There is no dispute that many cases have had legitimate bases and the settlements effectively redressed various wrongs. “A lot of questionable business practices have been challenged by class actions,” said Edward Sherman, former dean of the Tulane University Law School, citing hidden charges imposed by credit card companies and improper interest charges in banking transactions.

At the same time, Sherman continued, some cases are based on very small issues, such as the failure of a company to comply with a minor regulation. These, he said, “could be seized upon by lawyers and in the end are very costly.”

Many others point to what they call frivolous suits, brought, they claim, on the slimmest of grounds and, ultimately, only for the good of plaintiffs' lawyers. The one area of agreement, in fact, among all the points of view on class action reform, is that the answer to the question cui bono? (who benefits?) is the attorneys who make their livelihoods suing on behalf of a class.

Analyzing the Act

Although there are provisions regarding the nature of settlements and calculation of attorneys' fees relative to coupon awards, at the heart of its fine print and legal language, the Class Action Fairness Act primarily provides for the removal from state to federal courts of those class actions that meet certain criteria. The damages involved must total $5 million or more, there must be 100 or more plaintiffs from multiple states, and any single plaintiff must be from a state different from that of any defendant.

This last provision is the crux of the matter, making it possible for almost every class action suit to be removed to federal court. Until the new legislation was signed into law, said Robert Detlefsen, director of public policy for the National Association of Mutual Insurance Companies, regardless of how many plaintiffs were involved, “if just one is in the same state as one defendant, the case can be tried in whatever jurisdiction the plaintiff attorney chooses to file.” That permitted attorneys to seek out the most favorable jurisdictions, ones with judges who apply the certification rules loosely and with reputations for anti-defendant local jury pools.

“This becomes an instrument by which courts engaged in regulation through litigation,” Detlefsen noted. “A particular court can apply its state law to a case involving plaintiffs from multiple states, with the result that existing law in those other states may be nullified.”

Another significant benefit of the new legislation, according to Sherman, is its anticipated effect on repetitive class actions: overlapping cases brought by different lawyers who represent different members of a class, in cases certified by different courts, essentially competing with one another. In some cases, certain defendants are persuaded to make a sweetheart deal with one attorney and to settle at a low rate. “That amounts to collusion,” Sherman said, “to the disadvantage of the plaintiffs in that case.”

Under the new law, if all those cases were taken to federal court, they could be transferred to a single judge who would oversee the entire matter, ensuring that the settlement process would be fair and reasonable. Certainly, the balance of power has shifted. Whereas the choice of jurisdiction had been the prerogative of the plaintiffs, now the power lies with defendants to pull cases into federal court. Whether they choose to do so will depend on a number of factors, including legal strategy.

And the Winners Are

Depending on whose interpretation one accepts, the Class Action Fairness Act is (a) unfair to consumers, (b) a boon to consumers, (c) the redress of major wrongs in the legal system, (d) a reward for big business, (e) all of the above, or (f) none of the above. Moscow believes that much of the underlying motive for the act is sound. On the other hand, he said, the fact that some jurisdictions may be far out of line in their pro-plaintiff rulings “does not mean that we should destroy all state courts to fix a small number of problems.”

Some of the opposition comes from those who believe that virtually all class action cases will now be heard in federal court, an outcome, they claim, that will significantly disadvantage plaintiffs. The federal courts, the argument goes, are already seriously over-burdened; new procedural obstacles will create still greater backlogs, discouraging the pursuit of legitimate claims.

“State courts have backlogs, too,” argued Detlefsen, “and, in any event, civil litigation in the country is notoriously slow.” Moreover, he said, the removal of cases to federal courts takes them out of the hands of elected judges who, he believes, are more likely to be biased in favor of local plaintiffs and against large out-of-state companies. “Federal judges are appointed, so they have no home-town bias.”

Others disagree strongly, pointing out that federal judges are vetted for their pro-business, anti-class-action interpretations of the law. Sherman countered that argument by saying that standards vary from one federal judge to another, and over time as well. “Twenty years ago,” he said, “in some jurisdictions you could file a class action and get the judge to certify it that same day. Now that's largely a thing of the past, because of the change in political make-up of state supreme courts.”

As for the plaintiffs' attorneys, many believe that litigation will become both more complicated and more costly. Firms accustomed to following state legal procedures may be unfamiliar with the complexities of the federal courts, whose judges apply different and, often, stricter rules for evidence.

It is conceivable, Moscow said, that some firms may try to structure class action suits so as to keep them within the states. Issues of economic feasibility arise, however: the class would have to specific and small enough to fall within the new guidelines, but large enough to make it worthwhile to bring the suit.

The more likely outcome is that, recognizing the futility of filing at the state level, lawyers will resign themselves to bringing cases immediately at the federal level. Then again, Sherman noted, plaintiffs' attorneys are creative; it is more likely that corporations will find themselves being sued in their home states.

Next up on the administration's overall litigation reform program are medical malpractice and asbestos injury lawsuits. Although the passage of class action reform has created momentum, Sherman believes that it is not necessarily a prognosticator of further change. “In political terms, there were some critical Democrats in the Senate who were persuaded that [class action] was important reform,” he said. “But, I don't think that you will find the same coalition for medical malpractice.” Many politicians see the latter not as an issue of protecting business, but of the legitimate remedying of wrong.

Erika Rosenfeld is a contributing editor for Insurance Advocate. This article originally appeared in the Mar. 14 edition of that publication in a longer form.