The Supreme Court of the State of Delaware—the "incorporation capital of the United States"—concurs, ruling in May 2014 that corporations can protect themselves by instituting “loser pays” requirements in corporate bylaws. Unless the ruling is overturned legislatively, corporations can use this new power to curb abusive lawsuits.
The impact of this ruling upon class action investor lawsuits, in particular—which cost shareholders money as well as stock value—could be immense. The Wall Street Journal notes that the U.S. Chamber Institute for Legal Reform estimates the losses associated with frivilous class action lawsuits are 600% greater than the typical payment plaintiffs receive from such lawsuits.
In 2009, the law firm Robbins Geller accused Boeing of illegal misrepresentations. Refusing to settle the case, Boeing let the case proceed to trial. As the suit unfolded, it became clear that the plaintiffs had no legal foundation for their claim. Then, in August 2014, the federal judge overseeing the case, Ruben Castillo, accused Robbins Geller of “repeated misconduct”—under Rule 11(b) of the Federal Rules of Civil Procedure, requiring the sanctioned party to compensate the other for legal costs—and required the law firm to pay Boeing's legal fees.
Sanctions like these are rare. But, the Washington Examiner reports, instituting a “loser-pays” system would dissuade plaintiffs from filing frivolous lawsuits, as defendants would be more likely to take these cases to trial, confident they could recoup the court costs following the verdict.
“Loser pays” isn’t a perfect solution—judges may not apply it evenly—but it provides a positive step in the direction of real tort reform.
Then, too, there’s the “Lawsuit Abuse Reduction Act” (LARA), a bill filed in the U.S. House of Representatives. LARA would punish an attorney for withdrawing a case once the bluff is called. Unfortunately, LARA isn’t making progress because lobbyists for lawyers’ associations don’t want the bill to see the light of day. Wonder why?
The time has come for serious tort reform. “Manning up” against lawyers who bring frivolous lawsuits to court in the hope of receiving a settlement before the case goes to trial is a great place to start.
Let the discussion begin…
To read the Wall Street Journal article concerning Robbins Geller v. Boeing, click on the following link:
To read the Washington Examiner article evaluating “loser pays” standard, click on the following link:
“New ‘loser pays’ standard could curb abusive lawsuits.”
To read the Supreme Court of the State of Delaware opinion regarding “loser pays,” click on the following link: