[Congressional Record (Bound Edition), Volume 146 (2000), Part 12]
[Senate]
[Pages 16735-16736]
[From the U.S. Government Publishing Office, www.gpo.gov]



                     THE CLASS ACTION FAIRNESS ACT

  Mr. GRAMS. Mr. President, I want to today announce my support for S. 
353, the Class Action Fairness Act, just reported by the Judiciary 
Committee, and announced my intention to complement this legislation by 
introducing legislation soon that will require lawyers representing 
plaintiffs in class actions to make preliminary disclosures estimating 
the anticipated attorneys' fee, and an explanation of the relative 
recoveries that both the attorney and class action clients can expect 
to receive if the claim is settled or decided favorably. My 
cosponsorship of the Class Action Fairness Act and intention to 
introduce my own legislation is prompted by some high profile class 
action case settlements that have generated a great deal of 
controversy. Labeled ``coupon'' settlements, these agreements have 
involved the class action claimants receiving coupons for discounts on 
later purchases of goods or services while the attorneys representing 
the class walk away with literally hundreds of thousands of dollars, or 
even millions of dollars, in fees. Often these coupons are for 
discounts on the same item rejected by the claimants in the class 
action.
  For instance, several years ago many of the nation's airlines were 
sued based upon a claim that they had fixed prices. A database that the 
airlines were using to communicate fares to the travel industry was 
suspected of being used to compare and fix fares, and a Justice 
Department antitrust investigation thus ensued. The Justice Department 
subsequently filed a civil antitrust suit in 1992 and settled the case 
in 1994. But firms specializing in class action cases also brought 
their own civil suits against the airlines on behalf of air travelers. 
In fact, 37 firms were involved on the plaintiff side of the 
litigation.
  A settlement was eventually reached that provided $438 million worth 
of coupons to an unknown number of passengers, while the legal fees to 
plaintiffs' attorneys amounted to $16 million. In other words, the 
passengers got coupons, and the lawyers got cash. You may be thinking 
that $438 million in coupons sounds like a pretty generous amount of 
discounts for the passengers, but the details indicate otherwise. Each 
coupon was good for only a 10 percent maximum discount off an air fare. 
4.2 million air travelers recovered between $73 and $140 in coupons, 
but, again, any one coupon was only good for 10 percent of the actual 
fare.
  One particularly revealing fact about this settlement was that one 
airline

[[Page 16736]]

that had not been named as a defendant actually asked to be joined in 
the suit as a defendant because they saw the promotional value of all 
these coupons going to air travelers. So what ostensibly was a high 
stakes civil action degenerated into a promotional tool for the 
airlines, a negligible recovery for the class members, and a financial 
boon for the plaintiffs' attorneys.
  It's not difficult to foresee the possibility of collusion between 
plaintiffs' and defendants' attorneys when the plaintiff attorneys can 
get huge fees and defendants can eliminate the risk of a large 
judgment. It obviously is an attractive option to a defendant to settle 
a case and pay large fees to a small number of people--specifically the 
attorneys--and avoid the risk of protracted litigation and lawyers 
seeking a jackpot recovery. Attorneys have a fiduciary duty to 
represent the best interests of their clients, but it's clear that in 
the cases of coupon settlement usually the primary interest served is 
their own.
  So we now have a problem of plaintiff attorneys searching for causes 
for which they can bring suit, and then representing anonymous clients 
that they don't know and to which they have no accountability. In fact, 
many members of a class in a class action don't even know they are 
being represented. The windfall profits to attorneys has prompted a 
deluge of these type of suits, and recent studies indicate that in the 
last 36 months, some companies have faced a 300 to 1000% increase in 
the number of class actions filed against them. And you know the 
problem has gotten bad when the president of the Association of Trial 
Lawyers of America comes out against coupon settlements.
  The problem of coupon settlements has been manifested primarily in 
state courts. Federal court judges generally, to their credit, have 
been more vigilant in policing such ``sweetheart settlements.'' The 
problem of the proliferation of this type of litigation in state courts 
prompted Congress to seek a legislative remedy. The Judiciary recently 
marked up the Class Action Fairness Act, which moves many of these 
large, multi-state claims to the federal courts where they belong. Many 
of the class action trial lawyers have worked the system to keep their 
claims in state court, where they know there is not the expertise nor 
staff to handle the issues, and which provides them advantages over the 
defendant. The bill also requires the Judicial Conference of the United 
States to recommend best practices the courts can use to ensure 
settlements are fair to the class members, that attorneys fees are 
appropriate, and that the class members are the primary beneficiaries 
of the settlement.
  I believe that these are important reforms, and I want to take the 
reforms a step further by requiring attorneys in class action cases to 
make an up-front disclosure about the prospects for success and also 
give information about attorneys' fees and individual class member 
recovery in the event of a successful conclusion to the suit. If 
potential class members are likely to receive only a small fraction of 
what their attorney would receive, or perhaps a coupon which they may 
or may not end up using, then they need to be appraised of that fact 
from the start. These types of disclosures will at least put the 
potential class members on notice that perhaps the attorneys don't have 
some noble pursuit of justice in mind as much as they do getting a 
quick settlement that will net them huge profits, while the clients 
they ostensibly are trying to assist receive little or nothing.
  Again, I am pleased to join as a cosponsor of S. 343, and look 
forward to introducing my own legislation to combat this abuse of our 
legal system.

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