Highlights of the Class Action Fairness Act of 2005: the future of class actions in America.

• Author: Harris, Warren W.

PRESIDENT George W. Bush signed The Class Action Fairness Act, (1) ("the Act") on February 18, 2005. The Act, which adds several provisions to Title 28 of the United States Code and amends several existing sections of Title 28, greatly expands federal jurisdiction over class action suits. In addition, the Act provides new rules for the review of certain types of class action settlements. The Act appears to shift much of class action litigation from the state courts, which handled sixty percent of all class actions in 2000, to the federal courts.

Background to the Act

The Class Action Fairness Act embodies the culmination of approximately six years of supporters' efforts. A bipartisan compromise was first reached in November 2003, but prior to 2005, all of the proposed bills had died after being bogged down by amendments. Following the Republican congressional gains in 2004, however, the process moved quickly. Senator Charles Grassley, the Republican Senator from Iowa, introduced The Class Action Fairness Act of 2005 in the Senate on January 25, 2005. President Bush signed the bill less than one month later.

The primary goal and main effect of the Act is to expand federal jurisdiction over class actions, even if those actions involve state law claims. A recent study of state class actions between 1997 and 2003 found that the Act would permit the removal of forty percent of state class actions to federal court. (2) Senator Orrin Hatch cited a study, on the floor of the Senate, indicating that of 113 class actions filed in Madison County, Illinois between 1998 and 2002, ninety-eight could have been removed to federal court under the Act. (3)

A Rand Corporation study supports this goal of the Act's proponents, stating that federal courts are better venues for class actions than are state courts:

First, federal judges scrutinize class action allegations more strictly than state judges, and deny certification in situations where a state judge might grant it improperly. Second, state judges may not have adequate resources to oversee and manage class actions with a national scope. Finally, if a single judge is to be charged with deciding what law will apply in a multi-state class action, it is more appropriate that this take place in federal court than in state court. (4) Congress made a number of findings, set out in the Act, regarding the status and purposes of class actions. It began by acknowledging that class actions are an important part of the legal system when they permit the fair resolution of legitimate claims. However, over the past decade, abuses of the class action device have harmed both plaintiffs with legitimate claims and defendants that acted responsibly. Additionally, these abuses adversely affect interstate commerce and undermine respect for our judicial system.

Prior to the Act's enactment, Congress found that class action law resulted in class members often receiving little or no benefit and, at times, class members were even harmed by class litigation. Courts awarded class counsel large fees, while leaving class members with coupons or other awards of little or no value. Additionally, plaintiffs sometimes received unjustified awards at the expense of others. Furthermore, confusing class action notices resulted in class members who were unable to fully understand and exercise their rights.

The findings in the Act state that these abuses in class actions undermined the national judicial system, the flow of interstate commerce, and the concept of diversity jurisdiction. Class actions in state courts held cases of national importance out of the federal courts. State courts in nationwide class actions imposed their state's view of the law on other states and...