Reform Bill Encounters Opposition

25 February 2002 00:00  [Source: ICB Americas]

Industry-supported class-action reform legislation would make it more difficult for citizens to seek grievances against powerful defendants and would add to the burdens of federal courts already struggling with case overloads, opponents say.

"I am shocked that in the midst of one of the greatest financial rip-offs of all time, this committee would even consider legislation that would make it easier for corporations, their lawyers and their accountants to engage in fraud and deceit," says Rep. John Conyers (D-Mich.).

However, supporters say the bill would curb serious abuses that occur in the class action system, such as trial lawyers that shop around for sympathetic state court judges, and has nothing to do with Enron.

House Judiciary Committee Chair-man James Sensenbrenner (R-Wis.) says the bill would not limit the right of Enron employees to seek redress in court.

"The lawsuits against the company will be heard in federal bankruptcy court for the same reason federal courts should be able to resolve many of these other class actions--federal courts protect the interest of all parties," Rep. Sensenbrenner says.

The bill, the Class Action Fairness Act, would make it easier for parties to move multistate class action lawsuits from state court to federal court. It would grant federal courts jurisdiction in cases where a member of the proposed class is a citizen of a state different from a defendant, provided the amount at issue exceeds $2 million.

Exceptions would be cases in which a "substantial majority" of class members and defendants are citizens of the same state, or cases with fewer than 100 members or less than $2 million in dispute.

"The measure will go a long way toward stopping lawyers from gaming the system in an effort to generate fees," says Lawrence Fineran, assistant vice president for regulatory policy at the National Association of Manufacturers.

Mr. Fineran says current rules allow trial lawyers to simply name a local defendant after shopping for the most favorable forum. "The worst aspect is when a local judge does not find it necessary to reconcile conflicting state laws and regulations, unlike federal judges," he adds.

Don Evans, senior counsel at the American Chemistry Council, says forum shopping is particularly unfair to out-of-state corporations. "The company is subject to hometown bias, with the judge tilting the scales of justice in favor of in-state residents or local interests," he remarks.

Mr. Evans also charges that the "real winners are the trial lawyers" because in many cases, "the plaintiff's attorneys receive huge fees while the class members frequently receive little benefit."

But trial lawyer Andrew Friedman says the bill would "impose onerous requirements that inevitably will create delays, increase litigation costs, erect barriers to recovery by victims and reduce or eliminate recoveries for those who have been victimized by fraudulent and deceptive corporate practices."

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