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By Yin Wilczek
Feb. 6 — Senate Judiciary Committee Chairman Charles Grassley (R-Iowa) and Rep. Lamar Smith (R-Texas) have introduced companion bills (S. 401 and H.R. 758) that would reduce “frivolous lawsuits” that the lawmakers say costs U.S. companies billions of dollars every year.
Introduced Feb. 5, the Lawsuit Abuse Reduction Act would impose mandatory sanctions on attorneys who file “meritless” cases in federal courts.
The bills basically would roll back 1993 amendments to the Federal Rules of Civil Procedure that allow parties and their attorneys to avoid sanctions for filing frivolous claims if they withdraw the claims within 21 days after a motion for sanctions is served.
The sanctions would help deter baseless actions, Grassley and Smith said in a joint release.
“Law-abiding Americans with a legitimate legal grievance are entitled to their day in court, but unscrupulous attorneys who file frivolous lawsuits stand in the way of valid claims and clog our legal system,” Grassley said. “Moreover, they end up hurting businesses that must devote resources to unnecessary legal expenses.”
Similar bills have been introduced without success in prior congresses, including in 2013, 2011 and 2005. Plaintiffs' attorney Ira Schochet, a New York-based partner at Labaton Sucharow LLP, suggested that the latest bills are unlikely to pass in the current Congress despite the Republican majority in the House and Senate.
“I believe that there are a sufficient number of Democrats and even some Republicans who see through this effort to erect barriers to valid claims so as to be able to defeat the bill at least in the Senate, by filibuster or otherwise,” Schochet told Bloomberg BNA Feb. 6.
According to Grassley and Smith's release, the annual direct cost of American tort litigation is estimated at more than $250 billion.
The U.S. Chamber of Commerce's Institute for Legal Reform also suggests that plaintiffs' attorneys recover more and more every year, even as new state and federal causes of action arise. For example, in a December report, “Lawsuit Ecosystem II,” the ILR noted that federal securities class actions resulted in $1.1 billion in attorneys' fees, almost twice that of the prior year.
Matt Webb, ILR's senior vice president for legal reform policy, told BBNA that the bills, if enacted, “would put real teeth back into the law” by penalizing those who file frivolous claims.
“We commend Senator Grassley and Congressman Smith for introducing this legislation to combat our country’s litigation epidemic,” Webb said in an e-mail. “Phony lawsuits and wasteful litigation have resulted in increased insurance costs, job losses, and a near total breakdown of attorney accountability.”
A recent litigation panel suggested that shareholder derivative actions and lawsuits related to cybersecurity breaches, Foreign Corrupt Practices Act violations and initial public offerings are areas corporations should watch in 2015.
However, Schochet argued that rather than discourage frivolous filings, the bills would deter “all litigation” without regard to merit.
Schochet said that defendants already have “ample protection.” He added that there has been “no empirical support whatsoever” that the 1993 amendments resulted in a material amount of baseless claims.
One benefit of the current rules is that a defendant may put a plaintiff on notice about a potentially meritless claim, before significant legal expenses are incurred on either side, Schochet said. On the other hand, the pre-1993 regime had the effect of “unclogging the courts,” he said.
“Indeed, the old rule resulted in numerous strategic motions by defendants designed to bludgeon plaintiffs into dismissing their claims, increasing by a significant extent satellite litigation that the courts needed to resolve,” he said. “It also stood as a sword of Damocles over the heads of those who suffered injury at the hands of deep-pocketed defendants that controlled most of the evidence that would need to be presented to establish liability.”
Moreover, Schochet pointed to the 1995 Private Securities Litigation Reform Act, noting that courts in securities actions must at the conclusion of the litigation determine whether the rule against frivolous litigation has been violated. If so, they must assess an appropriate sanction, he said.
“In short, the proposed legislation is presented as a remedy for a problem that doesn’t exist,” Schochet said.
To contact the reporter on this story: Yin Wilczek in Washington at email@example.com
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The release and text of the bill are available at http://www.grassley.senate.gov/news/news-releases/smith-grassley-introduce-bill-combat-lawsuit-abuse-0.
The “Lawsuit Ecosystem II” report is available at http://www.instituteforlegalreform.com/resource/lawsuit-ecosystem-ii-new-targets-trends-and-players/.
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