Hope Floats For Class Action Reform Bill

Jack Dolan, a spokesman with the American Council of Life Insurers, Washington, says ACLI hopes that a final vote on class-action reform will happen soon.

There have been a lot of tie-ups and false starts, Dolan says, and ACLI believes that a vote on S. 2062 should happen as soon as possible.

S. 2062, as a general matter, calls for federal court jurisdiction over major class-action lawsuits in which the plaintiffs claim at least $5 million in damages and any member of the plaintiff class is from a different state than any defendant.

However, the legislation contains a complicated formula which, in some cases, gives federal district court judges discretion to decline to exercise jurisdiction, and in other cases mandates that they decline jurisdiction.

Specifically, a federal judge has discretion to decline jurisdiction if more than one-third but less than two-thirds of the plaintiff class and the primary defendants are all citizens of the state where the action was originally filed.

In making that determination, the legislation directs the federal judge to consider several factors, including whether the claims involve matters of national or interstate interest, which states laws will govern the claims and whether the lawsuit was pleaded in a way that seeks to avoid federal jurisdiction.

The legislation requires federal judges to decline jurisdiction under 2 circumstances. The first is if more than two-thirds of the plaintiff class and at least one defendant are from the state where that action was originally filed, and that the defendants alleged conduct forms a significant basis for the lawsuit.

The second circumstance where a federal judge must decline jurisdiction is when more than two-thirds of the plaintiff class and all the primary defendants are citizens of the state where the action was originally filed.

In addition, it contains a class-action “bill of rights,” calling for restrictions on so-called “coupon settlements” (which are settlements in which the plaintiff attorneys receive large fees but the class members receive nothing more than a coupon to purchase the defendants product), and new disclosure requirements.

It also calls for judicial approval of settlements in which class members must pay fees to their attorneys and which could cause class members to suffer a net loss.

Reproduced from National Underwriter Edition, June 4, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.