Congressional Record
CLASS ACTION FAIRNESS ACT
November 15, 2001
Mr. KOHL. Mr. President, I rise today to join Senators GRASSLEY, HATCH, CARPER, and THURMOND in
introducing the Class Action Fairness Act of 2001. This legislation addresses the growing problems in class action litigation,
particularly unfair and abusive settlements that shortchange plaintiff class members.
We have worked together on this legislation in past Congresses. In fact, last year a similar version of class action reform
passed the House of Representatives and was approved by the Senate Judiciary Committee. Unfortunately, the session ended
before we could bring it to a vote of the full Senate.
The problem that this bill addresses is simple. Too often, the class action procedure is being hijacked by unscrupulous parties
who are more interested in making a dollar for themselves than helping the plaintiff class members remedy a legitimate harm. Let
me give you just one well known example of the unfairness this bill attempts to correct.
A few years ago, a class action lawsuit was begun against the Bank of Boston. Martha Preston from Baraboo, WI was an
unnamed class member of that suit against her mortgage company. The case involved allegations that the bank had overcharged
its mortgage customers and had kept excess money in their escrow accounts. It was ultimately settled. Ms. Preston was
represented by a group of plaintiffs' lawyers who she had never met. The settlement they negotiated for her was a bad joke.
She received four dollars and change in the lawsuit, while her attorneys pocketed $8 million in fees.
Soon after receiving her four dollars, Ms. Preston discovered that her lawyers helped pay for their fees by taking $80 from
her escrow account. Naturally shocked, she and the other plaintiffs sued the lawyers who in turn sued her in Alabama, a State
she had never visited, for $25 million. Not only was she $75 poorer for her class action experience, but she also had to defend
herself against a $25 million suit by the very people who took advantage of her in the first place.
In response to this case and many more like it, we developed a measured, reasoned response to protect class action plaintiffs
against a system which is subject to abuse. As in past years, the bill can be divided into three main sections, all of which provide
enhanced protections for individual plaintiffs.
First, the bill provides that every class action notice be written in plain, easily understandable English. Too many of the class
action notices are written in legalese, designed to make it impossible for the average American to comprehend his rights and
responsibilities as a member of the plaintiff class. The bill requires that a statement be included at the beginning of the notice
written in large, bold type alerting the plaintiff that he is involved in a class action lawsuit and that his legal rights are affected by
the contents of the notice. This means that every class
member will understand the subject matter of the case and his rights and responsibilities as a participant in the lawsuit.
Further, if the case were settled, the notice to the class members would clearly describe the terms of the settlement, the
benefits to each plaintiff and a summary of the attorneys fees in the case and how they were calculated. Currently, none of this
information is clearly communicated to the class members.
Second, the bill requires that notice be given to State Attorneys General or the appropriate State regulatory authorities about
proposed class settlements in Federal court which affect their constituents. This encourages a neutral third party to weigh in on
whether a settlement is fair and to alert the court if they do not believe that it is. The Attorney General review is an extra layer of
security for the plaintiffs and is designed to ensure that abusive settlements are not approved without a critical review by one or
more experts.
Third, the bill makes it easier to move State class action cases to Federal court by changing the diversity rules governing these
actions. Class action cases often have national implications and are joined by plaintiffs from many, if not most, States. Currently,
class actions are frequently heard by a State court judge in a venue chosen by the plaintiffs' attorneys to maximize the chance
that the class action will be certified.
For class actions, the certification process is usually more than half the battle. Once a set of plaintiffs succeeds in getting a
judge to certify them as a class, the defendants are often faced with extraordinary costs associated with preparing for trial and
dealing with a multitude of plaintiffs. So, the defendants settle the case at terms beneficial to the plaintiffs' attorneys, often at the
expense of the plaintiffs themselves.
A recent study on the class action problem by the Manhattan Institute demonstrates that class action cases are being brought
disproportionately in a few counties where plaintiffs expect to be able to take advantage of lax certification rules.
The study focused on three county courts, Madison County, IL; Jefferson County, TX; and Palm Beach County, FL, that
have seen a steep rise in class action filings over the last several years that seems disproportional to their populations. They
found that rural Madison County, IL ranked third nationwide, after Los Angeles County, California and Cook County, Illinois,
in the estimated number of class actions filed each year, whereas rural Jefferson County and Palm Beach County ranked eighth
and ninth, respectively. As plaintiff attorneys found that Madison County was a welcoming host, the number of class action suits
filed there rose 1850 percent between 1998 and 2000.
Another trend evident in the research was the use of ``cut-and-paste'' complaints in which plaintiffs' attorneys file a number of
suits against different defendants in the same industry challenging standard industry practices. For example, within a one-week
period early this year, six law firms filed nine nearly identical class actions in Madison County alleging that the automobile
insurance industry is defrauding Americans in the way that they calculate claims rates
for totaled vehicles.
The system is not working as intended and needs to be fixed. The way to fix it is to move more of these cases currently being
brought in small state courts like Madison County, IL to Federal court.
The Federal courts are better venues for class actions for a variety of reasons articulated clearly in a RAND study. RAND
proposed three primary explanations why these cases should be in federal court. ``First, Federal judges scrutinize class action
allegations more strictly than State judges, and deny certification in situations where a State judge might grant it improperly.
Second, State judges may not have adequate resources to oversee and manage class actions with a national scope. Finally, if a
single judge is to be charged with deciding what law will apply in a multistate class action, it is more appropriate that this take
place in federal court than in State court.''
We all know that class actions can result in significant and important benefits for class members and society, and that most
class lawyers and most state courts are acting responsibly. Class actions have been used to desegregate racially divided
schools, to obtain redress for victims of employment discrimination, and to compensate individuals exposed to toxic chemicals
or defective products. Class actions increase access to our civil justice system because they enable people to pursue claims that
collectively would otherwise be too expensive to litigate.
The difficulty in any effort to improve a basically good system is weeding out the abuses without causing undue damage. The
legislation we propose attempts to do this.
Let me emphasize the limited scope of this legislation. We do not close the
courthouse door to any class action. We do not require that State attorneys general do anything with the notice they receive.
We do not deny reasonable fees for class lawyers. And we do not mandate that every class action be brought in Federal court.
Instead, we simply promote closer and fairer scrutiny of class actions and class settlements.
Right now, people across the country can be dragged into lawsuits unaware of their rights and unarmed on the legal
battlefield. What our bill does is give back to regular people their rights and representation. This measure may not stop all
abuses, but it moves us forward. It will help ensure that unsuspecting people like Martha Preston don't get ripped off.
We believe this is a moderate approach to correct the worst abuses, while preserving the benefits of class actions. It is both
pro-consumer and pro-defendant. We believe it will make a difference.