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Class Actions Changing
by Susan T. RobertsCourt reform and media forces have long targeted class action lawsuits for attention. They tend to involve smaller claims by numerous consumers, shareholders, etc., when something goes wrong. They are bundled together by law or court rules in the name of judicial economy and efficiency, often against drug companies, corporate management (i.e. Enron), utilities, and other large suppliers of products or services to the public. The practice has grown over years in the United States and now in the European Union. On February 18, 2005, President Bush signed into law the "Class Action Fairness Act of 2005." Its purpose is to assure fairer outcomes for class members and defendants, fair and prompt recovery for legitimate claims, and better use of the diversity jurisdiction of the Federal Courts. The legislation was highly political, pitting corporations against consumers. It was enacted in part to reduce "forum-shopping" by plaintiffs searching for sympathetic state courts in which to file class actions. Forum shopping is a practice in which class actions are filed in the jurisdictions with the most beneficial legislation or a record of large damage awards. Jurisdictions with these favorable factors often become magnets for more class actions. However, forum shopping for a favorable jurisdiction can produce irrational verdicts and damage awards which in turn may lead to inflated settlements from defendants who do not want to risk litigating a case through trial. The new law uses a formula to apportion cases between federal and state courts. Mandatory federal jurisdiction applies to any class action where less than one-third of the claimants are from the forum state. If more than two-thirds of the claimants and the principal claimants are local, then the case will be tried in the forum state. Between these goalposts, the Federal Courts may exercise discretion in fixing trial locations to achieve fair treatment to claimants and defendants. Another primary purpose of the new law is to increase judicial scrutiny of class action settlements and to ensure they are fair and reasonable to class members. As is often the case, a recovery is divided among so many claimants that class action members may receive little or no benefit from class action settlements, sometimes only coupons for rebates or discounts or other awards of little or no value. Some believe class suits are attorney-driven by excessive fees. Too often, confusing notices sent to class members prevent them from being able to fully understand and effectively exercise their rights. The Act creates a "Consumer Class Action Bill of Rights" which is designed to curb potential class action settlements abuses. The new Act modifies attorney fees in a coupon settlement and mandates that such fees be based either upon the value of the coupons that are actually redeemed or on the amount of time the plaintiffs' attorney spent working on the case. In addition, a court may only approve a proposed coupon settlement after it holds a hearing and issues a written opinion finding that the settlement is reasonable, adequate and fair to class members. Because the Act was not made retroactive, it applies only to class actions filed on or after its enactment date of February 18, 2005. Thus, its full impact has yet to be realized. The Act, however, includes an oversight provision that requires that within twelve months of the date of its enactment, the Judicial Commission of the United States prepare a report for the House and Senate judiciary committees on all class action settlements approved since the Act's implementation. Thus, whether this legislation has actually achieved the results that were intended has yet to be determined. Should you receive notice of a class action suit, feel free to refer it to your Peacock Keller lawyer for review of your rights. |
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