Senators Debate New Rules for Curbing Frivolous Lawsuits

WASHINGTON (CN) – Democrats raised alarms on Wednesday over several bills aimed at curbing consumer class actions lawsuits, saying they would make it harder for people to take big businesses to court.

The hearing before the Senate Judiciary Committee focused on proposals that would limit the awards attorneys can win in federal class action lawsuits, impose new rules on who can join class actions and require mandatory sanctions against attorneys who file lawsuits that have no evidentiary support or are built on frivolous arguments.

Republicans, as well as two representatives from business groups who testified at the hearing, said the new laws are necessary to protect small businesses from baseless, lengthy litigation that ties up valuable resources in legal fees.

“The sheer cost of modern litigation, on time, on emotions and on financial resources of the parties involved has become a leveraging opportunity for those who wish to make a quick buck,” Sen. Chuck Grassley, R-Iowa, said during the hearing.

Grassley is the sponsor of the Lawsuit Abuse Reduction Act, which would require federal courts to impose sanctions against attorneys who bring frivolous lawsuits in federal court. The sanctions would go to the defendant to help offset legal costs and the law would also remove a 21 day period during which attorneys can withdraw a case to avoid sanctions.

The bill that received the most debate at the hearing was the Fairness in Class Action Litigation Act, which passed the House in March and would change the rules that determine who can join in class actions as well as the attorneys fees lawyers representing a class can win in federal court.

The bill would allow attorneys to collect only “a reasonable percentage” of payments to class members that could not exceed the total amount of money given out to the class. The proposal would also require all members of a proposed class action to have “suffered the same type and scope of injury” as the named plaintiffs and would bar relatives or business partners of the attorney bringing the case from joining the class.

Republicans said the changes are necessary to protect businesses from overly burdensome lawsuits and to stop attorneys from taking home huge sums while their class members see relatively little. John Beisner, who testified on behalf of the U.S. Chamber of Commerce Institute for Legal Reform, said class action lawsuits have shifted from being focused on earning justice for large groups of plaintiffs to “entrepreneurial” opportunities for hungry lawyers.

“We need to end the charade that class action settlements typically provide significant benefits to class members,” Beisner, a partner at the Washington law firm Skadden, Arps, Slate, Meagher and Flom, told the committee Wednesday. “To be sure, some do, most don’t. For the most part, class actions have become a moneymaking scheme for lawyers.”

Matt Webb, the senior vice president for legal reform policy at the U.S. Chamber of Commerce Institute for Legal Reform, told Courthouse News after the hearing the civil justice system is long overdue for a tune up.

“It’s been 10 years, plus, since the committee has really looked at these sorts of issues and I think they’re eager to start having that conversation again,” Webb said in an interview.

The proposals received loud opposition from Democrats, who called the bills blatant attempts to shut everyday people out of courtrooms. Sen. Al Franken, D-Minn., said it is a bad time to consider changing the law to make it harder for people to bring suits against business in federal court, considering the recent high-profile scandals for Equifax and Wells Fargo.

“Some powerful corporations will go to great lengths to hide their wrongdoing,” Franken said. “Only meaningful access to the courts, to a jury, can ensure that they’re held accountable.”

Myriam Gilles, a professor at the Benjamin Cardozo School of Law at Yeshiva University, said Republican claims of an epidemic of frivolous lawsuits that hurt small businesses are nothing more than a “convenient myth.” She also warned class action lawsuits are key to deterring bad corporate behavior and removing decisions on the lawsuits from judges would be a mistake.

“To try and legislate this issue from up here, from 50,000 feet up, with the fixed, very, sort of turgid, language of this bill, I think is a huge mistake and I think it would cause a tremendous amount of harm,” Gilles said.

Instead, Democrats and Gilles called for an end to corporations including arbitration clauses in their contracts with consumers. The Consumer Financial Protection Board sought to end with a rule passed earlier this year, but the Senate killed the rule last month.

“The problem here is that meritorious cases are not getting before juries,” Gilles said. “The little guy doesn’t get to go toe to toe with the big, mean horrible corporation and explain, express what went wrong, how they were injured. They don’t get to find a way to get accountability and justice.”

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