Class Actions

Class actions were developed as a form of lawsuit in which a group of people claiming similar injuries or damages could sue the same defendants 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 defendanthurting 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 enormousthousands, 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 trialeven if they have not done anything wrong. Unfortunately, plaintiffs’ lawyers have exploited businesses’ understandable caution by filing many questionable or meritless class actionsall with the goal of scoring a jackpot settlement.

These large settlements provide highly lucrative contingency 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 compensation remains unclaimed. This can results in what is called a cy pres ("near as possible") distribution—in which 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 number of federal courts are certifying classes consisting of plaintiffs who have not been injured in the same way as the purported class representative, and even some who have not been injured at all. The cases have become known as “no injury” class actions.

Article III of the Constitution requires that a suing party must have actually suffered some injury or threat of injury that can be traced to the actions of the defendant at issue in the case, in order to have “standing.” But presently, a person who has a problem with a product or service is often allowed to sue on behalf of all the other people who bought the product or paid for the service, even when these others have not been injured in any way and might be perfectly happy with what they paid for. This clear violation of constitutional standing requirements is used as a tactic to enlarge putative classes in the beginning stages of a class action suit, which often pressures settlements and unjustly inflates plaintiffs’ attorneys’ contingency fees. In May 2016, the Supreme Court in Spokeo Inc. v. Robins somewhat addressed this issue, ruling that the Ninth Circuit Court “used the wrong legal analysis when it allowed” a class action against search engine Spokeo to move forward. The plaintiff in Spokeo had argued that the search engine violated the Fair Credit Reporting Act when it inaccurately published that he was a wealthy married man with children.

This is why ILR supports enactment of the Fairness in Class Action Litigation Act of 2017 (FICALA).  FICALA will make a number of significant changes to the class action litigation system:

  • Addition of an ascertainability standard, which would require that the members of a class be readily identifiable as a prerequisite to class certification. This fix would also require lawyers to demonstrate that they can actually deliver actual relief to class members.
  • Mandated disclosure of third party litigation funding arrangements in all class actions, which would provide much needed transparency to what are currently secret agreements where “investors” pay plaintiffs’ counsel money up front in exchange for a right to receive a portion of whatever award class members might receive.
  • Elimination of “no injury” class actions by requiring that plaintiffs’ lawyers demonstrate that each class member has suffered an injury of the same type and scope as the class representative who brought the lawsuit.
  • Reigning in of issues classes, in which courts certify only a particular issue (just a sliver of the case) for class treatment (a clear end run around Supreme Court mandated fairness requirements), by making clear that federal courts should not certify a proposed issues class unless the entire claim for relief qualifies for class treatment.
  • Establishing a rule in all class actions that discovery may not proceed until threshold motions challenging the validity of the claims are resolved—just as Congress has already mandated in securities class actions. This measure would help curb aggressive and abusive discovery methods used to coerce settlements.
  • Requiring federal courts to hear appeals from class certification rulings.
  • Mandating disclosure of the circumstances under which each named plaintiff became involved in a class action, in order to root out any potential conflicts of interest between class counsel and class members.  Further, persons having familial or employment relationships with counsel would be prohibited from acting as class representatives.


In short, CAFA played a vital role in curtailing class action abuses. However, problems still remain that merit further reforms such as those envisioned by FICALA. Reforms like FICALA would help further restore balance to the current class action landscape.

FICALA would also address mass tort multidistrict litigation (MDL) proceedings by addressing many of the significant abuses that turn MDLs into a mechanism of extracting strong-armed settlements from defendants, who are many times effectively deprived of their day in court.

Research

The Growth of Collective Redress in the EU: A Survey of Developments in 10 Member States

March 21, 2017 | This paper examines the 'state of play' of collective redress in 10 Member States in the EU and suggests minimum necessary safeguards to prevent litigation abuse taking hold in Europe.

The Food Court: Trends in Food and Beverage Class Action Litigation

February 24, 2017 | This paper examines the emerging litigation trends in the food and beverage industry and makes concrete recommendations for reforms, outlining the role that the courts, legislatures, and regulatory agencies all have in restoring common sense to food class action litigation.

All Results for Class Actions

In the News Today - March 24, 2017

March 24, 2017 | News and Blog

In an opinion piece, Thurbert Baker and Tom Stebbins write that "New York desperately needs to pass legislation to apply existing consumer protection laws" to lawsuit lenders. Last month, New York Attorney General Eric Schneiderman filed a complaint against a lawsuit cash advance firm for allegedly engaging in predatory lending practices. Read More »

In the News Today - March 21, 2017

March 21, 2017 | News and Blog

U.S. District Judge Paul Diamond issued a bench warrant for the arrest of Martin Kenney and Garrett Kelleher after both failed to appear to determine their liability to insurer Cigna. In 2016, Judge Diamond ruled that Kenney and Kelleher had "repeatedly thumbed their noses at the courts of the United States" and were liable to Cigna for "orchestrating" continued action against the company. Read More »

The Growth of Collective Redress in the EU: A Survey of Developments in 10 Member States

Author: Ken Daly, Sidley Austin LLP | March 21, 2017 | Research

This paper examines the 'state of play' of collective redress in 10 Member States in the EU and suggests minimum necessary safeguards to prevent litigation abuse taking hold in Europe. Read More »

"Congress Should Restore Meaningful Sanctions for Meritless Litigation"

March 17, 2017 | News and Blog

Earlier this month, the U.S. House of Representatives passed the Lawsuit Abuse Reduction Act (LARA) to restore the authority of Rule 11 sanctions in federal litigation. Read More »

Claims Rate Issue Has Become "Particularly Acute" In Class Action Settlements

March 16, 2017 | News and Blog

Last year, U.S. District Judge Ortrie Smith rejected a class action settlement with Remington Arms Co. for an "appalling" claims rate, also known as the percentage of potential class members who actually request compensation from the settlement, writes the National Law Journal. Read More »

In the News Today - March 13, 2017

March 12, 2017 | News and Blog

U.S. House Judiciary Chairman Bob Goodlatte (R-VA) sent letters to the American Bar Association and every state bar association, urging the organizations to adopt requirements for warnings on trial lawyer advertisements that urge patients to discontinue the use of some medicines. Read More »

House Passes Sweeping Legal Reform

March 10, 2017 | News and Blog

Last night, the U.S. House of Representatives passed the Fairness in Class Action Litigation and the Furthering Asbestos Claim Transparency Act of 2017, two pieces of legislation that were recently combined, by a vote of 220 to 201 as well as the Innocent Party Protection Act of 2017 by a vote of 224 to 194 writes National Law Journal. Read More »

U.S. Chamber Applauds House Passage of Class Action Litigation and Asbestos Trust Transparency Bill

March 09, 2017 | Press Release

Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform (ILR), made the following statement today about the passage of the "Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency (FACT) Act of 2017" (H.R. 985) by the U.S. House of Representatives. Read More »

In the News Today - March 9, 2017

March 09, 2017 | News and Blog

The U.S. House of Representatives will vote on four legal reform bills (two of which have been combined) over the next two days. Today, the House will vote on the Fairness in Class Action Litigation and the Furthering Asbestos Claim Transparency (FACT) Act, which have been merged, as well as the Innocent Party Protection Act of 2017. Tomorrow, the house will vote on the Lawsuit Abuse Reduction Act of 2017. Read More »

Fix Class Action Lawsuits

March 08, 2017 | News and Blog

It is lawyers, not consumers, who are the main beneficiaries of class actions, writes ILR President Lisa Rickard in a recent The Hill opinion piece that champions passage of the legal reform bills being voted on in the House this week. Read More »

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