Washington, DC - Sens. Chuck Grassley of Iowa and Herb Kohl of Wisconsin today introduced a bi-partisan bill to fight abuse of the class action process, by helping protect the rights of consumers from being compromised for the sake of those lawyers who look to line their own pockets with fees rather than do justice.

Grassley and Kohl said that they plan to make this bill a high priority in order to weed out the more egregious cases of class action lawsuit abuse, while preserving class actions as an effective tool to ensure that the "unrepresented have a say" in court. The Class Action Fairness Act of 1999is a modified version of the bill that the two senators introduced in the 105th Congress, with minor changes. The previous bill was approved by the Judiciary Subcommittee on Administrative Oversight and the Courts last year.

The bill is a product of a hearing convened in the fall of 1997 by Grassley as chairman of the Judiciary subcommittee with oversight responsibility for the courts. Kohl is a member of the Judiciary subcommittee and had previously introduced class action reform legislation. The hearing illustrated problems targeted by the bill, including class action settlements which have resulted in substantially more favorable terms for the attorneys than for the clients they represented.

For example, in one case, the plaintiff class alleged that several airlines participated in price- fixing which resulted in plaintiffs having to pay more for airline tickets than they should have paid. The settlement provided all plaintiffs with coupons which could be used toward the purchase of future airline tickets. Yet, few coupons were redeemed because plaintiffs still had to pay for most of the cost of any new airline ticket and the coupons could not be used during certain blackout periods which included holidays and peak travel dates. On the other hand, the plaintiffs' attorneys were paid $14 million in cash. "If the coupons were good enough for their clients, why weren't they good enough for the lawyers?" Grassley said.

In another class action settlement, some plaintiffs received under $10 in compensation for fee overcharges by their mortgage company, yet were docked from $80 to $90 for attorneys' fees. Essentially, attorneys negotiated and agreed to a settlement that cost some of their clients moremoney than they received for being wronged, while the class lawyers themselves pocketed over $8 million in fees. One of Senator Kohl's constituents not only lost $75 as an unsuspecting class member, but was sued by her own class lawyers for $25 million when she challenged the settlement. "Plaintiffs in this case never would have ended up in the red if they and the state judge knew that class lawyers were trying to get paid out of their clients' own pockets. But under current law, class lawyers and cooperative defendants can get away with concealing their true intentions," Kohl said.

Grassley said that lawyers can be distracted from their clients' needs and decide to settle based on the amount of their own compensation. This is because plaintiffs' lawyers usually negotiate their own fees as a part of a settlement. Grassley pointed to evidence presented at the subcommittee hearing where at least one group of plaintiffs' lawyers meets on a regular basis about initiating class action lawsuits. One witness testified that lawyers scan the Federal Register and other publications to get ideas for lawsuits, and after a "wrong" has been identified, they recruit clients for their lawsuits with the promise of compensation.

In addition, some defendants abuse the system by colluding with class lawyers in order to buy immunity from liability on unfairly favorable terms. Settlements offer defendants relief from future liability because, once a suit is settled, no member of the class may bring the same claim again. Not only does this create the risk of contrived class actions initiated by defendants themselves, but even when suits are unwelcome, the defendants' interests may coincide with those of self-interested class lawyers, resulting in low-value settlements and high fees. This is most likely when defendants face competing class actions brought in state and federal courts: in the ensuing "race to settlement," class lawyers are even more likely to accept an unsatisfactory settlement to make sure their own fees are paid.

A recent Rand study recognized these realities: "It is generally agreed that fees drive plaintiffs' attorneys' filing behavior, that defendants' risk aversion in the face of large aggregate exposures drives their settlement behavior . . . In other words, the problems with class actions flow from incentives that are embedded in the process itself."

"Unscrupulous practices by lawyers on both sides of the process serve to break down this very important tool in our legal system. The Class Action Fairness Act of 1999 takes direct aim at the abuses with more than procedural reform. Our bill represents much-needed substantive reform of our courts system. It would stem the conflict of interest that lawyers face in class action lawsuits, and help ensure fair settlements in these cases for the individuals who have been harmed," Grassley said.

"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 regular people back their rights, their representation, and a better chance at a fair settlement. This measure may not stop all abuses, but it moves us forward," Kohl said.

The Class Action Fairness Act of 1999 establishes a number of measures to curb class action lawsuit abuses:

• The Principle of "Plain English": The bill requires that all class notices and notices of proposed class action settlements be written in easily understood terms and that settlement notices include the amount and source of attorneys' fees, along with other material information. This provision helps ensure that plaintiffs understand what rights they have as class members, and the terms of a settlement before they decide whether to approve it.

• Notice to State Attorneys General: The bill requires notification of all state attorneys general of any proposed class settlement that would affect residents of their states. This notice gives state attorneys general, an independent voice, an opportunity to object if the settlement terms are unfair, thereby providing more consumer protection for their citizens against abusive practices.

• Attorneys' Fees Based on Actual Damages: The bill provides that class action attorneys' fees are to be based on a reasonable percentage of damages actually paid to class members, the actual costs of complying with the terms of a settlement agreement, as well as any future financial benefits. In the alternative, the bill provides that, to the extent the law permits, fees may be based on a reasonable hourly (lodestar) rate. This provision would discourage settlements that give attorneys exorbitant fees based on hypothetical overvaluation of coupon settlements, yet allow for reasonable fees in all kinds of cases, including those involving injunctive relief.

• Removal of Multistate Class Actions to Federal Court: The bill allows more class action lawsuits to be removed from state court to federal court, either by a defendant or an unnamed class member. A class action would qualify for federal jurisdiction if the total damages exceed $75,000 and parties include citizens from multiple states. Currently, class lawyers can avoid removal if individual claims are for just less than $75,000 — even if hundreds of millions of dollars in total are at stake — or if just one class member is from the same state as a defendant. However, the bill provides that cases remain in state court where the substantial majority of class and primary defendants are from the same state and that state's law would govern, or the primary defendants are states and a federal court would be unable to order the relief requested.

  Many of the abuses associated with class actions are magnified as class actions become increasingly concentrated in state courts, particularly in states which permit class actions to proceed with little or no scrutiny. On the other hand, federal courts consistently give closer scrutiny to class settlements and to whether it is fair for a case to proceed as a class action. With their ability to consolidate related cases, federal courts bring more efficiency and prevent a race to settlement between competing cases.

• Mandatory Sanctions for Frivolous Suits: The bill helps reduce frivolous lawsuits by requiring a court to impose sanctions for violations of Rule 11 of the Federal Rules of Civil Procedure, which penalizes frivolous filings. The nature and extent of sanctions would remain discretionary.

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