TheWeekInCongress.com
Week Ending February 18, 2005
S 5 to amend the procedures that apply to consideration of interstate class actions to assure fairer outcomes for class members and defendants, to outlaw certain practices that provide inadequate settlements for class members, to assure that attorneys do not receive a disproportionate amount of settlements at the expense of class members, to assure prompt consideration of interstate class actions, to amend title 28, United States Code, to allow the application of the principles of Federal diversity jurisdiction to interstate class actions, and for other purposes.
BRIEF
HR 516 is the House version of S 5 passed by the Senate last week. The bills are identical, so the description that follows is taken from TheWeekInCongress.com report on S-5 in the Feb. 11, 2005 edition:
Despite that warm and fuzzy feeling one gets from films such as Erin Brockovitch or A Civil Action and other depictions of the victimized banding together to topple the soulless corporate Goliath, all is not that simple in the real world of modern day class action lawsuits. The question this bill raises is, "Are the benefits it provides for the plaintiffs equal to the benefits it might provide for the defendant?"
Supporters of the bill cite settlements where lawyers are paid in the millions and plaintiffs receive trivial coupons for goods of services amounting to nearly nothing, and, in some cases end up taking a loss while they must chip in to pay their attorneys. Other stories of “magnet” courts so named because they draw class action cases and tend to produce favorable settlements are causing concerns.
Some conclude that elected judges in state courts would be inclined to rule favorably if the plaintiffs are largely from that district. Part of the solution, supporters, hold is moving such suits to Federal court. Part of the reasoning is that some class actions involve or negatively impact interstate commerce. Opponents, however, hold that the bill’s provisions and Federal court procedures would allow for cases to be dismissed or languish indefinitely and plaintiffs would not have the recourse to return to State court.
The bill sets specific reasons for moving a case to Federal court beginning with the proposed settlement being greater than $5 million and a complicated scheme that shifts jurisdiction to the Federal court, allows the Federal court to remand the case to State court or requires that the Federal court must remand the case. All alternatives are based on the number of plaintiffs who reside in the same state as the defendant or if the defendant is a foreign state, etcetera. One provision requiring Federal jurisdiction if the amount is over $5 million and “any member of a class of plaintiffs is a citizen of a State different from any defendant.” all but guarantees that most class action suits will go directly to Federal court.
Coupon settlements, settlements when plaintiffs receive coupons for products or services rather than a cash settlement, would get increased scrutiny from the court. The bill allows the court to adjust the amount of fee an attorney gets based on the value of the coupon to the plaintiff or pay the attorney on actual hours worked. All attorney fees would be subject to court approval. The court could contribute unclaimed coupons to charities or government agencies.
Plaintiffs paying attorney fees would not be prohibited but would require the court, before approval, to determine if the non-monetary benefits to the plaintiff substantially outweighs the money paid the attorney.
Amendment activity was mostly rejected. The amendments centered on allowing State Attorney Generals to pursue class action suits exempt from S 5 and creating a formula that would modify the reasons a case would go to Federal court.
Sponsor: Representative Bob Goodlatte (R-VA-6th)
Vote: Passed Senate 72 to 26 (RV9) (Feb. 16. 2005) (Senate Action Here), Conyers' Amendment Failed 178 to 247, 9 not voting (RC36) Motion to Commit with Instructions failed 179 to 249, 10 not voting (RC37), Passed House 279 to 149, 6 not voting (Feb.17, 2005) (RC38) Signed by President Bush as Public Law 109-2 (Feb. 18, 2005)
Cost to the taxpayers: The CBO reports that “Under S. 5, most class-action lawsuits would be heard in a federal district court rather than a state court. Therefore, CBO estimates that the bill would impose additional costs on the federal district court system. While the number of cases that would be filed in federal court under this bill is uncertain, CBO expects that a few hundred additional cases would be heard in federal court each year. According to the Administrative Office of the United States Courts, class-action lawsuits tried in federal court cost the government, on average, about $23,000. That figure includes salaries and benefits for clerks, rent, utilities, and associated overhead expenses but excludes the costs of the salaries and benefits of judges. CBO estimates that implementing S. 5 would cost about $7 million annually.”
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MORE INFORMATION
INFORMATION FROM SENATE DEBATE S5
BILL POINTS BY SPONSOR REP. BOB GOODLATTE (R-VA-6TH)
“This much-needed bipartisan legislation corrects a serious flaw in our Federal jurisdiction statutes. At present, those statutes forbid our Federal courts from hearing most interstate class actions--the lawsuits that involve more money and touch more Americans than virtually any other type of litigation in our legal system.
“The class action device is a necessary and important part of our legal system. It promotes efficiency by allowing plaintiffs with similar claims to adjudicate their cases in one proceeding. It also allows claims to be heard in cases where there are small harms to a large number of people, which would otherwise go unaddressed because the cost to the individuals suing could far exceed the benefit to the individual. However, class actions are increasingly being used in ways that do not promote the interests they were intended to serve.
“In recent years, State courts have been flooded with class actions. As a result of the adoption of different class action certification standards in the various States, the same class might be certifiable in one State and not another, or certifiable in State court but not in Federal court. This creates the potential for abuse of the class action device, particularly when the case involves parties from multiple States or requires the application of the laws of many States.
“For example, some State courts routinely certify classes before the defendant is even served with a complaint and given a chance to defend itself. Other State courts employ very lax class certification criteria, rendering virtually any controversy subject to class action treatment. There are instances where a State court, in order to certify a class, has determined that the law of that State applies to all claims, including those of purported class members who live in other jurisdictions. This has the effect of making the law of that State applicable nationwide.
“The existence of State courts that broadly apply class certification rules encourages plaintiffs to forum shop for the court that is most likely to certify a purported class. In addition to forum shopping, parties frequently exploit major loopholes in Federal jurisdiction statutes to block the removal of class actions that belong in Federal court. For example, plaintiffs' counsel may name parties that are not really relevant to the class claims in an effort to destroy diversity. In other cases, counsel may waive Federal law claims or shave the amount of damages claimed to ensure that the action will remain in State court.
“Another problem created by the ability of State courts to certify class actions which adjudicate the rights of citizens of many States is that oftentimes more than one case involving the same class is certified at the same time. In the Federal court system, those cases involving common questions of fact may be transferred to one district for coordinated or consolidated pretrial proceedings.
“When these class actions are pending in State courts, however, there is no corresponding mechanism for consolidating the competing suits. Instead, a settlement or judgment in any of the cases makes the other class actions moot. This creates an incentive for each class counsel to obtain a quick settlement of the case, and an opportunity for the defendant to play the various class counsels against each other and drive the settlement value down. The loser in this system is the class member whose claim is extinguished by the settlement, at the expense of counsel seeking to be the one entitled to recovery of fees.
“Our bill is designed to prevent these abuses by allowing large interstate class action cases to be heard in Federal court. It would expand the statutory diversity jurisdiction of the Federal courts to allow class action cases to be brought in or removed to Federal court.
“Article III of the Constitution empowers Congress to establish Federal jurisdiction over diversity cases--cases between citizens of different States. The grant of Federal diversity jurisdiction was premised on concerns that State courts might discriminate against out of State defendants. In a class action, only the citizenship of the named plaintiffs is considered for determining diversity, which means that Federal diversity jurisdiction will not exist if the named plaintiff is a citizen of the same State as the defendant, regardless of the citizenship of the rest of the class. Congress also imposes a monetary threshold--now $75,000--for Federal diversity claims. However, the amount in controversy requirement is satisfied in a class action only if all of the class members are seeking damages in excess of the statutory minimum.
“These jurisdictional statutes were originally enacted years ago, well before the modern class action arose, and they now lead to perverse results. For example, under current law, a citizen of one State may bring in Federal court a simple $75,001 slip-and-fall claim against a party from another State. But if a class of 25 million product owners living in all 50 States brings claims collectively worth $15 billion against the manufacturer, the lawsuit usually must be heard in State court.
“This result is certainly not what the framers had in mind when they established Federal diversity jurisdiction. Our bill offers a solution by making it easier for plaintiff class members and defendants to remove class actions to Federal court, where cases involving multiple State laws are more appropriately heard. Under our bill, if a removed class action is found not to meet the requirements for proceeding on a class basis, the Federal court would dismiss the action without prejudice and the action could be refiled in State court.
“In addition, the bill provides a number of new protections for plaintiff class members, including greater judicial scrutiny for settlements that provide class members only coupons as relief for their injuries. The bill also bars the approval of settlements in which class members suffer a net loss. In addition, the bill includes provisions that protect consumers from being disadvantaged by living far away from the courthouse. These additional consumer protections will ensure that class action lawsuits benefit the consumers they are intended to compensate.
“This legislation does not limit the ability of anyone to file a class action lawsuit. It does not change anyone's right to recovery. Our legislation merely closes the loophole, allowing Federal courts to hear big lawsuits involving truly interstate issues, while ensuring that purely local controversies remain in State courts. This is exactly what the framers of the Constitution had in mind when they established Federal diversity jurisdiction.”
Amendment in the nature of a substitute offered by Mr. Conyers.
An amendment in the nature of a substitute to clarify that cases brought by state attorneys general are excluded from the provisions of the class action bill and are not forced into federal court; to limit the court's ability to seal or make subject to a protective order, records unless it is necessary to protect trade confidentiality and is consistent with the protection of public health and safety or the disclosure of the information is clearly outweighed by a specific and substantial interest in maintaining the confidentiality of the information; to carve out State civil rights claims in order to make sure that civil rights plaintiffs, especially those seeking immediate injunctive relief, can have their grievances addressed in a timely manner; to carve out State civil rights claims to allow wage and hour class action members to have their grievances addressed in a timely manner; to prohibit domestic corporations that reincorporate abroad in order to avoid U.S. taxes and legal liability from benefitting from the new class action rules. Such corporations will retain the citizenship they had prior to their reincorporation; to remove the mass torts language; and to prohibit a federal judge from denying certification on the basis that more than one state law applies.
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