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Frivolous Lawsuits

Date: May 13, 2008

Background

Frivolous lawsuits create a climate of fear for America’s small businesses. While some claims are legitimate, a large percentage are completely without merit. However, individuals and entities that are sued still have to defend themselves, and this defense is often costly to both business and consumers. Individuals and attorneys who file baseless claims and victimize innocent people should be held accountable for their actions.  

Since 1993, Rule 11 of the Federal Rules of Civil Procedure, which helped to prevent frivolous filings, has been hamstrung by changes that loosened its effectiveness. Because of the changes, parties and their counsel are allowed to avoid sanctions simply by withdrawing their frivolous claims within 21 days. This change has removed real incentives for attorneys to avoid frivolous filings.

Main Points of Concern

NFIB supports mandatory sanctions for lawyers who bring frivolous lawsuits.

  • The costs of tort litigation are staggering, especially for small businesses. The tort liability price tag for small businesses in 2008 was $105.4 billion dollars [1]. While some claims are legitimate, a large percentage are completely without merit. Small businesses that are sued still have to defend themselves, and this defense is often costly to both businesses and consumers.
  • Small businesses are the target of many frivolous lawsuits because trial lawyers understand that a small business owner is more likely than a large corporation to settle a case rather than litigate. Often small business settlements are less than $5,000, but even $1,000 settlements are significant for businesses. Settling cases results in higher business insurance premiums for small business owners. Small businesses annually pay $35.6 billion out of pocket to settle these claims [2].
  • Individuals and attorneys who file baseless claims and victimize innocent people should be held accountable for their actions.
  • The Lawsuit Abuse Reduction Act (H.R. 966) will discourage frivolous lawsuits by reinstating several important provisions to Rule 11 of the Federal Rules of Civil Procedures that were changed in 1993.
  • In 1993, the Civil Rules Advisory Committee, despite overwhelming support for Rule 11 from federal judges, decided to weaken the rule by allowing parties and their counsel to avoid sanctions simply by withdrawing their frivolous claims within 21 days of the motion for sanction being filed. 
  • The Lawsuit Abuse Reduction Act makes Rule 11 sanctions against attorneys or parties who file frivolous lawsuits mandatory rather than discretionary.
  • It removes Rule 11's "safe harbor" provision that currently allows parties and their attorneys to avoid sanctions for making frivolous claims by withdrawing them within 21 days after a motion for sanctions has been filed.
  • This legislation allows for Rule 11 sanctions for frivolous or harassing conduct during discovery and allows monetary sanctions, including attorneys’ fees and compensatory costs, against a represented party.
 
[1] "Tort Liability Costs for Small Businesses," U.S. Chamber Institute for Legal Reform, 2010, at 11.
[2] Id.

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