Bill Targets ‘Frivolous’ Suits, But Critics Say It Misses Mark

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By Bruce Kaufman

“Frivolous lawsuits” against Starbucks over excess ice in iced coffee or whether Kellogg’s Froot Loops cereal contains real fruit would largely disappear if federal judges punished attorneys by hitting them where it hurts—in their wallets, supporters of the business-friendly federal Lawsuit Abuse Reduction Act say.

Federal judges already have the authority to sanction attorneys for filing meritless suits under a rule that applies to federal civil litigation. But supporters of LARA ( H.R. 720, S. 237), which passed the House and is pending in the Senate, say the current rule is toothless, that monetary sanctions are rare and often too gentle to discourage the practice.

However, most attorneys and legal experts contacted by Bloomberg BNA disagree. They say the problem is manageable and that the rule governing sanctions works well. In fact, the proposed Congressional solution could spawn costly and time-consuming satellite litigation, critics say.

The bill, backed by the U.S. Chamber of Commerce, the National Association of Manufacturers and the National Federation of Independent Business, mandates sanctions against attorneys who file suits without legal support.

It returns the sanctions rule to the state that existed from 1983 to 1993, and wipes away the so-called “safe harbor” provision that gives litigants threatened with sanctions 21 days to withdraw a contested filing.

Good data might shed light on how well the current sanctions rule, in place since 1993, is working. However, that data either hasn’t been collected, or hasn’t been published.

Bill opponents say demand for new scholarly studies doesn’t exist because the current rule has been a success. But bill backers counter that the legislation is supported by plenty of anecdotes of abusive filing practices, primarily by plaintiffs’ attorneys.

This article explores the arguments for the bill and the misgivings of legislative opponents.

LARA, which passed the House in March and faces uncertain prospects in the Senate, is part of a package of bills backed by business and intended to overhaul civil litigation.

Turning Back the Clock

From 1983 to 1993, Federal Rule of Civil Procedure 11 mandated sanctions for frivolous lawsuit filings.

The rule’s mandatory nature, supporters of the Senate bill say, was a needed check on some plaintiffs, and their attorneys, whose chief goal in filing complaints is to squeeze businesses into quick settlements.

The legislation’s advocates include defense attorney Cary Silverman, a partner in the public policy group at Shook, Hardy & Bacon in Washington. He said “frivolous” litigation is a significant problem, especially for individuals and small businesses.

Frivolous lawsuits cause “anxiety, significant expense, and can hurt the reputation of a small business,” he told Bloomberg BNA.

Under the current system, there is “nothing to lose by filing a frivolous case, whether it is a result of shoddy legal research, lack of supporting facts, a shotgun approach to naming defendants, a laughable legal theory, or something more nefarious,” Silverman said.

It only takes a few minutes to file a cut-and-paste or form complaint, or to add people or businesses as defendants, even if the law or facts do not support liability, he said.

But some who played roles in changing the rule in 1993 to give judges discretion over those sanctions aren’t happy at the prospect that Congress may turn back the clock.

“Having lived through the reign of terror under the 1983 amendments to Rule 11, and having contributed to its demise, I am appalled at the prospect of its return,” Professor Stephen Burbank, a civil procedure expert at the University of Pennsylvania Law School in Philadelphia, told Bloomberg BNA.

During the 1980s, when a vigorous debate on changes to the rule governing sanctions was underway at the U.S. Judicial Conference, the body of lawyers responsible for recommending changes to federal civil procedural rules, Burbank authored “Rule 11 at the Crossroads” as a reporter for the U.S. Court of Appeals for the Third Circuit.

“Except for egregious cases, good judges don’t need or want sanctions in order to manage litigation so as to reduce expense and delay. And we don’t need sanctions in the hands of bad judges, who may seek to deflect blame for their own shortcomings,” or subvert the American rule on attorneys’ fees shifting, he said.

The 1983 version of Rule 11 “poisoned the federal courts, turning lawyers against lawyers, lawyers against clients, and federal judges against both,” he said.

Meritless Suits Called Costly Headache

LARA supporters disagree.

Silverman and other supporters say the problem with meritless claims isn’t that businesses don’t win—they do—but in the interim they rack up as much as $30,000 in expenses.

Because no effective means exists for responding to a frivolous lawsuit, many businesses and their insurers settle them for their “nuisance value”—an amount that is less than the expected cost of litigating the case to obtain dismissal. That, in turn, “encourages more frivolous lawsuits,” he said.

But Adam Benjamin Spencer, a professor at the University of Virginia Law School in Charlottesville, Va., and an expert in civil procedure and federal jurisdiction, said that argument is “nonsense.”

The current pleading threshold—which requires claims to have evidentiary support and not be filed for an improper purpose—is a significant barrier that catches meritless cases, he said. Also, the existing statutory regime for sanctions is able to punish attorneys who persist with baseless cases, Spencer told Bloomberg BNA.

Others, like plaintiffs’ attorney Max Kennerly of Kennerly Loutey in Philadelphia, whose practice includes product liability, medical malpractice and workplace safety cases, say “truly frivolous litigation is rare and is dealt with swiftly.”

“H.R. 720 and S. 237 are premised on the ridiculous and shameful argument that federal judges are somehow incapable of exercising their discretion in handling alleged abuses in their own courts,” Kennerly told Bloomberg BNA.

The process should be left where it stands, Kennerly said. “No one knows better than a trial judge if a party is breaking the rules,” he said.

“The rulemaking process isn’t perfect, but I doubt there’s a single litigator in the country who thinks that Congress can do a better job,” Kennerly said.

Anecdotal Evidence

But Silverman and other LARA backers say the sanctions rule needs an overhaul.

The current Rule 11 “restricts the ability of judges to use sanctions to compensate victims of lawsuit abuse. That is the problem that calls for a legislative solution,” said Silverman, who focuses on product liability, tort and consumer law, and civil justice issues.

Judges rarely get the opportunity to consider whether a claim is frivolous because so few Rule 11 motions are filed by attorneys, even though judges commonly make comments like a party has “a Rule 11 problem” or a claim “does not pass the proverbial laugh test,” Silverman said.

He pointed to dismissed class actions challenging Capri-Sun drinks as not “natural” and the so-called slack-fill suits over Advil pain relief products.

“But no sanctions are sought or imposed in those types of cases,” he said.

LARA would deter these “abusive suits and lead to better supported complaints,” he said.

Defense attorney Douglas G. Smith of Kirkland & Ellis LLP in Chicago told Bloomberg BNA there is “at least anecdotal evidence that claims lacking merit have been filed in a systematic way in certain litigation, particularly in cases involving mass torts where there may be less scrutiny of aggregated claims.”

“There is frequently a financial incentive to file claims, particularly where cases are taken on contingency and in circumstances where the claims are likely to get less scrutiny, such as in cases where claims are aggregated in some fashion,” he said.

Smith’s practice includes product liability, securities and commercial litigation. He is also a Bloomberg BNA advisory board member and the author of “Scientific Evidence,” Litigation Practice Series (Bloomberg BNA 2016).

Defense attorney Michael Lowry agreed that abuse exists in some practice areas, though he acknowledged that what is considered “frivolous” can be context specific.

For instance, patent trolls present a significant problem in patent litigation, he told Bloomberg BNA. “Some also consider as frivolous various objectors to some class-action settlement proposals.”

Lowry, a partner at Wilson Elser in Las Vegas, frequently blogs about civil discovery.

While Lowry also acknowledged that many filings, rather than having no legal support, are just “thin on the merits,” he also said some attorneys have been able to build a business model that generates a profit from questionable cases.

“Requiring sanctions may increase the risk these attorneys face in their business model, but the increase may not significantly alter their practices unless the increase is sufficiently substantial to disrupt their business model,” he said.

‘Solution in Search of a Problem’

Professor Dane S. Ciolino of the Loyola University New Orleans College of Law said, despite bill supporters’ anecdotes, no data backs the assertion that the current discretionary sanctions process can’t handle meritless cases.

He disparaged LARA as “a solution in search of a problem.”

“There is no empirical evidence whatsoever that the filing of frivolous lawsuits is a significant issue facing the federal judiciary,” Ciolino, a legal ethics expert, told Bloomberg BNA.

Nora Freeman Engstrom, a professor at Stanford Law School in Stanford, Calif., and an expert in tort law and ethics, agreed.

Nonmeritorious tort suits are often abandoned soon after discovery, Engstrom said.

These litigants are not filing suit to “dupe the system or to obtain unjustified paydays, but rather to gain access to material bearing on the defendant’s culpability,” she said.

“Once that material is in hand, more often than not, litigants make sensible and appropriate judgments as to whether or not to proceed,” she said.

Gregory P. Joseph of Joseph Hage Aaronson LLC in New York qualified that assessment.

Frivolous filings are not a “widespread problem, but it can be a significant problem in a particular case or with particular, recidivist lawyers and litigants,” Joseph told Bloomberg BNA.

Joseph handles complex commercial litigation and is the author of “Sanctions: The Federal Law of Litigation Abuse” (5th ed. 2013).

However, to the extent there are abusive litigants, courts are already sanctioning them, Joseph said.

“To the extent there are debatable cases, why make a judge spend time on those?”

The point of the current rule authorizing, but not mandating, sanctions for meritless claims is “not to squelch litigable points,” he said.

Joseph also said he has seen no evidence suggesting judges are abusing their current discretionary authority to sanction attorneys.

“There is no abuse,” and if history is any guide, he said, the proposed legislative solution will create an “enormous amount of make-work and not address any meaningful problem.”

Unintended Consequences

Opponents of the legislation say other key concerns with the current bill are that it will chill novel claims, especially in areas like civil rights, and lead to wasteful satellite litigation.

Currently, claims that are “warranted by existing law or by a nonfrivolous argument for extending, modifying, or reversing existing law or for establishing new law” are permissible, Spencer, of the University of Virginia, said.

If enacted, LARA will have “unduly negative consequences on plaintiffs with meritorious but tenuous or hard-to-prove claims,” Spencer said.

Experience under the prior 1983 version of the rule suggests that lawyers may be less willing to take on those claims for fear of sanctions, “and it’s not a good or desirable outcome,” he said.

“It’s quite possible that civil rights lawyers could be sanctioned for bringing cases where the law wasn’t yet ‘clearly established,’” Kennerly, the plaintiffs’ attorney, said.

The process should be left where it stands, Kennerly said. “No one knows better than a trial judge if a party is breaking the rules,” he said.

But Silverman, the LARA backer, said the bill won’t chill novel claims.

“LARA makes absolutely no change to the standard for determining what is or is not a frivolous claim,” he said.

As for satellite litigation, If the bill becomes law there’s a good chance that the federal courts would be deluged with sanctions motions, and those motions wouldn’t be just against plaintiffs’ lawyers, Kennerly said.

“Plaintiffs’ lawyers themselves would start filing them against defense lawyers over every denial in a pleading that turned out after discovery to not be entirely true. The net result, of course, would be more wasted time on litigation-about-litigation and a greater backlog in the federal courts,” he said.

Silverman pointedly disagreed.

The satellite litigation concern is “extraordinarily overblown,” he said.

If pre-1993 experience is a guide, there would be about one reported sanction for every 400 federal civil cases, spread across 677 district court judges, Silverman said.

There is no reason federal judges cannot handle these additional motions in the ordinary course of business, just as they routinely handle motions to dismiss or motions for summary judgment, he said.

“If a judge finds that a Rule 11 motion lacks merit,” he said, “it only takes one word to respond: ‘Denied.’”

Current Rulemaking Process`Works Well’

Supporters of the current process for handling meritless cases find yet another serious flaw in LARA: that it came about without any prior action on the part of the body of lawyers tasked with recommending such revisions.

It is “troubling” that in passing the bill, the House ignored the typical rulemaking process set forth in the Rules Enabling Act, said Professor Ciolino at Loyola University and author of “Louisiana Legal Ethics: Standards and Commentary.”

Under that process, the Civil Rules Advisory Committee of the Judicial Conference of the United States would have published a draft of any contemplated amendments to Rule 11 and invited comments from the public.

Eventually, the conference would have made well-vetted recommendations to the U.S. Supreme Court.

“This process would have served to produce a more refined, better reasoned rule than this one,” Ciolino said.

Joseph, a former president of the American College of Trial Lawyers in Irvine, Calif., agreed.

“There is no reason to go outside the rulemaking process,” he said.

Congress can direct the rules committees to take action, and the result will be “better thought out than legislation can ever be purely as a result of the time, attention and expertise of the rulemakers,” Joseph said.

Why Not a Role for Congress?

Supporters of the bill counter that Congress shouldn’t cede its prerogative to frame the policy in this debate.

“Providing a remedy for a wrong is a particularly appropriate area for Congress’s involvement,” Silverman said.

There’s “nothing wrong” with Congress identifying the problem here and legislating a solution, Lowry, of Wilson Elser in Las Vegas, said.

“If Congress believes judges are not sufficiently exercising that discretion, it should take steps as it did to promote exercising that authority,” he said.

The House passed H.R. 720 on March 10 on a 230-188 party-line vote.

S.237, it’s companion measure, is sponsored by Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa). The bill currently awaits action by that committee.

While President Donald Trump has not expressed opinions on LARA, he is viewed as likely to sign it if the bill reaches his desk.

To contact the reporter on this story: Bruce Kaufman in Washington at bkaufman@bna.com

To contact the editor responsible for this story: Steven Patrick at spatrick@bna.com

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