also be very careful about forming general partnership since there’s unlimited liability. You can be held responsible for your partner’s debt.

       2.      Insurance:

By purchasing an insurance policy, you are sharing risk with other parties. However insurance coverage and availability may vary. So make sure you buy sufficient liability insurance with adequate coverage. Communicate with your insurance advisor about the worst scenarios and list your insurance needs. More is better than less! It’s always better to have excess insurance than be under-insured.

       3.      Statutory protections

Utilize financial protection mechanisms offered by the state. Irrevocable Trusts and retirement plans such as 401(k) are usually exempted from creditors both in and out of bankruptcy. If you experience financial distress, talk to your advisor to see if you qualify for Federal exemptions.

One Ultimate Advice - Always be prepared:

You should setup and maintain an asset protection plan to reduce risks around your home and business. Believe it or not, many frivolous lawsuits started through disputes between friends or business partners. Your trusted partner might sue you tomorrow for their financial interests. So do your best to make sure your partners and employees are people you can trust, especially when they are major stakeholders in your business. Keeping an employment manual outlining preexisting agreements will help you resolve disputes much easier. In addition, purchase umbrella insurance for employment claims. It may seem expensive at the time but you’ll be thankful when accidents happen.

More importantly, be very cautious when you conduct business. Watch what you say because verbal/non-contractual agreements might haunt you one day. You should routinely check your surroundings for potential hazards. Even the slightest things such as fixing broken steps, tacking the carpet to prevent falls or warning customers about slippery floors may protect you against frivolous lawsuit. Try to carry a camera to document the accident. When an accident occurs, always file a report with the police and your insurance company immediately.

Take the Next Step

Consult a professional before starting an asset protection plan. Asset protection may look simple at a glance however costs and suitability varies for each business. Also, different regulations and state tax rules is often complex and requires professional expertise.

Contact the following resources for more information regarding asset protection and frivolous lawsuits:


1427 North Wilcox Avenue
Hollywood, CA 90028-8123

Telephone: 323-962-2550
Fax: 323-962-2010



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