Bill Would Impose New Restrictions On Class Actions
04/04/2017On March 9, 2017, the U.S. House of Representatives voted to approve the Fairness in Class Action Litigation Act of 2017 (“H.R. 985” or the “Bill”), a bill that, if signed into law, would significantly modify class action practice.
The Bill was sponsored by Congressman Bob Goodlatte (R-VA), Chairman of the House Judiciary Committee, who previously sponsored similar legislation in 2015 that cleared the House but failed to advance in the Senate. With Republicans retaining control of the Senate and having recently captured the White House, the potential for class action legislation becoming law has increased. Key provisions of the Bill include:
CATEGORY: Class Certification
- Class Action Injury Allegations (§ 1716): The Bill prohibits a court from granting class certification in a case seeking monetary relief unless the plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative.” Although it is not clear how a “same type and scope of injury” requirement would be implemented in practice, this language could disturb the longstanding principle that individual damages may vary across class members as long as the requirements for class certification are met.
- Conflicts of Interest (§ 1717): The Bill requires plaintiff’s counsel to disclose whether the proposed class representative is a relative, current or former employee, present or former client, or has had any contractual relationship with counsel. The Bill also prohibits certification where the class representative or named plaintiff is a relative or employee of class counsel. Notably, however, these new requirements do not apply to securities class actions that are subject to the Private Securities Litigation Reform Act of 1995 (“PSLRA”).
- Distribution of Benefits to Class Members (§ 1718(a)): The Bill prohibits a court from granting class certification in a class action seeking monetary relief unless the class is defined with reference to “objective criteria” and the party seeking to maintain the class action “affirmatively demonstrates that there is a reliable and administratively feasible mechanism (a) for the court to determine whether putative class members fall within the class definition, and (b) for distributing directly to a substantial majority of class members any monetary relief secured for the class.” This section seeks to resolve differences between the U.S. Courts of Appeals regarding the so-called “ascertainability requirement.” The Bill resolves the circuit split in favor of the Third Circuit’s more restrictive approach. See, e.g., Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349, 355 (3d Cir. 2013).
- Attorneys’ Fees (§ 1718(b)): The Bill limits attorneys’ fees to a “reasonable percentage” of any payments to class members and, notably, states that no attorneys’ fees may be determined or paid for any reason until “the distribution of any monetary recovery to class members has been completed.” This provision would likely eliminate “quick pay provisions” in class action settlement agreements, which enable class counsel to receive attorneys’ fees prior to final approval.
- Data Sharing (§ 1719): The Bill requires that, in any class action settlement that provides for monetary benefits, class counsel shall submit an accounting of all funds paid by defendants pursuant to the settlement agreement to the Federal Judicial Center and the Director of the Administrative Office of the United States Courts. It would also require the disclosure of payments and the purpose of those payments to third parties, including class counsel.
- Stay of Discovery (§ 1721): The Bill mandates a stay discovery during the pendency of motions to dismiss, motions to transfer, motions to strike class allegations, or any other motion to dispose of class allegations, unless the court finds upon a motion of any party that “particularized discovery” is necessary to preserve evidence or to prevent undue prejudice to that party. This requirement does not modify the stay of discovery requirements for securities class actions under the PSLRA.
- Third-Party Litigation Funding Disclosure (§ 1722): The Bill requires class counsel to disclose in writing to the court and all other parties the identity of any person or entity who has a contingent right to receive compensation from any settlement, judgment, or other relief obtained in the class action.
- Right of Appeal (§ 1723): The Bill would grant parties an interlocutory appeal as of right from an order granting or denying class certification.
- Remand in Multidistrict Litigation (§ 1407(k)): In multidistrict litigation, the Bill would amend 28 U.S.C. § 1407 to add a new subsection (k), which states federal courts of appeals are permitted to accept an appeal from an order remanding an action to the state court from which it was removed. Such appeals would need to be filed within fourteen days after the remand order is entered. Currently, remand orders are generally unreviewable by federal courts of appeal.