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Fix class action lawsuits

by Lisa A. Rickard, Opinion Contributor - 03/08/17 9:30 AM ET

Fifty years ago, federal court rules were changed to establish the current form of class action lawsuits. That 1966 modification had the laudable goal of making it easier for allegedly injured consumers sharing smaller claims to seek recourse as a group. Unfortunately, over time, entrepreneurial plaintiffs’ lawyers have consistently abused the class action device, twisting its fundamental purpose.

Today, it is lawyers, not consumers, who are the main beneficiaries of class actions. In fact, the system has become so dysfunctional that the amount paid to lawyers in class action settlements is often many times the amount actually paid to all of the thousands, and sometimes millions, of class members combined. In some cases, lawyers get big fees, while class members get no money at all.

{mosads}For example, in the settlement of a class action lawsuit against a computer manufacturer for alleged false advertising, the class action lawyers received fees of $7 million. That is 14 times what the entire class received, which was less than $500,000.

In a class action lawsuit against a beverage company for allegedly implying in its advertising that a product called “vitaminwater” was healthy, the class action lawyers were awarded $1.2 million in fees. That is $1.2 million more than all of the class members received. They got zero dollars.

The Fairness in Class Action Litigation Act (H.R. 985), which passed the House Judiciary Committee last month, would ensure this type of abuse is eradicated so that alleged victims receive due compensation. It would halt the current practice of courts paying lawyers their fees before the consumers they represent are compensated. And it would limit attorneys’ fees to a reasonable percentage of the money that reaches class members’ pockets. In short, it would ensure that the core purpose of class actions is to compensate allegedly injured consumers, not to make lawyers rich.

In that spirit, the bill would also require that before cases are allowed to proceed as class actions, lawyers demonstrate that they would be able to identify class members and actually deliver to them whatever money may be awarded in the litigation. Further, it would bring into the sunshine the increasingly frequent practice of lawyers secretly selling investments in class actions, giving away class members’ money without even telling them, let alone getting their permission.

The Fairness in Class Action Litigation Act would also stem abuses in mass tort multidistrict litigation (MDL) proceedings in which thousands of individual personal injury cases regarding a particular drug or medical device are placed before a single federal judge for coordinated pre-trial activities.

Many of the cases in these mass tort MDL proceedings are generated by pervasive television/radio/internet advertising campaigns sponsored by plaintiffs’ law firms or non-lawyer third party “lead-generation companies.” Such mass tort MDL lawsuits are flooding our federal courts. More than 119,000 are currently pending, accounting for 35 percent of all civil cases in our federal court system nationwide.

Because MDL courts often don’t allow close scrutiny of these individual claims, as would occur if litigated outside an MDL proceeding, advertisement-driven cases are often poorly vetted. Counsel just slap a person’s name on a form complaint and file it. As one federal MDL judge recently observed in an opinion scathingly critical of the current situation, that means many marginal if not downright bogus claims are being filed, clogging the system and preventing persons with legitimate claims from getting their day in court.

In one MDL proceeding settlement several years ago, it turned out that more than 15,000 claimants — almost one third of all the plaintiffs in the litigation — were unable to show that they took the product at issue or experienced the adverse health event that the product allegedly caused. The Fairness in Class Action Litigation Act would fix this problem by requiring that at the outset, plaintiffs’ lawyers submit evidence showing that they have properly investigated a claim and provide medical records showing injury before the case can be transferred to an MDL.

The bill would also stop the illegitimate “tricks” that some plaintiffs’ lawyers use to steer nationwide mass tort cases into state court, even though these cases should be heard in federal court as a matter of federal diversity jurisdiction. Right now, some counsel direct these cases to a few “magnet” state courts that have no relationship to the parties of the litigation, but do have laxer rules on expert evidence. This allows the plaintiffs’ lawyers to present “junk science” evidence that would not be permissible in federal courts, but leads to unjustified jackpot verdicts in these magnet state courts.

This kind of abusive forum shopping is what led Congress to expand federal jurisdiction over interstate class actions 12 years ago. The Class Action Fairness Act of 2005 was bipartisan legislation that passed the Senate on a vote of 72 to 26. Then-Sen. Barack Obama (D-Ill.) and current Senate Minority Leader Charles Schumer (D-N.Y.) were among 17 Democratic senators who voted for that bill.

Abuses of class actions and mass tort proceedings are a huge problem for our federal court system, for consumers, and for businesses.

Enacting the Fairness in Class Action Litigation Act of 2017 would be a critical step toward correcting those abuses.

Rickard is president of the U.S. Chamber Institute for Legal Reform.

The views expressed by this author are their own and are not the views of The Hill.

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