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Action Sacked

A new law aims to protect you from class-action suits.

This story appears in the August 2005 issue of Entrepreneur. Subscribe »

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.

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