Class Action Reform Act: ‘Grin vs. Grimace’
‘The Good, The Bad and The Overbroad’
By Tom Hagy
With a GOP dominated federal government, and things looking rosy for the party at the state level too, you would expect someone to clamp the jumper cables on the chest of tort reform and jolt it back to its feet. If that’s your preference, then you must be grinning right now. If you’re on the plaintiff side, you might be sporting more of a grimace.
Right now the latest manifestation of tort reform – ushered in by the GOP’s many recent political victories – comes in the form of the Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017, or H.R. 985. After passing in the House by a vote of 220-201 on March 9, the bill is now resting comfortably with the Senate Judiciary Committee.
It’s not my job to take sides on this. First, who cares what I think. Besides, being the middle child, a CLE producer, and legal writer, I am open, if not duty-bound, to acknowledge the arguments of both sides.
Are there ridiculous lawsuits out there? Of course. And the U.S. Chamber of Commerce proudly displays them on its website. Like pedestrians who walk into things while text-walking, then sue the makers of the things they walk into.
Do people in companies do bad things that harm the little guy? Of course. Plaintiff law firms and Public Justice – and the general press – cover those catastrophes with gusto. One large bank is spending countless dollars trying to get its banking customers to trust it again after an almost clownish rash of employees creating fake checking accounts for its own customers. Now THAT’s service! [Disclosure: That bank is my personal mortgage company.]
Side Note: The court of public opinion is a pretty serious customer too. United Airlines brutally drags a guy off a flight and, as comedic writer and actor Albert Brooks tweeted, “United now has to drag people on [to its planes].” Crisis communications people will debate how United CEO Oscar Munoz handled it, but I have to think he gets points for immediately calling the incident “truly horrific” and “disturbing,” saying the company takes “full responsibility” and will “work to make it right.” Then the question is often raised in cases like this: Did leadership set a tone of profit no matter how it impacts the consumer? Either way, United Airlines stock took a nasty dip, losing $770 million off its market cap, according to Time. That reversal of fortune has already reversed itself; United’s stock is back to its pre-dragging days. It would be hard to argue that an injury case would be frivolous. It may not survive, and would likely settle, but frivolous? Hardly. Having said that, I will never complain about the middle seat again.
But back to H.R. 985, with the awkwardly tilted and fully loaded title construct we have come to expect from legislative measures, regardless of their origin.
Here are some of the more pithy comments being made about H.R. 985, which I assume everyone is just going to call “the class action reform act.”
Jackson Lewis P.C. On this fine firm’s Employment Class and Collective Action Update (good reading, by the way), attorneys Stephanie L. Adler-Paindiris and Stephanie L. Goutos offered a quick list of the key elements of the bill. Largely without passing judgment, even though they represent employers, the major aspects of the bill, they say, fall into these categories: 1. class certification based on type and scope of injury; 2. explicit ascertainability requirement; 3. attorney’s fees; 4. mandated reporting regarding funds paid; 5. class action counsel representation of relatives and other conflicts of interest; 6. stays of discovery; 7. appeals of certification orders.
Their choice of a juicy quote, however, was not so down the middle, but that’s ok. They aren’t writing a newspaper! They quoted the author of H.R. 985, House Judiciary Committee Chairman Bob Goodlatte (R-Va.), who said he was doing this for the nation’s judges, whom, he said, “are crying out for Congress to reform the class action system, which currently allows trial lawyers to fill classes with hundreds and thousands of unmeritorious claims and use those artificially inflated classes to force defendants to settle the case.” Read more.
The U.S. Chamber of Commerce. The Chamber’s Institute for Legal Reform made, predictably, an economic argument: “Many class actions are not being prosecuted to seek justice, but rather to essentially shakedown a defendant—hurting businesses and damaging the American economy.” Read more. The Chamber’s “shakedown” argument is one that it has made for several years, including, as a random example, in a 2015 amicus brief in the In re Prograf Antitrust Litigation case. In opposing class certification, it told the First Circuit U.S. Court of Appeals a lower court was “invit[ing] the filing of class actions with little or no merit but great potential to extort settlements that benefit no one except class counsel who bring the lawsuits and the lawyers retained to defend them.” The Chamber urged the appellate panel to reverse certification to “avoid the filing of shakedown class actions.” Read more.
The Drug & Device Law Blog. This is one of my favorite blogs, earning my first-ever and soon-to-be-coveted “Best Darn Law Blog” designation. It’s written by a team of lawyers from Reed Smith LLP and one from Dechert LLP, and features guest posts. Here is a sampling of a recent post from Rachel B. Weil of Reed Smith in Philadelphia, who jumped into the fray over H.R. 985 after a light-hearted side trip to the Westminster Kennel Club Dog Show.
She wrote: “[I]n an issue close to our hearts as we daily encounter plaintiffs unwittingly victimized by so-called ‘litigation funders,’ the bill provides, ‘In any class action, class counsel shall promptly disclose in writing to the court and all other parties the identity of any person or entity, other than a class member or class counsel of record, who has a contingent right to receive compensation from any settlement, judgment, or other relief obtained in the action.’ A sunshine law for third-party funding is something else for which we’ve advocated.”
Weil went on to say that the removal and MDL provisions are at least as important as the class action issues. And, while Weil thinks more sunshine is needed on third-party funding, she believes some plaintiff attorneys are enjoying too much sun. “The vast bulk of our professional life is spent in the mass tort space – mostly MDLs these days, with the occasional class action thrown in. We have become accustomed (but never inured) to plaintiffs without injuries herded by counsel who are their friends or bosses into mass actions in which they don’t belong. On the other end of the spectrum, we encounter severely injured plaintiffs who will recover next to nothing because lawyers and litigation funders own most or all of the plaintiffs’ stakes in the inevitable settlements. And, at every turn, we sit across the table from tanned and affluent plaintiff attorneys who are the only ones apparently immune to the vagaries of the system and who are the sole beneficiaries of its inequities.” Read more.
Gibbs Law Group LLP. This accomplished plaintiffs class action firm challenges the shakedown argument, saying it has “no empirical backing” and that legal scholars have repeatedly debunked the myth that “class actions foster extortionate claims.”
“The in terrorem boogeyman has already been used to justify at least a half dozen colossal changes to the class action practice. . . . Let’s be clear about what H.R. 985 does,” the Gibbs piece reads. “It proposes to stack a heap of bricks directly in front of the courthouse doors. These bricks are procedural rules corporations have long sought but failed to obtain through court rulings or the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States.”
Andre Mura and Dave Stein, the Gibbs Law attorneys who wrote the piece for Law360, asked: “At what point do we recognize that erecting additional procedural obstacles will only serve to deny true victims of corporate fraud their constitutional rights to a day in court?” Read more.
Lieff Cabraser Heimann & Bernstein LLP. After the bill went to the Senate, head of this well-known plaintiffs’ firm’s Committee to Support the Antitrust Laws, Eric B. Fastiff, struck an optimistic tone. “We are hopeful senators will take a more thoughtful approach and reject this pro-corruption bill.” Read more.
Milberg LLP. In a recent post on its site, this plaintiff firm says corporations are playing the victim here. “Corporations claim victimization by class actions, even though the bar to winning them has been rising steadily for decades. Corporations have incrementally erected barriers they claim are merely ‘procedural’ and necessary to protect their rights, or, absurdly, that the proposed changes help consumers. News about Wells Fargo’s opening of millions of fake customer accounts, banks using error-filled robo-signed paperwork to foreclose on homeowners, and countless other deceptions demonstrate the obvious: big corporations don’t need more legal protection.” Read more.
The American Bar Association. Yeah, the ABA isn’t into this bill, saying it will cause more problems than it will solve, and not ease the pain Rep. Goodlatte claims is inspiring judicial tears. Head of the ABA’s Government Affairs Office, Thomas S. Susman, wrote: “Class actions have been an efficient means of resolving disputes. Many of the legitimate complaints about lawsuit abuses through class-action litigation have already been addressed through the evolution of class-action standards by the courts themselves; others are currently being considered by the Judicial Conference. Making it harder for victims to utilize class actions could add to the burdens on our court system by forcing aggrieved parties to file suit in smaller groups, or individually.” Read more.
Columbia Law Prof. John C. Coffee, Jr. Probably my favorite piece on this – because it informed me, didn’t pretend the issue was black and white, and made me laugh – came from this Columbia law professor, who described H.R. 985 as a “motley assortment of procedural ‘reforms’ —some good, many bad, and most overbroad.” In a blog post titled “How Not to Write a Class Action ‘Reform’ Bill,” Prof. Coffee said much of the bill was taken from previously failed attempts at reform, which probably fizzled because President Obama would have vetoed them anyway, he wrote. Some of the bill is new, he wrote, but overall it includes some “constitutionally suspect” parts, and some that are merely “clumsily drafted.” He added that there are, however, “a few good and sensible ideas” in the package too. Read more.
This isn’t the only effort to limit litigation. There is also H.R. 720, the Lawsuit Abuse Reduction Act, the title of which follows form by loading it with assumptions. In this case, it is once again Rep. Goodlatte (whose orders at Starbucks must be hysterical – “No! I ordered a Frappuccino!” I’m sure he’s never heard that before.), who proposed the measure.
And, once again, it was the U.S. Chamber of Commerce who was there to back him up. In a Feb. 1 letter to Goodlattee, the Chamber wrote: “Every year, potentially billions of dollars are wasted on frivolous lawsuits, hurting job growth and slowing the economy. Under America’s current legal system, obtaining dismissal of a lawsuit that has no valid legal or factual basis can easily cost hundreds of thousands of dollars in legal fees and discovery costs—not to mention lost time and productivity. As a result, businesses often settle even baseless claims because fighting them in court would cost more than agreeing to a settlement demand. The expenses accompanying such settlements result in lost jobs and can drive businesses, especially small businesses, into bankruptcy.”
The ABA’s Susman, in a March 7 letter, chimed in by saying – as he did with H.R. 985 – that the bill would cause the very problem it attempts to solve. There is “no evidence” that the proposal would deter meritless lawsuits, he wrote, adding that the courts already have plenty of ways to stop them. “In fact,” he said, “. . . past experience strongly suggests that the proposed changes would encourage new litigation over sanction motions, thereby increasing, not reducing, court costs and delays. This is a costly and completely avoidable outcome.”
The next big step will take place in the Senate. If it passes there, we can expect to see President Trump sign faster than you can say “I’ll see you in court.”
Like so many issues in the country right now, each side has plenty of allies and tools to work with. But tort reform advocates have the support of the ruling party, which will serve them well. Ironically, the debate will probably wind up in litigation no matter who prevails in the next big round. The ultimate decider in that world is, of course, The Supreme Court, which tilts to the right. That would give hope to reformers. But who knows, really. The Supremes have proven to be less predictable than many would think. I will leave it to Supreme Court scholars to hazard a guess on how the high court would come down on the issue, and invite comment. Write to me at email@example.com.