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From: Joan Claybrook & Frank Clemente
Jan. 31, 2005
As you may know, federal class action legislation will be on the floor of the U.S. Senate next week. Publc Citizen is strongly opposed to this legislation. Our briefing memo for editorial writers and reporters is below and attached, as is a URL for key fact sheets.
Jan. 31, 2005
Federal Class Action Bill on Floor of U.S. Senate Feb. 7 Would Lock Consumers Out of the Courts and Let Companies Get Away with Fraud
WASHINGTON, D.C. ? On Monday, Feb. 7, the U.S. Senate is scheduled to debate whether to dramatically alter the nation?s laws governing class action lawsuits. The changes proposed by the business interests will lock consumers out of court, and will deny millions of Americans justice for marketplace fraud and deceptive practices.
Public Citizen and our many coalition partners oppose this legislation, S. 5, the so-called Class Action Fairness Act. The reasons are outlined briefly below and explained in much greater detail on the Web at http://www.citizen.org/documents/Classactionedboardpacket.pdf
It is unlikely that we can stop this unfair bill. But we believe we can get the votes to amend it to lessen the damage. Two amendments are particularly critical: a ?consumer amendment? to be offered by Sen. Jeff Bingaman (D-N.M.) and a ?civil rights and employment protection amendment? to be offered by Sen. Edward Kennedy (D-Mass.).
Our materials also explain the major disinformation campaign being waged by the business community about the need for ? and effects of ? this legislation. Public Citizen is the first to acknowledge that there are some problems with the class action system. We should know ? we?ve intervened in more than 30 class action settlements in recent years to oppose unfair settlements and oppose excessive attorneys? fees. But the three major claims and justifications made by the business community about this legislation are fraudulent. They say: 1) The legislation will not take away plaintiffs? legal rights, but simply shift their cases from state to federal court; 2) it will shut down class action ?judicial hellholes,? which allow attorneys in a small county court to extort huge awards from companies; and 3) it is needed to stop coupon settlements, which leave plaintiffs with little of value but handsomely compensate their attorneys. These assertions are false.
Response to the Fraudulent Claims of the Business Community About S. 5
1) The bill will lock out from access to court remedies many victims of corporate fraud and other wrongdoing. Bill proponents claim that this is just a ?procedural? bill that will shift some state court class actions to federal court, but not limit plaintiffs? legal rights. In fact the legislation will shift most class actions to federal court, which will result in the denial of consumer rights. Defendant companies prefer to be in federal court because they can use procedural tools to block a case from getting certified ? thereby avoiding a trial over the merits of the case. Without certification, plaintiffs? will not be able to pursue justice, as their losses will not be enough to make separate individual cases viable.
2) Federal courts rarely certify nationwide class actions, meaning that people in states with medium to small populations will be especially vulnerable to being locked out of court. Bill proponents claim that class actions involving class members from multiple states should be presided over by federal judges. However, federal judges rarely grant class certification to these cases on the grounds that they involve different laws of various states ? in other words, precisely because a variety of state laws are involved. Lawyers from the same companies telling Congress that this measure is an effective remedy typically go into federal court and oppose nationwide certification of a class action by providing long lists of federal cases that have been dismissed because they involve multiple states. This is corporate hypocrisy and creates a terrible Catch-22 because consumers and workers will have no choice except to file cases on a state-by-state basis under state law in federal court. This would be extremely inefficient for those courts. And unless a state has a large population from which enough plaintiffs could be drawn, a single state case will not be economically viable.
This problem could be fixed by passing the Bingaman ?consumer amendment,? which won?t interfere with the bill?s provisions allowing defendants to remove state class actions to federal courts. It simply gives federal judges the ability to certify these state-law classes on a nationwide basis. But the business lobby vehemently opposes this amendment, showing that its true motive is to halt most class actions.
3) Not only will nationwide class actions be removed to federal court, even most single-state class actions will be moved to federal court. Although it is built on the notion that class actions involving consumers from multiple states belong in federal court, under S.5, almost all state-law class actions involving consumers from only one state will be moved to federal court. In any class action where a primary defendant is headquartered or incorporated out of state, consumers from a single state will not be able to use the courts of their own state. Consider these examples: A class of Floridians suing Disney in state court in Florida ? where Disney has major facilities ? would be moved to federal court because Disney has its principal place of business in California. Similarly, a class of California franchisees suing McDonald?s for violations of California law could be automatically removed from state court in California to federal court simply because McDonald?s ? which does massive business in California ? has its headquarters in Illinois. The class action bill is thus revealed for what it is: a plan to give corporations their choice of which court will handle virtually every class action so they can maneuver to lock consumers out of court.
4) Claims about the country being riddled with ?judicial hellholes? and ?magnet jurisdictions? are wildly inaccurate. A new Public Citizen report is attached that carefully examines the claims made by the U.S. Chamber of Commerce and others that the class action system has run amok. The major finding: there are at most two county court systems of 3,141 in the United States for which they have provided some recent limited data that they are ?magnet jurisdictions.? Their poster child, Madison County in Illinois (and more recently its neighbor, St. Clair County), are the only ones for which they have provided data. Even if their claims are true about these two counties, the class action system, which resides mostly in the states, should not be upended because of two outliers. In fact, the report notes that at least 11 states have made significant changes to their class action systems in recent years that help businesses that are sued, and Illinois is in the process of doing the same. Federal legislation locking consumers out of federal and state courts is not the answer to address a problem in two jurisdictions.
5) There are other ways to address ?coupon settlements.? Public Citizen believes that most coupon settlements, which provide class members with a coupon to purchase a product from the company that defrauded them in the first place, often provide nothing of real value to plaintiffs. That?s why defendants like them ? if they are worth little, a corporation will save substantial sums because the redemption rate will be low. The U.S. Chamber of Commerce has made solving the coupon settlement problem a leading rationale for the legislation. But its rhetoric is hollow. From 1997 to 2003, its Senate bill never included a proposal with teeth to discourage coupon settlements. It was added only after Sen. Patrick Leahy (D-Vt.) proposed to amend the bill with such a provision at the urging of consumer groups. Moreover, the bill that passed the U.S. House of Representatives last Congress, and which is preferred by the Chamber, still includes only a sham provision that will not stop coupon settlements.
Under the strong coupon settlement proposal, plaintiffs? attorneys? fees would be based on the value of the coupons redeemed, rather than the estimated total value of the coupons offered. This means the plaintiffs? attorney will not settle a case for coupons unlikely to be redeemed because the attorneys? fees would be minimal. This simple but very important improvement to the class action system can be made by passing freestanding legislation that wouldn?t dramatically alter the class action system as S. 5 would do.
6) Class action attorneys? fees are not out of control. In the most authoritative study ever done on class action attorneys? fees, it was found that median attorneys? fees were 21.9 percent of the recovery ? not more money than all class members combined get, as claimed by the Chamber?s Institute for Legal Reform. Median attorneys? fees in consumer class actions, the type that would be most affected by federal class action legislation, were only 13 percent. Attorneys? fees as a percent of recoveries were slightly higher in federal rather than state court settlements ? 20 percent vs. 19 percent, respectively. Seven percent of the class actions resulted in a coupon settlement that offered little value to the plaintiffs. Although Public Citizen opposes most coupon settlements, this is still a modest percent of the total number of class actions. There has been a modest real-dollar increase in class action recoveries over the past 10 years, climbing from a median of about $13 million in 1993 to about $15 million in 2002, in adjusted dollars.
7) The legislation inappropriately covers civil rights and worker protection cases. The Kennedy civil rights/worker protection amendment would exempt from the effects of S. 5 class actions involving discrimination cases and wage-and-hour disputes, which include chiseling employees on overtime pay. Many of these cases are based on state labor laws, and the proponents of the legislation have provided no examples of abusive ?coupon settlements? or ?forum shopping? in ?judicial hellholes? for these important cases. It should be adopted.
America?s biggest corporations and industries are the ones pushing for this legislation. All major national consumer, labor, environmental and seniors groups ? including the AARP ? oppose it. So do the associations of the federal and state judiciaries, 13 attorneys general, and the National Association of Consumer Agency Administrators. A study by Public Citizen found that at least 100 companies and trade associations employed at least 475 lobbyists to push for the legislation in the last Congress.
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Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. For more information, please visit www.citizen.org.
Frank Clemente
Director, Public Citizen's Congress Watch
215 Pennsylvania Avenue SE
Washington, DC 20003
202-546-4996
F 202-547-7392
Web site http://www.citizen.org
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