The U.S. House Sets Out To Reform Class and Mass Actions

On March 9, 2017, the Fairness in Class Action Litigation Act of 2017 passed the House 220-201.  According to the Act itself, this aggressive legislation would sweepingly address “abuses in class action and mass tort litigation” with the intent of “ensuring Federal court consideration of interstate controversies of national importance consistent with diversity jurisdiction principles.” 

The bill proposes numerous reforms for Rule 23 class actions and multidistrict litigations.  All told, the bill would work a sea change in class and mass action practice, complicating efforts to attain class status and making at least some such actions less attractive to pursue. 

Chief among the Act’s reforms are these:

Class Actions

Injury: A court could not certify a class unless the party seeking class status “affirmatively demonstrates” that every proposed class member suffered the “same type and scope of injury” as named representatives.  Any order certifying a class must include a determination, based on “rigorous” analysis of the evidence, that this requirement is met.

Conflicts: A class action complaint must disclose whether any putative class representative or named plaintiff has a familial, current or former employment or client relationship, or contractual relationship, with putative class counsel.  A federal court is barred from certifying any class where such conflict is present.  Further, class action complaints must describe the circumstances under which each putative class representative or named plaintiff came to be included in the complaint and any other class action in which each has a similar role.  

Disclosure of funding: To foster disclosure of third-party litigation funding, the Act requires class counsel to divulge any person or entity who has a contingent right to receive compensation from a settlement, judgment, or other relief obtained.

Class definition: Codifying case law in certain jurisdictions, a class must be defined with reference to objective criteria.  The party seeking class status must affirmatively demonstrate a “reliable and administratively feasible mechanism” for determining whether individuals are within the class definition.

Limiting fees: Several provisions of the Act attempt to curb excessive attorneys’ fee awards, especially in actions where the class participation rate is low. 

As for timing, attorneys’ fees in monetary relief actions may not be determined or awarded until distribution of monetary recovery to the class is completed. 

Second, rather than tying attorneys’ fee awards to the total amount of the class settlement fund, the legislation limits such awards to “a reasonable percentage” of, and an amount not to exceed, payments actually distributed and received by class members. 

Third, to increase oversight and public dissemination of information about class settlements, class counsel in any settlement providing monetary benefits must submit certain information to the Director of the Federal Judicial Center and the Director of the Administrative Office of the United States Courts.  Starting no later than twelve months after the Act is signed into law, these entities must prepare annual reports for public disclosure that summarize how settlement funds have been distributed.    

Case management:  The Act presumptively prevents putative class plaintiffs from proceeding on their claims or obtaining discovery from defendants (and vice versa) during the pendency of any motion to transfer, dismiss, strike class allegations, or otherwise dispose of class allegations.  On the motion of any party, however, a court may allow “particularized discovery” to proceed if “necessary to preserve evidence or to prevent undue prejudice to that party.”

Mass Actions

The Act also addresses personal injury actions that are not brought as putative class actions. 

In multi-plaintiff actions removed to federal court on the basis of diversity jurisdiction, and in which plaintiffs moved to remand alleging an absence of diversity, the Act requires federal district courts to individually assess and then sever the claims of any plaintiff for whom the requirements of diversity jurisdiction are not met, then remand that individual’s claims to state court.  Remaining claimants would proceed in federal court.¹

The Act also speaks to personal injury plaintiffs litigating in an MDL established pursuant to 28 U.S.C. § 1407.  MDL plaintiffs asserting personal injury within 45 days of filing their claims or being transferred to the MDL, must make a submission to the court sufficient to demonstrate that there is evidentiary support (“including but not limited to medical records”) for the complaint’s fact allegations on (1) the injury alleged; (2) the alleged cause of the injury; and (3) his or her exposure to the causative risk.  The presiding court must within 30 days then enter an order determining whether the submission is sufficient.  If not, that plaintiff’s claim is to be dismissed without prejudice.  If that plaintiff does not provide a sufficient submission within the next 30 days following the dismissal, her claim will be dismissed with prejudice.

As to MDL proceedings, the Act also:

• Codifies the rights set forth in Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998), precluding an MDL judge from conducting trial of any action before the court absent consent of all parties.
• Permits appellate review of any order issued in the conduct of MDL proceedings, provided  immediate appeal will materially advance the ultimate termination of one or more actions.
• Permits appellate review of an order remanding to state court an action within an MDL proceeding, provided appeal is sought within 14 days of the remand order’s entry.
• Directs that a plaintiff in an MDL action "shall receive not less than 80 percent of any monetary recovery obtained" in that action "by settlement, judgment or otherwise." 

If signed into law, the Act will apply to actions filed after its enactment, and actions pending at the point of enactment.

Notably, the Act modifies the current rule on appellate review of class certifications (Rule 23(f)), making review not discretionary but mandatory, assuming a party seeks it. 

The Act, if it becomes law, would significantly alter how practitioners and their clients think about and litigate mass litigation.  It should hamper considerably some class efforts.  At the same time, by providing mandatory appellate review, Congress guarantees unhappy parties a second look.  Time will tell whether this becomes law, and whether attorneys and courts find workarounds to keep class action trains running as usual.

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¹ In a second measure to prevent plaintiffs from defeating diversity jurisdiction through fraudulent joinder, on March 9, 2017, the House of Representatives passed by a vote of 224-194 the Innocent Party Protection Act.  Under this Act, a joinder is fraudulent if:  (1) there is actual fraud in the pleading of jurisdictional facts with respect to that defendant, (2) it is not plausible to conclude that applicable state law would impose liability on that defendant, (3) state or federal law clearly bar all claims in the complaint against that defendant, or (4) objective evidence clearly demonstrates that there is no good faith intention to prosecute the action against that defendant or to seek a joint judgment including that defendant.  In evaluating claims of fraudulent joinder, courts may permit pleadings to be amended and must consider the pleadings, affidavits, and other evidence submitted by the parties.  Upon finding fraudulent joinder, a court must dismiss without prejudice the claims against the fraudulently joined defendant(s) and deny the motion to remand.

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