REVISED: No Consensus among Republicans and Democrats’ Debate on Small Business Class-Action Lawsuits, Forced Arbitration

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The Judiciary Committee Meeting in the Dirksen Senate Office Building

By Emily Simonsen

WASHINGTON – During the Judiciary Committee’s Nov. 8 hearing on the Lawsuit Reduction Act of 2017, Sen. Al Franken’s (D-MN) opening remarks relayed the names and stories of Hank Goldsmith, James Moore and Congressman Bruce Vento, victims who died from Mesothelioma.

The victims’ families, who sat in the hearing’s audience, said their relatives developed Mesothelioma from exposure to Asbestos at their jobs. Yet their legal claims were never resolved and will never be resolved if the Lawsuit Reduction of Act of 2017 passes, said Franken.

“We’re here to discuss a series of bills that would shut the courthouse doors on individuals who have been wronged,” said Franken. “Forced arbitration clauses push Americans into a privatized justice system that is inherently biased toward big business and offers no meaningful appeals process that simultaneously insulates corporations from liability and deprives Americans of one of their most fundamental constitutional rights: the right to have their claims heard in a public court of law,”

As Franken alluded to, the Lawsuit Reduction Act of 2017 would ensure businesses can implement forced arbitration clauses.

Forced arbitration clauses are when a person or company sign a contract waiving their right to sue the firm they conduct business with, according to the National Association of Consumer Advocates, a nonprofit composed of attorneys and consumer advocates that represent consumers’ interests.

Forced arbitration clauses explain why certain companies can get away with wrongdoing, said Franken.

“As we’ve seen with Wells Fargo, Equifax and countless companies covering up systemic sexual harassment, some powerful corporations will go to great lengths to hider their wrongdoing and avoid liability. Only meaningful access to the courts and to a jury ensure they’re held accountable,” said Franken.

Furthermore, the Lawsuit Reduction Act of 2017 would make changes in the way lawsuits are handled.

Firstly, it would amend Rule 11 from the Federal Rules of Civil Procedure, by requiring courts to impose sanctions on lawyers or parties who introduce ‘frivolous’ arguments that lack merit.

Secondly, the amendment requiring sanctions would uphold sanctions even if the frivolous argument were to be withdrawn.

Thirdly, required sanctions would include monetary compensation, where lawyers or parties introducing a frivolous argument would be forced to reimburse defendants for reasonable attorney fees.

“Americans face unprecedented obstacles to exercising their seventh amendment right,” said Professor Myriam Gilles, a Vice Dean and law Professor from Yeshiva University in New York, testifying against the bill.

“This is no time to be looking to for new ways to further limit Americans’ access to justice,” Gilles said. “Instead, this committee should be looking at ways to increase access to a fair and transparent systems where corporations, no matter how massive, no matter how powerful, can be held accountable,”

Gilles’ argument for accountability, in relation to forced arbitration, contextualizes the Senate’s recent decision to veto a proposal that would replace forced arbitration with voluntary arbitration.

“A few weeks back, the Senate voted down the Consumer Financial Protection Bureau’s rule to limit the use of forced arbitration and contracts for consumer financial products and services,” said Franken.

If the voluntary arbitration proposal had passed, consumers would no longer be forced to forego suing rights but would have a choice. Furthermore, much of the debate surrounding the Lawsuit Reduction Act of 2017 would be mute.

“It is important to give victims of injustice their day in court, but lawsuits can also victimize those who are sued,” said Elizabeth Milito, testifying in favor of the bill as the Senior Executive Counsel at the Small Business Legal Center, a nonprofit that provides small businesses with legal resources.

Small businesses do not have in-house counsel and are easy targets for frivolous lawsuits, said Milito.

“I hear more and more about small businesses across the country and in my home state of Iowa getting hit with frivolous lawsuits and demand letters,” said Chairman Grassley. “Settlement shakedowns come in many forms. In some cases, lawyers simply drive down the street or even use pictures on Google Maps to look for any possible violation of the D.A. [Americans with Disability Act] by local businesses. This is quickly followed then by a demand letter to the business, or a lawsuit would prevail, rather than seeking a correction to the alleged violation of the demand,” said Grassley.

Furthermore, small businesses face heavy financial burdens through litigation like settlement shakedowns, said Milito.

“Small business owners may be risking financial ruin if they refuse to settle and opt to litigate in court,” said Milito. “Keep in mind too that in many instances, there is not insurance that could cover a lawsuit and with no guarantee that at the end of the fight the defendant will prevail, small business owners often rationally opt to avoid the costs of litigation by agreeing to settle claims that they believe to be without merit,”

“Another problematic trend is the use of third party litigation funding, companies investing in lawsuits,” said John H. Besiner, a partner from the Skadden, Arps, Slate, Meagher, & Flom law firm, testifying in favor of the bill on behalf of the U.S. Chamber of Commerce Institute for Legal Reform.

After testimony from the three witnesses, question and answer rounds continued for an hour, before Franken delivered the closing remarks.

“In a constitution that is otherwise dedicated to protecting the individual against the power of the state, this is the institution that protects the individual against the power of other, more powerful individuals,” said Franken. “And I hope we’ll bear that in mind as we continue this conversation,”

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