ISSUE BRIEF: Liability Reform
Updated: 3/06
Issue:
Rental businesses pay the costs of excessive litigation. Rental businesses are directly impacted by product liability suits against products they rent or sell but do not manufacture. Litigation from class action suits and medical malpractice suits affects our costs indirectly. In our current system, the threat of costly legal action will move defendants to settle cases rather than be exposed to open-ended financial liability.
Background:
It costs little more than a small filing fee and often takes little more time than generating a form complaint to begin a lawsuit. It costs much more for a small business to defend against it.
The defense against frivolous lawsuits was considerably weakened when Federal Rule of Civil Procedure 11, was changed in 1993. Until that change, Rule 11 provided for sanctions on those who file claims for an improper purpose, to harass or cause unnecessary delay or needless increase in the cost of litigation, or include claims that are not warranted by existing law or lack a factual or evidentiary basis. When Rule 11 was modified in 1993, it triggered an automatic, similar change in state rules in a number of jurisdictions.
The 1993 changes weakened Rule 11 by:
- Allowing judges to refuse to sanction a lawyer, even after finding a claim is frivolous.
- Substantially reducing the likelihood that a court would require the plaintiff's lawyer to pay a defendant's legal expenses resulting from the frivolous claim.
- Providing a 21-day 'safe harbor' that allows the plaintiff to withdraw frivolous pleadings without sanction. The plaintiff's lawyer can simply change the words of the pleading, file it again, thus using the filing process as a negotiating device.
The changes allowed plaintiffs' lawyers to force those targeted to settle cases for amounts just under the expected cost of defending against the claim. Insurers settled, and small business paid more for insurance.
The Lawsuit Abuse Reduction Act ('LARA'), H.R. 420, addresses frivolous lawsuits against small business, school boards and many others.
LARA will reduce the filings of frivolous lawsuits by:
- Restoring mandatory sanctions on attorneys, law firms, or parties who file frivolous lawsuits.
- Abolishing the 'safe harbor' provision that allows parties and their attorneys to avoid sanctions by withdrawing a suit within 21 days after a motion for sanctions has been filed.
- Permitting monetary sanctions, including reimbursement of reasonable attorney's fees and litigation costs in connection with frivolous lawsuits.
- Extending Rule 11's provisions preventing frivolous lawsuits to apply to state cases in which a state judge finds the case substantially affects interstate commerce by threatening jobs and economic losses to other states.
LARA provides reasonable remedies to end forum shopping. LARA allows a plaintiff to file a personal injury case:
- Where he or she resides at the time of filing
- Where he or she resided at the time of the alleged injury
- The place where circumstances giving rise to the injury occurred
- Where the defendant's principal place of business is located
- Where the defendant resides, if the defendant is an individual
LARA precludes plaintiffs' lawyers from filing cases where their clients have no meaningful connection.
Action Requested:
We support comprehensive litigation reform, and especially liability reform for small businesses. H.R. 420 was adopted by the U.S. House of Representatives and ARA supports passage of a similar bill in the U.S. Senate.
