Class action crackdown
Over the years, class action lawsuits have netted consumers $13 rebates on computer monitors, coupons for free movie rentals, $30 discounts on cruise vacations, and free boxes of cereal. But the lawyers who spearheaded those cases were the real winners, typically walking away with millions of dollars in fees.
That's all about to change. The Senate last week approved a bill, expected to sail through the House, that would fundamentally alter the American way of seeking redress against big business and help fulfill one of President Bush's top domestic priorities. Proponents say the Class Action Fairness Act would curb lawyers' shopping for friendly courts as well as limit attorneys' fees in megacases that yield only pennies or worthless coupons for the injured or swindled. But critics say the measure would delay and, in many cases, prevent lawsuits by consumers harmed by dangerous drugs and other products or conned by corporate rip-offs. "Thousands of people who may well have suffered serious injury will come underneath this bill," says Todd Smith, president of the Association of Trial Lawyers of America.
But the interest groups who spent years and millions lobbying for reform insist that the rule changes would have a modest effect. "We're getting some of these enormous class actions out of problem jurisdictions, where a local judge makes rulings that apply to 50 states that a federal judge is not willing to make," says Stanton Anderson, executive vice president of the U.S. Chamber of Commerce. "Nobody's right to a class action is being challenged. If you're going to do it, do it under these rules." Industry applauded the move. In fact, insurance stocks surged after the Senate vote, helping lift the Dow to its highest point of the year.
Tell it to the feds. The new rules would require that many--if not most--cases involving more than 100 plaintiffs and $5 million be filed in federal rather than state courts. (The bill would not affect securities cases.) Supporters say it is more rational to have cases with nationwide implications heard by the federal bench, instead of by a few pro-plaintiff state courts around the country that have become magnets for litigation, such as Madison County, Ill., where a judge returned a $10.1 billion verdict in 2003 against Philip Morris in a lawsuit claiming its "light" cigarette label was deceptive. But trial lawyers and consumer, environmental, and civil rights groups all argue the changes will sound the death knell for most class action suits, as federal judges tend to move more slowly and are more skeptical of such cases.
A federal court, for example, refused to certify a class action suit alleging Masonite sold defective siding to more than 4.3 million homeowners between 1980 and 1998. But after an Alabama court gave the go-ahead, Masonite agreed to a $2 billion settlement in 1998. Nearly 200,000 homeowners have collected $500 million so far. But class action critics point out that not one of those homeowners reaped quite as much as the plaintiffs' lawyers, who earned $47.5 million.
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