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Regulation and Compliance > Federal Regulation

Senate Committee Approves Class-Action Reform Bill

By Steven Brostoff

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NU Online News Service, April 11, 2003, 4:11 p.m. EDT — Washington

Industry groups are praising the Senate Judiciary Committee for approving a bill that would reform the class-action litigation system by moving major national class-action lawsuits from state courts to federal courts.

“This is a good step in the right direction,” says Jack Dolan, a representative of the American Council of Life Insurers, Washington.

“Life insurers have long supported reform of class-action litigation,” Dolan adds.

The bill, S. 274, was approved on a bipartisan basis after a compromise was worked out by Senate Judiciary Committee Chairman Orrin Hatch, R-Utah, and Sens. Dianne Feinstein, D-Calif., Herb Kohl, D-Wis., and Charles Grassley, R-Iowa.

If the current version passes as written, federal courts would have jurisdiction over most major class actions in which the plaintiffs were asking for at least $5 million in damages.

Under an earlier version of the legislation, the threshold was $2 million. H.R. 1115, a class-action bill pending in the House, also has a $2 million threshold.

Along with the $5 million threshold, S. 274 establishes a three-tiered system for determining whether a class action will be heard in state or federal court.

Tier 1: If more than two-thirds of the plaintiffs are from the same state as the primary defendant, the case automatically stays in state court, regardless of the amount in controversy or whether one or both parties ask for federal court adjudication.

Tier 2: If fewer than one-third of the plaintiffs are from the same state as the primary defendant, the case will move to federal court if either side requests it and the plaintiffs have asked for at least $5 million in damages.

Tier 3: If one-third to two-thirds of the plaintiffs are from the same state as the primary defendant and the plaintiffs have asked for at least $5 million in damages, the federal judge will have discretion to hear the case based on several factors, such as whether the case appears to have a national impact.

S. 274 also contains a requirement that a judge review noncash settlements; a requirement that the lawyers send settlement notices written in plain English; and a ban on settlements that cause plaintiffs to lose money.

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