The Fairness in Class Action Litigation Act, also known as H.R. 985, passed the House earlier this year by a largely party line vote. If passed, this bill would represent the most significant class action reform legislation since the Class Action Fairness Act (CAFA) steered most class actions to federal court starting in 2005.
The Class Action Reforms Contained in the Bill
The bill includes the following class action reforms long advocated by business interests:
- Limiting certification in cases claiming personal injury or economic loss to classes in which all members suffered the same “type and scope of injury.”
- Requiring that classes be defined with reference to objective criteria and that there be a reliable and administratively feasible mechanism to identify class members.
- Prohibiting certification of a class unless there is “objective” evidence that the relief can actually be distributed to a “substantial majority” of class members by “administratively feasible” means.
- Confining attorneys’ fees for class counsel to a “reasonable percentage” of the value of the monetary or equitable relief actually received by actual class members.
- Prohibiting certification of “issue classes” unless the entirety of the cause of action is properly certifiable under Rules 23(a) and (b).
- Requiring in any class action that all discovery be stayed during the pendency of any motion to transfer, dismiss or strike class allegations.
- Permitting appeals as of right (as opposed to the current permissive appeal process) from orders granting or denying class certification.
Room for Improvement?
There is little doubt that there is room for improvement in some of the act’s provisions. Take the bill’s current language to address “no injury” class actions:
A Federal court shall not issue an order granting certification of a class action seeking monetary relief for personal injury or economic loss unless the party seeking to maintain such a class action affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.
This language clearly requires all class members in personal injury and economic loss class actions to have the same “type” of injury, but precisely what does it mean to require the same “scope” of injury? And does this language even clearly require any present actual injury at all? Does it indeed allow for class certification if class members all claim only an abstract injury, but the same abstract injury? For example, if all class members claim that the technical requirements of a statute were not met, even though the alleged violation admittedly caused them no resulting harm, would H.R. 985’s common injury requirement be met? What if all class members contend that they paid too much for a washing machine because it is allegedly prone to developing problems that no member of the class has yet experienced? Consider whether this alternative language would better accomplish the objectives:
A Federal court shall not issue an order granting certification of a class action seeking monetary relief for personal injury, economic loss, product defect, or any statutory violation unless the party seeking to maintain such a class action affirmatively demonstrates by a preponderance of admissible evidence that (1) the named plaintiff(s) and each proposed class member suffered the same type of actual injury, and (2) that the existence and extent of each class member’s injury, as well as the amount of monetary relief due each class member, can be accurately determined on the basis of class wide proof, without depriving any defendant of the ability to prove any fact or defense that the defendant would be entitled to prove as to any class member if that class member’s claims were adjudicated in an individual trial. Actual injury for purposes of this provision shall not include a claimed propensity to develop a defect in the future, nor an alleged diminution in value resulting therefrom, and shall not include a statutory violation without resulting harm. Nothing in this provision shall be considered in determining the amount in controversy for purposes of removal of any class action filed in state court.
This alternative language more clearly imposes a requirement of actual, present injury common to the entire class as a prerequisite to the purely procedural device of class certification. It answers the complaint of the plaintiffs’ bar that the current legislation would arguably require the exact same dollar amount of injury for every class member. It is true to the basic principle that class actions should be the exception not the rule, allowed only when the case as a whole can be resolved in its entirety on common proof.
The bill’s effort to address ascertainability could also be improved. The need for legislation imposing an ascertainability requirement has become acute, given that three circuit courts have now essentially removed the long-accepted requirement of meaningful and administratively feasible ascertainability of class members from the list of prerequisites to class certification. See In the last of these, the Ninth Circuit even went so far as to endorse the concept of a “fluid recovery” based on total sales, meaning the defendant’s damage liability could be determined based on the fiction that every class member could be identified even if the reality was that they couldn’t. Such approaches to class certification improperly turn what is supposed to be a procedural mechanism for grouping the claims of otherwise individual actual litigants into an implicit “private attorney general” mechanism for policing perceived wrongdoing and extracting maximum punishment or damages. The Rules Enabling Act does not allow a mere rule of procedure to carry that kind of substantive weight. They improperly ignore the right of individual class members to choose not to sue and to be happy with the product or service they received. And when combined with self-identification of class members through affidavits late in the litigation, they improperly allow class members to wait and judge the outcome before deciding to self-identify, making a farce of what should be the defendant’s due process right to know who will and will not be bound by the litigation in advance. It turns what should be an “opt-out” class action into an “opt-in” class action that finds no sanction in any provision of Rule 23.
A meaningful ascertainability requirement is an important part of cabining the class action device to its proper procedural scope. The bill’s current provision on ascertainability reads as follows:
§1718. Distribution of benefits to class members.—A Federal court shall not issue an order granting certification of a class action seeking monetary relief unless the class is defined with reference to objective criteria and the party seeking to maintain such a class action affirmatively demonstrates that there is 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.
Again, this language could be improved. First, settlements are not the problem, and the bill need not impede them. Its main objective should be to make sure that class members are individually identifiable and locatable before a contested class is certified. Meanwhile, the imprecision of subsection (a) might still allow artful would-be class counsel to argue, for example, that all a court need do at the class certification stage is find that class members can “self-identify” through affidavits or “claim administration” hearings at some later stage, which class counsel would now simply argue — probably successfully before more liberal courts — is an “administratively feasible” process (see e.g., Briseno, supra). But in contested class litigation, cumbersome and massively expensive “claims administration” proceedings only compound the judicial blackmail effect that class actions already have, making settlement of even unmeritorious claims cheaper than litigating them (see e.g., In re Rhone Poulenc-Rorer, Inc., 51 F.3d 1293 (7th cr. 1995)). Most importantly, judicial sidesteps of the problem of class member identification also reflect the very phenomenon that the ascertainability requirement is meant to prevent. With that in mind, wouldn’t the legislation now on the table better accomplish the ascertainability objective if §1718 read as follows?
IDENTIFICATION OF CLASS MEMBERS — Except when certifying a class for settlement purposes only, a Federal court shall not issue an order granting certification of a class action seeking monetary relief unless it first finds that the individual members of the class can be specifically identified by reliable and feasible means, before any determination of liability or damages and before any class notice is sent, without relying upon individual testimony from putative class members and without substantial administrative burden.
How and When Could Changes to the Bill Be Made?
Any opportunities for changes to H.R. 985 and, indeed, the bill’s ultimate fate, currently rest with the Senate. The previous Senate Judiciary Committee showed little interest in this bill’s more modest predecessor, last year’s H.R. 1927, and so far that committee has not acted on this year’s version either. One thing seems clear: This a better opportunity for Congress to achieve meaningful class action reform than we have seen in many years. But the Senate has been sitting on this bill without acting for six months. In the current political climate, the Senate is not likely to seize that opportunity unless businesses favoring such reforms make sure Congress hears from them. Loudly, soon and often.