20 Years of ILR Accomplishments: The Class Action Fairness Act

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March 12, 2018

In 2001, Blockbuster Entertainment—then the leading video rental company in the country—settled a national class action lawsuit over late fees.  The company agreed to pay the class action lawyers $9.25 million in legal fees, but ZERO cash to the allegedly aggrieved Blockbuster customers.  Instead, customers received a couple of coupons for video rentals and a dollar off coupon for popcorn.

These kinds of abusive class action settlements exploded in the 1990s, with innocent companies caught up in a dysfunctional system that paid millions of dollars to lawyers, with little or no benefit to the public. Urgent calls to reform the consumer class action system soon followed.

Starting in 2001, the U.S. Chamber Institute for Legal Reform (ILR) led a successful four-year effort to reform the class action lawsuit system, the biggest legal reform achievement of the last 20 years.

Congressional efforts to pass consumer class action reforms in 1997 had bipartisan support from Republican Senator Charles Grassley (R-IA) and Democratic Senator Herb Kohl (D-WI), but the bills didn’t make it out of the Senate Judiciary Committee.  Rep. Bob Goodlatte (R-VA) introduced similar legislation two years later in the House of Representatives, but his bill died on the floor.

ILR entered the class action debate, rallying the business community on moderate and sensible legal reform that would appeal to a bipartisan majority in Congress.  It also worked to educate legislators and members of media on the problem.

Much of the national class action lawsuit abuse occurred in state courts where locally-elected judges ruled on cases affecting thousands—sometimes millions—of consumers around the country.  Madison County, Illinois was one of the worst jurisdictions.  A judge there approved a settlement over allegedly faulty TV sets by awarding plaintiffs’ attorneys $22 million in fees. Class members received rebates for new TV sets, but only if they spent more money to buy new televisions from the same company they sued in the first place.

The Class Action Fairness Act (CAFA), introduced by Rep. Goodlatte in 2002, helped fix this problem by moving national class action lawsuits involving residents of different states to federal courts.  The bill passed the House that year, but remained stuck in the Senate Judiciary Committee.

Over the next two years, example after example of abusive class action settlements helped build support for the class action legislation in the editorial pages of the Washington Post and newspapers across the country.  Gradually, some Democrats in the Senate began to embrace the bill for its common sense reforms and consumer protection provisions. 

Finally, in February 2005, with the continued backing of Senators Grassley, Kohl and Senator Tom Carper (D-DE), the Senate passed the Class Action Fairness Act and it was signed into law shortly afterwards by President George W. Bush.

Ironically, it was a 2004 amendment to CAFA basically ending worthless coupon class action settlements like the Blockbuster one above, that helped get enough votes for the bill’s passage. 

Class action reform was truly a “blockbuster” achievement!