WASHINGTON (Legal Newsline) - A two-hour hearing on frivolous lawsuits before a U.S. Senate committee may have lacked focus on pending legislation but did produce a few noteworthy moments - including Sen. Al Franken’s assertion that there are “bad actors” filing meritless lawsuits, though he is opposed to the reforms presented.
With the fate of a group of legal reform bills in their hands, senators in the Judiciary Committee were told Wednesday that small businesses are suffering because of lawsuit abuse in the civil justice system – though one Republican senator who recently sided with Democrats on a courtroom matter did not indicate which way he is leaning on these proposals.
The committee heard testimony from two business organizations supporting measures like the Fairness in Class Action Litigation Act, a bill that passed the House of Representatives in March with the support of Republicans, while a law professor and former plaintiffs attorney said these proposed bills would close courtroom doors to Americans.
Judiciary Chair Chuck Grassley, R-Iowa, called the hearing “a necessary and overdue checkup of” the civil justice system.
“I’m all the more frustrated when our legal system – and the rules that govern it – is abused, bogged down with meritless claims, or twisted to benefit some at the expense of others,” Grassley said.
“I’m frustrated when this system is used not to correct a harm, but to inflict one.”
Meanwhile, Democrats like Minnesota’s Franken criticized the proposed legislation and lamented the Senate’s decision last week to overturn a proposed rule that would have prevented financial services companies from banning their customers from bringing class action lawsuits.
The Senate, in a 50-50 vote that allowed Vice President Mike Pence to cast the tiebreaker, stymied the Consumer Financial Protection Bureau’s rule targeting mandatory arbitration clauses.
“Now I know that there are bad actors out there – those who file frivolous lawsuits against hard-working and honest businesspeople – but these bills aren’t the solution,” Franken said.
“They don’t help weed out frivolous claims early on. They seek to deter meritorious claims by making class action suits so expensive, lengthy and onerous that people won’t bother to bring them in the first place.
“So we shouldn’t let the unscrupulous behavior of a few individuals undermine Americans’ fundamental rights when they experience a violation of their civil rights, are defrauded by powerful corporations or are seriously injured by a defective product.”
Bills currently before the Senate Judiciary Committee target abuses in the asbestos recovery system, require judges to sanction litigants who bring meritless arguments, make changes to the class action system and protect businesses brought into court because they are headquartered in jurisdictions in which plaintiffs attorneys wish to file their lawsuits.
One possible wild card in the committee is Sen. John Kennedy, R-LA, one of two Republicans who voted with Democrats last week on the CFPB arbitration rule. The GOP holds 52 seats in the Senate, and the votes of Kennedy and South Carolina’s Lindsey Graham created the need for Pence’s tiebreaker.
Members of the committee frequently turned the conversation at Wednesday's hearing to the arbitration rule, though President Donald Trump has already signed the legislation that killed it.
Kennedy is one of 11 Republicans on the Judiciary Committee against nine Democrats. He gave no indication on how he felt about the legal reform bills, instead using his time to ask the panelists invited to speak about solutions to the problems they perceive.
Plaintiffs firms have invested heavily in Demoratic members of the Judiciary Committee. For instance:
-Franken has brought in more than $1.1 million from lawyers since 2013, including $73,200 from Susman Godfrey;
-Connecticut’s Richard Blumenthal has also received more than $1.1 million since 2013, with asbestos firm Simmons Hanly Conroy pitching in $37,200 and Connecticut’s Koskoff Koskoff & Bieder adding $35,802;
-Illinois’ Dick Durbin, with almost $1.2 million from lawyers since 2013, received $96,300 from the Simmons Firm, which has its home office in Illinois’ famed asbestos hotbed Madison County, and another $88,200 from fellow asbestos firm Cooney and Conway of Chicago; and
-Minnesota’s Amy Klobuchar has taken almost $2.5 million from lawyers since 2005. One of her major donors is Robins Kaplan ($120,191).
The panelists included Elizabeth Milito, senior executive counsel at the National Federation of Independent Business, which represents small businesses, and Skadden Arps attorney John Beisner, who spoke on behalf of the U.S. Chamber Institute for Legal Reform. The ILR owns Legal Newsline.
The NFIB represents the interests of small businesses. Its members typically employ 10 people and report gross sales of about $500,000 per year. Milito says three-quarters of small business owners are concerned about frivolous or unfair lawsuits – and that fear forces them to make decisions they would not usually make.
Also testifying was Myriam Gilles, a former plaintiffs attorney at Kirkland & Ellis and current professor and vice dean at the Benjamin N. Cardozo School of Law at Yeshiva University.
Legal reform bills that were passed by the House in March and now wait for action in the Senate include:
The Lawsuit Abuse Reduction Act
It would make sanctions mandatory against attorneys who file frivolous lawsuits. Currently, judges have discretion on whether to impose sanctions.
Plaintiffs also have a 21-day safe harbor in which they can withdraw their claims after a motion for sanctions has been filed.
The Fairness in Class Action Litigation Act
It requires that classes consist of members with the same type and scope of injury.
Class action attorneys would not be able to use relatives as lead plaintiffs, and any agreement in which a third party has agreed to finance the lawsuit in return for a portion of its proceeds would have to be disclosed.
The Furthering Asbestos Claims Transparency Act
It seeks to increase transparency in the asbestos trust system, in which about 100 companies that were targeted frequently by asbestos lawsuits declared bankruptcy to establish trusts to compensate victims.
The legislation would require trusts to respond to information sought from them by defendants in asbestos lawsuits. Defendants in those lawsuits want to ensure that plaintiffs’ attorneys aren’t fully blaming their products while also blaming the products of companies that established trusts – behavior detailed in a bankruptcy judge’s landmark 2014 ruling.
The Innocent Party Protection Act
The bill’s House sponsor contends trial lawyers use what’s called “fraudulent joinder” to keep lawsuits in their preferred local courts as opposed to a federal court. To achieve this, they join innocent small businesses to a lawsuit in the local jurisdiction where they want the trial to be held.
When they’ve successfully moved the case to a state court, the trial lawyers typically end up dropping the small business from the case, but not before the small business incurs significant legal costs defending itself, Rep. Ken Buck, R-CO, says.
The class action bill drew the most discussion from senators and the panelists, including on the very function of a class action. While Beisner argued plaintiffs attorneys should only be paid after class members are (which would result in much smaller attorneys fees awards in many cases), Gilles testified that the current system encourages plaintiffs attorneys to bring lawsuits that help deter corporate wrongdoing – no matter the specifics of settlements that provide very little to class members.
Grassley was quick to cite one of Gilles’ articles, published in the University of Pennsylvania Law Review.
“Class action plaintiffs lawyers are indeed independent entrepreneurs driven by the desire to maximize their gain, even at the expense of class members’ compensation,” she wrote.
“Where the conventional wisdom has gone wrong, however, is in condemning this as a bad thing and proposing reforms for class action practice designed to correct this conflict by increasing the compensation of absent class members.”
After Grassley called this stance “troubling,” Gilles said the passage was taken out of context. Class actions with small settlements for individuals who have to fill out forms to recover them provide a more important result, she said.
“I think that if we wanted to try to get money back in the hands of class members, we wouldn’t do it this way,” she said.
“I totally disagree with John on this and on so many things. It’s not what the class action rule was all about. The class action rule is all about deterrence.
“It’s about detecting wrongdoing, early and more efficiently than enforcers can, and it’s about deterring wrongdoing.”
Beisner had testified that the class action system doesn’t care about what compensation is being given to individual class members and that Gilles’ article argues that that isn’t a problem.
“I’m sorry, but that’s not the purpose of class actions,” Beisner said. “If you look at the rule the advisory committee adopted, it’s all about getting compensation to class members.
“The purpose is to try to do that in a more efficient manner and when you’ve got a lot of class members who have the same claims, to provide an opportunity to do that.
“But to say that we shouldn’t care about class members – I don’t understand then why there’s a concern about class actions not being available versus arbitration if the whole point is we’re not going to get compensation to them anyway.”
From Legal Newsline: Reach editor John O'Brien at email@example.com