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EXAMINATION OF LITIGATION ABUSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON THE CONSTITUTION 

AND CIVIL JUSTICE 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MARCH 13, 2013 

Serial No. 113–8 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

SPENCER BACHUS, Alabama 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

MARK AMODEI, Nevada 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

KEITH ROTHFUS, Pennsylvania 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

JOE GARCIA, Florida 

HAKEEM JEFFRIES, New York 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 

SUBCOMMITTEE ON THE CONSTITUTION AND CIVIL JUSTICE

TRENT FRANKS, Arizona, Chairman 

JIM JORDAN, Ohio, Vice-Chairman 

STEVE CHABOT, Ohio 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

LOUIE GOHMERT, Texas 

RON DeSANTIS, Florida 

KEITH ROTHFUS, Pennsylvania 

JERROLD NADLER, New York 

JOHN CONYERS, JR., Michigan 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

STEVE COHEN, Tennessee 

TED DEUTCH, Florida 

PAUL B. TAYLOR, Chief Counsel 

DAVID LACHMANN, Minority Staff Director 
(III) 

C O N T E N T S 

MARCH 13, 2013 

Page 

OPENING STATEMENTS 

The Honorable Trent Franks, a Representative in Congress from the State 

of Arizona, and Chairman, Subcommittee on the Constitution and Civil 

Justice ................................................................................................................... 1 

The Honorable Jerrold Nadler, a Representative in Congress from the State 

of New York, and Ranking Member, Subcommittee on the Constitution 

and Civil Justice ................................................................................................... 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Ranking Member, Committee on the Judiciary, and 

Member, Subcommittee on the Constitution and Civil Justice ........................ 4 

WITNESSES 

Elizabeth Milito, Senior Executive Counsel, National Federation of Independent Business (NFIB) Small Business Legal Center 

Oral Testimony ..................................................................................................... 6 

Prepared Statement ............................................................................................. 9 

Theodore H. Frank, Adjunct Fellow, Manhattan Institute for Legal Policy, 

President, Center for Class Action Fairness 

Oral Testimony ..................................................................................................... 21 

Prepared Statement ............................................................................................. 23 

Joanne Doroshow, Executive Director, Center for Justice and Democracy at 

New York Law School 

Oral Testimony ..................................................................................................... 65 

Prepared Statement ............................................................................................. 68 

John H. Beisner, on behalf of the U.S. Chamber Institute for Legal Reform, 

Skadden, Arps, Slate, Meagher & Flom LLP 

Oral Testimony ..................................................................................................... 78 

Prepared Statement ............................................................................................. 80 

(1) 

EXAMINATION OF LITIGATION ABUSES 

WEDNESDAY, MARCH 13, 2013 

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON THE CONSTITUTION

AND CIVIL JUSTICE

COMMITTEE ON THE JUDICIARY

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:06 a.m., in room 

2141, Rayburn Office Building, the Honorable Trent Franks (Chairman of the Subcommittee) presiding. 

Present: Representatives Franks, Jordan, Chabot, King, 

DeSantis, Nadler, Conyers, and Deutch. 

Staff Present: (Majority) Paul Taylor, Majority Counsel; Sarah 

Vance, Clerk; (Minority) David Lachmann, Subcommittee Staff Director; and Veronica Eligan, Professional Staff Member. 

Mr. FRANKS. The Subcommittee on the Constitution and Civil 

Justice will come to order. Without objection, the Chair is authorized to declare a recess of the Committee at any time. Thank you 

all for being here. 

The Subcommittee on the Constitution and Civil Justice meets 

today for a general oversight hearing to examine some current 

abuses in our civil justice system. It is appropriate that we hold 

such a hearing early in this Congress, so Members and the public 

can begin to understand the scope and nature of some of the more 

glaring dysfunctions in our litigation system before the Committee 

considers any potential legislation. 

We have assembled a panel of witnesses here today who are particularly capable of surveying America’s lawsuit landscape and 

identifying some of the biggest hills and gullies that threaten to 

make it even more difficult for hardworking Americans to get 

ahead. 

Forum shopping, the practice by which lawyers can choose the 

judge that is most likely to side in their favor, remains a problem 

in America. 

While the Class Action Fairness Act closed many loopholes that 

allowed abusive forum shopping, some courts have allowed trial 

lawyers to divide up their larger mass tort claims, so the smaller 

cases can continue to be tried in State courts, even when a Federal 

court remains the fairest forum for lawsuits involving citizens of 

different States. 

Further, too many class actions are litigated today such that the 

victims of unlawful conduct often receive only pennies on the dol-
2 

lar, if anything at all, when their trial lawyer representatives 

amass millions of dollars in compensation. 

Many times, the damages in class action lawsuits are so tiny 

that it is impossible to even identify the victims. In many such 

cases, awards are given to entities that are no part of the lawsuit 

whatsoever. Such awards called cy pres awards are often given to 

charities that support the trial lawyers’ goals, but have no other 

connection to any victims. This is so even though nothing in Rule 

23 of the Federal Rules of Civil Procedure, which allow class-action 

lawsuits, authorizes such awards. 

Courts are then left to bypass the legislature and enrich thirdparty organizations of the trial lawyers choosing. This trend threatens both the Constitution’s separation of powers requirements and 

its case and controversy requirement, which only allow courts jurisdiction over cases involving actual litigants. 

Another problem that is becoming apparent is the increasing 

practice by which third parties fund litigation between others when 

such third parties have no other no connection to the substantive 

law of the case. When financial speculators with no substantive 

connection to a lawsuit fund litigation like they would any other 

speculative venture, existing problems in the American legal system are made much worse. 

For example, as it is currently written, Rule 11 of the Federal 

Rules of Civil Procedure does not mandate that lawyers who file 

frivolous lawsuits be made to pay their victims for the cost of the 

frivolous litigation. Consequently, lawyers can file frivolous cases 

with virtual impunity. 

That being the case, third-party litigation financiers can spread 

their risk, funding meritless cases as well as deserving cases in the 

hopes that one or more of the frivolous cases will yield a jackpot 

settlement so large it can potentially fund all the other cases as 

well. 

On the other hand, the practice of third-party litigation financing 

can also deter the settlement of cases. This could happen when settlement offers are large enough to pay the lawyers and the victims 

they represent, but not large enough to also pay the lawsuit lenders the interest they charge on their loan. 

These are just some of the issues our witnesses will explore 

today as the Subcommittee on the Constitution and Civil Justice 

begins its examination of lawsuit abuse. 

And now with that, I will yield to the Ranking Member of the 

Subcommittee, Mr. Nadler from New York, for 5 minutes. 

Mr. NADLER. Thank you, Mr. Chairman. 

Mr. Chairman, we are back looking at the tort system again, and 

I see that the majority has again prejudged the issue with the title 

of this hearing. I know that we have long disagreed on issues affecting the tort system, but I had hoped that we could at least 

agree that a realistic understanding of how that system is functioning would entail a balanced look at both the costs and benefits 

of the system, and a more balanced look at the role that business 

defendants play in undermining the integrity of that system. 

The fact is that tort law exists for several reasons, and perhaps 

this is as good a time as any to reflect on those reasons. First and 

foremost, it exists to compensate people for the harm inflicted on 
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them by the negligence or intentional wrongdoing of someone else. 

That is especially important in a society where people still need to 

sue to get the medical care or to make up for the lost income or 

assets someone else’s wrongdoing has necessitated. 

Perhaps if we lived in a country where these matters were taken 

care of as a matter of national policy, we would not need to rely 

so heavily on the courts. But people who are harmed often have no 

recourse but to turn to the courts. 

This is not malicious or predatory. It is, rather, a necessity and 

one that remains a pressing need as long as some in this country 

oppose universal health care coverage and a robust social safety 

net. 

Second, the tort system exists to provide economic incentives to 

take the proper care not to harm others. Clearly, there are plenty 

of incentives to be reckless in ways that could cause serious harm. 

It costs money to make products safe or to make workplaces and 

public accommodations safe. There is the possibility of making big 

money by dealing dishonestly with investors who are selling defective goods. 

The tort system balances the scales at least to some extent. It 

imposes a countervailing cost on misconduct. No one likes being 

sued, and that can have a beneficial effect on how people conduct 

themselves. Avoiding liability is often a matter of making a better 

product or conducting your business in a more open and honest 

manner. 

Unless those who want to limit access to justice are prepared to 

have a truly strong regulatory and criminal framework for dealing 

with these problems, and I have seen little evidence of that, we 

must rely on the tort system to play a significant role in protecting 

the public interest. 

The testimony we will hear today contains a great many complaints, and I will allow the witnesses to outline them. But I would 

note that there is no recognition in any of that testimony that, perhaps, the defendants in many of these cases actually were guilty 

of wrongdoing, that they may have had some obligation to compensate the victims of their wrongdoing, or that the public interest 

is served in requiring them to do so. 

I would also note that missing from much of the testimony we 

will hear today is any recognition that defendants and their counsel sometimes engage in tactics to conceal facts from plaintiffs, to 

bury the plaintiffs in paper and expenses, and stretch out litigation 

in order to exhaust plaintiffs and their resources to keep up the 

fight. 

There is almost no recognition that defendants may even have 

engaged in wrongdoing. Even where, as Ms. Milito does in her testimony, a defendant has admittedly broken the law, that defendant 

is cast still as a victim of lawsuit abuse. 

In this case, the complaint has to do with admitted violations of 

the American with Disabilities Act. Congress specifically provided 

a private cause of action to ensure enforcement of that act. I suppose we could have sent an army of inspectors armed with tickets 

books to enforce the law, but I am not sure how Ms. Milito’s organization would feel about that. 
4 

Many of the recommendations we will hear will have the effect 

of placing additional roadblocks in the path of people who have 

been genuinely harmed. By limiting fees, or eliminating contingency fees, or cutting off other sources of funding to allow individuals to hold their own in a case against corporations with seemingly endless resources, many of the proposals we will hear will, in 

effect, allow corporate malefactors to commit wrongdoing with impunity. 

Not content with developments in the law, both legislatively and 

at the hands of the Supreme Court, we are hearing renewed calls 

to further limit access to the courts and to remedies like class actions. 

In addition to congressional actions to limit access to justice, 

such as the Class Action Fairness Act, the Supreme Court’s recent 

decisions have also greatly narrowed access to justice. In Walmart 

v. Dukes, the Court greatly limited class certification. In AT&T Mobility v. Concepcion, the Supreme Court held that the Federal Arbitration Act preempts State law on the unconscionability of class arbitration waivers in consumer contracts. 

Finally, in Ashcroft v. Iqbal, the Court made it easier to dismiss 

cases based on a judge’s own notions of plausibility prior to discovery. 

Taken together, plaintiffs have really lost many of the rights 

they used to have to relief. I suppose the defense bar is entitled to 

demand still more, but the scales have already tipped radically in 

their favor. 

I want to join the Chairman in welcoming our witnesses, and I 

look forward to their testimony. 

I yield back the balance of my time. 

Mr. FRANKS. And I thank the gentleman, and I will now yield to 

the Ranking Member of the full Committee, Mr. Conyers from 

Michigan. 

Mr. CONYERS. Thank you, Mr. Chairman. 

First of all, I want to welcome the witnesses, especially the director for the Center for Justice and Democracy at the New York Law 

School, attorney Doroshow. 

I also commend and align myself with the remarks of the Ranking Member of the Subcommittee, Mr. Nadler. 

I think that, in some respects, the title of this hearing is not as 

accurate as I would have made it, but one critical issue is the suggestion that we limit the ability of victims to pay for their cases. 

The proposal would eliminate or limit contingency fees, prevent attorneys general from retaining outside counsel, and prevent plaintiffs from seeking outside funding to sustain what are often long 

and costly cases. 

Of course, the large corporate defendants realize this, and if they 

can limit the ability of their victims to fund the case, they can win 

through attrition and not on the merits. 

And so here, with the sequester kicking in, and we are finding 

out now that there is talk of delaying jury trials, court security is 

being reduced, and now there is talk of federalizing everything, it 

sends a shiver down the spines of the judiciary, generally. 

Now, we are supposed to be dealing with forum shopping, the cy 

pres doctrine, third-party financing. And the fact of the matter is, 
5 

we have 33 vacancies that are being blocked by conservatives, in 

terms of making the Federal system work better than it is now. 

Contingency fees, from my point of view, is the way the 99 percent are able to enforce their legal rights, even against the 1 percent. 

And so, despite limits on class actions through legislation and 

Supreme Court decisions over the years, we still hear complaints 

that the plaintiffs still have an ability to bring their cases in State 

court. I realize that some consider the Federal courts a more favorable forum for corporate defendants, and will insist that Congress 

further trample on State rights and continue the Federal takeover 

of State tort law, which may be a direction we may be going in. 

When you get past the rhetoric, it is clear that what is going on 

here is forum shopping through legislation. 

While Members may not like State laws, the causes of action, the 

discretion exercised by State officials on the way to State courts 

and juries carry out their duties, and Congress should limit their 

interference in this kind of activity. 

And finally, when we hear complaints about the victims and 

their attorneys, we hear little acknowledgment that many of these 

cases are, in fact, meritorious and that the individuals are entitled 

to compensation for their harm. 

What are the victims in these cases supposed to do? They do not 

have money. Many of them aren’t even going to be able to work 

anymore. And there is too little concern expressed about the extent 

to which large corporations, banks, and, may I mention, the Wall 

Street financial crowd—so far, there may be one person that has 

been sentenced to imprisonment that caused this tremendous economic destabilization. And here we find those who bankrupted pension funds, and the polluters destroyed the lives of millions of 

homeowners—are at the mercy of those who have caused some of 

the pollution and are now victims of discrimination. 

And so I look forward to the testimony. I have no concern in 

which large corporations abuse legal process to conceal the truth 

and obstruct justice. 

And this is a service. This is a goal that I will be listening carefully for. 

And we may have to have another hearing, I say to the Chairman, to look at the other side of the issue. 

And I yield back my time, and thank the Chair. 

Mr. FRANKS. And I thank the gentleman. 

Without objection, other Members’ opening statements will be 

made part of the record. 

And I will now introduce our witnesses. 

Elizabeth Milito is a senior executive counsel for the National 

Federation of Independent Businesses’ Small Business Legal Center. Ms. Milito has previously worked at the U.S. Department of 

Veterans Affairs, and as a trial attorney in Maryland, practicing in 

the fields of tort, medical malpractice, employment, and labor law. 

She has also clerked for the Honorable Alan Wilner on the highest 

State court in Maryland. 

Welcome. 

Ted Frank is this founder of the Center for Class Action Fairness. Mr. Frank has won several landmark cases and millions of 
6 

dollars for consumers and other plaintiffs through the center, the 

nonprofit project he founded in 2009. He is also an adjunct fellow 

at the Manhattan Institute. Mr. Frank was a resident fellow with 

the American Enterprise Institute from 2005 to 2009, a litigator 

from 1999 to 2005, and he has clerked for the Honorable Frank H. 

Easterbrook on the Seventh Circuit Court of Appeals. 

Thank you, sir. 

Joanne Doroshow is the executive director of the Center for Justice and Democracy at New York Law School. Ms. Doroshow has 

worked on civil justice issues since 1986, when she directed an insurance industry and liability project for Ralph Nader. She has testified before the U.S. Congress many times and appeared before 

numerous State legislatures around the country. 

Welcome, Ms. Doroshow. 

John Beisner is the cochair of the mass torts and insurance litigation group at Skadden, Arps, Slate, Meagher & Flom LLP, based 

in its Washington, D.C., office. Among other things, that Mr. 

Beisner represents defendants in a wide range of aggregate litigation matters, including mass tort controversies, class actions, and 

False Claims Act suits. 

Thank you for being here, sir. 

So each of the witnesses’ written statements will be entered into 

the record in its entirety. And I would ask that each witness summarize his or her testimony in 5 minutes or less. To help you stay 

within that time, there is a timing light in front of you. The light 

will switch from green to yellow, indicating that you have 1 minute 

to conclude your testimony. When the light turns red, it indicates 

that the witness’s 5 minutes have expired. 

So before I recognize the witness, it is the tradition of the Subcommittee that they be sworn, so if you will please stand to be 

sworn? 

[Witnesses sworn.] 

Mr. FRANKS. And I now recognize our first witness, Ms. Milito. 

Ms. Milito, is that microphone on? Ms. Milito, would you pull 

that microphone a little closer to you? 

TESTIMONY OF ELIZABETH MILITO, SENIOR EXECUTIVE 

COUNSEL, NATIONAL FEDERATION OF INDEPENDENT BUSINESS (NFIB) SMALL BUSINESS LEGAL CENTER 

Ms. MILITO. Thank you, Mr. Chairman, and distinguished Subcommittee Members. 

NFIB’s mission is to promote and protect the right of its members to own, operate, and grow their businesses, and represents 

350,000 member businesses nationwide. The typical NFIB member 

employs 10 people and reports gross sales of about $500,000 a year. 

I applaud the Subcommittee for holding this hearing on the problem of lawsuit abuses. Although our country’s judicial system has 

much to be lauded, small-business owners staring down a lawsuit 

find it hard to appreciate praise of the courts. 

Of course, it is important to give victims of injustice their day in 

court. But lawsuit abuse victimizes those who are sued. 

By lawsuit abuse, I am referring to those cases where a plaintiff’s attorney asserts a flimsy claim to get some money, to get more 

money than is fair, or sues a business that had little or no involve-
7 

ment, but might have money. In all of those instances, small businesses must expend substantial resources to defend their business. 

Lawsuits threatened or filed impact small-business owners. 

Small-business owners do not have in-house counsel to inform 

them of their rights, write letters responding to allegations made 

against them, or provide legal advice. 

Today, I want to briefly discuss two areas that drive abusive litigation practices: one, financial incentives that encourage frivolous 

litigation; and two, fraudulent joinder. 

The story of Doug Volpi, an NFIB member who owns a paint 

store in Southern California, provides a vivid example of litigation 

abuse and demonstrates how financial incentives encourage frivolous litigation. And I would like to say, too, Mr. Volpi was eager 

to have me share his story here today. 

He received a summons in the mail notifying him that his business, Frontier Paint, was a defendant in an asbestos lawsuit. Mind 

you, the allegations in the claim stated that the plaintiff had been 

exposed to asbestos in the 1960’s and 1970’s from use of a product 

called Fixall. The manufacturer of Fixall has long since gone bankrupt. 

Mr. Volpi bought his Southern California business in 1997. That 

was over 20 years after the plaintiff’s alleged exposure. Moreover, 

the plaintiff lived in San Francisco, nowhere near the location of 

Mr. Volpi’s Southern California store. 

Upon receipt of the summons, Mr. Volpi said to his wife, we are 

going to need to hire a lawyer, and they did. Then Mr. Volpi himself spent hours online researching the plaintiff’s claims and discovered that the plaintiff’s attorney’s law firm had a known reputation for trolling for defendant. 

In Mr. Volpi’s words, this attorney, ‘‘dropped a net, dragged it 

around, and pulled it up to see if there was any halibut.’’ 

Thanks to the work of Mr. Volpi’s attorney, Frontier Paint did 

not become halibut. But dismissal of Mr. Volpi’s business came at 

a significant cost to Frontier Paint. 

Mr. Volpi and his wife paid significant legal fees out of pocket 

just to get their business removed from a complaint in which it 

should never been named as a defendant in the first place. 

Mr. Volpi’s story, unfortunately, is not unique. Class-action cases 

are rife with stories like Frontier Paint. In these cases, plaintiffs’ 

attorneys use a shotgun approach. Hundreds of defendants are 

named in a lawsuit, and it is the defendant’s responsibility to prove 

that they are not culpable. 

Public policy should encourage plaintiffs’ attorneys to prudently 

assess the viability of their clients’ potential claims before they initiate a lawsuit and discourage plaintiffs from taking unfounded or 

improvidently cavalier positions. 

Along these lines, we should aim to create strong disincentives 

against naming a small business as a defendant in a case where 

the claim against the business is particularly weak, especially 

where the plaintiff’s apparent motive is to use the defendant as a 

body shield against invocation of Federal jurisdiction, or what is 

also referred to as fraudulent joinder. 

But unfortunately, as the law currently stands, plaintiffs actually 

have perverse incentive to bring weak or attenuated claims against 
8 

small business defendants for the sake of defeating Federal jurisdiction. 

NFIB believes that we need to change the incentives driving our 

litigious culture. This may be accomplished, to some extent, 

through substantive reforms limiting tort liabilities or setting evidentiary or recovery standards. 

But we should remember that the fundamental problem facing 

small-business owners in these cases is a lack of financial resources 

necessary to successfully fend off frivolous claims. 

The cost of lawsuits for small businesses can prove disastrous 

and threaten the growth of our Nation’s economy. We must work 

together to find and implement solutions that will stop this wasteful trend. 

On behalf of America’s small-business owners, I thank the Subcommittee for holding this hearing and for inviting me to testify 

here today. 

Thank you. 

[The prepared statement of Ms. Milito follows:] 
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Prepared Statement of Elizabeth Milito, Senior Executive Counsel, National Federation of Independent Business (NFIB) Small Business Legal 

Center 
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Mr. FRANKS. Thank you, Ms. Milito 

And I will now recognize our second witness, Mr. Frank. And 

please turn on your microphone, sir. 

TESTIMONY OF THEODORE H. FRANK, ADJUNCT FELLOW, 

MANHATTAN INSTITUTE FOR LEGAL POLICY, PRESIDENT, 

CENTER FOR CLASS ACTION FAIRNESS 

Mr. FRANK. Thank you, Mr. Chairman, and distinguished Committee Members, for inviting me to provide testimony about classaction settlement abuse and, in particular, cy pres. 

My nonprofit public interest law firm, the Center for Class Action Fairness, has won millions of dollars for what the Ranking 

Member called the victims—consumers and shareholder plaintiffs— 

by representing objectors to unfair class-action settlements. 

And while I am affiliated with the center and with the Manhattan Institute, I am not speaking on their behalf today, but only on 

behalf of myself. 

The class-action procedure is one of many ways consumers can 

vindicate their rights, but, all too often, class actions are abused to 

benefit attorneys at the expense of the consumers they purport to 

represent, a wealth transfer from the 99 percent to the 1 percent. 

In the class-action settlement process, the class counsel is trying 

to maximize their profits while the defendant is trying to minimize 

the expense of the litigation and the settlement. But when courts 

fail to follow the Federal rules and the Class Action Fairness Act 

requirements of scrutinizing the fairness of a settlement, the parties all too often tacitly agree to freeze out the absent party at the 

table—the consumer class members that the settlement is supposed to be benefiting. 

Cy pres distributions, which are money given to third-party charities instead of to the class, are one of the leading ways to abuse 

the settlement process to create the illusion of class recovery while 

diverting the true bulk of the settlement to the attorneys. 

When plaintiffs’ attorneys are paid based on the size of funds 

rather than based upon what the class actually recovers, they have 

a perverse incentive to make it harder for their own clients to get 

access to justice and recover. 

In the Third Circuit case I argued and won last month, the District Court did not even try to make findings to learn about whether class members would benefit, and rubberstamped a $14 million 

attorney payment. It took the appellate court scrutiny to determine 

that because the claims process required a burdensome five-page 

claim reform to request recovery as low as $5, less than $3 million 

would have gone to the class, less than a fifth of what the attorneys were going to receive. 

The attorneys were perfectly happy with this because they were 

being paid based on the size of the total settlement fund, and they 

would have gotten to steer $17 million to their favorite charity in 

addition to their $14 million fee. 

So, all too often, the cy pres is a way for the attorneys to double 

dip. Money goes to the attorney’s alma mater or, in one case, a 

charity run by the ex-wife of the class counsel. 

Now, while the Third Circuit in my baby products case asked for 

more scrutiny of such settlements, other courts have been more le-
22 

nient. In the case of Lane v. Facebook, the Ninth Circuit, in a 2- 

to-1 opinion, affirmed the settlement approved by the District 

Court, where $3.2 million went to the attorneys, zero dollars to the 

class, and Facebook’s only other burden was to create a new charity run by Facebook and give it $6 million. 

So that is like a settlement against Microsoft settling for Microsoft giving money to the Gates Foundation. 

In effect, the class got zero dollars, the attorneys got $3.2 million, 

and the defendant got a waiver of whatever claims were against it. 

Worse still are the cases where a judge treats cy pres as his or 

her own plaything. In the Google Plus class-action settlement— 

again, a zero dollar class-action settlement for the class where the 

only money was going to charity—Judge Ware, without notice to 

the class, decided that a substantial part of the cy pres be diverted 

to a local university where he teaches. 

Again, the class got zero dollars. The attorneys got millions. 

Google got to give money to charities that, in large part, it was giving to anyway. 

In many cases, sunlight or transparency is a great disinfectant 

to this problem. For example, in the Apple backdating settlement, 

where one of my clients objected, the parties planned to divert $2.5 

million from shareholders to a dozen schools, some of whom were 

affiliated with class counsel, where the class counsel sat on the 

board. When I blew the whistle, the parties quickly amended the 

settlement so that the money went to the class, to the supposedly 

injured shareholders, rather than to the friends of the class counsel. 

In the Bayer aspirin case currently pending in Federal District 

Court in Brooklyn, I objected that the attorneys planned to pay $5 

million to themselves, $8 million to charities affiliated with the 

class counsel, and less than $100,000 to the class. In response to 

the scrutiny and to press coverage of my objection, the parties suddenly discovered that, yes, they did have a list of class members 

to whom they could pay $5 million. 

But the cases I mentioned are just the tip of the iceberg. The 

center has limited resources and cannot possibly object to every 

bad settlement. And when we do not object, and sometimes even 

when we do, these bad settlements are rubberstamped. 

Attorneys and judges face no consequences for failing to disclose 

their conflicts of interest to the court or to the class, and so there 

are certainly many more egregious cases of self-dealing than we 

know about. 

If courts fail to act here, there is a role for Congress to protect 

consumers from this class-action abuse. 

I welcome your questions. 

[The prepared statement of Mr. Frank follows:] 
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ATTACHMENT 
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Mr. FRANKS. Thank you, Mr. Frank. 

And I would now recognize our third witness, Ms. Doroshow. 

TESTIMONY OF JOANNE DOROSHOW, EXECUTIVE DIRECTOR, 

CENTER FOR JUSTICE AND DEMOCRACY AT NEW YORK LAW 

SCHOOL 

Ms. DOROSHOW. Thank you, Mr. Chairman, and Members of the 

Subcommittee. 

This oversight hearing is to examine litigation abuses. When I 

heard of this hearing topic, I was thrilled, of course, because, 
66 

thanks to countless and ever-increasing kinds of litigation abuses 

that affect 99 percent of Americans, I thought this is a real opportunity to discuss a very serious issue. 

As a result of hundreds if not thousands of so-called tort reform 

laws that have passed around the country in the last 30 years; a 

series of recent Supreme Court decisions that have stripped people 

of their legal rights, including providing corporations the ability to 

ban class actions; and other action and inaction by Congress; the 

sick, injured, and violated struggle to get into civil court today. 

Indeed, tort cases now represent only 6 percent of all civil cases 

while monetary disputes, like debt collections, represent 72 percent. 

While calling consumer lawyers insensitive to the importance of 

keeping companies ‘‘litigation-free,’’ corporate lawyers run to court 

at the smallest provocation. The U.S. Chamber of Commerce itself 

sues the U.S. Government, on average, three times a week. 

There are many ways to define litigation abuse, of course. There 

is discovery abuse by corporate defendants who try to avoid disclosure of critical information they would prefer to keep secret, not 

only from the plaintiff, but from the public. 

I believe budget cuts are abusive. Indeed, it is now being reported that, due to the sequester, Federal civil jury trials may be 

completely suspended beginning this fall. 

As to class actions, these cases are now in freefall. It seems my 

copanelists may be the only ones who have not gotten the memo 

on that. Just since AT&T v. Concepcion was decided in 2011, allowing corporations to immunize themselves with forced arbitration 

clauses containing class-action bans, at least 100 class actions— 

this is according to recent work from Public Citizen—and likely 

many more have been dismissed. 

The claims have not gone into arbitration. They have simply disappeared. 

Then there is the Walmart v. Dukes case, which, as one corporate 

lawyer put it, has aided employers to defeat, fracture, and/or devalue employment discrimination class actions. 

Employers have not even taken full advantage of Concepcion’s 

forced arbitration and class action bans, but they will. 

Other cases have resulted in the widespread dismissal of drug 

and device cases—Riegel v. Medtronic, the Mensing case. 

Lawsuits by the sick and injured are now so nonthreatening to 

the business world that NFIB’s own members ranked the issue, 

which they call ‘‘cost and frequency of lawsuits/threatened lawsuits’’ at number 71 out of 75 issues that small businesses care 

about. That is a lower rank than how to use Twitter, according to 

their own survey. 

In sum, there is much to discuss when it comes to litigation 

abuse. I did learn late Monday that, I guess since corporate litigation lobbies have seemingly gotten most everything they have 

asked for from Congress and the Supreme Court, pending a couple 

more decisions this term, they have only a few things left to complain about. 

One, they do not like it when plaintiff lawyers try to keep truly 

State cases based on State laws involving few residents in State 
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court where it belongs, or that these attorneys file cases in too few 

judicial jurisdictions, which they call forum shopping. 

Of course, as Mr. Conyers alluded to, one answer to this problem 

is for the Senate to confirm the 33 nominees currently pending who 

would love to be hearing cases right now. 

And of course, the irony here is that CAFA provides the ultimate 

in forum shopping to defendants who can decide which court will 

hear a case that accuses them of wrongdoing. 

Another thing they do not like are cy pres awards. When a company steals or cheats people out of millions of dollars, they would 

like this company never to be held accountable for this if its customers are dead or cannot be found. We do not agree. 

As to alternative litigation financing, when someone or their 

child suffers brain injury, amputation, blindness, quadriplegia, cancer, or another devastating injury at the hand of a corporate 

wrongdoer, and cannot work, they deserve to be able to bring their 

case and not be forced into accepting lowball offers from insurance 

companies simply because they cannot put for food on the table. 

Regulation by State bar associations of alternative litigation financing is fine. Banning it or placing control of litigation in the 

hands of the Federal Government, where the U.S. Chamber of 

Commerce has outsize influence, is not fine. 

There are many steps that Congress can take, such as to prohibit 

arbitration, class-action bans. I would be happy to discuss some of 

those laws and bills, if time permits. 

And I thank you very much, and would be happy to answer questions. 

[The prepared statement of Ms. Doroshow follows:] 
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Mr. FRANKS. Thank you, Ms. Doroshow. 

I will now recognize our fourth witness, Mr. Beisner. 

TESTIMONY OF JOHN H. BEISNER, ON BEHALF OF THE U.S. 

CHAMBER INSTITUTE FOR LEGAL REFORM, SKADDEN, ARPS, 

SLATE, MEAGHER & FLOM LLP 

Mr. BEISNER. Thank you, Mr. Chairman, and Members of the 

Subcommittee, for inviting me to appear here today. 

I am appearing on behalf of the U.S. Chamber Institute for Legal 

Reform, which is the only national legal reform advocate to approach reform comprehensively by working to improve not only the 

law, but also the legal climate. 

Over the last several years, significant progress has been made 

in addressing certain forms of litigation abuse in the United States, 

both at the Federal and State court level. The most significant of 

these is the Class Action Fairness Act of 2005, or CAFA, which has 

virtually eliminated so-called magnet State courts that were once 

a haven for meritless and abusive class-action lawsuits. 

But more work is needed. The United States is experiencing far 

too much litigation abuse. It is undermining our economy and sullying the reputation of our legal system. 

I would like to focus on three areas ripe for abuse: class actions, 

State attorney general enforcement of Federal law, and third-party 

litigation financing. 

Let me start with class actions. Although CAFA has vastly improved the civil justice landscape, the threat of abusive class actions has not been completely extinguished, for several reasons. 

First, some Federal courts have undermined the effectiveness of 

CAFA by making it far more difficult to remove cases to Federal 

court than Congress had intended. At least one of the issues I am 

referencing has worked its way up to the Supreme Court in the 

Standard Fire Insurance Company v. Knowles case. The Supreme 

Court will be deciding whether a named plaintiff can avoid removal 

under CAFA by stipulating that she does not seek to recover more 

than $5 million on behalf of the absent class members. If in 

Knowles, the Supreme Court condones the practice of using stipulations to defeat CAFA jurisdiction, that ruling would be a blow for 

civil justice. 

The second problem is that some Federal courts have ignored the 

Supreme Court’s ruling in the Walmart Stores v. Dukes case, which 

permits certification of classes only after a rigorous analysis to ensure that plaintiffs’ claims are really susceptible to being proved on 

a classwide basis. 

As a result, even in some Federal courts, frivolous class actions 

are proceeding. 

Another problem affecting Federal class-action litigation is increasing reliance on cy pres settlements, which were mentioned 

earlier. Now these may seem like a good deal by ensuring that 

some money in a settlement goes to a good cause. But in reality, 

cy pres is a way for class lawyers to justify big fees without providing any real benefits to class members. 

Another area that warrants scrutiny is the proliferation of arrangements under which State attorneys general hire outside counsel on a contingency fee basis to represent the State in civil litiga-
79 

tion. This problem threatens to worsen as more Federal statutes 

give State attorneys general authority to enforce Federal laws. And 

I am talking about statutes such as the Truth in Lending Act, 

HIPAA, the Dodd-Frank statute, and the Consumer Products Safety Improvement Act of 2008. 

Contingency fee contracts between AGs and private counsel can 

create unseemly liaisons between public enforcement officials and 

private profit-motivated lawyers. They also threaten to violate the 

constitutional rights of defendants who find themselves the targets 

of lawsuits that combine the political power of the State and the 

financial power of the plaintiffs’ bar. 

To avoid these results, Congress should consider enacting legislation that prohibits State AGs from retaining contingency fee counsel to enforce Federal law. Such legislation would promote the integrity of enforcement proceedings and safeguard the constitutional 

rights of defendants. 

Finally, I want to address one more looming litigation abuse: 

third-party litigation financing. For those unfamiliar with this 

practice, TPLF is the practice of investing in lawsuits. And if that 

concept makes you uncomfortable, your instincts are right. 

This has the potential to dramatically adversely affect our civil 

justice system by increasing the filing of questionable claims, diminishing the ability of individuals to have a say in their own lawsuits, to prolong litigation, to drive up the return on investments 

for the investors in such litigation, and to compromise the critical 

attorney-client relationship. 

In my written testimony, I outline a number of proposals for addressing this issue. 

Again, I appreciate the opportunity to speak this morning and 

would be happy to answer any questions. 

[The prepared statement of Mr. Beisner follows:] 
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Mr. FRANKS. Thank you. And I thank you all for your testimony. 

We will now proceed under the 5-minute rule with questions. 

And I will begin by recognizing myself for 5 minutes. 

And I will start with you, Ms. Milito. 
100 

Ms. Milito, you stated in your written testimony that we ‘‘must 

also address the reality that small business defendants are rationally discouraged from vindicating their rights in court under the 

current legal rules.’’ 

Now, it seems to me that you are essentially saying that an innocent small business may have to pay money to trial lawyers to 

avoid paying an even more significant amount by litigating their 

cases to victory. 

Is that true? Or can you elaborate? 

Ms. MILITO. Yes, certainly. And that is true. And I think, actually, the point was made in part by Mr. Conyers’ statement, too, 

who I think referred to large, costly cases. Hearing about these 

large, costly cases that you read about in the news, these class-action, that feeds into the fear that I hear from small business members who oftentimes, when they are threatened with a lawsuit or 

they receive that demand letter in the mail, their first thought is, 

my goodness, what do I do and how much is this going to cost me, 

because there is an immediate recognition that, like with Mr. 

Volpi, I am going to need to get an attorney and attorneys are expensive. 

And in this respect, I am a kind of aligned with my members. 

I have been out of private practice for nearly 20 years, so I get 

sticker shock, too, when I hear about what attorneys cost, as do our 

members. And our members have an appreciation that attorneys, 

whether they are plaintiff’s attorneys or defense attorneys, are entitled to get paid. They have an expertise, like Mr. Beisner. But it 

is expensive, and it is costly to defend these cases. 

So I spoke with a member, ironically, just yesterday, who has 

been threatened with a wage and hour issue. And she has already 

paid her attorney nearly 5 hours, and she said, you know, this is 

$260 an hour. As of right now, we don’t even have the complaint. 

I just do not know what to do. I am at the point where I kind of 

want to pay off this individual, even though I do not think I did 

anything wrong. I do not think I violated any wage and hour law, 

but I just want this to end, because I do not know how long this 

is going to go on. They just want to get out. 

So it is very often—they are not going to go and engage in long, 

costly discovery, my members. They may not even ever see a complaint, like this member I spoke to yesterday. They want to kind 

of, as much as they hate to throw up their hands in defeat, they 

want to pay, get out and just kind of make this go away so they 

can get back to running their business. 

Mr. FRANKS. Mr. Frank, you stated in your written testimony, 

‘‘At a minimum, the parties should be required to give notice to the 

class of who the cy pres recipients are and whether there are relationships between the recipients and the parties, attorneys, and 

judge.’’ Though this information seems obviously material to the 

fairness of the settlement, courts have generally refused to establish bright line rules that penalize parties that hide this information from class members. 

Could you please elaborate on why some courts are reluctant to 

make the cy pres system more transparent and what Congress 

might do to rectify that? 
101 

Mr. FRANK. I do not understand why the courts are not creating 

the bright light rules here. To me, it seems an obvious solution, 

and one answer is that I am litigating against millionaire attorneys 

who have a lot of money at stake, and if I win on that point, they 

might not get their money, so they throw as much mud into the 

litigation process as possible to protect themselves on that issue. 

Congress can certainly require notice to have these things. In the 

Class Action Fairness Act, for example, defendants are required to 

give notice to State attorneys general about a pending settlement, 

so that the State attorney general can come in and intervene on 

behalf of class members who are treated unfairly. Unfortunately, 

that provision has not had very much effect, because most State attorneys general have just sort of ignored it. 

But similar provisions to the existing 1715 in requirements and 

notice, and holding that a defendant does not get the benefit of 

waiver, if the notice does not have these provisions, or that attorneys will be punished if they fail to make the appropriate disclosures, will create the right incentives so that class members know 

went attorneys are diverting money to their alma mater or to their 

ex-wife’s charity. 

Mr. FRANKS. Thank you, sir. 

Mr. Beisner, has President Obama withdrawn the previous Administration’s executive order that bans the Justice Department 

from hiring contingency fee lawyers, unless required by law? And 

if not, what would that say about the President’s policy? 

Mr. BEISNER. To my knowledge, that executive order is still on 

the books. And to be clear what it means is it precludes the Federal Government, when it is going to enforce laws, from getting 

contingency fee counsel involved in the litigation. And to me, it is 

a policy saying that is something the Federal Government should 

not do in enforcing its laws, and that should apply when State AGs 

are enforcing Federal law as well. 

Mr. FRANKS. Thank you. And I would now recognize the Ranking 

Member for 5 minutes, Mr. Nadler. 

Mr. NADLER. Well, thank you. I want to say, if anything useful 

has come out of this hearing so far it is that I have found out about 

that executive order from the President saying that the AGs shall 

not hire contingency fee lawyers, and I will do my best to get that 

revoked as soon as possible. 

Ms. Doroshow, Mr. Beisner claims that contingency fee agreements between State AGs and private counsel are somehow problematic. Can you explain how these agreements really operate and 

the risk that taking a case on a contingency fee entails? 

Before you do that, let me read something that will set the stage 

for this question. Very often, the State AG will find himself outclassed by very large law firms hired by very rich litigants. So for 

example, in the tobacco litigation, the strategy of the tobacco companies with bury everybody in paper and make it too expensive to 

fight. A memo written by counsel for R.J. Reynolds Tobacco made 

it clear that outspending litigants and forcing them to abandon 

their claims was the core staple of the tobacco industry’s litigation 

strategy. I quote from the memo, ‘‘The aggressive posture we have 

taken regarding depositions and discovery in general continues to 

make these cases extremely burdensome and expensive for plain-
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tiffs’ lawyers. The way we won these cases was not by spending all 

of RJR’s money but by making that other SOB spend all of his.’’ 

Could you comment on some of the proposals you have heard in 

the context of this kind of memo about prohibiting State AGs from 

hiring contingency fee lawyers? 

Ms. DOROSHOW. Sure. The State AGs make rare use of contingency fee lawyers, but they do so if they are in a situation where 

the office is underresourced and understaffed, and they need to enforce State law and protect their consumers, and they do not have 

the staff to do that. So they bring on contingency fee lawyers who, 

by the way, like all contingency fee lawyers, are paid nothing until 

and unless the case is won. 

And in this case, the payments, the fees, are paid from the company that has been determined to have broken the law. Taxpayers 

do not pay these fees. Not only that, taxpayers in many cases—the 

tobacco cases being a good example of that, but there are many, 

many others—have recovered millions and millions of dollars as a 

result of these State AG cases. 

Mr. NADLER. So, Mr. Beisner, why is that not a great public service? 

Mr. BEISNER. Well, I am not sure I agree with the factual 

premise on that. 

Mr. NADLER. Well, let us put it this way: By definition, if you 

win the case, it is not a frivolous case. You won. The courts have 

determined it is not. 

Mr. BEISNER. Oh, yes. 

Mr. NADLER. If an AG, through a contingency fee lawyer, wins 

millions of dollars in damages for the taxpayers or for some injured 

class in the State, what is wrong with that? 

Mr. BEISNER. Because there is a huge cost to the State to do 

that, because the lawyers involved keep 40 percent of the money 

that came in. 

Mr. NADLER. But if that had not happened, the State would have 

gotten zero and the State could not have afforded to bring the case 

in the first place. 

Mr. BEISNER. If the State had decided that it was a priority, it 

could have paid those attorneys by the hour, as many States do. 

Many States do not have—— 

Mr. NADLER. But that might cost a fortune. And then you run 

into the problem that you are up against the tobacco companies, 

some other big company that is just trying to run up your costs. 

Isn’t this a good way around that? 

Mr. BEISNER. No, it is not. And I think it also ignores the fact 

that through NAAG, and other resources, the attorneys—— 

Mr. NADLER. Through what? 

Mr. BEISNER. The National Association of Attorneys General. 

Sorry. They are able to pool resources and be very effective. 

Mr. NADLER. Ms. Doroshow, would you comment on that? And on 

the 40 percent figure? 

Ms. DOROSHOW. Well, I mean, yes, they are not charging 40 percent. You know, I think in these cases, they usually are charging 

far, far less than the normal one-third fee. 
103 

But in any event, this is not money that the taxpayer is paying. 

This is money that the defendant is paying. The company that 

broke the law is paying these fees, not the taxpayer. 

Mr. NADLER. Let me ask you one other question, Ms. Doroshow, 

and then Mr. Beisner. 

The Attorney General is an elected official in most States. 

Shouldn’t he make that judgment? Why should the Federal Government, as I gather Mr. Beisner would have us do, prohibit the 

exercise of judgment by an elected official as how to allocate resources and protect his constituents? 

Ms. Doroshow, first. 

Ms. DOROSHOW. You know, this is something that is obviously a 

State issue. Congress should have no involvement in it. There are 

some State laws, 20-some, that provide Federal and State concurrent authority to enforce the law. In our organization, and there 

was testimony actually last year by Amy Widman, a law professor 

at Northern Illinois University, about the research that they did to 

show that that concurrent enforcement authority with AGs—— 

Mr. NADLER. But I mean, Mr. Beisner would say that the Federal 

Government should prohibit the attorney general, who is an elected 

State official, from using his or her judgment as to whether to hire 

a contingency fee lawyer to vindicate or try to vindicate the rights 

of the consumers or the taxpayers or whoever in the case. We 

should interpose our judgment and say you may not do that. 

He is an elected official. He is not risking State money. Why 

shouldn’t he be allowed to do that? 

Ms. DOROSHOW. The Federal Government should stay out of this. 

Mr. NADLER. And if I could ask—— 

Mr. FRANKS. The gentleman’s time has expired. 

Mr. NADLER. Could we let Mr. Beisner answer the question? 

Mr. FRANKS. Please finish the question. 

Mr. BEISNER. Let’s be clear that what we are talking about is 

when that judgment is being made about enforcing Federal law. 

What we are talking about is not State AG enforcement of State 

laws. 

Mr. NADLER. I thought we were talking about State AGs? 

Mr. BEISNER. We are talking about State AGs enforcing Federal 

law under those statutes that permit it. And there we are saying 

there is a distinct Federal interest in saying, since the Federal 

Government, by executive order, does not use contingency fee counsel, that policy judgment has been made. And where that authority 

for enforcement has been delegated to the State, that shouldn’t be 

used there either. 

Mr. FRANKS. The gentleman’s time has expired. 

I would now recognize Mr. DeSantis for 5 minutes. 

Mr. DESANTIS. Thank you, Mr. Chairman. Thank you for conducting this hearing. Thank you to the witnesses. 

You know, I think that litigation abuse in an important issue. It 

is interesting the Founding Fathers, if you look back, they thought 

attorneys would be very trustworthy and the type of people who 

would really be able to be leaders. And obviously, I think we have 

seen a change in how the profession is viewed by the public, and 

I think this is one of the reasons why. 
104 

Ms. Milito, you talked about in your testimony that many of your 

members receive cases brought against them, sometimes threatened, but sometimes actual cases. They look at it and they are 

pretty convinced that they would be able to win on the merits, if 

they did not do anything wrong, but then they face the calculation 

of, okay, how much is it going to cost me to defend the case? 

And so, even if they win, oftentimes they are better off just cutting a check to somebody to be able to go away, not just purely 

based on economics, although that is obviously a calculation, but 

the time and effort that they would have to invest in the case. 

Is that a pretty standard thing that you hear from your members? Having to make that type of choice? 

Ms. MILITO. Definitely, yes. It is a simple cost-benefit analysis. 

And you are right to hit on, too, the anxiety, the stress, the time 

away from the business, kind of the incalculable financial costs 

that go into the decision to settle a case where they do feel that, 

hey, I did nothing wrong here. 

And you know, even the situation going back to Mr. Volpi, the 

frustration he expressed to me was my attorney told me that I 

could file a motion to recoup my attorneys’ fees, but filing the motion and the fight to recover that would probably cost $4,000. And 

he said, so to pay $4,000 to get $1,000 back and the end of the day 

makes absolutely no sense. 

So it is just a cost-benefit analysis, and that is why they try to 

get out. 

Mr. DESANTIS. In your testimony, you mentioned how the incentives in our system are structured to kind of lead to this outcome 

over and over again. Would your members be receptive—many of 

these cases may be done under State law, so it wouldn’t be for us 

to get involved, if that is the case. 

But would they be open to reform where they would be able to 

recover attorneys’ fees? Like in Britain, the loser will just pay the 

fees. It seems to me that would change the incentives for some of 

these cases being brought. 

Ms. MILITO. Certainly, we have some members that I think I 

have heard from that would support that. But I think it is more 

disincentivizing attorneys and, certainly, a lot of attorneys—most 

attorneys, I think, comply with the highest ethical standards. I do 

want to say that at the outset, and I think our members would say 

that, too. 

It is kind of these bottom feeders, if you will, that are going after 

the low dollar cases with small businesses. And so disincentivizing 

the frivolous claims by maybe strengthening Rule 11 sanctions, 

making it easier to recover sanctions. And this does get into, as you 

pointed out, some State law issues, too, with consumer statutes not 

allowing recovery of fees when you bring those claims. Those sorts 

of things. 

I think there are other areas that you could look at, too. 

Mr. DESANTIS. Okay, great. 

Mr. Beisner, in terms of the contingency fees with these State 

AGs, just in your experience, is there ever a time when you just 

absolutely need to do a contingency fee? Or could these cases be 

dealt with without that? 
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Mr. BEISNER. I think, for the most part, they can be dealt with 

without attorneys’ fees. You know, I think there are some instances 

where States have tax collection operations and so on, where that 

may be the only approach that is available to them. 

I think what is of most concern, though, is the idea that when 

you hire contingency fee counsel and basically pin the attorney general’s badge on them, there are really worries about handing over 

control of litigation to somebody who has a financial interest in the 

outcome. 

It is like saying to traffic officers, go out and give tickets and you 

can keep half of the money you collect. You worry about the public 

perception that the judgment, the prosecutorial judgment that 

ought to be exercised when you are using the authority of the 

State, when you have that badge pinned on, it is not being properly 

used. And that is the concern in these larger cases, that are really 

prosecutions of a sort, about the use of contingency fee counsel. 

Mr. DESANTIS. And do you know, from your experience, how are 

these contingency fee attorneys selected by the State AG? Is there 

a system, or is it just kind of ad hoc? 

Mr. BEISNER. It varies from State to State. I should start by saying there are some States and some State attorneys general who 

say we are having nothing to do with this. We do not want this at 

all, and have made that judgment. 

Other jurisdictions in recent years have enacted legislation, in 

large part because of the abuses that were recognized coming out 

of the tobacco litigation of how counsel were selected and how 

much they were paid, that requires all of this to be done in the 

sunshine. 

And then there are other States where there is a little bit of an 

anything-goes situation. And I think there are concerns that in 

some of those jurisdictions, you do have a little bit of a pay-to-play 

sort of situation, where there does seem to be some correlation between campaign contributions and which counsel gets selected to 

carry on these activities on behalf of the State. 

Mr. DESANTIS. That was going to be my next question. 

So with that, thank you, Mr. Chairman. I yield back. 

Mr. FRANKS. Thank you, Mr. DeSantis. 

I will now recognize Mr. Conyers for 5 minutes. 

Mr. CONYERS. Thank you, Mr. Chairman. 

There seems to be two schools of thought here demonstrated by 

three of the witnesses. 

Attorney Doroshow, is that the correct pronunciation? 

Ms. DOROSHOW. Doroshow, actually. But that’s fine. 

Mr. CONYERS. Doroshow. 

How do we deal with the question of, for example, supposedly 

frivolous cases that would otherwise be flooding courts? 

The Iqbal v. Ashcroft decision by the Supreme Court said that 

the court should dismiss claims if they are not plausible. And what 

I am hearing here is a number of criticisms that these claims are 

not being dismissed, even though they are frivolous. 

That seems like we might want to hold a hearing to determine 

the accuracy of that among the different courts, the Federal and 

State court itself. 
106 

Ms. DOROSHOW. Well, I do think Iqbal, those cases have made it 

very difficult for many cases to proceed. And I think it would be 

worthwhile to take a look at the impact that that has had on the 

dismissal of legitimate cases that should be in court. 

I mean, the reality is that tort cases are dropping, and they have 

been dropping substantially in this country for years. They have 

been down 25 percent in the last 10 years, while business cases, 

including contract cases, have gone up 62 percent. 

So I think the proof is this in the statistics. There are plenty of 

mechanisms. Rule 11 is certainly another one that provides judges 

enough tools to dismiss frivolous cases, and they are being dismissed. 

But also legitimate cases are being dismissed, and that is, in my 

view, a more serious problem. 

Mr. CONYERS. Well, let’s look at class actions. For many with relatively small claims, there is no other way for a victim to get into 

court. And what I am hearing now is that the poor corporate defendants need some help. 

And this hearing seems to be designed to create sympathy for the 

corporate lawyers, who are clearly more affluent than the consumer 

class of lawyers. And it seems to be just backward, as far as I am 

concerned. 

The corporations, through tobacco suits and others, can keep you 

in court. As a matter of fact, now an appeal can take a victory 

away from a plaintiff, and we are here worrying about the corporations and how terrible it is that they are subject to class-action 

suits. And it seems to me that it is just the reverse. 

Where do you come out in evaluating this part of it? 

Ms. DOROSHOW. It is pretty clear that the Concepcion case has 

resulted in the dismissal of class actions, because of the class-action ban that now has been legitimized by the Supreme Court. 

I mean, these cases are not being brought, basically at all, because if you do not have the class-action tool, then small claims 

cannot be brought it all. And I think that is a result of that, the 

primary result of that case. 

Mr. CONYERS. The last question is on the contingency fee contracts. They have been, more or less, demonized in this discussion. 

Can we justify them under certain conditions? 

Ms. DOROSHOW. Well, contingency fees are the only way that individuals can get access to the courts and, in many cases, State attorneys general, as well, who are underfunded and understaffed. 

It is a critical part of the civil justice system. And conservative 

groups agree. The American Enterprise Institute even published a 

study called, ‘‘Two Cheers for the Contingent Fee.’’ 

Mr. CONYERS. Amazing. And I thank you very much. 

I yield back, Mr. Chairman. 

Mr. FRANKS. Thank the gentlemen. 

And I now recognize the gentleman from Iowa, Mr. King. 

Mr. KING. Thank you, Mr. Chairman. 

And I thank the witnesses. 

As I listen to the testimony and review it, just for me, I always 

like to get to: How do we fix this in a big way? And then, if we 

cannot get there, how do we back up to what we can get done? 
107 

I did not hear the proposals for those solutions, but I first wanted to ask, and I think I will go first to Ms. Milito, do you know 

of a country that has more rampant litigation than the United 

States? Anyplace on the planet? 

Ms. MILITO. I mean, from the reports I have read, there is a litigation problem, and certainly our members perceive that our country is too litigious. I mean, I have not compared, myself, data, but, 

I mean, it is kind of sue first and think later, is what I heard from 

a member recently. 

Mr. KING. Do you believe that it affects our culture and our quality of life? 

Ms. MILITO. I think it affects the culture for a small-business 

owner. This kind of this climate of fear pervades. One issue that 

was brought up was about NFIB’s problems and priorities poll and 

how a lawsuit is lower on our problems and priorities. But I point 

out that, in 2011, NFIB’s research foundation polled small employers—not just NFIB members, but small employers nationwide— 

and 40 percent identified regulation and legal issues as an impediment to growth. 

So it is this regulatory and legal combined together that is an 

impediment to growth. So it does impact business owners. 

Mr. KING. I would just give you a cultural narrative, a short one, 

and that would be a small town that was on a lakeshore that had 

one lot that belonged to the city. And they always put a dock out 

there for public use. And it was nice that there was open access 

to the public along an otherwise private shoreline. And someone 

went out there and put one of those steel fishing rod holders on the 

dock post, and a little kid jumped in, cut his arm on that. 

It turned into litigation. The result of the litigation was no dock, 

no public access. The beach is shut down. 

That is an example of how our lives aren’t as rich as they might 

be if it weren’t for this litigation. 

I would ask if there is anyone on the panel that knows of a country that has more rampant litigation than the United States. Signal to me, and I will recognize you. 

Mr. Beisner. 

Mr. BEISNER. Yes, I certainly do not. And I think that part of the 

reason for that is, if you look at our legal system versus virtually 

every other country’s legal system, first of all, they do have a principle in most other countries with more sophisticated legal systems 

that if you file a lawsuit and you do not win, there are consequences. You pay all or part of what the other side had to invest 

in defending itself. 

Also, most other countries do not have contingency fees. 

Now, I am not necessarily saying we should move away from 

that, but in answer to your question—— 

Mr. KING. You are starting to convince me, however. 

Mr. BEISNER. The reason we have a lot more litigation and part 

of the reason I worry about this third-party litigation funding I was 

referencing is because now you have what are basically hedge 

funds coming in and saying, ‘‘We have a new stock market. We 

have a new place to invest,’’ which is going to cause the amount 

of litigation to increase even further. 
108 

Mr. KING. But your recommendation, when you get to that point 

of no contingency fees and loser pays, those two components of your 

discussion, what would be your recommendation on how we fix 

this? 

Mr. BEISNER. I am not sure that we necessarily should back 

away from the contingency fee system. I think we need to have 

some restrictions on when it is used. 

And I wouldn’t necessarily advocate a full loser pays system, but 

to think about whether there should be allocation of costs of discovery, which is a huge expense in many of these cases, when one 

side wins or loses, may be an area to look at. 

But there needs to be some consequences there to the decision 

to file litigation. And that is part of the problem now. You can just 

file a lawsuit. And if it does not work, no harm, no foul. 

Mr. KING. Ms. Doroshow, can you give us an example of an incident where an American citizen could have something calamitous 

happen to them and there would be no one liable but themselves? 

Ms. DOROSHOW. Yes, as a result of the Riegel v. Medtronics Supreme Court case, currently, victims of defective class III medical 

devices—that is like heart defibrillators and pacemakers—have no 

remedy. And there are thousands of these cases that have been dismissed, of people with these kinds of very serious and defective 

medical devices. 

Mr. KING. And, Mr. Frank, what do you have to say about the 

question? 

Mr. FRANK. That characterization, I think, mischaracterizes the 

real decision, and confuses product design with defective products. 

A product that does not meet the FDA’s standard still provides 

some remedy. It is only when the FDA has approved the product 

design that the Supreme Court has held that juries do not get to 

second-guess the FDA’s decision. 

Mr. KING. I thank all the witnesses. I see I have run out of time. 

I appreciate your testimony, and I yield back the balance. 

Mr. FRANKS. I thank the gentleman. And I now yield to Mr. 

Deutch for 5 minutes. 

Mr. DEUTCH. Thank you, Mr. Chairman. 

Mr. Beisner, you raised a couple points that I found pretty interesting. 

You started to explain that there are occasions where it is appropriate for States to engage outside counsel. You talked about tax 

collection cases. You said those are really the only ones, and those 

are really like prosecutions. Can you explain that? 

Mr. BEISNER. I think what I am getting at is where you have— 

you may find some room for it where you have a liquidated amount 

that is owed to the State, so that when you give this to an outside 

counsel, there is not this notion of discretion that is being exercised 

in what is being—— 

Mr. DEUTCH. A liquidating amount owed to the State based on 

what? 

Mr. BEISNER. If I am a taxpayer and I owe $1,000 to the State, 

for the State to get some assistance in collecting that liquidated 

amount does not involve a lot of prosecutorial discretion. 

I think it is where you get into the ‘‘I want to prosecute for 

wrongdoing’’ sort of category where this gets to be more of an issue. 
109 

Mr. DEUTCH. So in that case, if the purpose is to go after someone who owes money to the State, then I would suggest that it is 

worth taking a look, as some my colleagues have, at the tobacco 

litigation. 

The tobacco litigation, I do not need to remind you, was not litigation brought by States in order to punish tobacco companies. The 

tobacco litigation was brought by States because of the billions and 

billions of dollars in health care costs that the taxpayers in those 

States had to pay as a result of the products that tobacco companies were making. 

So when those cases were brought, in 46 States that settled in 

’98, the tobacco industry paid more than $200 billion. 

And without the outside counsel, to think that there could have 

been some reliance on the small attorneys general offices in every 

State to bring that litigation is outrageous. 

In fact, and I think Mr. Nadler touched on this, you do not have 

to take our word for it. When R.J. Reynolds’ lawyer explained, and 

I quote, ‘‘The aggressive posture that we have taken regarding 

depositions and discovery in general continues to make these cases 

extremely burdensome and expensive for plaintiffs’ lawyers, particularly sole practitioners. To paraphrase General Patton,’’ he 

said, ‘‘the way we won these cases was not by spending all of Reynolds’ money but by making that other son of a bitch spend all his.’’ 

If I as a taxpayer in the State of Florida know that the only way 

that we are going to be able to be compensated for the harm done 

to the taxpayers—because, really, that is what this whole hearing 

is about, the cost to our society—then I want to be sure that we 

do everything we can to make sure that the State will be fully compensated. 

And if I am up against someone who has made it his sole purpose to drag out—and with all due respect to Mr. Frank and his 

crusade against millionaire attorneys, when the tobacco companies’ 

own lawyers say that the whole point of this is to drag it out, to 

make it impossible for the States and, ultimately, in the class-action suits, to make it impossible for those who have been injured 

by that product that kills people, then how is it possible that the 

only time we could possibly permit class actions is when taxes are 

involved? 

Mr. BEISNER. Well, I will make two points on this. 

First of all, in the tobacco litigation, it is not the sort of situation 

I was talking about, because it was not at all liquidated. There 

were huge debates about what the causation is there, with a huge 

amount of discretion—— 

Mr. DEUTCH. I am sorry, I am sorry. Mr. Beisner, hold on a second. 

I do not want to relitigate the tobacco litigation. It is not my 

practice. I was a real estate lawyer. 

There is a huge amount of debate about what the causation was 

for what? 

Mr. BEISNER. What the relationship was—— 

Mr. DEUTCH. Between smoking and cancer? 

Mr. BEISNER [continuing]. With smoking and what the health effects were. 
110 

Mr. DEUTCH. Between smoking and cancer. That is still debatable? 

Mr. BEISNER. Well, between the costs that—— 

Mr. DEUTCH. No, are we still debating that point? 

Mr. BEISNER. No, I am not debating. What I am saying is that 

between the actual costs that were incurred by the State on that 

issue. 

And let me just note, in terms of—the States weren’t made whole 

by that litigation, because many of the States then legislated to 

shut down that sort of contingency. 

Mr. DEUTCH. Mr. Beisner, I only have another minute. I want to 

touch one other thing you said. 

You said that you are worried about the sullying of the reputation of our legal system. You talked about, in response to a question from one of my colleagues, this idea of pay-to-play and the correlation between contributions made to attorneys and who is hired 

as lawyers by the State. 

I am just curious, if you know the figure, the amount of money 

that the U.S. Chamber contributed in judicial races across the 

country? Do you know that figure? 

Mr. BEISNER. I don’t. 

Mr. DEUTCH. And can you tell me why the Chamber would contribute to judicial races? Because again, my focus is, again, on ensuring that the reputation of the legal system is not sullied. 

Mr. BEISNER. I am not aware of any circumstance in which the 

Chamber has been asked or retained by a State to—— 

Mr. DEUTCH. No, I am not either. I am not either. 

Mr. BEISNER [continuing]. Obtain money from lawsuits. 

Mr. DEUTCH. Okay, I yield back. I yield back, Mr. Chairman. 

Mr. FRANKS. I thank the gentleman. 

And this, actually, concludes today’s hearing, so thanks to all of 

our witnesses for attending. And without objection, all Members 

will have 5 legislative days to submit additional written questions 

for witnesses or additional materials for the record. 

And, again, I thank the witnesses. I thank the Members. I thank 

the audience for their attendance. And this hearing is adjourned. 

[Whereupon, at 11:20 a.m., the Subcommittee was adjourned.] 

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