Class Action Reform


Class Action Reform

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Class Action ReformIn the area of litigation reform, no area is more passionately argued than the area of changing the way that class actions are handled. With the hundreds of billions of dollars at stake in these cases, and the lurid tales of abuse, it is not surprising that legislation gets introduced each year to rectify perceived injustices.

So, on March 13, 2002, the House of Representatives passed H.R. 2341, the Class Action Fairness Act of 2002.

“Unfortunately, class action lawsuits have become a hotbed for abuse, and many state courts are not equipped to deal with these cases,” said the bill’s author Bob Goodlatte ( R-Va.). “The Class Action Fairness Act puts these suits in the federal jurisdiction where they belong, without limiting anyone’s rights to bring a class action lawsuit or changing anyone’s rights to recovery.”

But not everyone agrees with Rep. Goodlatte’s assessment of either the problem or the solution. While the bill was endorsed by 98 percent of the Republican Representatives, fewer than ten percent of the Democrats endorsed the bill.

Attorneys are similarly split on the issue. When the Committee on Class Actions and Derivative Suits, part of the ABA’s Litigation Section, reported on a similar bill that was introduced in 2000, it found that, “Overall, our conclusion remains that we can reach no consensus on whether such an expansion should occur. The defense bar generally supports the legislation, while the plaintiffs’ bar opposes it.”

Key Provisions

The bill covers several areas of class action practice. One issue involves cases where plaintiffs receive coupons requiring them to make additional purchases from the defendants in order to receive any benefit. Under the bill, judges must hold a hearing on any proposed settlement agreement that includes non-cash payments and issue a written ruling that the settlement is “fair, reasonable and adequate.”

It also addresses situations where plaintiffs are required to pay their counsel mandating that “the court may approve a proposed settlement under which any class member is obligated to pay sums to class counsel that would result in a net loss to the class member only if the court makes a written finding that nonmonetary benefits to the class member outweigh the monetary loss.”

The bill also precludes agreements between the parties to protect or seal any records, even discovery documents not filed with the court, unless the court finds that it “is narrowly tailored, consistent with the protection of public health and safety, and is in the public interest” and that “disclosing the information is clearly outweighed by a specific and substantial interest in maintaining the confidentiality of such information.”

Other provisions in the bill require that settlement notices be in plain English and that all plaintiffs receive notice of the full amount of attorney fees charged. It also allows for interlocutory appeals of class certification rulings, and the staying of discovery during the appeal.

Making a Federal Case of It

The crux of the bill, however, is to make it easier to remove class actions from State to Federal courts.

“[T]he purpose of the legislation,” said Goodlatte, “is to stop forum shopping amongst 4,000 different jurisdictions.”

While current law sets a $75,000 per plaintiff requirement for removing a case based on diversity of citizenship, H.R. 2341 permits removal when “the matter in controversy exceeds the sum or value of $2,000,000.” It also allows any single plaintiff or defendant to request removal.

The bill provides exceptions to this when “the substantial majority of the members of the proposed plaintiff class and the primary defendants are citizens of the State in which the action was originally filed,” and “the claims asserted therein will be governed primarily” by the laws of that state. It also excludes actions where “the number of proposed plaintiff class members is less than 100.”

Taking Sides

It is this federalization of claims that draws most of the support and opposition.

“The resolution of these class actions in State court results in the first State to adjudicate a claim imposing its laws on class members from other States and on those other States themselves, which may have similar actions pending,” said Asst. Attorney General Daniel J. Bryant in voicing the Bush Administration’s support. “Such interstate litigation is exactly that for which diversity jurisdiction sought to provide a Federal forum, preventing bias against out-of-State defendants and out-of-State plaintiff class members.”

Both State and Federal judges, however, have come out in opposition.

“Absent hard evidence of the inability of the state judicial systems to hear and decide fairly class actions brought in state courts, we do not believe that such a procedure is warranted,” said Annice M. Wagner, Chair of the Conference of Chief Justices (CCJ) in a March 28 letter to the Senate Judiciary Committee. “CCJ members have expressed the view that the state courts and state legislatures should be responsible for correcting any problems, and history has shown that will occur.”

Opponents cite issues both of States’ rights and overburdening the Federal court system. While the total number of Federal civil cases has declined over the past few years, the Federal courts have seen a doubling of their class action caseload since the passage of the Private Securities Litigation Reform Act of 1995. This bill could lead to an even larger jump.

Chief Justice Rehnquist addressed this type of workload problem in a speech to the American Law Institute in 1998. “[I]f Congress enacts, and the president signs, new laws allowing more cases to be brought into the Federal courts, just filling the vacancies will not be enough. We will need additional judgeships.”

As an alternative approach, the CCJ and the Federal Judicial Center are conducting a project to develop and implement a mass tort curriculum for state and federal judges and court administrators to assess the feasibility of using uniform protocols.

“There is a tendency in these complex cases to turn to federal legislation to mandate a ‘one size fits all’ solution to the problem,” the CCJ noted in the program’s statement of design. “But federalization may not be the best solution. Improving state protocols and federal state court cooperative strategies may be a better solution consistent with principles of federalism.”

This program is scheduled to be completed by July 2002.

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