This week, the House of Representatives is debating the Fairness in Class Action Litigation Act of 2017 (H.R. 985; the Act), a Republican-sponsored bill that, if passed, will critically change the procedures governing class actions in federal court. The stated purpose of the Act is to ensure fair and prompt recoveries for class members and multidistrict litigation plaintiffs with legitimate claims; diminish abuses in class action and mass tort litigation; and ensure federal court consideration of interstate controversies of national importance consistent with diversity jurisdiction principles. A similar bill with more modest reforms died in the Senate last year.
This Alert examines key provisions of the Act: (1) mandating heightened class certification requirements; (2) placing additional obligations on class counsel’s receipt of attorneys’ fees; (3) creating procedural restrictions on class plaintiffs and counsel, including in multidistrict litigations (MDLs); and (4) providing parties with a new right to appeal class certification decisions.
1. Heightened Class Certification Requirements
The Act changes class certification requirements in two critical ways. First, the Act requires plaintiffs to demonstrate ascertainability to successfully certify a class. While courts have long recognized “ascertainability,” or the ability to objectively identify the members of the putative class, as an implicit requirement for class certification, the standard applied is inconsistent. The Act formally codifies “ascertainability” by precluding class certification unless the class plaintiffs “affirmatively demonstrate 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.” Significantly, this provision resolves a circuit court split in which a majority of the circuit courts of appeal apply a heightened ascertainability standard, while a minority apply a less rigorous standard.
Second, the Act provides for stricter injury requirements for certification. Under the Act, class plaintiffs must demonstrate that members of a class “suffered the same type and scope of injury as the named class representative or representative.” Courts may certify a class only if this requirement is met after “a rigorous analysis of the evidence presented.” This new provision may not account for class plaintiffs that sustain injury from the same wrong in vastly different ways. In addition, this provision excludes plaintiffs that cannot demonstrate any injury at the certification stage.
2. Attorneys’ Fees
The second key area of change is new restrictions on class counsel fees. To effectuate its stated purpose to “diminish abuses in class action and mass tort litigation,” the Act limits attorneys’ fees to a “reasonable percentage of any payments directly distributed to and received by class members” and bans fee awards that exceed the total amount of money distributed to class members. (Awards in cases involving equitable relief are similarly limited to a “reasonable percentage of the value of the equitable relief.”) To receive fees, counsel must first distribute all monetary recovery to the class. Counsel must then submit an accounting of the distribution to the Federal Judicial Center and the Administrative Offices of the U.S. Courts. This accounting of damages will promote transparency and may prove useful in analyzing future tort reform.
3. Other Procedural Restrictions
The Act also contains several provisions that impose additional restrictions on class plaintiffs and plaintiffs in MDLs. For example, it requires class plaintiffs to disclose third-party litigation funding, and takes the unusual step of prohibiting class counsel’s relatives or former clients from serving as class representatives or named plaintiffs. The Act also prescribes requirements for plaintiffs in MDLs that resemble the injury restrictions applied to class actions. For instance, plaintiffs in MDLs must establish injury by submitting evidentiary support for the factual contentions in their complaint regarding the alleged injury and the alleged cause of the injury within 45 days of the case transfer. Attorneys’ fees in MDL proceedings are limited—just as are those in class actions—but at a ceiling of 20 percent of the total recovery.
4. Right to Appeal Class Certification Decisions
The Act greatly expands both parties’ right to appeal an order granting or denying class certification. The Act contains a provision stating, “A court of appeals shall permit an appeal from an order granting or denying class-action certification under Rule 23 of the Federal Rules of Civil Procedure.” Currently, Federal Rule of Civil Procedure 23(f) states that, “A Court of appeals may permit an appeal from an order granting or denying class-action certification.” The Act’s substitution of “shall” for “may” will have significant consequences for class action litigation. This change is substantial in that currently the parties are at the mercy of circuit courts’ discretion to accept the appeal; if the Act becomes law, circuit courts will be required to accept appeals of class certification decisions.
The House is expected to start debate on the Act later this week. As no Democrats voted for the prior version of the legislation, and consumer watchdogs have been vocal in their opposition to the Act, a robust debate is expected. If passed by the House, the Act will move to the Senate and be referred to the Committee on the Judiciary.