Senate Passes Class-Action Reform

Se Passes Overhaul of Rules for Class-Action Lawsuits (NYT rss)

The Senate voted overwhelmingly today to shift many class-action lawsuits from state courts to federal courts, handing President Bush and his supporters in the business world a major legislative triumph. The 72-to-26 vote sends the bill to the House of Representatives, where it will probably be quickly passed and sped on its way to the desk of the president, who is eager to sign it. Passage in the House seems assured, since that chamber overwhelmingly endorsed similar legislation last year, before it stalled in the Senate. This time, though, the idea was backed by enough senators, Democrats as well as Republicans, that passage was not in doubt.

Further, as Arlen Specter noted (FNC television), the House has already agreed to pass the Senate version intact, thus avoiding the necessity for conference. [Update: This AP story confirms: “The GOP-controlled Senate struck a deal with the House saying if senators passed the bill unchanged, representatives would approve the bill as-is and send it to the White House to be signed into law.”] This is therefore a done deal.

The Senate vote this afternoon followed repeated attempts by some Democrats to enact amendments curbing the effects of the measure. They were beaten back in part because some Democrats had also seen problems in the current state of the law. All 26 votes against the measure were cast by Democrats. But though trial lawyers as a group are often described as a Democratic constituency, and trial lawyers opposed the measure, 18 Democrats joined 53 Republicans and the Senate’s independent, James Jeffords of Vermont, in voting yes. (Two Republicans, Rick Santorum of Pennsylvania and John Sununu of New Hampshire, did not vote.)

One Democrat who voted yes, Dianne Feinstein of California, said afterward that the bill was “not perfect” but that it addressed problems in the legal system. The Senate majority leader, Bill Frist, Republican of Tennessee, said the bill was intended to stop lawsuit abuses, “and it does just that.” But one of the Democrats voting no, Edward M. Kennedy of Massachusetts, disagreed. “The consumers are the big losers in this,” he said.

Nonsense. Unlike other issues within the tort reform realm, this one is pretty much a no-brainer, as evidenced by the overwhelming vote for it in what has been a bitterly partisan Senate.

While one can reasonably argue about capping punitive damages and the like, it’s hard to defend the current class action system. The ability to venue shop is patently unfair to corporations. While some Democrats note the irony of Republicans pushing to federalize the suits, the principle that civil suits between parties of different states should be settled in federal court is in the Constitution itself. Furthermore, even the most bleeding heart liberal will acknowledge that it makes little sense to have a system whereby attorneys get rich, companies go broke, and the injured plaintiff gets essentially nothing.

On the other hand, there has to be some sort of fix for this one:

But critics of the bill have said it may effectively create an impossible situation for many plaintiffs, since federal courts are barred under a 1985 Supreme Court ruling from considering class actions in which there are “material” differences in the laws among the affected states. Thus, the critics say, the law may create a “Catch-22” in which class-action plaintiffs find both federal and state courthouse doors locked.

Obviously, taking away the ability to sue at all is something that even the most hard-hearted capitalist would oppose. I’m unfamiliar with the case in question, so don’t know upon what basis it was decided. There may be a simple statutory solution to the problem. If the issue is constitutional, there will need to be a standardization of tort law along the lines of the Uniform Commercial Code.

Update (2-11): Kevin Drum has less faith in the capitalist class than I do, noting, “After all, if they agreed this was unfair they would have accepted Dianne Feinstein’s amendment designed to clear up the procedural issues.” From the linked story:

The most important of several amendments was a measure crafted by Democratic Sens. Jeff Bingaman (N.M) and Dianne Feinstein (Calif.) that was designed to ensure that federal judges do hear class-action suits, rather than dismiss them on procedural grounds. But backers of the class-action measure warned that the amendment “defeats the purpose” of restructuring the rules, as Sen. Charles E. Grassley (R-Iowa) put it, and several cautioned that to accept changes was to risk letting the legislation die — as it has in recent years — in parliamentary standoffs. In the end, the Bingaman-Feinstein amendment garnered only 38 votes, most from Democrats, with 61 against. Other amendments — including a measure by Sen. Edward M. Kennedy (D-Mass.) to exempt civil rights and wage disputes, and one by Sen. Mark Pryor (D-Ark.) to exempt cases brought by state attorneys general — also failed.

I’m not sure exactly what Grassley means by “defeats the purpose.” Given that Feinstein ultimately voted for the final bill, I presume that “the purpose” isn’t to deny legitimately aggrieved parties the right to sue. Sam Heldman thinks otherwise.

This bill is designed to do much more than solve the so-called “problem” of multi-state class actions. This bill is designed to swamp the federal courts so severely, that the federal judges will look for every conceivable reason to quickly rule for the defendants in every class case so that they can get back to working on other cases.

Again, this strikes me as unlikely, given its easy passage. Remember, trial lawyers are the among the biggest contributors to the Democratic Party. Given the willingness of Democrats to filibuster on comparatively trivial issues, why would even fairly liberal Democrats in very safe seats (including Feinstein) sign onto it if killing class actions were the goal? Ezra Klein‘s take is more likely: “It’s not so much that the bill’s bad in concept as that it’s poorly designed.” As they say, never attribute to malice that which can be explained by incompetence.

Meanwhile, Jacob Sullum likes the bill but is worried: “[T]he broad, bipartisan support it has attracted in Congress makes me suspect there must be something wrong with it.” Heh.

FILED UNDER: Congress, Law and the Courts
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. bryan says:

    I smell a constitutional challenge brewing if the Supreme Court has indeed set such a Catch-22 barrier.

    On the other hand, I find it interesting that corporations are for this bill, since it seems like it might open them up for less-friendly rulings. As I recall, in almost any user agreement I sign, the agreement stipulates that parties will be governed by the laws of some-such state or another in the case of a disagreement.

    I wonder whether this measure would defeat those contract clauses?

  2. James Joyner says:

    Good question. I believe most of the time it’s Delaware which, from my understanding, has rules in place that are more business-friendly.

    What I don’t get is that the Constitution rather specifically says that any diversity case over $75 shall be heard in Federal court. Why this legislation is even necessary is therefore unclear to me.

  3. McGehee says:

    What I don’t get is that the Constitution rather specifically says that any diversity case over $75 shall be heard in Federal court.

    Diversity cases are in the Constitution?

  4. James Joyner says:

    Art.III, Sec. 2:

    “The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States, and Treaties made, or which shall be made, under their Authority;–to all Cases affecting Ambassadors, other public ministers and Consuls;–to all Cases of admiralty and maritime Jurisdiction;–to Controversies to which the United States shall be a Party;–to Controversies between two or more States;–between a State and Citizens of another State;–between Citizens of different States;–between Citizens of the same State claiming Lands under Grants of different States, and between a State, or the Citizens thereof, and foreign States, Citizens or Subjects. ”

    I thought the dollar amount was in the Constitution. I was getting it confused with Amendment VII: “In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any court of the United States, than according to the rules of the common law. ”

    The dollar amounts for diversity cases were established with the Judiciary Act of 1789 and have been raised over time. Apparently, the threshhold is now $75,000. Still, almost any class action meets that.

  5. MNPundit says:

    “Obviously, taking away the ability to sue at all is something that even the most hard-hearted capitalist would oppose.”

    Kevin Drum doesn’t quite see it that way…

    http://www.washingtonmonthly.com/archives/individual/2005_02/005631.php

  6. Sam Heldman says:

    Leaving aside the political question whether the legislation was “necessary” (I think it wasn’t), it was “necessary” for its proponents because (a) under existing law, generally speaking the claims of individual class members can’t be “aggregated” (i.e., added up) to meet the $75k amount-in-controversy requirement, but instead you must look at each individual’s claim separately for amount-in-controversy purposes; and (b) in general, the statute regarding diversity jurisdiction has heretofore required “complete diversity” — i.e., that there is no plaintiff who lives in the same state as any defendant — for federal jurisdiction. This changes that rule, to a sort of “minimal diversity” rule — it’s enough if any plaintiff (even absent class member) lives in a state different from any defendant. In this and other ways, this legislation really does change things.

  7. McGehee says:

    It appears, then, that you were using “diversity” here in a way that most of us laypeople generally wouldn’t think of without more information.

    Just sayin’.

  8. denise says:

    McGehee — Yeah, any lawyer understands that “diversity cases” refers to diversity of citizenship. Never thought about a non-lawyer being confused, but it makes sense.

    Bryan — At $75K, a diversity lawsuit may be brought in federal court, but it is not mandatory.

    My understanding is there has been a real problem of forum shopping in these class actions because there are 1 or 2 states that encourage having them brought there. Not a good policy.

    As for Sam Heldman’s argument that federal courts are so swamped and this is a tactic to give them short shrift, I think in most states the federal courts have a smaller caseload than the state courts, and it is much more likely that a case will get a thoughtful (even written) ruling in federal court than in state court. Granted, in a lot of cases that means a state court will allow a matter to go to trial rather than take the time and resources necessary to give full consideration to a defendant’s dispositive motions. But there’s nothing inherently unfair to plaintiffs about missing the chance to take a case to trial that shouldn’t go to trial.

  9. Kent says:

    Obviously, taking away the ability to sue at all is something that even the most hard-hearted capitalist would oppose.

    Hardly. You can still file a non-class action suit. Which may be the best reform of all.

  10. James Joyner says:

    Kent,

    The problem with a non-class action suit is that it likely wouldn’t be worth it for an attorney to take it on a contingency basis. Plus, if there is actually a large class, one would think that there would be an advantage to the corporation to dispose of it all at once rather than piecemeal.

    The problem is to figure out a way to protect legitimately agrieved plaintiffs, ensure that defendants get a fair shake rather than a stacked jury, and to figure out a way to fix the system so that injured parties, not attorneys, get most of the money.

  11. Jon Koppenhoefer says:

    Gee, in a world where corporations and their stockholders had only money in mind, I suppose class-action suits would be necessary.

    But not in this world.

  12. Thus, the critics say, the law may create a “Catch-22” in which class-action plaintiffs find both federal and state courthouse doors locked.

    It could lead to a ban on some nationwide class-actions; it wouldn’t prevent statewide ones.