[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                      LAWSUIT ABUSE REDUCTION ACT

=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON THE CONSTITUTION

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON

                                H.R. 966

                               __________

                             MARCH 11, 2011

                               __________

                           Serial No. 112-18

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



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                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TOM REED, New York                   LINDA T. SANCHEZ, California
TIM GRIFFIN, Arkansas                DEBBIE WASSERMAN SCHULTZ, Florida
TOM MARINO, Pennsylvania
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona

      Sean McLaughlin, Majority Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

                    Subcommittee on the Constitution

                    TRENT FRANKS, Arizona, Chairman

                   MIKE PENCE, Indiana, Vice-Chairman

STEVE CHABOT, Ohio                   JERROLD NADLER, New York
J. RANDY FORBES, Virginia            MIKE QUIGLEY, Illinois
STEVE KING, Iowa                     JOHN CONYERS, Jr., Michigan
JIM JORDAN, Ohio                     ROBERT C. ``BOBBY'' SCOTT, 
                                     Virginia

                     Paul B. Taylor, Chief Counsel

                David Lachmann, Minority Staff Director


                            C O N T E N T S

                              ----------                              

                             MARCH 11, 2011

                                                                   Page
H.R. 966, the ``Lawsuit Abuse Reduction Act''....................     3

                           OPENING STATEMENTS

The Honorable Trent Franks, a Representative in Congress from the 
  State of Arizona, and Chairman, Subcommittee on the 
  Constitution...................................................     1
The Honorable Jerrold Nadler, a Representative in Congress from 
  the State of New York, and Ranking Member, Subcommittee on the 
  Constitution...................................................     5
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Committee on the Judiciary.......     6

                               WITNESSES

Elizabeth Milito, NFIB Small Business Legal Center
  Oral Testimony.................................................     9
  Prepared Statement.............................................    11
Lonny Hoffman, Professor, University of Houston Law Center
  Oral Testimony.................................................    23
  Prepared Statement.............................................    25
Victor E. Schwartz, Shook, Hardy & Bacon L.L.P.
  Oral Testimony.................................................    45
  Prepared Statement.............................................    47

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of Peter Lushing, Professor of Law, Benjamin 
  N. Cardozo School of Law.......................................    69


                      LAWSUIT ABUSE REDUCTION ACT

                              ----------                              


                         FRIDAY, MARCH 11, 2011

                  House of Representatives,
                  Subcommittee on the Constitution,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 10:06 a.m., in 
room 2141, Rayburn Office Building, the Honorable Trent Franks 
(Chairman of the Subcommittee) presiding.
    Present: Representative Franks, Smith, Forbes, King, 
Nadler, and Scott.
    Staff present: (Majority) Paul Taylor, Subcommittee Chief 
Counsel; Zach Somers, Counsel; Sarah Vance, Clerk; (Minority) 
David Lachmann, Subcommittee Staff Director; Jason Everett, 
Counsel; and Veronica Eligan, Professional Staff Member.
    Mr. Franks. The Subcommittee will come to order.
    Thank you all for being here.
    We have called this hearing because some of the changes, 
the 1993 amendments made to rule 11 of the Federal Rules of 
Civil Procedure, need to be revisited.
    Rule 11 provides for one of the most basic requirements for 
litigation in Federal court, that papers filed with the Federal 
district court must be based on both the facts and the law. 
That is to say, anytime a litigant signs a filing in Federal 
court that they are certifying to the best of the person's 
knowledge, information, and belief formed after reasonable 
inquiry that the filing is accurate, based on the law or 
reasonable interpretation of the law, and is brought for a 
legitimate purpose. This is such a simple requirement but one 
that both sides to a lawsuit must abide by if we are to 
properly have a functioning Federal court system.
    However, under the current Federal procedural rules, a 
failure to comply with rule 11 does not necessarily result in 
imposition of sanctions. The fact that litigants can violate 
rule 11 without penalty significantly reduces the deterrent 
effect of rule 11 itself, which harms the integrity of the 
Federal courts and leads to both plaintiffs and defendants 
being forced to respond to frivolous claims and arguments.
    The Lawsuit Abuse Reduction Act corrects this flaw by 
requiring that Federal district court judges impose sanctions 
when rule 11 is violated. Mandatory sanctions will more 
strongly discourage litigants from making frivolous claims in 
Federal court, and it will also relieve litigants from the 
financial burden of having to respond to frivolous claims as 
the legislation requires those who violate rule 11 to reimburse 
the opposing party reasonable expenses incurred as a direct 
result of the violation.
    Additionally, the legislation eliminates rule 11's 21-day 
safe harbor which gives litigants a free pass to make frivolous 
claims so long as they withdraw those claims if the opposing 
party objects.
    As Justice Scalia correctly pointed out while dissenting 
from the 1993 rule's change, he said, ``Those who file 
frivolous suits and pleadings should have no safe harbor. 
Parties will be able to file thoughtless, reckless, and 
harassing pleadings secure in the knowledge that they have 
nothing to lose. If objection is raised, they can retreat 
without penalty.''
    Now, while this legislation makes changes to rule 11, it is 
important to recognize that nothing in this legislation changes 
the standard by which the courts determine whether a pleading 
or a filing violates rule 11. Courts will apply the same legal 
standard they have applied since 1993 to determine if a filing 
runs afoul of rule 11. Thus, all the legislation really does is 
to make the technical and conforming changes to rule 11 
necessary to make sanctions mandatory rather than 
discretionary. In Justice Scalia's words, it is simply about 
making rule 11 a significant and necessary deterrent to 
frivolous litigation rather than a toothless rule.
    According to the first rule of the Federal Rules of Civil 
Procedure, the goal of the rules is to ensure that every action 
and proceeding in Federal court be determined in a, ``just, 
speedy, and inexpensive manner.'' I believe that this goal will 
be well served through a mandatory sanctions provision for 
violating the simple requirements of rule 11 that every filing 
be based on both the law and the facts.
    I look forward to hearing from our witnesses.
    And I now recognize the Ranking Member of the Subcommittee, 
the gentleman from New York, Mr. Nadler, for 5 minutes for his 
opening statement.
    [The bill, H.R. 966, follows:]

    
    
    
    
                               __________

    Mr. Nadler. Thank you, Mr. Chairman.
    It is deja vu all over again. After a brief hiatus, we are 
back to legislation supposedly aimed at preventing frivolous 
litigation, but which would in fact revive a rule that gave 
birth to an entire litigation industry operating in tandem with 
normal civil litigation. The revised rule 11 proposed here 
would take us back to the failed 1983 rule which the courts 
rightly rejected after a decade of catastrophic experience. 
Moreover, this legislation goes even beyond the text of the 
1983 rule broadening the flawed mandatory sanctions even 
further.
    Rule 11 of the Federal Rules of Civil Procedure serves a 
vital role in maintaining the integrity of our legal system. As 
the Rules Committee noted in 1993, ``since the purpose of rule 
11 sanctions is to deter rather than to compensate, the rule 
provides that if a monetary sanction is imposed, it should 
ordinarily be paid to the court as a penalty. However, under 
unusual circumstances, deterrence may be ineffective unless the 
sanction not only requires the person violating the rule to 
make a monetary payment, but also directs that some or all of 
this payment be made to those injured by the violation. 
Accordingly, the rule authorizes the court, if requested in a 
motion and if so warranted, to award attorney's fees to another 
party.''
    While the sponsor has expressed a desire to limit 
unnecessary litigation, the experience with the old rule 11 was 
the exact opposite. Rule 11 litigation became a routine part of 
civil litigation, infecting more than one-third of all cases. 
Rather than serving as a disincentive, the old rule 11, which 
would be restored by this legislation, actually made the system 
considerably more litigious. In the decade following the 1983 
amendments, there were almost 7,000 reported rule 11 cases 
becoming part of approximately one-third of all Federal civil 
lawsuits. Civil cases frequently, in better than a third of all 
cases, became two cases: one on the merits and the other 
dueling rule 11 allegations. The drain on the courts' and the 
parties' resources caused the Judicial Conference to revisit 
the rule and adopt the changes this bill would now have us 
undo.
    When this Committee considered an earlier version of this 
legislation in 2005, the Judicial Conference wrote to then 
Chairman Sensenbrenner that the bill would undo, ``the 1993 
rule 11 amendments even though no serious problems has been 
brought to the Judicial Conference Rules Committee's 
attention,'' and the bill, ``in some ways seems to go beyond 
the provisions that created serious problems with the 1983 
rule. It may even cause greater mischief. Rule 11 in its 
present form has proven effective and should not be revised.''
    When we were considering what became the 2005 amendments to 
the Bankruptcy Code, the original legislation--the original 
draft of the legislation, I should say--contained a provision 
that would have required the imposition of mandatory penalties 
under bankruptcy rule 9011, the corollary to rule 11. That 
language was specifically rejected in 2005 and does not appear 
in the public law. The court is given the appropriate 
discretion to craft sanctions as appropriate, even though the 
rest of the legislation stripped the bankruptcy courts of 
discretion in numerous other areas. Congress thought better of 
that inflexible, unworkable rule. We were right then and we 
should consider this proposal in the same light.
    Small businesses, just like all businesses, are concerned 
about baseless lawsuits. I do not know anyone who wouldn't be. 
But just to keep the situation in perspective, I would also 
note that in a June 2008 survey of its members by the National 
Federation of Independent Business, ``The Voice of Small 
Business,'' their membership ranked, quote, costs and frequency 
of lawsuits and threatened suits 65th of their 75 top concerns; 
36.7 percent responded that this was not a problem while only 
7.3 percent called it, quote, critical. Whatever NFIB in 
Washington may say, I think it is pretty clear that its 
membership, actual small business people, have a healthy 
perspective on the issue.
    Mr. Chairman, the courts have ample authority under the 
current rule 11 to sanction conduct that undermines the 
integrity of our legal system, but this legislation is the 
wrong solution in search a problem. By taking us back to a time 
when rule 11 actually promoted routine, costly, and unnecessary 
litigation, this bill is a cure far worse than the disease. We 
know what this rule does because we lived with it and the 
courts rightly rejected it nearly 20 years ago. We should 
benefit from that experience and reject this legislation.
    I thank you and I yield back the balance of my time.
    Mr. Franks. Well, thank you, Mr. Nadler.
    I now recognize the Chairman of the full Judiciary 
Committee, the distinguished gentleman from Texas, Mr. Smith, 
for 5 minutes for his opening statement.
    Mr. Smith. Thank you, Mr. Chairman, and Mr. Chairman, I 
appreciate your having this hearing, I think, on one of the 
most important subjects of the year and also on a subject that 
I think can do a world of good for a lot of individuals and 
business owners in the United States.
    Mr. Chairman, on Wednesday I reintroduced H.R. 966, The 
Lawsuit Abuse Reduction Act. On the same day Senator Chuck 
Grassley, the Ranking Member of the Senate Judiciary Committee, 
introduced the same bill in the Senate.
    The Lawsuit Abuse Reduction Act, otherwise known as LARA, 
is just over a page long, but it would help restore much needed 
rationality to all civil cases brought in Federal court by 
requiring mandatory sanctions against those who file frivolous 
lawsuits.
    In recent years, frivolous lawsuits have been filed in 
Federal court against the Weather Channel for failing to 
accurately predict storms, against businesses for the actions 
of wild birds who flew onto their premises, and against 
television shows who claimed that some people were too scary. 
More and more playgrounds are shutting down because of 
liability concerns, and then fast food companies are sued in 
Federal court because inactive children gain weight.
    Newsweek reported that frivolous lawsuits have become so 
prevalent in America that children are learning to abuse the 
legal system as well. One teacher who taught for 20 years 
before retiring said, ``a kid will be acting out in class and 
you touch his shoulder and he will immediately come back with, 
don't touch me or I'll sue.''
    These cases, and many like them, have wrongly cost innocent 
people and business owners their reputations and even hundreds 
of thousands of dollars. The annual direct cost of American 
tort litigation alone now exceeds over $250 billion a year.
    When Business Week wrote an extensive article on what the 
most effective legal reforms would be, it stated what is needed 
are penalties that sting. As Business Week recommended, ``give 
judges stronger tools to punish renegade lawyers. Before 1993, 
it was mandatory for judges to impose sanctions such as public 
censures, fines, or orders to pay for the other side's legal 
expenses on lawyers who filed frivolous lawsuits. Then the 
Civil Rules Advisory Committee, an obscure branch of the 
courts, made penalties optional. This needs to be reversed by 
Congress.''
    Just a few years ago, the Nation's oldest ladder 
manufacturer, a family-owned business near Albany, New York, 
filed for bankruptcy protection and sold off most of its assets 
due to litigation costs, even though the company had never 
actually lost a court judgment.
    As Bernie Marcus, co-founder and former chairman of the 
Home Depot has described, ``an unpredictable legal system cast 
a shadow over every plan and investment. It is devastating for 
startups. The costs of even one ill-timed abusive lawsuit can 
bankrupt a growing company and cost hundreds of thousands of 
jobs.''
    In his 2011 State of the Union Address, President Obama 
said, ``I am willing to look at other ideas to rein in 
frivolous lawsuits.'' I hope the President will act on those 
words, and I hope he is watching today.
    LARA would require monetary sanctions against lawyers who 
file frivolous lawsuits. It would reverse the 1993 amendments 
to rule 11 that made rule 11 sanctions discretionary rather 
than mandatory. It would also reverse the 1993 amendments that 
allow parties and their attorneys to avoid sanctions by making 
frivolous claims and demands but by withdrawing them within 21 
days after a motion for sanctions has been filed. So LARA would 
get rid of the free pass lawyers have now to file frivolous 
lawsuits in Federal court.
    LARA also would restore mandatory sanctions for frivolous 
lawsuits without changing the current standard by which 
frivolous lawsuits are judged.
    Further, LARA expressly provides that nothing in the 
changes it makes to rule 11 shall be construed to bar or impede 
the assertion or development of new claims, defenses, or 
remedies under Federal, State, or local laws, including civil 
rights laws. Consequently, the development of civil rights law 
would not be affected in any way by LARA.
    LARA applies evenhandedly to cases brought by individuals 
as well as businesses, both big and small, including business 
claims filed to harass competitors and illicitly gain market 
share. The bill also applies to both plaintiffs and defendants.
    Anyone who opposes frivolous lawsuits should support a one-
page bill that provides for mandatory sanctions when a judge 
finds a case to be frivolous.
    Mr. Chairman, although I look forward to hearing from the 
witnesses today, I regret I am not going to be able to stay 
because of a Steering Committee meeting called by the Speaker 
that I need to attend in a matter of minutes. But once again, I 
appreciate your having this hearing and I appreciate the 
witnesses who are here.
    I yield back.
    Mr. Franks. Well, thank you, Mr. Smith.
    I would now recognize the Ranking Member of the full 
Committee, the gentleman from Michigan, Mr. Conyers, for 5 
minutes for his opening statement. It looks like Mr. Conyers is 
not here. He was here a moment ago.
    Then without objection, other Members' opening statements 
will be made a part of the record.
    We have a very distinguished panel of witnesses today. Each 
of the witnesses' written statements will be entered into the 
record in its entirety. And I ask that each witness summarize 
his or her testimony in 5 minutes or less. To help you stay 
within that time, there is a timing light on your table. When 
the light switches from green to yellow, you will have 1 minute 
to conclude your testimony, and when the light turns red, it 
signals that 5 minutes has expired.
    Our first witness is Elizabeth Milito. Ms. Milito serves as 
senior executive counsel with the National Federation of 
Independent Business, Small Business Legal Center, a position 
she has held since March of 2004. Ms. Milito came to NFIB from 
the Department of Veterans Affairs where she defended VA 
hospitals in Maryland, the District of Columbia, and West 
Virginia in employment and labor lawsuits and was responsible 
for training and counseling managers on fair employment and HR 
practices. She has an extensive background in tort, medical 
malpractice, employment and labor law. And we are glad to have 
you here, Ms. Milito.
    Our second witness is Lonny Hoffman. Mr. Hoffman is the 
George Butler Research Professor of Law at the University of 
Houston Law Center. Professor Hoffman is a specialist on 
procedural law in Federal and State courts and has authored 
numerous Law Review articles. He has testified before Congress 
and at the state level, served on numerous professional 
committees and organizations, and he is a member of the Supreme 
Court of Texas Rules Advisory Committee and editor-in-chief of 
The Advocate, a quarterly journal published by the Litigation 
Section of the State Bar of Texas. And welcome, Professor.
    Our third and final witness is Victor Schwartz. Mr. 
Schwartz is a partner at the law firm of Shook, Hardy & Bacon, 
where he is the chairman of the public policy group and 
maintains an active appellate practice. Before entering the 
full-time practice of law, Mr. Schwartz was a professor and 
dean at the University of Cincinnati College of Law. For more 
than 2 decades, Mr. Schwartz has been co-author of the most 
widely used torts casebook in the United States, ``Prosser, 
Wade and Schwartz's Torts.'' Additionally, he is the author of 
the leading text, ``Comparative Negligence,'' and has written 
over 150 Law Review articles. Welcome, Professor.
    So without objection, all Members will have 5 legislative 
days within which to submit materials for the record.
    And before I recognize the witnesses, it has been the 
tradition of the Constitution Committee that they be sworn in. 
So if you will all stand and raise your right hand.
    [Witnesses sworn.]
    Mr. Franks. Thank you all very much.
    I now recognize our first witness, Elizabeth Milito.

                TESTIMONY OF ELIZABETH MILITO, 
                NFIB SMALL BUSINESS LEGAL CENTER

    Ms. Milito. Thank you, Mr. Chairman and distinguished 
Subcommittee Members. My name is Elizabeth Milito and I serve 
as senior executive counsel with the National Federation of 
Independent Business Small Business Legal Center.
    NFIB's mission is to promote and protect the right of its 
members to own, operate, and grow their businesses and 
represents about 350,000 member businesses nationwide. The 
typical NFIB member employs 10 people and reports gross sales 
of about $500,000 a year.
    We applaud the Subcommittee for holding this hearing on the 
problem of lawsuit abuse.
    For the small business with 10 employees or less, the 
problem is with the $5,000 and $10,000 settlements, not the 
million dollar verdicts. When you consider that many small 
businesses only net between $40,000 and $60,000 a year, $5,000 
paid to settle a case immediately eliminates 10 percent of that 
business' annual profit.
    In my experience, the greatest abuses occur in lower dollar 
suits which often target small businesses. In many instances, 
an attorney will just take a client at his word, performing 
little, if any, research regarding the validity of a 
plaintiff's claim. As a result, small business owners must take 
time and resources out of their business to do the plaintiff's 
attorney's homework. They must prove their innocence in cases 
where a few hours of research at most would lead the attorney 
to conclude that the lawsuit was unjustified.
    Small businesses are a target a frivolous suits because 
lawyers understand they can be more likely than a larger 
corporation to settle a case rather than litigate it. Small 
businesses do not have in-house counsels to inform them of 
their rights, to write letters responding to allegations made 
against them, or to provide legal advice. They do not have the 
resources needed to hire an attorney to fight small claim 
lawsuits. And often they do not have the power to decide 
whether or not to settle a case. The insurer makes that 
decision for them.
    In addition to the financial costs of settling a case are 
the incalculable psychological costs. Small business owners 
threatened with lawsuits often would prefer to fight in order 
to prove their innocence. Settling a meritless case causes the 
business to look guilty.
    Frivolous lawsuits take many forms, but I would categorize 
them into four types. Pay me now or I will see you in court. 
Let's not the law get in our way. Somebody has to pay it. It 
might as well be you. And yellow page lawsuits.
    Pay me nor or I will see you in court often involves a 
demand letter. Demand letters are particularly attractive when 
the plaintiff can sue a small business for violating a State or 
Federal statute. The letter alleges the small business violated 
a particular statute, and at some point the letter says that 
the small business has an opportunity to make the whole thing 
go away by paying a settlement fee up front, the sooner, the 
better. If these demands are not met, the letter threatens a 
lawsuit.
    Let's not let the law get in our way. While most attorneys 
adhere to the ethical standards to which they have been sworn 
to uphold, there are instances where attorneys fall short and 
fail to research the validity of the plaintiff's claim and may 
even fail to review the statute they allege the defendant 
violated.
    Somebody has to pay and it might as well be you. This is 
where the plaintiff may have been harmed but is suing the wrong 
person. This is what happened to NFIB member Hugh Froedge. 
Froedge's business was named in a personal injury lawsuit after 
the plaintiff was injured at work. Although there was no 
evidence that Froedge's belt conveyor caused the plaintiff's 
injuries, the lawsuit took 11 years to resolve. In the end, 
Froedge's insurance company decided to settle the matter, even 
though Froedge believed he was not culpable and would have 
preferred to fight.
    In yellow page lawsuits, hundreds of defendants are named 
and it is their responsibility to prove they are not culpable. 
Plaintiffs name defendants by using vendor lists or even lists 
from Yellow Pages of businesses operating in a particular area 
or during a particular time. For example, an NFIB member has 
been targeted in asbestos litigation. The family-owned 
commercial construction business was founded over 40 years ago 
and has been targeted in recent years in asbestos litigation as 
manufacturers have gone bankrupt, leaving a void of solvent 
defendants. As a result, attorneys are now trolling for 
construction firms that existed in the 1960's and are still in 
existence today regardless of whether the plaintiff had any 
connection to the firm. Still, to get to dismissed from these 
cases, the NFIB member regularly spends thousands of dollars in 
attorney's fees and discovery costs.
    Legislation is sorely needed to reform our Nation's civil 
justice system. H.R. 966, recently introduced by Representative 
Lamar Smith, would be particularly helpful in curbing, if not 
stopping, many of the types of suits I have described. It would 
put teeth back into rule 11.
    Thank you for inviting me to testify today.
    [The prepared statement of Ms. Milito follows:]

                 Prepared Statement of Elizabeth Milito



























                               __________
    Mr. Franks. Mr. Hoffman?

            TESTIMONY OF LONNY HOFFMAN, PROFESSOR, 
                UNIVERSITY OF HOUSTON LAW CENTER

    Mr. Hoffman. Chairman Franks, Ranking Member Nadler, 
Members of the Committee, everyone is concerned with costs and 
delays in Federal court, but the proposed legislation will not 
solve the problems that are said to exist. To the contrary, it 
can confidently be said, contrary to the sponsor's intentions, 
that this bill will actually increase cost and delays and 
foster greater litigation abuse.
    The source of this confidence is the vast body of empirical 
evidence that has been collected relating to the 1983 version 
of rule 11, the model on which this bill is based. That 
empirical evidence is so persuasive that it has produced a 
remarkable degree of agreement across the political spectrum 
that the 1983 amendment of rule 11 was one of the most ill-
advised procedural experiments ever tried.
    Because of the existence of this research, which 
incidentally I cite in my prepared statement at length for the 
Committee's review, there is much that we can learn from our 
past. Yet, in proposing this regressive reform of rule 11, the 
bill fails to heed what the history has to offer.
    One sobering lesson from that history is that the 1983 rule 
was frequently misused as a compensatory fee-shifting device 
and that this was one key trigger for the frivolous satellite 
litigation over sanctions that followed. This point is 
particularly relevant today since the bill that the Committee 
has before it emphasizes compensation as an expressly 
authorized objective of the rule. It is likely, therefore, that 
the proposed legislation will actually make things even worse 
than they were in 1983. After all, we witnessed a scourge of 
meritless rule 11 motions even though deterrence, not 
compensation, was the rulemakers' intended goal back then, and 
there was no express reference to compensation in the text of 
that rule.
    The bottom line on this point is this. It is difficult to 
see that anyone who is concerned over costs, delays, and abuse 
could support legislation that, as our history teaches, is 
almost certain to lead to substantially greater costs, delays, 
and abuse in the Federal courts.
    A second and last lesson from history I want to highlight 
today is perhaps more sobering of all. The empirical evidence 
persuasively shows the profound discriminatory effects of the 
1983 rule. Civil rights claimants, in particular, were impacted 
most severely. There are numerous reasons why this is so, but 
we know that one is that, as noted, the '83 rule was often 
misused as a cost-shifting tactic. These claimants, who are 
frequently resource-poor, faced the greatest threat from the 
monetary sanctions that could be and were imposed under that 
rule.
    Thankfully many, though not all, of the discriminatory 
effects against civil rights claimants and others were 
ameliorated by the 1993 amendments to rule 11 and especially 
its inclusion of a safe harbor provision. This result likely 
explains, at least in part, the overwhelming support that the 
current rule enjoys, as a number of surveys of Federal judges 
and lawyers has consistently shown. And again, I cite all of 
these surveys in my prepared remarks for the Committee's 
consideration.
    In conclusion, it is instructive to recollect that judicial 
rulemakers remain actively involved in monitoring the state of 
civil litigation in the Federal courts and can be relied upon 
to do their work. For those who are concerned about costs and 
delays, the sounder course is to set this legislation aside and 
look for more productive ways to improve the administration of 
justice.
    Thank you.
    [The prepared statement of Mr. Hoffman follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Franks. Thank you, Professor.
    Mr. Schwartz?

               TESTIMONY OF VICTOR E. SCHWARTZ, 
                  SHOOK, HARDY & BACON L.L.P.

    Mr. Schwartz. Good morning and thank you for the 
invitation, Chairman Franks; Mr. Nadler, my home State Member; 
Mr. Scott; and Members of the Committee.
    I guess lawyers can prove almost anything, but I am just 
going to get to the base of what actually goes on in real life.
    I had a small client. Up in New Jersey, they have strong 
laws against frivolous claims. And she was barraged with 
lawsuits on dram shop acts. We found one where the fellow had 
stopped at numerous bars. His police report did not indicate 
that he stopped at her place of business. We filed a frivolous 
claim. She was compensated for the costs she endured. No more 
claims were filed against her that were phony at all. It was 
over. And they had strong sanctions against frivolous claims.
    Frivolous claims are defined in the bill. These are not 
some weird hypotheticals. It is real serious stuff. You have to 
misstate facts, misstate law. There is no ambiguities at all. 
And under the current system, unfortunately, people who are 
engaging in this practice are not caught.
    The 21-day safe harbor rule is unbelievable, but I will 
share with you just briefly how it works. Instead of filing a 
frivolous claim petition in court, you give it to the 
plaintiff's lawyer. You have to spend $8,000-$10,000 to write 
the motion. Then he can decide whether or not he wants to just 
dismiss the claim, and then 30 days later, he can file it 
again. The court does not even see it. So that system allows 
anyone, if they are unscrupulous, to game the system.
    If the court actually hears a frivolous claim motion, under 
the current rules, it is basically a wrist slap, money going to 
the court, not the small business that Ms. Milito represents 
who now will see his or her insurance go up over a completely 
and totally baseless claim.
    Our testimony shows that 95 percent of the judges believe 
that rule 11 had a positive effect on practice when the change 
was made. Three-quarters of them felt that the benefits of rule 
11 outweighed their problems. When rule 11 was changed, all the 
checks and balances that we have on rules simply folded. The 
Supreme Court is the ultimate party to approve the rules, but 
as Chief Rehnquist said at the time, we really did not look at 
the merits of it. Earlier Chairman Smith quoted what Justice 
Scalia said, and that was that between somebody who is abused 
and an abuser, we are going to go with the people who are 
abused by this system and this rule change is wrong. And he was 
very prophetic because that is exactly what has occurred.
    There is also a domino effect of rule 11. When the Federal 
rules change, State rules change. And as my testimony shows, in 
States--and it is printed there--States felt they had to change 
it because they want to have the same rules in the Federal 
courts, Mr. Forbes, as they do in the State courts to avoid 
forum shopping. So States, all of a sudden, were imprisoned 
with a rule that they did not like because the sanctions were 
not there. They had no problems that the professor spoke of in 
their State courts.
    966 ends the 21-day game system and it puts penalties where 
they should go, on the lawyer who brings them, and the money 
that is lost to the small businesses who have suffered the 
problem of the system. It is their costs. And some of the 
businesses are not insured. One frivolous claim can put a small 
business right under after they pay for it, and they are 
weaponless to fight it.
    There have been past, as Mr. Nadler says, considerations of 
prior LARA's, but we tried, and the people who drafted this 
learn from questions that were raised. The bill says, with 
respect to anything in civil rights, nothing in this act shall 
be construed to bar or impede the assertion of the development 
of new claims, defenses, remedies under State or Federal law, 
including civil rights laws. You could not be clearer than 
that.
    There were federalism claims raised by some prior bills, 
and that has been addressed too.
    I am just going to conclude with four things that have been 
asserted against the bill.
    That LARA will prolong satellite litigation. After rule 11 
in 1983 was enacted, there was a lot of litigation, but once it 
settled out, there was not a lot. And think of the alternative. 
A person has no weapon to stop a frivolous claim. In terms of 
basic risk-benefits in our society, which do you go with? Some 
litigation or no weaponry to stop a baseless claim that the 
President has talked about?
    The sanctions will not impede justice. The rule works both 
ways.
    And finally--and I have heard it so many times from my 
trial lawyer friends, plaintiffs lawyer friends, well, bring me 
more data to show me that it is really a problem. It is asking 
for a bucket of steam. As Ms. Milito says, most of these things 
occur with a demand letter. The frivolous claim never gets to 
court. Under the 21-day rule, basically the plaintiff's lawyer 
gets his money. It is disposed of and the frivolous claim never 
sees the light of day. We don't have any legal way to strike a 
demand letter. You can't do that. So this idea that it is not a 
problem because there are no great numbers of suits is just 
phony.
    You have done a good job with this bill. It is really 
needed now. In this economy, the last thing we need is more 
businesses and others, individuals, hurt by frivolous claims.
    [The prepared statement of Mr. Schwartz follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Mr. Franks. I want to thank the witnesses for their 
testimony. I will now begin the questioning by recognizing 
myself for 5 minutes.
    Ms. Milito I will begin with you, if I could. As you know, 
lawsuits affect the costs and availability oftentimes of 
liability insurance for small businesses, and this is true, 
obviously, for meritless lawsuits because in many instances it 
will be cheaper for a small business to settle a meritless case 
than to defend against it in court.
    In NFIB's experience, have the effects lawsuits have on the 
costs and availability of liability insurance forced small 
businesses to close their doors or not be able to expand or not 
be able to hire additional employees?
    Ms. Milito. Thank you. That is a good question, and the 
answer is yes and our experience has shown that. In a poll NFIB 
conducted, nearly one-quarter of small employers reported they 
had either been sued or credibly threatened with a lawsuit. As 
Mr. Schwartz pointed out, the precise dimensions of the 
frivolous lawsuit problem are hard to pin down, but if you ask 
any NFIB member whether frivolous lawsuits are a problem, they 
will tell you, yes, they are because even if their business has 
not been sued or threatened with a lawsuit or demand letter, 
they know a business that has.
    And I think it is particularly problematic that this poll 
conducted by NFIB showed that over 20 percent of small business 
owners reported that they spend more time on liability problems 
and potential liability problems than such vital business 
activities as obtaining or repaying business loans, evaluating 
the competition, or looking for ways to cut costs.
    I was on the phone yesterday with a member. She has not 
taken a paycheck out of her business for herself in over 6 
months because she is concerned about meeting the payroll for 
her two employees. She is concerned about paying the rent. A 
$5,000 settlement would put her under because that is her rent. 
That is her weekly payroll. So these small dollar lawsuits and 
demands do affect our members.
    Mr. Franks. Thank you.
    Mr. Schwartz, I am just one of your many admirers, and I 
wanted to ask you a--sir?
    Mr. Schwartz. I always have trouble with that.
    Mr. Franks. No, no.
    Mr. Schwartz. But thank you, sir.
    Mr. Franks. With the prior versions of LARA, opponents have 
often expressed deep concern about the act's potential to 
impede just causes such as landmark developments in civil 
rights cases because at that point in history, perhaps the 
legal claims might have been deemed frivolous. Would LARA, if 
it was in effect in the 1950's, have stifled the civil rights 
movement and led to the dismissal of cases such as Brown v. 
Board of Education or cases like that?
    Mr. Schwartz. Under the bill you put together, sir, 
absolutely not. The bill is crystal clear that nothing in the 
act is going to be there to impede the assertion or development 
of new law, including civil rights laws. So that is not an 
argument against this bill. The development of new law is right 
there and not blocked in any way.
    Mr. Franks. Well, as you know, Mr. Schwartz, nothing in 
LARA changes the legal standard that Federal district courts 
apply to determine whether a litigant has violated rule 11. It 
is really simply about making sanctions mandatory and clearly 
stating what will be included in the monetary penalty.
    In the past some have, as you know, characterized these 
changes as draconian and argued that they will lead to delay, 
increased costs, and satellite litigation. And you touched on 
that partially, but would you expand and respond to those 
arguments?
    Mr. Schwartz. Absolutely. The criteria of rule 11 are tough 
as to what a frivolous claim is. We are talking about claims 
that have no basis in fact, and a Federal judge is going to 
have to make a determination about that. And I worked for a 
Federal judge for 2 years, a trial judge, and he was not going 
to find a claim has no basis in fact unless it had no basis in 
fact.
    As far as satellite litigation is concerned, some will 
arise, but think of all the claims that will not be filed if 
there is a strong deterrent against filing them. Right now, 
there is none. It is paper-mache, and that deterrent will save 
legal costs because the cases just will not be filed against 
businesses and individuals when there is no basis in fact.
    Mr. Franks. Thank you very much. My time is about up. So I 
am going to refer to the Ranking Member here for questions.
    Mr. Nadler. I thank you, Mr. Chairman.
    Professor Hoffman, during the decade that the 1983 version 
of rule 11 was in effect, the version that this bill would in 
effect bring back, at least a quarter of all cases on the 
Federal civil docket were burdened by rule 11 proceedings that 
did not result in sanctions. Based on our experience with the 
1983 version of the rule and, for that matter, our experience 
with the 1993 revision of the rule, will this bill lead to less 
litigation or more litigation and why?
    Mr. Hoffman. Thank you for your question.
    As I indicated in my prepared remarks, I am concerned that 
this bill will lead, as the evidence shows compellingly, to a 
great deal more cost and delay, fostering additional abuses.
    And if I could expand on that to speak even further to your 
point, one of the things that is astonishing is when you survey 
the Federal judges who are in charge of applying the rules, who 
were in charge back in '83, who are in charge today after the 
'93 amendment went into effect in applying the rules, the same 
Federal judges that Mr. Schwartz was speaking about a moment 
ago--and when they are polled--these are the people who are on 
the front lines who are dealing with these cases--the numbers 
are astonishingly against this bill.
    So just to give a few of these, all of which are--and 
more--in my prepared statement, when asked in 2005 by a survey 
from the esteemed Federal Judicial Center, more than 80 percent 
of 278 Federal district judges agreed with this statement: rule 
11 is needed and it is just right as it stands now. An even 
higher percentage, 87 percent, preferred the existing rule to 
the 1983 version, the version on which this bill is based.
    Equally strong support, 85 percent, existed for the safe 
harbor provision that is now in the rule, while more than 90 
percent oppose changing the rule to make the imposition of 
sanctions mandatory for every rule 11 violation.
    Mr. Nadler. Okay, thank you.
    Now, when the advisory committee amended rule 11 in 1993, 
they gave the courts discretion to impose sanctions and noted 
that the purpose of sanctions is to deter bad conduct, not to 
reward the other party. Why did they give the court this 
discretion, which this bill would take away? And why did they 
make sanctions about deterrence rather than about compensation?
    Mr. Hoffman. So, look, let me start with the business of 
mandatory. First, it is vital that district courts have 
discretion to apply not just rule 11 but all of the critical 
rules, all of which are in the toolbox, and this notion, again, 
that was suggested that there are no other alternatives for 
controlling and managing litigation costs and managing the 
litigation system is just utterly contrary to the actual 
experience of litigants and judges every single day. Whether it 
be rule 8 on pleadings or rule 11 on sanctions or rule 12 on 
motions to dismiss or rule 56, we know that district judges are 
appropriately the ones at the front lines to handle these 
things, and that is exactly why the discretion needs to be 
there.
    On compensation, as I have already said in my remarks, we 
know that the focus on compensation that wasn't, again, the 
intent of the '83 rulemakers and wasn't even in the bill was 
something that utterly deluged and was one of the key problems 
for the avalanche of satellite litigation over sanctions that 
followed. So we know that the monetary focus is what is drawing 
there. And that is why I say in my prepared remarks the concern 
should be even greater where this bill specifically mentions 
compensation as a goal to be achieved. It is offering it on a 
silver platter.
    Mr. Nadler. Thank you.
    And what are the advantages of the 21-day safe harbor 
provision of rule 11? Has that helped to reduce satellite 
litigation?
    Mr. Hoffman. An enormous amount. The studies show that it 
helps across the board, though it helps especially with civil 
rights claims.
    And actually if I could just speak to that also for a 
moment. This notion that the bill has in the end of it that it 
is going to protect against assertions of novel claims and that 
somehow, therefore, we can just utterly dismiss all of the 
strong empirical evidence on discrimination from the '83 bill 
is utterly misguided. We know that there were all kinds of 
reasons why those civil rights claimants----
    Mr. Nadler. And could you comment on Mr. Schwartz's 
comments on the safe harbor provision that people just do this, 
in effect, out of court and this will prevent that?
    Mr. Hoffman. And so that is another interesting point. If 
in fact, as both of the other witnesses indicated, that one of 
the serious problems here is that these problems happen at the 
demand letter stage right before there is litigation, then rule 
11 has no application whatsoever to that. Right? Those 
problems, if they exist, will continue to exist independent of 
this rule. The value of the safe harbor----
    Mr. Nadler. And getting rid of the safe harbor provision 
will not affect that?
    Mr. Hoffman. No, because it is before there is a lawsuit. 
In other words, that is just to say rule 11 is inapplicable 
because it is prior to a lawsuit, which is an interesting 
point.
    Mr. Nadler. Let me ask Mr. Schwartz to comment on that.
    Mr. Schwartz. Well, you have to connect the dots, Mr. 
Nadler. The fact that the demand letters are capitulated to is 
because there are not really strong rules against frivolous 
claims.
    Mr. Nadler. No, no, no. But Professor Hoffman's point is 
that the question of the safe harbor provision is irrelevant to 
a demand letter sent before the litigation commences because 
rule 11 in any form can't reach that conduct because it isn't 
part of the lawsuit.
    Mr. Schwartz. Well, in the life that I have led, the two 
are connected because if a person knows that he has a weapon to 
sanction the lawyer who has brought the frivolous claim, they 
are not going to capitulate to the demand letter and make a 
settlement, and lawyers calculate in their own mind in the real 
world how much it is going to cost to defend----
    Mr. Nadler. Let me just ask Professor----
    Mr. Schwartz [continuing]. And then they considerably lower 
what is in their complaint and that is how they game the 
system.
    Mr. Nadler. And Professor Hoffman, would you comment on 
that? And then my time has expired.
    Mr. Hoffman. So just to wrap up on that, two points there. 
So, one, the point there is that rule 11 has no application at 
all. It cannot be used as a sword, and although it may serve as 
this potential deterrent effect that Mr. Schwartz is talking 
about, that turns out to only be true to the extent that you 
have any risk at all of being sanctioned. And of course, if 
everything settles out of court, there is no risk whatsoever 
there.
    The other quick point to make is I wanted to commend 
Chairman Franks for your memo of Thursday, March 10, and one of 
the points that you make there is important--again, I commend 
you for it--pointing out that nothing LARA changes the current 
standards by which frivolous lawsuits are judged. And so when 
Mr. Schwartz talks about this deluge and the paper-mache that 
exists in the current rule, none of that is addressed. And so 
one must assume, therefore, that the rule is fine, which is the 
underlying presumption that is obviously there.
    Mr. Nadler. Thank you very much.
    I yield back.
    Mr. Franks. Thank you, Mr. Nadler.
    And I now recognize for 5 minutes Mr. Forbes.
    Mr. Forbes. Mr. Chairman, thank you for this hearing today.
    Mr. Franks. Mr. Forbes, I don't think your microphone----
    Mr. Forbes. I am sorry. Can you hear now?
    I just wanted to thank our witnesses. We have a very 
talented panel and I appreciate your written comments.
    Mr. Chairman, I would like to just kind of make some 
comments about what I have heard both from the dais here and 
from the panel.
    First of all, this is not about civil rights claims. I 
mean, you know, basically when you cut to the chase on this, we 
know what this is about. If you like the plaintiffs lawyers, 
you don't like this legislation. If you support small- and 
medium-sized businesses who hire most of our constituents, you 
like this legislation.
    One of the things I heard the Ranking Member mentionis that 
this was a solution in search of a problem, but then I heard 
Mr. Hoffman say that this was not the right solution, that 
there is a problem, it is just not the right solution. I 
remember when we brought gang legislation before this very 
Committee, the first comment that was made was that that was a 
solution in search of a problem. Where is the problem? Nobody 
raises the fact today that we don't have a problem with gangs 
and that we need to do something about it.
    The other thing, Mr. Chairman, that I would just say is 
oftentimes--Ms. Milito, the one thing I disagree with you on is 
I don't think it is just the $5,000 settlements that we are 
talking about. We talk about those a lot, but the real world is 
this. Mr. Schwartz is exactly right. We don't hear from the 
people that this really impacts the most. We don't get them 
walking in here because they are working. They are home and it 
is very difficult for them to come up here and sit where you 
are sitting and make those claims. Let me give you a real-world 
case that brings this home, and it wasn't a $5,000 claim.
    Several years ago, I had a constituent of mine that came to 
me and they were wrapped up in one of these frivolous suits. It 
was a tort situation that they had absolutely no liability in 
at all, and they were brought in as an additional party 
defendant to that case. They came in and they had the demand 
letter. They contacted the attorney and said we don't have any 
liability. We weren't even involved in the contract that you 
are talking about in the tort liability that took place. The 
plaintiff's attorney said, no, no, we are continuing to move 
forward. We are bringing all of these individuals in as party-
defendants.
    So they did what most small business people would do that 
you represent, and they said, well, we are going to turn it 
over to our insurance company because we have been paying all 
the premiums on our insurance company and let them defend it. 
Well, unfortunately for them, the insurance company was the 
reciprocal, which had filed bankruptcy and therefore wasn't 
there to defend them.
    They then approached me and I said you need to go to a law 
firm and have an analysis done and see what they say. They 
brought me the letter back that I read, and here is the 
analysis. The law firm said you are absolutely right. You have 
zero liability in this case. We will win this case if you go to 
court, but it will cost you $500,000 to defend this case. The 
claim is $300,000 that is being made to you. What do you do if 
you are a small businessman?
    And there is no disincentive for them to bring those cases 
and to push it and to try to get hose businessmen to come up, 
and if they don't settle for $300,000, it is $50,000 or it is 
$100,000, but it is oftentimes even more than that $5,000.
    So, Mr. Chairman, I think Mr. Schwartz is right. I think 
this is a huge incentive to stop those frivolous cases and to 
strike a balance that we need if we are really serious about 
putting America back to work and hiring and jobs instead of 
staying in the courtroom.
    And I yield back.
    Mr. Franks. Thank you, Mr. Forbes. I am glad you came by 
today.
    Now I will recognize Mr. Scott from Virginia for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Ms. Milito, you indicated--could you remind me what portion 
of your members had suits filed against them?
    Ms. Milito. In a poll NFIB conducted--and again, this was 
not just of NFIB members, but of all small business owners--
nearly a quarter of small employers reported they had either 
been sued or credibly threatened with a----
    Mr. Scott. And how many of your small businesses filed 
suits against somebody else?
    Ms. Milito. I do not have that information.
    Mr. Scott. Is it fair to say that most, at one time or 
another, have filed suit, collection or some other kind of 
lawsuit? And is the fact that a suit has been filed evidence 
that it is necessarily frivolous?
    Ms. Milito. You are saying suits that a small business 
owner might file? Is that what you are asking?
    Mr. Scott. Or might be filed against them. The fact that it 
is filed against them does not mean it is necessarily 
frivolous.
    Ms. Milito. No, you are correct. You are correct.
    But what I can tell you----
    Mr. Scott. And that small businesses file suits against 
other small businesses.
    Ms. Milito. Our members don't like to go court. Period. 
They don't like to have suits filed against them, and they 
don't like to file lawsuits. They don't want to get involved in 
litigation. Period.
    Mr. Scott. We have heard comments about $5,000 cases. How 
many of these are subject to rule 11 because they would be in 
Federal court?
    Ms. Milito. Well, as Mr. Schwartz--first of all, certainly 
our members are sued in Federal court. The asbestos litigation 
story that I referred to--most of those claims are occurring in 
Federal court. So in those yellow page lawsuits, a lot of those 
are in Federal court. And I do believe LARA would reach those 
claims.
    And as Mr. Schwartz pointed out in his written statement 
too, many of the States' rules of civil procedure do mimic or 
change when the Federal rules change. So I think it would have 
a deterrent effect and aid small businesses.
    Mr. Scott. The $5,000 cases would not be affected by rule 
11 in Federal court.
    Ms. Milito. Well, these aren't $5,000 claims. These are 
$5,000 settlements. The claims can be much more.
    Mr. Scott. Thank you.
    Mr. Hoffman, comments have been made about civil rights 
litigation. The bill has this savings clause in it that says 
that nothing in this act shall be construed to bar or impede 
civil rights cases. The present standard in rule 11 would not 
be affected. Is that right?
    Mr. Hoffman. That is correct.
    Mr. Scott. And if civil rights cases are adversely 
affected, this wouldn't help that situation. Is that right?
    Mr. Hoffman. That is right, and of course, remember it has 
no application whatsoever when the issue that is allegedly 
sanctionable isn't the bringing of a novel legal theory. For 
instance, if the claim is you didn't do you right factual 
investigation, that provision has no application whatsoever.
    Mr. Scott. And is changing existing law--if you are asking 
for a change in existing law, is that necessarily exempt from a 
sanction or is it up to the judge?
    Mr. Hoffman. Correct. The question of whether that is 
sanctionable is not saved by that final provision that is in 
there. That is right. It is not dispositive, if that is your 
question.
    Mr. Scott. But the judge gets to decide when it is 
frivolous and when it is not frivolous.
    Ms. Milito. The judge gets to decide whether or not rule 11 
has been violated.
    Mr. Scott. And so in 1954 when the law was fairly clear 
that separate but equal was the law of the land, could a court 
reasonably conclude that a lawsuit to change that would be 
frivolous?
    Mr. Hoffman. Certainly.
    Mr. Scott. And in the 1960's when the law of the land was 
that Blacks and Whites couldn't marry, that was well 
established law. Is that right?
    Mr. Hoffman. That is correct.
    Mr. Scott. Would such a filing to try to change that law be 
up to the judge to determine whether it was frivolous or not?
    Mr. Hoffman. Correct.
    Mr. Scott. In an automobile accident, just a routine 
automobile accident, when a filing is made, my experience is 
that what you get back is a general denial of liability. In a 
case of a rear end automobile accident, when you get a general 
denial, would the defendant be subject to sanctions for not 
admitting liability?
    Mr. Hoffman. So rule 11 technically applies to all 
pleadings, all motions, and all other papers that are filed by 
lawyers and their parties in Federal court.
    Mr. Scott. And so if you get a general denial and you get 
in this rule 11 litigation that the gentleman from New York has 
talked about, would the next filing be I need attorney's fees 
for your general denial?
    Mr. Hoffman. The rule would technically apply to them as 
well. Mr. Scott, it is one of the most astonishing things that 
when critics talk about the deluge of inappropriate lawyering, 
somehow it is always a one-way street and there is no 
suggestion ever even considered that the defense lawyer, who is 
billing by the hour, might have some incentive to increase 
costs and delays unnecessarily.
    Mr. Scott. And the attorney's fees, if this is applied 
against the defendant, would be mandatory. Is that right?
    Mr. Hoffman. The rule would apply equally for plaintiffs 
and defendants.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Franks. Well, with that, I want to thank all of our 
witnesses for their testimony today.
    Without objection, all Members will have 5 legislative days 
to submit to the Chair additional written questions for the 
witnesses which we will forward and ask the witnesses to 
respond as promptly as they can so that their answers may be 
made part of the record.
    And without objection, all Members will also have 5 
legislative days to submit any additional materials for 
inclusion into the record.
    And with that, again I thank the witnesses and the Members, 
and this hearing is adjourned.
    [Whereupon, at 10:59 a.m., the Subcommittee was adjourned.]


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