House subcommittee revisits class action lawsuit reform

John O'Brien Jun. 1, 2012, 10:49am




WASHINGTON (Legal Newsline) - Some class action lawsuits are only benefitting unharmed parties, a Northwestern University professor said Friday during a House subcommittee hearing on 2005's Class Action Fairness Act.

The House Judiciary Committee's Subcommittee on the Constitution revisited the law in an effort to identify problems that still exist in class actions. CAFA was introduced by Sen. Chuck Grassley, R-Iowa, in January 2005 and became law less than a month later.

Martin Redish, a professor at Northwestern's School of Law, testified to what he called "cardboard cut-out" class actions - lawsuits in which relief is minimal for injured consumers.

"What happens in these cases is the lawyers become the real parties in interest," Redish said. "This is not necessarily illegal because we have qui tam suits, but that's not what the underlying laws have provided."

In some class actions, he says, the affected customers are unfindable and unreachable. In other instances, the claims are so small it makes no sense to pursue them. He says some consumers' involvements in class actions occurred "out of inertia rather than affirmative choices."

"The argument has often been made that even where the class action procedure fails to compensate absent class members, its use is still of vital social importance because it acts as a deterrent to widespread unlawful corporate behavior," his written testimony says.

"I fully appreciate the argument. Indeed, its accuracy is, purely as a practical matter, virtually indisputable. But that fact does not justify use of a procedural aggregation device such as the class action to establish an entirely new substantive remedial framework."

Much of Redish's submitted testimony explores a different kind of relief in class actions - cy pres awards. Those are funds usually given to charity because compensating affected consumers isn't practical.

Redish called for a ban on cy pres awards in class actions.

"The widespread use of cy pres awards as a means of resolving federal class actions is little more than a cover for these far deeper constitutional and democratic pathologies in the modern use of the class action procedure," he wrote.

Attorney John Beisner, of Skadden Arps, said more transparency is needed.

"When you peak behind the curtain and find out what really happens, any money that moves is primarily between the defendants and the attorneys in the lawsuit," Beisner said.

"In many cases, the benefit to consumers in these class actions is very hard to find."

Beisner was testifying on behalf of the U.S. Chamber Institute for Legal Reform, which owns Legal Newsline.

Another main topic discussed was how federal courts deal with state law issues. Rep. Jerrold Nadler, D-N.Y., was critical of the removal provision of CAFA, which allows defendants to move class actions in which more than $5 million is at issue to a federal court.

However, Nadler and attorney Thomas Sobol, of the plaintiffs firm Hagens Berman Sobol Shapiro, feel CAFA presents a catch-22. Class actions alleging state law violations are removed to federal court and consolidated with similar ones, then dismissed because a judge says the case deals with too many different state laws to be manageable, they say.

Sobol called CAFA "an abysmal failure" and said it has rendered state consumer protection laws ineffective in class actions. He said passing CAFA was the equivalent of "brandishing a machete where a scalpel would've sufficed."

"The result is consumers are denied access to justice," Sobol said.

Sobol added that there are no federal consumer protection laws to use in class action lawsuits.

Beisner says more single-state class actions are being filed, and that there are no manageability issues in those cases - not even after consolidation in a multidistrict litigation court.

The three men were asked for their opinions on how to proceed.

Redish said two reforms are needed. The first would require plaintiffs to prove a victory would benefit the members of the class before a court can certify the class. The second would require class members to make a decision to join the lawsuit and not participate as a passive member who then could use an opt-out clause after a settlement or judgment was entered.

Sobol says class actions that allege a state's laws have been violated and represent class members solely from that state should remain in one of that state's courts instead of being removed.

Beisner said a provision should be created that allows a class action to proceed only if it can be proven that there are people interested in taking part other than the lawyers.

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