Senator Grassley's "Lawsuit Abuse" Bill:  Bad Diagnosis, Worse Medicine

March 06, 2012 2:22 pm ET — David Lyle

In a recent Des Moines Register op-ed, Senator Chuck Grassley (R-IA) misdiagnoses a principal cause of the nation's economic struggles ("frivolous lawsuits") and offers a supposed cure, the Lawsuit Abuse Reduction Act (LARA), which could have side effects worse than any theoretical good it might do. The threat of lawsuits is not holding back the economy, as polls show that small businesses rank potential lawsuits near the bottom of their list of concerns regarding the economic outlook. Furthermore, judges have made clear that rules currently in place streamline litigation and give them the tools they need to deter meritless lawsuits more effectively than LARA would.

In the op-ed, "Put Brakes on Frivolous Lawsuits," Senator Grassley writes that "billions of dollars are wasted on frivolous lawsuits that siphon money away from job creation. Frivolous claims also clog an already burdened legal system and delay the resolution of lawsuits that have merit."

But when pollsters ask business people what their problems are, they give a different answer. Polls conducted on behalf of business organizations demonstrate that potential lawsuits are a minor-at-best concern. Only five percent of small businesses said "litigation" was the issue posing the greatest threat to their business in a 2011 Small Business Outlook Survey produced for the U.S. Chamber of Commerce by Harris Interactive. The option "none of these," chosen by 18 percent of respondents, was far ahead of litigation. A similar poll of U.S. Chamber small business members released in January 2012 produced almost the same result, with only six percent of respondents identifying litigation as the biggest issue facing them. In addition, small business owners ranked "costs and frequency of lawsuits/threatened suits" near the bottom (65th out of 75 possible choices) in a 2008 National Federation of Independent Business (NFIB) survey that ranked the biggest threats facing small business owners. In the face of this polling by the Chamber of Commerce and NFIB, LARA seems to be a solution in search of a problem.

But is LARA really a solution at all? Judges - the people with the greatest incentive to see truly frivolous lawsuits eliminated, while suits with merit go forward - think that it would do more harm than good. The Judicial Conference's Committee on the Rules of Practice and Procedure, the body charged by the federal judiciary with monitoring and advising on the procedural rules that govern the courts, opposes LARA. It does so because the bill would return the procedural rules for the federal courts (specifically Rule 11, which deals with sanctions for frivolous conduct) to an earlier version of the rule that existed before reforms were put in place in 1993. Federal judges, having lived under both versions of Rule 11, want to keep the reforms in place, and not turn back the clock to the pre-reform era as LARA would do.

A summary of The Committee on the Rules of Practice and Procedure's analysis of LARA is below the fold.

In a letter to Rep. Lamar Smith, the Chair of the House Judiciary Committee, The Committee on the Rules of Practice and Procedure summarized its opposition to LARA as follows:

The bill would reinstate a mandatory sanctions provision of Rule 11 that was adopted in 1983 and eliminated in 1993. The bill would also eliminate a provision adopted in 1993 to allow a party to withdraw challenged pleadings on a voluntary basis, without the added costs and delay to the challenging party of seeking and obtaining a court order. The concerns we express are the same concerns expressed by the Judicial Conference in 2004 and 2005, when similar legislation was introduced.

We greatly appreciate, and share, your desire to improve the civil justice system in our federal courts, including by reducing frivolous filings. But legislation that would restore the 1983 version of Rule 11 by undoing the 1993 amendments would create a "cure" far worse than the problem it is meant to solve.

 The letter concludes with the following defense of the current, reformed Rule 11:

In May 2010, the Advisory Committee on the Civil Rules held a major conference on civil litigation, examining the problems of costs and delay -which encompass frivolous filings -and potential ways to improve the system. The Conference encouraged, and generated, a broad spectrum of criticisms by lawyers, litigants (including businesses and governmental entities), judges, and academics of the current approaches to federal civil cases, including the rules, and proposals for change. Conspicuous in its absence was any criticism of Rule 11 or any proposal to restore the 1983 version of the rule.

Undoing the 1993 Rule 11 amendments, even though no serious problem has been brought to the Rules Committees' attention, would frustrate the purpose and intent of the Rules Enabling Act. There is no need to reinstate the 1983 version of Rule 11 that proved contentious and diverted so much time and energy of the bar and bench. Doing so would add to, not improve, the problems of costs and delay that we are working to address. I urge you on behalf of the Rules Committees to not support the proposed legislation amending Rule 11.