The long-debated Class Action Fairness Act was approved by the U.S. Senate recently. How does the Class Action Fairness Act affect class action lawsuits? We explain how the bill changes the rules of the game.
The object of the Class Action Fairness Act is to discourage the practice of "venue shopping," in which trial lawyers file multimillion-dollar class action lawsuits in lawyer-friendly state courts. In many instances, these case are filed in states that have little or nothing to do with the dispute.
These small county courts in remote locations, termed "magnet" courts, are known for approving class-action settlements that enrich lawyers and shortchange consumers.
For example, a class-action lawsuit suit against bottled water manufacturer Poland Spring asserted that the company's product was neither pure nor from a spring. Under a settlement agreement, the two lawyers who brought the suit collected $1.35 million. The consumers represented by the lawyers didn't make out quite as well. They received coupons for discounts on Poland Spring water.
The Class Action Fairness Act addresses a flaw in the current system, one in which companies and lawyers have been able to create "coupon settlements" instead of administering judgments. This system allows the defendant to pay damages to the small minority of claimants that redeem them, while at the same time allowing lawyers to value their fees based on the full coupon amount, according to the reform group.
To remedy the situation, the bill just passed by the Senate would take class actions with plaintiffs from multiple states out of state courts into federal courts, essentially stripping the lawyers of their "shopping" advantage.
Any case that exceeds claims of $5 million would go directly to the federal system. In additon, the bill allows for greater scrutiny of settlements in which the plaintiff might receive nothing more than a buyer's coupon, while their lawyer walks away with a fat payday
In a statement issued February 10, Senator Cantwell said: "The Class Action Fairness Act improves the process of organizing and trying class action cases, by moving most of the larger cases into federal court. I value efficiency and common sense in our justice system, and a single federal court can better streamline and manage a large multi-state lawsuit, than can numerous state courts all over the country," the statement says.
Opponents to the bill disagreed, claiming that forcing citizens with legitimate claims into crowded federal courts inevitably will delay cases and deny justice.