Congressional Overhaul of Class Action Procedure Pending Senate Consideration

Capitol 2As class action litigation has continued to proliferate, we have seen efforts to rein in the perceived abuses of the system on multiple fronts. Over a decade ago, Congress passed the Class Action Fairness Act of 2005 (CAFA) to provide an avenue for defendants to remove class actions filed in state courts to the more neutral ground of the federal court system. In the last several years, the courts have been called on repeatedly to define the contours of CAFA and the Judicial Conference Advisory Committee on Civil Rules (Advisory Committee) initiated proposed amendments to Federal Rule of Civil Procedure 23, which governs class actions. As a next step towards overhauling class action procedure, the U.S. House of Representatives recently passed H.R. 985 – The Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017 (FICALA), which is purportedly meant to benefit both defendant companies and deserving class action plaintiffs. Similar to H.R. 1927, which was passed by the House last year, FICALA seeks to limit the courts’ ability to certify classes in which members have not suffered the same types of alleged injury/damages. Classes that contain uninjured members are criticized as wasting the courts’ and parties’ resources, and extracting from defendants overinflated damages, while diluting the recovery of those plaintiffs in the class who were injured. With FICALA, the House means to clarify that uninjured class members “are incompatible with Rule 23(b)(3)’s current requirement that classes should not be certified unless common legal and factual issues predominate in the class action.” FICALA goes further than H.R. 1927 (which stalled in the Senate) to address several additional issues considered to be critical in curbing abuses of the class action system. We highlight the key provisions of FICALA here and the underlying concerns articulated by Congress in drafting the legislation.

Several of the issues addressed in FICALA were raised as front-burner issues during the Advisory Committee’s process to initiate proposed Rule 23 amendments. Many of these issues ultimately were set aside by the Committee, but taken up by Congress in FICALA:

  • Lawyer-Driven vs. Plaintiff-Driven Cases: FICALA prohibits class actions in which named plaintiffs/class representatives are relatives or employees of class counsel, to quell lawyer-driven class actions that arguably benefit only the lawyers. “Lawsuits are supposed to be initiated by truly injured plaintiffs seeking redress, not invented by lawyers who hunt for a plaintiff to assert a supposed injury made up by the lawyer.”
  • Ascertainability of Class Members: FICALA requires a showing by plaintiffs that there is a mechanism for identifying members of a class and a feasible way to administer any monetary awards directly to a substantial portion of a defined class, prior to class certification. “Because the whole purpose of class actions is to redress the injuries sustained by class members, the system should ensure that any benefits obtained in such cases can actually be delivered to those class members.” This requirement will reconcile the inconsistent approaches that courts have taken to demanding that a class be ascertainable prior to certification.
  • Limits on Attorneys’ Fees: FICALA prohibits the granting of any attorneys’ fees until distribution of any award to the class is complete, and requires that any fee award be limited to a reasonable percentage of either the money distributed to the class or the value of an award of equitable relief (with the exclusion of fee awards in civil rights cases that are governed by The Civil Rights Attorney’s Fee Award Act of 1976). According to Congressional reports, “the median rate at which consumer class action members take the compensation offered in a settlement is an incredibly low 0.023 percent.” Tying attorneys’ fee awards to the money actually distributed to class members is meant to ensure that the class action mechanism primarily benefits the class and not plaintiffs’ lawyers. Under FICALA, attorneys’ fees may not exceed the total amount of money distributed directly to the class members, although the courts will be able to determine the best method for assessing reasonable fee awards in equitable relief cases.
  • Transparency of Award Disbursements: FICALA requires class counsel to file an accounting detailing the following information: (a) the total amount paid directly to all class members, (b) the actual or estimated total number of class members, (c) the number of class members who received payments, (d) the average amount (both mean and median) paid directly to all class members, (e) the largest and smallest amounts paid to any class member, (f) each amount paid to any other person (including class counsel) and the purpose of the payment. Based on the accountings, the Judicial Conference will file annual reports to the Senate and House Judiciary Committees summarizing how class action settlement funds have been distributed. This information will permit Congress and the public to further assess the low rates at which class members seem to file claims to collect on settlement awards, and whether the use of cy pres to disperse unclaimed class action settlement funds to third-party charities is a practice that should be permitted.
  • The End of Issues Classes: FICALA prohibits certification of a class for a single issue (”issues classes”) unless an entire claim satisfies the requirements of Rule 23. This will prevent the creation of a class action based on a single legal or factual issue that can be determined for the whole class (e.g. is a product design defective) when the actual claims are predominated by individualized questions that require case-by-case analysis (e.g. did a particular class member experience any harm from the alleged defect?).
  • Discovery Stayed: FICALA stays discovery in all class actions while dispositive motions are pending (e.g. motions to dismiss, strike class allegations, etc.), unless discovery is necessary to preserve evidence or to prevent undue prejudice to a party. This will save parties, particularly defendants, from the expense of discovery until a case has been proven to be legally sufficient to proceed and will relieve some of the pressure to settle a case based on the costs imposed by burdensome discovery requests.
  • Disclosure of Litigation Funding: FICALA requires the disclosure of any contract with a third-party funding litigation to curb any influence by the funder that may conflict with the interests of class members and the attorney-client relationship.
  • Right to Appeal: FICALA grants an immediate right to appeal a court’s decision denying or granting class certification, replacing the current paradigm in which the grant of appeal is discretionary. The reality is that once a class is certified most companies settle, even if they have no merit, due to the risks and costs of litigation. A right to appeal a certification decision is deemed critical: “[g]etting class certification questions correctly decided is essential to fixing the current class action system, and that will not happen unless appellate courts weigh in.”

FICALA also takes on several other issues, including fraudulent joinder in personal injury and wrongful death cases, and multi-district mass tort litigation. FICALA has been criticized as leaning too far in favor of corporate defendants. Whether FICALA will lead to substantial revision to class action litigation as we know it remains to be seen. The House sent FICALA to the Senate for consideration and it remains pending before the Senate Judiciary Committee. We will keep you posted on its progress.

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