May 01, 2017 Articles

Proposed Fairness in Class Action Litigation Act of 2017

Potential expansion of protections for class action defendants

by G. Gabriel Zorogastua and Parker J. Smith

On March 9, 2017, H.R. 985, the Fairness in Class Action Litigation Act of 2017 (FCALA) was narrowly passed by the House of Representatives. The bill was introduced by Representative Bob Goodlatte (R-Va.), who in a press release described its purpose as "keep[ing] baseless class action suits away from innocent parties, while still keeping the doors to justice open for parties with real and legitimate claims." The FCALA will now advance to the Senate. If passed there and signed by President Trump, dramatic changes to the class action landscape will follow.

Rep. Goodlatte was one of the authors of the 2005 Class Action Fairness Act (CAFA), which passed the last time Republicans controlled the presidency and both houses of Congress and altered the field of class action litigation by moving most large interstate class action cases to the federal courts. His efforts to change class action litigation continued when he introduced another class action reform bill in 2015, which passed in the House and died in the Senate. While congressional Democrats will likely oppose the bill, the landscape is ripe for class action reform with Republicans controlling both chambers of Congress and the presidency.

The FCALA proposes substantial changes to class actions. It would make certifying classes more difficult through requirements of similarity of injury and ascertainment of potential class members, and it would affect other aspects of class certification, including the timing and amount of attorney fees, stays of discovery, appeals of certification decisions, and conflicts of interest.

Class Certification

Similarity of injury. The requirements for class certification are increased by the provisions of the FCALA. They go beyond the commonality and typicality conditions of Federal Rule of Civil Procedure 23 to require a demonstration that all class members "suffered the same type and scope of injury as the named class representative or representatives." FCALA § 103(a) (proposed 28 U.S.C. § 1716(a)). The determination of similarity and scope would be left to the courts to decide. This condition of the FCALA would presumably exclude uninjured members from being a part of a certified class, a situation that may be permitted in some situations. See, e.g., Kohen v. Pac. Inv. Mgmt. Co. LLC, 571 F.3d 672, 677 (7th Cir. 2009) ("[A] class will often include persons who have not been injured by the defendant's conduct . . . . Such a possibility or indeed inevitability does not preclude class certification, despite statements in some cases that it must be reasonably clear at the outset that all class members were injured by the defendant's conduct. Those cases focus on the class definition; if the definition is so broad that it sweeps within it persons who could not have been injured by the defendant's conduct it is too broad." (citations omitted)).

Ascertainability. Courts are divided over the issue of administrative feasibility, or a plaintiff's ability to objectively ascertain the identity of prospective members in a class action. The FCALA would establish a uniform ascertainably requirement, precluding certification of a class unless that class can be "defined with reference to objective criteria" and can be demonstrated that "there is a reliable and administratively feasible mechanism" to identify class members and distribute monetary relief. FCALA § 103(a) (proposed 28 U.S.C. § 1718(a)).

Issue-specific certification prohibited. The FCALA would prohibit courts from certifying a class with respect to particular issues pursuant to Federal Rule of Civil Procedure 23(c)(4) unless the entire cause of action from which the issues arise satisfies all class certification prerequisites. FCALA § 103(a) (proposed 28 U.S.C. § 1720).

Fees and Disbursements

Attorney fees. The proposed provisions address both the timing and amount of fee payments, which could make class actions less profitable for plaintiffs' attorneys. Attorney fees would be limited to "a reasonable percentage of any payments directly distributed to and received by class members," never to "exceed the total amount of money directly distributed to and received by all class members." Id. (proposed 28 U.S.C. § 1718(b)(2)). Personal injury plaintiffs with cases in multidistrict litigation (MDL) proceedings would be required to receive at least 80 percent of any monetary recovery in their case (which would have the effect of capping contingency fees at 20 percent). Id. § 105 (proposed 28 U.S.C. § 1407(l)).

Additionally, the FCALA would prohibit collection of any attorney fees "until the distribution of any monetary recovery to class members has been completed." Id. § 103(a) (proposed 28 U.S.C. § 1718(b)(1)). The FCALA would also limit the portion of attorney fees attributed to the equitable relief to a reasonable percentage of the value of the equitable relief. Id. (proposed 28 U.S.C. § 1718(b)(3)).

Settlement accountings and distribution reports. Before receiving fee payments, class counsel would also be required to submit to the director of the Federal Judicial Center and the director of the Administrative Office of U.S. Courts an accounting that details the total amount paid to class members, the largest amount paid to any class member, and the average amount paid directly to class members. Id. (proposed 28 U.S.C. § 1719(a)). The data would be used in the preparation of an annual report to the Judiciary Committee summarizing the distribution of funds paid in class actions.

Stays of Discovery
In current practice, courts sometimes restrict discovery in class action cases pending resolution of certain motions. In an attempt to limit pretrial expenses, the FCALA would codify such restrictions, requiring that "[i]n any class action, all discovery and other proceedings shall be stayed during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, or other motion to dispose of class allegations," unless discovery is deemed necessary "to preserve evidence or to prevent undue prejudice." Id. (proposed 28 U.S.C. § 1721). This could significantly change the limited consideration district courts are giving to early motions to strike class allegations. See Ian Goldrich, "The New CAFA? The Fairness in Class Action Litigation Act of 2017," JD Supra (Feb. 27, 2017).

The FCALA would provide for immediate appeal of any order granting or denying class certification, eliminating the current discretion of the appeals courts to accept or deny such appeals. This requirement is intended to protect class action defendants from the pressure to settle improper class certifications. Each of these appeals could add years to virtually any class action case. FCALA § 103(a) (proposed 28 U.S.C. § 1723).

Conflicts of Interest
Another provision of the FCALA would prohibit class certification in any case where conflicts of interest exist in regard to class counsel and class representatives. It would require extensive disclosures to establish whether a proposed class representative or plaintiff "is a relative of, is a present or former employee of, is a present or former client of . . . , or has any contractual relationship with . . . class counsel." Id. (proposed 28 U.S.C. § 1717(a)). Courts would be prohibited from granting certification of class actions that violate this rule. This proposed requirement is intended to circumvent serial class representations, which Rep. Goodlatte referred to in a press release as "incestuous, litigation factory arrangements."

In the weeks since its introduction, the FCALA has provoked widely divergent reactions. Many defense attorneys and members of business organizations welcome the proposed legislation as an attempt to curb expensive class action suits that are often more convenient to settle than to fight, regardless of merit. Plaintiffs' attorneys and consumer advocate groups see a bill that overturns decades of established class action law and shields corporations, prohibits consumers from holding businesses accountable for harm caused, and interferes with attorney-client relationships. No matter which side of the "v," attorneys should be aware that drastic changes to class action litigation may be fast approaching.

Keywords: litigation, commercial, business, class actions, Fairness in Class Action Litigation Act, FCALA, pending legislation, Congress

Copyright © 2018, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).