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Class Action Fairness Act of 2005
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The U.S. Class Action Fairness Act of 2005, 28 U.S.C. Sections 1332(d), 1453, and 1711-1715, expanded federal jurisdiction over many large class-action lawsuits and mass actions taken in the United States.
The bill was the first major legislation in the second term for the Bush Administration. Business groups and tort reform supporters had lobbied for the legislation, arguing that it was needed to prevent class-action lawsuit abuse.
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The U.S. Class Action Fairness Act of 2005, 28 U.S.C. Sections 1332(d), 1453, and 1711-1715, expanded federal jurisdiction over many large class-action lawsuits and mass actions taken in the United States.
The bill was the first major legislation in the second term for the Bush Administration. Business groups and tort reform supporters had lobbied for the legislation, arguing that it was needed to prevent class-action lawsuit abuse. President George W. Bush had vowed to support this legislation.
The Act gives federal courts jurisdiction to certain class actions in which the amount in controversy exceeds $5 million, and in which any of the members of a class of plaintiffs is a citizen of a state different from any defendant, unless at least two-thirds or more of the members of all proposed plaintiff classes in the aggregate and the primary defendants are citizens of the state in which the action was originally filed. The Act also directs the Courts to give greater scrutiny to class action settlements, especially those involving coupons.
Support
The Act accomplished two key goals of tort reform advocates:
- Reduce "forum-shopping" by plaintiffs in friendly state courts by expanding federal diversity jurisdiction to class actions where there is not "complete diversity" giving federal jurisdiction over class actions against out-of-state defendants. Proponents argued that "magnet jurisdictions" such as Madison County, Illinois were rife with abuse of the class action procedure.
- Requires greater federal scrutiny procedures for the review of class action settlements and changes the rules for evaluating coupon settlements, often reducing attorney's fees that are deemed excessive relative to the benefits actually afforded class members. For example, in an infamous Alabama class action involving Bank of Boston, the attorneys' fees exceeded the relief to the class members, and class members lost money paying attorneys for the "victory."
Critics
Critics charged that the legislation would deprive Americans of legal recourse when they were wronged by powerful corporations. Congressman Ed Markey (D-Mass.) called the bill "the final payback to the tobacco industry, to the asbestos industry, to the oil industry, to the chemical industry at the expense of ordinary families who need to be able go to court to protect their loved ones when their health has been compromised."
Critics charge that this bill will make it far more difficult to bring class action suits, and may prolong such litigation, clogging the federal courts' dockets. The act also gives the Federal government the ability to somewhat control, through judicial appointments, outcomes that were previously under state control. No Republican legislators voted against the bill.
Critics argue that the expansion of federal jurisdiction comes at the expense of state's rights and federalism, something Republicans have historically protested; however, proponents respond that the bill is consistent with the Framers' original intent for the role of federal courts and diversity jurisdiction expressed by Alexander Hamilton in Federalist No. 80.
Impact
A study by researchers at the Federal Judicial Center has found that the enactment of CAFA was followed by an increase in the number of class actions filed in or removed to the federal courts based on diversity jurisdiction. This finding is consistent with the congressional intent in enacting CAFA. The observed increase was due primarily to increases in consumer class actions. Somewhat surprisingly, the FJC study found that much of the increase in diversity class actions has been driven by an increase in original filings in federal courts. This finding suggests that plaintiffs' attorneys are choosing the federal forum, post-CAFA, rather than defendants' counsel through removal, contrary to expectations.
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