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Senator Cornyn: Expect attack on Class Action Fairness Act



Sen. John Cornyn (R-TX) sponsored a Senate Republican Conference hearing (i.e., a partisan hearing) this afternoon on legal reform in the 111th Congress, "Protecting Main Street Jobs from Lawsuit Abuse." His thesis is that meritless and nuisance lawsuits raise the costs of business and jobs creation, having a disproportionate impact on small business: "Nevertheless, the leadership of this Congress seems oblivious to these facts and determined, to reward political allies and benefactors in the trial bar by passing legislation designed to not decrease but rather increase the number of lawsuits in America." (From the .mp3 file of his opening statement.)

Sen. Cornyn cited several bills already passed that will increase litigation: The Lilly Ledbetter Fair Pay Act, the stimulus bill's permitting state AGs to hire contingency lawyers to sue for HIPAA violations, and the omnibus appropriations bill's encouragement of contingency lawyers in Truth in Lending litigation.

Looking forward, Sen. Cornyn said, "There will also be efforts to undue the important reforms of the Class Action Fairness Act, reviving the class action strike suit, where trial lawyers may make millions while their clients receive nothing other than coupons as a result of their recovery."

That's the first we had heard of this disturbing possibility. For more on the 2005 legislation, we refer you to this 2007 paper by Point of Law contributor Ted Frank of the American Enterprise Institute, "The Class Action Fairness Act Two Years Later."

Ted also testified at today's hearing, addressing a wide range of civil litigation issues, including medical malpractice, asbestos and mass tort fraud. His prepared testimony is available here. From the abstract:

Our nation's tort system is substantially more expensive than that of other nations. Features unique to the United States--unbounded non-economic damages; a broader use of punitive damages; contingent fees of a percentage of recovery; the lack of loser-pays; extraordinarily broad discovery; class-action litigation; the use of speculative and non-scientific expert testimony in some state courts--raise costs tremendously. Yet, despite these increased costs, there is no evidence that the United States tort system provides marginal benefits relative to other nations. For example, New Zealand does not even offer the availability of private medical malpractice litigation, yet there is no evidence that medical care in New Zealand is of substandard quality due to the lack of fear of malpractice litigation. If anything, it is quite likely that the arbitrary nature of the American tort system has distorting effects that make it perform worse than that of other nations...

In the extended entry, more comments from Sen. Cornyn...

As the president talked today about his efforts to help small business, it's important to acknowledge that litigation costs can have a disproportionately high impact on small businesses and their ability to retain and hire new employees. Large corporations usually carry significant insurance and have robust budgets to cover the litigation costs, but smaller businesses may find that one lawsuit can result in legal fees approaching a year's revenue. And that's even if you win the lawsuit in the end.

Small entrepreneurs who are netting $100,000 a year after taxes and payroll are prospering and likely creating jobs, but that $100,000 can easily be destroyed by legal fees from even one lawsuit. Too often for American Main Street businesses, the costs of being sued, even if the suit lacks merit, can be tantamount to a death sentence for their business.

Nevertheless, the leadership of this Congress seems oblivious to these facts and determined, to reward political allies and benefactors in the trial bar by passing legislation designed to not decrease but rather increase the number of lawsuits in America.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.