Class Action Reform Bill

[toasty]

It's a dark day for consumers, my friends. Bush signed into law the class action reform bill this morning to the delight of corporate bigwigs nationwide. I'm part of the evil empire of class action attorneys myself, so I thought I'd offer my two cents on the bill and see if anyone else had any thoughts on it.

First, the most significant thing the bill does is put most class actions in federal courts (because they are considered more conservative and defendant-friendly), reversing a statute from 1789. Although I do grasp the idea that cases with national reach ought to be decided in federal court, this is a serious blow to states' rights. Consumer protection laws, which are typically the province of the states will now be interpreted entirely by federal courts. Federal courts may not create law -- they can only apply the existing law of the state in which they sit or guess as to what it would be -- so the states that create consumer protection statutes will no longer have the opportunity to develop that body of law. It is effectively frozen, or federal courts will start developing the law themselves, which was what the concept of federalism was designed to avoid.

The second significant thing about the act is that it does away with so-called "coupon settlements" where class members get coupons and the attorneys make out like bandits. There are a couple of things to understand about settlements that compensate class members in something other than cash. First, there are good deals and bad deals, and they all require judicial approval. Judges are ultimately the gatekeepers of the deal, and they shouldn't approve deals that aren't fair and adequate. That some bad deals have gone through, though, doesn't mean that all non-cash deals are bad -- for a defective product, for example, I could provide you with a certificate that allows you to go out and replace your product at the defendant's expense and put you in the very same situation as you would have been in in the absence of the defect. That has value to class members, but creative solutions like that -- which are handy to have as options when a defendant is not cash-flush -- are not options anymore.

This brings us to the second point about the outright outlawing (as a practical matter) of the coupon deal. Coupon settlements are virtually ALWAYS suggested by the Defendant and are ALWAYS better for the Defendant -- cash is king, and that is always the goal from the plaintiff's standpoint. Settlement is a way for a defendant to eliminate risk and bring some peace and certainty to their situation -- with no other options to creatively dispose of a case, however, defendants may find themselves in a situation where they have a liability problem and no choice but to try the case and risk losing everything -- the damages for a certified class are typically cataclysmic, and very few companies can withstand that type of hit...

I'll be curious to see how it changes the landscape of things, if at all, and to see if it withstands a constitutional challenge -- although the Supreme Court is chock full of republican appointees, it is also very much a federalist, states' rights advocate panel of judges.

I find this shit interesting b/c it's kinda my thing, but does anyone else have any thoughts on it?

[face]

well, the same thing is going to happen in the healthcare buisness.

patients won't be able to sue doctors for malpractice; doctors won't be liable anymore and will avoid costly suits and settlements.

[mylexicon]

I have thoughts on the subject. Class action law suits need to be curtailed.
You people have to realize that class action lawsuits don't right a
wrong or stop companies from creating faulty products. The reason
we have medical review tests, crash tests, product tests, etc; is to help
stop problems before they happen (in theory). Class action lawsuits are
just agents of political grandstanding and greed. Besides the new
class action law suit legislation is cutting back on punitive damages not on compensation.

Furthermore, class action lawsuits should be stopped b/c they don't
accomplish anything. Most of the ridiculous lawsuits involve huge amounts
of punitive damages, which remove money from production based
industry, hurting our production possibilities frontier.

Finally class action lawsuits don't hurt the people who caused the problems.
The immediate cost of the lawsuit is passed down to stockholders (people who don't control operations) and ultimately the
costs of frivolous lawsuits are passed back down to us. The same is true
in medicine. The cost of these stupid punitive damage suits is absorbed
by patients.

This is nothing more than classic economic agency problem and in addition
people neglect to outlaw frivolous class action because the benefits are
huge but spread out amongst millions of us.

[toasty]

^^It's appropriate, I think, that this message would come from someone in Texas, where you no doubt haven't heard the word "lawsuit" without being preceded by the word "frivilous" since 1995. Bush loves to beat the drum for "frivilous lawsuits" to the point where most people simply equate the two, and the idea of a lawsuit that actually has merit is a completely foregin concept. I would argue that the entirety of that post is based upon that fundamentally flawed principle. With that said...

I have thoughts on the subject. Class action law suits need to be curtailed.
You people have to realize that class action lawsuits don't right a
wrong or stop companies from creating faulty products. The reason
we have medical review tests, crash tests, product tests, etc; is to help
stop problems before they happen (in theory). Class action lawsuits are
just agents of political grandstanding and greed. Besides the new
class action law suit legislation is cutting back on punitive damages not on compensation.

Furthermore, class action lawsuits should be stopped b/c they don't
accomplish anything. Most of the ridiculous lawsuits involve huge amounts
of punitive damages, which remove money from production based
industry, hurting our production possibilities frontier.

You need to understand a few things here. First, the primary idea behind class action litigation is to remove the incentive for companies to bilk people a little bit at a time. It is about deterrence, and it does add another layer of consumer protection when " medical review tests, crash tests, product tests, etc." fail -- because they do all the time, if they are in fact done. I would argue that companies are often is such a rush to get something to market that they let the public serve as the primary testing ground, and fix the problems in the second and third generation of products. Free bit of advice from me: never buy the first incarnation of a major consumer product, i.e. appliance, vehicle, etc. -- trust me on this one.

Furthermore, class cases aren't all product-based. I do primarily antitrust class cases, myself, and I have trouble understanding how anyone can have much sympathy for a company that is entering into secret agreements with would-be competitors to insure that it makes the most money posible at your expense. To each their own, I suppose.

Your comment about punitive damages makes it pretty clear that this is a rant based upon media hype rather than actual fact. First, despite the fact that punitive damages are all you ever hear about in the news and they are awarded in appropriate circumstances, punitive damages are far and away the exception to the rule. In the class action context, however, punitive damages are very, very, very rarely a part of the issue -- first, class cases almost never reach trial, and punitive damages are never a component of a class wide settlement. Those huge numbers you see are representative of actual damages. I have a pharmaceutical antitrust case right now, for example, where the actual damages to the class are around $1.2 billion, and it is one of the smaller ones in our hopper. I can think of one class case that actually got tried (which in and of itself is incredibly unusual) where punitives damages were awarded -- the Illinois light cigarette case. Something like that will happen so rarely, however, that it can't even be a part of a serious discussion of normal class action litigation.

Finally class action lawsuits don't hurt the people who caused the problems.
The immediate cost of the lawsuit is passed down to stockholders (people who don't control operations).

I've got a bit of free investment advice for you -- don't invest in companies that engage in activities that will get them into such trouble. It costs us from a half a million on up to litigate a class case, and if we lose, that is money that we never see again. Accordingly, we don't just file this shit without a basis for thinking the case has merit -- in addition to raising ethical issues, it is just bad business. Generally, when there's smoke, there's fire; the corporate world is not as squeaky clean as I think you think it is.

[mylexicon]

I don't think the corporate world is squeaky clean, but there is something you need to understand....neither are class action lawsuits.
I am an accounting major. I have spent the last two semesters learning the
rules to properly write off losses from litigation. Litigation is the largest
threat faced by companies today, because nearly 90% of corporate
litigation has become analagous with blackmail. Because court costs
are outrageously high in this day and age, it is extraordinarily easy for
people to threaten litigation and obtain settlement. All a plaintiff has
to do is have a story worthy of a hearing. If a hearing can be obtained
it is actually cheaper for the company to pay the demands of the plaintiff
whether an infraction occured or not. Fortune 500 companies deal with
thousands of these claims every year from customers and
employees. Companies frequently have a staff of accountants and a council of lawyers to help them estimate
the costs of theoretical lawsuits so they can accurately report them to
the gen public. Class action lawsuits simply
channel money from people who earn it, to people who steal it legally.
It is exraordinarily bad for the economy.

BTW I know that testing doesn't work. The government frequently uses it
to make companies do what it wants them to do. That was the point.
Class action is the exact same thing. Only it has the power of a retrospective
point of view.

I can't believe you work on anti-trust cases and you actually believe in class actions lawsuits. Anti-trust legislation is the biggest crock of
scandalous shit I have ever had the displeasure of being exposed to.
Anti-trust is the corporate lobby battleground. Its the place where
companies try to beat one another with legislation rather than outworking
the competition. Furthermore monopolies are frequently created or
sponsored by the state itself; i.e. the Record industry trust. Just look
at the historical anti-trust Supreme Court cases. They speak for themselves.

I find it hard to believe you don't see what's going on here.
This class action lawsuit is one of the great battles in the system of
checks and balances. This is Executive and Legislative vs. Judicial. Class-action
and other such lawsuits are so out of control that companies are collectively
working together to lobby politicians to reign in the U.S. court system,
whether Supreme or otherwise. There are two prevailing opinions. 1)
the U.S. courts are out of control and frequently
disobey U.S. law and the Constitution (my belief) 2) the U.S. court
system is fine and needs the same or more power. Thats what this is
all about in a nutshell. There is no moral crusade, there is no consumer
consideration. This entire thing is one giant political quagmire, where
interests and opinions are almost as unique as the people involved.
Consumer protection is at the bottom of the ongoing concerns list. If
the government cared about the average American, they wouldn't tax
us 3 months out of the year and then shrug their shoulders when
nothing gets better.

Finally, my comments about punitive damages in class action lawsuits are not
inspired by the media b/c clearly most class action suits don't deal with them.
I refer to winnings from class action lawsuits as largely punitive b/c the
court is awarding money to people who have very little claim to compensation issued.
In my opinion, charging a company large sums of money for a plaintiff that
didn't bring an individual suit and who in many instances was not affected by
the complaints listed in a particular court case, is punitive at best and robbery at worst.

[mylexicon]

sorry double

[dohturdima]

Agree with mylexicon's stance. Class action lawsuits' rewards are outrageously high, miss their mark punitively and are responsible for misallocation of resources to litigation that can and should be used elsewhere - and that's just the tip of the iceberg. Finally concrete steps are being taken to limit the damage they are doing to industries and customers, and they are most welcome.

[toasty]

Re: Class Action Reform Bill

All of that is still based, however, upon the fundamentally flawed idea that these cases are categorically without merit. This, and the reference to the interrelation between political agendas and legislation (which is valid), reflect that you are looking at this purely from the standpoint of the corporations defending these suits. It is easy to overlook the consumer's role in this whole thing because they frankly don't have near as powerful a lobby as the defendants do -- that's kinda the point of class action litigation -- to give people with no bargaining power and very little say a voice.

I do what I do with a crystal clear conscience. I have very little sympathy for corporations whose daily business operations involve shady or irresponsible activities. Unfortunately I can't really go into any great detail because corporate defendants insist upon protective orders in all cases that keeps everything behind the curtain, but I wish you could spend some time on my side of the issue and see what your idols are really up to. Some of it is literally criminal -- it'd blow your damn mind. Suffice it to say that if a company has rework its business model to pay millions and millions of dollars in atonement for some misdeed, I'm 100% OK with that.

Tell you what -- let's repeal all consumer protection laws and do away with the class action device entirely, and see what happens. As corporate interests are alowed to run roughshod over consumers, who do you think is going to stop them? Your government? Please -- even the best intentioned attorney generals' offices can't handle the load as it stands with private consumer protection lawyers around to pick up the slack...

[mylexicon]

Corporations and corporate officers are not my idols. I plan on working
for large corporations as little as possible. Hopefully, I can start a business
myself and help bring a different approach to American business.

The reason I side with corporations is because of a Mathusian approach.
Consumers are growing geometrically while our abilities to test and
design products are growing slowly and arithmetically. If class-action
lawsuits continue to grow larger and more expensive I fear it will inhibit
our ability to utilize economies of scale through large corporations.

Secondly, class action law suits seem to have a direct correlation with
recession. There were well over 200 in 1998 and over 400 in 2001.
I think it's reasonable to say then, they are directly correlated to consumer
rage brought about by negative corporate sentiments, or in some twisted sense, perhaps they try to find blame in companies for terrorism.In
my opinion they are not only of questionable merit but also dangerous to the
survival of our economy.

I do believe that class-action lawsuits are important to protect American
consumers. I just believe they need stricter scrutiny and a more effective
punitive structure.

Besides information is the ultimate class action. The competitive nature
or our system has the ability to naturally destroy corruption. It simply
requires people to step up to the plate. Take the record industry for
example. It is common knowledge that all the major labels engage in
price fixing, but nothing has been done and the government has taken
steps to actually protect the recording industry. There all alternatives
but they are either owned by the recording industry or subject to ridiculous
liscensing fees. Take iTunes for example, what a laugh that is. You still
pay 10-15 for an album but now you don't even get a cd, jewel case,
or a booklet, and the company incurs minor distribution costs. The
only people who hold the key to solving this problem are the artists themselves
but the most powerful ones are so disorganized, greedy, and stupid
they can't figure out how to crack the current recording scandal.

They government will never be able to correct societal ailments like
these with legislation. It simply won't work.

[toasty]

Secondly, class action law suits seem to have a direct correlation with
recession. There were well over 200 in 1998 and over 400 in 2001.
I think it's reasonable to say then, they are directly correlated to consumer
rage brought about by negative corporate sentiments, or in some twisted sense, perhaps they try to find blame in companies for terrorism.

Was there a similar "boom" in class action suits during the past recessions? I don't think you can necessarily assume that because there is a correlation in this instance, that there is necessarily a connection. My experience suggests that the opposite is true -- economic recession encourages the type of behavior that results in companies facing class action suits (i.e., price fixing) because they are having trouble making money the old-fashioned way.

I would also note that the increase in the raw number of class action suits is not in and of itself indicative of anything at all. Take Madison County, Illinois, the president's poster child for "judicial hellholes" that need reform -- although my firm pratices all over the country, I would consider MadCo to be part of my "home" territory. There is a guy over here who is responsible for the lion's share of the filings in MadCo -- when we have a case against multiple defendants with multiple class representatives, we file it all as one case and try to organize it such that all plaintiff's interests are covered and all defendants are addressed. This guy, in contrast, will file individual class suits for each class representative and each individual defendant -- I assume this is for strategic reasons to diversify risk and simplify the issues involved in each case (which increases the likelihood that it will get certified). Ultimately, the cases end up getting consolidated before one judge after the cases proceed far enough along. The result is that you can literally have 20 or 30 cases on file that essentially allege the very same thing and are, as a practical matter, one case. If you just look at the raw numbers, however, it looks like outrageous numbers of class action suits are filed in MadCo. If you take this into account, MadCo still has a relatively high number of class action filings (because Illinois has great consumer protection laws and MadCo is one of the largest population centers in Illinois), but it is nowhere near the level tort reform advocates suggest.

The same thing happens on a nationwide scale. For a consumer antitrust case, for example, you have no choice but to file individual state law actions in the 20+ jurisdictions that allow consumers to bring antitrust claims, because there is no remedy for you and I under the federal Sherman Act. If you were to merge the number of class cases that allege the exact same thing, the number of filings could be evaluated in the proper context.

Take the record industry for
example. It is common knowledge that all the major labels engage in
price fixing, but nothing has been done and the government has taken
steps to actually protect the recording industry.

Actually, the record industry paid out $143 million last year to settle class cases alleging price fixing. That's a great example of the point I was making earlier, by the way. The case that settled was a consolidated proceeding in federal court in Maine that disposed of dozens of federal and state class actions brought by numerous different plaintiffs and counsel all over the country. 1 "case," many, many class action filings.

[mylexicon]

Actually, the record industry paid out $143 million last year to settle class cases alleging price fixing. That's a great example of the point I was making earlier, by the way. The case that settled was a consolidated proceeding in federal court in Maine that disposed of dozens of federal and state class actions brought by numerous different plaintiffs and counsel all over the country. 1 "case," many, many class action filings.

Yes, I am aware of that. And as I have been saying the recording industry
as we knew it then is still alive and well. The government has taken steps to protect
it (Digital Millenium Copyright) and the 143 million dollar bill was handed down
to investors who were probably unaware of the illegal price fixing within the
industry. And some corporate execs probably had to deploy their golden parachutes.

And yet the recording industry is still just as naziesque as ever. Record prices
haven't fallen substantially. And there are no real signs that they are going
to emphasize value and volume rather than price fixing and bloated liscensing fees.

By opposing class action suits I am not trying to say that corporations are
right. I know in many instances they are corrupt or easily corruptable. I have
to know that b/c as a public accountant its my job to figure out whether or
not a company is telling the truth on its financial statements.

I am only in support of this new bill primarily b/c it keeps lawyers and law firms
from finding venues that guarantee victory. As much as I hate government
centralization, it is clear in my mind that we cannot trust the inconsistent,
corrupt, and fickle nature of individual regions in this country.

[thesightless]

while my area of law is taxation, trusts, and estates , and have forgotten most of what i learned regarding any form of malpractice or negligence law which is usually the heart of the matters here, i cant say im against this bill at all. the people are gonna keep us in business toasty. they wont stop suing each other, you can thank all the special interests for that.

[toasty]

I am only in support of this new bill primarily b/c it keeps lawyers and law firms
from finding venues that guarantee victory. As much as I hate government
centralization, it is clear in my mind that we cannot trust the inconsistent,
corrupt, and fickle nature of individual regions in this country.

Fair enough. You should be aware, however, that forum shopping is absolutely a two way street. We, as plaintiffs, look for the best possible venue when we file suit, and defendants will do the very same thing. Although defendants obviously don't have any control over where suit is brought, they are not without recourse -- they can move to transfer the action to another county, remove your case to federal court, or, in the common situation where there are multiple suits around the country, stall in venues they don't like and push the case in venues they do and play the cases against one another. A common technique is to remove a case to federal court without regard to whether the federal court can actually hear it (until recently, a federal court could only hear a class action if it pertained to federal law, or was between citizens of different states and the individual claims of the class members were over $75,000 -- which is pretty rare), and then have it transferred as part of a consolidated proceeding to another district half way across the country. Even when it eventually gets sent back to state court, your case had been stuck in a huge MDL proceeding where nothing got done and you've lost time and leverage while the defendant allowed other, friendlier venues, to proceed on an expedited basis.

The point is that this forum shopping goes on on both sides of the issue. The bill swings the pendulum in defendants' favor. Life will go on and the current bill will not end consumer protection suits, but this eliminates some options on the consumers' side of things. Like I said earlier, though, I do agree that cases with nationwide significance probably ought to be heard in federal court, so I'm not too upset about it. Que sera sera.

You may get your wish with regard to successful class actions having more of a lasting impact. With settlement a less attractive options in some situations, the new legislation will insure that more cases will be tried. When that happens and we win, some companies will be literally wiped out. I'm not sure if that's bad or good. As I mentioned above, I have no sympathy for corporations doing shady things. On the other hand, knocking a company out of business also means that the class (my clients) will no longer have any customer service or support for their products, may not be able to purchase replacement parts or get service in the future, etc. Also, that's a lot of jobs to be lost, which isn't really a good thing, either. The option to resolve a claim and allow the defendant to remain in business sometimes has value independent of the merits of the suit.

[thesightless]

Re: Class Action Reform Bill

toasty, a great idea of why this bill is good is right here.

http://www.msnbc.msn.com/id/7012754/

do we really think this suit has any merit in this real world which we live in?

[toasty]

I'll agree that that suit doesn't look like it has much merit. I don't agree that that means we ought to overhaul the whole system, or that the new legislation would even address the problem of boneheaded people filing meritless suits. I guarantee you, though, that no one in the media will bother to report on it when the case gets thrown out of court, because that's what is supposed to happen and is therefore not newsworthy.

I would think that you, of all people on this board, would appreciate and understand that the shit the media picks up on in the legal arena is not necessarily representative of the day to day...

I'm just gettin' no love at all. Lawyers have a bad rep in general, plaintiff's lawyers draw a special degree of ire from the public, but class action plaintiffs' lawyers like myself aren't even liked by other members of the bar.

Oh well.

:wink:

[edited to correct typo]