The New Class Action Legislation: Denying Many Americans a Fair Day in Court Commentary
The New Class Action Legislation: Denying Many Americans a Fair Day in Court
Edited by: Jeremiah Lee

JURIST Special Guest Columnist William Lerach, senior partner of the Lerach Coughlin complex litigation firm headquartered in San Diego who has led the prosecution of hundreds of securities class and stockholder derivative actions recovering billions of dollars, says that the new federal class action legislation may deny justice to millions of Americans…

President George W. Bush recently said, “First of all, justice ought to be fair. And those who have been hurt ought to have their day in court.” Fine words. Unfortunately, they are belied by the class action “reform” legislation the President recently pushed into law. This so-called “Class Action Fairness Act,” may well deny thousands of injured Americans their fair day in court. It tilts the legal system in favor of culpable corporate defendants who have committed fraud, injured consumers, hurt the environment or violated civil rights.

The class action legislation was supported by a "who’s who" of industry groups that have been called to account for their behavior through class action lawsuits, including chemical companies, pharmaceutical firms and the tobacco industry. The legislation was opposed by state and federal judges, state attorneys general, law professors from across the country, the AFL-CIO, and over 80 organizations advocating for civil rights, worker rights, seniors, consumers, the disabled, and the environment.

Under the best of circumstances, this business-backed law we now have to live with will make it far more burdensome, expensive and time-consuming for individuals to band together to redress wrongs through the court system. But our real fear is that in many cases, this new law will simply deny access to justice outright.

The new law imposes an elaborate matrix which steers nearly all class actions involving more than $5 million dollars in losses into federal court, even where all the claims in the case are based on state law. Even those few cases that may not or should not be in federal court under the new law will face time consuming litigation just to determine where the case belongs.

Effectively, this law covers virtually all class actions. This massive case shift to federal courts will clog the already overburdened federal courts with thousands of additional complex class actions, delaying or denying justice to the injured parties. In addition, because federal judges often are neither familiar nor comfortable with the state claims involved in such class actions, many fear they will refuse to hear the cases on the grounds that too many different state laws are involved and the cases are “unmanageable” as class actions.

Class Actions Are Critical for Protecting Individuals’ Legal Rights

Class action lawsuits ensure that all Americans — rich and poor alike — can assert their legal rights. Class actions allow people who have been harmed by a pattern of discrimination, commercial abuse or other unlawful conduct to group together and bring a claim in situations where each individual claim is not large enough to warrant legal action on its own. Without the ability to bring a class action, there would be no recourse when thousands, or even millions, of consumers are cheated in small amounts. The class action device is the only mechanism that allows those consumers to pursue a legal remedy while at the same time providing some deterrence to this type of corporate abuse.

Class actions protect victims of unlawful discrimination, workplace violations, investor and consumer fraud, environmental degradation and health and safety violations. The landmark Supreme Court ruling in Brown v. Board of Education, 347 U.S. 483 (1954), for example, came out of a series of class action lawsuits that were initially brought in state courts to desegregate our nation’s public school systems.

Class actions are currently being used by workers across the country who have been forced to work “off the clock” without being paid. The nation’s leading worker and civil rights organizations opposed the law because it would “adversely impact the workplace and civil rights of ordinary Americans by making it extremely difficult to enforce civil rights and labor rights.”[1]

Class actions are often the only mechanism available for people harmed by toxic spills, contaminated drinking water, polluted air and other environmental hazards. Over a dozen national environmental organizations wrote Congress urging lawmakers to reject the class action “reform” legislation.

In short, class actions often are the most economically efficient way to resolve these matters. They diminish, not increase, legal costs. They assure consumer protection without regulatory action. In many cases, they are a superior alternative to hundreds of separate trials on the same facts. While some improvements were no doubt needed, it is a sign of misplaced priorities and “spin” that defendants succeeded in demonizing them and now placing virtually all such cases in what the business community sees as a corporate-friendly federal court system.

The New Law Goes Too Far in Broadening Federal Jurisdiction

The new law rewrites the jurisdictional rules so that federal courts would have jurisdiction over every state court class action where the amount in controversy exceeds $5 million, if any member of a plaintiff class is a citizen of a state different from any defendant. There was no justification for such a radical change in current jurisdictional rules.

Under the new law, a class action brought in state court by that state’s citizens using only that state’s laws against a company that has substantial business operations in the same state would be removed to federal court if the company was headquartered or incorporated in a different state. Today, the headquarters or place of incorporation of a company can be irrelevant to where that company has substantial numbers of employees or does substantial business. Because most big corporations are incorporated in Delaware where almost no one lives; the federalization ploy is all but absolute. Citizens of a state will now no longer be able to take advantage of their own state court system if the harm occurred to them in that state by a company with substantial business ties to that state.

There is a narrow exception in the law designed to preserve state court class actions, but it will apply only in a few cases. Specifically, federal courts would be required to decline jurisdiction if greater than two-thirds of the members of the proposed plaintiff class in the aggregate are citizens of the State in which the action is filed and at least one defendant, from whom significant relief is sought, and whose alleged conduct forms a significant basis for the claims asserted, is also a citizen of that state. Additional factors relating to the conduct of all defendants would also have to be present before this exception would apply. And, even cases that met the narrow exception would stay in state court only if no similar class action had been filed in any state during the previous three years.

Federal Courts May Not Certify These “Nationwide” State Law Class Actions

The fear is that federal courts will not be willing to hear national class action lawsuits affecting consumers all over the country. By removing nationwide class actions to federal court, the legislation may have run these cases into a de
ad end.

In a 2003 brief to the Second Circuit, the U.S. Chamber wrote ” … it is nearly a truism that nationwide class actions in which the claims are subject to varying state laws cannot be certified because they are simply unmanageable.”[2]

By their own admission, the industry groups that initiated and aggressively pushed the new law had much more in mind than simply moving the venue of class action litigation from state to federal courts — the real purpose behind the legislation was to ensure that most consumer class actions never get heard.

It is not a mystery why federal courts are reluctant to certify nationwide consumer class action suits. There is no federal consumer protection statute. Therefore, class action lawsuits involving fraud, deceptive sales practices, or sales of defective products allege violations of state consumer protection statutes or common law. State courts, which are accustomed to hearing cases involving state laws, are generally comfortable adjudicating state law consumer class actions. Federal courts, on the other hand, have far less experience and interest in cases involving solely state law consumer claims. And their dockets are already crowded by a plethora of federal criminal and civil suits.

Six federal circuit courts and at least twenty-six district courts have denied class certification of nationwide consumer fraud cases. Federal courts often deny class certification to state-based consumer class actions brought on behalf of citizens from different states by relying on Rule 23(b)(3) of the Federal Rules of Civil Procedure. Rule 23(b)(3) says, in pertinent part, “An action may be maintained as a class action if … the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members.”

If courts must apply the laws of different states to different members of a class action, they may find that questions of law common to the members of the class do not predominate, rendering adjudication of the case as a class action unmanageable and deny class certification. In the typical consumer class action, in which large numbers of consumers have lost relatively small amounts of money, the decision to deny class certification will cut off any opportunity to bring a suit. The individual members of the class will not suffer losses great enough to justify bringing suit solely on one person’s behalf. That means the wrongdoing by the defendant will continue and the victims will be left without relief. The merits of the victims’ grievance will never be heard.

While federal courts have tools available to manage multi-state cases, but they have in the past been reluctant to take advantage of them. We can only hope now that since victims will be left with no remedy at all if the federal court denies class action treatment, federal judges will step up to the plate and undertake the task of making sure consumers get a fair shake. If they do not, the new class action legislation will end up denying many Americans a fair day in court.


1. Letter from the Alliance for Justice and the Leadership Conference on Civil Rights to the U.S. Senate, May 25, 2004.

2. Amicus curiae brief of the Chamber of Commerce of the United States, In Re Simon II Litigation, No. 03-7141, United States Court of Appeals for the Second Circuit, June 3, 2003.

William Lerach is widely recognized as one of the leading securities lawyers in the United States and is senior partner of Lerach Coughlin Stoia Geller Rudman & Robbins LLP, a 150-lawyer law firm with offices in San Diego, San Francisco, Los Angeles, New York, Boca Raton, Washington, D.C., Houston, Philadelphia and Seattle. He is a 1970 graduate of the University of Pittsburgh School of Law.

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.