A Roadmap for Reform: Lessons from Eight Years of the Class Action Reform Act

October 23, 2013

While the Class Action Fairness Act of 2005 (CAFA) was an important first step toward leveling the class action playing field for American businesses, additional reforms are needed to address the legal abuses that still affect large-scale and aggregate litigation, even post-CAFA. Class action lawsuits may provide a lot of “bang for the buck” for contingency fee lawyers, but still typically provide little or no benefit for consumers.

Under CAFA, a defendant can “remove” a class action originally filed in state court to federal court as long as it satisfies certain criteria, including a $5 million amount-in-controversy threshold. This key provision in CAFA has helped move numerous interstate class actions from “magnet” state court jurisdictions, which traditionally employ loose class certification standards, to federal courts. As a result, more and more class actions that were once trapped in state courts hostile to out-of-state defendants are now receiving the careful scrutiny they merit.

A Roadmap for Reform: Lessons from Eight Years of the Class Action Fairness Act provides concrete proposals to address the most widespread and disruptive abuses that still mar class action practice, including cy pres settlements (the practice of distributing class funds to third-party charities instead of delivering the money to aggrieved class members) and efforts to evade CAFA jurisdiction.  It also identifies several additional areas that warrant vigilance to ensure that they do not become festering problems in the future.

These proposals include:

  • Congress should extend the reforms adopted in CAFA by (1) tying attorneys’ fees to actual class member recoveries in all class actions, not just those involving coupon settlements; and (2) expanding federal jurisdiction to include state court cases that overlap with federal multidistrict (MDL) proceedings, even if they do not satisfy the current requirements of complete diversity of citizenship.
  • Several judicial misinterpretations of CAFA’s jurisdictional provisions also warrant amendments by Congress to ensure that CAFA functions as it was intended to function. Such legislation would clarify that: 
    • Federal courts should consider evidence outside the plaintiff’s complaint when assessing whether a case falls under one of CAFA’s jurisdictional exceptions.
    • Plaintiffs cannot artificially “slice and dice” class actions and mass actions to avoid federal jurisdiction.
    • The test for determining the jurisdiction amount under CAFA is the “preponderance of the evidence” test, as opposed to the more stringent “legal certainty” standard.
  • Finally, several other issues of concern are percolating in certain federal courts and may be candidates for additional reforms. Federal appeals courts are increasingly reluctant to review class certification orders under Rule 23(f) of the Federal Rules of Civil Procedure, a development that threatens to encourage class action litigation. In addition, there has been increased activity in the area of issues classes, mostly in the Seventh Circuit, which has adopted a liberal construction of Rule 23’s issues class provision.

By reducing CAFA loopholes and enacting common-sense reforms, class action abuses can be curbed and CAFA can function as it was meant to function.

 

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