Business advocates hope the U.S. Senate follows the lead of the
House and passes a bill restricting class-action litigation. That
would be good news for small businesses, which can get sucked into
lawsuits just because they're located where lawyers expect to
find a sympathetic court.
For some lawyers, filing and trying class-action lawsuits has
become a lucrative business. After identifying some consumer
problem, typically in an industry that does business nationwide,
they shop for a sympathetic venue before sending out notices to
people who might have been affected. A class-action lawsuit is
easier to win in some states than others, and some counties are
known for judges and juries with a penchant for multimillion-dollar
judgments. The Manhattan Institute, a conservative think tank based
in New York City, recently reported that the Madison County
courthouse in Edwardsville, Illinois, sees more class-action
lawsuits than any other jurisdiction except Los Angeles and
Chicago. The county had two filed in 1998, 43 last year, and, if
the trend continues, will have 78 this year.
So if the problem is a shampoo that makes heads itch, the
lawyers assembling a class-action lawsuit might find a pharmacy in
the sympathetic county that sells the shampoo, then scout out a
customer who's experienced the itching to become the lead
plaintiff. The lawsuit names the local pharmacy as a defendant
along with the manufacturer. Once it's too late to move the
case, the local pharmacy is dropped from the lawsuit, but by then
its owner may have endured a year or more of legal wrangling.
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H.R. 2341, passed in March as the Class Action Fairness Act,
would make it much easier to move class-action lawsuits. If any of
the defendants in an interstate class-action suit live in a
different state from any member of the plaintiff group, the suit
could be removed to the federal courts. This would discourage
venue-shopping and increase the chances that the defendant is the
company responsible for the problem, rather than a convenient local
retailer
The law would also limit how much of a jury award lawyers could
claim. Typically, the lawyers end up with millions of dollars,
while each consumer in the suit gets a few dollars or some coupons.
For instance, in a recent class-action lawsuit against Blockbuster
Video over excessive late fees, eligible customers received
certificates worth $9 to $20 in free rentals or nonfood items. The
trial lawyers got $9.25 million.
The new law would order that all settlement notices be written
in plain English, call for greater court scrutiny of noncash
settlements, prohibit settlements that result in a net loss for
members of the plaintiff group, and guarantee that all members of
the class receive reasonable and proportional payments.
The bill faces a steeper challenge in the Senate, now narrowly
controlled by Democrats. But to the extent that class-action
lawsuits are being used less to address real problems and more to
generate revenue for a few overzealous lawyers, it's time to
rein them in.
Steven C. Bahls, dean of Capital University Law School in
Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane
Easter Bahls specializes in business and legal topics.