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November 22, 2005 7:10 AM CST

MCAA Works to Pass the Lawsuit Abuse Reduction Act; Small Business Owners Have Little Faith in Legal Profession

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According to a survey taken by the National Federation of Independent Business recently, nearly a third of small business owners have little or no trust in lawyers or the legal profession. Why? Because it costs little more than a small filing fee to generate a lawsuit, but costs much, much more for a small business to defend against it. And in most instances, these lawsuits are frivolous claims made by "litigation tourists" who are guided by plaintiffs' attorneys into filing what the American Tort Reform Association has called "Judicial Hellholes". These so-called "litigation tourists" look for the most magical jurisdiction in which to get a favorable verdict. But these types of frivolous claims stifle economic growth. The current tort system is costing Americans $246 billion per year and it is estimated that the average family of four pays a $3,380 annual "tort tax". No other industrialized country pays more as a percentage of its Gross Domestic Product.

The House of Representatives recently passed H.R. 420, the Lawsuit Abuse Reduction Act by a vote of 228-184. This bill (LARA) will help rein in frivolous lawsuits by (1) restoring mandatory sanctions on attorneys, law firms, or parties who file frivolous lawsuits; (2) abolish the "safe harbor" provision that allows parties and their attorneys to avoid sanctions by withdrawing a suit within 21 days after a motion for sanctions has been filed; (3) permit monetary sanctions, including reimbursement of reasonable attorney's fees and litigation costs in connection with frivolous lawsuits; and (4) extend the Federal Rule of Civil Procedure 11to state cases in which a state judge finds the case substantially affects interstate commerce by threatening jobs and economic losses to other states.

LARA provides a national solution to end unjustifiable forum shopping and stops litigation tourism. The impact of frivolous lawsuits on businesses goes well beyond the financial impact; litigation causes substantial emotional hardship and changes the tone of the business. Small businesses have few options to "recoup" these costs; raising prices is not an option, but oftentimes cutting operating expenses (such as letting employees go) is a painful but necessary step in an effort to rebuild the company. It is time to put an end to baseless claims; individuals and attorneys who victimize innocent people should be held accountable for their actions. This legislation is supported by the Bush Administration and MCAA will continue to work to pass this bill in the Senate so the President can sign it into law.


About the Author

Marian J. Marshall was the Director of Government Affairs for the Mason Contractors Association of America.

 

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