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

ILR Research Review - Fall 2017

November 30, 2017 | This special double-issue of the ILR Research Review features a wealth of insight and analysis on the world's rapidly changing litigation environment. The research contained in this issue targets exploitative litigation at home and abroad, examining numerous developments ranging from hyper-aggressive trial lawyer advertising in the U.S. to the imminent expansion of class actions in Europe.

Unstable Foundation: Our Broken Class Action System and How to Fix It

October 24, 2017 | Unstable Foundation examines the pervasive flaws afflicting the United States' class action system. Class actions rarely provide meaningful compensation for class members, and are poorly suited to deterring wrongful conduct.

All Results for Class Actions

The New Lawsuit Ecosystem: Trends, Targets and Players

Author: Victor E. Schwartz and Cary Silverman Shook, Hardy & Bacon L.L.P. | October 23, 2013 | Research

Authored by a distinguished group of practitioners, this report examines the developing lawsuit "ecosystem" and areas of litigation of most concern to the business community. Read More »

In the News Today - October 22, 2013

October 22, 2013 | News and Blog

A Manhattan federal judge dismissed a whistleblower lawsuit that accused a Chinese subsidiary of Siemens of violating Dodd-Frank. The judge ruled that the act's whistleblower protection provisions do not apply extraterritorially. Read More »

Stitching the Loopholes: Exploring the Spectrum of Class Action Solutions

Author: Victor Schwartz | October 10, 2013 | News and Blog

When the Class Action Fairness Act (CAFA) became law in 2005, the wiser and wealthier members of class action plaintiffs' bar met in closed quarters looking for loopholes to avoid having class actions heard in federal courts. Read More »

In the News

September 25, 2013 | News and Blog

A week after six lawyers left a Plaintiffs Steering Committee, a lawyer has voluntarily dropped a bellweather transvaginal mesh case against CR Bard Inc. Read More »

9th Circuit Allows CAFA Sidestep

September 25, 2013 | News and Blog

On Tuesday, the Ninth Circuit Court of Appeals ruled that a mass action against Teva Pharmaceuticals can stay in California state court Read More »

In the News

September 24, 2013 | News and Blog

On Monday, BP asked a court to halt payments from the gulf oil spill settlement fund until the administrator implements recommendations to improve efficiency and accounting controls. Read More »

Company Takes Hard Line on Lawyer Fees

September 18, 2013 | News and Blog

Starbucks recently agreed to pay $3 million to settle an employee class action, but is taking an unusual stance on attorney's fees. Read More »

Improving the Environment for Business in Australia

Author: U.S. Chamber Institute for Legal Reform | September 12, 2013 | Research

In recent years, the use of third party litigation financing ("TPLF") in Australia has resulted in a notable proliferation of class actions and other funded lawsuits. The growth of the lawsuit investment industry has occurred largely without government oversight, giving rise to serious issues yet to be addressed. As a result, the increase in TPLF-financed litigation has in turn increased the cost of doing business in Australia, a trend which will continue if the current situation remains unchanged. Read More »

House Committee Passes Bill to Sanction Frivolous Lawsuits

September 12, 2013 | News and Blog

On Wednesday, the House Judiciary Committee passed the Lawsuit Abuse Reduction Act of 2013, a bill that would make sanctions against frivolous lawsuits mandatory rather than discretionary and would eliminate a 21-day "safe harbor" for plaintiffs' lawyers to avoid sanctions by withdrawing a suit without penalty. Read More »

Another 'Absurd' Suit Thrown Out

September 10, 2013 | News and Blog

Two weeks after a judge dismissed a securities suit that "bordered on the absurd," another judge has dismissed a similar suit filed by the same law firm against a different defendant Read More »

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