The House Judiciary Subcommittee on the Constitution has begun its hearing on the Lawsuit Abuse Reduction Act, legislation to amend the Rule 11 of the Federal Rules of Civil Procedure. (See our earlier reports at Shopfloor and Point of Law.)
Schwartz is also general counsel for the American Tort Reform Association, which issued a news release before the hearing, “Schwartz calls frivolous lawsuits ‘death by a thousand cuts’“:
Schwartz illustrated the problem with the story of a pub that was targeted with a lawsuit by an individual involved in a drunken car crash who later alleged he had been served at the pub. Even though the individual had not included the pub on his list, provided to authorities investigating the crash, of establishments he’d imbibed at that night, pub owners incurred “several thousand dollars” in legal expenses before they managed to get this frivolous lawsuit dismissed.
But rather than incur such expenses and risk larger losses by fighting frivolous lawsuits, Schwartz went on to say that small business defendants and their insurers more often settle these claims out of court. Such “legal extortion,” he said, is possible in part because Rule 11 of the Federal Rules of Civil Procedure was weakened in 1993 and no longer deters frivolous claims as it once did.
“It encourages participants to game the federal civil justice system . . . [b]ecause there is currently no swift and sound sanction against frivolous claims,” Schwartz said. With many states’ civil justice rules reflecting federal rules, “The result over time is potentially hundreds of millions of dollars of unnecessary costs to small businesses and our nation’s economy.”
Schwartz’s prepared testimony is here. Also testifying in support of the bill is Elizabeth A. Milito of the National Federation of Independent Business (statement). The witness in opposition is Professor Lonny Hoffman of the University of Houston Law Center. (Testimony)