On The Case

The most intriguing idea in House Republicans’ bill to gut class actions

(Reuters) - Most of the proposed procedural rule changes in Representative Bob Goodlatte’s “Fairness in Class Action Litigation Act of 2017,” introduced last week in the House of Representatives, are directly traceable to the business lobby’s anti-class-action talking points. Goodlatte - a Virginia Republican and chair of the House Judiciary Committee - has significantly expanded the changes he proposed last year in a similarly named bill that was approved in the House but died in the Senate. If Congress adopts Goodlatte’s bill in anything like its current form, class actions and MDLs will be a shadow of what we know today.

The bill would limit class certification to class actions in which plaintiffs all “suffered the same type and scope of injury” and would bar certification unless courts can ascertain class membership and assure that only injured plaintiffs recover. Class action lawyers would not be able to sue on behalf of relatives and employees – or any other client with whom they have an ongoing contractual or attorney-client relationship. Class certification decisions would be automatically appealable. Attorneys’ fees in class actions resolved through injunctions would be limited to a percentage of the “value of the equitable relief.”

In MDLs, personal injury plaintiffs would have to submit evidence of their injury within 45 days of their case being transferred to the multidistrict proceeding or else risk dismissal. Appellate courts would have to consider appeals from any MDL order that would “materially advance the ultimate termination” of any case in the consolidated proceeding. Judges would have to assure that plaintiffs receive 80 percent of their recovery, presumably restricting their lawyers’ fees contingency fees to 20 percent.

I write all the time about abuses in class actions and MDLs, and I can certainly understand why defendants want reforms – and why various provisions of Goodlatte’s bill seem appealing. The Judiciary chairman described his proposals as a way “to maximize recoveries by deserving victims and weed out unmeritorious claims that would otherwise siphon resources away from innocent parties.” Well, sure. Who doesn’t want more money going to injury victims and less to their lawyers? Who cheers consumer class action settlements in which few actual consumers recover money? Who doesn’t question whether Congress truly intended to encourage serial claims by professional plaintiffs when it enacted the Telephone Consumer Protection Act and other consumer laws with private rights of action?

The Goodlatte bill, though, is both overly specific and underdeveloped. It would interfere with judges’ ability to manage complex litigation in all kinds of ways, from interfering with decades of precedent on the range of injuries that can be resolved in the same class action to requiring MDL courts to assess injury evidence at the very beginning of complex cases. The proposal would federalize contingency arrangements, which are private contracts, and would remove from state bar associations the regulation of relationships between plaintiffs’ lawyers and their clients. It would also discourage all kinds of civil rights class actions – including, presumably, actions by gun-rights advocates and religious groups – by changing the rules for fees in injunction-only cases.

The bill’s provision to restrict class action lawyers from representing repeat clients would severely disadvantage pension funds and other institutional plaintiffs, said class action expert Samuel Issacharoff, a law professor at New York University. (It also seems to undermine the 1995 law governing securities class actions, which encourages pension funds to act as lead plaintiffs.) Sophisticated plaintiffs in complex securities and antitrust litigation need specialized lawyers, just like defendants in the same cases, Issacharoff said. Why should a corporation be allowed to have an ongoing relationship with outside counsel but not a pension fund acting as a lead plaintiff? “That is a significant disruption of the attorney-client relationship,” said Issacharoff.

Democrats in the House Judiciary Committee have already begun to push back against the bill, contacting class and mass litigation scholars for their analysis of Goodlatte’s suggestions. At least two leading class action law profs - Myriam Gilles of Cardozo and Elizabeth Burch of the University of Georgia – have submitted comments. Gilles, who described the proposed legislation in an email as a “partisan, kill-all-class-actions bill,” focused her submission to the Judiciary Committee Democrats on the vast body of class action precedent, including Supreme Court cases, that guides judges on predominance and ascertainability. She also raised her concerns about the future of issues cases. Burch’s 8-page letter points out that the judiciary is already addressing many of the issues the Goodlatte bill raises, through case management and proposed changes to the class action rules by judiciary’s advisory committee on civil rules.

I encourage class action and MDL lawyers on both sides of the v. to read the Burch and Gilles letters and submit your own comments to the House as the Goodlatte bill moves forward. In particular, defense counsel may want Congress to know why class actions and MDLs can be an effective means to resolve serious litigation that might otherwise swamp your clients.

In the meantime, I do want to highlight an intriguing idea in the Goodlatte bill that I haven’t seen anyone previously suggest. The bill calls for class counsel to submit an accounting of class action payouts to the Federal Judicial Center and the Administrative Office of the U.S. Courts. The accounting would include all sorts of data: the total paid to class members, the number of class members who received payments, median and average recoveries, largest and smallest recoveries and all payments to anyone outside of the class, including class counsel. The bill would require the Judicial Center to compile the data and report it annually to Congress.

Right now, as you know, there is no comprehensive compilation of data on class action and MDL claims and recoveries. The data exists, at least for class actions, but is to date closely guarded by the small and secretive claims administration industry. Last fall, the Federal Trade Commission ordered eight claims administrators to report on class action response rates, but the Goodlatte bill would require the disclosure of vastly more information.

With caveats, I think that’s a good thing. As Georgia professor Burch noted in her comments to the House Judiciary Committee, data can “easily be skewed through methodology.” She also said the bill’s data collection provision, as drafted, “appears to be less concerned about delivering the necessary data to judges and more concerned with holding up plaintiffs’ attorneys’ funds in administration so as to prevent them from investing in new lawsuits.” NYU prof Issacharoff said Congress needs to provide funds to the Judicial Center to administer the data collection and compilation.

But both professors agree with me that discussion of the merits of class actions and MDLs would be enormously informed by actual numbers – especially if they are collected and compiled by a neutral body like the Judicial Center. Issacharoff said the lack of data is “a real problem.” His prediction is that the numbers will show critics how effective mass litigation can be. “You will see that MDLs and class actions by and large are very good at delivering returns to those who have been injured – certainly better than the FTC” and other government agencies, he said.

If Issacharoff is wrong and the data shows class actions and MDLs disproportionately benefit the lawyers who prosecute them, class action detractors will have much stronger arguments for changing the rules.

Either way, both sides will have an opportunity to debate based not on the occasional abuses the Goodlatte bill seems to have been written to address but on a comprehensive and systematic evaluation of the effectiveness of these procedural devices. If Congress is going to change the rules, it ought to have a good reason to do it.