By Seiger, Mark B.; Healy, Christopher W.
Risk Management , Vol. 53, No. 2
After several failed attempts, the 109th Congress enacted class action reform legislation on February 17, 2005, which President George W. Bush signed into law the very next day. At the White House signing ceremony, President Bush stated "[t]he Class Action Fairness Act of 2005 marks a critical step toward ending the lawsuit culture in our country. The bill will ease the needless burden of litigation on every American worker, business and family. By beginning the important work of legal reform, we are meeting our duty to solve problems now and not to pass them on to future generations."
This legislation, known as the Class Action Fairness Act of 2005 (the "Act" or "S.5"), is being hailed by many as a significant stride forward in controlling the perceived abuses in class action litigation and a major first step in the much-needed area of tort reform. The GOP has positioned the Act as court reform, not tort reform since it does not affect substantive legal rights of claimants.
Big business overwhelmingly supported the Act because of the ease with which it allows class action lawsuits to be transferred from more lenient state courts to federal courts, which tend to more rigorously apply the certification standards, thus hopefully bringing uniformity and evenhandedness to class action certification. According to big business, consumers will ultimately benefit through lower consumer prices and more innovative products if illegitimate and ill conceived class actions are deterred and businesses are freed from fighting these very cases in court.
From the insurance industry's perspective, the Act's impact will hopefully arise from its chilling effect on the class action plaintiffs' bar. It is hoped that the class action plaintiffs' bar will perceive the Act as a significant hurdle, or even as a deterrent, to the filing of class action lawsuits, resulting in a significant decrease in the number of such suits and a reduction in forum shopping. However, if the Act does not create an incentive for the class action plaintiffs' bar to more carefully pre-screen potential class action cases, then it will likely have failed in its intended purpose.
A Bit of History
In 1938, Congress promulgated the first Federal Rules of Civil Procedure (FRCP). The FRCP included Rule 23, which for the first time made class-action suits for damages available in the United States.
(The modern-day class action suit in the United States developed from the English Bill of Peace, which created an opportunity for one person, referred to as the "adversary," to sue multiple persons with separate but similar interests, referred to as the "multitude," or for the multitude to bring a single suit against the adversary. It was first codified as a rule of equity in the United States in 1842 as Federal Equity Rule 48. However, Rule 48 missed the mark in several ways, not the least of which was the fact that judgments in cases brought under Rule 48 were not binding on absent parties. This was corrected when the rule was re-cast in 1912 as Federal Equity Rule 38. Even under Rule 38, however, the class action continued to be available only in courts of equity, and thus could not be relied upon in a suit for damages.)
Since its adoption, Rule 23 has been the subject of significant criticism on a number of fronts. For example, although absent members of a class in a spurious class action were clearly not subject to an unfavorable decision, it was far less clear as to whether such persons could reap the benefits of a favorable decision. To address the concerns raised with respect to Rule 23, Congress completely rewrote the Rule in 1966. The amended Rule established four elements as a prerequisite to all categories of class actions. First, the class must be so large that it is impracticable to join the members in court. Second, there must be one or more questions of law or fact common to the class. Third, the claims or defenses of the representatives must be typical of the class. …