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Lawyers weigh benefits of new class action fairness bill
By Sarah G. McC. Moise
Staff Writer
In a move to curtail multi million dollar class action lawsuits against companies, President Bush signed the Class Action Fairness Act late last month to overwhelming Congressional approval. The legislation is a major victory for large and small businesses, as well as a potential harbinger of future tort reform.
“The corporate defendants of the world will rest a little bit easier and with little more certainty now that all these class action lawsuits will be heard in federal court, where they have a uniformity of rules, versus the various rules and laws that are particular to each state,” says Mark Phillips, a partner with Nelson Mullins, focusing on the defense of product liability matters.
He has served as national defense counsel for an asbestos product supplier in property damage cases that included a significant national class action of U.S. colleges and universities.
“Class action litigation is not a constitutional right; it came in by statute or by rule,” says Phillips. “Defendants think it puts them in the unfairly precarious situation, where instead of defending one lawsuit face-to-face, they are facing thousands in one setting.”
Long promoted by auto manufacturers and drug and insurance companies, the Class Action Fairness Act is expected to have an especially significant effect on defective product cases—an area where plaintiffs have traditionally been successful in bringing large class actions in state courts.
“It may make things easier for corporations,” says Phillips. “And it sure signals that both the U.S. government and the state governments seem genuinely interested in some amount of tort reform.”
Businesses have often complained that state judges and juries have been too generous to plaintiffs, so the legislation aims to discourage multimillion-dollar class action lawsuits by having federal judges take them away from state courts.
Phillips says he believes the perception in other parts of the country is that the system has been abused by lawyers representing claimants. “Some lawyers for pure or impure reasons can be presumptuous about how many persons are in a class and can pick a jurisdiction where they feel they can get a good verdict,” he says.
Plaintiffs use that as leverage to make a company settle a case, regardless of whether they have any liability or whether the plaintiffs have damages.
“Each state has its own rules of procedure, but in federal court, everyone abides by federal rules of civil procedure, so you have a very predictable forum,” says Phillips. “And while it’s hard to know what you might be given in the state jurisdictions around the country, federal judges are appointed by the president and serve for life.”
By transferring them to federal courts, the bill will prohibit state courts from hearing many kinds of cases they now consider, and more significantly, the kinds of class actions that have most troubled corporate America. State courts are now precluded from considering cases involving claims of more than $5 million and having a member of the class living in a state different from the defendant’s.
“Pulling every state class action into federal court immediately creates a backlog,” says Paul Doolittle, a lead trial attorney with Motley Rice. He has represented plaintiffs in a number of class action lawsuits involving consumer fraud, life and auto insurance and age discrimination.
Doolittle says the new bill will make cases more difficult to file. “The amount in controversy has to be larger,” he says. “And it makes access to court systems more difficult. There are only 13 federal trial judges in South Carolina as opposed to 46 state trial judges.”
Opponents of the bill say the measure reconfigures the civil justice system to achieve a significant rollback of corporate accountability and people’s rights. Funneling nearly all major class-action lawsuits into federal courts could inevitably make it harder for Americans to pursue legitimate claims against companies that violate state consumer, health, civil rights and environmental protection laws.
“The new bill basically tells companies as long as they don’t damage a person to the level where an attorney will try to make an individual recovery, companies can do whatever they want to do to their clients,” says Doolittle. “It’s disturbing to me and is a setback in law.”
Big business maintains that the bill is necessary to minimize the number of frivolous lawsuits and the unfair practice of lawyers shopping for state courts that are more favorable to plaintiffs.
But Doolittle notes that the new bill amounts to the same thing as forum shopping for the defendants. “Defendants have always felt the federal bench was conservative, because federal judges are courts of limited jurisdiction. So they removed all cases to federal court where they think they can get better ruling from Republican, conservative judges,” he says.
Sarah Moïse covers legal issues for the Business Journal. E-mail her at smoise@crbj.com.
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