Hearing: "Class Action Fairness: Protecting Consumer Rights"

Date/Time: Tuesday, May 4, 1999 at 2:00 p.m.

Location: 226 Dirksen Senate Office Building

Description:

In February, Sens. Chuck Grassley of Iowa and Herb Kohl of Wisconsin introduced The Class Action Fairness Act of 1999 to curb the rampant abuse of the class action lawsuit system by lawyers simply looking to line their own pockets at the expense of consumers.

Abuse of the class action system can come in numerous forms. Plaintiffs are often misled into accepting objectionable settlements. For example, in one class action settlement, many plaintiffs suing a mortgage company received just a few dollars, but significantly more money was secretly withdrawn from many of their escrow accounts to pay over $8 million in attorneys' fees. Also, lawyers and defendants often engineer settlements that leave plaintiffs with coupons which are unlikely to be used, while lawyers reap huge fees based on unduly optimistic valuations of those coupons. As an example, in a class action suit against Nintendo, plaintiffs received five dollar coupons, while attorneys pocketed almost $2 million in fees.

The hearing will examine the problems of class action abuse, and the Grassley-Kohl legislation. The Class Action Fairness Act of 1999 includes the following principles:

• The Principle of "Plain English" - requires proposed settlements sent to class members to be written in easily understood terms, and include the amount and source of attorney's fees. This helps class members understand their rights and the terms of the settlement.
• Notice to State Attorneys General - requires notification of state attorneys general of any proposed class settlement that would affect residents or their state, giving them an opportunity to object to an unfair settlement on behalf of the citizens of their state.
• Attorneys' Fees Based on Actual Damages - provides that class action attorneys' fees are to be based on a reasonable percentage of damages actually paid to class members, or based a reasonable hourly rate. This would discourage settlement schemes that enrich class lawyers while leaving class members with little of value.
• Removal of Multistate Class Actions to Federal Court - relaxes removal requirements for class action lawsuits from state court to federal court, to eliminate gaming by class lawyers to keep cases in state courts which permit class actions to proceed with little or no scrutiny.