Earlier this year, a bill with serious implications for America’s judicial system passed with little fanfare in the House of Representatives. The bill, H.R. 985, currently sits with the U.S. Senate. If it passes and is signed into law, H.R. 985 would make a series of changes to the federal rules of civil procedure and allow unethical companies to get away with defrauding consumers en masse.
These changes would have the net effect of making class-action lawsuits against corporations significantly harder to pursue without solving any demonstrated problems with the current system.
H.R. 985 is known as the Fairness in Class Action Litigation Act of 2017. Its critics, however, say the bill is anything but fair.
“It was class action lawsuits that revealed fraudulent pricing practices and misleading advertising by drug companies, widespread employment discrimination, and predatory payday lending practices…but this bill includes a range of provisions that would make such class action suits practically impossible,” said Congressman Jerrold Nadler (D-NY), who spoke out against the bill.
Over 120 civil rights, non-profit groups oppose the bill, along with countless consumer advocacy groups, bar associations, and other non-profits. The American Bar Association, the American Judicial Conference, the Southern Poverty Law Center and the Consumer Federation of America are among the many big names to oppose the bill.
How Class Action Litigation Works
In order to understand how H.R. 985 would make class actions “practically impossible” to pursue, we first need to better understand why class action lawsuits are necessary.
Let’s say, for example, that, through some fraud or wrongdoing, a company took $100 from you. In order to get that money back, you could file a lawsuit against the corporation at a cost of around $2,000. If you were to win the case, you would get back the $2,000 you paid in legal fees back, plus the money that was taken from you.
Even if you had a 99 percent chance of winning the case, would you file the lawsuit? To be clear, you would be risking $2,000 for a chance to win a maximum of $100. Plus, filing a lawsuit isn’t as simple as paying the legal fees and letting the process play out—it can take months, if not years for the case to resolve, and as the only plaintiff in the case, it will likely cost you money and time to reach a resolution. Of course, this is only possible if you have $2,000 to spare in order to file the lawsuit in the first place.
Most people would not file a lawsuit like this because of the money, time, and stress that would be required, all for only a small sum of money in return.
But what if that same corporation took $100 from you and hundreds, thousands, or perhaps even millions of other people? A fraud on that scale could amount to millions of dollars. In this case, individuals who sustained losses as a result of the fraud could potentially make the same case together and seek redress for all who lost money by filing a class-action lawsuit. A large group of plaintiffs is a force corporations have to reckon with but one person, alone, would have trouble justifying the cost to get a meager reimbursement.
In a nutshell, class action lawsuits empower people to pursue meritorious claims that otherwise wouldn’t or couldn’t be brought individually.
What the Fairness in Class Action Litigation Bill Will Change
Among other things, the Fairness in Class Action Litigation Act of 2017 clarifies who can and who can’t pursue class action claims. According to the bill, in order to form a class of plaintiffs, all members of the class must have the same “type and scope of injury.”
Under the current system, people can join a class action if they share similar grievances to other members of the class. In the example laid out above, if the company in question took $100 from you but took $109 from the lead plaintiff in the class, you would still be able to join the class because your losses stemmed from the same fraud, despite the fact that the losses were for different amounts.
But that would change if H.R. 985 is signed into law. Financial losses would have to be exactly the same across the board for all plaintiffs in the class.
The same would also hold true for injuries. If a faulty car airbag caused one person to sustain a concussion and another to sustain a broken clavicle, they would not be permitted to enter the same class of plaintiffs.
What is particularly problematic about these new discrepancies is that the law does not provide specific instructions for how to evaluate “type and scope of injury,” which will give the defense the means to get cases thrown out.
H.R. 985 would also make systematic changes to the economics of filing a class-action lawsuit. For the plaintiffs, the bill would create new procedural hurdles that would effectively heighten the risk, making class actions harder to win.
The bill would also cap attorney fees, which would have the effect of disincentivizing attorneys from filing class-action lawsuits. In most class actions, it is the plaintiffs’ attorneys, not the plaintiffs themselves, that take on the financial risks associated with the litigation. To offset the risk, class action lawyers receive a contingency fee, which amounts to a percentage of the verdict or settlement after a case is successfully resolved.
Baum Hedlund Aristei & Goldman class action lawyer R. Brent Wisner explains how he discusses the fee structure for class actions with clients:
“I will litigate this case for you, I will cover all the costs, I will do all the work and take all the risk, but if you ultimately do reach a resolution, we get between 20 and 40 percent,” says Wisner, who adds that the percentage is calculated based on the risk of the proposition and must be approved by the judge overseeing the case.
“If it’s a very risky case, attorneys are not going to be willing to take a smaller percentage because there is a good chance that they could lose money by trying to help people.”