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WHY IS THE CLASS ACTION FAIRNESS ACT NECESSARY?
The Constitution says that large, multi-state lawsuits should be brought in federal courts.
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Article III, section 2 of the U.S. Constitution says that the federal judicial power “shall extend … to Controversies … between Citizens of different States.” This clause was meant to protect parties from the biases of foreign state courts. Multi-state class actions are the very type of large, interstate lawsuits that the Framers intended to be heard in federal courts.
There are gaping loopholes in our federal statutes.
- Our federal statutes currently say that interstate disputes involving significant sums of money may be heard in a federal court. But because class actions (as we now know them) did not exist when those statutes were originally enacted, class actions were omitted, leading to unintentional results.
- For example, under current law, a citizen of one state usually may bring in federal court a simple $75,001 slip-and-fall case against a party from another state. However, if a class of 25 million product owners living in all 50 states brings claims collectively worth $15 billion against the product manufacturer, that lawsuit usually must be heard in a state court!
Aggressive trial lawyers abuse these loopholes.
- In a class action suit against Cheerios over a food additive, with no evidence of injury to any consumers, lawyers were paid nearly $2 million in fees, or approximately $2,000 per hour. Meanwhile, consumers in the lawsuit received coupons for a free box of cereal.
- Consumers were awarded 33-cent checks in a class action settlement with Chase Manhattan bank, while attorneys in the case walked away with $4 million in fees. The real zinger is that class members had to use a 34-cent stamp to mail in the response to claim their award.
The Class Action Fairness Act will help.
- The Class Action Fairness Act offers a solution to the class action crisis by making it easier for plaintiff class members and defendants to move multi-state class actions to federal court, where cases involving multiple state laws should be heard.
- The Act does not limit the ability of anyone to file a class action lawsuit. It does not change anyone’s rights to recovery. It merely allows federal courts to hear big lawsuits involving truly interstate issues, 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.
- Furthermore, the bill provides greater consumer protections, including greater judicial scrutiny for settlements that provide class members with mere coupons as relief for their injuries, and prohibiting settlements in which class members suffer a net loss. These additional consumer protections will ensure that class action lawsuits benefit the consumers they are intended to compensate.
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