Class Action Crackdown

posted on:
February 21, 2005

author:
Marianne Lavelle

Over the years, class action lawsuits have netted consumers $13 rebates on computer monitors, coupons for free movie rentals, $30 discounts on cruise vacations, and free boxes of cereal. But the lawyers who spearheaded those cases were the real winners, typically walking away with millions of dollars in fees.

That’s all about to change. The Senate last week approved a bill, expected to sail through the House, that would fundamentally alter the American way of seeking redress against big business and help fulfill one of President Bush’s top domestic priorities. Proponents say the Class Action Fairness Act would curb lawyers’ shopping for friendly courts as well as limit attorneys’ fees in megacases that yield only pennies or worthless coupons for the injured or swindled. But critics say the measure would delay and, in many cases, prevent lawsuits by consumers harmed by dangerous drugs and other products or conned by corporate rip-offs. "Thousands of people who may well have suffered serious

injury will come underneath this bill," says Todd Smith, president of the Association of Trial Lawyers of America.

But the interest groups who spent years and millions lobbying for reform insist that the rule changes would have a modest effect. "We’re getting some of these enormous class actions out of problem jurisdictions, where a local judge makes rulings that apply to 50 states that a federal judge is not willing to make," says Stanton Anderson, executive vice president of the U.S. Chamber of Commerce. "Nobody’s right to a class action is being challenged. If you’re going to do it, do it under these rules." Industry applauded the move. In fact, insurance stocks surged after the Senate vote, helping lift the Dow to its highest point of the year.

Tell it to the feds. The new rules would require that many—if not most–cases involving more than 100 plaintiffs and $5 million be filed in federal rather than state courts. (The bill would not affect securities cases.) Supporters say it is more rational to have cases with nationwide implications heard by the federal bench, instead of by a few pro-plaintiff state courts around the country that have become magnets for litigation, such as Madison County, 1II., where a judge returned a $10. I billion verdict in 2003 against Philip Morris in a lawsuit claiming its "light" cigarette label was deceptive. But trial lawyers and consumer, environmental, and civil rights groups all argue the changes will sound

the death knell for most class action suits, as federal judges tend to move more slowly and are more skeptical of such cases.

A federal court, for example, refused to certify a class action suit alleging Masonite sold defective siding to more than 4.3 million homeowners between 1980 and 1998. But after an Alabama court gave the go-ahead, Masonite agreed to a $2 billion settlement in 1998. Nearly 200,000 homeowners have collected $500 million so far. But class action critics point out that not one of those homeowners reaped quite as much as the plaintiffs’ lawyers, who earned $47.5 million.

Other examples of what critics call lopsided justice the bill would halt: Lawyers earned $22 million for suing Thomson Consumer Electronics over TV sets with snowy images, while consumers received $50 rebates on future purchases in a 2001 settlement. That same year, lawyers won $9.25 million for suing Blockbuster over its late-fee policy; class members received coupons for free or $l-off movie rentals. And in many cases, eligible consumers do not even claim a share of a settlement because they don’t know about it, the forms are complicated, or they choose not to do business with the company anymore. Under the pending law, there would be tougher scrutiny of so-called coupon settlements, and attorneys’ fees would be based on the value of coupons redeemed or the amount of time spent on the case.

The bill also affects "mass torts," individual personal injury lawsuits against the same company that courts bundle together–often at a corporation’s request–for efficiency’s sake. That includes the litigation du jour: Vioxx, the blockbuster arthritis painkiller that Merck pulled off the market last year. Although the bill would not impinge on the 575 existing Vioxx cases, it certainly-would-apply to future lawsuits. Since 20 million consumers took the drug, that number could be substantial. "We haven’t come close to filing the full amount of cases," says Andy Birchfield Jr., whose Montgomery, Ala., firm represents more than 100 Vioxx users who sued before the recall and is evaluating more than 10,000 inquiries from potential clients. Wall Street analysts estimate Merck’s potential liability to be as high as $25 billion.

Justice, many court observers note, can move at a snail’s pace in federal courts. Exxon Mobil, for example, continues to appeal a $4.5 billion judgment lodged against it 11 years ago on behalf of fishing and other businesses wiped out by the Valdez oil spill off the coast of Alaska in 1989. "People don’t understand what they’re giving up in this debate," says Christopher Seeger of New York, another lawyer leading the charge

against Vioxx. "There will be justice in the federal system, but pharmaceutical companies will get to hold onto their money longer, and you’ve got a family where someone has had a heart attack that’s going to be economically disadvantaged for three or four more years."

Clearly, those who want to reduce litigation have gained the upper hand in the overall tort reform debate. The class action bill is just the first of three pieces of legislation that the Bush administration is pushing. Also on deck, although much more controversial, are bills to move asbestos claims out of the courts and into a $140 billion trust fund and to restrain medical malpractice cases. Critics charge the Republicans have made tort reform a high priority to choke off the clout of the trial lawyers, among the biggest political backers of the Democrats. But the bill was able to advance only because key Democrats like Sen. Dianne Feinstein of California joined forces with the GOP.

And big-time lawsuits were already facing roadblocks, as a host of states like Michigan and Mississippi have passed laws in recent years limiting cases. Some 31 states have enacted caps on punitive damages, and 15 have provided immunity for manufacturers who can prove they didn’t know a product was harmful. Eight states have made it harder to file class actions, for example, by requiring a higher court to review any judge’s decision to certify a class action.

As reviled as class action lawsuits have become, some argue that even the worst ones had a role in curbing wrongdoing. Democratic Sen. Joseph Biden of Delaware points to a notorious $458 million class action settlement in 1993 by major airlines accused of price fixing: Consumers were awarded flight coupons that had so many restrictions they were virtually worthless. "Guess what happened? The airlines stopped cheating people," he said during debate on the bill. "So I’ll pay the bottom feeders their high fees to stop the wrongdoers from doing bad things." But for now, consumers will have to find another way to get at the big fish.

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