[Congressional Record Volume 157, Number 35 (Wednesday, March 9, 2011)]
[Senate]
[Pages S1509-S1510]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself and Mr. Lee):
  S. 533. A bill to amend Rule 11 of the Federal Rules of Civil 
Procedure to improve attorney accountability, and for other purposes; 
to the Committee on the Judiciary.
  Mr. GRASSLEY. Mr. President, I rise today to introduce important 
civil justice legislation. This legislation is desperately needed for 
several reasons--the most important of which is to cut down on the 
costs and expenses that are preventing private businesses from creating 
jobs for our fellow citizens during these difficult times.
  The billions of dollars wasted on frivolous lawsuits cost Americans 
jobs and severely damage our economy. The precise cost of America's 
lawsuit culture is staggering. The tort system's direct costs in 2002 
were $233 billion, the equivalent of a 5 percent tax on wages. Today 
that number is even higher; the annual direct cost of American tort 
litigation exceeds $250 billion.
  Indeed, frivolous lawsuits are helping to prevent the ``innovation'' 
that the Obama administration is touting as the key to ``job creation'' 
and economic recovery. For example, firms with recent initial public 
offerings are most at risk to be sued. In fact, companies are most 
likely to be sued in their second year of public trading. In other 
words, the very corporations most likely to be the source of 
significant new job creation are at the highest risk of being sued just 
when they are seeking expansion capital through public offerings.
  In particular, frivolous lawsuits hurt small businesses. Small 
businesses rank the cost and availability of liability insurance as 
second only to the cost of health care as their top concerns, and both 
problems are fueled by frivolous lawsuits.
  Our front-line defense against frivolous lawsuits and the misuse of 
our legal system is Rule 11 of the Federal Rules of Civil Procedure. 
This rule is intended to deter frivolous lawsuits by sanctioning the 
offending party. The power of Rule 11 was diluted in 1993. This 
weakening is unacceptable to those of us who want to preserve courts as 
neutral forums for dispute resolution.
  That is why I am introducing the Lawsuit Abuse Reduction Act of 2011, 
``LARA,'' which amends Rule 11 to restore its strength and ability to 
truly deter frivolous lawsuits. Senator Mike Lee of Utah is 
cosponsoring this bill.
  Representative Lamar Smith, the Chairman of the House Judiciary 
Committee, is introducing an identical bill today in the House of 
Representatives.
  Specifically, LARA takes three strong steps to help thwart frivolous 
lawsuits.
  First, LARA reverses the 1993 amendments to Rule 11 that made 
sanctions discretionary rather than mandatory.
  One of the most harmful changes that took effect in 1993 was to make 
sanctions for proven violations of Rule 11 discretionary. This means 
that if a party files a lawsuit simply to harass another party, and the 
court decides that this is in fact the case, the offending party still 
might not be sanctioned. This is unacceptable. The offending

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party might not be punished at all, which provides no deterrence for 
the offending party or anyone else who wants to misuse the courts. My 
bill reinstates the requirement that if there is a violation of Rule 
11, there are sanctions.
  Second, LARA requires that judges impose monetary sanctions against 
lawyers who file frivolous lawsuits. Those monetary sanctions will 
include the attorney's fees and costs incurred by the victim of the 
frivolous lawsuit.
  Finally, LARA reverses the 1993 amendments to Rule 11 that allow 
parties and their attorneys to avoid sanctions for making frivolous 
claims by withdrawing them within 21 days after a motion for sanctions 
has been served.
  Because of Rule 11's ``safe harbor'' provision, many frivolous claims 
are never fully reviewed by federal judges. Under the ``safe harbor'' 
provision, a person who is victimized by a frivolous claim must hire an 
attorney to draft a motion for sanctions. That motion cannot, however, 
be filed immediately. Rather, under Rule 11(c)(2), the motion is served 
on the offending attorney 21-days before it is filed. During that 
period, the offending attorney can withdraw the frivolous claim and 
thereby avoid any sanction. LARA would prevent such injustices by 
eliminating the ``safe harbor'' provision.
  Although LARA would only amend Rule 11 of the Federal Rules of Civil 
Procedure, the procedural rules in State courts are often amended to 
track changes in the Federal rules. Consequently, it is our hope that 
many states would amend their rules governing frivolous lawsuits to 
reflect the changes implemented by LARA, just as they did when Rule 11 
was last changed in 1993.
  Without the serious threat of punishment for filing frivolous 
lawsuits, innocent individuals and companies will continue to face the 
harsh economic reality that simply paying off frivolous claimants 
through monetary settlements is often cheaper than litigating the case. 
This perverse dynamic not only results in legalized extortion, but it 
leads to increases in the insurance premiums all individuals and 
businesses must pay. That is money that could be going to create new 
jobs.
  I want to work with those who are willing to be reasonable. I know 
that some have expressed concerns with similar bills in the past. We 
have considered those concerns and have drafted a bill that takes them 
into account. For example, this bill expressly provides that nothing in 
it ``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.''
  Requiring mandatory sanctions is not an extreme position. It is a 
reasonable and effective solution to the problem of runaway frivolous 
lawsuits.
  Indeed, a mandatory sanctions requirement is currently the law in the 
area of securities litigation. In 1995, we enacted the Private 
Securities Litigation Reform Act, PSLRA, over President Clinton's veto. 
It essentially reinstates the 1983 version of Rule 11 for the purposes 
of securities litigation that falls within its coverage, and makes the 
imposition of sanctions mandatory. Upon a final adjudication of a case, 
the PSLRA requires courts to make written findings on whether the 
parties have complied with Rule 11. In other words, no motion for 
sanctions needs to be filed.
  At the conclusion of the case, a judge must review the case for 
compliance with Rule 11 and, if he finds that there has been a 
violation, he must impose sanctions.
  So addressing the damaging impact of frivolous lawsuits has had 
bipartisan support in the past. That bipartisan support should be even 
greater during these difficult economic times.
  Let's look at a few examples of the type of lawsuits that businesses 
must contend with:
  In July 2009, three New Jersey residents, backed by an advocacy 
group, filed a class action lawsuit against several hot dog 
manufacturers claiming they were exposed to carcinogens by eating hot 
dogs. None of the plaintiffs had actually developed cancer. The lawsuit 
sought damages in the amount of the total cost of the plaintiffs' hot 
dog purchases and a requirement that the companies place a new label on 
packages and advertising reading: ``Warning: Consuming hot dogs and 
other processed meats increases the risk of cancer.''
  The case was dismissed on a Rule 12(b)(6) motion. Thus, a Federal 
court held that the plaintiffs had failed to even allege a claim, as a 
matter of law.
  In another case, a customer alleged that a wild bird ``attacked'' her 
while in a Lowe's outdoor garden center, causing her head injuries. She 
claimed negligence and a violation of the Illinois Animal Control Act. 
She maintained that the wild birds created a dangerous condition on the 
property and that Lowe's failed to exercise ordinary care to ensure 
that the premises were reasonably safe and failed to prevent the birds 
from entering the garden center.
  A Federal court entered summary judgment in favor of Lowe's holding 
that a ``reasonable plaintiff'' either would have noticed the birds or 
understood that contact with them was possible in any outdoor area with 
plants. The court also held that Lowe's was not the ``owner'' of the 
birds, a necessary element of the customer's statutory claim.
  These are just two examples of the scores of frivolous lawsuits that 
American businesses must contend with each year.
  Requiring sanctions when judges find lawsuits are frivolous will 
deter these types of cases from being brought. The savings will result 
in cost savings for businesses and new jobs for American workers.
  The time for words and rhetoric has long since passed. If the 
President means what he is saying about creating jobs, then we must 
take action. We need to help private business spur job creation. LARA 
is action. LARA is a step in the right direction.
  I urge all of my colleagues to work with me and to support this 
legislation.
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