Lawmakers take another look at class actions

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Changes in the way courts handle class action lawsuits has opened the door to overbroad actions in which no one is injured, according to some federal lawmakers, while others claim they are important to protect consumers.

The class action is a mechanism to allow injured parties to join together with others who have suffered harm when their claims are not big enough to be pursued individually Rep. Trent Franks, an Arizona Republican, recently told the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice.

Franks said class actions, however, have been used in recent years in ways which do not promote the law’s goals of promoting fairness, ensuring interstate class actions are tried in federal courts and establishing new protections for consumers against abusive class action settlements.

The subcommittee, which Franks chairs, is taking another look at “The State of Class Action Ten Years After the Enactment of the Class Action Fairness Act.”

The Class Action Fairness Act of 2005 granted U.S. District Courts jurisdiction of any civil action exceeding $5 million between residents of different states or residents of a state and a foreign state or its citizens.

Franks said the law has been highly successful in many ways, but there are new concerns class actions are being brought in cases where there are no injuries or for potential injuries, which he said goes against the “bedrock principle” that civil suits cannot proceed if there are no damages.

He said CAFA attorneys have also created another class action device in which there is no plaintiff and an uninjured third party, with no connection to the litigation, usually a nonprofit organization, is awarded money as part of a settlement because it would be too costly to identify alleged victims.

Rep. Steve Cohen, D-Tenn., countered class actions benefit society by stopping large-scale wrongdoing and protect health, promote safety, provide fair wages and punish fraud.

As an example, he cited Morgan v. Richmond School of Health and Technology Inc. in which a Virginia vocational school targeted black students and took out loans on their behalf, saddling them with large debts, but leaving them with an inadequate education to pursue their chosen vocations.

Bob Goodlatte, R-Va., chair of the House Judiciary Committee, said he introduced the Class Action Fairness Act, which corrected a serious flaw that forbid federal courts from hearing most interstate class actions.

He asked the subcommittee to examine current problems and look for ways to improve the system to ensure class action lawsuits benefit the victims they are intended to compensate.

Rep. John Conyers Jr., D-Mich., the ranking minority member, said he warned 10 years ago when CAFA “was sped through Congress” that it would benefit corporate wrongdoers by moving class actions to federal courts where the defendants felt they had a greater advantage for success.

The act was introduced in late January 2005, passed by the Senate and House, a week apart in mid-February, and signed into law by President George W. Bush on Feb. 18, 2005.

Conyers said supporters claimed it was necessary to discourage forum shopping by plaintiffs for preferential courts, but has become the ultimate tool for forum shopping by defendants.

Andrew J. Pincus, a partner in the Washington, D.C. office of Mayer Brown LLP, testified his law firm conducted a study that found not one of the lawsuits reviewed ended in a final judgment on the merits. He said every one was either dismissed or resolved with no benefits to the plaintiffs.

Pincus said a third were voluntarily dismissed by the plaintiffs, just under another third were dismissed by the courts on merits and the remaining cases were settled with a significant share of money going to lawyers or third parties.

“Does this mean that every class action is unjustified?” he asked. “No. Does it mean there are significant problems in our class action system? I think yes.”

John Parker Sweeney, president of the Chicago-based DRI-The Voice of the Defense Bar, said the plaintiff in a typical case contends a defendant committed widespread technical violations of some statute, admits there was no economic or other actual harm and then seeks damages. In other cases, he said state attorneys general bring cases based on some legislatively defined statutory damage amount set for each violation.

He said the cases raise standing issues and implicate broad policy concerns over using the civil justice system to punish defendants for technical violations.

The majority witnesses, invited by the Republican majority, largely ignore the types of cases that harm class members by much more than a small amount of money, said Patricia W. Moore, law professor at St. Thomas University of Law of Miami Gardens, Florida.

Citing employment discrimination, wage and hour litigation, civil rights and antitrust cases, she said the majority witnesses barely looked at cases that vindicated the rights of workers, small businesses, members of minority groups and institutional investors looking out for people’s retirement funds.

She said without the law, defendants have no deterrent to ignoring it and cheating people out of small amounts of money, but since CAFA, a number of cases based on state law were successfully brought into federal court, winning major victories in Supreme Court.

She said “methodological flaws in these so-called empirical studies” by Mayer Brown and DRI “could be picked out by college students in a beginning statistics class.”

Moore said the Mayer Brown study was conducted by a biased party with a financial interest in its outcome; that it was not comprehensive and its sample cases were cherry picked and not randomly selected.

She called the DRI an opinion, noting “many questions were totally misleading and assumed false premises in the way they were stated.”

Moore questioned how lawmakers purporting to support states’ rights could be in favor of amending CAFA in ways that would affect important rights created by states.

The reality, according to Jessica Miller, is that class actions “are shakedowns” brought by plaintiffs’ lawyers against companies whose products work.

Without citing a particular case, she used roofing as an example in which lawyers found one person who had a roof problem and turned it into a nationwide class action suit on behalf of everyone in America who has ever had a roof.

There have been a number of class action suits against various roofing companies in recent years, as evidenced by an online search.

Miller said federal courts are certifying classes resulting in settlements in which a bunch of people get a couple of dollars. She said half of the people do not even cash their checks and many people are brought into class actions who are not having problems and do not want to be part of a suit.

Miller suggested a possible solution would be to have legislation that would say class actions could only be brought in federal court if all the class members have suffered the same type of injury. She said that would not eradicate class actions, but will get rid of the meritless claims.

A video of the Feb. 27 hearing may be viewed at http://1.usa.gov/1wlBuNc.