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VOLUME 9 July 2005 | ||||||
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CONGRESS CHANGES CLASS ACTIONS By Jeffrey C. Sotland, Esq.
Congress recently passed the “Class Action Fairness Act of 2005” (119 Stat. 4), with the stated goals of assuring “fairer outcomes for class members and defendants”; restoring “the intent of the framers of the United States Constitution”; benefiting society by encouraging innovation and lowering consumer prices; and providing fair and prompt recoveries for those with legitimate claims. To achieve these aims, Congress has created new evaluative criteria for coupon settlements and has changed the requirements for federal court jurisdiction of class actions.
The usage of coupon settlements has been restricted, as these settlements were believed to be of limited usefulness to the class members. Heightened judicial scrutiny of settlements involving coupons is now required and the fees that class attorneys can receive has been reduced. Congress created a new section, 28 U.S.C. § 1712, to deal specifically with coupon settlements. Under this section, the court must hold a hearing for any proposed coupon settlement and issue a written finding that the settlement is fair, reasonable and adequate for class members.
Also, Congress has attempted to restructure the fees that class counsel can be awarded in cases with coupon settlements. Specifically, class counsel is only to receive that portion of the awarded fee that reflects the amount of coupons actually redeemed by class members, and may be taken into account in calculating the fee. If the court does not base the class counsel’s fees on the number of coupons redeemed, then the court is only to award the fees “based upon the amount of time class counsel reasonably expended working on the action.” All attorney’s fees are to be evaluated by the court and the lodestar/multiplier method is acceptable to determine class counsel fees. If a settlement uses a combination of coupons and equitable relief, the court is to base class counsel’s fees on the number of coupons redeemed and the amount of time reasonably spent on the matter. Further, the court is allowed to receive expert witness testimony regarding the actual value of the redeemed coupons to the class members.
In addition, heightened scrutiny is required in situations where class members are obligated to pay class counsel. The court has to make a written finding that the non-monetary benefits to the class members “substantially outweigh the monetary loss.” Also, the settlement cannot provide greater benefits to those located closer geographically to the court.
Defendants are now required to notify the “appropriate Federal and State officials” of the settlement. If the defendant is regulated by a federal agency in some of the matters alleged in the class action, the defendant has to serve the appropriate federal official with a copy of the proposed settlement within 10 days after the proposal is filed with the court. With regards to state officials, the defendant must serve the state regulator, or the attorney general if there is no state regulator, of the defendant’s home state within the same 10-day period. The paperwork provided must include, among other things, a copy of the complaint, any proposed settlement and any agreement between class counsel and defendants made at the same time as the settlement. The court is not to issue a final approval of the settlement until 90 days after the state and/or federal officials have been served. Failure to comply with these requirements allows class members to refuse to be bound by the agreement reached.
Beyond changing the evaluation of class settlements, the new class action bill changes the workings of federal court jurisdiction. Congress has created a new subsection under the section that deals with federal court jurisdiction, 28 U.S.C. § 1332. Under the new subsection, 81332(d), the federal court is required to exercise jurisdiction if certain criteria are met. First, the amount in controversy must exceed $5,000,000. This is determined by taking the aggregate of all claims of the individual class members, excluding interest and costs. If this is met, then one of three diversity requirements must be satisfied. First, if any member of the plaintiff class is from a different state than any defendant, the federal court has jurisdiction. Second, if any member of the plaintiff class is a foreign state or subject of a foreign state and any defendant is a citizen of a state, diversity is satisfied. Finally, if any defendant is a foreign state or subject of a foreign state and any plaintiff is a citizen of a state, the federal court has jurisdiction.
Even if the federal court has jurisdiction, based on the above stated criteria, there are instances where the court may decline to exercise jurisdiction, or even those where the court may not exercise jurisdiction at all. The court has the option to exercise jurisdiction in cases where more than one-third but less than two-thirds of the members of all of the classes are from the state in which the action was originally filed, provided the primary defendants are from that state. The court is also to consider several factors, including: if the claims asserted are governed by the laws of the state in which it was filed; if the forum has a “distinct nexus” to the class members, alleged harm or the defendants; and if one or more class actions asserting the same or similar claims was filed during the three year period.
The federal court is not to exercise jurisdiction in very specific instances. When more than two-thirds of the proposed classes and the primary defendants are citizens of the original filing state, the federal court is not to exercise jurisdiction. Also, if greater than two-thirds of the plaintiffs are from the forum state, the federal court may be denied jurisdiction. In order for this to be the case, at least one defendant from whom significant relief is sought and whose conduct forms a significant basis for the claims asserted must be a citizen of the forum state. Further, the principal injuries from the alleged wrongful conduct or related conduct of each defendant must have occurred in the forum state. Finally, Congress has imposed the three-year requirement regarding the filing of other class action cases by anyone against any of the defendants. The federal court also does not have jurisdiction in cases where the court might not be able to grant relief, as in cases against states or state officials. The “Class Action Fairness Act of 2005” was signed into law February 18, 2005 and applies to any civil action commenced on or after that date. However, the act also modifies removal requirements for class actions, and so current class action suits may be affected. Specifically, the new act abolishes the current requirement that motions for removal be filed within one-year of the initial filing of the complaint. Further, one defendant may move for removal, as opposed to requiring all of the defendants to agree. Because of this removal change, the new law may have an affect on current cases, as defendants may begin to remove to federal court. It remains to be seen how the courts will interpret the new section. As a whole, the “Class Action Fairness Act of 2005” offers a chance to change the way class actions are filed in the country. It remains to be seen if the new provisions will really alter anything on the ground, or if the act is toothless. |
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