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The Class Action Fairness Act was passed by Congress in 2005; it
allowed federal courts to begin hearing large class-action lawsuits
and mass torts that were usually heard in state courts. Tort reform
supporters, corporations and business organizations argued for the
bill, stating that the law was needed to prevent the class action
lawsuit abuse that was becoming commonplace in the state courts.
Prior to the bill being passed, class action lawsuits in which
lawyers received huge sums of money and plaintiffs were left with
coupons became almost typical. Towns like Madison County, Illinois
were gaining a reputation for being plaintiff friendly, and were
taking cases with jurisdictional issues and awarding large sums of
money.
The notorious coupon settlements in abusive class action cases
were a major impetus for the passage of CAFA. In such settlements,
plaintiffs receive only coupons for products sold by the defendant,
while plaintiffs' attorneys get paid massive fees. CAFA,
however, does not prohibit these questionable settlements, perhaps
because they are popular with corporations. Instead, CAFA simply
affirms the federal courts and the duty of federal district courts
to scrutinize the fairness of coupon settlements. The Act does,
however, limit attorneys' fees for counsel in coupon
settlements.
CAFA allows federal court jurisdiction in certain class action
cases where the amount of damages demanded exceeds $5 million, and
in which any of the members of the class of plaintiffs is a citizen
of a state different from that of any one defendant. The Act also
orders the federal courts to pay more attention to details relating
to settlements, especially those involving coupons for
plaintiffs.
However, many feel that CAFA's downsides outweigh its
upsides. Critics of the Act have argued that the federal
jurisdiction over these cases comes at the expense of states'
rights and imposed federalism. By moving lawsuits from the state to
the federal court level, they say, local community concerns have
been taken out of the hands of the people.
Additionally, the settlement portion of the Act has created some
confusion, as it appeared that Congress did not have a good
understanding of the issues that were created in state courts.
Thus, the new law was not clear regarding settlements, leaving many
of the problems regarding class action settlements unresolved.
Congress attempted to rectify this by passing additional
provisions, but they did little to clarify the situation.
Although much had been made in the press about how the Class
Action Fairness Act changed substantive law, in truth it did not.
It only changed procedural law for class action lawsuits. What
remained was the substantive law that actually led to the early
abuses in state courts. For example, CAFA did not change federal
securities laws, and the results were extortion-like settlements in
the billions of dollars demanded by "innocent bystander"
banks in the Enron cases. In this situation, the defendants settled
rather than spend untold amounts fighting individual
plaintiffs.
The Class Action Fairness Act and its impact has been
scrutinized and debated almost endlessly since it was first
proposed. Nonetheless, it still remains in place nearly seven years
after its passing.
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