Keeping Up With the (Fairness in) Class Action Litigation Act

Back in March, the House of Representatives passed, by a 220-201 margin, H.R. 985—officially dubbed the Fairness in Class Action Litigation Act of 2017 (FCALA).  By proposing changes to the Class Action Fairness Act, in its own words, FCALA aims to:  (i) assure fair and prompt recoveries for class members and multidistrict litigation (MDL) plaintiffs with legitimate claims, (ii) diminish the abuses currently undermining the legal system’s integrity, and (iii) ensure that interstate controversies are resolved in a manner consistent with diversity jurisdiction principles, as the Framers intended.  But it’s unclear whether FCALA will hit its mark.  And commenters from both sides of the class action bar question whether the prophesied sea change will be anything more than a ripple.

Updated Class Certification Requirements

The bill’s centerpiece specifies the applicable scrutiny under Rule 23.  Parties seeking class certification, i.e., plaintiffs, must affirmatively demonstrate that “each proposed class member suffered the same type and scope of injury” as the class representative.  H.R. Res. 985, 115th Cong. § 1716 (2017).  Notably, however, the phrase “type and scope” is undefined, causing many commenters to predict that, if enacted, statutory-interpretation issues will become fertile ground for new litigation.

But that is not all.  FCALA forbids courts from certifying issue-only classes under Rule 23(c)(4), unless the cause of action satisfies all Rule 23 prerequisites.  See id. § 1720.  Further, it institutes a so-called ascertainability requirement.  See id. § 1718(a).  As drafted, FCALA precludes class certification unless “the class is defined with reference to objective criteria” and plaintiffs affirmatively demonstrate there exists a “reliable and administratively feasible mechanism” for monetary distributions to class members.  Id.

Ostensibly, these updates fortify the initial burden of seeking class certification, but the bill offers no guidance as to how courts should interpret these new standards.  So, in practice, FCALA might pave the way for creative litigators to develop new theories, around which it may take years (or decades) for courts to reach a consensus.  To combat this potential concern, perhaps, FCALA guarantees immediate appeal from any order granting or denying class certification.  See id. § 1723.  Presumably, of-right appeals will provide consistency in textual interpretation among standard fact patterns—at least on an intra-circuit basis—over the medium term.  But that merely solves a problem of the bill’s own making.  Conversely, because its language is unsettled and the of-right appeal provision appears to be permanent, FCALA seems to envision a system that requires multiple rounds of briefing to resolve the preliminary—albeit potentially dispositive—issue of class certification.  Therefore, its net effect might be to delay resolution of class actions over the short and long terms.

Changes to Attorneys’ Fees

FCALA also sets its sights on fee awards, specifying both timing and size.  Specifically, no attorneys’ fees may be determined or paid until class distributions are complete.  See id. § 1718(b).  Furthermore, it limits fee awards to a “reasonable percentage” of payments “directly distributed to and received by class members.”  Id.  And attorneys’ fees shall never exceed the total amount “directly distributed to and received by” the class.  Id.

As others have noted, marrying fee awards with a direct-distribution requirement might reduce settlement flexibility for both plaintiffs and defendants.  Because FCALA would compensate plaintiffs’ attorneys based on the amount actually received by class members, the plaintiffs’ bar will likely resist claim-in settlements.  Instead, they will quite literally be incentivized to convert passive potential class members (who might never submit a claim) into active class action participants—thereby increasing the claim multiplier and a defendant’s exposure.  And defendants might be less willing to settle cases as their actual and theoretical liabilities approach equipoise.

MDL Procedural Amendments

FCALA would also implement some fairly significant MDL procedural measures—including a mechanism that might expedite claim resolution.  Plaintiffs would have to submit evidence demonstrating their claimed injury, and its alleged cause, within 45 days of filing.  See id. § 1407(i).  And courts would need to determine whether sufficient evidence exists for the case to proceed 90 days thereafter.  See id.  Should a complaint be dismissed, FCALA allows of-right appeals and provides a 30-day grace period for the plaintiff to “tender a sufficient submission.” Id. §§1407(j)–(k).  Additionally, FCALA prohibits trials in MDL proceedings “unless all parties to the civil action consent.”  Id. § 1407(j).  Finally, it mandates that plaintiffs receive at least 80% of all monetary distributions.  See id. § 1407(l).

It’s unclear how these changes might affect MDLs.  On the one hand, requiring plaintiffs to demonstrate their injuries at an early stage will likely deter specious claims.  But the 90-day deadline for courts to issue decisions might become impracticable in cases with thousands (or tens of thousands) of claims.  Further, it remains uncertain whether defendants are permitted to brief the sufficiency of the plaintiff’s evidence, or if the judge must act sua sponte.  On the other hand, requiring unanimous consent for trial could allow objectors to derail what would otherwise be a fairly orderly process for the majority of other claimants.  And effectively capping contingency fees in a one-size-fits-all manner might foreclose attorneys’ ability to creatively solve complex problems for their clients.

On March 13, the Senate received the bill and referred it to the Judiciary Committee—where its spiritual predecessor died without consideration in 2015.  We will continue to monitor this potentially pivotal legislation as it develops.