Senate Committee Scrutinizes Widespread Abuses of Civil Justice System

November 08, 2017

By Lisa A. Rickard, President, U.S. Chamber Institute for Legal Reform

Today, the U.S. Senate Judiciary Committee holds a hearing to examine the impact of lawsuit abuse on America’s small businesses and job creators. Skadden, Arps, Slate, Meagher & Flom LLP Partner John Beisner will testify on behalf of the U.S. Chamber Institute for Legal Reform, and you can read his testimony here.

The hearing follows passage of several critical legal reform bills by the U.S. House of Representatives earlier this year, and signals that the Senate may be setting up to do the same. It will address numerous forms of lawsuit abuse, including:

Class Actions and Multi-District Litigation

In the 12 years since Congress reformed federal class action lawsuits, plaintiffs’ lawyers have exploited the system for their own benefit. Class actions are rife with abuse, as plaintiffs’ lawyers routinely receive a significantly greater share of the reward than all class members combined, while businesses pay extortionate settlements for meritless claims. To make matters worse, as part of the multi-district litigation process, often times plaintiffs’ lawyers lump large numbers of bogus personal injury claims with a few potentially credible ones in order to drive up the possible settlement amount.

Further, third party litigation funding in which companies “invest” in lawsuits in return for a portion of any proceeds provides more “fuel for the fire” for class actions. The practice raises serious questions about whether funders rather than plaintiffs and their attorneys actually control a case, and happens in the shadows since almost no jurisdictions require transparency. 

In March, the House passed the Fairness in Class Action Litigation Act of 2017 or FICALA to ensure that class members get paid first and that plaintiffs’ lawyers only earn a percentage of what class members actually receive. The bill would also prevent abuse of the multi-district litigation process by requiring that plaintiffs’ lawyers provide some small modicum of evidence that their client actually has an injury when a case is filed. FICALA would also require transparency when a third party litigation funder backs a class action lawsuit.

“Double Dip” Asbestos Claims

Equally concerning to class actions, the lack of transparency and accountability in asbestos bankruptcy trusts encourages systemic abuse and threatens their ability to pay future asbestos claimants. Also passed by the House in March, the Furthering Asbestos Claim Transparency (FACT) Act of 2017 would discourage inappropriate “double dip” claims against the trusts and in the tort system by requiring trusts to report who files claims. This simple transparency would ensure money in the trusts is protected for future claimants, while guarding individuals’ personal information just the same as the courts do. Aside from shoring up asbestos bankruptcy trusts, the FACT Act would protect against similar future bankruptcies driven by questionable asbestos claims.

Just last week, a subsidiary of George Pacific, the manufacturer of well-known consumer goods like Brawny paper towels, declared bankruptcy in response to steady increases in asbestos litigation. Though the company points out that it sold less than one percent of asbestos containing products in the U.S. during the 20th Century, Bestwall’s asbestos-related legal costs mounted to roughly $2.8 billion since the year 2000, and it is named in 80 percent of lawsuits over mesothelioma, an asbestos-related disease.

Suing Small Businesses to Keep Lawsuits in State Courts

Plaintiffs’ lawyers will often name a small business that is not the true target of a lawsuit as a defendant solely to keep the case in a state court where they perceive a home field advantage. The Innocent Party Protection Act of 2017, which the House passed in March, would allow federal judges to decide whether a local party is truly a legitimate defendant and not named in a case solely to keep it in a trial lawyer-friendly state court. This important legislation would end the roping of small businesses into lawsuits unjustifiably.

Filing Frivolous Lawsuits with Impunity

Currently, plaintiffs’ lawyers can file frivolous lawsuits and withdraw them without penalty. The Lawsuit Abuse Reduction Act of 2017, also passed by the House in March, would put teeth into sanctions against plaintiffs’ lawyer abuse of our courts by implementing mandatory punishment for filing frivolous claims. This would result in fewer bogus lawsuits.

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We commend the Senate Judiciary Committee for shining a spotlight on these costly abuses of our civil justice system. We urge the Committee to swiftly take up and pass FICALA, the FACT Act, the Innocent Party Protection Act, and the Lawsuit Abuse Reduction Act so that the full Senate can do the same and send them to the president’s desk.