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Public Statements

Class Action Fairness Act of 2005

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Date:
Location: Washington, DC

CLASS ACTION FAIRNESS ACT OF 2005 -- (Senate - February 10, 2005)

Mr. VITTER. Mr. President, I rise in strong support of S. 5, the Class Action Fairness Act of 2005. In doing so, I wish to recognize and thank them for their leadership, so many Senators who have moved the bill thus far, certainly including the chairman of the Judiciary Committee who just spoke, also the Senator from Iowa, the chief sponsor of the bill, and also the Senator from Utah, the former chairman of the Judiciary Committee.

I am also an original cosponsor of this bill, because it would protect consumers from some of the most egregious abuses in our judicial system.

Let me begin by saying that class actions are an important part of our justice system. They serve an important purpose when properly defined. No one would dispute they are a valuable feature of the legal system. This bill doesn't do away with them.

As stated so eloquently by the bill's chief sponsor, my colleague from Iowa, S. 5 is really court reform more than tort reform. What does it reform? What is the problem?

The reason we need to pass this bill is that there are loopholes in the class action system, and it allows bad actors to game the system. As a result, in recent years class actions have been subject to abuses that actually work to the detriment of individual consumers, plaintiffs in such cases. That is exactly who the law is supposed to help.

Additionally, this gaming of the system clearly works to the detriment of business and our economy, and the need for job creation in forging a strong economy.

Such abuses happen mainly in State and local courts in cases that really ought to be heard in Federal court.

We currently have a system, therefore, which some trial lawyers seeking to game the system in an effort to maximize their fees seek out some small jurisdiction to pursue nationwide cookie-cutter cases, and they act against major players in a targeted industry. Often, these suits have very little, if anything, to do with the place in which they are brought. Rather, lawyers select the venues for strategic reasons, or for political reasons, a practice known as forum shopping.

These trial lawyers seek out jurisdictions in which the judge will not hesitate to approve settlements in which the lawyers walk away with huge fees and the plaintiff class members often get next to nothing. The judges in these jurisdictions will decide the claims of other State citizens under their unique State law. They will use litigation models that deny due process rights to consumers and defendants.

Often the decisions coming out of these hand-picked and carefully selected venues are huge windfalls for trial lawyers and big law firms and a punch line for consumers and the people the lawyers claim to represent. There is now in our country a full blown effort aimed at mining for jackpots in sympathetic courts known as "magnet courts" for the favorable way they treat these cases.

Let us look at a few examples of exactly what I am talking about. Perhaps the best example nationwide, in terms of preferred venues for trial lawyers, is Madison County, IL, where class action filings between 1998 and 2000 increased nearly 2,000 percent. There is actually an example of a South Carolina law firm filing a purported class action on behalf of three named plaintiffs. None of them lived in Madison County, IL, but the lawsuit was filed in that jurisdiction against 31 defendants throughout the United States. None of those defendants were located in Madison County. These lawyers based the alleged jurisdiction on the mere allegation that some as yet unknown class member might happen to live in Madison County.

I have a law degree. That is stunning to me. You can imagine how astounding and silly and ridiculous that seems to the American people, small business owners, and consumers around the country. So Madison County is a great example of one of these magnet jurisdictions. Once their reputation as a magnet jurisdiction is established, they attract major nationwide lawsuits that deal with interstate commerce-exactly the types of lawsuits that should be decided in the Federal court.

As noted in one study:

Virtually every sector of the United States economy is on trial in Madison County, Palm Beach County, FL, and Jefferson County, TX-long distance carriers, gasoline purchasers, insurance companies, computer manufacturers and pharmaceutical developers.

Let us review some of the outrageous decisions that this gaming of a broken system produces.

The Bank of Boston case, where class action members actually lost money when their accounts were debited to pay their lawyers $8.5 million; the Blockbuster settlement, where the class action members received coupons off their next rentals while their lawyers were paid $9.25 million; and, the Cheerios case where the plaintiffs got coupons for cereal, while the lawyers reaped $1.75 million-coupons that, quite frankly, they could have gotten in the Sunday local newspaper.

Sad to say, this is hitting home in my home State of Louisiana as well, because one of the jurisdictions that is appearing more and more on the list of these magnet jurisdictions is in Louisiana, Orleans Parish, the city of New Orleans.

I have mentioned how this gaming of the system is a huge disservice so many times to the consumers that were allegedly harmed. They get coupons or next to nothing. In one case, they had to pay even after the award. It is also a huge cost to business and a huge drain on the American economy.

Small businesses are already spending, on average, $150,000 annually on legal fees. The tort system costs U.S. small business $88 billion per year. This is all money that could be used to hire new employees or to improve benefits. I have long been concerned that Louisiana is increasingly becoming a part of this trend.

I mentioned a minute ago Orleans Parish, which is clearly showing up more and more on the list of these magnet jurisdictions. This is bad for our Louisiana efforts at job creation. It is a serious negative for companies looking to locate in our State.

I will quote from an amicus brief filed at the Louisiana Supreme Court in the case of Sutton Steel and Supply, Inc., Kate Davis, and Mestayer and Mestayer, APLC v. Bellsouth Mobility, Inc. In that brief, they said:

In a recent poll of more than 1,400 in-house general counsel and other senior litigators at public corporations ..... Louisiana was ranked 46th for its treatment of class actions, out of the 48 States that permit class action suits in their courts.

The study they cited is the Chamber of Commerce study done in March 2004, and the amicus brief continues:

Importantly, 80 percent of the respondents-these are businesses now, job creators-indicated that they perceive fairness of the litigation environment in a State "could affect important business decisions at their company, such as where to locate or do business" and with good reason.

Of course, many small businesses are dragged down by what are known as Yellow Page lawsuits. In these cases, hundreds of defendants are named in a lawsuit, and it is their responsibility to prove they are not culpable. In many cases, plaintiffs named defendants using vendor lists, or even lists literally from the Yellow Pages of certain types of businesses, be they auto supply stores, drugstores, what have you, in a particular jurisdiction.

Imagine what this means to your State's job creation efforts when national attention is brought to your local jurisdiction because it is a new magnet jurisdiction-a new Madison County, IL. The only jobs that you will be creating are legal positions for the flyby lawsuit filed by out-of-Staters hoping for a payoff from your local industries and companies.

I have identified the problem, gaming a broken system. We have identified the real and negative results of that problem, hurting the actual consumers who are supposed to be helped, and costing business and job creation in your State, including my home State of Louisiana, enormous amounts, including in terms of jobs not created or lost jobs.

Why is S. 5 the solution?

I believe S. 5 is a careful, reasonable, and moderate response to the problem with our class action system.

We have a bipartisan compromise that has been in the making for 6 years: 6 years of negotiation, careful study, and careful compromise. It deserves our support.

The House of Representatives has already passed similar class action reform legislation more than once. I have personally supported and worked for that, and voted for that when I served in the House.

S. 5 provides for Federal district court jurisdiction for interstate class action, specifically those in which the aggregate amount in controversy exceeds $5 million and any member of a plaintiff class is a citizen of a different State from any defendant. Under the bill, certain class actions with more than 100 plaintiffs also would be treated as class actions and subject to Federal jurisdiction.

The bill provides exceptions for cases in which Federal jurisdiction is not warranted. Under the so-called home State exception and the local controversy exception, class action cases will remain in State courts if there is significant connection to a local issue or event or a significant number of plaintiffs are from a single State.

The bill includes consumer protections so the real little guy, the plaintiff, the consumer who is wronged, is truly made whole. The bill's consumer bill of rights would require, among other things, that judges review all coupon settlements and limit attorney's fees paid in such settlements to the value actually received by class members. It would also require judges to carefully scrutinize net law settlements in which the class action members end up losing money in a class action settlement, and would prohibit settlements in which parochial judges allow some class action members to have a larger recovery because they simply live closer to the courthouse.

I am pleased there is bipartisan, bicameral support for a carefully crafted, well-thought-out measure. S. 5 is long overdue.

It is also important to say what we are not doing. This bill is not an attempt to eliminate class action lawsuits. Time and again, it has been said by parties on all sides that class actions have a proper place in the legal system. This bill is a modest effort to swing the pendulum back toward common sense, making the system work as it was intended.

This bill will not move all class actions to Federal court, only the ones most appropriately settled there. This bill will not overload Federal courts with class actions. They are prepared to deal with these cases far better than State courts, many of whom are overburdened now. We are also not delaying justice for plaintiffs. Federal courts have as good or better records of dealing with class actions in a timely manner.

In closing, our class action system is rife with abuses. It is gamed. It is broken. We need to fix it. First, we need to fix it for the consumers who are hurt by alleged abuses which are the subject of this class action litigation. Plaintiffs leave feeling cheated because they receive a token settlement in many cases for their efforts while lawyers reap all of the financial benefits.

Second, the system is broken and we need to fix it so we do not hurt legitimate business, legitimate job-creation efforts in Louisiana and elsewhere. Right now, businesses, fearing the mere threat of legal action, settle cases-a form of judicial blackmail. The whole economy is dragged down and fewer jobs are created as a result.

Third, our system of federalism is undermined today because one State's legal system, rather than the legal system of the Federal branch of the courts, is making decisions that affect many or even all other States. So the system is not working for anyone but the lawyers and law firms gaming that system.

A lot of good, hard work has been put into S. 5. I compliment again the prime sponsor, Senator Grassley, as well as the Judiciary Committee, led by the Senator from Pennsylvania. I compliment all of their leadership and their respective staff members for their efforts. I am proud to be a cosponsor of S. 5. I urge my colleagues to support and vote for the Class Action Fairness Act.

I yield the floor.

http://thomas.loc.gov

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