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Washington�Class action restrictions-one of three top tort system changes sought by President Bush and the nation’s business community-will likely be enacted into law now that the Senate has approved them, but their ultimate impact on plaintiffs and defendants will rest with individual federal judges. As it heads to almost certain passage in the House this week, the Class Action Fairness Act of 2005, which would create an unprecedented shift of state class actions to federal courts, is opposed by federal judges, state judges, state legislatures and 46 state attorneys general, not to mention consumer, civil rights and environmental groups. But whether this procedural shift is “a bad idea whose time has come,” in the words of Senator Joseph Biden, D-Del., or the right fix for a “broken” system, will depend on how the federal courts react to the influx of what will be mostly consumer class actions, agree both proponents and opponents. Looking down the road, scholars and litigators predict that if the bill is enacted, it will, at a minimum, have the following effects: A significant redirection of consumer law development away from its traditional bailiwick in state legislatures and state courts to the federal courts. Larger class actions seeking bigger monetary awards and no nonmonetary relief. Removal and remand battles in the initial years. Increased delays in certification decisions by federal judges who already struggle with crowded dockets and who must give priority to criminal cases. Greater coordination among plaintiffs’ attorneys throughout the country. “I think it’s going to cause chaos,” said Michael B. Hyman of Chicago’s Much Shelist Freed & Denenberg Ament & Rubenstein, who has a nationwide practice. “The fact is this will bring hundreds of lawsuits that are properly filed and heard in state courts to federal court,” Hyman said. “These cases are complex and difficult enough, but then to give them to overworked federal judges, well, there is a general feeling among the bar that more class actions will be dismissed and fewer cases will get to settlement.” There are probably fewer of the mega, multistate class actions than people think, said procedure scholar Linda Mullenix of the University of Texas School of Law, a defense expert witness in several class actions. “But those are the ones that get public attention,” Mullenix said. “Our vision of the class action litigation landscape is skewed by big, multistate actions. There really are a lot of these local, smaller ones and they will stay in the states under this bill.” The response of federal judges to the class actions that do come to them will vary by circuit, she predicted. “We’ll just have to wait and see.” Changing the rules With House passage and the president’s signature almost inevitable, the ball now passes into the court of the plaintiffs’ bar. What will they do? What can they do? Some plaintiffs’ lawyers said they have no fear of waging class action battles in federal court. Others predicted that their colleagues, ever creative, will find ways to respond to the new challenge, but were reluctant to tip their hands at this stage. “Obviously the deprivation of a plaintiff’s choice of a state court is a huge impact,” said class action litigator Archie C. Lamb of Birmingham, Ala. “I think the plaintiffs’ bar reaction will be to narrow the scope of class actions in general. There won’t be as many nationwide.” Removing cases to federal court may not be a panacea for all business defendants, he noted, explaining that in California, for example, the state and federal courts are not that different in their approaches to class actions. But in other states, he added, for example in Alabama, “Our Supreme Court-there is no more defendant-friendly court in America.” Class action practitioner Keith M. Fleischman of New York’s Bernstein, Liebhard & Lifshitz agreed that many more cases will be removed to federal court, but he warned there could be a reaction unfavorable to the business interests pushing the legislation. “It’s like with the Private Securities Litigation Reform Act,” said Fleischman, a former state and federal prosecutor. “That law was designed, I think, to really seriously undermine securities class actions. That law is the perfect example of the law of unintended consequences. It caused the whole plaintiffs’ bar to re-evaluate class actions. It strengthened the securities class action. Most of the plaintiffs now are gigantic pension funds which are activists. The good firms ended up developing huge in-house investigative capability. We would go to court with just blockbuster information.” The Class Action Fairness Act basically does two things: It clamps down on coupon settlements by tying the calculation of attorney fees to their actual worth, and it amends federal diversity jurisdiction to include certain state class actions with a minimum of $5 million in controversy. Under the bill, federal courts could not approve any coupon settlement without finding it to be fair, reasonable and adequate. And the portion of any attorney’s fee award to the class counsel that is attributable to the award of the coupons must be based on the value to class members of the coupons that are redeemed. “This is the most telling part of the legislation and what the Bush administration is really trying to get,” said Lamb. “Instead of being able to argue there is a $20 million potential benefit to a coupon settlement, if only $1 million is paid out, attorneys get 20% of the actual amount paid out.” On the diversity front, class actions will stay in state court if more than two-thirds of the plaintiffs and at least one defendant are citizens of the state in which the action is filed, the principal injuries occurred in the forum state, and no previous action has been filed alleging the same or similar injuries in the preceding three years. Federal courts will have jurisdiction over class actions in which one-third or less of the plaintiffs and the primary defendants are citizens of the state in which the action was originally filed. Federal courts are given discretion to decline jurisdiction, based on specific factors, over class actions in which more than one-third, but less than two-thirds, of the class members and the primary defendants are citizens of the state in which the action was filed. The division in the types of class actions today reflects the division in the bar, said Mullenix. “There’s a cluster of big players and then lots of other attorneys who are pursuing smaller, contained, state-based class actions. You’re not going to hear about a class action in Maine or Wyoming,” Mullenix said. “But you are going to hear about Bridgestone/Firestone. The intent of the bill is to keep those small ones in state court.” Biggest impact The bill’s biggest impact will be on consumer class actions, said another procedural scholar, Samuel Issacharoff of Columbia Law School. Most consumer cases have injuries too small to be viable as individual actions. “The effect of this bill will be to move the bulk of consumer litigation from state court to federal court,” said Issacharoff, who has been an expert witness for class action plaintiffs. “The threshold for removal is very low. One consequence is we will begin to have consumer law developed through federal courts rather than through state courts simply because state courts won’t be hearing those cases. “I don’t necessarily oppose that,” he added. “Most consumer cases are national market cases.” But the problem is that unlike the securities class action situation, there is no umbrella national law to be applied by the federal courts, he and others explained, and when faced with multistate actions, some judges have preferred to send them back to state courts-an avenue no longer available under the bill. Fleischman, the class action litigator, agreed, saying the “battleground” in federal court is and will be over class certification. “The major reason class actions are dismissed or cases are not certified is the complexity of applying the laws of the 50 states,” he explained. “Under class certification, a judge has to find manageability. Therefore, a judge says, from a manageability standpoint, there are different elements in each state law that apply to the particular claim and it would be impossible to have a jury trial.” Finding Neverland His Midwest colleague, Hyman, added, “Consumer cases are going to be caught in a Neverland where the state court can’t touch it and neither will the federal court.” The Senate defeated an amendment that would have barred federal judges from dismissing a class action solely because multiple state laws were involved and would have divided plaintiffs into subsets for purposes of choice of law. Business opposed the amendment, saying it would gut the bill. Without such a change, Hyman predicted that fewer cases will make it to the class certification stage and even fewer will go past that stage. “Cases making it past the legal line will be bigger and big-money cases. Business lost the coupons, so no nonmonetary relief, which I think is great. It will be a different landscape,” he noted. Hyman and others also predicted that forcing state class actions into federal court will lead to greater coordination among plaintiffs’ lawyers. “Right now you have different cases in state courts with different lawyers working on them and they may never see each other,” said Hyman. “Defendants usually don’t want one group of lawyers to know that another group of lawyers is working against them somewhere else and could use one set of opinions in both cases. With this act, we’re all going to come into federal court. We will all work together- a tremendous change in the way cases are coordinated and handled on the plaintiffs’ side.” After years of debate on the legislation, proponents and opponents do agree that the issue now is what federal judges will do. Procedural scholar Mullenix said that it is a myth that federal courts are hostile to these types of actions. “It really depends on which circuit you’re in,” she explained. “Class action litigation tends to be bi-coastal. The 2d and 9th circuits tend to be more liberal and supportive. The 5th, 7th, 4th and 11th are more conservative and restrictive. You can’t make a blanket generalization that removing them to federal court will kill them.” Perhaps not, said Fleischman, but he added, “You have very, very smart people out there. You have consumers and victims that come to lawyers for help and if there’s a will, there’s a way.”

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