Thinking Out Loud About the Federal Class-Action Bill

This week, the U.S. Senate has been working on the committee-reported text of the Class Action Fairness Act of 2005 (S5). According to press reports like one from Reuters, the bill will "move most large multi-state class action lawsuits into more stringent federal courts." The measure is widely expected to pass Congress and be signed by President Bush. Here are some quick thoughts from a class-action lawyer about the bill and what will happen if it's signed into law as currently proposed:

• The new law will mean a lot of work for federal trial and appellate courts. As has been reported, almost every class action will become a federal case;
• The law won't affect plaintiffs' firms like Cohen Milstein and Milberg Weiss that primarily limit their class-action practices to federal courts;
• The law won't affect those plaintiffs' firms that specialize in federal laws and remedies such as ERISA; by its nature, the law only affects class actions based on state law;
• Since filing objections to class-action settlements is much more difficult in federal court than in state court, the law may put a lot of professional objectors out of business;
• Class-action lawyers unfamiliar with the rules and procedures of federal court will have to adapt or find a new line of work;
• Class-action lawyers unfamiliar with the rules and procedures of the MDL will also have to adapt or find a new line of work;
• Many lawyers accustomed to state court won't adapt. By driving the small-firm competition away from class actions, the law will strengthen many large plaintiffs' firms;
• Companies that have wronged consumers might find themselves faced with more lawsuits, not less, since one response to the new law, which makes multistate class actions harder to achieve, will be to file the same lawsuits in the federal court of every state with a large population; even though these various lawsuits will be consolidated by the MDL, there might be strategic reasons for the multiple lawsuits;
• The law will spawn years of ancillary litigation on issues such as the ability of a federal court to apply the law of the defendant's state of citizenship to out-of-state residents in a multistate class action;
• Due to the way the law will cause more federal-court removal battles, which make cases more costly to litigate, class actions for less than $5 million in aggregate damages, some of which can technically remain in state court, will largely cease to exist;
• Since defendants are almost always the party that proposes coupon settlements, big business will regret the day it supported the new law's barriers to coupon settlements. Since the law also makes class actions harder to settle, big business will also regret the way the law will mean many more bet-the-company class-action trials;
• The problems big business will face will be offset somewhat by its new ability to wrong consumers in small amounts without having to worry so much about being sued; in the end, it's the ordinary consumer who stands to lose the most from the new law.

Under the new law, some class actions can remain in state court. The defendant might still remove such cases to federal court, where the parties will argue about such things as whether the case should be remanded back to state court based on the lawyers' analysis--before discovery has even begun--of the true amount of aggregate damages. Meanwhile, it takes only one other similar case filed in federal court for the defendant to ask that the cases be sent to the MDL for consolidation; once there, the MDL panel can move the case to any federal court in the country, whether or not it was already involved in the case.

Once the Class Action Fairness Act becomes law, plaintiffs' firms that do not have a desire to litigate their cases in far-away federal courts need not apply for class-action work.

UPDATE 7:55 p.m. CST. The class-action bill was approved by the Senate today. The word on the street (the plaintiffs' lawyer street, that is) is that the bill will now sail through the House and be signed by President Bush a week from Monday. I haven't read the news coverage to find out whether this is generally known. 

In addition, I wanted to thank freelance writer Steve Stanek for quoting this post in his article today in the Madison County Record. Although I don't think much of the Record, I talked to Steve yesterday and my enmity certainly doesn't extend to him.

UPDATE II 2/11/05 Links to other press coverage can be found at Howard Bashman's How Appealing.

UPDATE III 2/22/05 I made a minor edit in the and second sentences following the indentation to correct a possible factual inaccuracy.

Comments

[Bill Childs]

Interesting post. It, and the recent post about ATLA's perceived woes, got me to finally write something I'd been intending to write for a while -- see it here.

[J Arthur Kontac]

Wonderful opening salvo by the Bush administration II!! It is now onward and upward to med mal reform, limits on egregious attorney fees and others. Finally, our congressmen have told the ATLA their glory days are coming to a long-awaited end. The same has happened to medicine and accounting (in no small part d/t attorneys) and it will be a wonderful day when tort lawyers find their salaries tarnished by the excesses of the squeegy boys whose so-called redistribution of wealth merely serves to enrich themselves (think Edwards, all tobacco lottery recipients, etc..).

[Evan]

JAK: It seems your mind might have been coopted by the administration of King George. Remember, a mind is a terrible thing to waste, even if it belongs to a 6th year surgical resident. I would be interesting to know when this meeting between your congressmen (they're mine congressmen too, you know) and ATLA supposedly happened--you know, the one where the congressmen said ATLA's glory days are over. It must have been quite a scene.

Although I think your comment is over-the-top, beginning as it does with the "Onward Christian Soldiers" connotation, I must say that the parallel you draw to doctors and accountants is interesting. You are saying, though, that it was also a "good thing" when those groups were taken down a notch? Or does that upset you?