House Judiciary Subcommittee on Constitution and Civil Justice Hearing
Mr. Chairman, Ranking Member Cohen, and Members of the Subcommittee, thank you for inviting me to testify on behalf of the
The IADC is an association of corporate and insurance attorneys from
My testimony focuses on the emergence of overly broad, "no injury" class actions. n1 These are cases in which a named plaintiff with a concrete injury brings a lawsuit seeking to represent a class that includes countless others that have suffered no genuine injury at all. Typically, the cases involve a product that has malfunctioned for the named plaintiff and that has the potential to malfunction for others, but has not actually caused any problems for most of the class members. The theory is that the plaintiffs all paid a premium in light of the product's potential to malfunction or the product has diminished in value as a result of the alleged defect. "No injury" class actions can also arise in other contexts, such as employment, antitrust, privacy/data breach, and labeling and advertising cases, among others. n2
"No injury" class actions game the legal system, incentivize litigation involving claims that are either premature (because no genuine injury has occurred yet) or actually meritless (because it never will), result in higher prices for all consumers, and put a strain on our economy.
The "Fairness in Class Action Litigation Act of 2015" is modest and targeted legislation that deals specifically with these problems. The legislation provides that a federal court may not certify a proposed class unless the party seeking the class action demonstrates through admissible evidentiary proof that "each proposed class member suffered an injury of the same type and extent as the injury of the named class representative or representatives." The named plaintiff's injury must be typical of the class, as many courts already interpret Rule 23 to require. There is precedent for federal class action reform and public support for the proposal in the bill.
There are many legal and policy problems created by overly broad class actions in which named plaintiffs with concrete injuries represent class members without genuine injuries.
First, these types of cases circumvent Article III and Rule 23. Plaintiffs' theory in these cases is that the named plaintiff and the class members share a common "injury"--e.g., alleged overpayment of the product they purchased. In reality, these cases involve a named plaintiff whose claim is highly atypical of the class because the named plaintiff has suffered an actual harm while the class members merely have a speculative economic harm. Unlike the named plaintiff, whose product has malfunctioned, the class members' products may never malfunction.
Second, "no injury" class actions stray far from the laudable underpinnings of Rule 23. Class actions were developed mainly for civil rights litigants seeking injunctive relief in discrimination cases. Over time the use of the class action spread to other types of litigation. Through the class action, courts are able to resolve in one action many small claims that would not be brought individually because the cost of any particular suit would exceed the possible benefit to the claimant. There is, however, an ocean of difference between bundling together meritorious small claims to provide relief to those affected and using the class action as a mechanism to pay class members who would never recover if they filed suit individually.
Third, overly broad class actions are unfair because class members that have an actual harm may be "forced to sacrifice valid claims in order to preserve the lesser claims that everyone in the class can assert," potentially leading to "substantial under-compensation for consumers who have suffered an actual harm." n3 Such actions are also unfair to defendants because of the "settlement pressure imposed by an artificially enlarged class." n4 Class certification imposes substantial pressure on defendants to settle, typically obviating further proceedings on the merits. Defendants are forced to overcompensate class members with no genuine harm, giving them free money because they would never be able to recover individually against the defendant.
Fourth, class members often see little benefit in these cases. Many of these types of cases are not successful and, when they do produce a settlement, there is usually little interest among class members in participating. As one commentator has explained:
Billed as "consumer protection" measures, these cases allege causes of action under the auspices of both product liability and consumer fraud. However, these so-called "no-injury" actions are very often nothing more than an attempt by creative plaintiffs' lawyers to cash in on the class action concept--the plaintiffs themselves, if successful, would each be entitled to a relatively minimal amount of money, while their attorneys would collect millions upon millions of dollars in fees. n5
The Subcommittee recently heard testimony on this issue from
* Just under one-third (31%) of the cases were dismissed on the merits. n7
* A little more than one-third (35%) were dismissed voluntarily by the plaintiff, meaning "a payout to the individual named plaintiff and the lawyers who brought the suit--even though the class members receive nothing." n8
* One-third (33%) of the cases were settled on a class basis, but some of those resulted in payment to a charity or injunctive relief with no monetary payment to class members and other settlements "delivered funds to only miniscule percentages of the class: .000006%, .33%, 1.5%, 9.66%, and 12%." n9
Lastly, overly broad "no injury" class actions create enormous costs on companies, even in the vast majority of cases that are resolved with no settlement or just tiny payments to class members. The legal fees alone can be enormous. These costs are passed on to all consumers and place a strain on the economy. n10
II. EXAMPLE: THE "WASHING MACHINE" CASES
Class actions brought against front-loading washing machine manufacturers illustrate the phenomenon of the overly broad "no injury" class action. In a number of nearly identical class actions against
In one bellwether case, Glazer v.
Rather than settle,
While
And the litigation is not over yet. After the verdict, plaintiffs' counsel said, "This is not the end of this fight, it is the end of the beginning," telling Forbes he would appeal. n18 Thus, even when defendants win a no-injury class action, they are not done with their expenditures. Also, class action plaintiffs' lawyers can file copycat or tag-along actions on behalf of consumers in each of the fifty states and the
Not all federal circuits embrace the liberal class certification procedures of the Sixth and Seventh Circuits. n19 The need for uniformity in the law among the circuits provides another reason for
III. THE FAIRNESS IN CLASS ACTION LITIGATION ACT OF 2015 IS A MODEST BUT EFFECTIVE SOLUTION TO OVERLY BROAD CLASS ACTIONS
As explained, the "Fairness in Class Action Litigation Act of 2015" provides a modest and targeted solution to the problem of overly broad "no injury" class actions. The bill simply requires a party seeking class certification in federal court to prove that "each proposed class member suffered an injury of the same type and extent as the injury of the named class representative or representatives." State court class actions are not affected.
The legislation certainly does not ban class actions, even those that involve claims that individually might have little value. The bill simply requires that the name plaintiff's injury is typical of the class members the named plaintiff purports to represent.
H.R. 1927 will allow courts and defendants to focus their resources on legitimate cases where genuine injury has occurred and better align the interests of named plaintiffs and class members.
IV. THERE IS FEDERAL PRECEDENT AND PUBLIC SUPPORT FOR REFORM
But class action litigation has not remained static over the last decade. Over time the litigation has evolved and new problems have emerged. The rise of overly broad, "no injury" class actions is an example. The
There is also widespread public support for reform, as DRI President
*** Thank you again for the opportunity to testify before the Subcommittee. I look forward to answering your questions.
n1 My partners
n2 See
n3 The State of Class Actions Ten Years After the Enactment of the Class Action Fairness Act: Hearing Before the Subcomm. on the Constitution and Civil Justice of the H. Comm. on the Judiciary, 114th Cong. (
n4 The State of Class Actions Ten Years After the Enactment of the Class Action Fairness Act: Hearing Before the Subcomm. on the Constitution and Civil Justice of the H. Comm. on the Judiciary, 114th Cong. (
n5
n6 See supra note 4 (statement of
n7 See id. at 5.
n8 Id.
n9 Id. at 6.
n10 See
n11 See In re
n12 Id. at 420.
n13 See Butler v.
n14 Id. at 363.
n15 See
n16 See Sears, Roebuck and Co. v. Butler, 134 S. Ct. 1277 (2014);
n17 See
n18 See
n19 See, e.g., Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th Cir. 2010) ("a named plaintiff cannot represent a class of persons who lack the ability to bring a suit themselves.").
n20 See
n21 See The State of Class Actions Ten Years After the Enactment of the Class Action Fairness Act: Hearing Before the Subcomm. on the Constitution and Civil Justice of the H. Comm. on the Judiciary, 114th Cong. (
n22 See id. (statement of
n23 See id. at 6.
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