Class actions were developed as a form of lawsuit in which a group of people claiming similar injuries or damages could sue the same company or organization together. Class actions were originally designed to benefit legitimately aggrieved individuals by allowing them to more easily join together and seek efficient legal relief. Nowadays, however, many class actions are not being prosecuted to seek justice, but rather to essentially shakedown a defendant - hurting businesses and damaging the American economy. read more...
Originally a vehicle for civil rights litigation, class actions quickly spread to such areas as product liability, consumer fraud, and employment discrimination cases. The sheer size of some classes is enormous – thousands, tens of thousands and, in some cases, millions of individual claimants have been brought together in single class actions.
The large size of some classes, and the resulting large potential payouts, make these cases very risky for businesses. As a result, most business defendants seek to settle class actions before risking a trial – even if they have not done anything wrong. Unfortunately, plaintiffs’ lawyers have exploited businesses’ understandable caution to file many questionable or meritless class actions – all with the goal of scoring a jackpot settlement.
These large settlements provide highly lucrative fee awards to plaintiffs' lawyers. Meanwhile their purported "clients," the class members, must fill out paperwork to obtain small, often token, compensation. Moreover, because participation in these settlements is often quite meager, much of the fund remains unclaimed. This can results in what is called a cy pres ("near as possible") distribution – in which the money meant to compensate class members goes instead to third-party charities that have little or no connection to the interest of the injured class. Plaintiffs’ lawyers like cy pres settlements because they can inflate their fees, which are almost always tied to the size of the entire class award (including the cy pres distribution). But the end result is that the supposed beneficiaries of class actions rarely obtain meaningful benefits.
The Class Action Fairness Act of 2005 (CAFA) curbed many abuses by moving most large, interstate class actions to federal courts, where scrutiny of class actions is generally more rigorous and impartial than in state courts. In the 2013 case of Standard Fire Insurance Co. v. Knowles, the U.S. Supreme Court blocked attempts by plaintiffs’ lawyers to circumvent CAFA and keep some cases in state courts. The Supreme Court confirmed the broad reach of CAFA the following year in Dart Cherokee Basin Operating Co. v. Owens. In addition, the Court has issued a number of recent rulings tightening class certification standards, including Dukes v. Wal-Mart and Comcast Corp. v. Behrend.
While CAFA has significantly improved the civil justice landscape in the United States, some problems remain. For example, CAFA did not address the problem of frivolous small-dollar class actions at the state level, which cry out for reform by state legislators. In addition, notwithstanding Supreme Court rulings tightening the requirements for class certification, certain courts of appeals have resisted those dictates. Most notably, the Courts of Appeals for the Sixth, Seventh, and Ninth Circuits have been less rigorous than other circuits in certifying class actions often going out of their way to try to limit the reach of the Supreme Court’s pronouncements. Specifically, a growing chorus of federal courts is certifying classes consisting of plaintiffs who have not been injured in the same way as the purported class representative. This is why ILR supports enactment of the Fairness in Class Action Litigation Act (“FICALA”), which would limit class certification to cases in which the named plaintiff and absent class members suffered the same type of injury.
Some of the other challenges include:
- Interlocutory appellate review of class certification decisions is discretionary, and only about one quarter of class certification rulings receive immediate appellate review, resulting in coercive settlements that would be avoided by appeals as or right.
- A handful of federal courts have resisted Congress’s intent to expand federal jurisdiction over interstate class actions by imposing overly restrictive standards for removing class actions to federal court.
- Federal courts have split on the extent to which statutes of limitation can be tolled for future classes after an initial class action’s certification is denied.
- A growing number of courts are improperly invoking Federal Rule of Civil Procedure 23(c)(4) to endorse issues classes even though common issues do not predominate as to the case as a whole. These courts have certified the question of liability – for example, whether the product in question was defective – and left individualized damages questions for another day. That was the case in recent decisions issued by the Sixth and Seventh Circuits with respect to moldy washing machines. Issues classes misapply Supreme Court precedent on predominance and endorse the use of an unfair and inefficient procedure that hurts plaintiffs and defendants alike.
In short, CAFA played a vital role in curtailing class-action abuses. However, problems still remain that merit further reforms at both the federal and state levels. Reforms like FICALA would help further restore balance to the current class action landscape.