24 mai, 2007 19:48
Commentary: Class Action Fairness Act No Calamity After All
By Victor M. Diaz Jr.
Daily Business Review
05-24-2007
Before the ink was dry on the Class Action Fairness Act of 2005, it was widely decried by plaintiffs attorneys and consumer groups as a blow to consumer rights and celebrated by tort reformers as a rousing victory for big business.
Corporate defendants cheered CAFA as a tool to end costly and abusive class actions brought in remote jurisdictions. Plaintiffs feared the act would mark an end to the class action as an effective tool to rein in corporate abuse and weaken the ability of citizens with small individual claims to join forces to take on corporate America.
Fearing abusive use of CAFA's procedural rules by corporate defendants, most plaintiffs believed the law would significantly hamper class action litigation.
More than two years after President Bush signed CAFA into law, these concerns are proving to be greatly exaggerated. CAFA should not be feared by the plaintiffs bar.
While the days of cases filed in remote, plaintiff-friendly state court venues may be over, CAFA has led to better representation of classes by plaintiffs attorneys and better outcomes for class members. On the whole, the potential shift of nearly all class actions to federal court has elevated the class action bar and meant better quality judicial review of corporate class-wide abuses.
CAFA has brought major changes to several aspects of class action litigation. The act includes significant changes in the amount of attorney fees awarded to plaintiffs. In a case resulting in a coupon settlement, such fees can no longer be based on the potential cost to a defendant of coupon redemption.
Under CAFA, attorney fees are calculated using the actual redeemed cost of the coupons. Plaintiffs attorneys are explicitly prohibited from circumventing the actual redeemed cost requirement by not tying their fees to coupon values.
In addition, federal courts may only approve a class settlement that requires class members to pay class counsel a sum that would result in a net loss to the class members upon a written finding that the non-monetary benefits to the class substantially outweigh the monetary loss to class members.
These features have placed a greater burden on federal judges to scrutinize settlements. They have the potential to result in better settlements for plaintiff classes and their attorneys. CAFA forces plaintiff class attorneys to rely less on coupon settlements, except in cases where they are absolutely necessary.
CAFA's most important feature for defendants is that it provides federal district courts with original diversity jurisdiction so long as the total compensation sought by the plaintiff class is greater than $5 million, and "minimal diversity" exists between members of the class and defendants.
To establish "minimal diversity," defendants must merely show that "any member of a class of plaintiffs is a citizen of a state different from any defendant" in order for a federal court to exercise original jurisdiction.
CAFA also makes it easier for defendants who are faced with a class action filed in state court to remove such a case to federal court by eliminating the pre-existing requirement that all defendants consent to removal. Defendants are now given 30 days from the time they are brought into the case to remove a class action to federal court, regardless of whether the other defendants consent to removal.
Admittedly, it would be difficult to conceive a class of consumers and potential defendants that would fail to meet the new lower jurisdictional threshold for removal to federal court. As a result, the vast majority of class actions are now forced into federal court by corporate defendants that take advantage of the perceived difficulty for plaintiffs of achieving class certification and the relative ease of appeal for certification decisions in the federal system.
But the act also contains a provision requiring federal courts to decline to exercise jurisdiction and remand the action to state court if the action is localized within one state, with the vast majority of defendants residing in that state and no similar actions burdening the state courts at the time the action is filed.
What do these changes mean for plaintiff class attorneys and the classes they represent?
The answer is simple -- plaintiff class attorneys must do a better job of representing their clients. The shift to federal court and the increased judicial scrutiny of class settlements mean that plaintiff class attorneys must raise their game.
Gone are the days where cases can be brought in remote locales favored by plaintiff lawyers for their perceived advantages. Gone are the days of state courts approving settlements that afforded disproportionate benefits to lawyers relative to the substantive results for their clients.
CAFA does not take away any substantive rights from plaintiffs. In fact, the act clearly broadens access for plaintiffs to federal court.
The changes the act brings about should not be feared by the plaintiffs bar. Instead, these changes should serve as a wake-up call that representation of plaintiff classes must improve in order for public opinion to continue to support class actions as an effective vehicle for redressing corporate abuses against consumer rights.
