Grassley and Kohl said that they plan to make this bill a high priority in order to weed out the more egregious cases of class action lawsuit abuse, while preserving class actions as an effective tool to ensure that the "unrepresented have a say" in court. The Class Action Fairness Act of 1999is a modified version of the bill that the two senators introduced in the 105th Congress, with minor changes. The previous bill was approved by the Judiciary Subcommittee on Administrative Oversight and the Courts last year.
The bill is a product of a hearing convened in the fall of 1997 by Grassley as chairman of the Judiciary subcommittee with oversight responsibility for the courts. Kohl is a member of the Judiciary subcommittee and had previously introduced class action reform legislation. The hearing illustrated problems targeted by the bill, including class action settlements which have resulted in substantially more favorable terms for the attorneys than for the clients they represented.
For example, in one case, the plaintiff class alleged that several airlines participated in price- fixing which resulted in plaintiffs having to pay more for airline tickets than they should have paid. The settlement provided all plaintiffs with coupons which could be used toward the purchase of future airline tickets. Yet, few coupons were redeemed because plaintiffs still had to pay for most of the cost of any new airline ticket and the coupons could not be used during certain blackout periods which included holidays and peak travel dates. On the other hand, the plaintiffs' attorneys were paid $14 million in cash. "If the coupons were good enough for their clients, why weren't they good enough for the lawyers?" Grassley said.
In another class action settlement, some plaintiffs received under $10 in compensation for fee overcharges by their mortgage company, yet were docked from $80 to $90 for attorneys' fees. Essentially, attorneys negotiated and agreed to a settlement that cost some of their clients moremoney than they received for being wronged, while the class lawyers themselves pocketed over $8 million in fees. One of Senator Kohl's constituents not only lost $75 as an unsuspecting class member, but was sued by her own class lawyers for $25 million when she challenged the settlement. "Plaintiffs in this case never would have ended up in the red if they and the state judge knew that class lawyers were trying to get paid out of their clients' own pockets. But under current law, class lawyers and cooperative defendants can get away with concealing their true intentions," Kohl said.
Grassley said that lawyers can be distracted from their clients' needs and decide to settle based on the amount of their own compensation. This is because plaintiffs' lawyers usually negotiate their own fees as a part of a settlement. Grassley pointed to evidence presented at the subcommittee hearing where at least one group of plaintiffs' lawyers meets on a regular basis about initiating class action lawsuits. One witness testified that lawyers scan the Federal Register and other publications to get ideas for lawsuits, and after a "wrong" has been identified, they recruit clients for their lawsuits with the promise of compensation.
In addition, some defendants abuse the system by colluding with class lawyers in order to buy immunity from liability on unfairly favorable terms. Settlements offer defendants relief from future liability because, once a suit is settled, no member of the class may bring the same claim again. Not only does this create the risk of contrived class actions initiated by defendants themselves, but even when suits are unwelcome, the defendants' interests may coincide with those of self-interested class lawyers, resulting in low-value settlements and high fees. This is most likely when defendants face competing class actions brought in state and federal courts: in the ensuing "race to settlement," class lawyers are even more likely to accept an unsatisfactory settlement to make sure their own fees are paid.
A recent Rand study recognized these realities: "It is generally agreed that fees drive plaintiffs' attorneys' filing behavior, that defendants' risk aversion in the face of large aggregate exposures drives their settlement behavior . . . In other words, the problems with class actions flow from incentives that are embedded in the process itself."
"Unscrupulous practices by lawyers on both sides of the process serve to break down this very important tool in our legal system. The Class Action Fairness Act of 1999 takes direct aim at the abuses with more than procedural reform. Our bill represents much-needed substantive reform of our courts system. It would stem the conflict of interest that lawyers face in class action lawsuits, and help ensure fair settlements in these cases for the individuals who have been harmed," Grassley said.
"Right now, people across the country can be dragged into lawsuits unaware of their rights and unarmed on the legal battlefield. What our bill does is give regular people back their rights, their representation, and a better chance at a fair settlement. This measure may not stop all abuses, but it moves us forward," Kohl said.
The Class Action Fairness Act of 1999 establishes a number of measures to curb class action lawsuit abuses:
Many of the abuses associated with class actions are magnified as class actions become increasingly concentrated in state courts, particularly in states which permit class actions to proceed with little or no scrutiny. On the other hand, federal courts consistently give closer scrutiny to class settlements and to whether it is fair for a case to proceed as a class action. With their ability to consolidate related cases, federal courts bring more efficiency and prevent a race to settlement between competing cases.
Grassley said he intends to hold a subcommittee hearing on The Class Action Fairness Act of 1999 in the near future, and both Grassley and Kohl said they want to move the bill in an expeditious manner for full Senate consideration. The bill is also co-sponsored by Senator Strom Thurmond of South Carolina.