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Senate Passes Limits on Class

A background report on legislation approved by the Senate that would send large, multi-state class action lawsuits from the state to federal courts. The bill is expected to go before the House for a vote next week.

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  • KWAME HOLMAN:

    The Senate yesterday easily approved a bill that would redirect many class-action lawsuits from state to federal courts.

  • SPOKESPERSON:

    The bill is passed.

  • KWAME HOLMAN:

    Its aim as to what supporters claim is to slow an explosion of frivolous lawsuits and exorbitant attorney fees. President Bush highlighted the issue last month in Madison County, Illinois, where he claimed the legal system encourages class-action suits.

  • PRESIDENT GEORGE W. BUSH:

    A recent study ranked Madison County the number one place in the country for trial lawyers to sue. And that's a ranking I'm sure you'd like to get rid of.

  • KWAME HOLMAN:

    And this week Majority Leader Bill Frist brought class-action legislation to the Senate floor.

  • SEN. BILL FRIST:

    The class-action bill will help end forum shopping. Aggressive trial lawyers have found that a few counties are lawsuit friendly. And in these select state courts judges are quick to certify a class-action and juries are known to grant extravagant damage awards.

  • KWAME HOLMAN:

    The bill would require class-action cases be moved to federal court if claims against them involve more than $5 million and if fewer than a third of the plaintiffs live in the defendant's state. Some Democrats argued federal courts are more sympathetic to business interests than they are to consumers. Illinois' Dick Durbin:

  • SEN. DICK DURBIN:

    Class-action cases removed from state courts to federal courts are less likely to go forward to be tried; they are less likely to reach a verdict where someone wins or loses; and if there is a decision on behalf of the plaintiffs, they're less likely to pay a reasonable amount of money in federal court than in state court.

  • KWAME HOLMAN:

    But Utah Republican Orrin Hatch added another reason to support the bill, because it addresses the vast disparity between what lawyers get from class-action settlements and what plaintiffs get.

  • SEN. ORRIN HATCH:

    In the settlement of a class- action lawsuit alleging that Coca-Cola improperly added sweeteners to apple juice, it was the lawyers who got a sweet deal: $1.5 million in fees and costs.

    Unfortunately, class members came up empty again, receiving 50-cent coupons, but no cash. So each of them got 50-cent coupons while the lawyers walked away with $1.5 million in attorney's fees.

  • KWAME HOLMAN:

    The bill would require federal judges to review the fairness of those coupon settlements and tie lawyer fees directly to the success of a coupon program. Eighteen Democrats joined Senate Republicans in approving class-action bill; a quick vote and passage have been assured by Republican leaders in the House.

  • RAY SUAREZ:

    For more on the impact of this legislation, I'm joined by Sam Issacharoff, a professor at Columbia Law School. He worked on Democratic amendments that were voted down; and John Beisner; he's a lawyer at the law firm of O'Melveny and Myers in Washington and a consultant to the Class-Action Fairness Coalition. He helped draft the legislation.

    And John Beisner, once this passes and it looks like it's pretty clear sailing from here on out, what's going to be different? If you're an individual who feels that you've been injured by a commercial product, let's say and feel that many people are in the same boat as you are, what's going to be different about how you proceed and the system that awaits you?

  • JOHN BEISNER:

    I think from the standpoint of the claimants in these cases, there won't be much difference at all. There'll be a difference in the court. You'll be in federal court in many of these cases as opposed to state court. But I think the big difference is that at the end of the case, you are likely to recover more because under the current system state courts are often approving settlements in which most of the money that is recovered goes to the lawyers and not to the class members.

    I think that under this system, the federal courts will be policing that situation far better under new procedures that they have recently established. So, I think from a consumer standpoint, there's the possibility of real improvement in the justice system.

  • RAY SUAREZ:

    Professor Issacharoff, do you agree that's what's waiting for consumers downstream after this passes?

  • SAMUEL ISSACHAROFF:

    It's not clear at all. To describe the legislation as primarily a consumer welfare bill I think is a bit of distortion of the history behind it. I think that John is right, that what the primary difference will be is that you will be as a consumer in federal court as opposed to state court. What that means exactly is unclear.

    Up until now, there's been a general presumption that state courts are for state law claims, federal courts are for federal law claims. And so if you've had the kind of consumer wrong that you bought a bad product or didn't work or something of that sort, you would have gone to state court.

    Now we are in a situation where federal courts, which are basically unaccustomed to these kinds of claims, are going to be asked to adjudicate them. So we have retraining to do of lawyers and most particularly of judges.

  • RAY SUAREZ:

    Well, when you say unaccustomed to adjudicating these claims, what happens now? Do they have to develop an expertise? Are federal courts ready to start handling these cases?

  • SAMUEL ISSACHAROFF:

    Well, federal judiciary was opposed to the bill. It didn't feel this was the kind of cases that they wanted and the judges by large didn't feel they were equipped to them both in terms of staffing and time and docket problems. But up until now, federal judges have generally been asked by defendants to dismiss these cases and send them back to states and to state courts because that's where they belong and not to hear big national consolidated cases.

    Now that option is not available and so the federal judges are going to have to address these cases, otherwise there will be no more consumer protection in the United States.

  • RAY SUAREZ:

    And John Beisner, what does that mean in practical terms for federal courts that now have to start handling these cases now?

  • JOHN BEISNER:

    I would like to disagree with my friend Sam on two points.

    First of all, federal courts have handled these sorts of cases since the beginning of the Constitution. Article Three of the Constitution has a provision in it that says that federal courts among other things are to handle controversies between citizens of different states. Those are state law claims. They have been doing it for years. Right now those sorts of claims are a third of the federal court docket.

    So I don't buy the proposition that they haven't handled these sorts of claims before. It's just not accurate. Moreover, I think it's also inaccurate to say the federal judiciary opposed this. Initially the federal judiciary did oppose the bill. But the last statement of the federal judiciary did not endorse the bill but it said it endorsed the idea of expanding federal jurisdiction over class actions because it was the only way to deal with the serious mess that's out there right now in our state courts.

  • RAY SUAREZ:

    Professor, does the fact that this bill passed 72-26 stand for you as evidence that at least most of the United States Senate agreed that the current system was a mess?

  • SAMUEL ISSACHAROFF:

    I think that there was a problem with the system before this bill. I think that the real problem we have is that we have uncertain relations between a marketplace in this country, which is national in scope, and laws that are still divided up among the 50 states.

    And the way that we had handled this historically is to try to treat each state as its own little sovereign. This bill is a major reallocation of power between states and the federal government and puts the federal government and federal courts much more in the driver's seat in terms of policing wrongs in the national marketplace. I'm not necessarily opposed to that. I don't think that that's necessarily a bad idea.

    The amendment that I drafted was aimed at providing some guidance to the federal courts as to how they should handle these cases once they come here. But I think that there were problems. I would disagree with some of the more extravagant claims of how pervasive these abuses were. But no doubt any system of this magnitude will have problems.

  • RAY SUAREZ:

    Well, John Beisner, if you are a consumer in Georgia and you want to sue a company that's headquartered in Minnesota, but makes the product that you think harmed you in California, where do you end up in court? One of the big rationales was that this will stop the practice of shopping around for a court that will take the case. Where do you go? Which circuit?

  • JOHN BEISNER:

    You will be in federal court in your home state. And it will not change that. And so there is no inconvenience that will come from this if you are filing that sort of action as part of a class-action.

    It's possible that if many other citizens nationwide are filing the same sort of class-action, that for a period, you may be brought together for all the pre-trial proceedings, discovery and things like that that go on. But ultimately the trial will go back to your home district under the current law.

  • RAY SUAREZ:

    And there's no question about which law will govern in the case?

  • JOHN BEISNER:

    This doesn't change anything about that at all. I think Sam is correct that there's always been some issues surrounding what law applies. But this bill preserves existing law that if you're a consumer and you buy a product in Georgia, the Georgia law is going to apply to your claims. You won't be surprised by that and the manufacturer that is trying to comply with the law of Georgia is not going to be surprised at the end by having some other law apply to that particular situation.

    Sam's proposed amendment would have changed that by basically forcing the federal courts to apply one state's law to the claims of all 50 states. So you might have bought your car in Georgia, and thought you were getting protected by Georgia law. But when this class-action comes along and the federal court picked Michigan law to apply, that's what would happen. And so it was basically a process of choosing the law at the end of the game after all of the events that were at issue had transpired.

  • RAY SUAREZ:

    Professor, to close, how do you view this piece of legislation as fitting into the president's stated intention of reforming this whole branch of American law? How does it fit into the wider picture?

  • SAMUEL ISSACHAROFF:

    Well, in one way it's different because this is really a question about whether these kinds of cases go forward in federal court or state court. And in that sense, it's a rather narrow piece of legislation that leaves the preexisting substantive law pretty much in tact.

    On the other hand, this was a political test and it was a test to see whether the Republican majority in Congress would hold around the president's tort reform agenda. And it was a question about whether the Democrats would put up a fight on this score. And I think there's no question that the president won decisively. So I think that this is clearly a bellwether for what's to come.

  • RAY SUAREZ:

    Anything to add quickly?

  • JOHN BEISNER:

    I think that Sam really has that right. This is a narrow piece of legislation, and I think it basically demonstrates a methodology by which some of the other reform measures coming down the pike might occur but it really is in its own world and has its own basis for having been enacted.

  • RAY SUAREZ:

    John Beisner, Samuel Issacharoff, gentlemen thank you both.

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