Representatives of two major business groups say Congress should revive a change in the federal rules of civil procedure in order to discourage what they call frivolous lawsuits against small companies.
The push came today from the legal arms of the National Federation of Independent Business and the U.S. Chamber of Commerce. Lawyers for the groups submitted testimony for a hearing before a House Judiciary subcommittee that is considering the proposed change to the section of federal Rule 11 dealing with sanctions against lawyers.
Victor Schwartz, a partner at Shook, Hardy & Bacon who specializes in tort defense and works with the Chamber's Institute for Legal Reform, wrote that there are three reasons Rule 11 is ineffective for defendants: first, the “safe harbor” provision allowing a plaintiff’s lawyer to withdraw a lawsuit within 21 days of a sanctions motion; second, the wide discretion judges have in whether to impose sanctions; and third, the lack of sanctions intended to compensate defendants, as opposed to those intended to deter future frivolous lawsuits.
“Those that are subject to frivolous lawsuits are in a situation,” Schwartz wrote, “where their only assurance in seeking sanctions is that they will incur even more defense costs with an unlikely chance of compensation for their legal expenses.”
Elizabeth Milito, senior executive counsel of the NFIB’s Small Business Legal Center, echoed those comments, saying Rule 11 provides little assurance to defendants. “Unscrupulous attorneys, out to make a quick buck, know that the odds of being sanctioned under Rule 11 are remote,” she wrote in prepared testimony.
Legislation sponsored by House Judiciary Committee Chairman Lamar Smith (R-Texas) would remove Rule 11’s “safe harbor” provision, make sanctions mandatory and require sanctions equivalent to a defendant’s “reasonable expenses.” Smith sponsored similar legislation in 2004 that passed the full House but never received a vote in the Senate.
The subcommittee received some cautionary testimony from Lonny Hoffman, a professor at the University of Houston Law Center. Hoffman described the results of a 1983 change in Rule 11 that made sanctions mandatory before it was reversed a decade later. Among the reported problems with that change was that it distracted lawyers from resolving the merits of a case, ultimately adding to litigation costs and delays.
“Any decision by this committee to repeat the same mistake of the 1983 judicial rules committee in assuming a need for the proposed legislation is lamentable,” Hoffman wrote.