March 9, 2011
Washington, D.C. – House Judiciary Committee Chairman Lamar Smith (R-Texas) and Senate Judiciary Committee Ranking Member Chuck Grassley (R-Iowa) today introduced legislation to reduce frivolous lawsuits that plague our legal system. The Lawsuit Abuse Reduction Act imposes mandatory sanctions for lawyers who file meritless suits in federal court. Federal rules mandating sanctions for frivolous suits were watered down in 1993, resulting in the current crisis of widespread lawsuit abuse. The Lawsuit Abuse Reduction Act restores the mandatory sanctions which hold attorneys accountable for lawsuit abuse.
Chairman Smith said, “Lawsuit abuse has become too common in American society partly because the lawyers who bring these cases have everything to gain and nothing to lose. Plaintiffs’ lawyers can file frivolous suits, no matter how absurd the claims, without any penalty. Meanwhile defendants are faced with the choice of years of litigation, high court costs and attorneys’ fees or a settlement. Our legal system encourages frivolous lawsuits while defendants are left paying the price even when they are innocent.
“The Lawsuit Abuse Reduction Act restores accountability to our legal system by reinstating mandatory sanctions for attorneys who file meritless suits. Though LARA will not stop all lawsuit abuse, it encourages attorneys to think twice before filing a frivolous lawsuit.”
Ranking Member Grassley said, “Without the serious threat of punishment for filing frivolous lawsuits, innocent individuals and companies will continue to face the harsh economic reality that simply paying off frivolous claimants through monetary settlements is often cheaper than litigating the case. This perverse dynamic not only results in legalized extortion, but it leads to increased costs for businesses that instead could be using that money to create new jobs.”
Every year, billions of dollars are wasted on frivolous lawsuits, costing jobs and damaging the economy. According to one analysis, the 2002 tort system’s direct costs were $233 billion, the equivalent of a 5 percent tax on wages. Today that number is even higher; the annual direct cost of American tort litigation exceeds $250 billion.
The Lawsuit Abuse Reduction Act takes three strong steps to help thwart frivolous lawsuits.
• Reinstates the requirement that if there is a violation of Rule 11, there are sanctions (Rule 11 of the Federal Rules of Civil Procedure was originally intended to deter frivolous lawsuits by sanctioning the offending party).
• Requires that judges impose monetary sanctions against lawyers who file frivolous lawsuits. Those monetary sanctions will include the attorney’s fees and costs incurred by the victim of the frivolous lawsuit.
• Reverses the 1993 amendments to Rule 11 that allow parties and their attorneys to avoid sanctions for making frivolous claims by withdrawing them within 21 days after a motion for sanctions has been served.
A copy of the bill can be found here and below is a copy of Grassley’s prepared introduction statement.
Prepared Floor Statement of Senator Chuck Grassley
Introduction of the Lawsuit Abuse Reduction Act of 2011
Wednesday, March 9, 2011
Mr. President, I rise today to introduce important civil justice legislation. This legislation is desperately needed for several reasons – the most important of which is to cut down on the costs and expenses that are preventing private businesses from creating jobs for our fellow citizens during these difficult times.
The billions of dollars wasted on frivolous lawsuits cost Americans jobs and severely damage our economy. The precise cost of America’s lawsuit culture is staggering. The tort system’s direct costs in 2002 were $233 billion, the equivalent of a 5 percent tax on wages. Today that number is even higher; the annual direct cost of American tort litigation exceeds $250 billion.
Indeed, frivolous lawsuits are helping to prevent the “innovation” that the Obama Administration is touting as the key to “job creation” and economic recovery. For example, firms with recent initial public offerings are most at risk to be sued. In fact, companies are most likely to be sued in their second year of public trading. In other words, the very corporations most likely to be the source of significant new job creation are at the highest risk of being sued just when they are seeking expansion capital through public offerings.
In particular, frivolous lawsuits hurt small businesses. Small businesses rank the cost and availability of liability insurance as second only to the cost of health care as their top concerns, and both problems are fueled by frivolous lawsuits.
Our front-line defense against frivolous lawsuits and the misuse of our legal system is Rule 11 of the Federal Rules of Civil Procedure. This rule is intended to deter frivolous lawsuits by sanctioning the offending party. The power of Rule 11 was diluted in 1993. This weakening is unacceptable to those of us who want to preserve courts as neutral forums for dispute resolution.
That is why I’m introducing the Lawsuit Abuse Reduction Act of 2011, which amends Rule 11 to restore its strength and ability to truly deter frivolous lawsuits. Senator Mike Lee of Utah is cosponsoring this bill. Representative Lamar Smith, the Chairman of the House Judiciary Committee, is introducing an identical bill today in the House of Representatives.
Specifically, the Lawsuit Abuse Reduction Act takes three strong steps to help thwart frivolous lawsuits.
First, the Lawsuit Abuse Reduction Act reverses the 1993 amendments to Rule 11 that made sanctions discretionary rather than mandatory.
One of the most harmful changes that took effect in 1993 was to make sanctions for proven violations of Rule 11 discretionary. This means that if a party files a lawsuit simply to harass another party, and the court decides that this is in fact the case, the offending party still might not be sanctioned.
This is unacceptable. The offending party might not be punished at all, which provides no deterrence for the offending party or anyone else who wants to misuse the courts. My bill reinstates the requirement that if there is a violation of Rule 11, there are sanctions.
Second, the Lawsuit Abuse Reduction Act requires that judges impose monetary sanctions against lawyers who file frivolous lawsuits. Those monetary sanctions will include the attorney’s fees and costs incurred by the victim of the frivolous lawsuit.
Finally, the Lawsuit Abuse Reduction Act reverses the 1993 amendments to Rule 11 that allow parties and their attorneys to avoid sanctions for making frivolous claims by withdrawing them within 21 days after a motion for sanctions has been served.
Because of Rule 11’s “safe harbor” provision, many frivolous claims are never fully reviewed by federal judges. Under the “safe harbor” provision, a person who is victimized by a frivolous claim must hire an attorney to draft a motion for sanctions. That motion cannot, however, be filed immediately. Rather, under Rule 11(c)(2), the motion is served on the offending attorney 21-days before it is filed. During that period, the offending attorney can withdraw the frivolous claim and thereby avoid any sanction. The Lawsuit Abuse Reduction Act would prevent such injustices by eliminating the “safe harbor” provision.
Although the Lawsuit Abuse Reduction Act would only amend Rule 11 of the Federal Rules of Civil Procedure, the procedural rules in state courts are often amended to track changes in the federal rules. Consequently, it is our hope that many states would amend their rules governing frivolous lawsuits to reflect the changes implemented by the Lawsuit Abuse Reduction Act, just as they did when Rule 11 was last changed in 1993.
Without the serious threat of punishment for filing frivolous lawsuits, innocent individuals and companies will continue to face the harsh economic reality that simply paying off frivolous claimants through monetary settlements is often cheaper than litigating the case. This perverse dynamic not only results in legalized extortion, but it leads to increases in the insurance premiums all individuals and businesses must pay. That’s money that could be going to create new jobs.
I want to work with those who are willing to be reasonable. I know that some have expressed concerns with similar bills in the past. We have considered those concerns and have drafted a bill that takes them into account. For example, this bill expressly provides that nothing in it “shall be construed to bar or impede the assertion or development of new claims, defenses, or remedies under Federal, State, or local laws, including civil rights laws.”
Requiring mandatory sanctions is not an extreme position. It is a reasonable and effective solution to the problem of runaway frivolous lawsuits.
Indeed, a mandatory sanctions requirement is currently the law in the area of securities litigation. In 1995, we enacted the Private Securities Litigation Reform Act (PSLRA) over President Clinton’s veto. It essentially reinstates the 1983 version of Rule 11 for the purposes of securities litigation that falls within its coverage, and makes the imposition of sanctions mandatory. Upon a final adjudication of a case, the PSLRA requires courts to make written findings on whether the parties have complied with Rule 11. In other words, no motion for sanctions needs to be filed.
At the conclusion of the case, a judge must review the case for compliance with Rule 11 and, if he finds that there has been a violation, he must impose sanctions.
So addressing the damaging impact of frivolous lawsuits has had bipartisan support in the past. That bipartisan support should be even greater during these difficult economic times.
Let’s look at a few examples of the type of lawsuits that businesses must contend with:
In July 2009, three New Jersey residents, backed by an advocacy group, filed a class action lawsuit against several hot dog manufacturers claiming they were exposed to carcinogens by eating hot dogs. None of the plaintiffs had actually developed cancer. The lawsuit sought damages in the amount of the total cost of the plaintiffs’ hot dog purchases and a requirement that the companies place a new label on packages and advertising reading: “WARNING: CONSUMING HOT DOGS AND OTHER PROCESSED MEATS INCREASES THE RISK OF CANCER.”
The case was dismissed on a Rule 12(b)(6) motion. Thus, a federal court held that the plaintiffs had failed to even allege a claim, as a matter of law.
In another case, a customer alleged that a wild bird “attacked” her while in a Lowe’s outdoor garden center, causing her head injuries. She claimed negligence and a violation of the Illinois Animal Control Act. She maintained that the wild birds created a dangerous condition on the property and that Lowe’s failed to exercise ordinary care to ensure that the premises were reasonably safe and failed to prevent the birds from entering the garden center.
A federal court entered summary judgment in favor of Lowe’s holding that a “reasonable plaintiff” either would have noticed the birds or understood that contact with them was possible in any outdoor area with plants. The court also held that Lowe’s was not the “owner” of the
birds, a necessary element of the customer’s statutory claim.
These are just two examples of the scores of frivolous lawsuits that American businesses must contend with each year.
Requiring sanctions when judges find lawsuits are frivolous will deter these types of cases from being brought. The savings will result in cost savings for businesses and new jobs for American workers.
The time for words and rhetoric has long since passed. If the President means what he is saying about creating jobs, then we must take action. We need to help private business spur job creation. The Lawsuit Abuse Reduction Act is action and is a step in the right direction.
I urge all of my colleagues to work with me and to support this legislation.
Mr. President, I yield the floor.