[Congressional Record Volume 151, Number 17 (Wednesday, February 16, 2005)]
[House]
[Pages H685-H691]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
CLASS ACTION FAIRNESS ACT
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 4, 2005, the gentleman from Virginia (Mr. Goodlatte) is
recognized for 60 minutes as the designee of the majority leader.
Mr. GOODLATTE. Mr. Speaker, with the leave of the Speaker, we have
the opportunity for the next hour to talk about major and historic
legislation that will come before the Congress tomorrow.
The Senate has already passed legislation reforming class action
lawsuit abuses, and now the House of Representatives will take it up
and pass it and send it to the President of the United States.
Why is this such a historic occasion? Because abuses in class actions
have been going on for many years. In fact, this House has worked for
over 6 years to reform this difficulty and get to the point where we
are today.
This legislation has passed the House of Representatives in each of
the last three Congresses, but each time it was stymied in the United
States Senate. The fact of the matter is that as the legislation
progressed through the House, it got more and more votes, more and more
bipartisan support, but never could get the threshold needed to pass in
the other body. That has now changed. The Senate has passed
legislation. It is a little different from what the House has passed in
the past, but it holds the same core principle of reforming the abuses
that are taking place today all across the country with class action
lawsuits.
Some of these abuses are absolutely startling. In a nationwide class
action lawsuit filed in Alabama against the Bank of Boston over
mortgage escrow accounts, the class members won the case, but actually
lost money. Under the settlement agreement, the 700,000 class members
received small payments of just a couple of dollars or no money at all.
About a year later they found out that anywhere from $90 to $140 had
been deducted from their escrow accounts to pay their lawyers' legal
feels of $8.5 million. In other words, they had to pay more than they
have received in settlement in order to satisfy multi-million dollar
attorneys' fees.
When some of those class members sued their class action lawyers for
malpractice, the lawyers countersued them for $25 million saying their
former clients were trying to harass them.
In another classic case, in the settlement of a class action lawsuit
in Madison County, Illinois, against Thompson Consumer Electronics over
alleged faulty television sets, consumers were eligible for rebates on
future purchases ranging in value from $25 to $50 if you spent more
than $100 on a Thompson Electronics product. So in other words, your
settlements was a coupon to buy more of what was alleged to being
defective in the first place.
How did the attorneys do? Well, the attorneys pocketed $22 million in
attorneys' fees. Some consumers reportedly walked away from the
settlement altogether because the form was so complicated and the
attorneys' fees were so high.
Recently, President Bush had down at the Commerce Department a forum
to discuss these abuses, and one of these plaintiffs in this Thompson
Electronics case was there. And after explaining what she had been
through and the frustration of having a television set that did not
work and being represented in a class action that did not work and
winding up with a coupon to buy something she did not want to buy and
seeing the attorneys get $22 million in attorneys' fees, she said,
Where is the justice in that?
The fact of the matter is there is no justice in our current class
action system and it is, in effect, a racket.
How did we get to this point? Well, it has to do with a problem with
our Federal laws. When our Founding Fathers wrote our Constitution,
they very wisely provided for a Federal judiciary, a judiciary that
could hear cases from different people in different States so that if
in the founding of our country and ever since people felt that they
might not be treated as fairly in a foreign jurisdiction in a court
across the country somewhere far from where they have lived, they could
have the opportunity to remove it to the Federal courts where they
would in theory get more impartial treatment. This has persisted for
the entire history of our country.
However, our Founding Fathers never heard of class action lawsuits.
They are a 20th-century development and they are not without their
merit. Class actions afford efficiencies to our courts because if
people have an identical claim against one or more defendants, they can
be consolidated into a class and brought before the court in an
efficient manner and sometimes these cases involve hundreds of
thousands or even millions of plaintiffs.
This legislation does nothing to affect the right of people to bring
their class action lawsuits in State courts or Federal courts. But
under the original establishment of our Federal courts, this diversity
jurisdiction of the courts where you had parties from different States
disputing each other, had to set a minimum amount before you could
bring the case into courts; and over the years that number has risen to
$75,000 per plaintiff.
So in other words, if a person who lives in my State of Virginia has
an injury in the State of Maryland across the Potomac River and they
bring a lawsuit in the State court, if that case involves more than
$75,000 in damages, the case can be removed to the Federal courts.
However, when you apply that rule to class actions, it is the same. It
is $75,000, but it is per plaintiff. So if you have a million
plaintiffs in a case, you have to multiply by one million times $75,000
or show a $75 billion case in order to get into Federal court. That is
wrong, that a $75,000 simple case that can easily be handled in the
State courts would be entitled to the Federal courts and a $75 billion
case or say a $70 billion case, less than the $75 billion threshold
there, cannot get into the Federal courts. It is wrong. It should be
corrected, and this legislation does it in a very simple fashion.
Instead of $75,000 per plaintiff, it is $5 million, but 5 million for
the entire class, all the claims added together. And this will mean
that no longer will you have what is called ``forum shopping'' taking
place where the plaintiffs' attorneys can choose the jurisdiction they
want to bring the case in and keep it there.
Why is that significant? Because we have over 4,000 jurisdictions
across the country, 4,000 different State jurisdictions, sometimes
simple county governments, sometimes a collection of counties within a
State, but 4,000 different places where you can bring a lawsuit. The
plaintiffs attorneys, and there are only a small number of plaintiffs
attorneys who handle these big class action lawsuits, the plaintiffs
attorneys know which of those 4,000 jurisdictions, maybe a dozen, maybe
two dozen of them, are overwhelmingly biased and favorable to the
plaintiffs in a class action.
There was one State court county in Alabama a few years ago where
more nationwide class action lawsuits were considered in that one
county than the entire Federal judiciary of more than 600 district
court judges combined. That is an abuse. Today the same thing takes
place in other jurisdictions around the country, and this legislation
would correct that. More importantly, it would treat all the parties
fairly because not only could the defendants remove a case to Federal
courts, but any or all of the plaintiffs in the case would also have
the right to remove that case to Federal court under appropriate
circumstances. The judge would have discretion, if the case looked like
it really did principally involve people in one State, it would be kept
in that State. But if it clearly is a nationwide class action lawsuit,
it can be moved to Federal court where it will get more even-handed
treatment and a more standard application of the law then these select
jurisdictions that are getting all the class action cases today. That
is what the problem is.
In addition to changing the jurisdictional requirements, there are
also other things that will make it easier for plaintiffs to be treated
fairly and defendants to be treated fairly as well. The Washington Post
is one of more
[[Page H686]]
than 100 newspapers around the country that have endorsed this
legislation. And they said it so wisely a few years ago. They have been
supporting this for a long time. We do not often on our side of the
aisle cite The Washington Post, but this gives you an idea of how
serious this problem is and how widespread the support for this problem
is: ``The clients get token payments while the lawyers get enormous
fees. This is not justice. It is an extortion racket that only Congress
can fix.''
I say to my fellow Members of Congress, tomorrow we are going to do
just that, and send a bill identical to the bill with the Senate to the
President of the United States for signing into law to once and for all
change this abusive extortion racket.
At this time it is my pleasure to recognize some other Members who
have come down to speak on this issue. The first one is a new Member of
the Congress who campaigned for election on legal reforms and who has
identified this legislation as something that has great merit and we
thank him for his early support, that is, the gentleman from the State
of Kentucky (Mr. Davis).
{time} 1545
Mr. DAVIS of Kentucky. Mr. Speaker, I thank the gentleman for
yielding.
Mr. Speaker, I rise today in support of the Class Action Fairness
Act, and I speak as a former small business owner who has watched
industry damage, jobs lost and costs increased across the entire
spectrum of our economy here in the United States.
This legislation will put an end to trial attorneys' forum shopping
to find a friendly court where settlement awards will line their
pockets while hitting victims and consumers in their pocketbooks. For
too long, we have watched State courts try to manage a crush of cases
that have been increasing year by year and that should have never
entered the courtroom. These frivolous lawsuits frankly are
merchandising the process of justice, making a profit for the few for
the expense of freedom, liberty, and justice for the majority of people
in this country.
Overall, class-action filings in the United States have increased
1,000 percent in the last 10 years, yet there has been no increase in
capacity in our courtrooms, and the net result of that is to assure
that our courts are slowed. There is a tremendous backlog of legitimate
cases that need to be heard, and we are doing our citizens a
disservice, again while a few make a tremendous amount of money, and
the alleged victims in these cases collect nothing in damages of any
substance.
In some jurisdictions, class-action filings have increased 4,000
percent, virtually bringing the legal system to a halt in those areas.
Let me repeat that because it is such a significant number. Class-
action filings in some jurisdictions have increased 4,000 percent. Mr.
Speaker, this has become a money game, indeed a monopoly; ironically,
very similar to the game of Monopoly.
If we look at the chart to my right, we can see how that game is
played. Those who are profiteering in this business come up with an
idea for a lawsuit. The next thing they do is find a plaintiff to play
that off and then finally make allegations. In fact, legitimate rules
of evidence need not apply here to simply get a forum to create press
and public opinion. And finally, they are free from rule 23 to begin
shopping these cases.
I have seen it in a variety of industries. I have seen it hurt our
veterans in many ways while lining the pockets of just a few plaintiff
attorneys in just a few States, and at the end of the day, business is
impeded, jobs are going to be lost, and are lost in a wide variety of
sectors.
Let us look at an example of a variety of these claims. Blockbuster,
the video rental company, had a claim against it. $9.25 million were
paid to the attorneys who were bringing forth that case. What was the
benefit of it to the alleged victims in that case? Free movie coupons.
This is an injustice. It is a misuse of our legal system, and frankly,
I believe that that money was unethically acquired by those attorneys
utilizing the judicial system in an inappropriate way.
The Bank of Boston case, $8.5 million were paid to attorneys, and
indeed, some of the plaintiffs at the end of the settlement had to pay
legal fees to cover the damages.
What happens to us? Our employers are hit. Our health insurance and
liability policies in small business go up. Ultimately, plaintiffs'
attorneys win and the consumer loses. Every Member of this body loses.
The American citizen loses.
Unfortunately, the result of this class-action process, what it has
become is it makes many of these settlements pass on to consumers
considerable hikes in goods and services. It limits our access to
markets, and frankly, it limits our ability to compete in the global
economy for us, right now. This is bad for us as consumers and in
business and for citizens.
The Class Action Fairness Act offers solutions to judicial loopholes
that are abused by a minority of trial attorneys. It does not impede
the filing of any legitimate claim nor does it prohibit legitimate
claimants from seeking redress from a company that has harmed them. Let
me make it clear. We are not preventing anybody from having a right to
redress for legitimate damages. We are simply preventing a scourge that
is hurting our Nation and our economy now.
The Class Action Fairness Act allows Federal courts to hear cases
that involve true interstate issues while preserving the State courts
for true local issues, which is as the founders built it into the
Constitution.
This is a good bill. Mr. Speaker, I am proud to support it.
Mr. GOODLATTE. Mr. Speaker, I thank the gentleman. We are also joined
by another leader for legal reforms, the gentleman from Florida (Mr.
Keller), who has been very supportive of this class-action legislation
for several years now, and we thank him for his leadership on the issue
and I am pleased to yield to him.
Mr. KELLER. Mr. Speaker, I thank the gentleman from Virginia for
yielding. Our colleagues in Congress owe the gentleman from Virginia
(Mr. Goodlatte) a great debt of gratitude for successfully and
persistently pursuing this legislation for a great number of years, and
tomorrow he will finally put the ball in the end zone, and he is to be
congratulated.
Mr. Speaker, I rise today in strong support of this class-action
reform legislation.
The bottom line is that class-action reform is badly needed.
Currently, crafty lawyers are able to game the system by filing large,
nationwide class-action suits in certain preferred State courts like
Madison County, Illinois, where judges are quick to certify class
actions and quick to approve settlements which reward attorneys with
millions of dollars but give their clients worthless coupons.
Speaking of Madison County, let us look at this chart here, and as we
can see, Madison County, Illinois, which by the way has been called the
number one judicial hellhole in the United States, there were 77 class-
action lawsuits filed in 2002 and 106 class-action lawsuits filed in
2003. Now, the movie ``Bridges of Madison County'' was a love story.
The ``Judges of Madison County'' would be a horror flick.
Unfortunately, all too often it is the lawyers who drive these cases
and not the individuals who are allegedly injured. For example, in a
suit against Blockbuster for late fees, the attorneys received $9.25
million for themselves while their clients got a coupon for a $1
discount on their next video rental.
Similarly, in a lawsuit against the company who makes Cheerios, the
attorneys received $2 million for themselves, while the plaintiffs
received a coupon for a free box of Cheerios.
In a nutshell, these out of control class-action lawsuits are killing
jobs, hurting small business people who cannot afford to defend
themselves and hurting consumers who have to pay a larger amount for
goods and services.
This legislation provides much-needed reform in two key areas. First,
it eliminates much of the forum shopping by requiring that most of
these nationwide class-action claims be filed in Federal court.
Second, it cracks down on these coupon-based, class-action
settlements by requiring that attorney-fee awards be based either on
the value of the coupons actually redeemed or by the hours actually
billed by the attorney in prosecuting the case.
Mr. Speaker, this legislation should comfortably pass the U.S. House
of
[[Page H687]]
Representatives tomorrow. Last week, this exact bill received 72 votes,
broad bipartisan support, in the U.S. Senate, and last year we passed a
very similar class-action reform bill in the U.S. House with 253 votes.
I urge my colleagues to vote yes on this class-action reform
legislation. It is about justice. It is about common sense and it is
about time.
Mr. GOODLATTE. Mr. Speaker, I thank the gentleman.
One of the issues that the critics of this legislation argue is that
it would undermine federalism principles by removing to Federal courts
cases that should be decided by the State courts. Well, that is exactly
the opposite of what is going on here. These critics are wrong.
The Class Action Fairness Act restores, rather than undermines,
federalism principles. Why is that? Because, as I noted earlier, the
fact of the matter is that these cases involve plaintiffs from often
all 50 jurisdictions, and when the case is brought in one State court,
in one county in that State, and that judge then makes a decision, that
judge is deciding the law, not just for the State of Illinois, if you
happen to be in Madison County, but he or she is deciding that case for
all 50 States, and that is something that our Constitution intends be
available to people to have decided not in one particular State court
jurisdiction but in our Federal courts. That is one of the principal
reasons why our Federal courts were established, and it is in those
courts that these types of cases should be heard, but under the current
rules they cannot be.
So what happens in Madison County, Illinois, as this chart shows,
affects the whole country. The overwhelming majority of class actions
filed in Madison County are nationwide lawsuits in which 99 percent of
the class members live outside of the county. As a result, decisions
reached in Madison County's courts affect consumers all over the
country, and the county's elected judges effectively set national
policies on important commercial issues.
So, in terms of restoring States rights, that is exactly what this
legislation does. It makes sure that the rights of all 50 States are
protected in the judicial proceedings related to class-action lawsuits
and that one State does not have the opportunity to establish policy
that directly affects other States.
Let me give my colleagues another example of that. Several years ago,
State Farm Insurance Company was sued because they were requiring their
adjusters in automobile cases to calculate the adjustments using what
are called after-market parts. After-market parts are not used parts.
They are new parts, but made by companies other than the original
manufacturer of the automobile. There is nothing wrong with the quality
of the parts, but they are often less expensive because they are
manufactured in a competitive environment where anybody can make these
parts. Therefore, the price is generally lower. And the reason why
State Farm was doing that was in part because it is good policy to save
money for your insureds and keep your insureds premiums low, but also
because many of the insurance commissioners of the 50 States also
encouraged or, as in the case of Massachusetts, even required the use
of after-market parts wherever possible.
Well, this suit was brought, alleging that that was wrong, and State
Farm was put in a position of being in a court in Illinois in which
they were going to have the decisions of the 50 State insurance
commissioners, none of whom had any problem with this policy,
overturned by one court judge who was not even experienced in terms of
handling insurance policies like the insurance commissioners are that
do it day in and day out every day, but one judge could overturn the
policies of the other 50 States. So that, indeed, is a reason for
concern.
What happened? State Farm decided to go to court, to go to trial in
that case and they lost. That jury and that judge found a $1.3 billion
liability for something that 50 State insurance commissioners said was
a perfectly legitimate thing to do, that was actually saving consumers
money, but now, because they could not remove the case to Federal
court, they got stuck with a $1.3 billion judgment.
Can my colleagues imagine the effect that has on the company's
ability to borrow money on the value of the stock of the shareholders
of a company? It has a devastating impact. That case is still under
appeal.
Other companies see that and they know that when they get into these
particular hand-picked jurisdictions where the judges and juries are
known to be biased in favor of the plaintiff, in virtually every
instance they know that when you get brought into those courts and you
cannot remove the case to Federal court, where they will get fairer
treatment, they better settle up. That is why we get some of these
abusive cases like this one I want to bring to my colleagues'
attention.
{time} 1600
This one involved Chase Manhattan Bank. Chase Manhattan Bank was
sued, and they settled the case rather than go to court and risk that.
Well, what do you suppose the plaintiffs got in that settlement? This
is an actual copy of one of those settlements. Thirty cents. That is
what each plaintiff got in the case. What did the plaintiffs' attorneys
get? They got $4 million in attorneys' fees. But the people they
represented got 33 cents each.
There was a catch, though. That was back when postage cost 34 cents
and you had to use a 34 cent postage stamp to mail in your acceptance
of the 33 cent settlement, for a net loss of one cent. How ridiculous
can you get.
It has an impact on other insurance companies, too. A few years ago,
I found I had been made a plaintiff in a case brought in Santa Fe, New
Mexico, against Massachusetts Mutual Life Insurance Company. What was
it alleged Massachusetts Mutual had done wrong? Well, when you get your
premium, your bill, from Massachusetts Mutual, you can pay it on a
monthly, quarterly, or annual basis. If you pay it on a monthly basis,
you pay a little more than on a quarterly basis, and that is a little
bit more than on an annual basis. Why? Because if you pay on an annual
basis, it costs them a lot less money to send out one bill than to send
out 12 bills a year, and they have the opportunity to get that money
sooner invested. So it is a little less expensive to them, and they
pass that savings along to the consumer.
The plaintiff in this case and their attorney said they should have
to spell out exactly what the difference in savings is rather than
simply look at the bill and see that these payments are 12 times what
there is and that that is a little more. They said they had to make a
disclosure under laws that are not even supposed to apply to insurance
companies.
Well, they went ahead and settled that case. Why? I asked them. They
said because they did not want to get in the same situation that State
Farm Insurance Company found itself in with a $1.3 million lawsuit.
What was the agreed-upon settlement they sent to the judge in that
Santa Fe, New Mexico, court? Well, it provided for $13 million in
attorneys' fees, $5 million up front, $5 million over a period of time,
and a nice $3 million universal life insurance policy for the
plaintiffs' attorneys. Is that not nice?
Now, what did the plaintiffs get? The plaintiffs, all the plaintiffs
got a promise that Massachusetts Mutual would not do this again. Now
there is a new settlement proposed because that one actually was
withdrawn when they realized how embarrassing it was for the
plaintiffs' attorneys to get $13 million in fees and the plaintiffs
would simply get a promise for nothing. Now they have changed it so the
plaintiffs might get as much as $50 off on their policy. The
plaintiffs' attorneys would still get the massive 8-digit settlement
amount in the multimillions of dollars.
That is wrong. And it is just one more clear example of evidence why
this is an extortion racket. Here are some more of what we call the
class action wheel of fortune.
If you are a company, or if you work for a company that gets caught
up in the class action wheel of fortune, watch out, because it can
affect your job, it can affect the success of your company and get you
tied up in these multimillion dollar cases where there really is little
or no damage; or, even if there is, like there was in the Thompson
Electronics case, where the television sets were not working, the
attorneys got $22 million and the plaintiffs got a coupon, a $50 coupon
or a $25 coupon to buy more of the same thing
[[Page H688]]
they were not happy about in the first place.
Now, let us look at the class action wheel of fortune. Kay Bee Toys.
The lawyers spin the wheel and get $1 million. The consumers get 30
percent off on selected products for 1 week. One week to go to the
store and use your coupon to buy certain selected products. Maybe if
you are unhappy with Kay Bee Toys in the first place you do not want to
go back to settle with them. But that is okay, that is what you get,
and the lawyers get a million.
Poland Spring Water, $1.35 million for the lawyers, and the consumers
got a coupon for more water.
Ameritech, $16 million for the lawyers. The consumers? A $5 phone
card.
Premier Cruise Lines, the lawyers got $887,000. The consumers, $30 to
$40 cruise coupons. If you were not happy with your cruise and were
part of this lawsuit, the lawyers got almost $1 million and you got a
$30 to $40 coupon for future use on a cruise.
How about computer monitor litigation involving several companies.
The lawyers got $6 million and the consumers got a $13 rebate on future
product purchases.
Register.com, the lawyers got $642,500 and the consumers $5 coupons.
This kind of abuse is what this legislation is designed to correct.
It is time to end the class action wheel of fortune and benefit all
consumers in America who do not seek companies treated in this fashion
and lawyers lining their pockets with excessive attorneys' fees because
they have an extortion situation or the defendant in the case knows
that if they do not pay those big attorneys' fees and get away with
giving a coupon or something to the plaintiffs themselves, they could
go to court and wind up with a much larger judgment because they are in
an unfair, hostile court, just like State Farm found itself in.
We are going to change that so that people, when they see this
situation, both the plaintiffs who find themselves made a party to a
case and the defendants, can remove that case to Federal court. They
will still have a right to bring the class action, but it will be
examined and dealt with under more standard rules and in a fairer and
more impartial judiciary.
We have more examples. This is the apple juice example. As this chart
shows, in the settlement of a class action lawsuit alleging that Coca
Cola improperly added sweeteners to apple juice, it was the lawyers who
got a sweet deal: $1.5 million in fees and costs. Unfortunately, class
members came up empty again, receiving 50-cent coupons but no cash.
Crayola Crayons. Another favorite American brand. In the settlement
of a class action lawsuit over alleged improper manufacturing of
Crayola Crayons, consumers received 75-cent coupons to buy more of the
crayons, while their lawyers pocketed $600,000 in attorneys' fees.
Then we have the famous golf ball case. In the settlement of a class
action lawsuit over the terms of a promotion for Pinnacle golf balls,
the manufacturer paid $100,000 in attorneys' fees and no cash to class
members, who received three free golf balls.
Well, thankfully, people are beginning to recognize this abuse.
Newspapers all across the country, newspapers whose editorial boards
reflect widely different ideological viewpoints on many issues have
found common ground on the need to adopt the Class Action Fairness Act.
More than 100 editorials so far support the legislation.
I earlier cited The Washington Post. They also had this to say about
it: ``No area of U.S. civil justice cries out more urgently for reform
than the high-stakes extortion racket of class actions, in which truly
crazy rules permit trial lawyers to cash in at the expense of
businesses. Passing this bill would be an important start to
rationalizing a system that is out of control.''
The Chicago Tribune said that the Class Action Fairness Act would
``substantially end the practice of forum shopping, stop seeking a home
in State courts that are deemed most likely to produce juicy
settlements. This would go a long way to halt the worst class action
abuses. It should be the law.'' And very soon after tomorrow, it will
be the law.
News Day, a Long Island newspaper, said: ``In a deal that should
cement class action lawsuit reform, three Democratic Senators have now
signaled support for a bill. The tweaks they won made a good bill
better. Class action lawsuits are ripe for reform. The Senate bill
would curtail abuses by moving the largest nationwide class actions
into Federal courts and toughening judicial scrutiny of settlements.
The changes Democrats won will help ensure that largely local cases
remain in State courts. Congress should enact this needed reform.''
The Orlando Sentinel said: ``The Senate's proposal is worthy of
becoming law.''
The Providence Journal, from Rhode Island: ``The Senate should pass a
long overdue reform to curb abuses in class action lawsuits. Class
action suits involving interstate commerce, which is implied by having
plaintiffs in more than one State, clearly belong in Federal court. The
consumers should no longer have to bear the onerous costs of the
practice of venue shopping.''
Spokesman Review, from Washington State: ``The Class Action Fairness
Act would restore common sense to a valid and needed legal procedure.''
The Hartford Courant: ``After 5 years of trying, Congress appears
ready to curtail the worst abuses. Legislators have debated the issue
long enough. There is no good reason to wait another year to adopt this
important reform.''
They said that last August. They had to wait another year. Let us
hope they do not have to wait any longer than tomorrow when we will
have a big bipartisan vote in support of this reform.
Earlier, I think one of my colleagues mentioned the Blockbuster case.
That is the deal where in the settlement of a class action lawsuit
filed in Texas against Blockbuster Video over late fees, currently on
appeal to the Texas Supreme Court, the plaintiffs' lawyers will receive
$9.25 million in fees and expenses and the class members will receive
two coupons for movie rentals and a $1-off coupon.
While the lawyers made enough money to produce their own movie,
Blockbuster customers could not even use their coupons to buy a bag of
popcorn, because their coupons only covered nonfood items. The
settlement allows Blockbuster to continue its practice of charging
customers for a new rental period when they return a tape late.
Blockbuster later changed that policy, but they should not be put in a
position of being in a hostile court where attorneys get a $9.25
million settlement, and all they do is antagonize their consumers by
giving them coupons.
In State court class actions, the lawyers take the money. The Bank of
Boston case. The lawyers, $8.5 million. The plaintiffs actually lost
money. The Blockbuster case. The lawyers, $9.25 million. The
plaintiffs, $1 off the next movie. The Coca Cola case. The lawyers,
$1.5 million and the plaintiffs, 50-cent coupons.
And how about Cheerios? A honey of a deal if you are an attorney. As
part of a settlement of a class action lawsuit in Cook County,
Illinois, against the manufacturer of Cheerios, the company put coupons
for a free box of cereal in the newspapers, but it was the plaintiffs'
lawyers who got the prize at the bottom of the cereal box. They milked
the company for $2 million in fees, an estimated $1,200 per hour for
their legal services. For these class action attorneys, Cheerios truly
proved to be a ``honey of an O.''
In the case involving a lawsuit filed in California, more than 50
well-known computer manufacturers and distributors were accused of
misrepresenting the screen size of their computer monitors. The
nationwide class of an estimated 40 million consumers received an offer
of a $13 rebate on new computers. That is great. You have a computer
screen that probably does not bother most people that the size of the
computer screen was a little different than was represented to them,
but if they want to go out and buy a whole new computer, get a new
screen, the size they might want, they get a $13 rebate. How do you
suppose the attorneys did? Well, they got $6 million in legal fees.
In a recent class action lawsuit in Cane County, Illinois, against
Poland Spring, the class members claimed that the company's bottled
water was not pure and was not from a spring. Under the settlement, the
consumers received coupons for a discount. On
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what? More Poland Spring water. Poland Spring admitted no wrongdoing,
and it is not changing anything about the way it bottles or markets its
waters. So what was that worth to all those plaintiffs, who were
represented by the attorneys in that case, who got the opportunity to
get a coupon for more water? Well, those lawyers who did that good
work, they got $1.3 million in attorneys' fees.
How about this one, where the lawyers sail away with fees and the
consumers get coupons. In a class action lawsuit filed in Florida
against Premier Cruise Lines, consumers allege they were charged for
port charges higher than Premier actually paid. Under the settlement,
the class members received coupons for a $30 to $40 discount on another
cruise line, because Premier had since gone out of business.
Imagine that. A many-thousands-of-dollars cruise, and you can get a
$30 or $40 discount if you use this coupon. What do you suppose the
lawyers got? They got nearly $900,000 in attorneys' fees. While the
lawyers made off with all the money, another cruise line gained a
promotional opportunity.
The lawyers receive $1 million and sell out their class in the Cook
County, Illinois, case against Kay Bee Toys over alleged deceptive
pricing practices. The toy company paid attorneys and fees costing $1
million, but no cash to the class members. As part of the settlement,
the store held a 1-week, unadvertised 30-percent-off sale on selected
products.
My colleagues, this is indeed an abuse.
In addition, we want to mention something that helps these consumers
in these cases. These coupon settlements will get much closer scrutiny
after this law takes effect.
{time} 1615
The bill provides a number of new protections for plaintiff class
members, what you might call a consumer bill of rights, including
greater judicial scrutiny for settlements that provide class members
only coupons as relief for their injuries. The bill also bars the
approval of settlements in which class members suffer a net loss. In
addition, the bill includes provisions that protect consumers from
being disadvantaged by living far away from the courthouse.
These additional consumer protections will ensure that class-action
lawsuits benefit the consumers they are intended to compensate. This
legislation does not limit the ability of anyone to file a class-action
lawsuit. It does not change anyone's right to recovery. It simply
closes the loophole allowing Federal courts to hear big lawsuits
involving truly interstate cases, while ensuring that purely local
controversies remain in State courts.
This is exactly what the framers of the Constitution had in mind when
they established Federal diversity jurisdiction. It has taken us more
than 200 years but it is now time to make clear that these devices that
the framers of the Constitution did not know about, but, certainly if
they did, would be very concerned about, now would be entitled to be
heard in the court best suited to decide these complicated, multistate,
multiplaintiff, sometimes millions of plaintiff cases, sometimes many
defendants in the case.
Mr. Speaker, there are more abuses of class-action lawsuits. I think
we have covered a great many of them. I think we have made plain that
this is a situation deserving of repair by the Congress. In fact, I
have been working on this legislation for over 6 years and it is long
overdue. These abuses keep piling up. Each time we bring the
legislation up, we have more and more of these examples.
It is long overdue that we finally have the opportunity to correct
this problem. It is one that has a very simple correction. End the
abusive forum shopping by a handful of lawyers who specialize in these
cases and know the handful of jurisdictions where they are going to get
this kind of spectacular treatment on one side and unfair treatment on
the other side, and let us go to what our judicial system is supposed
to be all about; and that is fair treatment, equal application of the
laws and standards that are imposed to make sure that these kinds of
abusive cases are heard in fair courts, so that businesses do not feel
like they are forced to deal with a situation where they have to settle
the case because they know they are in a jurisdiction that is going to
be unfair to them and do not want to wind up in the same situation that
State Farm Insurance Company found itself in several years ago, and is
still in, because of the slow time it takes to handle an appeal through
the courts.
In recent years State courts have been flooded with class actions. As
a result of the adoption of different class-action certification
standards in the various States, the same class might be certifiable in
one State and not another, or certifiable in State court but not in
Federal court. This creates the potential for abuse of the class-action
device, particularly when the case involves parties from multiple
States or requires the application of the laws of many States.
For example, some State courts routinely certify classes before the
defendant is even served with a complaint and given a chance to defend
itself. Other State courts employ very lax class-action treatment
certification criteria, rendering virtually any controversy subject to
class-action treatment.
There are instances where a State court in order to certify a class
has determined that the law of that State applies to all claims,
including those of purported class members who live in other States.
This has the effect of making the law of that State applicable
nationwide. Where is the State's rights in that? Where are the
principles of federalism in that, where one State court judge can tell
the other 49 States what the law should be in their States? That is not
what is intended and that is why our Founding Fathers intended to have
Federal courts handle cases just like these.
The existence of State courts that broadly apply class certification
rules encourages plaintiffs to forum shop for the court that is most
likely to certify a purported class. Believe me, they do just that.
Because most State courts are going to do a good job handling class
actions, but because the system is designed the way it is, those
attorneys will bring those cases to just a handful, a dozen or two
dozen jurisdictions around the country, and that is what creates the
unfairness and that is why the Federal courts need to be available as a
forum to decide these cases if any of the parties choose to seek to
remove the case to those courts.
In addition to forum shopping, parties frequently exploit major
loopholes in Federal jurisdiction statutes to block the removal of
class actions that belong in Federal court. For example, plaintiffs'
counsel may name parties that are not really relevant to the class
claims in an effort to destroy diversity. How fair is that? Somebody
gets sued and added to a lawsuit not because they have done anything
wrong, but because by adding them into the case they can prevent the
case from being removed to Federal court. That abuse is also corrected.
In other cases, counsel may waive Federal law claims. In other words,
not fully represent their clients, the plaintiffs, in some of the
measures that may be available to them under Federal laws, simply
ignore those rights, ignore those laws, and bring the case in State
court so that it cannot be removed to the Federal court. It will remain
in the State court.
Another problem created by the ability of State courts to certify
class actions which adjudicate the rights of citizens of many States is
that oftentimes more than one case involving the same class is
certified at the same time; in other words, in two different States or
in two different counties of the same State. Under the Federal rules,
that problem is solved.
In the Federal court system, those cases involving common questions
of fact may be transferred to one district for coordinated or
consolidated pretrial proceedings. When these class actions are pending
in State courts, however, there is no corresponding mechanism for
consolidating the competing suits. It is inefficient, it is wasteful,
and it results in unfair and differing results when you have two
different State courts deciding the same thing for the same nationwide
group of plaintiffs. There is no corresponding mechanism for
consolidating the competing suits in State courts. Instead, a
settlement or judgment in any of the cases makes
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the other class actions moot. This creates an incentive for each class
counsel to obtain a quick settlement of the case, to be the first one
to settle, and an opportunity for the defendant to play the various
class counsels against each other and drive the settlement value down.
The loser in this system is always the class members, the plaintiffs,
the people who are getting these coupons and so on, while they watch
their attorneys get multimillion-dollar settlements. The loser in the
system is the class member whose claim is extinguished by the
settlement at the expense of counsel seeking to be the one entitled to
recovery of fees.
This bill is designed to prevent these abuses by allowing large
interstate class-action cases to be heard in Federal court. It would
expand the statutory diversity jurisdiction of the Federal courts to
allow class-action cases to be brought in or removed to Federal court.
Mr. Speaker, I yield to the gentleman from Georgia (Mr. Gingrey),
another Member of the House who has been a major contributor to our
effort to reform class-action lawsuit abuse, someone who has championed
legal reform and has done an outstanding job representing his
constituents.
Mr. GINGREY. I thank the gentleman from Virginia (Mr. Goodlatte) for
allowing me to participate in this hour to discuss something of such
tremendous import to the people of this country and to the small
business men and women who are suffering so much because of class
action and lawsuit abuse.
The President was so clear in his recent State of the Union address
in talking about the need to reform the civil justice system. He talked
about it being kind of a three-legged stool. And class action is an
extremely important part of that reform; asbestos litigation and how we
deal with a trust fund for people that have been possibly exposed to,
and more serious, if they actually have health problems related to
asbestos. We need to make sure that that is done in a fair way so that
those who are truly hurt are the ones that benefit from any awards that
are given or, in the case of asbestos, from a trust fund that is set
up.
Class-action reform is something that we have been trying to do in
this Congress for a long time. Our friends on the other side of the
aisle like to say that this is a bill that has not been marked up, that
we just bring this before the House and it does not go through the
committee and it does not go through the hearings and the markup of
that sort of thing.
Senate bill 5, which we are dealing with now, which we will have an
opportunity to debate tomorrow and pass in this Chamber, is almost the
exact same bill, I think it is H.R. 1115, that passed this body in the
108th Congress and passed with really strong bipartisan support.
So these arguments from the other side suggesting that we are rushing
something through, nothing could be further from the truth. In fact, in
the Rules Committee, of which I am a member, we agreed to make in order
a rule, an amendment in the nature of a substitute from our friends on
the other side of the aisle. In that amendment essentially is every
amendment, maybe except for one, but almost every amendment that was
offered to this bill, Senate bill 5, in the other body that was
thoroughly discussed and debated and defeated in a bipartisan fashion.
We are going to give those on the other side of the aisle an
opportunity for one more bite at the apple tomorrow in the abundance of
fairness, to give them an opportunity to argue those points once again.
I think that it is time. Over 10 years we have been working on this
bill, long before I got to the Congress.
Let me just, if I might, go through a little bit of chronology in
regard to this bill. The 105th Congress, that is four Congresses ago, 8
years ago, almost 10 years ago, the Senate had a bill, 2083, Class
Action Fairness Act. The Senate hearing held, reported by the Senate
subcommittee. H.R. 3789, Class Action Jurisdiction Act of 1998,
committee hearing, markup held, reported from the House Judiciary
Committee, 17-12.
106th Congress, H.R. 1875, Interstate Class Action Jurisdiction Act
of 1999. Committee hearing, markup held. Passed the floor of this body
222-207.
107th Congress, H.R. 2341, Class Action Fairness Act, committee
hearing, markup held, passed floor 233-190. And on and on and on. So
those who would suggest, Mr. Speaker, that this has not had a fair
hearing, nothing could be further from the truth.
I want to ask my colleagues to look at this slide here to my left and
the title of the slide, ``Who Wins?'' This is pretty clear. This would
be a typical class-action abuse case. Maybe it was in Madison County,
Illinois, where so many of these cases are filed in State court. I do
not know if this particular one was there but we know lots of cases
have been filed there in Madison County. Class members. Coupons for
crayons, a video rental, apple juice, popcorn, golf balls. And what do
the plaintiffs' attorneys get? $11.45 million. That is the problem.
Let me just give you an example of another case, this one from Texas,
Jefferson County State Court. Shields et al. v. Bridgestone. The suit
involves customers who had Firestone tires that were among those that
the National Highway Traffic Safety Administration investigated or
recalled, but who did not suffer any personal injury or property
damage. After a Federal appeals court rejected class certification, the
plaintiffs' counsel and Firestone negotiated a settlement which has now
been approved by the Texas State court. Under the settlement, the
company has agreed to redesign certain tires, in fact, a move that
already was underway irrespective of this lawsuit, and also to develop
a 3-year consumer education and awareness campaign. But the members of
the class received nada. Nothing. The lawyers? They got $19 million.
This, Mr. Speaker, is why I am here and grateful to the chairman for
letting me participate in this Special Order to make sure that we all
understand that when people are injured, when people need a redress of
their grievances, they do not need to be getting coupons that are
worthless unless they take the trouble of redeeming them, and then they
are worth very little and all the money goes to plaintiffs' attorneys.
This is just about leveling the playing field.
{time} 1630
We will be talking about the other two legs of the stool. I mentioned
asbestos and, of course, civil justice reform in regard to medical
liability, the Health Act of 2003, so-called tort reform. That is the
other leg of the stool that we need to address, because the unintended
consequences of not doing anything is if you put small businessmen and
-women totally out of business because of the cost of defending these
frivolous cases in the health care field, people do not have access to
health care in a timely fashion.
Then doctors who practice in a high-risk specialty, such as emergency
room care or obstetrics or neurosurgery, hang up their stethoscopes and
white coats and pick up a fishing rod or a set of golf clubs at the
prime of their career.
So that is why we are here. There is why this is so important. I
thank the gentleman for yielding.
Mr. GOODLATTE. I thank the gentleman for his support of this
legislation and his very cogent reasoning about why it is needed.
I have one last chart I want to show before we close, and that is
this poll taken in USA Today about the opinions of the public on class
action lawsuits.
As I said at the outset, this bill does not take away the right of
anybody to bring a class action lawsuit, and class action lawsuits have
their place in our legal system.
But the American public knows what is going on. When they were asked
who benefits most from class action lawsuits? Lawyers for the
plaintiffs, by far the number one answer. Forty-seven percent.
The second answer, lawyers for the companies. They get paid too, 20
percent. The companies being sued 7 percent. Remember they get to give
out those products promoting their products. They get out of what could
be a worse situation. And the buyers of the products, 5 percent. And
the plaintiffs 9 percent.
The overwhelming majority of the public, more than 70 percent, know
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that class action lawsuits are not serving the people that they are
supposed to serve. The lawyers get the cash, the plaintiffs get the
coupons, the consumers pay higher prices for goods and services, and it
is an abuse.
Tomorrow we have the opportunity to correct it once and for all, to
pass a bill that will be identical to the bill passed by the Senate and
send it to the President of the United States for his signature. He has
been a champion on this issue. He has indicated his willingness to sign
that legislation.
I urge my colleagues to get the job done, to pass this legislation
and reform the abuses in our class action lawsuit industry that have
taken place, and let us return it to class action justice for
plaintiffs who deserve it.
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