The Top (and only) Two Good Things About the Class Action “Fairness” Act

Cyrus Dugger

The Top (and only) Two Good Things About the Class Action “Fairness” Act

Have you heard of the Class Action Fairness Act of 2005? This recently enacted bill is affecting our ability to get compensation for large-scale harm done to society by corporations.

Surprisingly, the Class Action Fairness Act of 2005 was passed by Congress in an attempt to make it harder for class action lawsuits to be approved by the nation's courts.

Our recently released Congressional Scorecard reviews this bill. We have also already given you "The Top Seven Bad Things About the Class Action Fairness Act", "The Single Stupidest Thing About CAFA", and "The Top Three Misconceptions on Which the Class Action Fairness Act is Based."

I'd like to continue to talk about the bill's pitfalls and shortsightedness by way of a final "top" list:

The Top (and only) Two Good Things About the Class Action "Fairness" Act

1. The Act helps to reign in at times abusive "coupon settlements". Before the law, in reaching settlement, plaintiffs' lawyers' financial interests sometimes merged with defendant companies'. Plaintiff lawyers (in federal court) would often agree to "coupon settlements" in which their clients got only coupons as compensation. In contrast, they would still earn millions in cash from attorneys' fees. Redemption rates for these low-value coupons were always low, but the plaintiff lawyers got paid either way. The act fixes this problem (in federal courts) by tying the amount of lawyers' fees the plaintiff attorneys can collect to the amount of coupons actually redeemed. Now plaintiff lawyers will not agree to low value coupons that nobody will redeem because they simply won't make any money after the settlement.

2. A second aspect of the act which is good policy is a notice of settlement provision. Under the Act, every class action defendant must give individual notice to the "appropriate" federal and national government official. The Act does not delineate what these officials can or will do with this information. Therefore, under a plaintiff friendly administration, some have observed that this act may quickly alert government officials to corporate misconduct and unfair settlements.

Although these last two elements are a positive change, they should have been passed absent the bill's other provisions.

For a comprehensive review of the Class Action Fairness Act of 2005 also checkout Public Citizen's report.

If you are interested in learning more about CAFA of 2005, or would like to partner with DMI in our support of the civil justice system, email cdugger@drummajorinstitute.org.