In what is one of the most brazen bait-and-switch schemes in our nation’s history, the Senate is considering a bill that would effectively deny justice to victims of corporate fraud, deceptive sales practices and defective and dangerous products. In a major departure from current law, this legislation would send large multi-state consumer class actions, based on state laws, to federal courts. The business community and other corporate proponents of the bill claim that “the Class Action Fairness Act would simply allow federal courts to more easily hear large, national class-action lawsuits.” In reality, this legislation is a scheme to move class action lawsuits out of the state courts and into corporate-friendly federal courts, where they’ll likely get thrown out.
What’s At Stake?
This legislation (if passed without changes) creates a “Catch 22” for consumers: the law moves these important consumer rights cases out of the state courts, which have the capacity to try such cases, and into federal courts where they’re unlikely to be tried. The overwhelming trend in the federal courts is to deny class certification because they cannot successfully manage the cases. So far six federal circuit courts and twenty-six district courts have consistently denied certification of nationwide consumer fraud cases.
Backers of the proposed legislation have been telling lawmakers that the changes are basically meaningless, yet they know that when these cases do go to the federal courts, the case will probably be dropped. In fact, the people who are lobbying for this legislation—mostly the business community—are the same people who urge the federal courts NOT to take these cases precisely because they involve multiple state laws and, therefore, they argue, the federal courts will not be able to manage the cases.
In this legislation, consumers are the clear victims—a point underscored by the more than 80 consumer, civil rights, senior and environmental groups who oppose the bill. In addition, 13 state Attorneys General, including Drew Edmondson of Oklahoma and Elliot Spitzer of New York (the leading prosecutor holding corporations accountable for their actions) have spoken out against the legislation [i] , as have more than 50 editorial boards across the nation. Support for the legislation mostly comes from the Bush Administration, the Republican leadership in Congress and almost every sector of the business community, for whom this is a key legislative priority.
Case Study: Supporters of Class Action Legislation Mislead Congress and the Public
The Chamber of Commerce and the business community generally tell the Congress and the public that this legislation is limited in its scope. Even though they know the cases won’t make it in the federal courts, they argue that similar cases from different states should be consolidated and moved to federal court.
The Class Action Fairness Act, they say, would simply allow federal courts to more easily hear large, national class action lawsuits affecting consumers all over the country. [ii]
They mislead Congress and the public on the scope of the legislation, while having a very different story when it comes to defending corporate wrongdoing in state class action lawsuits. Here’s just one example of what proponents of S. 2062 tell the courts:
It is nearly a truism that nationwide class actions in which the claims are subject to varying state laws cannot be certified because they are simply unmanageable.
The federal courts have generally held that liability for harm caused by nationally-marketed products cannot be determined by reference to a single state’s law. Applying the choice-of-law regimes of many jurisdictions, these courts have concluded that such cases implicate the law of each and every state in which the challenged product was sold. [iii]
How Consumers Lose when Corporations Move their Class Action Cases to Federal Court
It seems logical enough; move multi-state class action lawsuits to federal court because the cases are really national in nature. However, as you can tell from the Chamber of Commerce arguments, once the case is in federal court, it dies. Federal judges don't generally like to apply the laws of different states and have a tendency to deny class certification in multi-state class action suits. So, if the case moves into the federal court, that’s effectively the end of the lawsuit.
In most consumer class actions where large numbers of consumers have lost relatively small amounts of money, the decision to deny class certification will cut off any opportunity to bring a lawsuit. The individual members of the class will not suffer losses great enough to justify bringing lawsuit solely on one person’s behalf. That means corporations will be free to cheat and defraud and victims will be left holding the bag, unable to take them to court.
Supreme Court Lets Class Action Case Against DaimlerChrysler Go Forward
In late June the U.S. Supreme Court decided to allow a state class action lawsuit—one that goes to the heart of this dispute—to continue.
Two consumers owning DaimlerChrysler vans filed suit saying that the front passenger-seat air bags in their minivans deploy in low-speed accidents with excessive force, potentially hurting children or small adult passengers. Noting that it would cost $300 to $500 to replace air bags in each vehicle, and that no individual van owner would find an attorney willing to handle such a small case, a judge supported giving the case national class-action status.
The case affects up to 1 million owners of 1996 and 1997 minivans. The Oklahoma Supreme Court ruled last year that DaimlerChrysler Corp. could face a lawsuit in Oklahoma court, but under a Michigan law, because that's where DaimlerChrysler is based.
But using the same cynical arguments used by the Chamber of Commerce to oppose class action certification, the carmaker's attorney, Miguel Estrada, wrote that such a trial would be unconstitutional.
The decision below creates a true Frankenstein monster of mismatched parts: Michigan law, Oklahoma forum, nationwide adjudication. [iv]
In a friend of the court brief, the Chamber of Commerce weighed in again, arguing multi-state nationwide class actions should not go forward.
As the federal courts have recognized, however, nationwide class actions raising claims under state law generally may not be certified consistent with the requirements of Rule 23, due process, and federalism because of complexity resulting from the need to apply the varying laws of the 50 States. See, e.g., Andrews v. American Tel. & Tel. Co., 95 F.3d 1014 (11th Cir. 1996); Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996); Georgine v. Amchem Prods., Inc., 83 F.3d 610 (3d Cir. 1996), aff’d sub nom. Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997); In re Am. Med. Sys., 75 F.3d 1069 (6th Cir. 1996); In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293 (7th Cir. 1995).
Seeking a more hospitable forum, many class action lawyers have shifted their attention to state court. JOHN H. BEISNER & JESSICA DAVIDSON MILLER, CLASS ACTION MAGNET COURTS: THE ALLURE INTENSIFIES 3 (Manhattan Inst. July 2002) (www.manhattan-institute.org/html/cjr_5.htm); see also Larry Kramer, Choice of Law in Complex Litigation, 71 N.Y.U. L. Rev. 547, 575 (1996) (certification of nationwide classes by state courts “has been increasing in recent years”) [v]
Deciding not to step into the middle of the political arguments over proposed class action legislation, the Supreme Court allowed the case to go forward without comment.
Without some change to preserve consumer cases, S. 2062 will rob from consumers their only avenue to seek redress from corporations that violate the law and put the public in harm’s way.
For more information about this alert, the Corporate Truth Squad Campaign, or for a PDF version of this document, please call Helen Gonzales, USAction Policy Director, at 202-624-1730.
ENDNOTES
i See June 22, 2004 Letter to the senate from 13 state attorneys general opposing the Class Action bill.
ii Letter-to-the-editor from Stanton D. Anderson, executive vice president and chief legal officer, U.S. Chamber of Commerce, Philadelphia Inquirer, February 27, 2004.
iii Brief of the Chamber of Commerce of the United States as Amicus Curiae in Support of Appellants, In Re Simon II Litigation, No. 03-7141, United States Court of Appeals for the Second Circuit, June 3, 2003.
iv Petition for a Writ of Certiorari on behalf of DaimlerChrysler in DaimlerChrysler Corp. v. Ysbrand, in the Supreme Court of the United States, March 19, 2004.
v Amici Curiae Brief of The Chamber of Commerce of the United States of America and The Alliance of Automobile Manufacturers in support of DaimlerChrysler in DaimlerChrysler Corp. v. Ysbrand, in the Supreme Court of Oklahoma, May, 24, 2004, page 5-6.
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