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After more than two years of intense lobbying, the U.S. House of Representatives passed the Class Action Fairness Act in June. The Senate has yet to vote on the measure, but the issue is on its agenda when the body returns to Washington this month. If the bill becomes law, it is likely to change profoundly the manner in which class actions are litigated. On its face, the act would not alter the standard of behavior governing corporations or remove regulations designed to protect consumers, employees and the environment. But the proposed bill would move nearly all state actions to federal court, allow automatic appeals, and provide for greater scrutiny of settlements. According to the Federalist Society, a conservative think tank, state courts saw a tenfold increase in class action filings from 1988 to 1998. “The major reason comes from the trial bar finding ‘magic jurisdictions,’” said Matthew Webb of the U.S. Chamber of Commerce, which supports the new legislation. One such jurisdiction, proponents of the bill say, is Madison County, Ill., home of the $10.1 billion verdict against Philip Morris handed down earlier last year. A study conducted by John Beisner, the head of O’Melveny & Myers’ class action practice group, showed that the number of class actions filed in Madison County rose from two in 1998 to 39 in 2000. Led by the Chamber of Commerce, groups such as automobile manufacturers, oil giants and insurance companies have lobbied for legislation to circumscribe what they see as forum shopping. On the other side of the debate are the trial lawyers, a bevy of consumer advocates, environmental watchdogs and civil rights groups who view the act as nothing more than a devious attempt to decapitate plaintiffs’ rights against corporate wrongdoers. New York Attorney General Eliot Spitzer and attorneys general from nine other states claim in letters to congressional leaders that the act is misnamed. The Class Action Fairness Act “is anything but fair to injured citizens,” they said. The New York State Bar Association has given the legislation lukewarm support and has recommended amendments to the proposed bill. Under the current rules determining diversity jurisdiction, all members of the plaintiffs’ class must reside in a state other than the one in which the defendant resides in order to move the case to federal court. This is a rarity given that many class actions involve thousands of plaintiffs from multiple jurisdictions. Under the Class Action Fairness Act, a defendant could remove a case to federal court when at least one plaintiff resides in a different state from the defendant and when the total amount in controversy (aggregated among class members) exceeds $5 million. The legislation would thereby transfer nearly every class action to federal court. (Other versions of the bill before the Senate recommend a modified standard, but all provide for removal of most state cases to federal court.) Experts disagree about the potential effects of the legislation, but both advocates and critics of the proposals say the perception is that defendants would benefit by litigating in federal court. One of the largest tactical changes the proposed legislation would bring about is a prohibition on plaintiffs filing identical suits across several jurisdictions, a tactic that improves chances of certification: If one court certifies, then they obtain a nationwide class. “They get 51 bites of the apple,” said Sheila Birnbaum, a partner in Skadden, Arps, Slate, Meagher & Flom specializing in mass tort litigation. Plaintiffs’ firms also jockey for position as lead counsel by quickly initiating class actions and winning certification. The act would diminish “copy cat” filings through the federal courts’ systematic procedure for dealing with multidistrict litigation, said J. Russell Jackson, also a partner in Skadden Arps specializing in class action defense work. State courts cannot easily consolidate similar lawsuits, he said. Consolidation saves “enormous defense costs by not re-litigating the same issues,” added Birnbaum. The act would also require courts to scrutinize settlements in which class members earn less than their lawyers in the aggregate. Supporters of the legislation point to an Alabama class action against the Bank of Boston in which plaintiffs lawyers were paid $8.5 million in fees from plaintiffs’ escrow accounts while members of the class were each awarded $8.76. The net effect resulted in a $91.13 loss for each plaintiff. Melvyn Weiss of Milberg Weiss Bershad Hynes & Lerach, laughed during a phone interview when discussing the Bank of Boston case. He described it as an anomaly among the thousands of class actions litigated across the nation, and challenged proponents of the bill to find another case like it. Others opposing the legislation said courts already scrutinize settlements and the act would maintain the status quo. The proposed act would also allow automatic — rather than discretionary — appeals of class certifications. The appeal process offers a tremendous advantage in federal courts, said Jackson of Skadden Arps, noting that many state systems do not allow for swift appeals in the class action setting. But Carlton Carl, a representative of the Association of Trial Lawyers of America, countered that the automatic appeal would delay proceedings by two to three years. The proposed legislation would also bar trial proceedings while an appeal is pending. When added to the backlog hampering the federal judiciary, these changes “will create almost insurmountable obstacles for most classes to be heard and certified in a timely manner,” warned Carl. The burden on federal judges arising from any legislation that moves class actions to the federal courts has raised concerns among judicial administrators who express concern about the additional caseloads. Because of the added delays and expenses, the cumulative effect of the legislation may cultivate a new generation of stronger plaintiffs’ firms that can match their counterparts in size and expertise. “My practice, in a perverse way, will benefit,” said Weiss, whose firm has extensive experience in federal courts and is in a strong financial position. All of the pending lawsuits listed on Milberg’s Web site are in federal court. Professor Deborah Hensler of Stanford Law School said, “The legislation will empower the larger, more nationally oriented firms” at the expense of smaller firms practicing in state courts. She said she sees a trend in which large, well-financed plaintiffs’ firms will match the deep pockets and experience of their counterparts. The Castano group, which united plaintiffs lawyers from across the nation, led the wave of lawsuits filed against large tobacco companies in the 1990s. The act could compel small firms to enter into similar arrangements or outright consolidation.

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