Action Sacked
A new law aims to protect you from class-action suits.
The class Action Fairness Act of 2005, signed into law by
President Bush on February 18, includes provisions that should
protect small businesses from the class-action lawsuits that have
increased over the past 10 years. While the lawyers who file
class-action suits have typically targeted large corporations in
hopes of wrangling huge settlements, small businesses were often
getting dragged in, too.
This was due to "forum shopping," one of the more
nefarious practices of class-action plaintiffs' lawyers. Having
chosen a defective product or unfair business practice and
recruited thousands of citizens as plaintiffs, the lawyer would
choose a jurisdiction known for awarding large settlements. For
instance, Madison County, Illinois, saw 82 class-action filings in
2004, though almost none of the defendants were from that county.
To claim a geographical connection, the lawsuit would name as a
co-defendant a local business somehow connected to the target
corporation--such as a drugstore that sold the prescription drug in
question.
Under the new law, all class-action lawsuits with plaintiffs
from more than one state will have to be filed in federal courts,
which tend to be less sympathetic to these suits. More important
for small businesses, the law, which is now in effect, eliminates
the need for a local business as co-defendant.
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Critics complain that the new law will mean many cases will
never be heard. It's not always clear how state laws apply in
federal courts, which already have crowded dockets, so federal
judges often refuse to grant standing to class-action plaintiffs.
But since many class-action suits these days have more to do with
lawyers seeking big settlements than consumers, who typically get
very little, that's not necessarily bad news.