Lawsuit abuse is a serious problem in this country. It has two principal causes – frivolous lawsuits and forum shopping. Both are addressed in important new legislation recently introduced by Rep. Lamar Smith, R-Texas, the Lawsuit Abuse Reduction Act of 2005 (LARA), H.R. 420. The bill is expected to move forward quickly as a high priority for the House leadership.

The first major cause of lawsuit abuse that is especially troublesome for small business is frivolous claims. Frivolous claims have no basis in either fact or law. Defending against a lawsuit, even when completely baseless, can often cost an employer thousands of dollars. Plaintiffs’ lawyers have little to lose. The cost of filing a case for a plaintiffs’ lawyer is little more than a small court filing fee. The work required may be simply drafting a form complaint or naming an additional defendant. Understanding this situation, plaintiffs’ lawyers offer to make the case “go away” for just under the business’s cost of defending against it. Small businesses and their insurers have little choice but to settle. The result is legal extortion.

The weaponry against frivolous lawsuits was, in the words of one Supreme Court Justice, left “toothless” when the rule that provides for sanctions, Federal Rule of Civil Procedure 11, was amended in 1993. Should a defendant challenge a lawsuit as frivolous, the rule now gives a plaintiffs’ lawyer 21 days to withdraw the claim without any sanction whatsoever. Judges can opt not to impose any penalty on a plaintiffs’ lawyer, even after finding that the complaint was filed simply to harass a business, lacked any basis in fact, or invented a claim not recognized by any reasonable interpretation of the law. And if a judge decides to act, the rule discourages requiring that the lawyer filing the frivolous claim pay the expenses necessary to defend against it. The damage to the federal rule had a domino effect on state procedures, some of which routinely adopted the modifications as a matter of practice to provide consistency between the federal and state rules.

A lawyer that files a frivolous claim should face some consequences. LARA would abolish the 21-day “safe harbor” that allows those who file frivolous lawsuits to simply walk away. It would restore mandatory sanctions and fairly permit those victimized by such lawsuits to receive reimbursement of their reasonable attorney’s fees and costs. It would apply to cases in federal court as well as state cases found to affect interstate commerce.

LARA also addresses another rampant problem – forum shopping. 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.” Wealthy personal injury lawyers often file claims in courts that they perceive as providing them with the best odds of winning an extraordinary verdict before a favorable judge. These are courts that consistently show a systematic bias against defendants, particularly those located out of the state. They have become powerful magnets 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.

Congress chipped away at abusive forum shopping this year when it enacted the Class Action Fairness Act. The class action legislation addresses forum shopping in multi-state class action lawsuits, but does not affect the everyday claims that hurt small and large businesses alike. LARA would provide a national solution to end unjustifiable forum shopping and stops litigation tourism. It allows a plaintiff to file a personal injury case where he resides at the time of filing or the alleged injury, where the circumstances giving rise to the injury occurred, or where the defendant’s principal place of business is located. It would preclude plaintiffs’ lawyers from filing cases where their clients have no meaningful connection.

LARA is the Number 1 federal legislative priority of the National Federation of Independent Business. It is supported by the National Restaurant Association, the National Association of Wholesaler-Distributors, the National Association of Manufacturers, and the U.S. Chamber of Commerce, among others. It passed the House of Representatives in September 2004 by a vote of 229-174.

 

You can help support LARA by urging your member of Congress to support the bill and by joining the American Tort Reform Association (ATRA) which is spearheading the effort to make LARA law. For more information, contact ATRA’s Director of Legislation, Matt Fullenbaum, at mfullenbaum@atra.org.