I feel your pain because as you say these Lutzes are everywhere but I think you hit the nail on the head when you say, “simply paying the person until they choose to leave and tank some other team’s / company’s productivity is less risky than firing them and potentially having to deal with a lawsuit.” This absolutely is the reason why it’s so hard to get rid of these people.

We’ve managed to get rid of two such Lutzes on our team in the years I’ve been in my current job and on the first occasion it took over six months for the managers to build a sufficient case to just put the Lutz on a Performance Improvement Plan. The hope was that said Lutz would take the hint and jump rather than be pushed and luckily for us that’s exactly what happened and the second occasion was just luck as not long after we started complaining about them the mass layoffs in tech started happening and we got rid of them as part of that (though we sadly also lost some good devs in the process).