The House of Representatives has reintroduced the Fairness in Class Action Litigation Act (FICALA), and it’s more substantial than the 2015 version. The previous version, you may recall, attempted to reinforce the typicality requirement to minimize the number of “no injury” class actions brought. It cleared the House, but died in the Senate. It appears that House Republicans sense an opportunity with the new administration to enact more sweeping class reforms.
I testified in support of the 2015 Act, and having read the new bill, I like it even more. I think it lives up to its name. Despite the predictable response from plaintiffs’ lawyers –like Lieff Cabreser’s Mark Chalos
–it’s not seeing to abolish the class action, but to curb some of the more worrisome litigation practices that have evolved since CAFA.
So, what does the bill do? My apologies, this will be pretty long. But then, it’s a long bill. I’ll limit myself to the Rule 23 implications today, and do a followup post next week on those provisions that actually affect MDL cases.
- It resurrects the requirement that the named plaintiff suffer the same “type and scope” of injury (§ 1716). This is an important step in combatting the problem posed by “no injury” class actions (more accurately, “mixed injury” class actions), where a named plaintiff who has suffered a compensable loss seeks to represent thousands or millions of class members who did not. These frequently lead to questionable class settlements.
- It requires class counsel to disclose any conflicts of interest (§ 1717). The adequacy requirement of Rule 23 is criminally under-enforced. It’s the biggest open secret in class actions that plaintiffs do not hire the counsel, the counsel recruits the plaintiffs. Recruiting is harder than it sounds, so counsel will often turn to business associates, family, friends, members of the law firm, or former clients. This provision would require those relationships to be disclosed up front, instead of waiting for the deposition of the named plaintiff to uncover it. Moving this disclosure up is a good thing: if the proposed representative has a disqualifying conflict, the court should know as soon as possible.
Plaintiffs’ lawyer Jay Edelson tweeted a critique of this provision.
Please note, this critique invokes the fiction that the plaintiff sought out the lawyer, rather than the other way around. And I’ll say it, if Google had a cozy relationship with class counsel, and kept finding itself at the front of questionable class actions, yeah, I’d say we should be suspicious.
Professor Elizabeth Chamblee Burch, in her comments to the bill, has a more substantive critique: what about when repeat clients are good, like the pension funds that bring securities class actions? This is a valid point, and one I think can be resolved in committee. But, even there, given the rise of “pay-to-play” practices, I’d urge legislators to exercise caution.
- It codifies the Third Circuit’s ascertainability requirement (§ 1718(a)). As you may recall, this was a topic on the table for the Rules Advisory Committee during the recent amendment process. The Committee backed away from it as “too controversial.” But codifying some ascertainability requirement remains a good idea. Should it be the Third Circuit’s “administrative feasibility” requirement? Professor Burch says no, that makes certification too hard. Professor Myriam Gilles, in her comments, goes further, worrying that it provides “impunity” to corporate defendants. Ultimately, one’s view on this provision is going to depend on one’s view of the class action: is it a “deterrent” that authorizes self-appointed enforcers to bring massive lawsuits for huge fees, or is it a mechanism for getting compensation to injured parties. If you’re an enforcer, you don’t need a method of distributing compensation, but you also probably run afoul of the Rules Enabling Act, and so you should get explicit Congressional authorization under the Constitution. If you’re a compensator, then you need to know how to get that compensation to the class members: the Third Circuit’s standard does that.
- It directly ties attorneys’ fees to the relief class members receive, and makes the attorneys wait until the class members get it (§ 1718(b)). This, one would think, would be uncontroversial. Hardly. In the words of Professor Patricia Moore:
This bill would critically hobble class actions by making them much more difficult to certify and reducing the compensation to plaintiffs’ class action lawyers.”
In fact, much of the criticism I’ve been hearing behind the scenes comes from this “delaying fees” provision. Let me just say this: if the biggest problem you have with a bill is that it makes it harder for the lawyers to get paid, well, that tells you where people’s priorities lie.
- It requires the lawyers to give settlement data for further study (§ 1719). The biggest problem with the enforcer v. compensator debate, or the “are class actions frivolous” debate, is that there’s just not a lot of data available for academics to test their arguments. This section seeks to remedy that. Once again, unalloyed good, right? Apparently not. Professor Burch has two worries. One, this doesn’t go far enough, there should be more data. To which I respond, sign me up! The other, though: I’ll use her words:
requiring an accounting before paying plaintiffs’ attorneys could create a bottleneck and backlog. As such, this provision appears to be less concerned about delivering the necessary data to judges and more concerned with holding up plaintiffs’ attorneys’ funds in administration so as to prevent them from investing in new lawsuits.
Sure, we need data. But first we apparently need to pay the lawyers.
There is, by the way, a simpler reason to require the data before paying the lawyers: it ensures the data gets published, instead of languishing for some extended period. After all, once the lawyers are paid, their incentive to do the rest of the work diminishes considerably.
- It requires issues classes to meet the requirements of Rule 23(b)(3) overall (§ 1720). This, of course, has been a longstanding debate among class action litigators: does Rule 23(b)(3) govern Rule 23(c)(4), or is Rule 23(c)(4) a “get out of predominance free” card that allows one to sever all of the predominating individualized issues? (This was another provision the Advisory Committee considered, and then backed off from.) This provision would codify the common-sense reading of Rule 23: Rule 23(a) & (b) control certification requirements, Rule 23(c) tells you how to effect that once you’ve made the determination. Will it make it harder to certify classes? Sure, if they have predominating individual issues.
- It requires a stay of discovery if a motion to dismiss or strike class allegations gets filed (§ 1721). I have advocated for this for a long time. The PSLRA already requires this stay in securities class actions; and those are hardly dead or delayed. And it simply makes sense: if a dispositive motion has been filed that challenges the complaint as facially flawed, why would you embark on expensive and time-consuming discovery? Resolve the facial motion first, then get into the case. (The Second and Ninth Circuits already require this for class discovery, even if it’s rarely enforced.) Professor Burch, among others, worries that this will needlessly delay the cases. But it is a simple fact, reported by judges even, that plaintiffs can use the threat of discovery as a cudgel in class actions. This would reduce costs on both sides, and make sure that meritorious class actions get the discovery they deserve.
- It requires disclosure of any third-party funders of class actions (§ 1722). I’ve advocated for this for a long time as well (though not as long as Skadden’s John Beisner). Defendants, of course, are already subject to this requirement: Rule 26 requires disclosure of any insurance. If someone else is paying money and directing the litigation rather than the class representative, the court should know about it. (And judges, once they learn this is a possibility, do want to know about it.) Professor Burch worries that this might require firms to divulge other firms they work with but otherwise won’t disclose until the fee request: I really don’t see why that’s a bad thing.
- It mandates appeals for all certification rulings (§ 1723). It appears that this language would replace the discretionary appeal process under Rule 23(f). And here, I’ll make myself unpopular in the defense bar: I don’t think that this provision is necessary or wise. Yes, in a given case, the losing party at certification will always want to appeal that judgment. And yes, as a practical matter, one can view the certification ruling as a de facto final order. But, appealing every class cert grant or denial would (a) needlessly tie up the Court of Appeals and (b) result in lots of conflicting or ill-considered opinions. (Think of the number of cases filed in the various California districts, all of which would now sit before the Ninth Circuit.) Moreover, defendants have good options available already, including (a) decertification motions, (b) various trial motions, and (c) an appeal should they try the case all the way through. I understand why House Republicans might want this provision, but I’d hope they’d trade it away if they need to.
Is the bill perfect? Of course not. (See, e.g., § 1723.) But it is a well-considered, common-sense response to several long-standing issues that have plagued class litigation for the last decade.