[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXAMINATION OF LITIGATION ABUSES
SUBCOMMITTEE ON THE CONSTITUTION
AND CIVIL JUSTICE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
MARCH 13, 2013
Serial No. 113-8
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COMMITTEE ON THE JUDICIARY
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin JERROLD NADLER, New York
HOWARD COBLE, North Carolina ROBERT C. ``BOBBY'' SCOTT,
LAMAR SMITH, Texas Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio JUDY CHU, California
TED POE, Texas TED DEUTCH, Florida
JASON CHAFFETZ, Utah LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania KAREN BASS, California
TREY GOWDY, South Carolina CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
KEITH ROTHFUS, Pennsylvania
Shelley Husband, Chief of Staff & General Counsel
Perry Apelbaum, Minority Staff Director & Chief Counsel
Subcommittee on the Constitution and Civil Justice
TRENT FRANKS, Arizona, Chairman
JIM JORDAN, Ohio, Vice-Chairman
STEVE CHABOT, Ohio JERROLD NADLER, New York
J. RANDY FORBES, Virginia JOHN CONYERS, Jr., Michigan
STEVE KING, Iowa ROBERT C. ``BOBBY'' SCOTT,
LOUIE GOHMERT, Texas Virginia
RON DeSANTIS, Florida STEVE COHEN, Tennessee
KEITH ROTHFUS, Pennsylvania TED DEUTCH, Florida
Paul B. Taylor, Chief Counsel
David Lachmann, Minority Staff Director
C O N T E N T S
MARCH 13, 2013
The Honorable Trent Franks, a Representative in Congress from the
State of Arizona, and Chairman, Subcommittee on the
Constitution and Civil Justice................................. 1
The Honorable Jerrold Nadler, a Representative in Congress from
the State of New York, and Ranking Member, Subcommittee on the
Constitution and Civil Justice................................. 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on the Constitution and
Civil Justice.................................................. 4
Elizabeth Milito, Senior Executive Counsel, National Federation
of Independent Business (NFIB) Small Business Legal Center
Oral Testimony................................................. 6
Prepared Statement............................................. 9
Theodore H. Frank, Adjunct Fellow, Manhattan Institute for Legal
Policy, President, Center for Class Action Fairness
Oral Testimony................................................. 21
Prepared Statement............................................. 23
Joanne Doroshow, Executive Director, Center for Justice and
Democracy at New York Law School
Oral Testimony................................................. 65
Prepared Statement............................................. 68
John H. Beisner, on behalf of the U.S. Chamber Institute for
Legal Reform, Skadden, Arps, Slate, Meagher & Flom LLP
Oral Testimony................................................. 78
Prepared Statement............................................. 80
EXAMINATION OF LITIGATION ABUSES
WEDNESDAY, MARCH 13, 2013
House of Representatives
Subcommittee on the Constitution
and Civil Justice
Committee on the Judiciary
The Subcommittee met, pursuant to call, at 10:06 a.m., in
room 2141, Rayburn Office Building, the Honorable Trent Franks
(Chairman of the Subcommittee) presiding.
Present: Representatives Franks, Jordan, Chabot, King,
DeSantis, Nadler, Conyers, and Deutch.
Staff Present: (Majority) Paul Taylor, Majority Counsel;
Sarah Vance, Clerk; (Minority) David Lachmann, Subcommittee
Staff Director; and Veronica Eligan, Professional Staff Member.
Mr. Franks. The Subcommittee on the Constitution and Civil
Justice will come to order. Without objection, the Chair is
authorized to declare a recess of the Committee at any time.
Thank you all for being here.
The Subcommittee on the Constitution and Civil Justice
meets today for a general oversight hearing to examine some
current abuses in our civil justice system. It is appropriate
that we hold such a hearing early in this Congress, so Members
and the public can begin to understand the scope and nature of
some of the more glaring dysfunctions in our litigation system
before the Committee considers any potential legislation.
We have assembled a panel of witnesses here today who are
particularly capable of surveying America's lawsuit landscape
and identifying some of the biggest hills and gullies that
threaten to make it even more difficult for hardworking
Americans to get ahead.
Forum shopping, the practice by which lawyers can choose
the judge that is most likely to side in their favor, remains a
problem in America.
While the Class Action Fairness Act closed many loopholes
that allowed abusive forum shopping, some courts have allowed
trial lawyers to divide up their larger mass tort claims, so
the smaller cases can continue to be tried in State courts,
even when a Federal court remains the fairest forum for
lawsuits involving citizens of different States.
Further, too many class actions are litigated today such
that the victims of unlawful conduct often receive only pennies
on the dollar, if anything at all, when their trial lawyer
representatives amass millions of dollars in compensation.
Many times, the damages in class action lawsuits are so
tiny that it is impossible to even identify the victims. In
many such cases, awards are given to entities that are no part
of the lawsuit whatsoever. Such awards called cy pres awards
are often given to charities that support the trial lawyers'
goals, but have no other connection to any victims. This is so
even though nothing in Rule 23 of the Federal Rules of Civil
Procedure, which allow class-action lawsuits, authorizes such
Courts are then left to bypass the legislature and enrich
third-party organizations of the trial lawyers choosing. This
trend threatens both the Constitution's separation of powers
requirements and its case and controversy requirement, which
only allow courts jurisdiction over cases involving actual
Another problem that is becoming apparent is the increasing
practice by which third parties fund litigation between others
when such third parties have no other no connection to the
substantive law of the case. When financial speculators with no
substantive connection to a lawsuit fund litigation like they
would any other speculative venture, existing problems in the
American legal system are made much worse.
For example, as it is currently written, Rule 11 of the
Federal Rules of Civil Procedure does not mandate that lawyers
who file frivolous lawsuits be made to pay their victims for
the cost of the frivolous litigation. Consequently, lawyers can
file frivolous cases with virtual impunity.
That being the case, third-party litigation financiers can
spread their risk, funding meritless cases as well as deserving
cases in the hopes that one or more of the frivolous cases will
yield a jackpot settlement so large it can potentially fund all
the other cases as well.
On the other hand, the practice of third-party litigation
financing can also deter the settlement of cases. This could
happen when settlement offers are large enough to pay the
lawyers and the victims they represent, but not large enough to
also pay the lawsuit lenders the interest they charge on their
These are just some of the issues our witnesses will
explore today as the Subcommittee on the Constitution and Civil
Justice begins its examination of lawsuit abuse.
And now with that, I will yield to the Ranking Member of
the Subcommittee, Mr. Nadler from New York, for 5 minutes.
Mr. Nadler. Thank you, Mr. Chairman.
Mr. Chairman, we are back looking at the tort system again,
and I see that the majority has again prejudged the issue with
the title of this hearing. I know that we have long disagreed
on issues affecting the tort system, but I had hoped that we
could at least agree that a realistic understanding of how that
system is functioning would entail a balanced look at both the
costs and benefits of the system, and a more balanced look at
the role that business defendants play in undermining the
integrity of that system.
The fact is that tort law exists for several reasons, and
perhaps this is as good a time as any to reflect on those
reasons. First and foremost, it exists to compensate people for
the harm inflicted on them by the negligence or intentional
wrongdoing of someone else. That is especially important in a
society where people still need to sue to get the medical care
or to make up for the lost income or assets someone else's
wrongdoing has necessitated.
Perhaps if we lived in a country where these matters were
taken care of as a matter of national policy, we would not need
to rely so heavily on the courts. But people who are harmed
often have no recourse but to turn to the courts.
This is not malicious or predatory. It is, rather, a
necessity and one that remains a pressing need as long as some
in this country oppose universal health care coverage and a
robust social safety net.
Second, the tort system exists to provide economic
incentives to take the proper care not to harm others. Clearly,
there are plenty of incentives to be reckless in ways that
could cause serious harm. It costs money to make products safe
or to make workplaces and public accommodations safe. There is
the possibility of making big money by dealing dishonestly with
investors who are selling defective goods.
The tort system balances the scales at least to some
extent. It imposes a countervailing cost on misconduct. No one
likes being sued, and that can have a beneficial effect on how
people conduct themselves. Avoiding liability is often a matter
of making a better product or conducting your business in a
more open and honest manner.
Unless those who want to limit access to justice are
prepared to have a truly strong regulatory and criminal
framework for dealing with these problems, and I have seen
little evidence of that, we must rely on the tort system to
play a significant role in protecting the public interest.
The testimony we will hear today contains a great many
complaints, and I will allow the witnesses to outline them. But
I would note that there is no recognition in any of that
testimony that, perhaps, the defendants in many of these cases
actually were guilty of wrongdoing, that they may have had some
obligation to compensate the victims of their wrongdoing, or
that the public interest is served in requiring them to do so.
I would also note that missing from much of the testimony
we will hear today is any recognition that defendants and their
counsel sometimes engage in tactics to conceal facts from
plaintiffs, to bury the plaintiffs in paper and expenses, and
stretch out litigation in order to exhaust plaintiffs and their
resources to keep up the fight.
There is almost no recognition that defendants may even
have engaged in wrongdoing. Even where, as Ms. Milito does in
her testimony, a defendant has admittedly broken the law, that
defendant is cast still as a victim of lawsuit abuse.
In this case, the complaint has to do with admitted
violations of the American with Disabilities Act. Congress
specifically provided a private cause of action to ensure
enforcement of that act. I suppose we could have sent an army
of inspectors armed with tickets books to enforce the law, but
I am not sure how Ms. Milito's organization would feel about
Many of the recommendations we will hear will have the
effect of placing additional roadblocks in the path of people
who have been genuinely harmed. By limiting fees, or
eliminating contingency fees, or cutting off other sources of
funding to allow individuals to hold their own in a case
against corporations with seemingly endless resources, many of
the proposals we will hear will, in effect, allow corporate
malefactors to commit wrongdoing with impunity.
Not content with developments in the law, both
legislatively and at the hands of the Supreme Court, we are
hearing renewed calls to further limit access to the courts and
to remedies like class actions.
In addition to congressional actions to limit access to
justice, such as the Class Action Fairness Act, the Supreme
Court's recent decisions have also greatly narrowed access to
justice. In Walmart v. Dukes, the Court greatly limited class
certification. In AT&T Mobility v. Concepcion, the Supreme
Court held that the Federal Arbitration Act preempts State law
on the unconscionability of class arbitration waivers in
Finally, in Ashcroft v. Iqbal, the Court made it easier to
dismiss cases based on a judge's own notions of plausibility
prior to discovery.
Taken together, plaintiffs have really lost many of the
rights they used to have to relief. I suppose the defense bar
is entitled to demand still more, but the scales have already
tipped radically in their favor.
I want to join the Chairman in welcoming our witnesses, and
I look forward to their testimony.
I yield back the balance of my time.
Mr. Franks. And I thank the gentleman, and I will now yield
to the Ranking Member of the full Committee, Mr. Conyers from
Mr. Conyers. Thank you, Mr. Chairman.
First of all, I want to welcome the witnesses, especially
the director for the Center for Justice and Democracy at the
New York Law School, attorney Doroshow.
I also commend and align myself with the remarks of the
Ranking Member of the Subcommittee, Mr. Nadler.
I think that, in some respects, the title of this hearing
is not as accurate as I would have made it, but one critical
issue is the suggestion that we limit the ability of victims to
pay for their cases. The proposal would eliminate or limit
contingency fees, prevent attorneys general from retaining
outside counsel, and prevent plaintiffs from seeking outside
funding to sustain what are often long and costly cases.
Of course, the large corporate defendants realize this, and
if they can limit the ability of their victims to fund the
case, they can win through attrition and not on the merits.
And so here, with the sequester kicking in, and we are
finding out now that there is talk of delaying jury trials,
court security is being reduced, and now there is talk of
federalizing everything, it sends a shiver down the spines of
the judiciary, generally.
Now, we are supposed to be dealing with forum shopping, the
cy pres doctrine, third-party financing. And the fact of the
matter is, we have 33 vacancies that are being blocked by
conservatives, in terms of making the Federal system work
better than it is now.
Contingency fees, from my point of view, is the way the 99
percent are able to enforce their legal rights, even against
the 1 percent.
And so, despite limits on class actions through legislation
and Supreme Court decisions over the years, we still hear
complaints that the plaintiffs still have an ability to bring
their cases in State court. I realize that some consider the
Federal courts a more favorable forum for corporate defendants,
and will insist that Congress further trample on State rights
and continue the Federal takeover of State tort law, which may
be a direction we may be going in.
When you get past the rhetoric, it is clear that what is
going on here is forum shopping through legislation.
While Members may not like State laws, the causes of
action, the discretion exercised by State officials on the way
to State courts and juries carry out their duties, and Congress
should limit their interference in this kind of activity.
And finally, when we hear complaints about the victims and
their attorneys, we hear little acknowledgment that many of
these cases are, in fact, meritorious and that the individuals
are entitled to compensation for their harm.
What are the victims in these cases supposed to do? They do
not have money. Many of them aren't even going to be able to
work anymore. And there is too little concern expressed about
the extent to which large corporations, banks, and, may I
mention, the Wall Street financial crowd--so far, there may be
one person that has been sentenced to imprisonment that caused
this tremendous economic destabilization. And here we find
those who bankrupted pension funds, and the polluters destroyed
the lives of millions of homeowners--are at the mercy of those
who have caused some of the pollution and are now victims of
And so I look forward to the testimony. I have no concern
in which large corporations abuse legal process to conceal the
truth and obstruct justice.
And this is a service. This is a goal that I will be
listening carefully for.
And we may have to have another hearing, I say to the
Chairman, to look at the other side of the issue.
And I yield back my time, and thank the Chair.
Mr. Franks. And I thank the gentleman.
Without objection, other Members' opening statements will
be made part of the record.
And I will now introduce our witnesses.
Elizabeth Milito is a senior executive counsel for the
National Federation of Independent Businesses' Small Business
Legal Center. Ms. Milito has previously worked at the U.S.
Department of Veterans Affairs, and as a trial attorney in
Maryland, practicing in the fields of tort, medical
malpractice, employment, and labor law. She has also clerked
for the Honorable Alan Wilner on the highest State court in
Ted Frank is this founder of the Center for Class Action
Fairness. Mr. Frank has won several landmark cases and millions
of dollars for consumers and other plaintiffs through the
center, the nonprofit project he founded in 2009. He is also an
adjunct fellow at the Manhattan Institute. Mr. Frank was a
resident fellow with the American Enterprise Institute from
2005 to 2009, a litigator from 1999 to 2005, and he has clerked
for the Honorable Frank H. Easterbrook on the Seventh Circuit
Court of Appeals.
Thank you, sir.
Joanne Doroshow is the executive director of the Center for
Justice and Democracy at New York Law School. Ms. Doroshow has
worked on civil justice issues since 1986, when she directed an
insurance industry and liability project for Ralph Nader. She
has testified before the U.S. Congress many times and appeared
before numerous State legislatures around the country.
Welcome, Ms. Doroshow.
John Beisner is the cochair of the mass torts and insurance
litigation group at Skadden, Arps, Slate, Meagher & Flom LLP,
based in its Washington, D.C., office. Among other things, that
Mr. Beisner represents defendants in a wide range of aggregate
litigation matters, including mass tort controversies, class
actions, and False Claims Act suits.
Thank you for being here, sir.
So each of the witnesses' written statements will be
entered into the record in its entirety. And I would 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 in front of you. The light will switch from green to
yellow, indicating that you have 1 minute to conclude your
testimony. When the light turns red, it indicates that the
witness's 5 minutes have expired.
So before I recognize the witness, it is the tradition of
the Subcommittee that they be sworn, so if you will please
stand to be sworn?
Mr. Franks. And I now recognize our first witness, Ms.
Ms. Milito, is that microphone on? Ms. Milito, would you
pull that microphone a little closer to you?
TESTIMONY OF ELIZABETH MILITO, SENIOR EXECUTIVE COUNSEL,
NATIONAL FEDERATION OF INDEPENDENT BUSINESS (NFIB) SMALL
BUSINESS LEGAL CENTER
Ms. Milito. Thank you, Mr. Chairman, and distinguished
NFIB's mission is to promote and protect the right of its
members to own, operate, and grow their businesses, and
represents 350,000 member businesses nationwide. The typical
NFIB member employs 10 people and reports gross sales of about
$500,000 a year.
I applaud the Subcommittee for holding this hearing on the
problem of lawsuit abuses. Although our country's judicial
system has much to be lauded, small-business owners staring
down a lawsuit find it hard to appreciate praise of the courts.
Of course, it is important to give victims of injustice
their day in court. But lawsuit abuse victimizes those who are
By lawsuit abuse, I am referring to those cases where a
plaintiff's attorney asserts a flimsy claim to get some money,
to get more money than is fair, or sues a business that had
little or no involvement, but might have money. In all of those
instances, small businesses must expend substantial resources
to defend their business.
Lawsuits threatened or filed impact small-business owners.
Small-business owners do not have in-house counsel to inform
them of their rights, write letters responding to allegations
made against them, or provide legal advice.
Today, I want to briefly discuss two areas that drive
abusive litigation practices: one, financial incentives that
encourage frivolous litigation; and two, fraudulent joinder.
The story of Doug Volpi, an NFIB member who owns a paint
store in Southern California, provides a vivid example of
litigation abuse and demonstrates how financial incentives
encourage frivolous litigation. And I would like to say, too,
Mr. Volpi was eager to have me share his story here today.
He received a summons in the mail notifying him that his
business, Frontier Paint, was a defendant in an asbestos
lawsuit. Mind you, the allegations in the claim stated that the
plaintiff had been exposed to asbestos in the 1960's and 1970's
from use of a product called Fixall. The manufacturer of Fixall
has long since gone bankrupt.
Mr. Volpi bought his Southern California business in 1997.
That was over 20 years after the plaintiff's alleged exposure.
Moreover, the plaintiff lived in San Francisco, nowhere near
the location of Mr. Volpi's Southern California store.
Upon receipt of the summons, Mr. Volpi said to his wife, we
are going to need to hire a lawyer, and they did. Then Mr.
Volpi himself spent hours online researching the plaintiff's
claims and discovered that the plaintiff's attorney's law firm
had a known reputation for trolling for defendant.
In Mr. Volpi's words, this attorney, ``dropped a net,
dragged it around, and pulled it up to see if there was any
Thanks to the work of Mr. Volpi's attorney, Frontier Paint
did not become halibut. But dismissal of Mr. Volpi's business
came at a significant cost to Frontier Paint.
Mr. Volpi and his wife paid significant legal fees out of
pocket just to get their business removed from a complaint in
which it should never been named as a defendant in the first
Mr. Volpi's story, unfortunately, is not unique. Class-
action cases are rife with stories like Frontier Paint. In
these cases, plaintiffs' attorneys use a shotgun approach.
Hundreds of defendants are named in a lawsuit, and it is the
defendant's responsibility to prove that they are not culpable.
Public policy should encourage plaintiffs' attorneys to
prudently assess the viability of their clients' potential
claims before they initiate a lawsuit and discourage plaintiffs
from taking unfounded or improvidently cavalier positions.
Along these lines, we should aim to create strong
disincentives against naming a small business as a defendant in
a case where the claim against the business is particularly
weak, especially where the plaintiff's apparent motive is to
use the defendant as a body shield against invocation of
Federal jurisdiction, or what is also referred to as fraudulent
But unfortunately, as the law currently stands, plaintiffs
actually have perverse incentive to bring weak or attenuated
claims against small business defendants for the sake of
defeating Federal jurisdiction.
NFIB believes that we need to change the incentives driving
our litigious culture. This may be accomplished, to some
extent, through substantive reforms limiting tort liabilities
or setting evidentiary or recovery standards.
But we should remember that the fundamental problem facing
small-business owners in these cases is a lack of financial
resources necessary to successfully fend off frivolous claims.
The cost of lawsuits for small businesses can prove
disastrous and threaten the growth of our Nation's economy. We
must work together to find and implement solutions that will
stop this wasteful trend.
On behalf of America's small-business owners, I thank the
Subcommittee for holding this hearing and for inviting me to
testify here today.
[The prepared statement of Ms. Milito follows:]
Prepared Statement of Elizabeth Milito, Senior Executive Counsel,
National Federation of Independent Business (NFIB) Small Business Legal
Mr. Franks. Thank you, Ms. Milito
And I will now recognize our second witness, Mr. Frank. And
please turn on your microphone, sir.
TESTIMONY OF THEODORE H. FRANK, ADJUNCT FELLOW, MANHATTAN
INSTITUTE FOR LEGAL POLICY, PRESIDENT, CENTER FOR CLASS ACTION
Mr. Frank. Thank you, Mr. Chairman, and distinguished
Committee Members, for inviting me to provide testimony about
class-action settlement abuse and, in particular, cy pres.
My nonprofit public interest law firm, the Center for Class
Action Fairness, has won millions of dollars for what the
Ranking Member called the victims--consumers and shareholder
plaintiffs--by representing objectors to unfair class-action
And while I am affiliated with the center and with the
Manhattan Institute, I am not speaking on their behalf today,
but only on behalf of myself.
The class-action procedure is one of many ways consumers
can vindicate their rights, but, all too often, class actions
are abused to benefit attorneys at the expense of the consumers
they purport to represent, a wealth transfer from the 99
percent to the 1 percent.
In the class-action settlement process, the class counsel
is trying to maximize their profits while the defendant is
trying to minimize the expense of the litigation and the
settlement. But when courts fail to follow the Federal rules
and the Class Action Fairness Act requirements of scrutinizing
the fairness of a settlement, the parties all too often tacitly
agree to freeze out the absent party at the table--the consumer
class members that the settlement is supposed to be benefiting.
Cy pres distributions, which are money given to third-party
charities instead of to the class, are one of the leading ways
to abuse the settlement process to create the illusion of class
recovery while diverting the true bulk of the settlement to the
When plaintiffs' attorneys are paid based on the size of
funds rather than based upon what the class actually recovers,
they have a perverse incentive to make it harder for their own
clients to get access to justice and recover.
In the Third Circuit case I argued and won last month, the
District Court did not even try to make findings to learn about
whether class members would benefit, and rubberstamped a $14
million attorney payment. It took the appellate court scrutiny
to determine that because the claims process required a
burdensome five-page claim reform to request recovery as low as
$5, less than $3 million would have gone to the class, less
than a fifth of what the attorneys were going to receive.
The attorneys were perfectly happy with this because they
were being paid based on the size of the total settlement fund,
and they would have gotten to steer $17 million to their
favorite charity in addition to their $14 million fee.
So, all too often, the cy pres is a way for the attorneys
to double dip. Money goes to the attorney's alma mater or, in
one case, a charity run by the ex-wife of the class counsel.
Now, while the Third Circuit in my baby products case asked
for more scrutiny of such settlements, other courts have been
more lenient. In the case of Lane v. Facebook, the Ninth
Circuit, in a 2-to-1 opinion, affirmed the settlement approved
by the District Court, where $3.2 million went to the
attorneys, zero dollars to the class, and Facebook's only other
burden was to create a new charity run by Facebook and give it
So that is like a settlement against Microsoft settling for
Microsoft giving money to the Gates Foundation.
In effect, the class got zero dollars, the attorneys got
$3.2 million, and the defendant got a waiver of whatever claims
were against it.
Worse still are the cases where a judge treats cy pres as
his or her own plaything. In the Google Plus class-action
settlement--again, a zero dollar class-action settlement for
the class where the only money was going to charity--Judge
Ware, without notice to the class, decided that a substantial
part of the cy pres be diverted to a local university where he
Again, the class got zero dollars. The attorneys got
millions. Google got to give money to charities that, in large
part, it was giving to anyway.
In many cases, sunlight or transparency is a great
disinfectant to this problem. For example, in the Apple
backdating settlement, where one of my clients objected, the
parties planned to divert $2.5 million from shareholders to a
dozen schools, some of whom were affiliated with class counsel,
where the class counsel sat on the board. When I blew the
whistle, the parties quickly amended the settlement so that the
money went to the class, to the supposedly injured
shareholders, rather than to the friends of the class counsel.
In the Bayer aspirin case currently pending in Federal
District Court in Brooklyn, I objected that the attorneys
planned to pay $5 million to themselves, $8 million to
charities affiliated with the class counsel, and less than
$100,000 to the class. In response to the scrutiny and to press
coverage of my objection, the parties suddenly discovered that,
yes, they did have a list of class members to whom they could
pay $5 million.
But the cases I mentioned are just the tip of the iceberg.
The center has limited resources and cannot possibly object to
every bad settlement. And when we do not object, and sometimes
even when we do, these bad settlements are rubberstamped.
Attorneys and judges face no consequences for failing to
disclose their conflicts of interest to the court or to the
class, and so there are certainly many more egregious cases of
self-dealing than we know about.
If courts fail to act here, there is a role for Congress to
protect consumers from this class-action abuse.
I welcome your questions.
[The prepared statement of Mr. Frank follows:]
Mr. Franks. Thank you, Mr. Frank.
And I would now recognize our third witness, Ms. Doroshow.
TESTIMONY OF JOANNE DOROSHOW, EXECUTIVE DIRECTOR, CENTER FOR
JUSTICE AND DEMOCRACY AT NEW YORK LAW SCHOOL
Ms. Doroshow. Thank you, Mr. Chairman, and Members of the
This oversight hearing is to examine litigation abuses.
When I heard of this hearing topic, I was thrilled, of course,
because, thanks to countless and ever-increasing kinds of
litigation abuses that affect 99 percent of Americans, I
thought this is a real opportunity to discuss a very serious
As a result of hundreds if not thousands of so-called tort
reform laws that have passed around the country in the last 30
years; a series of recent Supreme Court decisions that have
stripped people of their legal rights, including providing
corporations the ability to ban class actions; and other action
and inaction by Congress; the sick, injured, and violated
struggle to get into civil court today.
Indeed, tort cases now represent only 6 percent of all
civil cases while monetary disputes, like debt collections,
represent 72 percent.
While calling consumer lawyers insensitive to the
importance of keeping companies ``litigation-free,'' corporate
lawyers run to court at the smallest provocation. The U.S.
Chamber of Commerce itself sues the U.S. Government, on
average, three times a week.
There are many ways to define litigation abuse, of course.
There is discovery abuse by corporate defendants who try to
avoid disclosure of critical information they would prefer to
keep secret, not only from the plaintiff, but from the public.
I believe budget cuts are abusive. Indeed, it is now being
reported that, due to the sequester, Federal civil jury trials
may be completely suspended beginning this fall.
As to class actions, these cases are now in freefall. It
seems my copanelists may be the only ones who have not gotten
the memo on that. Just since AT&T v. Concepcion was decided in
2011, allowing corporations to immunize themselves with forced
arbitration clauses containing class-action bans, at least 100
class actions--this is according to recent work from Public
Citizen--and likely many more have been dismissed.
The claims have not gone into arbitration. They have simply
Then there is the Walmart v. Dukes case, which, as one
corporate lawyer put it, has aided employers to defeat,
fracture, and/or devalue employment discrimination class
Employers have not even taken full advantage of
Concepcion's forced arbitration and class action bans, but they
Other cases have resulted in the widespread dismissal of
drug and device cases--Riegel v. Medtronic, the Mensing case.
Lawsuits by the sick and injured are now so nonthreatening
to the business world that NFIB's own members ranked the issue,
which they call ``cost and frequency of lawsuits/threatened
lawsuits'' at number 71 out of 75 issues that small businesses
care about. That is a lower rank than how to use Twitter,
according to their own survey.
In sum, there is much to discuss when it comes to
litigation abuse. I did learn late Monday that, I guess since
corporate litigation lobbies have seemingly gotten most
everything they have asked for from Congress and the Supreme
Court, pending a couple more decisions this term, they have
only a few things left to complain about.
One, they do not like it when plaintiff lawyers try to keep
truly State cases based on State laws involving few residents
in State court where it belongs, or that these attorneys file
cases in too few judicial jurisdictions, which they call forum
Of course, as Mr. Conyers alluded to, one answer to this
problem is for the Senate to confirm the 33 nominees currently
pending who would love to be hearing cases right now.
And of course, the irony here is that CAFA provides the
ultimate in forum shopping to defendants who can decide which
court will hear a case that accuses them of wrongdoing.
Another thing they do not like are cy pres awards. When a
company steals or cheats people out of millions of dollars,
they would like this company never to be held accountable for
this if its customers are dead or cannot be found. We do not
As to alternative litigation financing, when someone or
their child suffers brain injury, amputation, blindness,
quadriplegia, cancer, or another devastating injury at the hand
of a corporate wrongdoer, and cannot work, they deserve to be
able to bring their case and not be forced into accepting
lowball offers from insurance companies simply because they
cannot put for food on the table.
Regulation by State bar associations of alternative
litigation financing is fine. Banning it or placing control of
litigation in the hands of the Federal Government, where the
U.S. Chamber of Commerce has outsize influence, is not fine.
There are many steps that Congress can take, such as to
prohibit arbitration, class-action bans. I would be happy to
discuss some of those laws and bills, if time permits.
And I thank you very much, and would be happy to answer
[The prepared statement of Ms. Doroshow follows:]
Mr. Franks. Thank you, Ms. Doroshow.
I will now recognize our fourth witness, Mr. Beisner.
TESTIMONY OF JOHN H. BEISNER, ON BEHALF OF THE U.S. CHAMBER
INSTITUTE FOR LEGAL REFORM, SKADDEN, ARPS, SLATE, MEAGHER &
Mr. Beisner. Thank you, Mr. Chairman, and Members of the
Subcommittee, for inviting me to appear here today.
I am appearing on behalf of the U.S. Chamber Institute for
Legal Reform, which is the only national legal reform advocate
to approach reform comprehensively by working to improve not
only the law, but also the legal climate.
Over the last several years, significant progress has been
made in addressing certain forms of litigation abuse in the
United States, both at the Federal and State court level. The
most significant of these is the Class Action Fairness Act of
2005, or CAFA, which has virtually eliminated so-called magnet
State courts that were once a haven for meritless and abusive
But more work is needed. The United States is experiencing
far too much litigation abuse. It is undermining our economy
and sullying the reputation of our legal system.
I would like to focus on three areas ripe for abuse: class
actions, State attorney general enforcement of Federal law, and
third-party litigation financing.
Let me start with class actions. Although CAFA has vastly
improved the civil justice landscape, the threat of abusive
class actions has not been completely extinguished, for several
First, some Federal courts have undermined the
effectiveness of CAFA by making it far more difficult to remove
cases to Federal court than Congress had intended. At least one
of the issues I am referencing has worked its way up to the
Supreme Court in the Standard Fire Insurance Company v. Knowles
case. The Supreme Court will be deciding whether a named
plaintiff can avoid removal under CAFA by stipulating that she
does not seek to recover more than $5 million on behalf of the
absent class members. If in Knowles, the Supreme Court condones
the practice of using stipulations to defeat CAFA jurisdiction,
that ruling would be a blow for civil justice.
The second problem is that some Federal courts have ignored
the Supreme Court's ruling in the Walmart Stores v. Dukes case,
which permits certification of classes only after a rigorous
analysis to ensure that plaintiffs' claims are really
susceptible to being proved on a classwide basis.
As a result, even in some Federal courts, frivolous class
actions are proceeding.
Another problem affecting Federal class-action litigation
is increasing reliance on cy pres settlements, which were
mentioned earlier. Now these may seem like a good deal by
ensuring that some money in a settlement goes to a good cause.
But in reality, cy pres is a way for class lawyers to justify
big fees without providing any real benefits to class members.
Another area that warrants scrutiny is the proliferation of
arrangements under which State attorneys general hire outside
counsel on a contingency fee basis to represent the State in
civil litigation. This problem threatens to worsen as more
Federal statutes give State attorneys general authority to
enforce Federal laws. And I am talking about statutes such as
the Truth in Lending Act, HIPAA, the Dodd-Frank statute, and
the Consumer Products Safety Improvement Act of 2008.
Contingency fee contracts between AGs and private counsel
can create unseemly liaisons between public enforcement
officials and private profit-motivated lawyers. They also
threaten to violate the constitutional rights of defendants who
find themselves the targets of lawsuits that combine the
political power of the State and the financial power of the
To avoid these results, Congress should consider enacting
legislation that prohibits State AGs from retaining contingency
fee counsel to enforce Federal law. Such legislation would
promote the integrity of enforcement proceedings and safeguard
the constitutional rights of defendants.
Finally, I want to address one more looming litigation
abuse: third-party litigation financing. For those unfamiliar
with this practice, TPLF is the practice of investing in
lawsuits. And if that concept makes you uncomfortable, your
instincts are right.
This has the potential to dramatically adversely affect our
civil justice system by increasing the filing of questionable
claims, diminishing the ability of individuals to have a say in
their own lawsuits, to prolong litigation, to drive up the
return on investments for the investors in such litigation, and
to compromise the critical attorney-client relationship.
In my written testimony, I outline a number of proposals
for addressing this issue.
Again, I appreciate the opportunity to speak this morning
and would be happy to answer any questions.
[The prepared statement of Mr. Beisner follows:]
Mr. Franks. Thank you. And I thank you all for your
We will now proceed under the 5-minute rule with questions.
And I will begin by recognizing myself for 5 minutes.
And I will start with you, Ms. Milito.
Ms. Milito, you stated in your written testimony that we
``must also address the reality that small business defendants
are rationally discouraged from vindicating their rights in
court under the current legal rules.''
Now, it seems to me that you are essentially saying that an
innocent small business may have to pay money to trial lawyers
to avoid paying an even more significant amount by litigating
their cases to victory.
Is that true? Or can you elaborate?
Ms. Milito. Yes, certainly. And that is true. And I think,
actually, the point was made in part by Mr. Conyers' statement,
too, who I think referred to large, costly cases. Hearing about
these large, costly cases that you read about in the news,
these class-action, that feeds into the fear that I hear from
small business members who oftentimes, when they are threatened
with a lawsuit or they receive that demand letter in the mail,
their first thought is, my goodness, what do I do and how much
is this going to cost me, because there is an immediate
recognition that, like with Mr. Volpi, I am going to need to
get an attorney and attorneys are expensive.
And in this respect, I am a kind of aligned with my
members. I have been out of private practice for nearly 20
years, so I get sticker shock, too, when I hear about what
attorneys cost, as do our members. And our members have an
appreciation that attorneys, whether they are plaintiff's
attorneys or defense attorneys, are entitled to get paid. They
have an expertise, like Mr. Beisner. But it is expensive, and
it is costly to defend these cases.
So I spoke with a member, ironically, just yesterday, who
has been threatened with a wage and hour issue. And she has
already paid her attorney nearly 5 hours, and she said, you
know, this is $260 an hour. As of right now, we don't even have
the complaint. I just do not know what to do. I am at the point
where I kind of want to pay off this individual, even though I
do not think I did anything wrong. I do not think I violated
any wage and hour law, but I just want this to end, because I
do not know how long this is going to go on. They just want to
So it is very often--they are not going to go and engage in
long, costly discovery, my members. They may not even ever see
a complaint, like this member I spoke to yesterday. They want
to kind of, as much as they hate to throw up their hands in
defeat, they want to pay, get out and just kind of make this go
away so they can get back to running their business.
Mr. Franks. Mr. Frank, you stated in your written
testimony, ``At a minimum, the parties should be required to
give notice to the class of who the cy pres recipients are and
whether there are relationships between the recipients and the
parties, attorneys, and judge.'' Though this information seems
obviously material to the fairness of the settlement, courts
have generally refused to establish bright line rules that
penalize parties that hide this information from class members.
Could you please elaborate on why some courts are reluctant
to make the cy pres system more transparent and what Congress
might do to rectify that?
Mr. Frank. I do not understand why the courts are not
creating the bright light rules here. To me, it seems an
obvious solution, and one answer is that I am litigating
against millionaire attorneys who have a lot of money at stake,
and if I win on that point, they might not get their money, so
they throw as much mud into the litigation process as possible
to protect themselves on that issue.
Congress can certainly require notice to have these things.
In the Class Action Fairness Act, for example, defendants are
required to give notice to State attorneys general about a
pending settlement, so that the State attorney general can come
in and intervene on behalf of class members who are treated
unfairly. Unfortunately, that provision has not had very much
effect, because most State attorneys general have just sort of
But similar provisions to the existing 1715 in requirements
and notice, and holding that a defendant does not get the
benefit of waiver, if the notice does not have these
provisions, or that attorneys will be punished if they fail to
make the appropriate disclosures, will create the right
incentives so that class members know went attorneys are
diverting money to their alma mater or to their ex-wife's
Mr. Franks. Thank you, sir.
Mr. Beisner, has President Obama withdrawn the previous
Administration's executive order that bans the Justice
Department from hiring contingency fee lawyers, unless required
by law? And if not, what would that say about the President's
Mr. Beisner. To my knowledge, that executive order is still
on the books. And to be clear what it means is it precludes the
Federal Government, when it is going to enforce laws, from
getting contingency fee counsel involved in the litigation. And
to me, it is a policy saying that is something the Federal
Government should not do in enforcing its laws, and that should
apply when State AGs are enforcing Federal law as well.
Mr. Franks. Thank you. And I would now recognize the
Ranking Member for 5 minutes, Mr. Nadler.
Mr. Nadler. Well, thank you. I want to say, if anything
useful has come out of this hearing so far it is that I have
found out about that executive order from the President saying
that the AGs shall not hire contingency fee lawyers, and I will
do my best to get that revoked as soon as possible.
Ms. Doroshow, Mr. Beisner claims that contingency fee
agreements between State AGs and private counsel are somehow
problematic. Can you explain how these agreements really
operate and the risk that taking a case on a contingency fee
Before you do that, let me read something that will set the
stage for this question. Very often, the State AG will find
himself outclassed by very large law firms hired by very rich
litigants. So for example, in the tobacco litigation, the
strategy of the tobacco companies with bury everybody in paper
and make it too expensive to fight. A memo written by counsel
for R.J. Reynolds Tobacco made it clear that outspending
litigants and forcing them to abandon their claims was the core
staple of the tobacco industry's litigation strategy. I quote
from the memo, ``The aggressive posture we have taken regarding
depositions and discovery in general continues to make these
cases extremely burdensome and expensive for plaintiffs'
lawyers. The way we won these cases was not by spending all of
RJR's money but by making that other SOB spend all of his.''
Could you comment on some of the proposals you have heard
in the context of this kind of memo about prohibiting State AGs
from hiring contingency fee lawyers?
Ms. Doroshow. Sure. The State AGs make rare use of
contingency fee lawyers, but they do so if they are in a
situation where the office is underresourced and understaffed,
and they need to enforce State law and protect their consumers,
and they do not have the staff to do that. So they bring on
contingency fee lawyers who, by the way, like all contingency
fee lawyers, are paid nothing until and unless the case is won.
And in this case, the payments, the fees, are paid from the
company that has been determined to have broken the law.
Taxpayers do not pay these fees. Not only that, taxpayers in
many cases--the tobacco cases being a good example of that, but
there are many, many others--have recovered millions and
millions of dollars as a result of these State AG cases.
Mr. Nadler. So, Mr. Beisner, why is that not a great public
Mr. Beisner. Well, I am not sure I agree with the factual
premise on that.
Mr. Nadler. Well, let us put it this way: By definition, if
you win the case, it is not a frivolous case. You won. The
courts have determined it is not.
Mr. Beisner. Oh, yes.
Mr. Nadler. If an AG, through a contingency fee lawyer,
wins millions of dollars in damages for the taxpayers or for
some injured class in the State, what is wrong with that?
Mr. Beisner. Because there is a huge cost to the State to
do that, because the lawyers involved keep 40 percent of the
money that came in.
Mr. Nadler. But if that had not happened, the State would
have gotten zero and the State could not have afforded to bring
the case in the first place.
Mr. Beisner. If the State had decided that it was a
priority, it could have paid those attorneys by the hour, as
many States do. Many States do not have----
Mr. Nadler. But that might cost a fortune. And then you run
into the problem that you are up against the tobacco companies,
some other big company that is just trying to run up your
costs. Isn't this a good way around that?
Mr. Beisner. No, it is not. And I think it also ignores the
fact that through NAAG, and other resources, the attorneys----
Mr. Nadler. Through what?
Mr. Beisner. The National Association of Attorneys General.
Sorry. They are able to pool resources and be very effective.
Mr. Nadler. Ms. Doroshow, would you comment on that? And on
the 40 percent figure?
Ms. Doroshow. Well, I mean, yes, they are not charging 40
percent. You know, I think in these cases, they usually are
charging far, far less than the normal one-third fee.
But in any event, this is not money that the taxpayer is
paying. This is money that the defendant is paying. The company
that broke the law is paying these fees, not the taxpayer.
Mr. Nadler. Let me ask you one other question, Ms.
Doroshow, and then Mr. Beisner.
The Attorney General is an elected official in most States.
Shouldn't he make that judgment? Why should the Federal
Government, as I gather Mr. Beisner would have us do, prohibit
the exercise of judgment by an elected official as how to
allocate resources and protect his constituents?
Ms. Doroshow, first.
Ms. Doroshow. You know, this is something that is obviously
a State issue. Congress should have no involvement in it. There
are some State laws, 20-some, that provide Federal and State
concurrent authority to enforce the law. In our organization,
and there was testimony actually last year by Amy Widman, a law
professor at Northern Illinois University, about the research
that they did to show that that concurrent enforcement
authority with AGs----
Mr. Nadler. But I mean, Mr. Beisner would say that the
Federal Government should prohibit the attorney general, who is
an elected State official, from using his or her judgment as to
whether to hire a contingency fee lawyer to vindicate or try to
vindicate the rights of the consumers or the taxpayers or
whoever in the case. We should interpose our judgment and say
you may not do that.
He is an elected official. He is not risking State money.
Why shouldn't he be allowed to do that?
Ms. Doroshow. The Federal Government should stay out of
Mr. Nadler. And if I could ask----
Mr. Franks. The gentleman's time has expired.
Mr. Nadler. Could we let Mr. Beisner answer the question?
Mr. Franks. Please finish the question.
Mr. Beisner. Let's be clear that what we are talking about
is when that judgment is being made about enforcing Federal
law. What we are talking about is not State AG enforcement of
Mr. Nadler. I thought we were talking about State AGs?
Mr. Beisner. We are talking about State AGs enforcing
Federal law under those statutes that permit it. And there we
are saying there is a distinct Federal interest in saying,
since the Federal Government, by executive order, does not use
contingency fee counsel, that policy judgment has been made.
And where that authority for enforcement has been delegated to
the State, that shouldn't be used there either.
Mr. Franks. The gentleman's time has expired.
I would now recognize Mr. DeSantis for 5 minutes.
Mr. DeSantis. Thank you, Mr. Chairman. Thank you for
conducting this hearing. Thank you to the witnesses.
You know, I think that litigation abuse in an important
issue. It is interesting the Founding Fathers, if you look
back, they thought attorneys would be very trustworthy and the
type of people who would really be able to be leaders. And
obviously, I think we have seen a change in how the profession
is viewed by the public, and I think this is one of the reasons
Ms. Milito, you talked about in your testimony that many of
your members receive cases brought against them, sometimes
threatened, but sometimes actual cases. They look at it and
they are pretty convinced that they would be able to win on the
merits, if they did not do anything wrong, but then they face
the calculation of, okay, how much is it going to cost me to
defend the case?
And so, even if they win, oftentimes they are better off
just cutting a check to somebody to be able to go away, not
just purely based on economics, although that is obviously a
calculation, but the time and effort that they would have to
invest in the case.
Is that a pretty standard thing that you hear from your
members? Having to make that type of choice?
Ms. Milito. Definitely, yes. It is a simple cost-benefit
analysis. And you are right to hit on, too, the anxiety, the
stress, the time away from the business, kind of the
incalculable financial costs that go into the decision to
settle a case where they do feel that, hey, I did nothing wrong
And you know, even the situation going back to Mr. Volpi,
the frustration he expressed to me was my attorney told me that
I could file a motion to recoup my attorneys' fees, but filing
the motion and the fight to recover that would probably cost
$4,000. And he said, so to pay $4,000 to get $1,000 back and
the end of the day makes absolutely no sense.
So it is just a cost-benefit analysis, and that is why they
try to get out.
Mr. DeSantis. In your testimony, you mentioned how the
incentives in our system are structured to kind of lead to this
outcome over and over again. Would your members be receptive--
many of these cases may be done under State law, so it wouldn't
be for us to get involved, if that is the case.
But would they be open to reform where they would be able
to recover attorneys' fees? Like in Britain, the loser will
just pay the fees. It seems to me that would change the
incentives for some of these cases being brought.
Ms. Milito. Certainly, we have some members that I think I
have heard from that would support that. But I think it is more
disincentivizing attorneys and, certainly, a lot of attorneys--
most attorneys, I think, comply with the highest ethical
standards. I do want to say that at the outset, and I think our
members would say that, too.
It is kind of these bottom feeders, if you will, that are
going after the low dollar cases with small businesses. And so
disincentivizing the frivolous claims by maybe strengthening
Rule 11 sanctions, making it easier to recover sanctions. And
this does get into, as you pointed out, some State law issues,
too, with consumer statutes not allowing recovery of fees when
you bring those claims. Those sorts of things.
I think there are other areas that you could look at, too.
Mr. DeSantis. Okay, great.
Mr. Beisner, in terms of the contingency fees with these
State AGs, just in your experience, is there ever a time when
you just absolutely need to do a contingency fee? Or could
these cases be dealt with without that?
Mr. Beisner. I think, for the most part, they can be dealt
with without attorneys' fees. You know, I think there are some
instances where States have tax collection operations and so
on, where that may be the only approach that is available to
I think what is of most concern, though, is the idea that
when you hire contingency fee counsel and basically pin the
attorney general's badge on them, there are really worries
about handing over control of litigation to somebody who has a
financial interest in the outcome.
It is like saying to traffic officers, go out and give
tickets and you can keep half of the money you collect. You
worry about the public perception that the judgment, the
prosecutorial judgment that ought to be exercised when you are
using the authority of the State, when you have that badge
pinned on, it is not being properly used. And that is the
concern in these larger cases, that are really prosecutions of
a sort, about the use of contingency fee counsel.
Mr. DeSantis. And do you know, from your experience, how
are these contingency fee attorneys selected by the State AG?
Is there a system, or is it just kind of ad hoc?
Mr. Beisner. It varies from State to State. I should start
by saying there are some States and some State attorneys
general who say we are having nothing to do with this. We do
not want this at all, and have made that judgment.
Other jurisdictions in recent years have enacted
legislation, in large part because of the abuses that were
recognized coming out of the tobacco litigation of how counsel
were selected and how much they were paid, that requires all of
this to be done in the sunshine.
And then there are other States where there is a little bit
of an anything-goes situation. And I think there are concerns
that in some of those jurisdictions, you do have a little bit
of a pay-to-play sort of situation, where there does seem to be
some correlation between campaign contributions and which
counsel gets selected to carry on these activities on behalf of
Mr. DeSantis. That was going to be my next question.
So with that, thank you, Mr. Chairman. I yield back.
Mr. Franks. Thank you, Mr. DeSantis.
I will now recognize Mr. Conyers for 5 minutes.
Mr. Conyers. Thank you, Mr. Chairman.
There seems to be two schools of thought here demonstrated
by three of the witnesses.
Attorney Doroshow, is that the correct pronunciation?
Ms. Doroshow. Doroshow, actually. But that's fine.
Mr. Conyers. Doroshow.
How do we deal with the question of, for example,
supposedly frivolous cases that would otherwise be flooding
The Iqbal v. Ashcroft decision by the Supreme Court said
that the court should dismiss claims if they are not plausible.
And what I am hearing here is a number of criticisms that these
claims are not being dismissed, even though they are frivolous.
That seems like we might want to hold a hearing to
determine the accuracy of that among the different courts, the
Federal and State court itself.
Ms. Doroshow. Well, I do think Iqbal, those cases have made
it very difficult for many cases to proceed. And I think it
would be worthwhile to take a look at the impact that that has
had on the dismissal of legitimate cases that should be in
I mean, the reality is that tort cases are dropping, and
they have been dropping substantially in this country for
years. They have been down 25 percent in the last 10 years,
while business cases, including contract cases, have gone up 62
So I think the proof is this in the statistics. There are
plenty of mechanisms. Rule 11 is certainly another one that
provides judges enough tools to dismiss frivolous cases, and
they are being dismissed.
But also legitimate cases are being dismissed, and that is,
in my view, a more serious problem.
Mr. Conyers. Well, let's look at class actions. For many
with relatively small claims, there is no other way for a
victim to get into court. And what I am hearing now is that the
poor corporate defendants need some help.
And this hearing seems to be designed to create sympathy
for the corporate lawyers, who are clearly more affluent than
the consumer class of lawyers. And it seems to be just
backward, as far as I am concerned.
The corporations, through tobacco suits and others, can
keep you in court. As a matter of fact, now an appeal can take
a victory away from a plaintiff, and we are here worrying about
the corporations and how terrible it is that they are subject
to class-action suits. And it seems to me that it is just the
Where do you come out in evaluating this part of it?
Ms. Doroshow. It is pretty clear that the Concepcion case
has resulted in the dismissal of class actions, because of the
class-action ban that now has been legitimized by the Supreme
I mean, these cases are not being brought, basically at
all, because if you do not have the class-action tool, then
small claims cannot be brought it all. And I think that is a
result of that, the primary result of that case.
Mr. Conyers. The last question is on the contingency fee
contracts. They have been, more or less, demonized in this
discussion. Can we justify them under certain conditions?
Ms. Doroshow. Well, contingency fees are the only way that
individuals can get access to the courts and, in many cases,
State attorneys general, as well, who are underfunded and
It is a critical part of the civil justice system. And
conservative groups agree. The American Enterprise Institute
even published a study called, ``Two Cheers for the Contingent
Mr. Conyers. Amazing. And I thank you very much.
I yield back, Mr. Chairman.
Mr. Franks. Thank the gentlemen.
And I now recognize the gentleman from Iowa, Mr. King.
Mr. King. Thank you, Mr. Chairman.
And I thank the witnesses.
As I listen to the testimony and review it, just for me, I
always like to get to: How do we fix this in a big way? And
then, if we cannot get there, how do we back up to what we can
I did not hear the proposals for those solutions, but I
first wanted to ask, and I think I will go first to Ms. Milito,
do you know of a country that has more rampant litigation than
the United States? Anyplace on the planet?
Ms. Milito. I mean, from the reports I have read, there is
a litigation problem, and certainly our members perceive that
our country is too litigious. I mean, I have not compared,
myself, data, but, I mean, it is kind of sue first and think
later, is what I heard from a member recently.
Mr. King. Do you believe that it affects our culture and
our quality of life?
Ms. Milito. I think it affects the culture for a small-
business owner. This kind of this climate of fear pervades. One
issue that was brought up was about NFIB's problems and
priorities poll and how a lawsuit is lower on our problems and
priorities. But I point out that, in 2011, NFIB's research
foundation polled small employers--not just NFIB members, but
small employers nationwide--and 40 percent identified
regulation and legal issues as an impediment to growth.
So it is this regulatory and legal combined together that
is an impediment to growth. So it does impact business owners.
Mr. King. I would just give you a cultural narrative, a
short one, and that would be a small town that was on a
lakeshore that had one lot that belonged to the city. And they
always put a dock out there for public use. And it was nice
that there was open access to the public along an otherwise
private shoreline. And someone went out there and put one of
those steel fishing rod holders on the dock post, and a little
kid jumped in, cut his arm on that.
It turned into litigation. The result of the litigation was
no dock, no public access. The beach is shut down.
That is an example of how our lives aren't as rich as they
might be if it weren't for this litigation.
I would ask if there is anyone on the panel that knows of a
country that has more rampant litigation than the United
States. Signal to me, and I will recognize you.
Mr. Beisner. Yes, I certainly do not. And I think that part
of the reason for that is, if you look at our legal system
versus virtually every other country's legal system, first of
all, they do have a principle in most other countries with more
sophisticated legal systems that if you file a lawsuit and you
do not win, there are consequences. You pay all or part of what
the other side had to invest in defending itself.
Also, most other countries do not have contingency fees.
Now, I am not necessarily saying we should move away from
that, but in answer to your question----
Mr. King. You are starting to convince me, however.
Mr. Beisner. The reason we have a lot more litigation and
part of the reason I worry about this third-party litigation
funding I was referencing is because now you have what are
basically hedge funds coming in and saying, ``We have a new
stock market. We have a new place to invest,'' which is going
to cause the amount of litigation to increase even further.
Mr. King. But your recommendation, when you get to that
point of no contingency fees and loser pays, those two
components of your discussion, what would be your
recommendation on how we fix this?
Mr. Beisner. I am not sure that we necessarily should back
away from the contingency fee system. I think we need to have
some restrictions on when it is used.
And I wouldn't necessarily advocate a full loser pays
system, but to think about whether there should be allocation
of costs of discovery, which is a huge expense in many of these
cases, when one side wins or loses, may be an area to look at.
But there needs to be some consequences there to the
decision to file litigation. And that is part of the problem
now. You can just file a lawsuit. And if it does not work, no
harm, no foul.
Mr. King. Ms. Doroshow, can you give us an example of an
incident where an American citizen could have something
calamitous happen to them and there would be no one liable but
Ms. Doroshow. Yes, as a result of the Riegel v. Medtronics
Supreme Court case, currently, victims of defective class III
medical devices--that is like heart defibrillators and
pacemakers--have no remedy. And there are thousands of these
cases that have been dismissed, of people with these kinds of
very serious and defective medical devices.
Mr. King. And, Mr. Frank, what do you have to say about the
Mr. Frank. That characterization, I think, mischaracterizes
the real decision, and confuses product design with defective
A product that does not meet the FDA's standard still
provides some remedy. It is only when the FDA has approved the
product design that the Supreme Court has held that juries do
not get to second-guess the FDA's decision.
Mr. King. I thank all the witnesses. I see I have run out
of time. I appreciate your testimony, and I yield back the
Mr. Franks. I thank the gentleman. And I now yield to Mr.
Deutch for 5 minutes.
Mr. Deutch. Thank you, Mr. Chairman.
Mr. Beisner, you raised a couple points that I found pretty
You started to explain that there are occasions where it is
appropriate for States to engage outside counsel. You talked
about tax collection cases. You said those are really the only
ones, and those are really like prosecutions. Can you explain
Mr. Beisner. I think what I am getting at is where you
have--you may find some room for it where you have a liquidated
amount that is owed to the State, so that when you give this to
an outside counsel, there is not this notion of discretion that
is being exercised in what is being----
Mr. Deutch. A liquidating amount owed to the State based on
Mr. Beisner. If I am a taxpayer and I owe $1,000 to the
State, for the State to get some assistance in collecting that
liquidated amount does not involve a lot of prosecutorial
I think it is where you get into the ``I want to prosecute
for wrongdoing'' sort of category where this gets to be more of
Mr. Deutch. So in that case, if the purpose is to go after
someone who owes money to the State, then I would suggest that
it is worth taking a look, as some my colleagues have, at the
The tobacco litigation, I do not need to remind you, was
not litigation brought by States in order to punish tobacco
companies. The tobacco litigation was brought by States because
of the billions and billions of dollars in health care costs
that the taxpayers in those States had to pay as a result of
the products that tobacco companies were making.
So when those cases were brought, in 46 States that settled
in '98, the tobacco industry paid more than $200 billion.
And without the outside counsel, to think that there could
have been some reliance on the small attorneys general offices
in every State to bring that litigation is outrageous.
In fact, and I think Mr. Nadler touched on this, you do not
have to take our word for it. When R.J. Reynolds' lawyer
explained, and I quote, ``The aggressive posture that we have
taken regarding depositions and discovery in general continues
to make these cases extremely burdensome and expensive for
plaintiffs' lawyers, particularly sole practitioners. To
paraphrase General Patton,'' he said, ``the way we won these
cases was not by spending all of Reynolds' money but by making
that other son of a bitch spend all his.''
If I as a taxpayer in the State of Florida know that the
only way that we are going to be able to be compensated for the
harm done to the taxpayers--because, really, that is what this
whole hearing is about, the cost to our society--then I want to
be sure that we do everything we can to make sure that the
State will be fully compensated.
And if I am up against someone who has made it his sole
purpose to drag out--and with all due respect to Mr. Frank and
his crusade against millionaire attorneys, when the tobacco
companies' own lawyers say that the whole point of this is to
drag it out, to make it impossible for the States and,
ultimately, in the class-action suits, to make it impossible
for those who have been injured by that product that kills
people, then how is it possible that the only time we could
possibly permit class actions is when taxes are involved?
Mr. Beisner. Well, I will make two points on this.
First of all, in the tobacco litigation, it is not the sort
of situation I was talking about, because it was not at all
liquidated. There were huge debates about what the causation is
there, with a huge amount of discretion----
Mr. Deutch. I am sorry, I am sorry. Mr. Beisner, hold on a
I do not want to relitigate the tobacco litigation. It is
not my practice. I was a real estate lawyer.
There is a huge amount of debate about what the causation
was for what?
Mr. Beisner. What the relationship was----
Mr. Deutch. Between smoking and cancer?
Mr. Beisner [continuing]. With smoking and what the health
Mr. Deutch. Between smoking and cancer. That is still
Mr. Beisner. Well, between the costs that----
Mr. Deutch. No, are we still debating that point?
Mr. Beisner. No, I am not debating. What I am saying is
that between the actual costs that were incurred by the State
on that issue.
And let me just note, in terms of--the States weren't made
whole by that litigation, because many of the States then
legislated to shut down that sort of contingency.
Mr. Deutch. Mr. Beisner, I only have another minute. I want
to touch one other thing you said.
You said that you are worried about the sullying of the
reputation of our legal system. You talked about, in response
to a question from one of my colleagues, this idea of pay-to-
play and the correlation between contributions made to
attorneys and who is hired as lawyers by the State.
I am just curious, if you know the figure, the amount of
money that the U.S. Chamber contributed in judicial races
across the country? Do you know that figure?
Mr. Beisner. I don't.
Mr. Deutch. And can you tell me why the Chamber would
contribute to judicial races? Because again, my focus is,
again, on ensuring that the reputation of the legal system is
Mr. Beisner. I am not aware of any circumstance in which
the Chamber has been asked or retained by a State to----
Mr. Deutch. No, I am not either. I am not either.
Mr. Beisner [continuing]. Obtain money from lawsuits.
Mr. Deutch. Okay, I yield back. I yield back, Mr. Chairman.
Mr. Franks. I thank the gentleman.
And this, actually, concludes today's hearing, so thanks to
all of our witnesses for attending. And without objection, all
Members will have 5 legislative days to submit additional
written questions for witnesses or additional materials for the
And, again, I thank the witnesses. I thank the Members. I
thank the audience for their attendance. And this hearing is
[Whereupon, at 11:20 a.m., the Subcommittee was adjourned.]