July 8, 2011

Restoring Fairness with the Lawsuit Abuse Reduction Act

Most people, when they do something wrong, face consequences.  Heck, even man’s best friend must face the music when he pees on the rug.  Sadly, though, this aphorism does not apply to those who file frivolous lawsuits. 

Today, there is no swift and sound sanction against a frivolous lawsuit, defined as a claim that has no basis in fact and is not likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.  The result over time is potentially hundreds of millions of dollars of unnecessary costs to small business and our nation’s economy. 

The House Judiciary Committee took a step yesterday toward rectifying this with its approval of the Lawsuit Abuse Reduction Act (LARA).   The legislation – H.R. 966 – was marked up and approved by the Committee by a vote of 20-13 and now goes to the full House of Representatives for consideration. 

LARA would reduce wasteful litigation by reversing 1993 amendments that weakened Rule 11 of the Federal Rules of Civil Procedure.  The post-1993 version of Rule 11 permits attorneys to file a lawsuit first and try to back up their claims later.  It allows the plaintiff’s lawyer a “safe harbor” of 21 days to withdraw the lawsuit without any penalty, leaving an individual or business no effective recourse.

LARA would make sanctions against those filing frivolous claims mandatory rather than discretionary.  It would eliminate the 21-day “safe harbor” that allows unscrupulous lawyers to game the system, and it would replace language in the rule that discourages judges from protecting victims of lawsuit abuse with language that fully authorizes judges to order a party that brings a frivolous claim to pay the defendant’s attorney’s fees and costs. 

With stronger Rule 11 sanctions, there is substantially more risk involved in making a frivolous claim because a claimant cannot just withdraw the frivolous claim without consequence. 

Without LARA, an individual or business hit with a lawsuit that has no reasonable basis in law or fact does not have an effective means to recover thousands of dollars in defense costs to have the case dismissed and is forced to pay or settle regardless of the merits. We commend the House Judiciary Committee for taking a first step toward protecting businesses from needless, wasteful costs and restoring accountability and basic fairness.

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