Are Significant Changes To Class Actions On The Horizon? (Part One)

From 2004 until 2015, the number of putative class actions filed in the United States has nearly quadrupled.  In an effort to stem the tide of class actions filings, the U.S. House of Representatives has proposed legislation that could significantly impact the way class actions are filed, litigated and settled in the future. This two- part update details the potential changes to the class action landscape and the impact these initiatives could have on future class action litigation.    

The Fairness in Class Action Act of 2017 

On March 9, 2017, the U.S. House of Representatives passed the Fairness in Class Action Act of 2017 (“the 2017 Class Action Fairness Act”).  The 2017 Class Action Fairness Act seeks to make significant changes to the judicial code and the standard by which courts certify class actions. A summary of the current status of H.R. 985 is available here. Specifically, the Class Action Fairness Act, among other things, will: 

• Prohibit federal courts from certifying class personal injury or economic loss classes unless “each proposed class member suffered the same type and scope of injury as the named class representatives”; and 

• Require a party seeking to maintain a class action to demonstrate a reliable and administratively feasible mechanism for the court to determine whether putative class members fall within the class definition and for the distribution of any monetary relief directly to a substantial majority of class members (also known as “ascertainability” in a variety of courts).

The 2017 Class Action Fairness Act also addresses the “conflicts of interest” that may exist between a class representative and class counsel.  The Act requires putative class complaints to: (1) disclose whether any named plaintiff is a relative of, a present or former employee or client of, or has any contractual relationship with class counsel;  (2) describe “the circumstances under which each class representative or named plaintiff agreed to be included in the complaint; and (3) identify any other class action in which such class representatives or plaintiffs have “a similar role.”  

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In addition, the 2017 Class Action Fairness Act places certain limits on attorneys’ fee awards in these cases.  First, it limits attorneys’ fees to a reasonable percentage of: (1) any payments received by class members; and (2) the value of any equitable relief.  Second, it prohibits the payment of any attorneys’ fees based on monetary relief until the monetary relief has been provided to the class members.  

The 2017 Class Action Fairness Act also seeks to limit the litigation burden that these cases can create by requiring a stay of discovery during the pendency of any motions to transfer, strike class allegations or  dismiss, or any other motion which would dispose of the class allegations.  The Act would also require the court of appeals to hear all appeals of orders granting or denying class certification (this decision currently lies in the discretion of the court of appeals).     

The 2017 Class Action Fairness Act will require class counsel to submit certain data regarding the disbursement of funds paid by defendants in class action settlements to the Federal Judicial Center and the Administrative Office of the U.S. Courts.  The Judicial Conference of the United States will use this information to prepare an annual summary for Congress and the public on the use of these funds.            

Current status and potential impact of The 2017 Class Action Fairness Act 

The Act’s proposed changes were met with significant criticism from a variety of groups.  This included oppositions filed by the American Bar Association, the Federal Judicial Center, the Standing Committee on Rules, and the Administrative Office of U.S. Courts, among others.  These objections raised a number of potential issues with the proposed legislation including, but not limited to, the burden it could have on the court system by requiring parties to file suits in smaller groups, further delaying the time to disposition for class actions, and increasing the burden on appellate courts.  Notwithstanding these objections, the 2017 Class Action Fairness Act was passed by the U.S. House of Representatives and is now before the Senate’s Judiciary Committee.   

If entered into law, the 2017 Class Action Fairness Act could have a significant impact on class action practice across the county.  Specifically, the requirement that economic damage classes demonstrate that each proposed class member suffer the same “type and scope” of injuries will require significant judicial interpretation.  Regardless of how this new requirement would be interpreted over time, it would provide defense counsel with a new and potentially significant defense to class actions.  In addition, the Act could impact the use of professional and/or repeat plaintiffs or class representatives through the new restrictions and limitations on class representatives described above.  

Whether this Act is eventually adopted in whole, or in part, it is certainly a development that is worth monitoring given its potentially significant impact on class actions across the country.  Stay tuned for Part 2 of this update, in which we will explore the proposed changes to Federal Rule of Civil Procedure 23 and its potential impact on class action practice. 

Read Part Two of this 2-part series here.