Class Action Reform Proposals

Class Action Watch Fall 1998

October 1, 1998

Broader Federal Jurisdiction

Last summer, the House Judiciary Committee advanced to the House floor the Class Action Jurisdiction Act, H.R. 3789, a bill that would expand federal diversity jurisdiction over interstate class actions. The bill would expand the ability of defendants to remove to federal court a broader array of interstate class actions (class actions in which the class includes residents of multiple states or in which the class members reside in a state different from the primary defendants). The stated goal of the bill is to halt class action forum shopping--the increasingly prevalent practice of filing nationwide (or at least interstate) class actions in state courts that tend to certify classes or otherwise favor plaintiffs. The bill was never voted on by the full House, but is likely to be reintroduced this Session.

 

Adoption of Federal Rule 23

Some state courts are viewed as "anything goes" tribunals on class actions because they have never adopted anything like the federal class action rule (Fed. R. Civ. P. 23). As a result, most such courts lack clear principles about what constitutes a valid class action. The proposed reform for such states has been adoption of the federal rule. Two years ago, the Louisiana legislature enacted a new class action statute that closely resembles federal Rule 23. And just last year, the West Virginia Supreme Court adopted federal Rule 23, abandoning an old rule that was far more liberal than the federal rule.

 

Plaintiff's Burden

In recent years, some state appellate courts have suggested that plaintiffs bear relatively little burden in seeking class certification and that any doubt should be resolved in favor of certifying a proposed class (a practice contrary to current federal court practice). In response, some have suggested adding to state court class action rules an amendment stressing that a movant for class certification bears the burden of showing with clear and convincing evidence that the applicable class certification prerequisites are satisfied.

 

Classwide Proof Requirement

Some federal and state courts have determined that a legal or factual question should be deemed "common to the class" for purposes of meeting the "common question" and "predominance of common question" requirements for class certification only if answering the question as to one person answers the question as to all other members of the purported class. For example, the question "is the defendent liable?" could be deemed a "common question" only if the record clearly indicates that the question must be answered the same way as to all members of the purported class. Some propose making this concept more explicit in class action rules. In a similar vein, others have argued for adding a "classwide proof" requirement to federal and state class action rules. Under such an amendment, a movant for class certification would have to demonstrate that the evidence likely to be admitted at trial regarding the elements of the claims for which certification is sought is substanially the same as to all class members. Some federal caselaw already embraces this concept.

 

Administrative Remedies

Class Actions are at times efforts by plaintiffs' counsel to "piggy back" on investigations that have already been initiated by state or federal regulators. In these cases, plaintiff counsel typically use agency work product to prosecute the class action (if the agency decides not to pursue the issue). In other cases, if the defendent ultimately resolves the issue with the agency, those counsel claim fees based on a supposed "catalyst" role (even though they may have done little work and played a small role). One proposal has been to include in class action rules a more explicit indication that by definition, a class action is not the superior means for resolving a claim or issue if it is subject to the jurisdiction of an administrative agency (or if the agency has actually exercised jurisdiction over the claim or issue).

 

Limiting Classes To In-State Residents

Some state courts have concluded that their limited resources should not be expended on adjudicating the claims of out-of-state residents (in some cases, potentially thousands of non-residents), especially where the courts would be called upon to interpret the laws of other jurisdictions. Some state courts have adopted this principle as a matter of precedent. It has been urged that other states should amend their class action rules to permit purported class actions only to the extent that the proposed class encompasses in-state residents.

 

Attorney's Fees

Another proposed reform is to amend relevant rules and statutes to establish clearer criteria for the awarding of attorneys' fees in class actions. One proposal is a requirement that any such awards must be based exclusively on the amount of time and expenses counsel have expended on the litigation. Multipliers would be permitted, but the rule would eliminate the practice of some courts to almost automatically award a 30-40% piece of what the class obtains through trial or settlement, regardless of the effort actually expended by class counsel.

 

Some proposals that are being discussed in Texas include:
  • Allowing settlement classes that do not meet the criteria for certification if the case were to be litigated, and establishing criteria to provide for inadmissibility of settlement class certification with respect to any of subsequent trial class proceeding.
  • Direct interlocutory appeal to Texas Supreme Court of certification decisions, and stay of all litigation activity until a decision is rendered.
  • Requiring administrative remedies to be exhausted before class action is filed.
  • Creation of procedural rules by state Supreme Court that further clarify the standards for class certification.