Ending Frivolous Lawsuits, Protecting American Business

The U.S. House of Representatives recently passed legislation to crack down on frivolous lawsuits by mandating sanctions against personal injury lawyers who file meritless claims. The Lawsuit Abuse Reduction Act, H.R. 4571, passed with a vote of 229 - 174.

In today's litigious society, we hear all too often of frivolous lawsuits and outrageous jury awards. The resulting economic drain hinders American business, hitting small businesses especially hard, and prevents the American economy from being as competitive as it should be with the rest of the world.

Take, for example, the impact of liability costs on small businesses. Small businesses contribute approximately three-quarters of all new jobs added to the economy. However, a recent report by the AEI-Brookings Joint Center for Regulatory Studies concluded that the "tort liability price tag for small businesses in America is $88 billion a year" and that "small businesses bear 68% of business tort liability costs, but take in only 25% of business revenue."

Unfortunately, for the last several years, the problem has only gotten worse. In the last 10 years, the number of lawsuits filed in state courts jumped 1,000%, and the number filed in federal courts have increased 300%. After leveling off during the 1990s, the tort system's direct cost to the nation soared by a stunning 14.4% in 2001 and another 13.3% in 2002, to a 2002 total of $233 billion. In fact, during the past 50 years, growth in tort costs has exceeded growth in Gross Domestic Product (GDP) by an average of two to three percentage points. For American citizens, that cost results in a tort litigation tab of approximately $809 per person per year.

In testimony before the House Banking Committee on Sept. 8, 2004, Federal Reserve Board Chairman Alan Greenspan compared excessive lawsuits to a tax on business activity, stating that such lawsuits "[have] the economic impact which is similar to a tax."

The Lawsuit Abuse Reduction Act will create a disincentive for attorneys and plaintiffs to file many of the frivolous lawsuits that currently clog our court system and act as a drain on our nation's economy.

Specifically, the legislation restores mandatory sanctions for filing frivolous lawsuits in violation of Rule 11 of the Federal Rules of Civil Procedure. In addition, it permits judges to order plaintiffs to reimburse reasonable litigation costs, including attorney's fees, and mandates a one-year suspension of a law license after a lawyer has filed three or more frivolous lawsuits in the same federal court. The bill also removes the "free pass" provision of current law that allows plaintiffs and their attorneys to avoid sanctions for frivolous suits by withdrawing them within 21 days.

Finally, it reduces "court shopping" or "forum shopping," the practice by which personal injury attorneys cherry-pick courts and bring lawsuits in jurisdictions that consistently hand down astronomical awards, even when the case has little or no connection to the state or locality. The Lawsuit Abuse Prevention Act combats forum shopping by requiring that personal injury cases be brought only where the plaintiff resides, where the plaintiff was allegedly injured, or where the defendant's principal place of business is located.

However, recognizing that action to dissuade frivolous lawsuits should not negatively impact legitimate cases in which citizens seek recourse through the judicial system, the Lawsuit Abuse Reduction Act does not change the standard for determining whether a lawsuit is frivolous. It focuses exclusively on frivolous lawsuits and does not affect legitimate cases.

The U.S. House of Representatives is working to encourage economic growth, job creation and international competitiveness by ending the practices that keep our economy from thriving. By increasing the sanctions for frivolous lawsuits and preventing "forum shopping" for high jury awards, we are headed in the right direction.

The House of Representatives has also recently worked to tackle overregulation. While the Bush administration has made tremendous strides in curbing the growth of federal regulations, overregulation is still hurting jobs. In fact, the total burden of environmental, economic, workplace and tax compliance on the economy is approximately $850 billion.

If we are going to help American businesses to compete globally and hire U.S. workers, we must streamline regulations and reduce the costly burdens of bureaucracy and red tape.

The Paperwork and Regulatory Improvements Act, legislation that passed with overwhelming support, took a significant step toward accomplishing these goals. The legislation focuses on reducing paperwork and making the federal regulatory process more efficient and responsible. This "good government" bill provides Congress with needed oversight of the Executive Branch's cost-benefit estimates for regulations and their consistency with Congressional intent.

Finally, the House of Representatives passed four measures designed to reform the Occupational Safety and Health Administration (OSHA). OSHA regulations are among the most complex and difficult legal mandates imposed on employers. The legislation addressed issues such as OSHA litigant equality, OSHA structural reform and responsible enforcement.

Over the last several months, Congress has joined the President in working to end practices that hamper the ability of U.S. businesses to compete in a global economy. In addition to lawsuit abuse and government red tape, we have addressed energy security, educational and technological competitiveness, tax simplification and health care.

Each of these efforts is part of a long-term, comprehensive plan to make our nation a more attractive place to do business and hire workers. American taxpayers and American businesses deserve nothing less.