The Class Action Fairness Act:What s Fair About It?

• Author: Lisa M. Bass
• Position: JD graduate of American University Washington -College of Law.
• Pages: 01

Lisa M. Bass is a 2005 JD graduate of American University Washington College of Law, where she was a senior editor of the Business Law Brief, member of the Administrative Law Review, and a former president of the Business Law Society at WCL. Ms. Bass has an undergraduate degree, summa cum laude, in Business Administration and Political Science from William Woods University in Fulton, Missouri, and is interested in pursuing a career in financial law.

Page 23

Citigroup just agreed to pay a $2 billion class action settlement due to its role in helping Enron with accounting fraud, becoming one of the largest corporate class action settlements in history.¹ This is in addition to the $2.58 billion that Citigroup agreed to settle due to its role in helping WorldCom last year. Just last year, plaintiffs won a $6.75 billion class action suit against ExxonMobil Corp. for the 1989 Exxon Valdez oil spill.² A few months earlier, in November, 2003, a verdict against Exxon granted the State of Alabama $11.9 billion for royalties on Exxon¥s extraction of natural gas in that state. These examples show some of the substantial, and possibly exorbitant, class action awards and settlements in recent years. Not all of these awards, however, go to the plaintiffs. Rather, a significant portion goes to attorneys for legal fees and towards the cost of litigation. Further, the costs that these businesses incur as a result of the class action awards are actually spread to the consumer through increasing the costs of products and services.

To protect consumers from losing entire awards and incurring the costs of class action suits through increased prices, and to protect businesses from state courts which give excess awards, Congress proposed the Class Action Fairness Act of 2005 (hereinafter "CAFA"). President Bush signed CAFA into law in February 2005. CAFA is designed to protect consumers from receiving paltry coupon awards while their attorneys receive exorbitant legal fees. It further prohibits settlements that result in a net loss for the plaintiffs, and requires judges to state the plain meaning of the settlement to class members, so that they may better understand their award and their rights associated with that award. This development of tort reform is also designed to help businesses avoid plaintifffriendly state courts, decrease forum shopping, reduce corporate legal fees and insurance premiums, and stimulate overall economic growth. The idea is that, not only will businesses save money, but consumers will also save, since exorbitant litigation costs will not be passed on to them through the increased prices of products and services.

But is the Class Action Fairness Act really that fair? Personal injury awards from class action suits are supposed "to return the plaintiff as closely as possible to his or her condition before the accident,"³ or to "make the plaintiff whole."⁴ Although the monetary awards can be substantial, these awards are still unable to return a person to the exact...