WASHINGTON — The Senate Judiciary Committee today approved the bipartisan reform plan offered by Sens. Chuck Grassley and Herb Kohl to curb abuse of the class action lawsuit system.
Committee members voted 11 to 7 for the measure.
The legislation would change the procedures governing future class action claims rather than make significant changes to the substantive law. Grassley said by moving more class action lawsuits from state to federal court, "we can eliminate a lot of the gaming that goes on by lawyers to enhance their share of settlements, often at the expense of the aggrieved consumers involved in the class."
One major problem with the current system is state courts making decisions in class action suits that apply the laws of their own state to residents of different states. Grassley said the Constitution's diversity provision allows litigants from different states to remove their cases to be heard in federal court to allow for a fair, impartial forum against possible local bias. However, unscrupulous lawyers play with the rules to keep class action cases out of the federal courts.
Gaming of the rules by class lawyers frequently results in state courts setting national policy, improperly affecting the rights of the citizens of other states, and overruling the laws and policies of other states. "My bill strikes the proper federalism balance that the framers of our Constitution intended," Grassley said. "I don't think that it's a state's rights issue to allow one state court judge to determine the law in all the other 49 states. This is not what federalism is about. In fact, the real harm to federalism would be leaving these cases in state court."
Among other shortcomings, Grassley said the current system lets class lawyers keep cash from settlements while consumers are awarded coupons with terms so restrictive they're basically useless. Such coupons allow the class lawyers to claim that a settlement is worth much more than it really is, and therefore they can claim more in attorneys fees. Grassley said the real question is, "if coupons are better for the clients, then why aren't the lawyers paid in coupons?"
A 1999 Rand report found that state courts often give most of the money to the lawyers and not to the class members they represent, and that attorneys' fees do not reflect the actual valuation of plaintiff's recovery in class action cases.
The legislation Grassley and Kohl introduced would address these problems and others in the current system by making modest changes to some of the procedures by which class action lawsuits are handled. Their bill would:
»Require the use of plain English so that proposed settlements are written in easily understood language and the terms, including allocation of attorneys fees, can be made clear to class members.
»Empower state advocates by requiring that state Attorneys General be given notice if class settlements would affect residents of their states, so they can object if they believe that settlement terms are unfair to their citizens.
»Ensure class action settlements are fair and attorneys' fees accountable by requiring the Judicial Conference to provide recommendations to Congress in a year on how judges can do a better job in supervising settlements and attorneys' fees in class actions.
»Limit gaming of the class action system by lawyers by relaxing the diversity jurisdiction and removal requirements to federal court. This would establish the federal courts as the proper, Constitutionally-mandated forum for large, interstate plaintiff class action lawsuits.
While Senate floor action on the Grassley/Kohl reform measure has yet to be scheduled, the bill may be considered sometime this summer. Last year, the House of Representatives passed a similar version of class action lawsuit reform.