A government is the only known vessel that leaks from the top. -- James Reston
[Excerpts from 3/1/95 Report 104-62 w/ dissenting views.]
HOUSE OF REPRESENTATIVES 104TH CONGRESS 1ST SESSION.
H.R. 988 -- ATTORNEY ACCOUNTABILITY ACT OF 1995
Purpose and Summary
The bill, H.R. 988, as reported, was derived from sections 101, Award of Attorney's Fee to prevailing party; 102, Honesty in Evidence; and 104, Attorney Accountability and Rule 11(c) sanctions against lawyers, of H.R. 10, the "Common Sense Legal Reforms Act of 1995". The purpose of H.R. 988 is to provide concrete steps to restore accountability, efficiency and fairness to our federal civil justice system.
Section 2 of H.R. 988 provides for a settlement-oriented "loser pays" attorney's fee amendment to 28 U.S.C. Sec. 1332 wherein a "non- prevailing" party must pay the "prevailing party's" attorney's fees in federal civil diversity litigation where an offer of settlement has been made.
Section 3 would limit, in accordance with the Supreme Court's decision in Daubert v. Merrell Dow Pharmaceuticals, Inc., the use of expert testimony and Section 4 would reinstate the pre-December 1993 Rule 11(c) provisions of the Federal Rules of Civil Procedure and make mandatory the issuance of sanctions against lawyers who file frivolous lawsuits or engage in abusive litigation tactics.
The bill, as reported, will implement a more complete, fair and effective policy than exists at present to favor compromise rather than dispositive motions or trial and will consequently (1) lessen the incentive to litigate and consequently the caseload burdens faced by the federal judiciary; (2) assure that only meritorious and justiciable cases supported by scientific facts be adjudicated in federal courts, and (3) prevent the filing of frivolous lawsuits by attorneys. Fair and accountable litigation can thereby result, carried out by legitimate claims, accountable counsel and valid testimony.
Background and Need for the Legislation
It is widely believed that the American legal system no longer serves to expedite justice and ensure fair results. It has become burdened with excessive costs and long delays. For many people, especially middle and lower income litigants, justice is often delayed and as a result is often denied. For instance, in 1985, the percent of civil cases over three years old in Federal District Courts was 6.6%.\1\ Five years later that figure grew to 10.4%.\2\
In addition to excessive costs and long delays, the American legal system has been hurt by an over-reliance on litigation. In 1989, some 18 million civil lawsuits were filed in state and federal courts. That's one lawsuit for every ten adults in America.\3\ According to Judge Stanley Marcus, Chairman of the Judicial Conference Committee on Federal-State Jurisdiction, "if present trends continue, the federal courts' civil caseload will double every fourteen years, and in the twenty-eight years between 1992 and 2020 the compounded effect of that doubling and redoubling will raise the annual number of civil cases commenced from roughly 226,000 per year to nearly 840,000 per year." \4\ Judge Marcus went on to observe that "under current workload standards this volume of litigation would require an enormous increase in the number of district judges and circuit judges, transforming the existing nature of the federal judicial system virtually beyond recognition." \5\ The overuse of litigation imposes tremendous costs upon American taxpayers, businesses and consumers. H.R. 988 will begin the process of restoring accountability, efficiency and fairness to our federal justice system.
Section 2. loser pays
Addressing the above concerns, Section 2 would amend 28 U.S.C. Sec. 1332, the provision granting diversity jurisdiction in U.S. district courts, by applying a loser pays provision that would be triggered by an offer of settlement. The intent of this procedure is to encourage and facilitate the early settlement of lawsuits and reduce protracted litigation. The offer of settlement procedure in Section 2 would allow a party to make by filing with the court in writing and serving on an adverse party, at any time up to 10 days before trial, a formal offer to settle any or all claims in a suit for a specified amount.\6\ If the offer of settlement is accepted, the claim or claims are resolved pursuant to the terms of the agreement.\7\ If the offer is rejected and the offeree does not obtain a judgment, order, or verdict more favorable than that offered on the applicable claims, the offeree is liable for the costs and attorney's fees of the offeror for those claims from the date the last offer was made by the adverse party.
For example, suppose a plaintiff brings a complaint for $100,000 on January 1. On March 1, the defendant files an offer of settlement for $40,000. The Plaintiff rejects the offer but files its own offer of $60,000 on June 1. On October 1, a judgment or verdict is issued for $39,000; the plaintiff, while victorious on the complaint, must pay the defendant's costs and attorney's fees from March 1 to the date of entry of judgment because the plaintiff should have taken the offer of $40,000 made on March 1. On the other hand, if the plaintiff is awarded a judgment or verdict of $61,000, the defendant must pay the plaintiff's costs and attorney's fees from June 1 to the date of entry of judgment since the defendant should have accepted the settlement offer made on June 1. If the verdict, judgment or order is for $50,000, or anywhere in- between the last offer and counter-offer of settlement existing 10 days or more before trial, the traditional American Rule applies and each side bears its own costs and fees for the entire suit.\8\ This will effectively maintain the "status quo" for "close call" cases where all negotiating parties acted reasonably in their offers while encouraging close settlements.
The offer of settlement procedure proposed by this Act is an amendment to 28 U.S.C. Sec. 1332, the general diversity statute. Under 28 U.S.C. Sec. 1332, a suit arising under state law may currently be brought in federal court if there is complete diversity of state citizenship between the plaintiff and the defendant, and the amount in controversy exceeds $50,000. Traditionally, such cases involve tort and contract suits. This Section would apply the offer of settlement procedure to all cases brought under a federal court's diversity jurisdiction, including those removed by a defendant to federal court pursuant to 28 U.S.C. Sec. 1441 based on the fact that the court would otherwise have subject matter jurisdiction pursuant to 28 U.S.C. Sec. 1332.
Under Section 2, as reported, a party making an offer may include in such offer a motion to dismiss all claims or to allow judgment to be entered according to the terms of the offer. The Committee intends for this approach to accommodate a defendant who believes that there is no liability in the lawsuit and therefore should not be forced to settle the case.
This section requires that an offer, along with proof of service, be filed with the clerk of the court.\9\ This requirement should avoid subsequent disagreements concerning the amount, timeliness and manner of service of the offer. However, evidence of an offer is not admissible except in proceedings to enforce a settlement, or to determine costs and expenses under this provision. This section is designed to encourage the making of offers under the Act by assuring that the offeror will be protected against prejudicial use of an offer. This provision is consistent with Federal Rule of Evidence 408, which provides that offers of compromise are not admissible to prove liability for or invalidity of a claim or its amount.
Under the Act, the fact that an offer is made but not accepted does not preclude subsequent offers. This approach is designed to encourage parties to continue to negotiate a settlement prior to and during trial.
If all offers made by a party with respect to a claim or claims are rejected and the final judgement, order or verdict issued isn't more favorable to the offeree with respect to the claim or claims than the last offer made by the adverse party, the offeror may file with the court, within 10 days after the final judgment, order or verdict,\10\ a petition for payment of costs and expenses, including attorney's fees incurred from the date the last offer was made by the adverse party. If the court finds that the final judgment, verdict or order obtained isn't more favorable to the offeree than the last offer, it is mandatory that the court order the offeree to pay the offeror's costs and expenses, and attorney's fees incurred with respect to the claim or claims from the date the last offer by the adverse party was made.
There are two exceptions to the mandatory requirement that a court award costs and attorney's fees under the terms of Section 2. The first exception would allow the court to exempt certain individual cases based upon express findings that the case presents novel and important questions of law or fact and that it substantially affects nonparties. It is the Committee's intent that this provision limit the discretion granted to the court and require it to carefully scrutinize each individual case or count consistent with the aforementioned criteria and not permit this exception to defeat the Rule.
The second instance where a court would not be required to award costs and attorney's fees or may reduce such costs or fees under this Section would be when it finds that it would be manifestly unjust to do so.
It is the intent of the Committee that this standard be interpreted to be an exceptionally high one, extending well beyond the relative wealth of the parties. Rather, on a case by case basis, a judge should only reduce an award as provided under this Section where it would be grossly inequitable to impose it.
Section 2 defines "reasonable attorney's fee" to be one that is "calculated on the basis of an hourly rate which may not exceed that which the court considers acceptable in the community in which the attorney practices law, taking into account the attorney's qualifications and experience and the complexity of the case".\11\ This should serve to clarify the fee standard to be used in applying Section 2.
Section 2 would not necessarily require an offeree to pay the entire amount of the offeror's attorney's fees. Rather, it would limit the offeree's liability for the offeror's attorney's fees to an amount not exceeding the amount the offeree paid its own attorney.
If the offeree hired its attorney on a contingency basis (an agreement in which a plaintiff does not pay unless it prevails), and, because it lost, paid its attorney nothing, then it would be liable for the offeror's attorney's fees up to the amount "that would have been incurred by the offeree for an attorney's noncontingent fee * * *." It is the intent of the Committee that this encourage accurate reporting and maintenance of hourly work and costs by attorneys hired under a contingency agreement, since a fee petition containing hours worked must be presented to the court within 10 days of entry of a final judgment, order or verdict on a claim in order to collect such costs and attorney's fees.
Section 3. Honesty In Evidence
Section 3 would amend Rule 702 of the Federal Rules of Evidence, which
allows expert witnesses to testify as to their expert opinions with
respect to "scientific, technical, or other specialized knowledge." Such
evidence may have an enormous impact on a jury's decision because of its
nature. Accordingly, assuring that such evidence is valid and reliable
is of utmost importance. With that in mind, the amendment would make a
scientific opinion inadmissible unless it is:
(1) scientifically valid and reliable;
(2) has a valid scientific connection to the fact it is offered to prove; and
(3) sufficiently reliable so that the probative value of such evidence outweighs the dangers specified in [Federal] rule [of Evidence] 403.
The "dangers" specified in Rule 403 are "unfair prejudice, confusion of the issues, or misleading the jury."
Section 3 would further make expert testimony inadmissible if the "witness is entitled to receive any compensation contingent on the legal disposition of any claim with respect to which such testimony is offered."
The standard for admissibility of scientific expert testimony was most recently addressed by the Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, Inc., 113 S.Ct. 2786 (1993), on remand, No. 90-55397 (9th Cir., Jan. 4, 1995, Kozinski, J.). In that case, the Supreme Court held that Rule 702 does not require that scientific evidence have "general acceptance" in the relevant scientific community to be admissible.\12\ Rather, the Court held that the Rule requires that expert testimony rest on a "reliable foundation" (i.e., the methodology from which the evidence is derived must be based on "scientific knowledge") and be "relevant to the task at hand" (i.e., it must assist the trier of fact and have a logical scientific nexus to the subject matter of the suit or other admitted evidence.)
This test has been read to be less stringent than the test originally set forth, before the Federal Rules of Evidence were adopted, in Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), although not always applied as such. Under Frye, scientific evidence was not admissible unless it had been generally accepted in the particular scientific community to which it belonged.
Until the Supreme Court's holding in Daubert, most circuit courts utilized the Frye test and developed differing sets of Frye jurisprudence. Daubert, enhanced and enforced by Section 3, will serve to evaporate the Frye test and create uniformity among the circuits for the admission of scientific evidence in civil cases.
In addition, Section 3 creates a presumption of inadmissibility, rather than admissibility of scientific evidence, which can be rebutted if the criteria of Section 3(2) are met. This standard will thus shift the current standard and force attorneys to prove to the court the validity of scientific evidence under standards established by the Supreme Court in Daubert before it can be admitted.
Section 3(2) would serve to codify and is meant to complement the standards established in Daubert by the Supreme Court and by the Ninth Circuit on remand.
Section 3 uses the words "scientifically valid and reliable" instead of the words "valid scientific reasoning": used in H.R. 10 for two reasons: (1) the word "reasoning", by itself, may be interpreted as requiring a judge to understand completely scientific principles rather than proof of their reliability for evidentiary purposes.
While Daubert utilizes the word reasoning, it does not stand alone, but is used in the context of methodology, validity and reliability; and (2) the bill seeks to maintain a simple definition that will be interpreted in conjunction with, and not as superseding the Daubert case. Section 3 requires that the methodology from which scientific evidence is derived be based on scientific knowledge and that it have a logical, scientific nexus to the subject matter of the suit or other admitted evidence. These goals of Daubert would thus be enforced by requiring consideration of their presence, among others, to rebut a presumption of admissibility before allowed.
These considerations should include, but are not limited to the "key"
questions to be posed by a judge as the "gatekeeper" of admissibility:
(1) whether a scientific technique or scientific knowledge has been or can be tested;
(2) whether the theory or technique has been subject to peer review and publication;
(3) the known or potential rate of error in the case of a particular technique; and
(4) general acceptance of knowledge or a technique in the relevant scientific community.
Section 3(2) would amend Rule 403 of the Federal Rules of Evidence as it applies to scientific evidence by making evidence inadmissible if its prejudicial value outweighs (rather than substantially outweighs as currently provided in Rule 403) its probative value.
Reading this literally, if the dangers of unfair prejudice, confusion of the issues, or misleading the jury even in substantially outweigh the probative value of the scientific evidence, the evidence is inadmissible. Thus, the standard for judging prejudice versus probative value existing in Rule 403 is lowered for cases involving scientific evidence. This change favors the inadmissibility of scientific evidence that is not valid and reliable, since such evidence is more likely to be unfair, confusing or misleading.
Section 3 would also make expert testimony inadmissible if the "witness is entitled to receive any compensation contingent on the legal disposition of any claim with respect to which such testimony is offered."
The reason for this provision is that an expert witness who received a contingency fee is less likely to furnish reliable testimony than one who receives a flat or hourly fee since he or she has a vested interest in the outcome of the litigation. The provision would exclude evidence if the witness receives any contingency fee, even if such fee is not a percentage of the judgment or settlement, but rather is a flat fee or hourly fee the payment of which is contingent upon the legal disposition of the claim.
Section 3 is intended to prevent trial lawyers from taking advantage of the court system. If there is a consensus in the scientific community that a hazard or risk (usually of a product) is real or substantial, the trial lawyers will implore that consensus to support complaints for compensatory and punitive damages.
If the consensus in the scientific community is that a hazard or risk is trivial or imaginary, however, the same lawyers should not be able to brush that fact aside and find "fringe" experts to testify otherwise. Even in cases where real hazards exist, trial lawyers will attempt to stretch claims beyond validity in order to collect punitive damages. By creating a presumption of inadmissibility, rebutted by the standards created by the Supreme Court in Daubert, along with a lower standard of prejudice, an amended Rule 702 will be effective in weeding out "junk science" as evidence in our federal courtrooms.
These amendments to Rule 702 would apply only to civil and not criminal cases. They would most frequently be used in product liability cases. This will prevent frustration in the important use of scientific evidence such as blood-type analysis and DNA testing in criminal proceedings.
Section 4. Sanctions Against Attorneys
Section 4 of the Attorney Accountability Act would amend Rule 11(c) of the Federal Rules of Civil Procedure relating to the sanctions a federal judge may impose against lawyers for (plaintiffs or defendants) who file frivolous lawsuits or engage in abusive litigation tactics. The Committee believes that Rule 11, in its pre-December, 1993 form, was one of the most effective means of curbing lawyer misconduct.
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 be reasonably based on facts and law; mandatory sanctions for frivolous pleadings; 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.
In 1990, the Judicial Conference's Advisory Committee on Civil Rules
undertook a review of the Rule and asked the Federal Judicial Center
(FJC) to conduct an empirical study of its operation and impact. The
study found that a strong majority of federal judges believe that:
(1) that Rule 11 did not impede development of the law (95%);
(2) the benefits of the rule outweighed any additional requirement of judicial time (71.9%);
(3) the 1983 version of Rule 11 had a positive effect on litigation in the federal courts (80.9%); and
(4) the rule should be retained in its then-current form (80.4%).\13\
The tables below are based on Tables in Section 2A of the FJC's Report and provide further details on the judges' responses to the 1990 Questionnaire on Rule 11--751 judges were surveyed.
Table 7 Has Rule 11 impeded development of the law?
Percentage of judges answering the question
Table 16 Do the benefits of Rule 11 outweigh the expenditure of judge
Percentage of 452 judges answering the question
Table 17 What has been the overall effect of Rule 11 on litigation in
the Federal courts?
Percentage of 472 judges answering the question
Rule 11 has had a positive effect........... 80.9
Rule 11 has had a negative effect........... 8.7
Rule 11 has had no effect................... 10.4
Table 18 What should be the future of Rule 11?
Percentage of 526 judges answering the question
Retain in its present form (pre-Dec. 1993)... 80.4
Return to its pre-1983 language.............. 7.0
Amend in some other way...................... 12.5
Despite this clear judicial support for a strong Rule 11, in 1991, the Civil Rules Advisory Committee included provisions to weaken the 1993 Rule in a broader package of proposed amendments to the Federal Rules. 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 revision 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 the Congress had the authority to make changes. Despite the introduction of H.R. 2927 by Carlos J. Moorhead, Chairman of the Subcommittee on Courts and Intellectual Property, and a companion bill in the Senate, no formal action was taken, and the revisions went into effect on December 1, 1993.\14\
The Supreme Court is authorized to "prescribe" the general rules of practice and procedures. In fact it has been the general practice of the Supreme Court to merely act as a conduit for the rule changes and rely on the Judicial Conference to make the basic decisions in this area. Justice White believed that, as a matter of practice, the role of the Supreme Court is to "* * * transmit the Judicial Conference recommendations without change and without careful study as long as there is no suggestion that the committee system has not operated with integrity".
Indeed Chief Justice Rehnquist's April 22, 1993 letter conveying the rules to the Speaker states: "While the Court is satisfied that the required procedures have been observed, this transmittal does not necessarily indicate that the court itself would have proposed these amendments in the form submitted."
However, three of the Supreme Court Justices do not appear to accept this passive role, or at least in this instance they felt so strongly that they dissented in part to the proposed rules. Their observations are outlined in Justice Scalia's dissent in which he objected to changes in Rule 11 joined by Justice Thomas. See Chief Justice Rehnquist's April 22, 1993 letter conveying the rule changes to the Speaker of the House, Justice Scalia with whom Justice Thomas joined and with whom Justice Souter joined in Part II.
The Committee believes that the present 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. 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.
Section 4 makes several important changes to Rule 11.
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 deterring abuse and provide some recompense for parties that are harmed by sanctionable misconduct.
Fourth, section 4 would eliminate the so-called "safe harbor" provision of the current Rule, which permits a lawyer or litigant to withdraw a challenge pleading, without penalty, prior to the actual award of sanctions. As Justice Scalia noted in his dissent to the Court's transmissions of the new Rule 11 to the Congress, "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 * * *."
Fifth, it would return to the pre-December 1993 practice of applying Rule 11 to discovery abuses. An empirical study conducted by the American Judicature Society suggested that discovery made up over 19 percent of the motions that were filed under the old Rule 11.\15\ It's important to sanction discovery abuses just as it is important to sanction abuses at any stage of the litigation process.
Justice Scalia went on to remind the Supreme Court that the "safe harbor" provision contradicts the Court's decision of five years ago in Cooter & Gell v. Hartmarx Corp., 496 U.S. 384 (1990). In that case, the Supreme Court upheld the trial court's jurisdiction to consider Rule 11 sanctions, despite the party's voluntary dismissal, and said: "Baseless filing puts the machinery of justice in motion, burdening courts and individuals alike with needless expense and delay. Even if the careless litigant quickly dismisses the action, the arm triggering Rule 11's concerns has already occurred. Therefore, a litigant who has violated Rule 11 merits sanctions even after a dismissal."
It is important that federal judges maintain the approach exhibited in Cooter & Gell because old Rule 11 has proven to be a strong tool for the bench to use and the bar to follow in curbing or avoiding litigation abuse.
There should be a coordinated nationwide effort on behalf of the Judiciary to firmly implement Rule 11 as well as a nationwide effort on the part of lawyers to abide by the Rule's terms. Rule 11 sanctions are to be mandatory and like other types of clear penalties in our civil and criminal justice systems, are intended to send an unambiguous message that abusive conduct will not be tolerated. This is important in encouraging compliance with the fact-checking requirement of the Rule. It also gives litigants and the public a sense of fairness in the knowledge that abusive practices will not be tolerated by our justice system. Mandatory sanctions also prevent judges from "going easy" on lawyers who break the rules.
As Supreme Court Justice Scalia has written, "[j]udges, like other human
beings, do not like imposing punishment when their duty does not require
it, especially on their own acquaintances and members of their own
\1\ State-Federal Judicial Observer Number 6, p. 1, July, 1994.
\3\ See A Report from the President's Council on Competitiveness "Agenda for Civil Justice Reform in America" Introduction, August, 1991.
\4\ Hearing before the Subcommittee on Intellectual Property and Judicial Administration of the Committee on the Judiciary, House of Representatives, p. 15, May 26, 1994.
\6\ This section does not apply to claims seeking equitable relief. A specified amount may be $0.00, however, for defendants who feel no valid claim has been brought.
\7\ The Act merely requires that a party file an amount of offer with the court in order to determine with certainty the last sequentially made offer by a party. Any terms or conditions of the offer such as confidentiality agreements, stipulations to dismiss, etc., need not be filed with the court and may be written, oral or collateral to any agreement on the amount dictated in the filed offer. Motions to enforce settlement agreements shall be handled in the same manner currently employed by district courts on a case by case basis.
\8\ This example is simplified to pertain to an entire suit while the amendment is to apply to any claim or claims in a suit and their separate dispositions, leaving parties free to settle out individual claims before dispositive rulings on those claims. The 10 day rule pertains only to trials, however, and not to dispositive motion rulings.
\9\ Oral offers to settle, and written offers not filed with the Court, except as collateral terms to an offer properly filed under Section 2, do not, therefore, trigger the loser pays rule.
\10\ It is intended that a petition cannot be made until appeals are exhausted and an order, judgment or verdict is final and binding on the parties to the controversy.
\11\ This is the "lodestar" calculation used routinely by federal courts and applied in a great number of fee-shifting statutes.
\12\ Scientific testimony that does not have general acceptance has been called "junk science." Under Daubert, general acceptance is one of four non-exhaustive factors a judge should consider in deciding whether to admit scientific evidence.
\13\ Federal Judicial Center Final Report on Rule 11 to the Advisory Committee on Civil Rules of the Judicial Conference of the United States, May 1991.
\14\ The Judicial Conference of the United States has the responsibility to "carry on a continuous study of the operation and effect of the general rules of practice and procedure". It also recommends changes in the Federal Rules to promote a "simplicity in procedure, fairness in administration, and just determination of litigation and the elimination of unjustifiable expense and delay." 28 U.S.C. Sec. 331. All of this activity is coordinated by its Committee on Rules of Practice and Procedure which is presently chaired by the Honorable Ralph K. Winter. The Standing Committee reviews and coordinates the recommendations of five advisory committees.
\15\ " * * * discovery abuse remains a prominent reason for Rule 11 activity and was cited as the reason for 19.2% of formal activity not leading to sanctions and 14.9% of actual sanctions." See Marshall, Kritzer and Zeamans, "The Use and Impact of Rule 11," 86 N.W.U.L. Rev. 943, 951-55 (1992).
We strongly dissent from the ill-conceived provisions of H.R. 988. We discuss below our objections to its component parts.
I. Attorney's Fees
"Loser pays" is a phrase that appeals to everyone who has heard an anecdote about a court case that produced what appears to be an absurd or abusive outcome. Government by anecdote, however, can produce disastrous policy, and this provision in particular deserves close scrutiny, and rejection, because it will impinge on the right of the people to have access to the courts to resolve their disputes.
Although the Contract with America claims that its "loser pays" provision is intended to penalize frivolous lawsuits, discourage the filing of weak cases and encourage the pursuit of strong cases,\1\ it is almost certain to have consequences well beyond those salutary ones. We have no problem with a provision narrowly tailored to penalize frivolous lawsuits; and indeed, Rule 11 sanctions and causes of action for abuse of process or malicious prosecution are examples of tried and tested judicial mechanisms for penalizing frivolous lawsuits.
We have a serious problem, however, with provisions that deter middle- income persons from pursuing reasonable claims or defenses, and place them at an unfair disadvantage in disputes with risk-neutral parties-- such as large corporations for whom the risk of fee-shifting will become just a cost of doing business.
In a sense, the legislation creates a destructive dynamic where all but the rich will apply a test, in their minds, of whether their claim will "beyond all reasonable doubt" succeed at trial, before pursuing a civil action that our civil justice system provides should be decided by a trier of fact on a "preponderance of the evidence" standard. This makes absolutely no sense if you believe in a fair and accessible civil justice system. It makes good sense if your only goal is to deter litigation, whatever the consequences.
It is notable that the Republican majority is eager to embrace the so- called "English rule" just as prominent voices in England are calling for the abandonment of that rule in England. In a January 14 editorial, the conservative British magazine, The Economist, called for the abandonment of the rule, because "only the very wealthy can afford the costs and risks of most litigation" under the English rule. "This offends one of the most basic principles of a free society: equality before the law," it noted.
The "loser pays" provision in H.R. 988, as amended in committee by the Goodlatte amendment, may well have the intended, and salutary, effect of discouraging frivolous claims. It may well serve to encourage a reasonable settlement in those cases in which the defendant is clearly liable. Its fatal flaw, however, is that it does not distinguish between frivolous cases and the much larger class of cases in which liability is a close call. We may slam the courthouse door with impunity on the former, but it would devastate the right of access of the judicial system to close the door on the latter.
Yet, it is clear that the "loser pays" provision in H.R. 988 fails to distinguish between frivolous cases and reasonable cases in which liability is closely contested, and thus, will deter many, particularly middle-income citizens and small businesses, from pursuing reasonable claims or defenses. As one scholar has noted: "[F]or a middle-income litigant facing some possibility of an adverse fee shift, * * * defeat may wipe him out financially. * * * [T]he threat of having to pay the other side's fee can loom so large in the mind of a person without considerable disposable assets that it deters the pursuit of even a fairly promising and substantial claim or defense."\2\
Middle-income parties and small businesses may have to place their very solvency on the line in order to pursue a meritorious claim. The burden of proof in a civil case is "preponderance of the evidence," often described as that amount of evidence that shifts the scales, even if only slightly, from the point of balance.
A middle-income plaintiff confronted with a written offer to settle under Section 2 of H.R. 988 must to settle at that point, unless he or she is willing to assume the risk of payment of the other side's attorney's fees. For middle-income plaintiffs who would be financially ruined by such an award, the calculus becomes, in effect, whether it is beyond a reasonable doubt that they will prevail. A rational middle- income plaintiff confronted with a settlement offer of $1.00 will drop even meritorious claims at that point, if the defendant's liability is a close question.
Particularly when their dispute is with a risk-neutral defendant, such as a large corporation for whom the risk of paying the other side's legal fees is merely a cost of doing business, middle-income people will be placed at a serious strategic disadvantage in the federal courts, even when their claims are not frivolous.
If the purpose is to discourage frivolous lawsuits, H.R. 988 doesn't even do that very well. Because the fee-shifting provision of H.R. 988 applies only in diversity cases, the effect of the rule will be to shift cases to the state courts, rather than to deter them altogether.
It is notable that the states, often referred to as the laboratories of democracy, have not, in any significant numbers, perceived the English rule to be an appropriate measure for their court systems.
The Florida experience, in which doctors first demanded the English rule, and then demanded that it be abolished, should be a reminder to us that unintended consequences often overtake the intended ones, particularly when we act hastily and without thoughtful deliberation.
"Loser pays" is gimmick phraseology masking great harm to our civil justice system and the middle class which looks to it to uphold their economic rights. As such, it fits in very nicely with the "Contract with America," but very poorly with the fundamental precepts that have guided the American justice system. This legislation should be rejected by the full House.
II. Scientific Evidence
The Committee's approach to amending Federal Rule of Evidence 702, relating to the admissibility of scientific evidence, exemplifies the bumpersticker method of governance reflected in the House Republicans' "Contract with America." This bill, we are told, "curbs the use of 'junk science' and requires so-called experts to be real experts." \3\
While "No Junk Science!" and "Honesty in Evidence!" are exciting slogans, the underlying issues are too nuanced to permit sound policy to be articulated in the space of a car bumper.
To the extent that "junk science" is a problem in our courts, the Supreme Court provided an adequate cure in the Daubert case.\4\ The federal judges, who will be required to live with the results of our hasty, poorly-drafted rules amendment, tell us that amendment of Rule 702 "would be counterproductive at this time in light of * * * Daubert," and "would cause mischief" because it imposes ill-defined burdens and uncertainties on the courts.\5\
By rushing this rules change through the Committee and the House without going through the rulemaking process that Congress itself established under the Rules Enabling Act, 28 U.S.C. Sec. Sec. 2071-2074, we trample upon the courts and the public alike in our stampede to the 100 Day finish line.
A. The Supreme Court Has Carefully Crafted A Remedy For This Problem
In an opinion issued in 1993, the Supreme Court carefully crafted a framework for the judicial evaluation of scientific evidence, designed to curb abuses in the use of expert testimony. Daubert v. Merrell Dow Pharmaceuticals, Inc., 113 S.Ct. 2786 (1993). Daubert provides detailed guidance to judges, who serve as "gatekeepers" to ensure that expert testimony "both rests on a reliable foundation and is relevant to the task at hand." Id. at 2798.
Writing on behalf of the Evidence Rules Advisory Committee of the Judicial Conference of the United States, Judge Winter urges that we not amend Rule 702 at this time. He notes that the Evidence Rules Advisory Committee "unanimously concluded that amendment of Rule 702 would be counterproductive at this time in light of [Daubert]."
The rational approach would be to assess the operation of Daubert to determine whether it is effective in curbing abuses in the use of scientific testimony; if it isn't, the experience of the courts under Daubert will be instructive in perfecting the remedy.
The newly-instituted Republican majority of the Judiciary Committee, however, appears to be constrained from recognizing that a solution to the problem has already been set into motion--perhaps because such a recognition would foreclose the opportunity to check off a box on the "Contract With America" checklist in front of the television cameras. Instead, it is the imperative of the Contract that we trump the Supreme Court's careful analysis and guidance with a rules amendment that will cause confusion and turmoil throughout the federal judiciary.
B. The Amendment Is Confusing And Disruptive
Although some proponents of Section 3 of H.R. 988 claim that it will simply codify Daubert, they are plainly wrong. By omitting many of the guidelines spelled out in Daubert, by using undefined terms that differ from the language of Daubert, and by reversing the presumption with respect to admissibility, H.R. 998 effectively reverses Daubert in favor of a less-nuance, untested, and unclear standard. The U.S. Department of Justice notes:
It is the Justice Department's view that Section 102\6\ neither codifies present case law interpreting Rule 702 nor reinstates earlier common law * * * The proposal to amend Rule 702 uses undefined terms and alters long-standing evidentiary presumptions. As a result, it could spawn extensive litigation and force the courts to start over in evaluating the use of scientific evidence. * * * \7\
Of the three witnesses who testified about scientific evidence at the February 10 hearing of the Subcommittee on Courts and Intellectual Property, only one asserted that the proposal codifies Daubert, and he recommended the insertion of language "that would make clear that the amendment * * * is not intended to undermine or otherwise relax the four guidelines in Daubert." \8\ No such language has been added.
The other two witnesses asserted that the proposal radically departs from Daubert. Dr. Franklin M. Zweig, testifying at the invitation of the majority, noted that "a dispassionate assessment must observe that it goes way beyond [Daubert]," calling it "an entirely different species of evidence law than the one currently applied by the federal judiciary [under Evidence Rule 702]."\9\
Dr. Zweig warned that this amendment could have significant unanticipated effects: thousand of hearings annually, with accompanying interlocutory appeals, perhaps spawning satellite litigation; the diversion of federal judicial resources to conduct the prescribed inquires; a bench trial on the substance prior to the jury trial that would follow; a hobbling of federal intellectual property adjudication, generally regarded as "junk-free," with a possible similar impact on international trade litigation; and an increase in form shopping for civil cases.\10\
Judge Winter and his committee warn us that enactment of this provision would cause mischief. We should pay heed.
Perhaps most troubling is the reversal of the long-standing presumption of admissibility of evidence; H.R. 998 incorporates a presumption that all scientific evidence is inadmissible unless it meets the three-pronged test of subsection (b). A presumption of inadmissibility places tremendous pressure on the courts to conduct extensive, burdensome pre- trial hearings, and removes a significant amount of decisionmaking authority from the juries.
We emphatically disagree with the notion that jurors lack the common sense and reasoning ability to evaluate scientific evidence. As Chief Justice Rehnquist has observed, "The founders of our nation considered the right of trial by jury in civil cases * * * a safeguard too precious to be left to the whim of the sovereign. * * *" Parklane Hosiery Co. v. Shore, 439 U.S. 322, ______ (1979) (dissent).
John Dickenson, one of the leading Federalists, wrote: "Trial by jury is our birthright; * * * who in opposition to the genius of United America, shall dare to attempt its subversion."\11\
This bill subverts the jury by reversing the long-standing presumption of admissibility of evidence, and empowering federal judges, unelected officials appointed for life, to conduct much of the evaluation now left to jurors.
C. The Amendment Wrongly Sidesteps The Rulemaking Process
Finally, we object to the consideration of an amendment to the Federal Rules of Evidence in a manner that sidesteps the rulemaking process Congress established under the Rules Enabling Act. As Judge Winter noted: "Revision of evidence rules governing the admission of expert testimony * * * involves particularly complex issues that vary tremendously depending on the case. Under the Rules Enabling Act rulemaking process, every proposed amendment is subject to public comment and widespread examination by individuals who work daily with the rules and meticulous care in drafting by acknowledged experts in the area. Proposed amendment of Evidence Rule 702 is precisely the type of work best handled by the Act's rulemaking process." -- Letter of the Hon. Ralph K. Winter to the Hon. Carlos Moorhead at 3.
We are embarking on a process that will dramatically affect every federal court in the land. It will fundamentally reshape and curtail the role of juries in cases involving scientific evidence, and will create vast areas of uncertainty in the trial of civil cases in federal court.
The rulemaking process established by the Rules Enabling Act is designed to ensure that we take such steps only after full consultation with the courts, the public, experts, and those who work regularly with the rules. To sidestep that process is to indulge in a form of arrogance that does not bode well for our relationship with the judiciary, nor for our system of justice.
III. Rule 11 Amendment
Rule 11 of the Federal Rules of Civil Procedure provides for the imposition of sanctions to deter abuses in the signing of pleadings, motions, and other court papers. Amended in 1983 to expand the power of the court to award attorney's fees to a litigant whose opponent acts in bad faith in instituting or conducting litigation,\12\ Rule 11 instead "become a font of rancor."\13\ It contributed significantly to the rising incivility of the bar as lawyers "had a double duty, one to try the case and the other to try the opposing counsel."\14\
The burden placed on the courts by the 1983 version of Rule 11 was considerable: an American Judicature study found that in 24.3 percent of the cases there was some Rule 11 involvement without sanctions, and in 7.6 percent of the cases there were Rule 11 sanctions.\15\ That is, one- third of all cases involved satellite litigation based on Rule 11; one- fourth of all cases were burdened with Rule 11 activity, even though sanctions did not ultimately obtain.
To remedy these problems, Rule 11 was revised in 1993, using the process set out in the Rules Enabling Act, with hearings and consideration by the Supreme Court and the Congress. The revised rule:. . . continues to require litigants to 'stop-and-think' before initially making legal or factual contentions. It also, however, emphasizes the duty of candor by subjecting litigants to potential sanctions for insisting upon a position after it is no longer tenable and by generally providing protection against sanctions if they withdraw or correct contentions after a potential violation is called to their attention. Fed.R.Civ.P. 11, advisory committee note.
Because it is of such recent vintage, the Federal Judicial Center has not had time to study how the revised Rule 11 is working. There are preliminary indications, however, that the revision has reduced satellite litigation, caused more lawsuits to be withdrawn because of the safe- harbor provisions of the rule, and improved the civility of the bar.\16\
As with the "junk science" provision of H.R. 988, we are rushing to fix a problem before taking the time to see if a previously-established remedy is sufficient; and we are doing so in a way that bypasses the Rules Enabling Act and the processes that would ensure adequate consultation with the federal courts about rules changes.
H.R. 988 is a composite of so-called federal court reforms that decimate the established rules of our civil justice system. These reforms are not based on empirical evidence of malfunctions in the courts or widespread abuse by persons seeking to vindicate their rights. They are based on a desire to systematically begin closing the door of justice to all but the most affluent.
For most Americans, the arcane legal language of the bill will never be scrutinized, instead subsumed by catchy labels like "loser pays."
But the American legal system, which is without peer in the world, was not developed in a hundred days, nor launched in the wake of pleasing semantic phrases. It was developed by a careful--even conservative-- approach of Congress working with the judicial branch in developing fair and workable rules of federal civil procedure and evidence. Obviously, the proponents of H.R. 988, in their zeal to achieve a result for an ideological point of view, care nothing at all for a system that works well for all parties.
History has shown that such cavalier disregard for things that work well
in government do not stand the test of time. When put to the test, it
will be evident that H.R. 988 does not live up to the high ideals that
are the underpinnings of the American system of civil justice.
\1\ Newt Gingrich & Dick Armey, "Contract with America," 143, 146 (Times Books 1994).
\2\ Thomas D. Rowe, Jr., "Predicting the Effects of Attorney Fee Shifting," 47 Law & Contemp. Probs. 148, 153 (1984).
\3\ Newt Gingrich & Dick Armey, "Contract With America" 143 (Times Books 1994).
\4\ Daubert v. Merrell Dow Pharmaceuticals, Inc., 113 S.Ct. 2786 (1993).
\5\ Letter from The Hon. Ralph K. Winter, Judge, United States Court of Appeals and Chair, Evidence Rules Advisory Committee of the Judicial Conference of the United States, to The Hon. Carlos Moorhead, Chairman, Subcommittee on Courts and Intellectual Property (February 7, 1995).
\6\ Section 102 of H.R. 10 is the predecessor of Section 3 of H.R. 988. It varied slightly from the present version, requiring that the court determine "that such opinion is--(1) based on scientifically valid reasoning; and (2) sufficiently reliable so that the probative value of such evidence outweighs the dangers specified in rule 403."
\7\ Letter from Sheila F. Anthony, Assistant Attorney General, U.S. Department of Justice Office of Legislative Affairs, to The Hon. Patricia Schroeder, Ranking Democrat, Subcommittee on Courts and Intellectual Property (February 24, 1995).
\8\ Testimony of Robert P. Charrow at 9.
\9\ Testimony of Franklin M. Zweig at 11.
\10\ Summary of Testimony of Franklin M. Zweig.
\11\ Quoted in Testimony of Anthony Z. Roisman, February 10, 1995, Subcommittee on Courts and Intellectual Property.
\12\ Fed. R. Civ. P. advisory committee's note.
\13\ "Rule 11 Snags Lawyers," ABA Journal (Jan. 1991).
\14\ Testimony of John P. Frank before the Subcommittee on Courts and Intellectual Property (February 6, 1995).
\15\ Id., citing American Judicature Study, Report of the Third Circuit Task Force on Federal Rule of Civil Procedure 11 (S. Burbank, ed., 1989).
\16\ Frank Testimony at 8-9; "Sanctions Litigation Declining," ABA Journal (March 1995).
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