March 14, 2017 Practice Points

Update on the Fairness in Class Action Litigation Act

If the act becomes law, class action practitioners can expect major changes.

By Robert J. Herrington

On March 9, 2017, the House of Representatives passed the Fairness in Class Action Litigation Act (FICALA). Although the act also addresses fraudulent joinder standards and multidistrict litigation, this note focuses on the key provisions that may affect litigation under Rule 23. If FICALA becomes law, class action practitioners can expect major changes.

Class members must have the same “type and scope” of injury (§ 1716). FICALA would preclude class certification unless the named plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” The Act also requires courts to make specific findings on this requirement, which is intended to combat the perceived problem of an injured plaintiff suing on behalf of putative class members who suffered no injury.

Class counsel must disclose any conflicts of interest (§ 1717). The act requires plaintiff’s counsel to disclose whether the proposed class representative is a relative, current or former employee, or current or former client (other than as to the class action) or has any contractual arrangement with plaintiff’s counsel (other than as to the class action). FICALA also expressly prohibits certification where the “named plaintiff is a relative of, is a present or former employee of, is a present or former client of (other than with respect to the class action), or has any contractual relationship with (other than with respect to the class action) class counsel.”

Codifies the Third Circuit’s ascertainability requirement (§ 1718(a)). FICALA appears to incorporate the ascertainability standard set forth in Third Circuit’s Carrera decision, requiring the plaintiff to “affirmatively demonstrate[]” a “reliable and administratively feasible mechanism (a) for the court to determine whether putative class members fall within the class definition and (b) for distributing directly to a substantial majority of class members any monetary relief secured for the class.” In Circuits that have abandoned any separate ascertainability requirement, this provision could create big changes.

Ties attorney fees directly to class recovery and defers attorney fees until class members are paid (§ 1718(b)). FICALA provides that attorney fees shall be “limited to a reasonable percentage of any payments directly distributed to and received by class members,” and fees cannot exceed the total amount received by all class members. The act also would require that attorney fees be paid after class members have received payment.

Requires disclosure of settlement data for further study (§ 1719). In connection with any settlement, the act would require plaintiff’s counsel to “to submit to the Director of the Federal Judicial Center and the Director of the Administrative Office of the United States Courts an accounting of the disbursement of all funds paid by the defendant pursuant to the settlement agreement” for further analysis and study.

Clarifies that issue classes must satisfy Rule 23(b)(3) (§ 1720). Departing from current standards in many jurisdictions, FICALA provides that, for any issue certified under Rule 23(c)(4), the entirety of the claim raising that issue must satisfy all the requirements of Rule 23(a) and either Rule 23(b)(1), (b)(2) or (b)(3). This likely means that a plaintiff seeking class-wide damages would need to show that an entire cause of action satisfies the predominance and superiority requirements before an issue class could be certified.

Discovery stay (§ 1721). Under FICALA, discovery would be stayed after a defendant files a motion to transfer, dismiss, or strike class allegations, subject to an exception where there is a need to preserve evidence.

Disclosure of any third-party funders (§ 1722): FICALA would require plaintiff’s counsel to disclose to the parties and the court any individual or entity that has a “contingent right to receive compensation from any settlement, judgment, or other relief obtained in the action.”

Appeals for all certification rulings (§ 1723): The act provides an immediate right of appeal from an order granting or denying class certification.

Whether FICALA becomes law is far from certain. Changes may be made, and Congress has many other issues on its plate. But if the current version of FICALA does become law, the class action landscape could see significant changes. Practitioners would be wise to keep their eyes on this legislation. 

Robert J. Herrington is a shareholder with Greenberg Traurig in Los Angeles, California.

Robert J. Herrington – March 14, 2017