DETROIT ?The recent enactment of the Class Action Fairness Act has substantially changed the law governing class action lawsuits involving parties from more than one state.
Under the Act, most large national class action lawsuits now must be filed in federal court instead of state court. In addition, the Act imposes new requirements for settling class action lawsuits and limits the recovery of contingent fees awarded to plaintiff attorneys in so-called ?coupon settlements.? The end result of the Act is likely a decrease in the number of national class action lawsuits filed.
M. Brian Cavanaugh, an attorney with Butzel Long who practices extensively in both the federal and state courts, said that the intent of the Act is to change where and how class action lawsuits are heard so that there is a more uniform national approach for deciding such cases. Class action lawsuits are filed by one or more persons who allege that a large number of individuals have been similarly harmed by an wrongful action of a defendant, usually a company.
Before a lawsuit can actually proceed as a class action, a court must make certain findings as to the appropriateness of treating the case as a class action. According to Cavanaugh, class certification is often the biggest battle in a case. Once a court certifies a lawsuit as a class action, the defendant company faces tremendous pressure to settle even the most trivial of actions in order to avoid the possibility of having a multi-million dollar verdict rendered against it.
?This Act is a Republican measure,?? Cavanaugh said. ?In generally, Republicans and the business community look unfavorably on class-action law suits. In their view, plaintiff attorneys were often bringing lawsuits over matters which involved the most minor of problems or most technical of deficiencies with a particular business? practices. The business community believes that such lawsuits served only to enrich the plaintiff attorneys who filed the lawsuits while causing significant disruption and expense for the defendant companies.
As explained by Cavanaugh, before the Act, plaintiff attorneys would often venue shop by filing class action lawsuits only in state courts where such lawsuits were typically viewed more favorably and the jury awards rendered where higher than the national average. Those state courts included certain areas of Illinois, Mississippi and Alabama. The Act is designed to limit such venue shopping by requiring most national class action lawsuits to be filed in the federal courts. In general, the federal courts look less favorably upon class action lawsuits by being more stringent in certifying a lawsuit as a class action and also limiting the awards given.
The Act?s biggest changes to the existing law are:
Expanded federal jurisdiction
Relaxed restrictions on removal of cases filed in state court to federal court
Expedited appellate review of federal orders remanding cases back to the state courts
New guidelines for payment of class counsel?s fees
These changes were enacted in February.
?We?ll have to see how this plays out,?? Cavanaugh said. ?There are always three faces to every new piece of legislation: (1) the Act as Congress envisioned; (2) the Act as argued by the attorneys; and (3) finally, the Act as interpreted and applied by the courts. While the Act is certainly not the death knell of class action lawsuits, it will likely result in smaller single?state class actions in an attempt to avoid federal courts and maybe the end of the coupon settlements.?
This column was written by M. Brian Cavanaugh of Butzel Long?s Lansing Office. You can telephone Cavanaugh at (517) 372-6622 or email him at [email protected]
