Sanity returns to the courtroom

If ever there was a poster-boy case for the need to stop frivolous law suits, it was the $54 million action filed by Roy L. Pearson against Washington, D.C., dry cleaner Soo Chung, who, the District of Columbia administrative law judge alleged, lost his suit pants and failed to deliver the advertised “satisfaction guaranteed.” Despite Pearson’s tearful testimony, D.C. District Superior Court Judge Judith Bartnoff ruled against him and ordered him to pay Chung’s legal expenses. With its patent absurdity, Pearson’s lawsuit gained worldwide fame, but the case shouldn’t be dismissed as mere excess: It was an attempted extortion by lawsuit of a hard working immigrant family. Out-of-control trial lawyers have for years been using the same basic strategy to cost hard working Americans billions of dollars. Even the threat of such a costly lawsuit can be enough to force honest companies out of business.

Only two elements were missing from Bartnoff’s decision. First,she should have gone ahead and ordered Pearson to pay Chung’s thousands of dollars in attorney fees instead of waiting for an expected motion to that effect. Second, it would have become a near-perfect expression of justice had she further ordered Pearson to pay the Chungs for the business they lost during the two-year legal ordeal they suffered at his hands. It’s time courts recognize that legal fees are far from the only expense suffered by defendants being assaulted through the legal system by trial lawyers in search of fat fees, juicy class-action settlements and excessively generous awards. Hours spent conferring with defense lawyers represent time and energy that could have been invested in building businesses, creating new jobs and providing goods and services needed by consumers.

The pants lawsuit verdict follows last week’s U.S. Supreme Court’s Tellabs, Inc v. Makor Issues & Rights Ltd. decision in which the justices took a large step forward. Tellabs forces plaintiffs filing actions against private securities firms to meet a reasonable standard of evidentiary credibility before their lawsuits can go forward. The high court said lower courts must consider both that the evidence satisfies an inference of criminal intent claimed by a plaintiff and “plausible nonculpable explanations for a defendant’s conduct.”

Put another way, the Tellabs decision means federal district and appeals court judges can no longer simply accept a plaintiff’s claims about a defendant’s intent as long as “a reasonable person could infer that defendant acted with the required intent.” Now, as a result of passage of the Private Securities Litigation Reform Act of 1995, federal judges must also consider other possibilities, including those that would exonerate a defendant. It’s unfortunate that more than a decade elapsed between passage of PSLRA and the Tellabs decision, but a step forward is still a step forward even when it’s late.

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