Bush Signs Carper Bill to Reform Class Action System

Legislation Would Make System Fairer for Consumers and Businesses

WASHINGTON (Feb. 18, 2005) – President Bush today signed into law bipartisan legislation sponsored by Sen. Tom Carper, D-Del., that would help curb abuses of class action lawsuits. The Class Action Fairness Act passed the Senate last week on a 72-26 vote, and passed the House on Thursday on a vote of 279-149. “This has been a real, bipartisan effort from the beginning, and it shows that Republicans and Democrats can work together on a bill that benefits consumers while also making the legal system fairer for businesses,” said Carper, who spearheaded the bill through the Senate. Class action lawsuits were originally designed to benefit consumers by allowing them to seek legal relief from companies for bad business practices, such as selling faulty products or polluting their homes. But in recent years, the class action system has been badly abused by the practice of “venue shopping,” or when attorneys file national class actions in small state courts where they think they have the best chance of securing an outcome they want. Because the cost of defending themselves repeatedly in these so-called “magnet courts” is so high, most businesses have no choice other than to settle class action cases before they go to trial, regardless of whether the case is meritorious. These settlements usually award millions of dollars in fees to attorneys but little or nothing for plaintiffs seeking to be made whole. Judgments also don’t hold companies accountable or force them to change their business practices. “Class action lawsuits are an important part of our legal system. All citizens should have the right to band together and settle grievances with bigger companies,” said Sen. Carper. “But that system is broken and it needs fixing. There are too many instances where consumers are getting very little or nothing from their settlements, while companies are not being forced to change the way they do business.” Take the following examples: In a class action lawsuit in Illinois against bottled water giant Poland Spring, consumers claimed the company’s water was not pure and was not from a spring. Under the settlement, consumers received coupons for discounts on Poland Spring water, but their attorneys walked away with $1.35 million. Meanwhile, the company admitted no wrongdoing and isn’t changing the way it bottles or markets its water. In a Texas class action settlement with Blockbuster over late fees on movie rentals, class members received coupons on future movie rentals, while their attorneys received $9.25 million. In an Alabama class action lawsuit against the Bank of Boston, more than 700,000 plaintiffs “won” their case about mortgage escrow accounts but actually lost money. Under the settlement, class members received payments of about $10 each, but they had $90 deducted from their accounts to pay their attorneys’ fees of $9.5 million. The Class Action Fairness Act would authorize federal courts to hear certain interstate class actions — larger, truly national cases (those involving more than 100 plaintiffs and more than $5 million in damages) that involve plaintiffs and companies from different states. Carper said federal courts would be less vulnerable to the practice of venue shopping, and federal judges are more equipped to deal with cases that have a national scope. The bill also protects consumers. The bill preserves the right to sue and would NOT cap damages. In fact, the legislation enhances consumer protections by: guaranteeing that truly local controversies remain exclusively in state courts; ensuring that attorneys’ fees in coupon settlements be based on the value of the coupons that are actually redeemed rather than the theoretical value of the coupons that are offered (such as the Blockbuster case); requiring judges to review settlements; and prohibiting settlements (like the Bank of Boston case) in which plaintiffs lose money. “The legislation addresses the problem of venue shopping and bad settlements, while protecting consumer rights and preserving state jurisdiction over local cases,” said Carper.