April 2, 2003
Re: Opposition to S. 274, “The Class Action Fairness Act”
Consumers Union (CU) writes to express opposition to “The Class Action Fairness Act,” which will be marked up in the Senate Judiciary Committee Thursday, April 3rd. We are concerned that this legislation will deny consumers adequate relief when they are defrauded, injured or otherwise harmed, and will undermine the ability of state courts to hear cases primarily concerned with their own residents. Despite its name, we believe that the bill is unfair to consumers, and we urge you to oppose it.
We are concerned that a concerted effort has been initiated in recent years to undermine the legitimate uses for class actions by over-emphasizing the relatively infrequent occasions when abuse occurs. Consumers Union understands that there are some instances of abuse of the class action process – collusive settlements in which consumers get only coupons toward future services, for example, while defendants and class lawyers are unjustly enriched. Indeed, in 2002 CU entered a case as an Objector to a class action settlement we believed was unfair to consumers; the state judge accepted our argument and rejected the settlement. However, while there may be abuses, class actions have worked well for consumers and those instances far outweigh the problem cases.
The problems that do exist can be addressed by insuring that judges have criteria for evaluating the fairness of settlements and that they apply these criteria. To assist lawyers and judges in this process, groups like the National Association of Consumer Advocates (NACA) have developed standards for preventing “coupon settlements” or “reverse auctions” settlements that could prove helpful.
Corporate fraud and corruption, illustrated so graphically in the bankruptcies of Enron and WorldCom last year, indicates that consumers need more, not less, access to justice. Consumers who have been defrauded or injured by a dangerous product deserve the right to just compensation. This is no time to constrict legal remedies by curtailing access to the courts, including state courts.
S. 274 will create further barriers to consumer participation in class actions by permitting defendants to remove most state class action suits to federal court. While a class could meet state law class certification requirements, it could fail to meet the federal class certification requirements. This could result in the federal courts’ denial of class certification and dismissal (not remand) of the case. A consumer would now have two options, none of which would lead to a just result. A consumer could bring the claim in state court as an individual action. Class actions are a much more efficient way of resolving disputes than individual cases-individual cases are often for such small amounts they are impractical to litigate and lack the same deterrent effect when they are brought. In the alternative, a litigant could re-file an amended class certification in state court. This re-filing again opens the door created by S. 274 for the defendant to remove the case to federal court, resulting in legal ping-pong for the consumer.
S. 274 will clog an already overburdened federal judiciary and slow the pace of certifying class actions. In addition, this removal to federal court takes away an important and traditional function of state courts and will slow and in some cases thwart – the continual interpretation of state law. The ABA Task force on Class Action Legislation’s recent report noted: “Any expansion [of federal court jurisdiction] should preserve a balance between legitimate state-court interests and federal-court jurisdictional benefits.” (emphasis added).
We think S. 274 lacks that balance. Federal court decisions on issues of state law solve the narrow legal issue of the particular case without providing legal precedent for future state court cases of the particular state law in question. Further, class actions are among the most resource-intensive cases before the federal judiciary. U.S. Supreme Court Chief Justice William Rehnquist has expressed concern that this bill will result in further overloading an already-backlogged federal docket.
We agree that class actions can be made a more effective means of consumer relief; we support changes that would include modification of notice requirements and simplification of certification procedures and standards. However, we believe the changes mandated by S. 274 are designed to impede legitimate class actions, not to make them fairer or more efficient.
S. 270, “Class Action Fairness Act,” is a poorly conceived proposal that will substantially reduce the effectiveness of one of the most important legal tools consumers now have: state court class actions. We urge you to oppose this bill.