US Chamber Institute for Legal Reform: The FICALA Fix for Litigation Abuse
March 03, 2017
Court settlements resulting in millions for the lawyers and nothing for the plaintiffs, hedge funds betting on the outcomes of cases, and lawsuits claiming advertising led plaintiffs to believe Red Bull could give them wings are all signs that our civil justice system is open to exploitation.
Legislation before the U.S. House of Representatives aims to address these and other problems that plague our courts. The Fairness in Class Action Litigation Act (“FICALA”) is designed to correct rampant abuses in federal court class actions and mass tort MDL proceedings that harm consumers and businesses, but enrich lawyers.
Listed below are common misuses of the U.S. legal system and how FICALA can fix them.
Problem: The “Lawyers Get All The Money.” In consumer class action settlements, few class members get anything, while the lawyers receive a huge windfall. Indeed, in many class settlements, the lawyers receive more cash than all class members combined. That is because federal courts normally set the amount of fees the attorneys will receive before class members make their claims, and the courts make no effort to scale those fees to the benefits actually claimed and received by class members.
- FICALA Fix: Adopt Class Ascertainability Standard and Mandate Majority of Settlement Dollars Go to Class Members Instead of Lawyers. Before a class action may go forward, the lawyers (a) need to show that all class members can be readily identified and (b) must demonstrate that they can actually deliver any cash awards to a substantial majority of class members. The lawyers will not get paid until after class members receive their money, and attorneys’ fees will be limited to a reasonable percentage of the cash that actually reaches class members’ pockets.
Problem: Secret Hedge Fund Investors. In some class actions, lawyers will secretly sign up “investors” (like hedge funds) who pay those lawyers “up front” money in exchange for a right to receive a portion of whatever the class members and lawyers may be awarded. Neither the court nor class members are told about (let alone approve) these side deals, which give away class members’ money and may cede control of the case.
- FICALA Fix: Mandate Disclosure of TPLF in Class Actions. Require that these arrangements be disclosed to the court and all parties so that appropriate scrutiny may be given.
Problem: “No Injury” Class Actions. Presently, a person who has a problem with a product (or service) is often allowed to sue on behalf of all the other people who bought the product (or service) – even though the others have had no problem (and may be perfectly happy). The goal is to generate huge fees for the lawyers.
- FICALA Fix: Eliminate “No Injury” Class Actions. Federal courts may not certify a proposed class unless the lawyers demonstrate that each class member suffered an injury of the same type and scope as the class representative who brought the lawsuit.
Problem: Issues Classes. Even though the U.S. Supreme Court has mandated that class actions may proceed only if they clearly comply with certain fairness prerequisites, some lower federal courts have allowed an end-run around these prerequisites – they certify only a particular issue (just a sliver of the case) for class treatment. Such “issues” classes result in unfair, distorted trials. And they achieve nothing, since even after a trial, each class member is still obliged to prove his or her own case individually.
- FICALA Fix: Eliminate Issues Classes. Make clear that federal courts should not certify a proposed “issues” class unless the entire claim for relief qualifies for class treatment.
Problem: Coercive Discovery. In litigation, discovery is very expensive for defendants, and it is used by plaintiffs’ lawyers to coerce settlements, particularly in class actions. In some cases, attorneys succeed in forcing defendants to spend millions on discovery, even though the claims asserted are invalid.
- FICALA Fix: Mandate Discovery Stay in Class Actions Pending Rule 12 and Other Key Motions. Establish a rule in all class actions that discovery may not proceed until threshold motions challenging the validity of the claims are resolved – just as Congress has already mandated in securities class actions.
Problem: The Vanishing Appellate Review. In class actions, class certification (the question whether the case may proceed on a class basis) is the most important question. For that reason, the U.S. Supreme Court adopted a rule in 1998 permitting discretionary appellate review of class certification rulings. Unfortunately, the percentage of cases in which such review is being granted is dropping dramatically.
- FICALA Fix: Mandatory Interlocutory Appeals in Class Actions. Require federal courts to hear all appeals from all class certification rulings, whether brought by plaintiffs or defendants.
Problem: Lawyer-Driven Lawsuits. Far too often, lawsuits are dreamed up by lawyers simply to earn fees. Many class actions are not brought on behalf of real people who have complained about a harm. Instead, lawyers recruit people (sometimes their own relatives or employees) to assert claims they have concocted. That is one reason why so few consumers bother to collect on class action settlements – they did not feel injured by the supposed wrongdoing in the first place.
- FICALA Fix: Disclosure of Conflicts of Interest Between Class Counsel and Class Members. Lawyers must disclose the circumstances under which each named plaintiff became involved in a class action. Persons having familial or business relationships with counsel cannot be class representatives.
Mass Tort MDL Proceedings
Problem: “Magnet State Courts.” Some federal courts allow lawyers to get away with lumping together unrelated personal injury claims in multiple-plaintiff lawsuits – a trick to avoid federal jurisdiction. As a result, thousands of cases involving national controversies that constitutionally belong in federal court are being handled by a few “magnet” state courts – even though those courts have no relationship to the parties and have no business being involved.
- FICALA Fix: Ensure Federal Court Jurisdiction to Limit State Court Magnet MDL Proceedings. When multiple-plaintiff personal injury lawsuits are removed to federal court, the determination whether federal jurisdiction exists should be made separately as to each person’s claims.
Problem: Bogus Claims. In federal mass tort MDL proceedings, some counsel file thousands of advertising-generated claims without properly investigating their legitimacy. That happens because MDL courts normally block defendants from scrutinizing individual claims. As a result, MDL proceedings are often clogged with bogus claims, prejudicing both plaintiffs with legitimate claims and defendants.
- FICALA Fix: Mandate Early Evidentiary Support for Plaintiffs’ Claims in MDLs. In each MDL personal injury lawsuit, require the attorneys to make a showing confirming that before filing, they properly investigated the claim.
Problem: Forced “Bellwether” Trials. By statute, MDL courts are supposed to handle pre-trial proceedings only. Yet, some MDL courts force “bellwether” trials that are unfairly structured to favor plaintiffs, all in an effort to pressure settlements.
- FICALA Fix: Eliminate Forced “Bellwether” Trials in MDLs. Make clear that MDL courts may conduct trials only in those cases as to which all parties agree.
Problem: Unfair Fees. In mass tort MDL proceedings, only a few lawyers (who get paid from so-called “common benefit funds”) do most of the work. Other lawyers do little or nothing. Yet, if there is a settlement, their clients are usually required to pay them 33-40% of any recovery.
- FICALA Fix: Mandate Majority of Settlement Dollars Go to MDL Members Instead of Lawyers. Require that claimants (the allegedly injured parties) get 80% of any settlement payments, notwithstanding any fee demands by their lawyers.
Problem: “No Appellate Review.” Even though the cases in mass tort MDL proceedings account for roughly 35% of all civil lawsuits pending in the federal court system nationwide, appeals from key rulings in those proceedings are rarely allowed.
- FICALA Fix: Authorize Interlocutory Appeals For Key Legal Decisions By MDL Courts. Require federal appellate courts to hear appeals from orders issued in MDL proceedings where immediate review may materially advance the ultimate termination of the case.
FICALA will not eliminate class actions, nor will it interfere with access to justice. But it will put an end to the abuses and attorney incentives for exploitation that plague our civil justice system, leading to enrichment of the plaintiffs lawyers, stifling of growth for business owners, and little to nothing for the plaintiffs themselves. The U.S. House of Representatives need to pass FICALA to stop these injustices and restore fairness to the U.S. legal system.