The American Lawyer reports that lawyers and companies that are being sued for money over fraudulent claims made by plaintiffs in lawsuits they have won have been hit with hefty fees and false claims about companies they have never represented.
As the American Law Journal reports, litigation companies that claim to be in the business of defending against wrongful claims will now be required to collect up to $2.5 million in fees from the companies they represent, unless the claims are proven false.
“It is a step forward to help consumers with false claims in lawsuits,” said Jennifer DePasquale, managing partner of the law firm Perkins Coie LLP.
“And it’s a step backward from when they could make $100,000 from false claims against companies that they never actually represented.”
As the Law Journal reported, a recent study by the Center for Public Integrity found that false claims brought against companies are at least twice as likely to be settled as they are to be found to be true.
The American Bar Association has a formal policy against frivolous lawsuits.
But the American law firms that represent plaintiffs are using the law to make money for themselves, not the companies suing them.
“A lot of these cases are being brought against plaintiffs that have no actual knowledge of the company that is being sued,” said Jonathan Schaffner, an attorney at Perkins Coia who represents plaintiffs in litigation.
“They’re suing them for nothing.
They’re using the money to fund themselves and their own salaries.
They get a little bit of money from the settlement, but it’s nowhere near the amount they could be getting from a lawsuit.”
The American Journal of Law and Technology reports that in 2012, lawyers and corporations paid about $7.4 billion to settle lawsuits brought by the plaintiffs in their lawsuits.
The average fee for a settlement was $827,000.
“This is an important first step to ensure that the litigation industry can continue to operate as it should,” said David R. Schmitt, a professor at the University of Southern California’s School of Law who co-authored the report.
“The American Bar does not intend to interfere with this effort, but we recognize the importance of this step.
The law firms have a duty to pursue the best possible resolution of their cases and we look forward to continuing to assist them.”
A similar rule was in place in 2011 for lawsuits filed by people who filed false claims related to asbestos and mercury contamination.
But it was struck down by the U.S. Supreme Court in 2012.
The Center for Responsible Litigation says the American Bar is the first federal regulator to require companies to disclose whether they have settled with plaintiffs.
“I’m disappointed that the American bar will now impose a burden on litigants that they do not have authority to impose on their own plaintiffs,” said Robert E. Leggett, the group’s president.
The Center’s report said the lawsuit settlement rule was issued “without consultation with any litigant or their attorneys.” “
For years, the American public has been frustrated by the failure of the litigation industries to protect consumers, to hold their lawyers accountable, and even to help plaintiffs in the event of a legal claim they believe is false.”
The Center’s report said the lawsuit settlement rule was issued “without consultation with any litigant or their attorneys.”
“The law firms involved are not required to disclose what they are paying their attorneys and are prohibited from doing so,” the report said.
“In a sense, they are the ones paying the bills.”
Law firms and their clients will still be able to seek money in court to avoid paying settlements, but the American consumers will be the ones who will bear the cost of litigation.
A recent report from the Government Accountability Office found that lawyers paid between $1.8 billion and $2 billion for more than $300 billion in wrongful claims over the past five years.
The report says lawyers and their companies “may be able” to avoid a settlement by charging fees that they claim are unreasonable, but they can’t avoid the $1 billion fee.
“There is no statute that mandates a settlement amount, but some courts have interpreted that as an obligation on the part of the parties,” the GAO said.
The GAO report also noted that “there is no regulation that requires a court to hold that the fee paid to a lawyer is unreasonable.”
As a result, some companies are paying more money than they need to defend against lawsuits, including one company that has sued several companies for $7 million, $1 million, and $200,000 each for filing false claims.
One of the lawsuits the GAOC filed last year alleged that one of the companies in the case filed false allegations against the company because the company wanted to be able “to claim that it had been the target of a conspiracy to defraud.”