Bill Seeks to Crack Down on "Frivolous Lawsuits"

The U.S. House of Representatives passed the Lawsuit Abuse Reduction Act of 2004 (LARA) on September 14. If the bill passes the Senate — H.R. 4571 passed by a bi-partisan vote of 229-174 — it could be welcome news for small business owners.

"LARA has broad support from the business community, especially those small business that, when faced with a frivolous lawsuit, realize that a settlement is less burdensome, risky, and costly than litigation," said Gretchen Schaefer of the American Tort Reform Association (ATRA).

ATRA identified 13 state and county court systems as "judicial hellholes" that are known to award huge jackpots to lawyers who frequent the most friendly forums for consumer lawsuits. ATRA identified Madison County, IL, as the worst offender of 2003; county judges receive three-quarters of their contributions from personal injury lawyers.

"LARA would discourage the filing of these frivolous lawsuits that can put an extreme financial hardship on small business and also put an end to forum shopping that often hurts deep-pocket or less-popular corporations," said Ms. Schaefer.

Proponents of LARA said the bill reinstates many provisions to Rule 11 of the Federal Rules of Civil Procedure that were changed in 1993. Rule 11 grants judges in federal court the power to sanction lawyers for "improper uses and misrepresentations" in civil proceedings. The bill establishes mandatory sanctions for filing frivolous lawsuits in violation of Rule 11.

The bill also prevents "forum shopping" by requiring personal injury cases to be filed only where the plaintiff lives or was allegedly injured or where the defendant's principal place of business is located. The legislation includes a "three strikes and you're out" provision, which mandates a one-year suspension of lawyers' licenses to practice in any federal court after they file three or more frivolous lawsuits in the same federal court. It would remove Rule 11's current "safe harbor" provision that allows plaintiffs and their attorneys to avoid sanctions for making frivolous claims by withdrawing them within 21 days after a motion for sanctions has been filed.

"Frivolous lawsuits bankrupt individuals, ruin reputations, drive up insurance premiums, increase health care costs, and put a drag on the economy," said bill sponsor Texas Rep. Lamar Smith in a statement. "Frivolous suits are brought when there is no evidence that shows negligence on the part of the defendant. These nuisance lawsuits make a mockery of our legal system. The gaming of the system by a few lawyers drives up the cost of doing business and drives down the integrity of the judicial system."

Anheuser-Busch was sued because a television commercial portraying Bud Light as the source of "fantasies coming to life" was a misleading advertisement for one man and gave him physical and mental injuries. McDonald's was sued after a customer claimed she was burned by a hot pickle that fell from a hamburger, burning her chin and causing her mental injury. Universal Studios was sued because its annual haunted house was too scary. Supporters of LARA cite these and other cases as examples of frivolous lawsuits that plague many businesses.

A report by Tillinghast-Towers Perrin, a consulting firm that mainly serves the insurance industry, estimated that tort litigation costs, such as damage awards, settlements and attorneys' fees, totaled $233 billion in 2002. Lawsuit abuse is at an all-time high, with a "tort tax" of $3,236 for the average family of four, according to ATRA.

But some argue that lawsuit abuse is not on the rise and that reform bills such as LARA are solutions to non-existent problems. Carl Carlton, spokesman for the Association of Trial Lawyers of America, said that businesses want Congress to think the bill is about doing away with frivolous lawsuits, but in reality that is not the case. "The bill makes mandatory Rule 11 sanctions for frivolous filings, pleadings, or motions. This is not a bad idea, but it simply does not work in actual practice."

The group said making sanctions mandatory revives a previous unsuccessful law that was put into place between 1983 and 1993 where sanctions were mandatory. ATLA cited a July 9, 2004, letter from the Judicial Conference, the policy-making body of the U.S. courts, that said mandatory sanctions were repealed because they were "abused."

ATLA raised issues with the bill's application of the Federal Rule to state cases that affect interstate commerce, calling it "an intrusion into the sovereignty of the states to determine their own court procedures." The group said, in a move unrelated to frivolous lawsuits, that the bill would require plaintiffs in civil actions to sue in specific federal and state courts. The bill would greatly benefit foreign and American corporations who moved their principal places of business abroad by making it harder for those injured to hold them accountable in court, according to ATLA.

Critics argue that tort reforms advocated in Congress such as LARA sacrifice the rights of consumers injured or killed by faulty products. Juliette Bleecker, Executive Director of The San Francisco Trial Lawyers Association, said her group is concerned with the attempts being made to limit the rights of consumers to any of their constitutional rights, in particular the right to a trial by jury. Ms. Bleecker said her organization would work hard to defend the rights of citizens to the redress they deserve.

"The very term 'frivolous lawsuit' concerns me, as it is used too often to refer frankly to all cases except those relating to businesses suing businesses," Ms. Bleecker said.

Mattel sued recording label MCA for a Swedish pop group's song "Barbie World." Caterpillar sued Walt Disney for portraying bulldozers in a bad light in the film "George of the Jungle 2." The cases were among those cited in the Foundation for Taxpayers and Consumer Rights' "Top Five Cases of Corporate Lawsuit Abuse." The group posted the list in response to GOP Congressmen who declared the week of September 14 "Lawsuit Abuse Week," targeting only cases brought by consumers for reform. The group said it is corporations, not consumers, at fault. More time and money is wasted by big corporations, the FTCR said, than any other group in America.

"The only reason reforming corporations' frivolous litigation practices is not on the table on Capitol Hill is because big business is the unofficial sponsor of 'lawsuit abuse week' and of similar propaganda aimed at limiting the ability of injured individuals to hold big corporations accountable," said FTCR president Jamie Court, in a statement.

The LARA debate highlights a battle between the special interests. Republicans have focused on softening liability lawsuits on large corporations, who are big campaign contributers to the GOP. Democrats have worked to ensure ordinary consumers full access to the judicial system and receive large campaign contributions from personal-injury lawyers.

"This week is John Edwards appreciation week," said House Majority Leader Tom Delay, R-Texas, in a jab to the Democratic vice-presidential candidate in a week that saw the House voting on four lawsuit-abuse-prevention bills. Sen. Edwards is reported to have made $39 million in his 10 years as a personal injury attorney. Rep. Delay called Rep. Smith's bill an effort "to take back America's legal system from the lords of the ambulance chase."

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