Senate Judiciary Holds Hearing on Abusive Lawsuits

As we previously reported, the Senate Committee on the Judiciary recently held a hearing entitled “The Impact of Lawsuit Abuse on American Small Businesses and Job Creators.” Although the TCPA was not the sole focus of the hearing, concerns about abusive lawsuits are highly applicable in the TCPA context.

Chairman Chuck Grassley (R-IA) opened by noting that frivolous and abusive lawsuits can cause major heartburn for small businesses, which often are ill-equipped to finance protracted legal battles to vindicate their compliance practices. Sen. Al Franken (D-MN) also gave an opening statement, emphasizing that the Judiciary Committee should be looking for ways to empower consumers to hold corporations to account, rather than “closing the courthouse doors” on consumers. He also expressed frustration that, in his view, proposals to address frivolous lawsuits often serve only to make meritorious claims more expensive to litigate.

The witnesses at the hearing were the following:

  • Elizabeth Milito, Senior Executive Counsel at National Federation Of Independent Business
  • Professor Myriam Gilles, Paul R. Verkuil Research Chair And Professor Of Law at Benjamin N. Cardozo School of Law
  • Mr. John H. Beisner, partner at Skadden, Arps, Slate, Meagher & Flom LLP on behalf of The U.S. Chamber Of Commerce Institute for Legal Reform

Ms. Milito testified that abusive lawsuits can be particularly catastrophic for small businesses because many do not have in-house counsel and, as a result, sometimes make easy targets for “cookie cutter” lawsuits prepared en masse by entrepreneurial plaintiffs’ attorneys. Moreover, plaintiffs’ attorneys often will initiate claims with a demand letter, which in her view reveals an intent to extract a quick settlement rather than effect some serious change or end any allegedly abusive business practice. Because rational business owners are wary of the expense and uncertainty of litigation, they often opt to settle meritless claims—and may even pay these claims out of pocket to prevent increased insurance rates.

Professor Gilles, by contrast, argued that the problem in the civil justice system is not too many frivolous lawsuits, but rather too many meritorious ones being pursued in arbitration. She asked the committee to consider the Equifax breach, among other things, and urged it to explore ways to curb the use of arbitration.

In his testimony, Mr. Beisner emphasized the deleterious effect of demand letters on small businesses, which often are unaware of their legal rights and in a poor position to evaluate the likelihood of success for threatened suits. He also argued that plaintiffs’ lawyers frequently abuse class action rules to extract settlements in which the lawyers get paid handsomely, but the plaintiffs themselves wind up with little to nothing to show for their trouble.

The witnesses’ prepared statements may be downloaded from the Senate Judiciary Committee’s hearing summary, available here.

Although the hearing was mostly uneventful, at one point, Sen. John Cornyn (R-TX) pointedly took issue with Professor Gilles’ characterization of arbitration as “forced,” asserting that consumers always have the option to take their business elsewhere. Professor Gilles disagreed, contending that all major banks include such clauses in their consumer contracts.

At another point, Sen. Franken argued that a key goal of the court system is to enable plaintiffs to alert others about bad actors in open court. Sen. Franken argued that this goal is subverted by the combination of arbitration and confidentiality clauses in employment agreements. He appeared to become agitated when Ms. Milito responded by emphasizing that arbitration has many legitimate uses and practical benefits to consumers and businesses alike.

Sen. Jeff Flake (R-AZ) seemed to take special interest in the problem of highly technical regulations that ratchet up the burden of compliance, noting that even businesses that make good-faith efforts to comply with the law can be tripped up by complex formalities developed by administrative agencies, with devastating consequences. Although these comments referenced the ADA rather than the TCPA, his concerns readily map onto the TCPA compliance landscape.