Removing State Class Actions To
Federal Courts:
Are Federal Courts Really
Superior?
Rhetoric regarding the superior nature of the federal courts has been flowing fast and furious in the discussion surrounding the federalization of state-based class actions proposed under S. 353 and H.R. 1875. While there are abuses in state court class actions, the premise that these abuses will disappear upon removal to the federal courts is flawed. Too often, proposed class action settlements in both state and federal courts are reviewed perfunctorily with little regard for consumers' interests. These abuses generally manifest themselves in two ways: the undervaluation of plaintiffs' claims and the overvaluation of plaintiffs' attorneys fees. Such arrangements often occur through collusion between the attorneys for the defendants and plaintiffs. However, nothing in S. 353 or H.R. 1875 addresses either of these issues. Allowing the removal of the majority of state-based class actions is definitely not the solution, as class action abuse occurs in the federal courts as well.
Consider the following results in the preliminary Federal Judicial Center study looking at class actions in two federal district courts:
- The rate of settlement approval was high. In the Eastern District of Pennsylvania, 34 out of 38 proposed class action settlements (89%) were approved without any changes. In the Northern District of California, 26 out of 30 (87%) class action settlements were approved without any changes. In the 28 cases throughout the four district courts where motions to certify and approve settlement were submitted simultaneously, 86% (24 of 28) of the settlements were approved without any changes.
- The median length of the fairness hearing on the class action settlement was short; 38 minutes in the Eastern District of Pennsylvania and 40 minutes in the Northern District of California.
- Attorneys fee requests were not generally scrutinized carefully. In the vast majority of cases, the court awarded the same amount as requested by the plaintiffs' attorneys. In the Eastern District of Pennsylvania and the Northern District of California, the court awarded the exact amount requested by the plaintiffs' attorneys in 83% of the cases.
As John C. Coffee, Jr. stated in his Columbia Law Review article, Class Wars: The Dilemma of the Mass Tort Class Action, these statistics demonstrate a pattern in the federal courts of "judicial passivity" regarding class action settlements.
This "judicial passivity" can have a devastating impact on injured plaintiffs in federal class actions. Consider the following federal cases where the courts have approved class actions settlements that do little or nothing to help injured plaintiffs:
- In In Re Domestic Air Trans. Antitrust Litig., plaintiffs filed a series of class actions alleging that a number of major airlines, including American, Continental, Delta, Northwest, TWA, United, and USAir engaged in the price fixing of passenger air transportation. The case was consolidated for pretrial matters in the Northern District of Georgia. The case settled and the District Court approved the settlement that provided plaintiffs with coupons worth between $10 and $200 for flights costing between $50 and $1,500. The plaintiffs' attorneys were awarded approximately $10 million in fees. While coupon, or "scrip" settlements like this one offering discounts on the defendant's product are popular, they often offer no greater discount than what would be available in volume purchases, cash sales, or using a particular credit card. In addition, restrictions are generally placed on the transferability of these coupons, making them even less likely to be used.
- In Hanlon v. Chrysler Corp., plaintiffs filed a class action suit in federal court in San Francisco because the rear latch on Chrysler's minivan was defective and had a tendency to disengage. These latches had caused serious personal injuries to a number of plaintiffs. The case was settled on a nationwide basis; the settlement provided that Chrysler would offer class members a new improved latch if the owner presented the van to a dealer. While this sounds like an appropriate outcome, Chrysler had already previously agreed to replace the latches under an informal agreement with the National Highway Traffic Safety Administration (NHTSA). Moreover, at the time of settlement, the retrofit latch was not ready. So, class counsel apparently agreed to something it could not have properly assessed to determine its sufficiency and which the government had already obtained outside the litigation process. In addition, the agreement provided for up to $5 million in attorney's fees for the plaintiffs' counsel. The settlement was approved by the District Court in 1996 and upheld by the 9th Circuit Court of Appeals in 1998.
- In In Re: Orthopedic Bone Screw Products Liability Litigation, the U.S. District Court for the District of Pennsylvania approved a notice plan where the plaintiffs' attorneys only sent a full notice package to people who had already filed suit against AcroMed. Although defendant AcroMed possessed records of the physicians and hospitals to which it sold the defective screws, no effort was made to contact them or their patients. Class members who did not see the published notices in time to register were left out of the settlement, despite the fact that there was an efficient way to find them with the defendant's sales records. Those left out of the class are not allowed to file individual suits or recover anything for the injuries caused by the defendant's defective product. The court house door was closed to them.
The same case contains another problematic ruling by a federal judge. Some plaintiffs allege claims against their surgeons on the ground that the surgeons should have warned of FDA refusal to approve the AcroMed bone screw implanted in their bodies. Plaintiffs also claim that surgeons and hospitals took stock from AcroMed and put those financial interests ahead of their patients in a clear conflict of interest. However, the settlement bars claims against the surgeons who implanted the screws and hospitals where the surgeries took place, despite the fact that those surgeons and hospitals were not parties to the settlement and the class received nothing in exchange for dropping their claims against those surgeons and hospitals. The settlement release goes so far as to bar claims against doctors who told their patients that the device was FDA approved when they knew it was not. AcroMed defends the release of the surgeons and hospitals on the ground that it needs to maintain good relations with its customers to insure future profitability.
Moreover, many state court judges carefully scrutinize proposed settlements and refuse to accept collusive settlements. Consider the following state cases where the courts refused to rubber-stamp class actions settlements and forced the parties to do a better job of protecting consumers:
- In the case of Goldman v. Bell Atlantic Nynex Mobile (Nynex), Index No. 96/603445, Nynex agreed to settle a class action lawsuit filed in New York state court which alleged that Nynex charged cellular phone customers improper termination fees without giving proper notice in violation of a state consumer protection statute. The class also alleged deceptive acts in violation of New York's General Business Law. In May, 1998, Manhattan Justice Charles Ramos rejected the initial settlement proposed by the parties because the settlement funds did not go directly to the injured consumers. Instead, the initial settlement required that class members fill out a complex and confusing proof of claim form before qualifying for their portion of the settlement monies. The final settlement approved by Judge Ramos in November, 1998, was structured so that Nynex, which already had complete information on the customers it had harmed, would distribute the settlement funds directly to them.
- On February 8, 2000, Judge Vogelson of the Superior Court of New Jersey, Camden County, rejected as illusory a settlement agreement in the case of Carroll v. Cellco, et al, Docket No. L-9435-96. The complaint in that case charged the defendant, a subsidiary of Bell Atlantic Mobile, with deceptive billing practices. Under the proposed settlement, class members submitting approved claims would each receive vouchers worth $15 - $20, redeemable only for the defendant's services and products. Judge Vogelson rejected the settlement because it required class members to purchase additional services or goods from the defendant in order to receive their "compensation." The judge pointed out that class members might not want to deal with the defendants after their unpleasant experiences underlying the suit, nor might they need the products or services they must to purchase in order to receive their "compensation." The defendant's markup of their services and products could have equaled or exceeded the value of the vouchers the class members were to have received. The judge concluded that, in effect, the defendants would be giving nothing to the class except for the $1,250,000 it would have had to pay plaintiff's counsel under the settlement. As Judge Vogelson stated, "This settlement does not make sense for consumers. It is simply a device for the parties (plaintiffs and defendants) to reward themselves while the public, i.e. the Class, receives little or no real benefit." Judge Vogelson also rejected the settlement provision which would have made a new Service Agreement enforceable on current and future class members. The Agreement waived the members' ability to file a class action, limited them to arbitration and eliminated punitive damages in any future actions. Thus, Judge Vogelson concluded, the settlement impermissibly eliminated the "very valuable deterrent of the Consumer Fraud Act."
- In June 1997, the cremated remains of over 5,000 decedents were discovered at a storage facility in California. In Hoeffner, et al. v. Vieira, et al., J.C.C.P. No. 4078, a class of surviving relatives filed suit against the responsible mortuaries and funeral homes, as well as one of the individuals hired to scatter the remains, for failing to dispose of the remains properly in violation of the California Consumer Legal Remedies Act and California common law. The class sought proper disposal of the cremated remains and the establishment of a program to reform the business practices of mortuaries and funeral homes. In November, 1999, Sacramento County Superior Court Judge John R. Lewis refused to approve the initial settlement because it would have prevented any of the survivors from opting out -- a settlement term upon which the defendants had insisted. At the judge's urging, the parties negotiated a better settlement in which the mortuaries and funeral homes agreed to change their practices and fund the dispersal of remains found in the storage facility. The new settlement was drastically improved by allowing plaintiffs to opt out of the settlement with the mortuaries and funeral homes. The new settlement also included an agreed-upon legislative agenda where the mortuaries and funeral homes agreed to support legislation that would improve the regulation and oversight of the disposal of human remains. In February, 2000, Judge Talmadge R. Jones granted final approval of the new settlement.
It is clear that there are abusive class action settlements in both state and federal court. To assume that removing the vast majority of state class actions to federal court will solve this problem is erroneous. Nothing in either of these bills takes this into account and they are not the way to solve anti-consumer abuses in the class action system.
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