Last week, the House of Representatives passed sweeping legislation that would upend the class action landscape. If the Senate passes the “Fairness in Class Action Litigation Act,” injured investors and consumers could potentially run into colossal difficulties, if not outright dead-ends, in seeking efficient relief through class actions or the legal system itself.
The bill, in its original form, presented even more challenges for plaintiffs, where it would have prevented institutional investors and individual plaintiffs alike from being represented by their selected class counsel on a repeating basis. Amidst outcries that this proposal muddied the mechanisms in well-established legislation that encouraged institutional investors to take the lead in securities class actions and unnecessarily infringed on the sacrosanct ability of a client to choose its attorney, the House agreed to an amendment that removed that prohibition.
But the sum of remaining parts, if the bill as written were to become law, would still severely restrict, if not abolish, the ability of plaintiffs to seek relief except through individual legal actions. For example, under the currently drafted bill, investors and consumers would have to prove that each class member suffered “the same type and scope of injury,” despite well-settled case law that class members can be injured in varying ways. Further, the proposed bill provides increased opportunities for defendants to halt or limit discovery until, potentially, the class is certified–something that both prolongs the litigation and makes attaining certification much more challenging. And class counsel would be prohibited from obtaining any fees until after the settlement has been fully administered and distributed. That could be years beyond the point when defendants settle and in most cases puts the full settlement amount into an escrow fund.
These new requirements would discourage ordinary individuals from seeking to hold companies liable for committing such things as fraud or antitrust violations. The bill would also effectively remove incentives for many lawyers to take on years-long litigation battles that are fraught with financial risk. Coupled with legal decisions from the Supreme Court that have upheld class action waivers in consumer contracts, the bill would also leave consumers without an incentive or effective tool for enforcing their rights and filing an action. Bringing individual actions at a consumer or individual investor level would be made virtually impossible as potential recoveries would be dwarfed by the costs of those individual actions.
The bill has been widely condemned. Consumer advocates argue that it would ultimately shield financial firms from accountability. House Democrats emphasize that consequences have not been meaningfully considered as the Judiciary Committee moved the bill to the full House without a hearing. The American Bar Association has commented that existing legislation already provides for a process for considering changes to class action rules. And legal analysts and scholars predict years of litigation over the meaning of its provisions like “same type and scope of injury.”
14 House Republicans voted against the bill, which passed in a 220-201 vote. This is a surprisingly large number of “Nays” from members of a party that has a plank of its political platform designated toward “tort reform.” This result may foreshadow how the bill will fare in the Senate, assuming it is brought up for a vote there at all in its current form or in an amended version. The Senate Judiciary Committee is reportedly reviewing the bill. Some opponents predict that Senate Democrats will have enough votes to block the bill by filibuster. With the stakes so high, consumer advocates and business interests are keeping a close eye on developments as proponents seek to rush the bill through.