The Common Sense Legal Reforms Act
The bill makes a number of legal reforms to, among other things, make sure that expert witness testimony is based on scientifically sound evidence, that product liability laws are uniformly applied, that abusive securities lawsuits are limited, and that opportunities for alternative dispute resolution are expanded.
"Loser Pays Rule"
The bill applies the so-called "loser pays rule" (in which the unsuccessful party in a suit pays the attorneys' fees of the prevailing party) to diversity cases filed in federal court. A diversity case involves citizens from different states.
However, the bill limits the size of the coverage to the loser's own attorneys' fees costs (e.g., if the prevailing party spent $100 dollars defending himself and the unsuccessful party spent $50, then the unsuccessful party is only responsible for $50 of the prevailing party's court costs). Courts may also impose other limits on the award of attorneys' fees.
Bill sponsors argue that the "loser pays rule" strongly discourages the filing of weak cases as well as encourages the pursuit of strong cases, since claimants can get their court costs reimbursed if they win.
Honesty in Evidence
The bill amends Rule 702 of the Federal Rules of Evidence regarding expert witness testimony to state that expert testimony is not admissible in a federal court (1) unless it is based on "scientifically valid reasoning" and (2) if the expert is paid a contingency fee (however, the bill allows the judge to waive this second prohibition).
Bill sponsors argue that so-called experts too often base their opinions on "junk science" in order to justify absurd claims.
The legislation creates a uniform product liability law (covering state and federal actions) in three areas: punitive damages, joint and several liability, and fault-based liability for product sellers.
For punitive damages, the bill requires that claimants establish by "clear and convincing evidence" that the harm they suffered was the direct result of malicious conduct. Under the measure, punitive damages are limited to three times the actual harm (i.e., the economic damages awarded). For claimants with little actual harm, awards of up to $250,000 could be awarded.
The bill also abolishes joint liability for non-economic losses (mental distress, pain and suffering, etc.) and holds defendants liable only for their proportion of the harm. Under current law, a defendant can be held responsible for the entire award, even if he is not completely responsible for all the harm done. For example, if a consumer sues the manufacturer, the buyer, the shipper and the merchant and only the merchant is solvent, the merchant becomes responsible for the total amount of damages awarded by the court -- including the portions owed by the other parties. The solvent individual is then forced to recover the others' portions on his own. This legislation would make an individual party responsible only for the portion of damages directly attributable to it.
Finally, the bill makes product sellers liable only for harms caused by their own negligence (e.g., altering or assembling a product or making false claims about the product). Product sellers would only be responsible for manufacturer errors when the manufacturer cannot be brought to court or lacks the funds to pay a settlement.
The bill expresses the sense of Congress that states should enact laws requiring attorneys practicing within their borders to disclose certain information to clients. Specifically, in contingency fee cases, states should make attorneys disclose (1) the actual duties performed for each client and (2) the precise number of hours actually spent performing these duties.
The bill also amends Rule 11 of the Federal Rules of Civil Procedure to restore the mandatory requirement that courts sanction attorneys for improper actions and frivolous arguments intended to harass, unnecessarily delay, and needlessly increase the cost of litigation. Sanctions are to be determined by the judge and may involve financial penalties, contempt orders, limits on discovery and other procedural penalties. Prior to December 1, 1993, federal courts were required to impose sanctions for violations of Rule 11. However, on that date the Federal Judicial Conference's recommendations to amend Rule 11 (making sanctions optional rather than mandatory) took effect since Congress did not act on the proposed rule change.
In addition to reinstating the mandatory sanction, the bill requires, for the first time, that sanctioned attorneys compensate injured parties.
At least 30 days before a plaintiff can bring a suit, he must transmit written notice to the defendant of the specific claims involved and the actual amount of damages sought. Proponents of the legislation argue that prior notice of a grievance provides an opportunity for both parties to resolve the dispute without going to court.
This section of the bill is designed to limit needless and costly litigation resulting from poorly-drafted legislation. Frequently Congress fails to directly address basic issues that later result in court challenges. For example, during consideration of the most recent amendments to the Civil Rights Act, Congress failed to resolve the issue of retroactivity. Litigation dragged on for two years until the Supreme Court ruled that the law was not retroactive. Bill sponsors argue that this could have been avoided if Congress had been forced to take a decisive stand on the issue.
The bill seeks to limit such situations by requiring that committee reports address the following issues: preemptive effect, retroactive effect, authorization for private suits and applicability to the federal government.
The bill reforms federal securities law to limit so-called "strike" lawsuits -- lawsuits filed by class action attorneys on behalf of shareholders whose once-attractive stock purchases have failed to live up to their expectations. Although these suits claim that the holding company misrepresented the healthiness of their stocks, many times the down-turn can only be blamed on market violatility.
Bill sponsors argue that these cases usually involve highly speculative investments in the securities field (less than one percent involve truly fraudulent companies) and, it is the attorney, not the shareholder, that benefits from the suit. Since class action lawyers can make decisions that are not in the best interest of the clients without fear of reprisal and take a big chunk of the settlement off the top, shareholders are often exploited. Strike suits are money-makers for the lawyers, but such frivolous claims destroy jobs and hurt the economy. Instead of spending money on research and development, or hiring more employees, or reducing the cost of their products, companies end up spending big bucks on strike suit insurance and legal fees. High-technology, biotechnology and other growth companies are hardest hit because their stocks are naturally volatile. Small- and medium-sized companies alone have paid out nearly $500 million dollars during the last two years (settling a case is often times cheaper and quicker than defending in court). The problem is rapidly getting worse: in the last five years, the number of strike suits has tripled.
To address these abuses, The bill (1) provides a court-appointed trustee for plaintiffs (to make sure that lawyers act in the best interests of their clients), (2) guarantees plaintiffs full disclosure of key settlement terms (including a breakdown of how much is to go to them and how much to their lawyers to pay legal fees), (3) limits "professional plaintiffs" to five class-action lawsuits every three years (these individuals typically purchase one share of every stock on the New York Stock Exchange and wait for the stock to drop. They then work with the class action lawyer to initiate the class action and receive bonus payments for their cooperation.), (4) makes losing litigants responsible for the winner's costs, (5) prohibits application of the Racketeer Influence and Corrupt Organizations (RICO) Act to securities cases, and (6) prohibits vague and open-ended complaints. In a key reform, the bill requires that claimants show they relied on intentionally misrepresented information or omissions of information in deciding to purchase their stock, and that their losses were not caused by bad luck in the stock market.
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