- The Washington Times - Monday, July 14, 2003

The science of government is the science of experiment. Decades of experimentation with class actions in state and federal courts have disclosed unanticipated abuses: forum shopping for local juries or judges hostile to foreign defendants and predisposed toward gold-plated verdicts; ill-founded class certifications that compel extortionate settlements from innocent defendants; bonanza fees for plaintiffs’ attorneys for compromising the relief properly owed to individual class members.

The abuses find corroboration in a spiraling number of class action lawsuits in plaintiff-friendly jurisdictions. Congress is poised to deal with the class actions’ malfunctioning with a scalpel, not an indiscriminate blunderbuss, through enactment of the Class Action Fairness Act of 2003 (CAFA).

Class actions were born in the modern age as a practical remedy for individually small but collectively large injuries inflicted by businesses enjoying wide customer bases. An example speaks volumes. Suppose a mammoth hotel chain collected illegal $20.00 surcharges from 2 million patrons over six months. The costs of attorney fees and time away from work would make prohibitive individual lawsuits by each fleeced customer over a trifling sum. The malfeasant hotel chain would be undisturbed in its $40 million of ill-gotten riches. Chiseling small sums from countless consumers would be rewarded.

Class actions aimed to answer such warping of evenhanded justice. They enable the collective enforcement of numerous individual legal rights through representative class members where common questions of law and fact predominate and alternate means of litigation would be inferior or not feasible. Trial attorneys are generally eager to negotiate contingency fee arrangements with the class representatives (entailing no out-of-pocket costs to them or class members) because the potential aggregate recovery is irresistible.

In theory, class actions are irreproachable. Nothing in morals or policy justifies legal blinking at wholesale business frauds or sharp dealing whose rascality is thinly spread. The vexation arises from the practical difficulty of distinguishing between valid and frivolous class action claims before saddling the defendants with crippling legal costs and staggering contingent liability disclosures in their financial reports. Class action defendants are thus disinclined to fight class actions if they can propitiate the class attorneys at the outset with a settlement agreement featuring handsome legal fees but peppercorns for individual class members. Emblematic have been the following:

A class action against the Bank of Boston culminated in a settlement that awarded $8.64 to each class member but demanded that each pay $90.00 toward trial lawyer fees. Blockbuster settled a class action by paying $9.25 million to the class lawyers contrasted with paltry $1.00 coupons to each class member redeemable in future video rentals. Cheerios similarly rid itself of a class lawsuit by showering $2 million on trial lawyers coupled with coupon consolation prizes for class members worth a free box of cereal. Crayola dispatched a class action complaint over asbestos with a $600,000.00 check for trial lawyers and a 75-cent discount for class members if they purchased additional crayons.

With these and sister examples dancing in their heads, trial lawyers tirelessly search for class representatives to initiate class action lawsuits no matter how outlandish their legal claims. They know that once inside the courthouse door, they will instantly occupy the catbird’s seat in negotiating a settlement that enriches them by leaving class members high and dry. The trial lawyers’ incentive for class action frolics is substantiated by the vertical 1,000 percent climb in class action suits filed in state courts over the past decade.

Relaxed jurisdictional rulings by the U.S. Supreme Court authorize local courts to entertain class action suits against out-of-state defendants, unless Congress directs otherwise. Local judges are typically friendly toward in-state plaintiffs, and they compete in fashioning extreme class action precedents that attract trial lawyers like bees to honey. The court in Madison County, Ill., a sparsely populated rural jurisdiction of 250,000, has achieved icon class action status on that score.

It projects for 2003 an increase of 3,650 percent in class action filings from a 1998 benchmark. The predominant percentage have sought certification of nationwide classes, for example, all Sprint customers ever disconnected on a cell phone, all Roto-Rooter customers whose drains were repaired by unlicensed plumbers, or all customers who purchased a “limited edition” Barbie doll at premium prices. The most convincing explanation for this statistical oddity is that trial lawyers meticulously survey the judicial landscape for class action forums sporting judges to slay foreign business dragons for the home crowd.

The Class Action Fairness Act, which has passed the House and is awaiting a Senate vote, would mitigate unforeseen class action deformities. Judicial scrutiny would be intensified for settlements that award class members noncash benefits, or require them to pay legal fees greater than their cash awards. Class representatives customarily courted by trial attorneys would be barred from premium awards in settlement agreements. In class actions where $5 million or more is in controversy, defendants would enjoy readier access to federal courts as refuges from local court prejudices. And orders certifying a class would be immediately subject to appeal to forestall coercing defendants into settlements of ramshackle claims.

In sum, CAFA would cautiously readjust the scales of justice to offset the class action imbalance favoring trial lawyers and populist crusading judges at the expense of class members and business defendants. It is the child of the legislative process at its best.

Bruce Fein is a founding partner of Fein & Fein.


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