After languishing for years in legislative purgatory, the Class Action Fairness Act was swiftly signed into law by President Bush in February. Supporters say the bill is a victory for businesses and consumers as it will end frivolous lawsuits that pad attorneys' bank accounts without securing any real justice for the injured parties.
A key aspect of the new law requires class action cases to be moved from state to federal court if claims involve more than $5 million and if fewer than a third of the plaintiffs live in the defendant's state. This is significant, says attorney Mark Seiger of Edwards & Angell, LLP, because federal courts "are perceived to be more neutral and less willing to certify a class action brought on questionable grounds."
Opponents argue that consumers will still be disadvantaged because federal courts are too busy to take on class action suits from all 50 states, deterring the filing of worthy claims.
Seiger said the new law is likely to dissuade plaintiffs' attorneys from filing suits indiscriminately, which is where the real impact of the law comes into play. The Act includes a consumers' bill of rights, to address the scenario where plaintiffs receive a pittance while attorneys claim 90 percent or more of the total settlement. Under the new law, lawyers' fees for coupon settlements must be based either on the value of the coupons actually redeemed or the hours actually billed in prosecuting the class action.
"This provision alone will force class counsel to properly evaluate cases before filing them and, as such, should result in a significant reduction in the number of such cases," says Seiger. "(That) will translate into significant savings for the insurance companies whose insurance policies are called to defend these claims."
April 1, 2005
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