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H.R. 1875 & S. 353 Class Action Bills
Myth vs. Reality

The House and Senate Judiciary Committees are considering legislation that would significantly alter the way state class actions will be conducted in the future. Although these bills are being portrayed as modest efforts to end "abusive" class actions brought in state court, both are an unprecedented effort to shift to the federal courts cases that have always been brought in state court. Many of these cases involve exclusively questions of state law and involve mainly in-state parties.

This dramatic expansion of federal court jurisdiction would come at a time when our federal court system is already overburdened to the breaking point, and it would come at the expense of fundamental notions of federalism. Since the founding of the Republic, the understanding has been that state courts generally oversee cases involving questions of state law and in-state parties. H.R. 1875 and S. 353 would turn that historic presumption on its head.

The business coalitions pressing for H.R. 1875 and S. 353 have based their claim that this legislation is needed not on hard facts or clear policy imperatives, but on a series of myths. In reality, both bills would result in one of the most expansive increases in the jurisdiction of federal courts in U.S. history at a time when they are least prepared to accept such a burden.

Myth: H.R. 1875 and S. 353 are narrowly tailored bills that simply allow nationwide class actions to be litigated in federal court.

Reality: H.R. 1875 and S. 353 end state court jurisdiction over class actions -- a radical restructuring of federal and state court jurisdiction.

H.R. 1875/S. 353 allow the removal to federal court of the vast majority of class actions filed in state court. The exception is when (1) the "substantial majority" of plaintiffs are citizens of the state where the case was filed, (2) all of the "primary" defendants are incorporated or have their principal place of business in the state where the case was filed, and (3) the claims will be governed primarily by the laws of that state. H.R. 1875 also excepts cases where the value of the aggregated amount in controversy is less than $1 million or there are fewer than 100 class members. So even cases involving plaintiffs almost entirely from one state, and involving only one state's law, would end up in federal court if a single defendant was incorporated and had its principal place of business in another state. For instance, assume that a California corporation has been selling defective wood sealer to a large number of Washington residents. Even though the overwhelming number of plaintiffs would reside in Washington state and the suit would be based on Washington state law, under H.R. 1875/S. 353, the corporation would have the choice of removing this case to federal court.

Despite the fact that the case is not national in character and there is no federal interest in resolving such a dispute because it doesn't involve federal law, under these bills the case could be removed to federal court by the defendant simply because of the happenstance that a single "primary" defendant is an out-of-state corporation.

The real goal of H.R. 1875 and S. 353 is to get most class actions into federal court and then to make later changes to federal tort law that would harm plaintiffs, including making it more difficult to certify classes, requiring plaintiffs to opt into a class rather than opt out and limiting compensation through caps on damages. Allowing defendants to remove state- based class actions to federal court is only the first step in big businesses tort "reform" agenda.

Myth: H.R. 1875 and S. 353 respect the proper spheres of the states and the federal government in our federalist system.

Reality: These bills are a flagrant affront to federalism and a slap in the face to the state court systems.

As noted above, under H.R. 1875 and S. 353, corporate defendants can remove most state class actions to federal court, even when a case has nothing to do with federal law and the class members live mainly in the state where the class is filed. H.R. 1875 and S. 353 are premised on a deep -- and misplaced -- distrust of state courts' ability to uphold the law. Our Constitution properly assumes that the states are fully capable of interpreting their own laws and handing out justice impartially. H.R. 1875/S. 353 are out of sync with that basic constitutional principle.

Myth: H.R. 1875 and S. 353 will promote judicial efficiency in the management and trial of class actions.

Reality: H.R. 1875 and S. 353 threaten to grind civil litigation in our already overworked federal courts to a near halt.

As Chief Justice Rehnquist noted in a 1998 speech to the American Law Institute, the federal courts are already overburdened with cases that traditionally are dealt with in state courts, and the federal courts cannot bear any additional burden. Not only would H.R. 1875 and S. 353 greatly increase the caseload of the federal courts, but they would do so with cases that are very complex and time consuming. Making matters even worse, these new federal cases would involve solely issues of state law, with which state court judges are intimately familiar but federal judges generally are not.

The caseload burden imposed by H.R. 1875 and S. 353 is reason enough to reject this legislation. The problem is particularly acute now when, as of September 1998, there were 72 federal judicial vacancies and the civil docket in some districts is already overloaded. For instance, 25,588 civil cases have been pending three years or more and civil filings per federal judge now number 452 -- up 19% over 5 years ("Judicial Business of the United States Courts," Annual Report of the Director of the Administrative Office of the United States Courts, 1998).

Myth: Class action cases largely benefit class counsel.

Reality: In general, the class action tool is a tremendous benefit to plaintiffs.

Class actions are an important and powerful component of our civil justice system that can compensate ordinary citizens who, acting individually, would not have the means to challenge corporate and governmental wrongdoers.

State court class actions continue to provide significant relief to consumers who would otherwise have gone without compensation. They deter dangerous business conduct where individual consumers, acting alone, would not have the means to sue to force product changes or recalls. They also encourage reform of deceptive or fraudulent manufacturing and sales practices, that cost consumers billions of dollars a year, and protect against the abrogation of our constitutional and legal rights. Consider these cases:

  • Shell, Dupont and other corporate giants sold leaky plastic polybutelene pipes, which caused severe damage to the homes of tens of thousands of unsuspecting consumers. This state-court litigation resulted in hundreds of millions of dollars in recoveries and replacement of the faulty piping, which would never have occurred if the homeowners were required to face off against the companies on their own.

  • Alabama homeowners and businesses were sold defective hardwood siding. Plaintiffs sued in Mobile County, but the defendant removed the case to federal court. The case was later remanded back to state court because of a lack of federal jurisdiction. A state-court jury found for the plaintiffs on the question of whether the product was defective, and the matter then settled for hundreds of millions of dollars.

H.R. 1875 and S. 353 represent a tremendous shift of power away from injured or aggrieved victims of corporate irresponsibility. The bills would unfairly tilt the playing field in favor of the defendant by allowing the defendant to decide the forum for a case, counter to the ordinary presumption that the plaintiff gets to choose his or her own forum. Defendants will choose the forum that is most advantageous to their interests. Further, H.R. 1875 and S. 353 will also result in considerable delay for plaintiffs seeking a prompt remedy, due to the clogging of the federal courts.

Myth: Class action abuse is a "crisis" and is peculiar to the state courts.

Reality: Only limited anecdotal information exists about state class action abuses; state courts must play the central role in preventing abuse at the state level.

We are aware that class actions have been abused in some limited circumstances, harming the people they are supposed to help. Because Public Citizen values class actions as an important tool for justice, we have become the nationwide leader in fighting class action abuses, opposing more than 30 nationwide class settlements that were inappropriate or collusive and not in the best interests of plaintiffs.

While plaintiffs' claims are sometimes undervalued and attorneys' fees are sometimes excessive, abuse is not the norm and is not limited to state courts. For instance, recently a federal appeals court approved the Chrysler minivan settlement -- where the settlement provided class members with nothing more than Chrysler's prior promise to a federal regulator to fix the minivan's defective door latches; but the settlement included the payment of $5 million in lawyers fees! The federal and state courts must be vigilant to prevent abuses. Significant progress is being made in that regard.

For instance, proponents of this legislation have noted that a judge in Greene County, Alabama, certified a large number of class actions in 1996-1997 without following proper procedures. Responding to due process and forum-shopping concerns from corporate defendants, the Alabama Supreme Court recently abolished the practice of certifying class actions before the defendant has an opportunity to respond to the suit. The court made clear that classes may not be certified without notice and a full opportunity for defendants to respond and that the class certification criteria must be rigorously applied. Clearly, state courts are perfectly capable of dealing with abuses as they arise.

Finally, the arguments about state court abuses are not based on any hard facts or close study, but on a few anecdotes. Whatever else, Congress ought not to alter on a massive basis the allocation of judicial responsibility between the federal and state courts on the basis of something as flimsy as a few stories.

Since the founding of the Republic and the first Judiciary Act, it has been our shared national understanding that, except in relatively limited circumstances, litigation of state law questions would be the province of state courts. The enormous aggregation of power in federal court proposed by this legislation is unwise because it tears an enormous hole in the fabric of federal-state relations, adds a considerable burden to our already overworked federal court system, and denies plaintiffs their ability to fully hold wrongdoers accountable. Congress should reject the heavy-handed approach embodied in H.R. 1875 and S. 353.


For more information, contact Jackson Williams, Legislative Representative,
at (202) 454-5135 or by email: Jwilliams@citizen.org

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