Class Actions

Class actions were developed as a form of lawsuit in which a group of people claiming similar injuries or damages could sue the same defendants together. Class actions were originally designed to benefit legitimately aggrieved individuals by allowing them to more easily join together and seek efficient legal relief. Nowadays, however, many class actions are not being prosecuted to seek justice, but rather to essentially shakedown a defendanthurting businesses and damaging the American economy. read more...

Originally a vehicle for civil rights litigation, class actions quickly spread to such areas as product liability, consumer fraud, and employment discrimination cases. The sheer size of some classes is enormousthousands, tens of thousands and, in some cases, millions of individual claimants have been brought together in single class actions.

The large size of some classes, and the resulting large potential payouts, make these cases very risky for businesses. As a result, most business defendants seek to settle class actions before risking a trialeven if they have not done anything wrong. Unfortunately, plaintiffs’ lawyers have exploited businesses’ understandable caution by filing many questionable or meritless class actionsall with the goal of scoring a jackpot settlement.

These large settlements provide highly lucrative contingency fee awards to plaintiffs' lawyers. Meanwhile their purported "clients," the class members, must fill out paperwork to obtain small, often token, compensation. Moreover, because participation in these settlements is often quite meager, much of the compensation remains unclaimed. This can results in what is called a cy pres ("near as possible") distribution—in which money meant to compensate class members goes instead to third-party charities that have little or no connection to the interest of the injured class. Plaintiffs’ lawyers like cy pres settlements because they can inflate their fees, which are almost always tied to the size of the entire class award (including the cy pres distribution). But the end result is that the supposed beneficiaries of class actions rarely obtain meaningful benefits.

The Class Action Fairness Act of 2005 (CAFA) curbed many abuses by moving most large, interstate class actions to federal courts, where scrutiny of class actions is generally more rigorous and impartial than in state courts. In the 2013 case of Standard Fire Insurance Co. v. Knowles, the U.S. Supreme Court blocked attempts by plaintiffs’ lawyers to circumvent CAFA and keep some cases in state courts. The Supreme Court confirmed the broad reach of CAFA the following year in Dart Cherokee Basin Operating Co. v. Owens. In addition, the Court has issued a number of recent rulings tightening class certification standards, including Dukes v. Wal-Mart and Comcast Corp. v. Behrend.

While CAFA has significantly improved the civil justice landscape in the United States, some problems remain. For example, CAFA did not address the problem of frivolous small-dollar class actions at the state level, which cry out for reform by state legislators. In addition, notwithstanding Supreme Court rulings tightening the requirements for class certification, certain courts of appeals have resisted those dictates. Most notably, the Courts of Appeals for the Sixth, Seventh, and Ninth Circuits have been less rigorous than other circuits in certifying class actions, often going out of their way to try to limit the reach of the Supreme Court’s pronouncements. Specifically, a growing number of federal courts are certifying classes consisting of plaintiffs who have not been injured in the same way as the purported class representative, and even some who have not been injured at all. The cases have become known as “no injury” class actions.

Article III of the Constitution requires that a suing party must have actually suffered some injury or threat of injury that can be traced to the actions of the defendant at issue in the case, in order to have “standing.” But presently, a person who has a problem with a product or service is often allowed to sue on behalf of all the other people who bought the product or paid for the service, even when these others have not been injured in any way and might be perfectly happy with what they paid for. This clear violation of constitutional standing requirements is used as a tactic to enlarge putative classes in the beginning stages of a class action suit, which often pressures settlements and unjustly inflates plaintiffs’ attorneys’ contingency fees. In May 2016, the Supreme Court in Spokeo Inc. v. Robins somewhat addressed this issue, ruling that the Ninth Circuit Court “used the wrong legal analysis when it allowed” a class action against search engine Spokeo to move forward. The plaintiff in Spokeo had argued that the search engine violated the Fair Credit Reporting Act when it inaccurately published that he was a wealthy married man with children.

This is why ILR supports enactment of the Fairness in Class Action Litigation Act of 2017 (FICALA).  FICALA will make a number of significant changes to the class action litigation system:

  • Addition of an ascertainability standard, which would require that the members of a class be readily identifiable as a prerequisite to class certification. This fix would also require lawyers to demonstrate that they can actually deliver actual relief to class members.
  • Mandated disclosure of third party litigation funding arrangements in all class actions, which would provide much needed transparency to what are currently secret agreements where “investors” pay plaintiffs’ counsel money up front in exchange for a right to receive a portion of whatever award class members might receive.
  • Elimination of “no injury” class actions by requiring that plaintiffs’ lawyers demonstrate that each class member has suffered an injury of the same type and scope as the class representative who brought the lawsuit.
  • Reigning in of issues classes, in which courts certify only a particular issue (just a sliver of the case) for class treatment (a clear end run around Supreme Court mandated fairness requirements), by making clear that federal courts should not certify a proposed issues class unless the entire claim for relief qualifies for class treatment.
  • Establishing a rule in all class actions that discovery may not proceed until threshold motions challenging the validity of the claims are resolved—just as Congress has already mandated in securities class actions. This measure would help curb aggressive and abusive discovery methods used to coerce settlements.
  • Requiring federal courts to hear appeals from class certification rulings.
  • Mandating disclosure of the circumstances under which each named plaintiff became involved in a class action, in order to root out any potential conflicts of interest between class counsel and class members.  Further, persons having familial or employment relationships with counsel would be prohibited from acting as class representatives.


In short, CAFA played a vital role in curtailing class action abuses. However, problems still remain that merit further reforms such as those envisioned by FICALA. Reforms like FICALA would help further restore balance to the current class action landscape.

FICALA would also address mass tort multidistrict litigation (MDL) proceedings by addressing many of the significant abuses that turn MDLs into a mechanism of extracting strong-armed settlements from defendants, who are many times effectively deprived of their day in court.

Research

The ILR Research Review - Spring 2017

May 08, 2017 | This edition of the ILR Research Review offers valuable insights from ILR's recent research on the latest trends in litigation and the tactics and strategies entrepreneurial plaintiffs' firms are using to expand their business models and bring more lawsuits in local, state, federal, and international courts.

Watching it Work: The Impact of Ohio's Asbestos Trust Transparency Law on Tort Litigation in the State

May 04, 2017 | This report analyzes the impact that Ohio's 2013 asbestos trust transparency law has had on asbestos tort litigation in the state and concludes that trust transparency reforms appear to have accomplished the goal of ensuring transparency and fairness without causing delays in case resolution.

All Results for Class Actions

Watching it Work: The Impact of Ohio's Asbestos Trust Transparency Law on Tort Litigation in the State

Author: Maryellen K. Corbett and Matthew M. Mendoza, Calfee, Halter & Griswold LLP | May 04, 2017 | Research

This report analyzes the impact that Ohio's 2013 asbestos trust transparency law has had on asbestos tort litigation in the state and concludes that trust transparency reforms appear to have accomplished the goal of ensuring transparency and fairness without causing delays in case resolution. Read More »

Gowdy Praises Fairness in Class Action Litigation Act, while Graham Mum on Position

May 02, 2017 | News and Blog

In an interview with Palmetto Business Daily, U.S. Rep. Trey Gowdy (R-SC) offered his praise for the Fairness in Class Action Litigation Act, which passed the House in March. Read More »

In the News Today - April 19, 2017

April 19, 2017 | News and Blog

This week, the Arizona legislature passed a bill (S.B. 1406) to curb lawsuit abuse under the Arizonans with Disabilities Act (AZDA). S.B. 1406 would ensure that genuine AZDA claims are addressed without exposing Arizona's small business owners to abusive litigation that impedes economic growth and job creation. ILR sent a letter to Gov. Ducey urging him to sign S.B. 1406 into law. Read More »

Engineered Liability: The Plaintiffs' Bar's Campaign to Expand Data Privacy and Security Litigation

Author: Divonne Smoyer and Kimberly Chow, Reed Smith LLP | April 19, 2017 | Research

As data breaches are becoming more commonplace, the plaintiffs' bar is engineer a staggering expansion of liability in the areas of privacy and data security. Class action lawyers are pursuing data privacy cases and amassing fortunes even where no one has been harmed. This paper examines the data privacy and security legal landscape, plaintiffs' bar tactics, major cases and settlements, and a suggested framework for reform. Read More »

In the News Today - April 6, 2017

April 06, 2017 | News and Blog

Class-action securities lawsuit filings rose 33 percent in 2016 – the highest level since 2008 and the fourth consecutive annual increase. Additionally, the total value for accounting case settlements climbed to $4.8 billion, almost 80 percent larger than in 2015 and the highest level since 2007. Read More »

Torts of the Future: Addressing the Liability and Regulatory Implications of Emerging Technologies

Author: Cary Silverman, Phil Goldberg & Jonathan Wilson, Shook, Hardy & Bacon L.L.P. | March 29, 2017 | Research

Torts of the Future examines the emerging technology sectors of autonomous vehicles, commercial drones, private space exploration, the "sharing economy," and the Internet of Things, and assesses the existing regulatory and litigation environments and future liability trends for each. The paper also draws from experience in each area to present guiding principles for addressing the liability and regulatory implications of emerging technologies. Read More »

In the News Today - March 24, 2017

March 24, 2017 | News and Blog

In an opinion piece, Thurbert Baker and Tom Stebbins write that "New York desperately needs to pass legislation to apply existing consumer protection laws" to lawsuit lenders. Last month, New York Attorney General Eric Schneiderman filed a complaint against a lawsuit cash advance firm for allegedly engaging in predatory lending practices. Read More »

In the News Today - March 21, 2017

March 21, 2017 | News and Blog

U.S. District Judge Paul Diamond issued a bench warrant for the arrest of Martin Kenney and Garrett Kelleher after both failed to appear to determine their liability to insurer Cigna. In 2016, Judge Diamond ruled that Kenney and Kelleher had "repeatedly thumbed their noses at the courts of the United States" and were liable to Cigna for "orchestrating" continued action against the company. Read More »

The Growth of Collective Redress in the EU: A Survey of Developments in 10 Member States

Author: Ken Daly, Sidley Austin LLP | March 21, 2017 | Research

This paper examines the 'state of play' of collective redress in 10 Member States in the EU and suggests minimum necessary safeguards to prevent litigation abuse taking hold in Europe. Read More »

"Congress Should Restore Meaningful Sanctions for Meritless Litigation"

March 17, 2017 | News and Blog

Earlier this month, the U.S. House of Representatives passed the Lawsuit Abuse Reduction Act (LARA) to restore the authority of Rule 11 sanctions in federal litigation. Read More »

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