TheWeekInCongress.com
Week Ending February 11, 2005
S 5 the Class Action Fairness Lawsuit Act of 2005
BRIEF
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: Senator Charles Grassley (R-IA)
Vote: Passed Senate 72 to 26 (Feb. 10, 2004) (RV 9) (Update: House -- 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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COMMENTS FROM COMMITTEE MEMBERS AND WITNESSES AND AMENDMENT ACTIVITY
WITNESS, WALTER E. DELLINGER III, ATTORNEY
WITNESS HILDA BANKSTON, RETAILER
CLASS ACTION LAWYER PAUL BLAND
CIVIL RIGHTS ATTORNEY THOMAS HENDERSON
DISTRICT OF COLUMBIA INSURANCE COMMISSIONER LAWRENCE MIREL
LETTER FROM NATIONAL ASSOCIATION OF ATTORNEY GENERALS
I hope this hearing will
present a fair and balanced view of class action litigation in our state and
federal courts.
It is my intention to undertake a deliberate and careful review of information
from parties actually involved in class action litigation to provide a realistic
picture of the benefits and problems with class action litigation.
Unfortunately, I believe that some special interest groups have distorted the
state of class action litigation by relying on a few anecdotes in their
ends-oriented attempt to justify moving almost all class action cases involving
state law into federal court.
Instead, I hope this hearing will focus fairly on the hard evidence and facts in
most class action cases. We should remember that our state-based tort system
remains one of the greatest and most powerful vehicles for justice anywhere in
the world. One reason for that is the availability of class action litigation to
let ordinary people band together to take on powerful corporations or even their
own government.
Defrauded investors, deceived consumers, victims of defective products,
asbestos survivors, smokers, and thousands of other ordinary people have all
been able to rely on class action lawsuits under our state-based tort system to
seek and receive justice.
I am old enough to remember the civil rights battles of the 1950s and 1960s
and the impact of class actions to vindicate basic rights through our courts.
The landmark Supreme Court decision in Brown v. Board of Education was the
culmination of appeals from four class action cases, three from federal court
decisions in Kansas, South Carolina and Virginia and one from a decision by the
Supreme Court of Delaware.
Only the Supreme Court of Delaware, the state court, got the case right by
deciding for the African-American plaintiffs. The Supreme Court of Delaware, a
state court, understood before any federal court that A separate but equal is
inherently unequal.
More recently, the tobacco class action litigation has contributed to
fundamentally change the very dynamics of tobacco and public health. For the
first time, that class action litigation uncovered and presented serious and
credible evidence about the tobacco industry=s 45-year campaign of deception
about the dangers of cigarettes. As a result, the class action settlements
negotiated by the state attorneys general and the private bar have brought about
profound changes in the tobacco industry. The tobacco industry is now finally
admitting on its Internet web sites that smoking causes cancer and is addictive.
Before the litigation, the executives of these same companies denied under oath
to Congress that smoking was addictive.
The very existence of the multi-state tobacco settlements is a credit to
class actions under our state-based civil justice system.
In fact, without the use of class actions, does anyone believe that the
tobacco companies would have ever come to a negotiating table? Without the
willingness of private attorneys acting on behalf of their clients, taking
significant financial and professional risks, and pursuing these matters so
diligently, the states would not have settlement payments for the next 25 years,
which will be devoted to promoting the public health of their citizens.
Thousands, if not millions, of lives will be saved because of future public
health improvements made possible by the tobacco class action settlement.
Another example of class action litigation serving the public interest is the
Firestone Tire debacle. The recent national tire recall was started, in part,
from the disclosure of internal corporate documents on consumer complaints of
tire defects and design errors that were discovered in litigation against
Bridgestone/Firestone, Inc.
Plaintiffs’ attorneys turned this information over to the National Highway
Traffic Safety Administration, triggering a NHTSA investigation.
On August 9, 2000, Bridgestone/Firestone recalled 6.5 million tires after they
were linked to 101 fatalities, 400 injuries and 2,226 consumer complaints.
Later, the NHTSA warned that another 1.4 million Firestone tires on the road may
be defective.
As reported by TIME Magazine at the time, it is doubtful that the internal
corporate consumer complaint information would have ever seen the light of day
absent the civil justice discovery process. We all know that without
consolidating procedures like class actions, it might be impossible for
plaintiffs to obtain effective legal representation. Defense lawyers tend to be
paid by the hour—and well paid.
Plaintiffs’ lawyers in this type of setting tend to work without pay for the
possibility of obtaining a portion of the proceeds, if successful. It may well
prove uneconomical for counsel to take on governmental or corporate defendants
if they must do so on a case-by-case, individual basis. It may be that
individual claims are simply too small to be pursued.
Sometimes that is what cheaters count on and how they get away with their
schemes. Cheating thousands of people “just a little” is still cheating. Class
actions allow the little guys to band together, allow them to afford a competent
lawyer and allow them to redress wrongdoing.
For instance, class actions made it possible for individual tobacco victims to
band together to take on the powerful tobacco conglomerates in ways that
individual smokers could not afford. It allows stockholders and small investors
to join together to go after investment scams.
It would be criminal to leave some people with valid claims with no effective
way to seek relief. I am extremely hesitant to restrict these legal rights and
remedies without substantial evidence that such restrictions are justified and
carefully circumscribed.
To those who think it is good politics to attack the plaintiffs’ lawyers who
risk much so that their clients may obtain a measure of justice, I hope they
will think again.
I am hesitant to restrict legal rights and remedies in an era of corporate
irresponsibility and executive misconduct. I attended yesterday’s White House
signing ceremony of the Sarbanes-Oxley Act and heard bipartisan demands for
holding corporate wrongdoers accountable for their actions. I agree that now is
not the time to shield corporate wrongdoers from justice.
Instead, Congress should be taking all the steps needed to hold accountable
for their actions those who have defrauded so many and threatened the economic
security of small investors, those on pensions, those whose savings for their
children’s college education has been lost and those hardworking Americans who
are being left with over $7 trillion in stock market losses.
The legal rights and procedures that protect consumers, investors and
employees matter now more than ever.
Just a few months ago, a group of investors recovered millions in lost
investments under state corporate fraud laws in a state class action case. In
Baptist Foundation of Arizona v. Arthur Andersen, mostly elderly investors
banded together to successfully recoup $217 million from Arthur Andersen for
questionable accounting practices surrounding an investment trust.
This Arthur Andersen case is just one example of how state-based class action
litigation may help hold corporate wrongdoers accountable and help defrauded
investors recoup their losses.
I look forward to hearing from our witnesses as the Committee begins the
process of undertaking a fair and balanced review of class action litigation in
our state and federal courts. In so doing, I want to say that while I may
disagree with Senator Kohl about the problem and needed solution in this area, I
do so respectfully. It is his request that we honor by holding this hearing. I
am happy to accommodate him in this regard.
I hope that we can find common ground on another issue of significance with
respect to litigation and that is with respect to asbestos litigation. I want to
work with all Senators on both sides of the aisle in the coming months to see if
we cannot devise a better process for fairly compensating those suffering and
developing afflictions from asbestos. This is a matter to which I would like to
see us turn our attention in September and beyond. The Supreme Court issued us a
challenge to help with asbestos litigation and with the good faith of lawmakers
and those from all sides of the issues we can make a real difference.
SENATOR ORRIN HATCH
Over the past decade, it has become clear that abuses of the class action
system have reached epidemic levels. In recent years, it has become equally
clear that the ultimate victims of this epidemic are poorly-represented class
members and individual consumers throughout the nation. The Class Action
Fairness Act of 2002 represents a modest, measured effort to remedy the plague
of abuses, inconsistencies, and inefficiencies that infest our current system of
class action litigation.
It is essential that we address the abuses that are running rampant in our
current class action litigation system. Frequently, plaintiff class members are
not adequately informed of their rights or of the terms and practical
implications of a proposed settlement. Too often judges approve settlements that
primarily benefit the class counsel, rather than the class members. There are
numerous examples of settlements where class members receive little or nothing,
while attorneys receive millions of dollars in fees. Multiple class action suits
asserting the same claims on behalf of the same plaintiffs are routinely filed
in different state courts, causing judicial inefficiencies and encouraging
collusive settlement behavior. And state courts are more frequently certifying
national classes leading to rulings that infringe upon or conflict with the
established laws and policies of other states.
Despite the mountains of evidence demonstrating the drastically increasing
harms caused by class action abuses, I am sure that several here today will
attempt to deny the existence of any problem at all. Others will try to confuse
the issue with spurious claims that proposed reforms would somehow disadvantage
victims with legitimate claims or further worsen class action abuses. Others may
even contend that past legislative reforms have contributed to recent financial
debacles and that the proposed reforms will encourage more. Such claims are
nothing more than red herrings intended to divert today’s debate from the real
issues.
In this regard let me emphasize a few points regarding S. 1712. First, this
bill does not seek to eliminate state court class action litigation. Class
action suits brought in state courts have proven in many contexts to be an
effective and desirable tool for protecting civil and consumer rights. Nor do
the reforms we will discuss today in any way diminish the rights or practical
ability of victims to band together to pursue their claims against large
corporations. In fact, we have included several consumer protection provisions
in our legislation that I feel strongly will substantially improve plaintiffs’
chances of achieving a fair result in any settlement proposal.
There are three key components to S. 1712. First, the bill implements
consumer protections against abusive settlements by: (1) requiring simplified
notices that explain to class members the terms of proposed class action
settlements and their rights with respect to the proposed settlement in "plain
English"; (2) enhancing judicial scrutiny of coupon settlements; (3) providing a
standard for judicial approval of settlements that would result in a net
monetary loss to plaintiffs; (4) prohibiting "bounties" to class
representatives; and (5) prohibiting settlements that favor class members based
upon geographic proximity to the courthouse.
Second, the bill requires that notice of class action settlements be sent to
appropriate state and federal authorities to provide them with sufficient
information to determine whether the settlement is in the best interest of the
citizens they represent.
Finally, the bill amends the diversity-of-citizenship jurisdiction statute to
allow large interstate class actions to be adjudicated in Federal court by
granting jurisdiction in class actions where there is "minimal diversity" and
the aggregate amount in controversy among all class members exceeds $2 million.
Although some critics have argued that this amendment to diversity
jurisdiction somehow violates the principles of federalism or is inconsistent
with the Constitution, I fully agree with Mr. Dellinger, who will testify today,
that it is "difficult to understand any objection to the goal of bringing to the
federal court cases of genuine national importance that fall clearly with the
jurisdiction conferred on those courts by Article III of the Constitution."
Lastly, I would like to express my appreciation to the many individuals who
have shared with me the details of their experiences with class action
litigation. In particular, I am grateful to those victims of various abuses of
the current system who have come forward and told their stories in the hope that
something positive might come out of their terrible experiences.
In particular, I would like
to acknowledge Irene Taylor of Tyler, Texas, who is here today. Mrs. Taylor was
bilked out of approximately $20,000 in a telemarketing scam that defrauded
senior citizens out of more than $200 million. In a class action brought in
Madison County, Illinois, the attorneys purportedly representing Mrs. Taylor
negotiated a proposed settlement which will exclude her from any recovery
whatsoever.
I would also like to recognize Martha Preston of Baraboo, Wisconsin. Ms.
Preston cannot not be here for health reasons, but has sent us a letter that I
will submit for the record. Ms. Preston was involved in the famous BancBoston
case, brought in Alabama state court, which involved the bank’s failure to post
interest to mortgage escrow accounts in a prompt manner. Although Ms. Preston
did receive a settlement of about $4, approximately $95 was deducted from her
account to help pay the class counsel’s legal fees of $8.5 million. Notably, Ms.
Preston testified before this committee five years ago asking us to stop these
abusive class action lawsuits, but it appears that – at least thus far – her
plea has not been heard.
I would like to ask unanimous consent that written statements from Martha
Preston, the Chamber of Commerce, America’s Community Bankers, Irving Cohen,
Patrick Baird and the American Council of Life Insurers be inserted in the
record for today’s hearing.
To Top
WITNESS WALTER E. DELLINGER III, ATTORNEY
The financial scandals of recent months have eroded confidence in important
public and private institutions. As Congress realized, private interests were
manipulating, and some cases evading, rules intended to protect the public by
ensuring openness and accountability in corporate decision-making. Congress
acted promptly and decisively by enacting corrective legislation.
There remains another problem of accountability and openness, one that affects
the institutions of government we most expect to act fairly, openly, and
impartially in the public interest – the courts. The problem relates to the
startling explosion in class action litigation over the past decade. I say
“relates to” because, while others have identified the problem as the very
existence of an increase class-action litigation, I want to emphasize a somewhat
different point. The concern I have come to share arises from the evidence
showing an extraordinary concentration of class action litigation in certain
state courts – certain county courts, to be precise. The empirical and anecdotal
evidence I have seen in respect to the performance of these courts in far too
many cases gives me great concern that the rights of truly injured individual
plaintiffs, as well as the rights of corporate defendants, have fallen victim to
manipulation, and even evasion, of settled rules – rules that, no less than the
financial disclosure laws, are intended to ensure openness and accountability,
as well as fundamental fairness, in the judicial resolution of major disputes
with nationwide consequences.
This hearing will not be the first time Congress has heard of these problems,
but it should be the last: I believe Congress has before it all that it needs to
recognize that the Class Action Fairness Act of 2002 is a measured and
appropriate response to a problem that is not going to go away in the absence of
legislative action.
The principal purpose and effect of the bill is undeniably modest: it merely
adjusts the rules of diversity jurisdiction so that certain large multi-party
cases – those with true nationwide compass, affecting many or even all states at
once – will be litigated in the federal courts rather than in the courts of just
one state (or county) or another. The bill will not eliminate a single class
action that satisfies the standards for basic fairness already set forth in the
federal rules governing class actions. What it will do is to ensure that all
nationwide class actions satisfy at least those basic standards.
It is difficult to understand any objection to the goal of bringing to the
federal court cases of genuine national importance that fall clearly with the
jurisdiction conferred on those courts by Article III of the Constitution.
When the Framers drafted the Constitution, they purposely entrusted to Congress
the authority to give federal courts jurisdiction over disputes among persons
residing in different states, in order to avoid the possibility of state court
bias in favor of local litigants and to prevent “uneven” justice from
interfering with the conduct of interstate commerce. Unfortunately, over the
years, statutory gaps in federal diversity jurisdiction have prevented most
interstate class actions from being heard in federal court. S. 1712 would
correct this anomaly, helping to restore faith in the fairness and integrity of
the judicial process.
I. THE SCOPE OF THE PROBLEM: GROWING UNFAIRNESS IN CLASS ACTION LITIGATION
Class actions are not wrong in principle. To the contrary, their true purpose is
noble – to vindicate the rights of large groups of individuals who sought
justice for civil rights violations and other wrongs but could not achieve such
justice individually. Without question, that honorable intent has been fulfilled
in many cases over the years. And it has often been achieved fairly, for in the
federal courts and in the courts of most states, certain important rules are
followed that ensure cases will only be litigated as class actions when doing so
will be fair and just both to individual plaintiffs and to defendants. These
rules require that the factual and legal claims be common to every member of the
class, and that there be no issue that would divide class members against one
another. These rules are intended to protect “unnamed” members of the plaintiff
class, by ensuring that their interests will be adequately represented – and
protected – in the prosecution of the case by the named plaintiffs and their
attorneys.
Such rules also protect defendants, because if a class is certified in the
absence of these restrictions, a large award reflecting the alleged injuries of
all the class members may be imposed upon a defendant, even though important
differences in the facts and/or law relevant to their individual cases might
well have meant that many of them actually would have been entitled to no
recovery at all, had their cases been tried individually.
The problem that concerns me is this: there is evidence establishing a strong
trend of concentrated class action filings in recent years in just a few
state-court forums. It appears to be generally understood that certain county
courts will apply very lax standards in determining which cases are
appropriately heard as class actions. The evidence of this trend includes:
• A preliminary report on a major empirical research project by RAND’s Institute
for Civil Justice (“ICJ”) observed a “doubling or tripling of the number of
putative class actions” that was “concentrated in the state courts.”
• A survey indicated that while federal court class actions had increased
somewhat over the past decade, the frequency of state court class action filings
had increased 1,315 percent – with most of the cases seeking to certify
nationwide or multi-state classes.
• The final report on the RAND/ICJ class action study confirmed the explosive
growth in the number of state court class actions and concluded that class
actions “were more prevalent” in certain state courts “than one would expect on
the basis of population.”
• And an empirical research article published in the HARVARD JOURNAL FOR LAW AND
PUBLIC POLICY last year identified certain “magnet” county courts that have
earned “class action-friendly” reputations and are experiencing dramatic
increases in class action filings. For example, in the Circuit Court of Madison
County, Illinois, the number of class action filings in the county per year has
increased 1850 percent over the last three years. Most of these new cases are
led by attorneys outside the county, and nearly all sought to certify nationwide
classes in disputes that have little, if any, connection to Madison County.
As I have suggested, a predictable consequence of all this is injury not just to
the defendants subjected to these cases, but to the unnamed plaintiffs who are
swept into the litigation with little knowledge, no participation, and
inadequate representation by named plaintiffs whose rights and interest may
differ significantly from their own. The risk to class members’ rights when
basic class action rules are ignored is especially acute if a corporate
defendant succumbs to the pressure to resolve the case by agreeing to a
settlement in which individual class member recoveries are small (or even
non-existent) in comparison to the fees paid to the lawyers who filed the
action, as has been reported in press accounts. A more systematic look at where
the money goes in class settlements was undertaken by the Institute for Civil
Justice/RAND in a study jointly funded by the plaintiffs’ and defense bar. That
study indicates that in state court consumer class action settlements (i.e.,
non-personal injury monetary relief cases), the class counsel frequently receive
more money than all class members combined. Significantly, another study found
that this phenomenon was not occurring in federal courts – “[i]n most [class
actions handled by federal courts], net monetary distributions to the class
exceeded attorneys’ fees by substantial margins.
I do not mean to suggest by this that plaintiffs’ lawyers have no legitimate
interest in compensation for work done on successful case, or that all class
action settlements are unfair. What I am saying is that class action filings
have increased disproportionately in just a few jurisdictions for the apparent
reason that those jurisdictions are less likely to enforce class-action rules
that exist to ensure full representation of the interests of absent class
members, whose interests all too often are not fully protected.
The question, then, is what Congress should do to control the unfairness to
plaintiffs and defendants resulting from improper state-court adjudication of
the important class action device.
II. THE CLASS ACTION FAIRNESS ACT: A MODEST SOLUTION TO GROWING STATE COURT
CLASS ACTION UNFAIRNESS.
While the class action problem is a serious and costly one, the solution is
actually quite simple. In fact, 200 years ago, the Framers of the U.S.
Constitution actually foresaw – and tried to prevent – the very types of
problems that are occurring in state court class actions when they authorized
giving our federal courts “diversity jurisdiction” over cases that involve
parties from different states (like class actions). Unfortunately, the scope of
that jurisdictional authority, set forth in Article III of the U.S.
Constitution, has been limited statutorily in a way that inadvertently excludes
most interstate class actions from federal court – and that inadvertence is a
major source of the state court class action problem. By correcting this anomaly
and enabling multi-state class actions to be heard in federal courts, the Class
Action Fairness Act of 2002 would stem the flow of interstate class actions into
select state courts that have developed reputations as class-action friendly
venues, and thereby significantly curtail the unfairness that inevitably
results.
Although the Constitution generally leaves to state courts the adjudication of
local questions arising under state law, it specifically extends federal
jurisdiction to include one category of cases involving issues of state law –
“diversity” cases, referred to in the Constitution as suits “between Citizens of
different States.” The Framers established the concept of federal diversity
jurisdiction to ensure that local biases would not affect the outcome of
disputes between in-state plaintiffs and out-of-state defendants. Diversity
jurisdiction was designed not only to diminish the risk of uneven justice, but
also to protect the reputation of our courts: “to shore up confidence in the
judicial system by preventing even the appearance of discrimination in favor of
local residents.” The Framers reasoned that some state courts might discriminate
against out-of-state businesses engaged in interstate commerce and that allowing
these cases to be heard in federal court would ensure the availability of a
fair, uniform and efficient forum for adjudicating interstate commercial
disputes. Thus, since the nation’s inception, diversity jurisdiction has served
to guarantee that parties of different state citizenship have a means of
resolving their legal differences on a level playing field in a manner that
nurtures interstate commerce. As Judge John J. Parker noted “[n]o power
exercised under the Constitution . . . had greater influence in welding these
United States into a single nation [than diversity jurisdiction]; nothing has
done more to foster interstate commerce and communication and the uninterrupted
flow of capital for investment into various parts of the Union, and nothing has
been so potent in sustaining the public credit and the sanctity of private
contracts.”
So why can’t interstate class actions be heard in federal court now? The problem
is that in enacting the diversity jurisdiction statute, Congress did not
exercise the full authority granted under Article III for diversity
jurisdiction. Instead, Congress sought to limit diversity jurisdiction to cases
that are large and that have real interstate implications. Thus, under 28 U.S.C.
§ 1332, an action is subject to federal diversity jurisdiction only where the
parties are “completely” diverse (i.e., where no plaintiff is a citizen of the
same state where any defendant is deemed to be a citizen) and where each
plaintiff asserts claims that exceed a threshold amount in controversy –
currently set at $75,000.
Although class actions would appear to meet these criteria because they usually
involve a lot of money and parties from multiple jurisdictions, section 1332
tends to exclude class actions from federal courts, while allowing into federal
courts much smaller single-plaintiff cases having few (if any) interstate
ramifications. There are two reasons for this phenomenon:
• First, the diversity statute has been interpreted to require “complete”
diversity, such that diversity jurisdiction is lacking whenever any single
plaintiff is a citizen of the same state as any single defendant. Thus, federal
jurisdiction in multiple-state cases of national importance can easily be
avoided by the simple expedient of including at least one named plaintiff and
defendant that share a common state citizenship (e.g., by adding one small local
retailer as a defendant in a case that is principally targeted at an
out-of-state manufacturer).
• Second, courts have held that a class action satisfies the jurisdictional
amount requirement only if it can be shown that every member of the proposed
class has separate and distinct claims exceeding $75,000 – it is not enough that
the entire action puts $75,000 in controversy. Although some federal courts have
questioned the breadth and current vitality of this rule, even a liberal
interpretation (which allows a case into federal court as long as at least one
plaintiff’s claims raise more than $75,000 in controversy) still bars most
interstate class actions from federal court. Again, a class action can easily be
configured to ensure that at least one class member does not satisfy the minimum
amount, or by seeking $74,999 in recovery on behalf of each and every plaintiff
and class member. Either way, attorneys bringing class actions can manage to
stay out of federal court – and have the action tried in the state court in the
county of their choosing – even though the total amount at stake in such a class
action might exceed hundreds of millions of dollars and have true multistate
national implications.
Thus, we are left with the strange, and in my view, indefensible situation:
Federal courts have jurisdiction over a garden-variety state law claim arising
out of an auto accident between a driver from one state and a driver from
another state, or a slip-and-fall by a Virginia plaintiff in a Maryland
convenience store – as long as the plaintiff alleges medical bills, lost wages
and other damages amounting to $75,001. But at the same time, federal
jurisdiction does not encompass large-scale, interstate class actions involving
thousands of plaintiffs from multiple states, defendants from many states, the
laws of several states, and hundreds of millions of dollars – cases that have
obvious and significant implications for the national economy.
S. 1712 would correct this anomaly by amending the diversity statute to provide
for federal jurisdiction over interstate class actions. Specifically, S. 1712
would allow federal courts to adjudicate class actions (as well as mass joinder
actions with more than 100 plaintiffs) in which any of the plaintiffs (named or
unnamed) or defendants come from different states. Moreover, this bill would
change the amount-in-controversy threshold to allow class actions into federal
court as long as the aggregate claims exceed $2 million. Significantly, however,
the bill does not extend federal jurisdiction to encompass truly “intra-state”
class actions, i.e., cases in which the claims are governed primarily by the
laws of the state in which the case is filed, and the majority of the plaintiffs
and the primary defendants are citizens of that state. The legislation therefore
allows federal courts to exercise jurisdiction over substantial interstate class
actions with significant nationwide commercial implications, while retaining
exclusive state court jurisdiction over more local class actions that
principally involve parties from that state and application of that state’s own
laws.
Although S. 1712 is a modest bill, it would go a long way toward preventing the
types of bias and uneven justice that are leading to class action unfairness in
certain state courts. The legislation would also eliminate concerns that local
prejudices are stacking the deck against out-of-state defendants in many local
courts that have become class action “magnets.” As the Washington Post put it
recently:
This corrupt system is made possible to some degree because of how difficult it
is to yank cases from state court and move them into the federal system – where
judges tend to examine them more skeptically. The bill would expand the
jurisdiction of the federal courts, permitting easier removal of state actions.
This would allow greater uniformity around the country in considering these
cases. . . . And it would mean that cases of national importance would be
decided by courts that represent the nation at large. This is a modest step – as
are the bill's other provisions, which attempt to curb the uglier abuses of the
class action system.
Critics of this bill have argued in the past that it is unconstitutional, that
it will prevent truly aggrieved people from filing class actions, and that it
undermines core federalism principles. These criticisms are misplaced.
The category of cases encompassed by S. 1712 clearly falls within the “judicial
Power of the United States” set forth in Article III of the Constitution. As I
noted earlier, the only reason that class actions are currently excluded from
federal court is that the modern-day class action device did not exist back in
the late eighteenth century when Congress established the basic framework for
determining which cases should be permitted in the federal courts under the
Article III diversity jurisdiction authority. In fact, S. 1712 would fulfill the
intentions of the Framers because the rationales that underlie the diversity
jurisdiction concept apply with equal – if not greater – force to interstate
class actions. Class actions squarely implicate the Framers’ concern with
preserving national standards for regulating and protecting interstate commerce
through the exercise of diversity jurisdiction. In fact, the substantial federal
interest in protecting interstate commerce is an integral part of our
constitutional history, as much of the impetus for calling the Constitution
Convention stemmed from a general concern that the Articles of Confederation
provided the federal government with too little authority to regulate interstate
commerce. As Chief Justice Marshall recognized early on, the Commerce Clause
embodies the substantial federal interest in regulating “that commerce which
concerns more States than one,” as distinguished from “the exclusively internal
commerce of a State,” which is more properly the concern of the states alone.
The large-scale, interstate class actions addressed by this bill will, in every
instance, involve “that commerce which concerns more States than one.”
In sum, if Congress were starting anew to define what kinds of cases should be
included within the scope of diversity jurisdiction, interstate class actions
would surely top the list, since they typically involve the largest amounts in
controversy, the most people, and the most substantial interstate commerce
implications. S. 1712’s extension of federal courts’ diversity jurisdiction to
cover interstate class actions is thus entirely in keeping with the scope of the
federal judicial power in Article III, and also with the Framers’ intent that
Congress define the contours of federal jurisdiction (within constitutional
limitations) in accordance with the national interest.
S. 1712 would not hamper the filing – or litigation – of valid class actions.
This legislation would not prohibit any class actions from being filed, since it
does not address whether class actions may be brought. Indeed, it does not alter
substantive law at all; it makes no changes in any person’s rights or ability to
assert claims. Instead, it only addresses where a particular type of class
action should be adjudicated – namely, interstate class actions that involve
plaintiffs and defendants from several states and that call for the
interpretation and application of the laws of many different states. To be sure,
this may mean that some class actions currently being certified in some state
courts will not be heard as class actions – but only those that should not be
class actions, because they do not satisfy the basic requirements of fairness
and due process too often ignored in those courts.
The bill also provides affirmative protections for class members’ rights when
the action is filed in federal court. The bill contains a “consumer bill of
rights,” which seeks to help class members understand their rights and to
protect consumers from unfair settlements. As to class actions in federal
courts, that “bill of rights” would require:
• That written notice of proposed class settlements be provided to class members
in a clearer, simpler format.
• That coupon or other non-cash settlements not be approved unless the court
holds a hearing and makes a written finding that the settlement is fair,
reasonable, and adequate.
• The rejection of proposed settlements that result in a net loss for the class
members, unless there is a written finding that the non-monetary benefits to the
class members outweigh any loss precipitated by the terms of the settlement.
• The rejection of proposed settlements that either (a) provide greater
recoveries to certain class members based on residencies in closer proximity to
the court or (b) provide unreasonable “bounties” to the class representatives.
• That specified federal and state officials be notified of proposed settlements
and provided an opportunity to comment on the adequacy of the proposal.
S. 1712 would not undermine federalism principles. One of the most surprising
criticisms that I have heard about this bill is that it would constitute an
unwarranted federal intrusion into the ability of states to interpret their own
substantive state laws and experiment with class action lawsuits. That line of
reasoning reflects a wholly misguided understanding of federalism – what I would
label “false federalism.” In fact, contrary to these concerns, this legislation
would protect the prerogative of states to determine their own laws and policies
by restricting the ability of state courts to dictate the laws of other states.
Importantly, the class action legislation does not contemplate any federal
displacement of state policy choices manifested in substantive law. Indeed, the
proposed legislation does not touch on substantive law in any manner. Instead,
the legislation would apply uniform, federal procedural requirements to a
narrow, carefully defined group of lawsuits with national economic impact.
Moreover, the legislation’s exclusion of federal jurisdiction over “intra-state”
cases would specifically respect and maintain a state’s authority to apply its
own laws in cases that primarily involve parties from its own state. Under the
current system, many state courts faced with interstate class actions have
undertaken to dictate the substantive laws of other states by applying their own
laws to all other states, resulting in a breach of federalism principles by
fellow states (not by the federal government). And because the state court
decision has binding effect everywhere by virtue of the Full Faith and Credit
Clause, the other states have no way of revisiting the interpretation of their
own laws. Certainly, a state does not have any cognizable, federalism-based
interest in interpreting, applying, and thereby dictating the substantive law of
other states. S. 1712 would curb this disturbing trend.
A good example of the federalism problems inherent in the current system arises
out of a nationwide insurance case in Illinois that was upheld by a state
appellate court in the face of objections from a host of constituencies –
including Public Citizen, the Attorneys General of Massachusetts, New York,
Pennsylvania, and Nevada, and the National Association of State Insurance
Commissioners. The specific issue in that multi-billion dollar, nationwide class
action was whether auto insurers’ use of “aftermarket” auto parts in repairs (as
distinguished from parts made by the original manufacturer) amounts to
fraudulent behavior. The Illinois court applied Illinois law to all fifty states
even though state policy on the use of aftermarket parts varies widely: Some
states, in fact, encourage or require insurers to use aftermarket parts in an
effort to reduce insurance rates. According to an article in The New York Times
about the case, the Illinois court’s ruling “overturn[ed] insurance regulations
or state laws in New York, Massachusetts, and Hawaii, among other places,”
creating “what amounts to a national rule on insurance.”
In contrast, federal courts have exhibited particular sensitivity to the
variations in substantive law among the different states, in accordance with
core principles of federalism. Moreover, when federal courts apply state law
pursuant to their diversity jurisdiction, there is no danger of a bias in favor
of any particular state's laws (which is not the case when one state decides to
apply its own laws to all other states). Indeed, that is the basic premise
underlying diversity jurisdiction, which promotes federalism principles.
Federal courts can handle the additional work entailed by expanded class action
jurisdiction. Another criticism I have heard of this bill is that it would put
too big a burden on federal courts. The real problem is that the current system
places too large a burden on state courts. Since 1984, civil filings in state
trial courts have increased by 28 percent, versus a four percent increase in
federal courts. And even more tellingly, state court trial judges are assigned,
on average, upwards of 2,000 new cases every year. In contrast, each federal
judge was assigned an average of only 454 new cases last year.
Moreover, federal courts have more resources at their disposal to adjudicate
large, interstate class actions. Virtually all federal court judges have two or
three law clerks on staff; state court judges typically have none. And federal
court judges are usually able to delegate some aspects of their class action
cases (e.g., discovery issues) to magistrate judges or special masters; such
personnel are usually not available to state court judges. In addition, federal
courts can litigate overlapping class actions more effectively by virtue of
multidistrict litigation procedures. When 25 duplicative class actions are filed
in different state courts (a not atypical situation), each is separately
litigated in a different court system, and the parties and the court therefore
must engage in the wasteful exercise of separately handling such overlapping
cases. When 25 duplicative class actions are filed in different federal courts,
they are typically consolidated for pretrial proceedings in a multidistrict
litigation proceeding under a federal statute that allows for such coordination.
I have heard suggestions that the federal judiciary opposes S. 1712 on the
ground that it would unnecessarily increase the workload of federal courts. I
therefore find it noteworthy that within the past several months, two key
committees of the federal Judicial Conference – the Standing Committee on Rules
and Procedure and the Advisory Committee on Civil Rules – have specifically
endorsed the concept of enlarging federal jurisdiction over certain class
actions through “minimal diversity legislation.” Both committees embraced a
finding that the wave of class actions in various state courts competing with
each other and with class actions in federal courts
create[s] problems that: (a) threaten the resolution and settlement of such
actions on terms that are fair to class members, (b) defeat appropriate judicial
supervision, (c) waste judicial resources, (d) lead to forum shopping, (e)
burden litigants with the expenses and burdens of multiple litigation of the
same issues, and (f) place conscientious class counsel at a potential
disadvantage.
The committees also concluded that
[l]arge nationwide and multi-state class actions, involving class members from
multiple states who have been injured in multiple states, are the kind of
national litigation consistent with the purposes of diversity litigation and
appropriate to jurisdiction in federal court. Federal jurisdiction protects the
interests of all states outside the forum state, including the many states that
draw back from the choice-of-law problems that inhere in nationwide and
multi-state classes.
Conclusion
S. 1712 would substantially ameliorate present problems with unfair state-court
class actions by giving federal courts jurisdiction over most interstate class
actions and thereby making it harder for plaintiffs’ lawyers to avoid the more
rigorous scrutiny that is typically afforded to class action settlements by
federal judges.
At the same time, it would comport with the intention of the Framers, who
envisioned that large, multi-state cases would be heard in federal court. As I
noted earlier in my testimony, current law has resulted in an anomaly under
which federal courts have jurisdiction over “slip-and-fall” cases in which a
plaintiff steps over state lines, trips in a convenience store and seeks $75,000
in damages, lost wages and medical expenses; at the same time, however, federal
courts are barred from adjudicating most interstate class actions even though
these cases typically involve millions of dollars and implicate more “national”
issues. By ensuring that interstate class actions can be heard by federal
courts, this bill would not only fulfill the intention of the Framers, but would
also substantially diminish class action abuse, promote federalism principles,
and allow for the more efficient resolution of duplicative class actions that
are filed in different courts. At the same time, the bill would not grant
federal jurisdiction for intra-state class actions that are genuinely matters of
state concern, nor would it affect the substantive law governing a plaintiff’s
ability to file a class action lawsuit.
In short, S. 1712 would eliminate many of the current problems with class
actions without impinging on the ability of state courts to adjudicate truly
intra-state disputes or otherwise affecting the litigation of valid class
actions. For these reasons, I strongly urge the Members of this Committee to
support this bill.
To Top
WITNESS HELDA BANKSTON, RETAILER
Thank you Mr. Chairman and Members of the Committee. I am so pleased to be here
today to have an opportunity to share with you what has been a personal
nightmare for me since I faced my first class action lawsuit in Mississippi.
While I have never been a plaintiff in any class action lawsuits that I know of,
I do believe I have been a victim of the system since the first suit was filed
against Bankston Drug Store in l999. Let me explain. My husband and I lived the
American dream until three years ago when we were caught up in what has become
an American legal nightmare. I was born in Guatemala and moved to the U.S. in
1958. I met my husband Mitch, a Navy seaman, while I was serving as a marine at
Camp LeJuene in North Carolina. We were married there in 1964. After we left the
military, Mitch attended college and pharmacy school at Ole Miss, while I worked
as a seamstress. In 1971 we put down roots in Fayette, Miss., bought a local
drugstore and fulfilled Mitch’s lifelong dream. He worked hard and built a solid
reputation as a caring, honest pharmacist. We raised two sons.
Our life was good. Then in 1999, we were named in the national class action
lawsuit brought against the manufacturer of Fen-Phen. Let me stop here to
explain why we were brought into this suit. While I understand that class
actions are not allowed under Mississippi state law, what is permitted is the
consolidation of lawsuits. These consolidations involve Mississippi plaintiffs
or defendants who are included in cases along with plaintiffs from across the
country. We filled prescriptions of this FDA-approved drug for patients in
Jefferson County. We kept accurate records of prescriptions dispensed – as
required by law – for five years, providing the trial lawyers with a database of
potential clients. By naming us, the only drugstore in Jefferson County, the
lawyers could keep the case in a place known for its lawsuit-friendly
environment. I’m not a lawyer, but that sure seems like a form of class action
to me. It is my understanding that legislation before the Senate will cover
Mississippi consolidations, like those I’ve been named in, as well national
class actions filed in other lawyer friendly state courts.
From the moment we learned that we had been named as a defendant in the Fen-Phen
case, Mitch became extremely concerned about what our customers would think. In
our small town, news travels fast and reputation is everything. Within three
weeks, my husband, a 58-year-old in good health, died suddenly of a massive
heart attack. In the midst of my grief, I was called to testify in the first
Fen-Phen trial.
Since then, Bankston Drugstore has been named as a defendant in hundreds of
lawsuits brought by individual plaintiffs against a variety of pharmaceutical
manufacturers. Fen-Phen. Propulsid. Rezulin. Baycol. At times, the bookwork
became so extensive that I lost track of the specific cases. And today, even
though I no longer own the drugstore, I still get named as a defendant time and
again.
Jefferson is a poor county, and the attorneys handling these claims have
aggressively marketed their actions as the same as winning the lottery. Some
days I can’t open the newspaper without seeing ad after ad recruiting potential
plaintiffs with a warning that “time is of the essence” if folks want the
promise of big payouts. Nor are their efforts hurt by rumors that five
plaintiffs in the first Fen-Phen case split $150 million. Plus it is well-known
in the community that trial lawyers point to multi-million homes that are built
by successful lead plaintiffs as an inducement for signing on.
Sadly, the lawsuit frenzy has done more harm than good to our community.
Businesses will not relocate to Jefferson County because of fear of litigation.
And, the county’s lawsuit-friendly environment has driven liability insurance
rates through the roof, giving small business owners all over Fayette additional
headaches they don’t need.
And our doctors are leaving the state in mass.
No small business should have to endure the nightmares I have experienced. Class
action attorneys have caused me to spend countless hours retrieving information
for potential plaintiffs. I’ve searched record after record and made copy after
copy for use against me. I’ve had to hire personnel to watch the store while I
was dragged into court on numerous occasions to testify. I have endured the
whispers and questions of my customers and neighbors wondering what we did to
end up in court so often. And, I have spent many sleepless nights wondering if
my business would survive the tidal wave of lawsuits cresting over it.
I’m not a lawyer, but to me, something is wrong with our legal system when
innocent bystanders are used by lawyers seeking to strike it rich in Jefferson
County or anywhere else.
In closing, I’d like to ask you to think about the victims of lawsuit abuse. My
husband Mitch and I are only two of thousands throughout this country. It’s not
just small businesses like ours, but it’s also the plaintiffs who end up with
nothing or consumers who pay more for products or for insurance. We are the ones
who need your help.
I urge you to pass legislation that reforms our legal system and prevents
lawsuit abuses such as those that have plagued my business and my family for
years. Thank you for your attention. I would be happy to answer any questions.
To Top
CLASS ACTION LAWYER PAUL BLAND
INTRODUCTION AND SUMMARY
I would like to thank the Chairman and the Committee for inviting me to testify.
I am a Staff Attorney at Trial Lawyers for Public Justice (¡°TLPJ¡±), the only
national public interest law firm in America that both regularly prosecutes a
wide range of class actions and has a special project devoted to fighting class
action abuse. I am here to make three central points. First, class actions are
absolutely essential to the achievement of justice in our country. Properly
used, class actions can hold wrongdoers accountable for their misconduct and
vindicate their victims¡¯ rights. Second, class actions can be abused. When that
happens, class actions can be perverted into a tool allowing wrongdoers to
escape accountability for their misconduct and eliminate their victims¡¯ rights.
Third, expanding the federal courts¡¯ jurisdiction to hear class actions will
increase both the frequency and severity of class action abuse.
During my legal career at TLPJ and, before that, in private practice, I have had
the opportunity to see class actions in operation from two sides. On the one
hand, I have represented consumers who have been cheated or victimized by
serious corporate wrongdoing in a number of important class actions. On the
other hand, in more than a dozen cases I have represented objectors to abusive
class action settlements, where the consumers would receive little if any
relief, the corporate defendants would walk away with a complete release for any
wrongdoing, and the attorneys would make significant fees. I¡¯ve had an
opportunity to see some of the best and the worst aspects of class action
practice, and from that experience I offer the following testimony.
For many millions of Americans, the only chance of obtaining justice for a
variety of legal wrongs committed against them is through the class action
process. If the opportunity to bring claims on a class action basis is denied or
made more difficult, many corporations will effectively enjoy complete immunity
from any legal accountability for most wrongs they might commit, even when it is
very clear that they have broken the law. I will trace a number of illustrations
of extremely serious consumer frauds and other corporate wrongdoing where a
large number of individuals received justice only because they were able to use
the class action device to vindicate their rights.
At the same time, like other powerful legal devices, class actions can be and
sometimes are abused. Within the past decade, several corporate wrongdoers,
particularly in mass torts, have recognized that class actions -- when abused --
can be a powerful tool for capping wrongdoers¡¯ liability and eliminating
victims¡¯ rights. The results have been predictable and outrageous. Through
class action abuse, companies that harmed millions have avoided accountability
and deprived their victims of their day in court. Widespread wrongdoing has gone
uncorrected, unpunished, and undeterred. And class actions themselves have been
brought into undeserved disrepute. The courts already have the tools, however,
to stop class action abuse and I will detail some of our successful efforts to
fight it.
I will also address the notion that class action abuse might be decreased or
deterred if more class actions could be heard in federal court. Simply put, our
experience is that abusive class action settlements are more likely to be
reached and approved in courts that are busy and overburdened. And, as this
Committee knows, the federal courts are already extremely busy severely
overburdened. It should not be surprising, therefore, that many of the worst
abusive class action settlements that we have seen have been in federal courts.
Moving more class actions to federal court is likely to make the problem of
class action abuse worse and harm consumers in a number of other ways.
I. BACKGROUND ON TLPJ.
Before I address the issues before the Committee, please allow me to provide
some background on TLPJ. Trial Lawyers for Public Justice is a national public
interest law firm dedicated to using trial lawyers¡¯ skills and resources to
advance the public good. Specializing in precedent-setting and socially
significant litigation, we have a wide-ranging docket of cases designed to
advance consumers¡¯ and injury victims¡¯ rights, environmental protection and
safety, civil rights and civil liberties, occupational health and employees¡¯
rights, the protection of the poor and the powerless, and the preservation and
improvement of the civil justice system.
Six years ago, TLPJ became so concerned about the danger posed by class action
abuse that we launched a new special project designed to protect class members¡¯
rights and the integrity of the class action device -- our Class Action Abuse
Prevention Project. As I will set forth below in greater detail, we have
represented objectors to at least 20 class action settlements, and our
objections have led to dramatic improvements in the relief that a number of
these settlements provided to the class members. We also have special projects
challenging unnecessary court secrecy, federal preemption of injury victims¡¯
claims, and mandatory arbitration abuse.
TLPJ was founded in 1982 and is currently supported by more than 2,700 members
around the country. More information on TLPJ and its activities is available on
our web site at www.tlpj.org.
TLPJ does not lobby and generally takes no position in favor of or against
specific proposed legislation. We do, however, sometimes respond to
informational requests from legislators and have occasionally been invited to
testify to a Committee of the United States Congress on issues within our
expertise. In keeping with that practice, we are grateful for the opportunity to
share our experience with respect to the important issues this Committee is
considering today. We start with the most crucial point: the value of class
actions.
II CLASS ACTIONS ARE ESSENTIAL TO SECURING JUSTICE FOR ALL.
Class actions are absolutely essential to the achievement of justice in the
United States. In many circumstances, particularly where large numbers of people
have suffered small amounts of damages or require injunctive relief, class
actions are the only way that justice can be obtained. In Deposity Guaranty
National Bank v. Roper, 445 U.S. 326 (1980), the Supreme Court explained that
class actions often offer the only way that individuals with modest claims could
ever obtain relief for their claims:
Where it is not economically feasible to obtain relief within the traditional
framework of a multiplicity of small individual suits for damages, aggrieved
persons may be without any effective redress unless they may employ the
class-action device.
445 U.S. at 339. See also Gulf Oil Co. v. Bernard, 452 U.S. 89, 99 (1981)
(¡°Class actions serve an important function in our system of civil justice.¡±)
TLPJ¡¯s experience demonstrates that class actions are often the only way to
achieve justice for victims in cases ranging from consumer fraud to workers¡¯
rights to race and sex discrimination. Allow me to provide a few examples:
¡ñ In Cox v. Shell Oil Co., No. 18,844 (Tenn.Ch.Ct. Obion County 1995), the
polybutylene plumbing class action litigation, TLPJ and its co-counsel won the
largest property damage class action settlement in U.S. history, with the
defendants committing to spend a minimum of $950 million to repair, replace, and
pay for property damage stemming from leaking pipes and fittings. By way of
background, polybutylene piping had been installed in an estimated six million
homes, town houses, mobile homes and other properties after 1978. There was
overwhelming evidence that these pipes began to leak in a very great many of
these homes, often causing extensive damage, but not enough damage that it would
have been economically feasible for most of the homeowners to sue individually.
The vast majority of these homeowners would never have received justice if it
were not for the class action device. A number of different corporate defendants
each argued that its products were blameless, and fiercely resisted disclosing
any documents or witnesses relating to the defects. It took years of work by
consumer lawyers, and many thousands of dollars in expert witnesses and
investigative expenses, to break through these defenses and determine what had
occurred. Many thousands of consumers who have had their homes ¡°re-plumbed,¡±
and had defective pipes replaced and repaired at no cost to them, would be left
with leaking pipes and no relief if they had not been permitted to band together
and pursue this case as a class action.
¡ñ In Ting v. AT&T, 182 F.Supp.2d 902 (N.D.Cal. 2002), TLPJ and The Sturdevant
Law Firm in San Francisco represent a class of consumers challenging the
mandatory pre-dispute binding arbitration provision in AT&T¡¯s new contract with
its long distance customers. While the enforcement of arbitration clauses is
favored under California law, an arbitration clause will not be enforced if it
is drafted in a way that makes it unconscionable under state contract law. Under
California law, a contract is unconscionable if it does not permit consumers to
effectively vindicate their rights under the state¡¯s consumer protection laws.
The case went to trial last November, and the federal court held that AT&T¡¯s
arbitration clause was unconscionable and unenforceable for 7 million California
residents because the clause illegally limits the damages consumers can receive,
prohibits class actions, imposes prohibitive arbitration costs, and incorporates
excessive secrecy.
¡ñ In the course of the Ting case, we investigated previous consumer class
action lawsuits that had been brought against AT&T and other long distance phone
carriers. We determined that a number of class action lawsuits for various
overcharges and deceptive practices had been successfully brought to conclusion
against AT&T and these other corporations. In one case filed in New Jersey state
court, for example, AT&T had been accused of intentionally over-charging
subscribers by charging per-minute usage fees in the wrong month. AT&T settled
the case, paying out 100 cents on the dollar to 83,611 consumers. 182 F. Supp.2d
at 918. Based on the stipulated testimony of the lawyers in the New Jersey case,
and unrefuted testimony of a number of experts, the court in the Ting case held
that ¡°It would not have been economically feasible to pursue the claims in
these cases on an individual basis. . . .¡± Id. With the class action device,
the overcharged consumers in the New Jersey case recovered 100% of the
overcharge. Without it, they would have received nothing. There was similar
evidence relating to a number of other class actions in the record in the Ting
case. Accordingly, the federal court determined that the ban on class actions in
AT&T¡¯s contract would prevent millions of customers from effectively
vindicating their rights.
¡ñ In Chisolm v. TranSouth Financial Corp., a used car dealer and a bank
combined to perpetrate an egregious fraud upon consumers. The evidence
established that the used car dealer frequently sold cars to low income persons
who could not afford them ¨C particularly young servicemen from the Norfolk base
¨C at interest rates of up to 30%. As many as 50% of these cars were repossessed
in some years. Instead of properly selling their repossessed cars in a public
auction or by other legitimate method, the bank and the car dealer had a secret
deal. The bank would ¡°sell¡± the cars back to the car dealer for a nominal
amount (usually $1,000 or $1,500), and use phony ¡°bids¡± to create a bogus
below-market ¡°sale price¡± for the cars. Again and again, the car dealer then
re-sold the same cars to other customers for much higher prices. The dealer sold
some cars to as many as six different customers. The dealer and the bank then
used the phony ¡°bid¡± prices to cheat thousands of consumers by not paying them
the surplus funds generated when they later sold the cars for more than the
class members ever actually owed. In many cases, the dealer would actually sue
the (generally unrepresented) consumers because the phony bids were below the
amount of the loans, and attach their property or salaries.
The Chisolm case could not have been successfully brought on an individual
basis. One defendant fought the litigation for eight years, using scorched-earth
tactics such as refusing to answer any discovery requests, filing up to eight
different briefs raising the same point on repetitive motions, attacking the
consumers¡¯ counsel, and the like. No individual consumer could ever have
collected the resources to overcome this kind of defense. The court found ¡°that
it would be both inefficient and difficult for the 2500 putative class members
with individually small claims to sue a large corporation like TranSouth in the
absence of a class action. Therefore a class action is the appropriate and
superior method for the fair and efficient adjudication of the controversy.¡±
184 F.R.D. at 565.
¡ñ Class actions have also been crucial to preserving civil rights. In Cohen v.
Brown University, for example, our precedent-setting Title IX class action
lawsuit, TLPJ proved the school was guilty of sex discrimination, prevented the
elimination of successful women¡¯s intercollegiate athletic teams, and made new
law benefitting women athletes and potential athletes nationwide. See Cohen v.
Brown University, 809 F. Supp. 978 (D.R.I. 1992), 991 F.2d 888 (1st Cir. 1993),
879 F.Supp. 185 (D.R.I. 1995), 101 F.3d 155 (1st Cir. 1996), cert denied, 520
U.S. 1186 (1997).
¡ñ Ten years ago, prior to coming to TLPJ, I had an opportunity to work (in a
very junior capacity) on a team of exceptional lawyers who represented residents
of a neighborhood in Denver who were victims of severe toxic pollution. The case
was captioned Escamilla v. Asarco, and it was filed in state court in Colorado.
Asarco operated a cadmium smelter that put so much pollution in the air that
there were significant levels of lead in the soil of the yards of many of the
residents of Globeville, where our clients lived. After a six-week trial, the
jury awarded our clients $28 million for the decreased value of their homes. The
case was then settled for $35 million, with Asarco agreeing to remove and
replace the top 12-18 inches of topsoil throughout the neighborhood (removing
all of the lead and other pollutants that had been threatening the health and
families of our clients) and pay $14 million in cash to the clients. There is no
doubt that the case could never have been brought on an individual basis. The
case involved complex proof of the pathways that the pollution took from the
plant to the neighborhood, of the proper values to be placed on the properties
in the neighborhood, and many other subjects. No individual could have
successfully brought this major polluter to justice ¨C it was a class action or
nothing.
As these examples reflect, class actions, properly used, have been a powerful
tool for holding wrongdoers accountable and vindicating victims¡¯ rights.
That¡¯s why wrongdoers usually oppose their use. Accordingly, we strongly urge
the Committee to be cautious in enacting any measure that might make it
substantially more difficult for consumers and others to bring class actions.
Not so long ago, Congress responded to claims raised about certain class actions
by making it much more difficult for consumers and investors to bring securities
class actions in state court, as well as to hold accountants and other
professionals liable for their roles in defrauding consumers and investors. We
fear that these actions may have contributed to the erosion of standards for
corporate governance that led to much of the fraud that has recently harmed the
economic security of so many Americans. We urge the Committee to be careful of
passing legislation that might insulate some corporate defendants from being
held accountable for serious wrongdoing.
III. CLASS ACTION ABUSE CAN BE PREVENTED.
While class actions provide enormous benefits to millions of Americans, class
actions can
be abused and, when they are, serious damage can be done. TLPJ¡¯s extensive
experience shows,
however, that class action abuse can be prevented.
A. TLPJ¡¯s Class Action Abuse Prevention Project
TLPJ¡¯s Class Action Abuse Prevention Project is a nationwide campaign dedicated
to monitoring, exposing, and fighting class action abuse. Through the Project,
TLPJ seeks to enforce class members¡¯ existing legal rights by objecting to
illegal or unfair class action settlements; develop the law by winning judicial
recognition of additional protection against class action abuse; educate
lawyers, the judiciary, and the public about class action abuse and possible
ways to prevent it; and help others to do all of the above. Among other
activities, we monitor class action cases throughout the country and take legal
action to challenge specific abuses on behalf of objectors or as amicus curiae.
Through the Project, TLPJ has targeted and fights a number of specific abuses.
While the following list is not all-inclusive, the primary abuses that concern
us are:
∙ efforts to limit a class member¡¯s right to opt out of a class action for
damages and pursue his or her own compensatory and/or punitive damages claims on
an individual basis;
∙ attempts to use class actions to settle the ¡°future¡± personal injury claims
of people who are not currently injured ¨C or, in some cases, may not yet even
exist;
∙ ¡°settlement-only¡± class actions that would and could never be litigated as
class actions, but are being used to cap the defendant¡¯s liability through the
class action device;
∙ settlements that release class members¡¯ claims in exchange for ¡°coupons¡±
that provide little or no meaningful relief to the class ¨C and, in some cases,
extraordinarily handsome fees for class counsel;
∙ unnecessary claims procedures, such as requiring credit card customers to file
claims forms, instead of simply crediting their recoveries to their accounts;
and
∙ improper secrecy provisions, including gag orders on class members or their
counsel and attempts to conceal terms of a settlement or the amount of
attorneys¡¯ fees.
In the past six years, TLPJ has had great success fighting these class action
abuses and establishing new law to help others fight them as well. To cite just
a few examples:
∙ In Graham v. Security Pacific Services, Inc., No. 2:96-CV-132 (S.D.Miss.
1996), we won massive improvements to a proposed nationwide settlement of
consumer fraud claims against BankAmerica in Mississippi federal district court.
The original settlement would have paid approximately $2 million to class
members, $5.4 million to class counsel, and deprived all Mississippi class
members of their right to opt out. It also would have required all class members
to file claim forms to receive compensation, allowed any unclaimed funds to
revert to the bank, and paid non-Mississippi class members only half as much as
Mississippi class members. After we were done, the final settlement paid $7.9
million to the class, $1.92 million to class counsel, and allowed all class
members to opt out. The funds were automatically distributed, no class members
had to file claims forms, no money reverted to the bank, and class members from
all states received the same relief.
∙ In Kalhammer v. First USA Bank, No. 95-4563 (N.Dist. Ca.), in San Francisco
federal court, we defeated outrageous secrecy provisions and won huge
improvements to a proposed nationwide settlement of claims that First USA
cheated its credit card holders. The allegations were fairly egregious. The gist
of them was that First USA promised new customers that they would be charged a
low interest rate for a period of six months, then substantially raised the
interest rates well before the six month period had elapsed. The consumers lost
$9.12 on average, but the bank had so many customers that the total wrongful
profits approached $15 million. This is precisely the kind of case that could
never have been brought if the class action procedure was not available.
Unfortunately, the original settlement barred public disclosure of both the
total settlement amount and total attorneys¡¯ fees, and prevented class counsel
and class members ¨C but not First USA ¨C from talking to the press about the
deal. It also provided current First USA cardholders with ¡°rebate
certificates¡± for five dollars or less, but gave nothing to former cardholders.
According to experts, the rebate certificates would have yielded less than
$400,000 in actual relief to the class. In response to our challenge, the
settlement was amended to eliminate the secrecy, give automatic credits to the
vast majority of the class, and require First USA to pay a minimum of $6
million.
∙ In a series of amicus briefs, TLPJ challenged ¨C and ultimately helped
persuade the U.S. Supreme Court to reject ¨C the proposed class action
settlements of millions of present and future asbestos victims¡¯ claims in
Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), and Ortiz v. Fibreboard
Corporation, 527 U.S. 815 (1999). These two Supreme Court decisions established
important new procedural protections severely limiting class action abuse.
∙ In Walker v. Liggett Group, Inc., 175 F.R.D. 226 (S.D.W.Va. 1997), and,
subsequently, Fletcher v. Brooke Group Ltd., CA. No. CV 97-913 (Ala.Cir.Ct.
Mobile County), we ensured that tobacco victims nationwide could proceed with
their claims against the Liggett cigarette company, defeating proposed
no-opt-out settlements in West Virginia federal court and Alabama state court,
respectively, that would have capped the company¡¯s liability and provided
virtually no relief to the class. The decision in Walker was the first in the
country to reject a proposed class settlement based on the U.S. Supreme Court¡¯s
decision in Amchem.
B. The Causes of Class Action Abuse
The driving force behind most class action abuse is the desire of wrongdoers to
cap their liability in consumer and mass tort cases. Defendants do not generally
want cases to be litigated as class actions because they recognize that class
actions, properly used, can be a powerful tool for vindicating their victims¡¯
rights. They do, however, often want cases to be inappropriately settled as
class actions because they realize that class action settlements ¡ª especially
settlements that misuse the class action device ¡ª can be an equally powerful
tool for limiting or even eliminating their victims¡¯ rights.
Regardless of the defendant¡¯s motives or desires, abusive class action
settlements cannot take place without the cooperation of class counsel.
Unfortunately, some class action counsel are far too willing to agree to a bad
class settlement in exchange for a quick or hefty fee. And, regrettably, many
more feel forced to agree to objectionable or inadequate settlement terms
because they sincerely believe ¨C rightly or wrongly -- that the judge will not
allow them to pursue the class¡¯ legitimate claims and that any recovery for the
class (and a fee) is better than nothing for the class (and no fee at all).
The most important point, in our view, is that courts hold the key to stopping
class action abuse. While plaintiffs, defendants, and their attorneys all
contribute to class action abuse, judges have the power to prevent it.
Unfortunately, some judges do not understand how they can stop class action
abuse, others do not seem interested in stopping it, and others actually take
actions that encourage it. For example, some judges are extremely hesitant to
certify a case as a class action for litigation purposes, while others are
extremely eager to do so, without regard to whether the legal criteria for class
certification are met. The former are contributing to class action abuse because
they are effectively telling class counsel that, unless they reach a settlement
acceptable to the defendants, the class will recover nothing -- and, since class
counsel do not have a credible threat to take the case to trial, they can¡¯t
force the defendant to provide much relief to the class in settlement
negotiations. The latter are contributing to class action abuse because the
legal criteria for class certification are designed to ensure that the absent
class members¡¯ interests are truly served by the class representative and class
counsel. If the criteria are not met, the case should not be certified as a
class action.
As the foregoing suggests, the single best way to stop class action abuse is for
judges to take seriously their fiduciary duty to protect class members and their
rights. If judges want justice to be done, they must certify cases for
litigation as class actions when the legal criteria are met. The solution to
class action abuse isn¡¯t eliminating class actions. That only hurts class
members a different way. At the same time, judges must make sure that the class
action rules and Constitution are satisfied; that any proposed settlement truly
is fair, reasonable, and adequate; and that attorneys¡¯ fees are properly based
on the recovery actually obtained for the class.
IV. INCREASING THE NUMBER OF CLASS ACTIONS IN FEDERAL COURT WILL INCREASE CLASS
ACTION ABUSE AND HURT CONSUMERS.
A. Because Federal Courts are Extremely Busy and Overburdened, Abusive Class
Action Settlements are More Likely to be Reached and Approved if the Federal
Courts¡¯ Jurisdiction Over Class Actions is Expanded.
As I mentioned above, judges play the key role in defeating class action abuse.
In our experience, moreover, courts with very heavy dockets and courts that are
overburdened face far greater pressures to move cases quickly. And one of the
easiest ways to move a case quickly is to approve a poor settlement because,
even if the consumers or victims receive very little, the case goes away.
In our experience, particularly as more and more criminal cases have found their
way into federal court, many federal courts around the United States have
exceptionally heavy dockets. As a result, civil cases in federal court tend to
move much more slowly than cases in most state courts, despite some of the
reforms that this Committee spearheaded in the early 1990s. One example from my
own practice may help illustrate this point.
I am currently handling a case involving double-billing practices by an HMO in
violation of Maryland state law. The case was divided into two parts by a
federal district court, which held that some of the consumers¡¯ state law claims
were preempted and barred by a federal statute (the Employee Retirement Income
Security Act, or ¡°ERISA¡±), but that the other consumers could go forward with
their claims in state court. The federal part of the case was appealed, and I
argued the appeal to the U.S. Court of Appeals for the Fourth Circuit in January
of 1999, more than three and a half years ago. Our clients still do not have a
ruling from that court. The state part of the case went forward to the Maryland
Court of Appeals (the high court in Maryland), which issued a unanimous, lengthy
decision in favor of our clients within about 30 days of the oral argument. See
Riemer v. Columbia Medical Plan, 358 Md. 222,
747 A.2d 677 (Md.
2000). This is only one particularly egregious illustration of a phenomenon that
most practicing litigators take as given in most of the country ¨C federal
courts are generally slower because of their very heavy case load.
This kind of heavy caseload creates strong incentives for courts to approve
settlements and move cases along. I respectfully suggest that a case in point is
Cusack v. Bank United of Texas, a case that was filed in the Northern District
of Illinois and later went to the U.S. Court of Appeals for the Seventh Circuit.
I should make clear at the outset that TLPJ was counsel for objectors to this
settlement, and that both the district court and the court of appeals rejected
our clients¡¯ objections.
In this case, the plaintiffs alleged that, in the course of servicing its
customers¡¯ residential mortgages, Bank United required homeowners to maintain
¡°cushions¡± in their escrow accounts that exceeded certain contractual and
statutory limits. This practice allegedly deprived homeowners of millions of
dollars, in violation of the Real Estate Settlement Procedures Act, various
state laws, and the class members¡¯ contracts with Bank United.
According to the lawyers for the plaintiffs, this was one of more than 70
similar cases filed against different lenders around the country, and through
the multi-district litigation process more than 50 of these cases were filed in
the same court, before the same federal district court judge. If each of these
cases proceeded through normal litigation, with motions practice and discovery
and an actual trial, it would have imposed enormous burdens upon that federal
court. Instead, the cases were apparently all or nearly all resolved through
extremely similar settlements.
Judging from the district court docket sheet in the Bank United of Texas case,
there was essentially no activity in the case from March 1994, when it was
filed, until September 1996, when class counsel filed a joint motion for
certification of this case and at least 14 other virtually identical actions
against other lenders. After the district court granted the motion and certified
the case as a class action a few months later, no further filings were made in
the case until November 1997, when the parties moved for approval of a proposed
settlement that would resolve all the remaining issues in the litigation.
Under the settlement, the sole relief for the consumers was a $175 ¡°discount
certificate¡± that could be applied only against the closing costs of a new or
refinanced mortgage with Bank United. Class members who did not use their
discount certificates would receive no value from the deal, and the certificates
cannot be used in conjunction with any other discounts or promotions offered by
Bank United. In exchange for these coupons, Bank United got a total release of
all liability for all claims relating to its mortgage escrow overcharges, and
class counsel got $400,000 in attorneys¡¯ fees.
For most of the class members, the only notice they ever received of the
settlement was a one-time notice published in the New York Times. This was for a
class of persons who largely lived in Texas. For any of these class members to
get anything from the deal, they had to (a) buy a copy of the New York Times
(something not terribly common for most Texas homeowners) on the one day when
the notice appeared; (b) find and read and understand a fine-print class action
notice buried deep in the paper that took up one eighth of a page; (c) refinance
their mortgage or take out another mortgage with Bank United; and (d) present
the notice at closing. In objecting to the settlement, our clients argued that
only a tiny percentage of the class members would ever get anything out of this
deal.
Despite our objections, the district court approved the settlement as fair,
adequate, and reasonable, and granted class counsel¡¯s request for $400,000 in
attorneys¡¯ fees. More remarkably, the federal judge ¨C on his own motion ¨C
ordered that the redemption rates for the discount certificates be filed under
seal. In other words, there is a secrecy order in place that prevents the public
from learning whether many consumers will ever redeem the coupons.
Our clients appealed this decision to the U.S. Court of Appeals for the Seventh
Circuit. In opposition to the appeal, among other arguments, the settling
parties stressed that dozens of similar suits were pending, and that breaking up
this settlement would lead to enormous delays in the handling and resolution of
those other cases. Ultimately the Court of Appeals approved the district
court¡¯s order, and thus the entire settlement, in a very brief unpublished
opinion.
This experience highlights a problem we have repeatedly witnessed: overburdened
courts are more likely to approve abusive class action settlements and federal
courts are already overburdened. To put it simply, expanding the jurisdiction of
federal courts over class actions will make the problem of class action abuse
worse, not better.
B. There Are Good and Valid Reasons Why Consumer Plaintiffs Often Prefer State
Court
Much of the rhetoric that has accompanied the drive to federalize class actions
has lampooned state courts as being a supposedly lower quality forum than
federal courts. Corporate advocates often describe state court judges as
typically unsophisticated, and more prone to doing whatever they like. My
experience and practice, and that of other lawyers at TLPJ, and that of a great
many consumer lawyers with whom I have spoken, indicates that this caricature is
not only wrong, it is grossly unfair. Many of the generalized attacks upon state
courts that I have seen are flatly at odds with the experience I have had in
walking into state courtrooms around the country. Moreover, we know of no
empirical evidence suggesting that abuse of class actions ¨C much less abuse of
class actions in state courts ¨C has had any significant harmful effect on
American business or the U.S. economy.
Many tort reformers suggest that consumer plaintiffs prefer state court because
they are looking for less sophisticated decision makers. The claim of such
advocates is that corporate defendants would generally be found innocent of any
wrongdoing if the judge was just intelligent enough to understand their
arguments. This insinuation is not only unfair to both consumers and state
courts, but also ignores the true and valid reasons why consumer plaintiffs
generally prefer state courts.
First, state law remedies in many jurisdictions are greatly superior to federal
consumer protection laws for a great many types of scams. As a result, many
consumer plaintiffs prefer to bring claims under state laws. In many
jurisdictions, our experience and the experience of practicing lawyers with whom
we regularly work is that state court judges tend to be far more familiar with,
and sometimes more respectful of, state statutes and state consumer protection
laws.
Second, delay nearly always favors corporate defendants in civil litigation, and
federal courts often tend to move more slowly than state courts. Plaintiffs bear
the burden of proof in civil litigation and, if a case lingers for years, it
becomes harder to meet that burden. Documents are ¡°lost,¡± witnesses¡¯ memories
begin to fade (particularly where the witnesses are poorly educated low income
persons, being asked to remember specifics of complex transactions that occurred
years before), class members move and become harder to find and keep track of,
etc. In addition, most experienced lawyers will agree that few defendants are
likely to take any serious interest in settlement negotiations until a trial
date approaches, and delays ultimately allow even plainly guilty corporations to
hold onto wrongful profits (and thus have the use of that money) for long
periods of time.
Third, overburdened courts are more likely to look for ways to dispose of cases
short of trial. Accordingly, it should be little surprise that federal courts
tend to be far more likely to dispose of cases through devices such as summary
judgment than are most state courts. At one point several years ago, I was doing
legal research on the application of the standard for summary judgment in one
federal court of appeals before which I was appearing. I ran an extensive
computer search and came up with more than 30 cases in the previous 18 months
where that court had heard appeals of grants of summary judgment, and in every
single case the grant of summary judgment was approved! While the court
repeatedly used the standard legal phrases ¨C cases will only be taken from the
jury if there was no ¡°significant dispute¡± about any ¡°material fact¡± ¨C the
reality was that this court strongly favored the use of summary judgment as a
means of clearing dockets and finally resolving cases. TLPJ¡¯s experience, and
that of many other consumer lawyers with whom I have spoken, is that state court
judges are far more likely to permit cases to go to trial.
Fourth, the United States District Courts are not convenient to the many
Americans who live outside of the largest metropolitan districts. In Maryland,
where I live, an attorney or witness who lives in Garrett County or in Somerset
County on the Eastern Shore must drive three hours to get to the nearest federal
court. And Maryland is one of our smallest states.
CONCLUSION
If class actions are restricted or made significantly more difficult, it is
predictable that corporate wrongdoing will increase, and many fleeced consumers
will have no remedy for wrongs done to them. While class action abuse is a
serious problem that deserves closer attention from judges at all levels,
increasing the federal courts¡¯ jurisdiction over class actions is far more
likely to exacerbate the problem than to solve it.
CIVIL RIGHTS ATTORNEY THOMAS HENDERSON
Good morning, I am Thomas J. Henderson, Chief Counsel of the Lawyers’ Committee
for Civil Rights Under Law (“Lawyers’ Committee”). The Lawyers’ Committee for
Civil Rights Under Law is a 39 year old nonpartisan, nonprofit civil rights
legal organization. It was formed in 1963 at the request of President John F.
Kennedy to involve the private bar in providing legal services to address racial
discrimination.
I would like to thank Chairman Leahy and the members of the Committee for
holding these important hearings on the Class Action Fairness Act of 2001 and,
in particular, for providing the Lawyers’ Committee with the ability offer
members of the Committee on the Judiciary with evidence of the significant
negative impact this legislation will have on critical civil rights litigation.
We appreciate the opportunity to present the Committee with our analysis of the
implications that this legislation will have on the Lawyers’ Committee, our
independent local affiliates, and our clients across the country.
The principal mission of the Lawyers' Committee is to secure, through the rule
of law, equal justice under law. As such, through both litigation and public
policy the Lawyers’ Committee has been actively engaged in efforts to combat
racial discrimination and segregation throughout out nation. However, the
primary work of the Lawyers’ Committee has always centered on using the rule of
law through the state and federal judicial systems to secure redress for clients
who have faced racial discrimination. Our major objective is to use the skills
and resources of the private bar to obtain equal opportunity for minorities by
addressing factors that contribute to racial justice and economic opportunity.
The Lawyers’ Committee pursues this goal by bringing class action and impact
litigation in five major civil rights areas: voting, employment, education,
housing and environmental justice. It is through our role as civil rights
litigators that we express our concerns about the Class Action Fairness Act of
2001 and the devastating impact it will have on the civil rights litigation that
the Lawyers’ Committee has been engaging for nearly four decades.
I. Introduction
Class actions have proven to be an essential tool for civil rights enforcement
efforts in the experience of the Lawyers’ Committee. Historically, Lawyers’
Committee cases have been class actions brought in federal court seeking
injunctive and, in some cases, equitable monetary relief under Federal Rule of
Civil Procedure 23 (b)(2) to vindicate rights under the United States
Constitution or federal civil rights statutes. In recent years, however, with
Congress’ recognition that effective enforcement of the nation’s civil rights
laws required more complete remedies, including compensatory and, in appropriate
cases, punitive damages, Lawyers’ Committee class actions have increasingly
included actions that seek compensatory and punitive damages under Rule 23
(b)(3), as well as equitable relief under Rule 23 (b)(2).
Class actions are essential to the enforcement of the nation’s civil rights
laws. They are a vitally important and are often the only means by which persons
can challenge and obtain relief from systemic discrimination. Indeed, Rule 23
(b)(2) was designed, in part, to accommodate, and has served as a primary
vehicle for, civil rights litigation seeking broad equitable relief.
Our concern over this legislation and other efforts to profoundly impact federal
class action rules has been ongoing. Beginning with the introduction of the
Class Action Fairness Act in the 106th Congress, the Lawyers’ Committee has been
actively engaged in educating the Congress about the harmful effects this
legislation will have on critical class action lawsuits, especially its impact
on our civil rights litigation efforts. During the 106th Congress, we sent
letters to both this Committee and the House Judiciary Committee, each of which
were considering similar legislation, offering substantial analysis of the
legislation’s impact from a civil rights perspective and opposing the
legislation. Further, in February of this year we submitted extensive comments
to the Advisory Committee on the Civil Rules, on behalf of 18 civil rights,
public interest, and bar organizations regarding proposed amendments to Rule 23,
the Rule of Federal Civil Procedure governing class actions. Additionally, in
its efforts to ensure continued access to the judicial process on behalf of
classes of persons who suffer discrimination and inequality the Lawyers’
Commitee has commented on proposed amendments to rules of procedure that will
enhance or diminish access to the courts for clients bringing meritorious civil
rights claims.
The mission of the Lawyers’ Committee does not involve state tort, contract or
consumer law and, as a general rule, we do not bring state law tort, contract or
consumer cases. It would have been easy for us to view this legislation as
concerning only litigation in those areas and, thus, irrelevant to our work. We
could have simply remained a bystander in what might appear to be another
monumental dispute about tort reform. But this legislation is not about state
tort, contract or consumer law. Rather it concerns the role and availability of
the courts and of class actions, and of access to justice for those who have no
alternative but to rely on the courts for the protection of their rights and
freedoms.
It is our belief that the proposals referred to as the Class Action Fairness Act
of 2001, S. 1712 and H.R. 2341, are unjustified and unjustifiable attempts by
Congress to impose federal judicial regulation on matters of law committed to
the States under our Constitution. The determination of state law tort, contract
and consumer cases is not the responsibility of the federal judiciary under the
Constitution. The imposition of such substantial new responsibilities on the
federal courts will further impair the ability of those courts to carry out the
essential functions they are to serve under the Constitution – the determination
of matters involving federal interests, rights and responsibilities. Similarly,
compressing virtually all class actions into the federal courts, imposing
federal standards on nearly all class actions and other forms of aggregating
claims, and adding new procedural requirements, as this legislation would allow,
will further erode the availability of class actions and increase the burdens
and delays in their use. Accordingly, this legislation will serve to deny to
those who are without substantial financial means or political power the access
to justice that class actions have so critically provided.
The epic reallocation of judicial responsibility proposed in this legislation is
opposed by both the federal and state judiciary, and its constitutionality is
doubtful. More critically, the legislation would tear cases from state judicial
systems, equipped with thousands and thousands of judges, who administer the
laws involved on a daily basis, and thrust them on a relatively tiny federal
judiciary that is not equipped to handle them and is ill-equipped even to handle
the volume and complexity of cases now on its docket. In the end, access to the
federal courts and to the class action device to secure justice in matters where
truly federal issues are at stake will be casualties of this legislation.
II. How the Class Action Fairness Act Changes the Law
It is important to be clear on what the legislation would change in class action
practice. For example, it has been a subject of debate whether the legislation
would “federalize” class actions and what that means. It is clear that the
legislation would make very substantial changes, first with respect to state law
class actions that are now litigated in state, rather than federal, courts and,
second, in the procedures to be applied in federal court class actions.
More specifically, as to the first of these categories, the legislation would
largely eliminate from the state courts class actions brought only under state
law and under state law procedures, that is, cases in which no federal question
is raised. It would do so in several ways. First, the legislation would impose
federal court jurisdiction in such cases and provide for the removal of these
cases from state to federal courts. This aspect of the legislation not only
creates an entirely new and substantial class of cases subject to federal
jurisdiction, but also provides to defendants, or a single disaffected class
member or class member willing to collaborate with defendants, the ability to
determine the choice of forum in which a case will be heard.
Second, the legislation would effectively eliminate state law class action and
claim aggregation vehicles and impose federal class action standards – now and
whatever they may be in the future – on cases involving only state law claims.
Simply stated, state class action rules and mechanisms would no longer apply,
cases dealing exclusively with state law claims would be subject to federal
class action rules. The Class Action Fairness Act does this by providing for
removal into federal court and requiring the dismissal of any actions that do
not satisfy the prerequisites of Rule 23 of the Federal Rules of Civil Procedure
(1332 (d) (6)), despite the fact that they raise only state law issues. The
ability to remove and dismiss cases that do not conform to Rule 23 effectively
eliminates state law class action, claim aggregation and public interest
litigation devices, at least at the choice of defendants. This is a breathtaking
intrusion of federal regulation into the province of the States and on the
litigation of state law claims. State class action, claim aggregation and public
interest litigation devices must, of course, comply with constitutional
requirements. However, displacing these methods and eliminating the ability to
develop the means for resolving state law claims other than as provided in
Federal Rule 23 goes far beyond ensuring the due process that is already
constitutionally required.
The impact of this legislation on federal class actions is profound. Itwould
impose new, burdensome and unnecessary requirements on litigants and the federal
courts. Both the Senate and House bills would impose difficult and costly notice
requirements that will further complicate and delay the disposition of class
actions. Specifically, proposed Section 1717 would require notice to federal and
state officials based on determinations of primary regulatory responsibility and
the residence of all class members. These additional and substantial notice
requirements and built-in delays are not a matter of due process, but are overly
burdensome and improperly assume that federal and state officials have both an
interest in, and a capacity to respond to, each and every state law class action
on the part of federal and state officials.
The legislation creates additional problems. For example, the prohibition on
approving settlements that involve named plaintiffs receiving amounts different
from other members of the class is not a reasonable or practical limitation in
all instances. In many employment discrimination cases there are fewer
employment opportunities denied because of discrimination than there are
qualified potential claimants. In those situations, a person who sues as an
individual can receive a full award of back pay and in a proper case can obtain
an order placing him or her in the job denied because of discrimination. A class
member in such a situation must share in the total back pay award, and has only
an opportunity to be one of the persons selected for hire or promotion because
not all can be selected. If the price of trying to protect others is that he or
she must also lose the full measure of individual relief and take only the same
percentage share as those who never took any action to challenge the employer,
individuals would be deterred from becoming a class representative. Thus, rather
than a reform, this provision would hinder civil rights class actions.
The legislation passed in the House would go further in imposing new procedures
and requirements in all federal class actions that are not justified, would
effectively foreclose certain cases, including many civil rights cases, and
would build-in further needless delay and expense in the disposition of federal
class actions. The House bill would contradict established federal procedure by
requiring fact pleading as to all claims as to which the defendant’s state of
mind is an element (Sec. 1716), would provide appellate review of interlocutory
class certification orders (Sec. 1292(a)(4)), and would require stays of
proceedings in connection with both motions to dismiss and certification
appeals.
The fact pleading requirement would have the effect of requiring dismissal of
meritorious claims, particularly civil rights claims and claims to enforce
constitutional protections where an intent to discriminate is a required
element. Many civil rights class actions would fall victim to this requirement.
The Federal Rules have long established a notice pleading standard in
recognition that the facts of a case are often not available to a plaintiff at
the outset of litigation, and can be uncovered only through discovery. This is
particularly true of many civil rights cases, in which virtually all of the
facts of the case – particularly those which would bear on the defendant’s
subjective intent – are in the control of the defendant. The requirement that a
complaint plead specific facts or be dismissed, while discovery is stayed so
that the plaintiffs cannot gain access to the facts needed to establish their
case, will combine to impose an insurmountable hurdle for civil rights
plaintiffs. The result will be that their complaints will be dismissed.
In addition, imposition of mandatory appeals of class certification orders,
rather than the discretionary appeals now available under Rule 23 (f), is both
unnecessary and will build-in to class litigation literally years of delay in
the disposition of cases. There is no legitimate interest in requiring appellate
review of all interlocutory class certification orders and imposing a stay on
all proceedings while they are determined, particularly where all agree that the
disposition of class action litigation often already takes too long.
To the extent that the legislation seeks to add protections for plaintiff class
members, they are minimal and unnecessary. It does not alter the process of, or
standards for, the settlement of class actions, other than indicated above, and
the matters with which it is concerned have been more than sufficiently
addressed in proposed amendments to Rule 23 adopted in May by the Committee on
the Rules of Practice and Procedure of the United States Judicial Conference.
Specifically, the proposed amendments will require a number of burdensome new
notices, hearings, procedures and judicial determinations, that will themselves
add new and substantial burdens, delay and expense in federal class action
practice. In short, the provisions of the legislation that purport to benefit
plaintiff class members are too small and transparent a fig leaf to mask the
great disservice this legislation would work for those who need resort to the
class action – in federal or state court – to vindicate their rights and
interests.
III. The Lack of Justification for the Class Action Fairness Act
In entertaining a suggestion that Congress so fundamentally restructure the
allocation of responsibility between the state and federal judiciary in our dual
system of courts, it is important to understand and examine the basis offered
for such a change. The literature of proponents and supporters of the
legislation suggest that it is to rid corporations of frivolous lawsuits,
eliminate state court bias against corporations incorporated in a different
state, and to place these cases of “national importance” in federal courts where
they belong.
The suggestion that state courts are biased against corporations from other
states such that they will entertain and sustain frivolous cases, is used as a
justification for a drastic alteration in the meaning of diversity jurisdiction.
This, in turn, depends upon a perception of corporations by state courts as
“foreign” in states where they do business, simply because they are incorporated
in another state. But we all know that the state of incorporation often has
little or nothing to do with the actual location of a corporation’s offices,
plants and business operations, and of its contacts with a state as a business
entity, contractor, employer, licensee and corporate citizen. The state of
incorporation is an artificial factor that does not give rise to bias of the
type to be addressed through diversity jurisdiction.
More importantly, the suggestions of state court bias against corporations
offered in support of this legislation involve an unparalleled deprecation of
state judicial systems that lack any empirical basis. In the area of civil
rights, a concern that state courts might not fairly apply the law is premised
on historical fact, more than a century of national experience after the
Reconstruction Amendments, and countless state laws and procedures designed to
preclude African Americans and others from the courts and other functions of
government. Yet there is a presumption that state courts are competent to
determine even federal civil rights claims. No such historical or factual basis
supports the extreme and careless allegations of state court bias against
corporations made in support of this bill, and not for the proposition that
state courts should not be trusted to decide federal claims, but that state
courts cannot be trusted fairly to decide claims under their own state laws.
Frankly, as an attorney who has argued that in some circumstances state courts
cannot be trusted to fairly determine federal rights, I have been shocked by the
self-serving rhetoric and anecdotes put forward as though they represent a
substantial factual basis for this legislation. Those allegations trivialize and
demean our state courts, our federal system and the crucial role that federal
courts must be available to serve in protecting the interests secured by the
Constitution and federal law.
As an alternative to a diversity jurisdiction rationale, proponents would
elevate state tort, contract and consumer cases to ones of “national importance”
because large corporations doing business in a number of states are involved.
But this characterization of such cases as of “national importance” cannot
substitute for a proper basis for federal jurisdiction. Such a characterization
does not correspond to provisions of the Constitution regarding the proper
allocation of judicial power between the state and federal courts. “National
importance” is not synonymous with “federal question.” For example, these cases
do not involve matters on which Congress has chosen to exercise its powers under
the Commerce Clause and which, therefore, involve interests subject to federal
regulation. Rather, the legal issues involve questions of state law among
private parties. The Lawyers’ Committee is an ardent defender and proponent of
the power of Congress and the exercise of that power in furtherance of national
interests. We have urged Congress to act to protect constitutional and federal
interests through legislation, and have raised our voice in the courts to defend
the exercise of that power in challenges to legislation. However, there is
nothing about a state law class action against a corporate defendant that makes
it an appropriate case in which to confer federal jurisdiction, and Congress
should confine the jurisdiction of the federal courts to matters in which there
is a proper federal interest.
IV. The Effects of the Class Action Fairness Act.
The consequences of such legislation for class action practice in the federal
courts would be astounding and, in our view, disastrous. Redirecting state law
class actions to the federal courts will choke federal court dockets and delay
or foreclose the timely and effective determination of cases already properly
before the federal courts, in addition to the newly redirected cases. In
addition, this legislation is one of a number of measures that would make
federal class action litigation more difficult, burdensome and expensive, the
result of which would make class actions less available to, and effective for,
those whose rights cannot otherwise be protected.
First, this legislation would substantially expand the caseload of the federal
courts to include hundreds, if not thousands, of complex cases that do not
involve questions of federal law. It is well established that the dockets of
federal courts are already significantly overburdened. It is important to point
out that the federal courts have less than 1,500 judges, bankruptcy judges and
magistrate judges, compared to more than 30,000 judges currently serving on
state courts. Imposing substantial numbers of new cases on the overburdened
dockets of the relatively modest number of federal courts will clog those
dockets with the consequence that it will be more difficult to have any and all
cases decided.
Currently, there are approximately 4,500 class actions in the federal courts.
Although there is not uniform record keeping that would tells us the number of
state court class actions, it is reasonable to assume that there are a very
substantial number that would be displaced by this legislation. Even a
relatively modest increase in the number of class actions in the federal courts
– and there is no reason to suppose that the increase would be modest – would
substantially increase the volume of work required by judges to dispose of
cases.
The increased caseload is not the only burdern, this legislation would also
increase the number of complex and time-consuming cases that those courts must
decide. Class actions take a greater share of the time of district judges than
do other forms of litigation. In fact, empirical studies have shown that class
actions on average consume almost five times more judicial time than the typical
civil case. Thus, the stress on the federal courts and the demands on the time
of judges would exceed the mere increase in the number of cases on the docket.
The effect would be to make judges less able to devote time to both existing
cases before the federal courts and those that would be redirected by this
legislation. All commentators on the subject agree that the most effective means
of addressing the particular demands of, and problems that arise in, class
action litigation is more careful judicial supervision of such cases. By
unrealistically increasing the demands on federal judges, this legislation would
have precisely the opposite effect. Judges will have less time and opportunity
to give careful supervision to critical class action litigation.
Indeed, faced with overburdened dockets, it can be expected that judges will
engage in a form of triage to clear the docket by closing cases. This would lead
to an exacerbation in the pressure improperly to dispose of cases by dismissal.
This is a problem that particularly effects civil rights cases, and in many
districts it is already difficult for civil rights plaintiffs with meritorious
cases to survive pre-trial motions in order to have the opportunity to go
forward to trial on the facts of the case. The unjustified dismissal of cases is
a trend in the federal courts that the Supreme Court has consistently sought to
correct. See Swierkiewicz v. Sorema, 534 U.S. 506 (2002), and Reeves v Sanderson
Plumbing Products, 530 U.S. 133 (2000). An increase in the number of cases
federal courts are to handle will only rachet up the pressure on district judges
to dispose of as many cases as possible at the earliest stage of the litigation.
Moreover increased numbers of cases on federal court dockets and further
procedural hurdles will exacerbate the difficulty in securing certification of
class actions in proper civil rights cases. In the late 1980's and early 1990's,
Congress determined that effective enforcement of the nation’s civil rights laws
required that the victims of discrimination have available more expansive
remedies, including compensatory and, in appropriate cases, punitive damages. In
order to ensure the effective enforcement of these civil rights laws and fulfill
the intent of Congress, it is essential that class actions accommodate civil
rights class actions that request compensatory and punitive damages. The only
real opportunity for most victims of pattern and practice discrimination to
prove and recover damages, or secure other relief, is through class actions.
Yet, decisions of some courts of appeals have interpreted Rule 23 (b) in a
manner that would make class certification rare, if not impossible, in cases
seeking these congressionally mandated damage remedies. Such misguided
interpretations of Rule 23 turn expanded civil rights remedies against the
victims of discrimination: civil rights plaintiffs would be forced to elect
between class-wide remedies for systemic discrimination, or the rights of
individual class members to recover damages. These misapplications of Rule 23
(b) confound the intent of Congress, frustrate federal civil rights enforcement,
and deny the benefit of the law to victims of discrimination. In considering
legislation on the issue of class actions, Congress should not add to the
difficulty in securing the opportunity to prove and obtain relief for patterns
and practices of unlawful discrimination. Yet by compressing virtually all
substantial class actions into federal courts and imposing additional burdens on
their prosecution, this legislation would increase pressure on courts to dispose
of class actions by denying certification altogether.
This legislation, is one of a number of measures that is making class action
litigation more difficult and costly and less accessible and effective. For
example, the proposed amendments to Rule 23 recently approved by the Committee
on Practice and Procedure impose a number of new procedural requirements and
judicial determinations, as well as a number of new notice requirements to
federal class action practice, that will further complicate and delay
disposition of class actions and make them more expensive and less available to
the victims of discrimination and others with federal interests that need to be
protected. Further, amendments to the Civil Rules in 1993 and 2000 have made
federal courts less well equipped to handle large and complex class actions by
imposing limits on the opportunity for discovery. In combination, all of these
changes are rendering federal courts inhospitable and ill-equipped forums in
which to litigate complex class actions. Forcing virtually all substantial class
action suits into these forums, as the Class Action Fairness Act would have us
do, will further compound the difficulty of filing and litigating a class
action, including important civil rights cases.
V. Conclusion
On behalf of the Lawyers’ Committee, our Board of Directors and Trustees and our
independent local affiliates, I would like to thank you again for the
opportunity to share the concerns we and others in the civil rights community
have about this pending legislation. We believe the effect of this legislation
on the availability of federal civil rights class actions will be devastating
and urge you to reject it. The Lawyers’ Committee joins with a host of other
organizations in opposing this legislation. We believe the impact that it will
have on the ability of our clients to seek legal redress through class actions
will be profound, and will result in new and substantial limitations on access
to the courts for victims of discrimination.
DISTRICT OF COLUMBIA INSURANCE COMMISSIONER LAWRENCE MIREL
Thank you, Mr. Chairman and
members of the Committee. My name is Lawrence Mirel. I am the Commissioner of
Insurance and Securities for the District of Columbia. The position I hold was
originally created by Congress as the Office of the Superintendent of Insurance
for the District of Columbia in 1901 and became part of the District’s “Home
Rule” Government upon the passage of the Home Rule Act of 1973. As you know, the
business of insurance is regulated primarily by the states. Although the
District of Columbia is not a state, I have the authority of a state insurance
commissioner, and I am a full and active member of the National Association of
Insurance Commissioners. My job is to enforce the insurance laws and the
securities laws of the District of Columbia as enacted over the years by the
Congress of the United States, as the District’s primary legislature, and by the
Council of the District of Columbia since that body was created in 1974.
I am concerned with the impact of class action lawsuits against insurance
companies that limit and interfere with my ability—and the ability of my state
insurance commissioner colleagues—to carry out our statutory duties. These
duties include protecting the public and assuring that insurance is available to
and affordable by consumers.
Insurance is a highly regulated business, and it needs to be. There is no other
business in which a customer pays now for protection against some future event
without knowing when, or even if, it will occur. As insurance commissioners, we
must make sure that when a covered claim is made the company that took the
consumer’s premium money is able and willing to pay that claim. We are also
responsible for making sure that insurance is available and affordable for our
citizens, and that insurance companies are able to offer their customers good
products at fair prices in accordance with clear and uniformly applied laws and
regulations.
As state insurance commissioners, our primary function is to protect the public.
I and my colleagues see ourselves as consumer advocates, and the laws we
administer give us that responsibility and authority. Our expert staffs are
knowledgeable about the stringent laws that govern the operation of the business
of insurance, and about the complex financial rules that insurance companies
must follow. We receive and act upon consumer complaints against insurance
companies. We make sure that insurance contracts are fair, understandable, and
in accordance with the law. We go after companies that do not treat their
customers properly, or that are engaged in fraud. We have substantial
enforcement tools at our disposal, including the authority to fine or even to
close down insurance companies that misbehave, and to refer bad actors for
criminal prosecution.
Large scale nationwide litigation against major insurance companies frequently
goes around or simply ignores the role of state regulators. Class action
lawsuits against insurers can, and often do, directly impact our statutory
authority to regulate the business of insurance in our jurisdictions. Moreover
these suits, whether successful or not, can have a major effect on the cost and
even the availability of good insurance products to the public. That is because
they are frequently designed to produce a small, sometimes negligible, benefit
to a large class of policyholders—and incidentally huge legal fees to the
lawyers who bring them—without regard to the impact on the insurance market as a
whole and the cost to the insurance-buying public.
Consider the following examples:
In Texas, two of the state’s largest§
automobile insurance companies decided to settle a $100 million class action
lawsuit brought against them in 1996 over a long-standing, industry-wide
practice of “rounding up” to the nearest dollar for auto insurance premiums.
Although the insurers’ premiums were calculated according to specific
instructions from the Texas Department of Insurance, mounting legal expenses and
negative publicity compelled the companies to settle for nearly $36 million.
Policyholders received refunds of about $5.50 each, while the lawyers took home
almost $11 million.
More than 20 nationwide class action lawsuits are§
currently pending in New Mexico’s trial courts claiming that insurance companies
are misleading policyholders by not disclosing the “annual percentage rate” of
fees charged for processing installment payments of premiums. In the District of
Columbia, and in most if not all states, companies are allowed to charge small
processing fees for allowing customers to make “modal payments” on their annual
premiums, so long as those charges are disclosed and are reasonable. I would not
permit companies selling in the District of Columbia to show these fees at an
“annual percentage rate” because APRs imply that a loan was made, and there is
no loan. Modal payments are simply a convenience to customers who would rather
not make lump-sum annual payments. There has never been a complaint about such
charges in the District of Columbia or any other jurisdiction, as far as I know.
Yet not only was the issue not raised with the New Mexico Insurance Commissioner
before suit was filed, but when he tried to intervene in the case his petition
was denied.
Facing potentially billions of dollars in liability costs, as well as the threat
of massive costs to defend themselves against these suits, insurance companies
are under tremendous pressure to settle. One modal premium case, against
Primerica, has already been settled, with $7.5 million paid to the plaintiffs
attorneys and nothing to class members. Another proposed settlement of $10
million in a modal payment suit against Massachusetts Mutual, all of which was
to go to the plaintiffs attorneys, was withdrawn when Trial Lawyers for Public
Justice—a plaintiffs’ lawyers trade association—denounced it as “outrageous” and
“an abuse of both the class-action device and class members.”
A billion-dollar judgment in Madison County, Illinois, against State Farm,§
the nation’s largest auto insurer, that would provide miniscule payments to the
six million plaintiffs, but huge fees for the lawyers who brought the suit, has
caused State Farm to discontinue nationwide its practice of replacing damaged
auto parts with parts made by companies other than the original manufacturer of
the automobile. Now on appeal before the state’s Supreme Court, the trial court
decision has been strongly denounced by consumer advocates. Clarence Ditlow,
director of the Center for Auto Safety, a non-profit group founded by Ralph
Nader and Consumers Union, has expressed fear that the decision will end the use
of after-market parts, which are allowed in most states and the District of
Columbia. Mr. Ditlow believes such a move could cost consumers an extra $2
billion to $3 billion a year for auto repairs, which of course means higher auto
insurance premiums.
On this issue I can speak as a consumer as well as an insurance commissioner.
Recently, I was involved in an automobile accident where the other driver was at
fault. I have State Farm insurance, and my premiums will be increased if the
Madison County case is upheld and State Farm is required to pay the $1 billion
judgment. The person who hit my car, however, was not insured by State Farm. His
insurance company replaced my crumpled fender with a non-original equipment
part. I did not object because the non-o.e.m. part was a perfectly reasonable
alternative to the much more expensive “original” equipment fender, and the car
in any event was five years old and did not need a “new” fender. But I was going
to have to pay for the cost of a lawsuit in Illinois while not receiving any of
the supposed “benefits” provided by that suit.
There are other examples as well.
A suit currently before the§
California Supreme Court claims that State Farm is keeping too much money in
reserves, thereby depriving its policyholders (State Farm is a mutual company)
of the benefits of that money in the form of refunds or reduced premiums. The
suit ignores the fact that insurance commissioners, such as myself, require
insurance companies to maintain adequate reserves, so that we can assure the
public that their covered claims will be paid. Who should decide what level of
reserves are “adequate” to protect the State Farm policyholders in the District
of Columbia, the statutory Commissioner of Insurance for the District of
Columbia or a jury of laymen in California?
Or the case currently pending§
in Georgia against GEICO claiming that GEICO is defrauding its insureds by
paying only the cost of fixing a damaged car, and not the loss of value of the
car because it has been damaged in an accident—even though the insurance
contract, which has been approved by insurance commissioners of the various
states where GEICO operates, specifically requires the company to fix the car,
not to pay for any diminished value of the vehicle.
Let me be clear about my position. I am not opposed to class action lawsuits.
Class action suits, when used properly, have an important role to play in our
legal system. But I am concerned that they do not substitute for, or interfere
with, other lawful methods of protecting the public. When suits are filed on
behalf of persons residing in more than one state, those suits should be filed
in Federal, not state, court so that we do not have a court in one state,
applying the law of that state, setting policy for all the other states and the
District of Columbia. When suits are filed against a regulated industry, the
statutory authority of the regulator—whether state or Federal—must be taken into
account, not circumvented. When the costs of large class action lawsuits are
substantial, whether the cases are litigated or settled, it must be recognized
that these costs will be paid by insurance consumers. When valid insurance
company practices, reviewed and approved by state insurance regulators, are
challenged in class action litigation, we must recognize that the result could
be the discontinuation of products that are desired by the public and are
beneficial to the public.
I commend the Senate Judiciary Committee for holding hearings on this important
topic, and for considering the “Class Action Fairness Act of 2001.”
S. 1712 is a good start toward finding the proper balance between the use of
class actions to vindicate the common claims of large numbers of people and the
potential adverse impact of such suits on other citizens and consumers.
In addition, S. 1712 has a set of provisions that directly protect consumers and
that would be of very substantial value in the most abusive insurance
litigation.
Among other things, the bill:
• Requires closer judicial scrutiny of class action settlements that provide
class members with only coupons or other forms of non-cash relief.
• Requires that notices of settlement be written in plain English so that they
can be understood by the ordinary consumer. We've all received these sorts of
notices in the mail, and we know they give every appearance of having been
written to be incomprehensible.
• Bars class action settlements that actually cost the class members money.
• Bars class action settlements that provide more benefits to certain class
members on the basis of proximity to the courthouse -- the worst sort of "home
cooking" that is fostered by the existing system.
• Requires that notice of proposed class action settlements be provided to state
and federal regulators so that we have an opportunity to do something about
truly collusive and abusive deals.
I am particularly pleased to see that the bill recognizes the roles played by
Federal and state regulatory officials in protecting the public by requiring
notice to such regulators. (Section 1717). I would like to suggest one amendment
to that section. It would be helpful to have the District of Columbia included
in the definition of “Appropriate State Official.” That can easily be done by
inserting the words “or the District of Columbia” after the word “State” on page
10, line 17.
I want to conclude by expressing my hope that class action reform not be looked
at as a partisan issue. I was appointed to my present position by the Democratic
Mayor of the District of Columbia, Anthony A. Williams. In an earlier part of my
career I worked here in the Senate for Democratic Senator George McGovern.
Before that I had been a special assistant to another Democrat, Abraham
Ribicoff, when he was Secretary of Health, Education and Welfare and had worked
on his campaign for the Senate. I do not think that concerns about possible
abuses in the use of class action lawsuits should be limited to one party or one
level of government. We are all concerned about one thing—protecting the public
in the most effective and efficient way we can.
Thank you for your time, and I am happy to answer any questions you may have
about my testimony.
To Top
LETTER FROM NATIONAL ASSOCIATION OF ATTORNEY GENERALS
NATIONAL ASSOCIATION OF ATTORNEYS GENERAL,
Washington, DC, February 7, 2005.
Hon. BILL FRIST,
Senate Majority Leader, U.S. Senate, Dirksen Building, Washington DC.
Hon. HARRY REID,
Senate Minority Leader, U.S. Senate, Hart Building Washington, DC.
DEAR SENATE MAJORITY LEADER FRIST AND SENATE MINORITY LEADER REID: We, the undersigned State Attorneys General, write to express our concern regarding one limited aspect of pending Senate Bill 5, the ``Class Action Fairness Act,'' or any similar legislation. We take no position on the Act as a general matter and, indeed, there are differing views among us on the policy judgments reflected in the Act. We join together, however, in a bipartisan request for support of Senator Mark Pryor's potential amendment to S. 5, or any similar legislation, clarifying that the Act does not apply to, and would have no effect on, actions brought by any State Attorney General on behalf of his or her respective state or its citizens.
As Attorneys General, we frequently investigate and bring actions against defendants who have caused harm to our citizens. These cases are usually brought pursuant to the Attorney General's parens patriae authority under our respective consumer protection and antitrust statutes. In some instances, such actions have been brought with the Attorney General acting as the class representative for the consumers of the state. It is our concern that certain provisions of S. 5 might be misinterpreted to hamper the ability of the Attorneys General to bring such actions, thereby impeding one means of protecting our citizens from unlawful activity and its resulting harm.
The Attorneys General have been very successful in litigation initiated to protect the rights of our consumers. For example, in the pharmaceutical industry, the States have recently brought enforcement actions on behalf of consumers against large, often foreign-owned, drug companies for overcharges and market manipulations that illegally raised the costs of certain prescription drugs. Such cases have resulted in recoveries of approximately 235 million dollars, the majority of which is earmarked for consumer restitution. In several instances, the States' recoveries provided one hundred percent reimbursement directly to individual consumers of the overcharges they suffered as a result of the illegal activities of the defendants. This often meant several hundred dollars going back into the pockets of those consumers who can least afford to be victimized by illegal trade practices, senior citizens living on fixed incomes and the working poor who cannot afford insurance.
We encourage you to support the aforementioned amendment exempting all actions brought by State Attorneys General from the provisions of S. 5, or any similar legislation. It is important to all of our constituents, but especially to the poor, elderly and disabled, that the provisions of the Act not be misconstrued and that we maintain the enforcement authority needed to protect them from illegal practices. We respectfully submit that the overall purposes of the legislation would not be impaired by such an amendment that merely clarifies the existing authority of our respective States.
Thank you for your consideration of this very important matter. Please contact any of us if you have questions or comments.
Sincerely,
Mike Beebee, Attorney General, Arkansas; Mark Shurtleff, Attorney General, Utah;
Gregg Renkes, Attorney General, Alaska; Fiti Sunia, Attorney General, American
Samoa; Terry Goddard, Attorney General, Arizona; Bill Lockyer, Attorney General,
California; John Suthers, Attorney General, Colorado; Richard Blumenthal,
Attorney General, Connecticut; Jane Brady, Attorney General, Delaware; Robert
Spagnoletti, Attorney General, District of Columbia; Charlie Crist, Attorney
General, Florida; Thurbert Baker, Attorney General, Georgia; Mark Bennett,
Attorney General, Hawaii; Lawrence Wasden, Attorney General, Idaho; Stephen
Carter, Attorney General, Indiana.
Tom Miller, Attorney General, Iowa; Greg Stumbo, Attorney General, Kentucky;
Charles Foti, Attorney General, Louisiana; Steven Rowe, Attorney General, Maine;
Joseph Curran, Attorney General, Maryland; Tom Reilly, Attorney General,
Massachusetts; Mike Cox, Attorney General, Michigan; Mike Hatch, Attorney
General, Minnesota; Jim Hood, Attorney General, Mississippi; Jay Nixon, Attorney
General, Missouri; Mike McGrath, Attorney General, Montana; Jon Bruning,
Attorney General, Nebraska; Brian Sandoval, Attorney General, Nevada; Kelly
Ayotte, Attorney General, New Hampshire; Peter Harvey, Attorney General, New
Jersey.
Eliot Spitzer, Attorney General, New York; Roy Cooper, Attorney General, North
Carolina; Wayne Stenehjem, Attorney General, North Dakota; Pamela Brown,
Attorney General, N. Mariana Islands; Jim Petro, Attorney General, Ohio; W.A.
Drew Edmondson, Attorney General, Oklahoma; Hardy Myers, Attorney General,
Oregon; Tom Corbett, Attorney General, Pennsylvania; Roberto Sanchez Ramos,
Attorney General, Puerto Rico; Patrick Lynch, Attorney General, Rhode Island.
Henry McMaster, Attorney General, South Carolina; Lawrence Long, Attorney
General, South Dakota; Paul Summers, Attorney General, Tennessee; Rob McKenna,
Attorney General, Washington; Darrell McGraw, Attorney General, West Virginia;
Peg Lautenschlager, Attorney General, Wisconsin; Patrick Crank, Attorney
General, Wyoming.
S. AMENDMENT 2 to exclude from the bill civil rights and payment of wages class action suits-Failed 40 to 59, 1 not voting (RV 6) Sponsor: Senator Edward Kennedy (D-MA)
S. AMENDMENT 4 to allow for state jurisdiction even if the laws of more than one state applies to the case. Failed 38 to 61, 1 not voting. (RV 7) Sponsor Senator Diane Feinstein (D-CA)
S. AMENDMENT 5 to allow state attorney generals to pursue class action suits in their state. Tabled (Failed) 60 to 39, 1 not voting (RV 5) Sponsor: Senator Mark Pryor (D-AZ)
S. AMENDMENT 12 to establish time limits for action by Federal courts on motions to remand cases. Failed 37 to 61, 2 not voting (RV 8) Sponsor: Senator Russell D. Feingold (D-WI)
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