Copyright 1999 Federal News Service, Inc.
Federal News Service
MAY 4, 1999, TUESDAY
SECTION: IN THE NEWS
LENGTH:
1124 words
HEADLINE: PREPARED STATEMENT OF
SENATOR
HERB KOHL
BEFORE THE SENATE JUDICIARY COMMITTEE
ADMINISTRATIVE OVERSIGHT AND THE COURTS SUBCOMMITTEE
SUBJECT - CLASS
ACTION ABUSES
BODY:
Mr. Chairman and
members of the Subcommittee, let me thank you for convening this hearing today
on class action abuses. Mr. Chairman, it has been a pleasure working with you on
legislation to help ensure that victims stop being shortchanged, while their
lawyers line their pockets with exorbitant fees.
Let me give you just one
truly disturbing example, offered by one of my constituents -- Martha Preston of
Baraboo, WI -- who testified before this Subcommittee less than two years ago.
She was an unnamed member of a class action lawsuit against her mortgage
company. While she did not initiate the suit, the class action lawyers were
supposed to represent her. Instead, they negotiated a settlement that was, at
best, a bad joke.
Initially, she "won" four dollars and change. A few months
later, however, her lawyers went into her escrow account and secretly took $80
-- 20 times the compensation she received. In total, her lawyers managed to
pocket over $8 million in fees, but never explained to the court or to their own
clients that the class -- not the defendant -- would pay the attorneys' fees.
Naturally outraged, she and others sued the class lawyers. But her suit was
turned away on a technicality by a divided Federal court, even though Judge
Easterbrook and other dissenting judges blamed the class lawyers for "pulling
the wool over the state judge's eyes" and complained that unfair class action
settlements are too easily "crammed down the throats" of overmatched victims.
Adding insult to injury, the lawyers turned around and sued her in Alabama
-- a state she had never visited -- and demanded an unbelievable $25 million. So
not only did she lose $75, she was forced to defend herself from a $25 million
lawsuit. Mr. Chairman, in the words of Woody Allen, "this is a travesty of a
mockery of a sham of justice."
In too many cases, victims are dragged into
lawsuits unaware of their rights and unarmed on the legal battlefield. In the
end, they get little or nothing, while their lawyers cash in. Some of these
suits may be frivolous. Even when the claims are real, defendants often collude
with class lawyers -- leaving defendants with protection from future lawsuits
under unreasonably favorable terms, class lawyers with padded wallets, and class
members out of luck. And courts, who never hear from anyone looking out for the
victims' best interests, often don't give class actions the close scrutiny they
deserve.
Even class action lawyers admit there's a problem. The National
Association of Consumer Advocates complains that "some ... newcomers have
brought with them a relatively-new brand of consumer advocacy -- one in which
the lawyers stand first, if not alone, in the benefits line at the time of
settlement. Simply put, many consumer class actions are now being settled on the
basis of what the lawyers get and not what the consumers in the class get." And
Public Citizen agrees that "all too often class action settlements are approved
with little or no judicial scrutiny," citing a study finding that 90 percent of
all class settlements are approved without amendment.
Fortunately, there are
a few steps we can take to weed out the worst abuses, while still protecting
what is basically an effective process for vindicating rights. We don't want to
close the courthouse doors to important class action claims. And we don't have
to.
Mr. Chairman, that's why you and I have introduced the Class Action
Fairness Act of 1999. This measure promotes more disclosure and closer scrutiny.
And it gives regular people back their rights and their representation.
First, it invites a third parties -- namely, state Attorneys General -- to
look out for consumers by requiring they be notified about proposed class
settlements that would affect residents of their states. This provision has been
endorsed by Wisconsin's Attorney General Jim Doyle, who also is President of the
National Association of Attorneys General. Second, it promotes better disclosure
to class members, by requiring notice in plain English -- not legal jargon -- of
the terms of a proposed settlement, including the source of attorneys' fees.
Third, it makes class lawyers think twice about "scare" settlements by limiting
attorneys' fees to a reasonable percentage of the actual damages received by
class members, rather than letting them reap big fees based on inflated
"estimates" of the value of unlikely-to-be-used $5 coupons.
Finally, it
permits unnamed plaintiffs or defendants to remove multi- state class actions to
Federal court, where judges are likely to give closer scrutiny and have the
ability to consolidate related cases, in order to prevent a "race to settlement"
between competing cases and competing class lawyers.
Let me emphasize the
limited scope of this legislation. Unlike some proposals out there to move from
"opt-out" to "opt-in" procedures, we do not close the courthouse door to any
class action. And we do not require that State attorneys general do anything
with the notice they receive. We do not deny reasonable fees for class lawyers.
Nor do we mandate that every class action be brought in Federal court.These
proposals have earned a broad range of support. Even Judge Paul Niemeyer, the
Chair of the Judicial Conference's Advisory Committee on Civil Rules, who has
testified before Congress on this issue, expressed his support, calling this a
"modest" measure, noting in particular that increasing federal jurisdiction over
class actions will be a positive "meaningful step."
Mr. Chairman, I hope my
own balanced record on these types of issues adds credibility to our measure.
Just today, I've reintroduced the "Sunshine in Litigation Act," which addresses
the growing use of secrecy orders by Federal courts that too often allow vital
public health and safety information that is discovered in litigation to be
covered up, to be shielded from mothers, fathers and children whose lives are
potentially at stake. Unlike our class action reform, this is a
proposal the trial lawyers support and some business groups resist.
Whether
it be secrecy in courts or class action reform, doing what is
right is what counts. And, regardless of where the "special interests" line up,
our Class Action Fairness Act is a terrific place to start. Of course, this is
not a final product. We continue to be open to further limitation of the removal
provision, and you have indicated that you may be able to live without the
mandatory Rule 11 penalties, which inexplicably raise loud concerns.
But Mr.
Chairman, this is a balanced approach that corrects the worst abuses, while
still preserving the benefits of class actions. I look forward to working
together to move it forward. Thank you.
END
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