Will Congress Overhaul Class Action Practice? A Quick Look at the Proposed Fairness in Class Action Litigation Act of 2017

Litigation Alert

Client Alert

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In 2016, House Republicans sponsored legislation aimed at curbing “no injury” class actions, which was supported by testimony from DRI, among others. The legislation passed the House but died in the Senate. Earlier this month an even more sweeping bill was introduced in the House, the “Fairness in Class Action Litigation Act of 2017.” The Act has been reported favorably by the House Judiciary Committee. If it achieves passage, it would go much further than simply addressing “no injury” class actions and would bring about significant changes in class action practice in multiple areas. Most elements of the legislation will likely have strong support from business interests nationwide, and that support will be crucial to getting the legislation passed.

The Act, as originally introduced, comprises seven sections which would add far-ranging provisions to the Class Action Fairness Act (CAFA), a section of the removal statute, and the statute governing multidistrict litigation (MDL) procedures. For cases in federal court, the effects of these additions to the U.S. Code would include:

  • Limiting certification in cases claiming personal injury or economic loss to classes in which all members suffered the same “type and scope of injury.”
  • Prohibiting relatives and present or former clients of class counsel from serving as class representatives.
  • Prohibiting certification of a class unless there is “objective” evidence that the relief can actually be distributed to a “substantial majority” of class members by “administratively feasible” means.
  • In class actions seeking monetary relief, prohibiting the determination or payment of any attorneys’ fees to class counsel until after the distribution of monetary relief to the class members has been completed.
  • Confining attorneys’ fees for class counsel to a “reasonable percentage” of the value of the monetary or equitable relief actually received by actual class members, and prohibiting the award of attorneys’ fees attributable to monetary relief in any amount greater than the amount of “money” distributed to class members.
  • Requiring an accounting for every class settlement (with various data points concerning payment to class members and class counsel), with the resulting data being provided to federal officials and ultimately to Congress.
  • Prohibiting certification of “issue classes” unless the entirety of the cause of action is properly certifiable under Rules 23(a) and (b).
  • Requiring in any class action that all discovery be stayed during the pendency of any motion to transfer, dismiss or strike class allegations.
  • Permitting appeals as of right (as opposed to the current permissive appeal process) from orders granting or denying class certification.
  • Permitting removal to federal court of multiple plaintiff personal injury or wrongful cases, so long as one plaintiff satisfies diversity jurisdiction requirements (and allowing severance and remand only as to the claims of those plaintiffs that do not).
  • Requiring plaintiffs in MDL proceedings, at the outset of the case, to make an evidentiary submission to the MDL judge in support of their claim, and authorizing dismissal without prejudice of claims lacking a sufficient evidentiary basis.
  • Prohibiting an MDL transferee court from conducting a trial in any case transferred to it, in the absence of consent from all parties to the case.
  • Allowing for permissive interlocutory appeals from orders entered in MDL proceedings, upon a showing that the appeal may materially advance the ultimate termination of one or more of the actions in the MDL.
  • Allowing a permissive interlocutory appeal of an order granting or denying remand to state court of any action in an MDL proceeding; such application to appeal must be made within 14 days after the order of remand is entered.
  • Requiring that personal injury plaintiffs with cases in MDL proceedings receive at least 80 percent of any monetary recovery in their case (whether by settlement or judgment). This would appear to have the effect of capping contingency fees and expenses in personal injury MDL cases at 20 percent.

Detailed analysis of each of these varied provisions is beyond the scope of this alert, but a few general observations can be made. Strengthening and codifying the ascertainability requirement, allowing an interlocutory appeal as of right from a class certification decision, the important check on “issue classes,” and the requirement that each class member have suffered the same type and scope of injury are all commendable examples of the kinds of sensible reforms long advocated by business and defense interests such as DRI, Lawyers for Civil Justice, and the U.S. Chamber of Commerce. The Advisory Committee on Civil Rules and its Rule 23 subcommittee have repeatedly been asked to address these issues through changes to Rule 23 itself, but have so far declined.

Whether other proposed changes in the Act will be beneficial or not is less clear. For example, while it is sometimes necessary for businesses to utilize “claim in” procedures in class settlements, the Act would almost certainly have the effect of making “claims made” class settlements less feasible. And given that CAFA already requires notice of settlements to regulators and permits their participation in approval proceedings, it is not readily apparent that the proposed requirement of an accounting for every class settlement is necessary. Certainly the plaintiffs’ bar can be expected to vigorously oppose capping of contingency fees in personal injury MDL cases at 20 percent, as well as the other fee-limiting provisions of this bill.

One thing is certain though: the Senate that stalled class action legislation in 2016 has changed, and the chances of some or all of this initiative becoming law are greater than was the case last year. While filibuster possibilities remain, there has been much talk of invoking the so-called “nuclear option” in the wake of the 2016 election. Against that backdrop, Senate Democrats may choose to save their filibuster powder for more important fights, and instead pursue some compromises in the language of the bill in exchange for not filibustering. If this bill finds traction in the Senate, class action defendants and practitioners will be facing a significantly different Rule 23 landscape in the years to come.

Bradley will continue to follow this legislation and will update clients on its progress as developments warrant. In the meantime, businesses who believe that class action reform is needed should consider what they can to do help ensure that this or similar legislation does not die in the Senate as last year’s bill did.