Judiciary
HomepageThe American Insurance Association supports measures to promote an equitable and efficient legal system, and we commend you for including H.R. 10 in the "Contract with America."
My testimony concerns the bill's proposed amendments to Rule 11 of the Federal Rules of Civil Procedure. While casual observers might view this as a largely technical matter, AIA believes that Rule 11 has the potential to be one of the most effective means of curbing lawsuit abuse.
Part of the Federal Rules of Civil Procedure, Rule 11 was revised in 1983 in response to concerns about "frivolous claims and defenses." Key features of the 1983 Rule included: a requirement that pleadings/papers be reasonably based on facts and law; mandatory sanctions for frivolous pleadings or papers; and authorization for judges to order reimbursement of opposing parties for their reasonable expenses. Studies by the Federal Judicial Center and the American Judicature Society have found that the 1983 rule was strongly supported by federal court judges, and that it encouraged lawyers to "stop and think" before filing lawsuits and court papers.
Despite its benefits, Rule 11 was weakened by the Judicial Conference in 1992. Chairman Moor head took the lead in trying to prevent the adverse changes, but due to inaction by the 103rd Congress, the weaker rule was allowed to go into effect in 1993.
Section 104(b) of H.R. 10 offers the 104th Congress the opportunity to restore this important safeguard and send the message that lawsuit abuse will not be tolerated. The bill reestablishes a system of mandatory, as opposed to discretionary, sanctions. In addition, it mandates the use of attorney's fees as part of the sanction and puts a bigger emphasis on the Rule's compensatory function. We strongly support these changes.
In addition, we strongly recommend inclusion of language to restore the requirement for lawyers to check their facts before filing lawsuits, as well as language to prevent circumvention of the Rule by withdrawing challenged pleadings during a "safe harbor" period. Together with Section 104(b), these changes would restore all of the important aspects of the 1983 Rule.
Preventing and sanctioning frivolous litigation is central to the notion of common sense legal reform. AIA commends your efforts to date and would be pleased to work with you on this important issue.
Good morning. My name is Debra Ballen, and I am Senior Vice President, Policy Development and Research, for the American Insurance Association "AIA"). AIA is a trade association representing more than 270 insurance companies which write a large portion of the nation's property/casualty coverage. Al A's member companies are substantially involved in civil litigation on many levels--when they defend the interests of their policyholders; when they pursue their policyholders' rights through subrogation; when they are involved in coverage disputes; and when they appear as a plaintiff or defendant in a wide range of commercial litigation.
I am pleased to have been invited to speak to you today regarding H.R. 10, the Common Sense Legal Reforms Act of 1995. AIA has a strong and continuing interest in measures to promote an equitable and efficient civil justice system, and we commend you for including legal reform in the 104th Congress's "Contract with America."
My testimony today will be limited to the provisions of H.R. 10 which propose to amend Rule 11 of the Federal Rules of Civil Procedure. While casual observers might view a federal rules change as largely technical, AIA believes that Rule 11 has the potential to be one of the most effective means of curbing frivolous and abusive litigation tactics by plaintiffs and defendants alike. Our Association previously commented before this Committee and the Advisory Committee on Civil Rules in support of a strong Rule 11. We opposed the weakening of the Rule that was allowed to go into effect on December 1, 1993, and we support your efforts to restore this important procedural safeguard.
Background
Although federal courts have always had the authority to sanction frivolous pleadings and papers, the early judicial, statutory, and procedural guidelines were very vague, and sanctions were extremely rare. Speaking before the 1976 National Conference on the Causes of Popular Dissatisfaction with the Administration of Justice, then Chief Justice Burger noted with alarm the "widespread feeling that the legal profession and judges are overly tolerant to lawyers who exploit the inherently contentious aspects of the adversary system to their own private advantage at public expense."
Concerns about "frivolous claims and defenses" as well as "dilatory or abusive tactics" led in 1983 to a major revision of Rule 11 of the Federal Rules of Civil Procedure. Key features of the 1983 Rule included a requirement that pleadings/papers be reasonably based on facts and law, mandatory sanctions (against either the lawyer or litigant) for frivolous pleadings or papers, and the explicit recognition that a sanction may include an order to reimburse the opposing party for reasonable expenses incurred because of a frivolous pleading or paper.
In 1990, the Judicial Conference's Advisory Committee on Civil Rules undertook a review of the rule and asked the Federal Judicial Center to conduct an empirical study of its operation and impact. The study found that a strong majority of federal judges believed that: (1) the 1983 version of Rule 11 had a positive effect on litigation in the federal courts (80.9%), (2) the benefits of the rule outweighed any additional requirement of judicial time (71.9%), and (3) the rule should be retained in its then-current form (80.4%).
Despite this clear judicial support for a strong Rule 11, in 1991, the Civil Rules Advisory Committee included provisions to weaken the 1983 Rule in a broader package of proposed amendments to the Federal Rules. AIA and a number of other organizations filed comments against the Rule 11 changes, but in 1992, the Judicial Conference approved them as recommended. The proposed changes were then sent to the Supreme Court for approval or modification.
Exercising what it viewed to be a limited oversight role, the Supreme Court approved the proposed changes without substantive comment in April of 1993. In a strongly worded dissent on Rule 11, Justice Scalia correctly anticipated that the proposed revisions would eliminate a "significant and necessary deterrent" to frivolous litigation: "[T]he overwhelming approval of the Rule by the federal district judges who daily grapple with the problem of litigation is enough to persuade me that it should not be gutted." After the proposal was forwarded to Congress, there was a seven month period under the Rules Enabling Act in which this body had the authority to make changes. Despite the introduction of H.R. 2927 by Chairman Moor head and a companion bill in the Senate, no formal action was taken, and the revisions went into effect on December 1, 1993.
AIA believes that the new Rule 11 is much weaker than its predecessor. First, there is no longer a requirement for attorneys to inquire about the facts before filing a pleading or paper. Second, litigants and lawyers are permitted to withdraw challenged pleadings in order to avoid sanctions. Third, the mandatory sanctions that formed an important core of the 1983 rules changes have been replaced with a discretionary sanctioning system, and the prospects for compensating aggrieved opposing parties are greatly reduced. Taken as a whole, these revisions change the dynamics of a lawsuit such that frivolous and abusive conduct is much harder to address and eliminate. They also impair the prophylactic effects of a strong and unambiguous sanctioning procedure.
- 2 - H.R. 10 and Rule 11
H.R. 10 offers an important opportunity for the 104th Congress to take action in restoring a proven and important procedural safeguard that was weakened by the inaction of the 103rd Congress.
Section 104(b) of the bill makes several important changes to the version of Rule 11 that is now in effect. First, it reestablishes a system of mandatory, as opposed to discretionary, sanctions. Second, it mandates the use of attorney's fees as part of the sanction. Third, it puts a bigger emphasis on the Rule's compensatory function by clarifying that sanctions should be sufficient to deter repetition and to compensate the parties that were injured. All of these changes make good, common sense. Mandatory sanctions send a clear message that abusive litigation practices will not be tolerated by our judicial system or the judges who form its core. Appropriate monetary sanctions, including the award of attorney's fees, also help in deterrence and provide some recompense for parties that are harmed by sanctionable misconduct.
We support these beneficial changes and believe that they address several important aspects of the 1983 Rule. Without minimizing the importance of the bill as written, we also believe that Section 104(b) could be further strengthened to include restoration of two additional elements of the 1983 Rule which also were eliminated by the 1993 changes.
Most importantly, we recommend inclusion of language to restore the requirement for prefiling verification of the facts. Together with H.R. 10's Section 105, which requires the plaintiff to give notice to the defendant prior to suit, such a provision would help encourage resolution of claims prior to litigation, thus reducing unnecessary court costs and legal fees.
In addition, we recommend eliminating the "safe harbor" provision of the current (1993) Rule, which permits a lawyer or litigant to withdraw a challenged pleading, without penalty, prior to the actual award of sanctions. As Justice Scalia noted in his dissent to the Court's approval of the new Rule, "those who file frivolous suits and pleadings should have no 'safe harbor.' The Rules should be solicitous of the abused (the courts and the opposing party), and not of the abuser. Under the revised Rule, parties will be able to file thoughtless, reckless, and harassing pleadings, secure in the knowledge that they have nothing to lose...."
Benefits of a Strong Rule 11
Research examining almost a decade of experience under the 1983 Rule 11 confirms that the stronger version of the Rule beneficially affected the practice of law in the federal courts. Interestingly, while the Federal Judicial Center study of court activity found that Rule 11 issues were raised in only 2-3% of cases, a separate survey of federal court litigators by the American Judicature Society found that some 60% of practicing lawyers had changed their behavior to comply with the 1983 rule and/or avoid sanctions. For example, 24.5% advised a client not to pursue a lawsuit that the attorney thought had little or no merit, 28.8% tried to discourage a client from pursuing a particular action during litigation, and 36.7% did extra pre-filing review of pleadings, motions, or other documents subject to Rule 11. There were no extraordinary differences between the plaintiff and defense bars with respect to the level or type of behavioral changes. Moreover, each appears to be consistent with the goal of a strong Rule 11, which was to get litigants to "stop-and-think" before making court filings. They also make good, common sense.
In addition to its stated focus on pleadings and papers, the presence of a strong Rule 11 may have a broader purpose in controlling abuses throughout the litigation process. The wide range of behavioral changes attributed by lawyers to Rule 11 prompted the American Judicature Society to conclude that it "may well be that Rule 11 has become the 'generic' or 'all purpose' sanction, the one that is thought of and referred to for all kinds of sanctionable activity." Weakening the rule in 1993 may have sent lawyers and litigants the message that lawsuit abuse would again be tolerated. We commend the Members of this Committee for taking the opposite view.
Conclusion
Thank you for the opportunity to testify today on the provisions of H.R. 10 which would help restore the now-weakened Rule 11 of the Federal Rules of Civil Procedure. Preventing and sanctioning frivolous litigation is central to the notion of common sense legal reform. AIA commends your efforts to date and would be pleased to work with you on the supplemental concepts outlined in my statement today.
I would be happy to answer any questions you might have.