U.S. Chamber Small Business Platform
Frivolous Lawsuits
Limit outlandish punitive damages that are crafted to force large settlements regardless of the small businesses’ degree of responsibility for the harm done.
The intent of the civil justice system is straightforward: to establish a fair and equitable framework for resolving conflicts among parties. If the mechanism functions well, it provides a means to compensate legitimately harmed parties and deter undesirable behaviors. In contrast, a poorly implemented system can result in increased costs, disincentives for innovations that benefit consumers, inducements to file frivolous lawsuits, inflated insurance premiums, and—importantly—encumbrances to economic development and job creation.
Tort claims cost the nation about $233 billion in 2002, which is more than double the average cost of other industrialized nations, according to a study by Tillinghast Towers Perrin. Increasingly, small businesses are caught up in lawsuits filed by predatory lawyers during venue shopping or in litigation crafted to force large settlements regardless of the small businesses’ degree of responsibility for the harm. One frivolous lawsuit can put a small business out of business.
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“Small businesses are the engines driving job growth in this country. As the number of frivolous lawsuits continues to mushroom, they will undermine this growth and the ability of small businesses to invest and hire new workers.”
- Larry Mocha,
Air Power Systems,
Tulsa, Oklahoma |
Lawmakers must pass rational, commonsense legislative solutions that will rein in the out-of-control legal system:
- Class Action Reform-Large, complex, multistate class actions should be moved to the federal court system. Small business defendants are brought into these cases for a number of reasons having nothing to do with culpability, such as connections to vendors or as access to the state courts where the business is incorporated.
- Small Business Tort Reform-In civil actions, a small business defendant should only be liable for the amount of noneconomic loss in direct proportion to the responsibility for the harm caused to the plaintiff by that small business.
- Product Liability Reform-Innocent companies in product distribution chains must be protected in liability suits. Although they are eventually dropped from the proceedings, they are likely to incur substantial legal and litigation-related costs that are ultimately passed on to the consumer or result in bankruptcy.
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Between 1988 and 1998, there was more than a 300% jump in federal class actions and a 1,000% jump in state court class actions.
- Findings from a report issued by the Federalist Society | Back to Platform Index
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