Lawsuit Abuse Reform Coalition

The Federal Lawsuit Abuse Reduction Act
Why It's Needed, How It Will Help, and Why It Has Broad Support

Why the Lawsuit Abuse Reduction Act is Needed

It costs little more than a small filing fee and often takes little more time than generating a form complaint to begin a lawsuit. It costs much more for a small business to defend against it. The system is rigged to allow, in effect, legal extortion.

The weaponry against frivolous lawsuits was considerably weakened when Federal Rule of Civil Procedure 11, which provides for sanctions on those who file claims for an improper purpose, to harass or cause unnecessary delay or needless increase in the cost of litigation, or include claims that are not warranted by existing law or lack a factual or evidentiary basis, was changed in 1993. When the Federal Rule was modified in 1993, it triggered an automatic, similar change in state rules in a number of jurisdictions.

The 1993 changes rendered Rule 11 toothless by:

• Allowing judges to refuse to sanction a violating lawyer;

• Substantially reducing the likelihood that a sanction would be to make the plaintiff's lawyer pay a defendant's needless legal expenses engendered by the frivolous claim; and

• Providing a 21-day "safe harbor" that gives the plaintiff a free pass to withdraw frivolous pleadings without sanction. The plaintiff's lawyer can simply change the words of the pleading, file it again, and so it goes on.

The changes allowed plaintiffs' lawyers to force those targeted to settle cases for amounts just under the expected cost of defending against the claim. Insurers settled, and small business paid more for insurance.

A 1991 Advisory Committee report of the Judicial Conference of the United States on Rule 11 recommended weakening the rule despite the result of a survey it conducted of federal court judges, those who deal with the problem of lawsuit abuse on a day-to-day basis. That survey found that 95% of judges believed that the now abandoned version of Rule 11 had not impeded development of the law. 80% found that the prior rule had an overall positive effect and should not be changed. Three-quarters of those judges surveyed felt that the former Rule 11's benefits in deterring frivolous lawsuits and compensating those victimized by such claims justified the use of judicial time. The Advisory Committee recognized that criticism of the rule was "frequently exaggerated or premised on faulty assumptions." The U.S. Supreme Court rubber-stamped the Advisory Committee recommendation, despite the objections and disclaimers of several Justices, and the changes automatically went into effect when Congress did not intervene within seven months.

Rampant forum shopping presents another major problem in our current national judicial system. Forum shopping occurs when "litigation tourists" are guided by plaintiffs' attorneys into filing lawsuits in what the American Tort Reform Association has called "Judicial Hellholes®," and others have referred to as "magnet courts" or "magic jurisdictions." These are courts that consistently show a systematic bias against defendants, particularly those located out of the state. These courts have become a powerful magnet for out-of-state plaintiffs that have absolutely nothing to do with a local jurisdiction: the plaintiff was not injured in the jurisdiction, never lived there, and does not work in there. Litigation tourists do not help the states that they visit. They pay no taxes, only burdening the courts of that state that are paid for by local taxpayers. They delay justice to those who live there.

Both frivolous claims and litigation tourism stifle economic growth. Each year, every U.S. citizen pays more for frivolous litigation and other abuses of our civil justice system. Today, the average family of four pays a $3,380 annual "tort tax," a cost added to the price of products and services needed to cover the costs of litigation. No other industrialized country pays more as a percentage of its Gross Domestic Product.

The Lawsuit Abuse Reduction Act Will Help

The Lawsuit Abuse Reduction Act ("LARA"), H.R. 420, addresses the No. 1 problem of small business, school boards and many others head-on: frivolous lawsuits.

LARA will help rein in frivolous lawsuits by:

• Restoring mandatory sanctions on attorneys, law firms, or parties who file frivolous lawsuits;

• Abolishing the "safe harbor" provision that allows parties and their attorneys to avoid sanctions by withdrawing a suit within 21 days after a motion for sanctions has been filed;

• Permitting monetary sanctions, including reimbursement of reasonable attorney's fees and litigation costs in connection with frivolous lawsuits;

• Restoring the opportunity for sanctions for abuses of the discovery process (the process by which lawyers on each side of a case request information from the other side prior to trial); and

• Extending Rule 11's provisions preventing frivolous lawsuits to apply to state cases in which a state judge finds the case affects interstate commerce by threatening jobs and economic losses to other states.

LARA provides a national solution to end unjustifiable forum shopping and stops litigation tourism. It does so with equity and justice. LARA allows a plaintiff to file a personal injury case:

• Where he or she resides at the time of filing;

• Where he or she resided at the time of the alleged injury;

• The place where circumstances giving rise to the injury occurred; or

• Where the defendant's principal place of business is located.

• LARA precludes plaintiffs' lawyers from filing cases where their clients have no meaningful connection.

The Lawsuit Abuse Reduction Act Has Broad Support

On September 14, 2004, LARA (H.R. 4571) passed the House of Representatives by a vote of 229-174. There was no time for separate consideration in the Senate. The bill is expected to move forward in the 109th Congress.

Major organizations and businesses of all sizes support LARA, including the American Tort Reform Association, National Association of Manufacturers, National Federation of Independent Business, the National Restaurant Association, the National Association of Wholesaler-Distributors, and the U.S. Chamber of Commerce.

In February, 72 Senators voted for the Class Action Fairness Act which regards "litigation tourism" as against the public interest in class and mass actions. The same is true for individual cases.

Members of both parties have called for mandatory sanctions against frivolous claims, precisely what LARA provides.