In the early days of the Trump presidency, the new administration has made it clear that it is going to tackle perceived regulatory excess. The new President has also made it clear that he intends to reform the Dodd-Frank Act. In keeping with these initiatives, a Republican congressman has now introduced a legislative proposal to reform class action litigation. According to his February 10, 2017 press release (here), Rep. Rob Goodlatte (R-Va.), the Chairman of the House Judiciary Committee, introduced the Fairness in Class Action Litigation Act (H.R. 985) to “keep baseless class action suits away from innocent parties, while still keeping the doors to justice open for parties with real and legitimate claims.” The Bill, which is a grab bag of proposed procedural reforms clearly intended make class action litigation more difficult, addresses a host of concerns and includes some surprising features, including, among other things, a provision that would address third party litigation funding.
Rep. Goodlatte was one of the authors of the Class Action Fairness Act (CAFA), which was enacted in 2005. Goodlatte also introduced a separate class action reform bill in 2015, that passed the House but that died in the Senate. His latest proposed class action reform bill, a copy of which can be found here, substantially expands on his previous effort.
The proposed Bill addresses a host of topics. One provision would require all class members to have suffered the “same type and scope of injury.” A separate provision would require each plaintiff to make a submission within 45 days after an action is consolidated through multidistrict litigation procedures, showing that there is evidentiary support for the plaintiff’s injuries and the alleged cause of the injury, and requiring the judge or judge to made a determination whether the submission is deficient.
Another provision would prohibit class certification in any case in which the proposed class representative or plaintiff is “a relative of, is a present or former employee of, is a present or former client of…or has any contractual relationship with … class counsel.” A number of the Bill’s provisions restrict the size and timing of plaintiffs’ counsel’s fee awards. A separate provision would restrict class certification in cases involving issues classes.
Another provision would restrict discovery in any class action during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, unless the court finds on motion of any party that discovery is necessary. Yet another provision would allow an immediate appeal of any order granting or denying class certification.
The proposed bill has already attracted a great deal of commentary. For example, on February 13, 2017, University of Georgia law professor Elizabeth Chamblee Burch sent a detailed letter to the House Judiciary Committee staff regarding the Bill. Many of professor Burch’s comments are critical of the bill. For example, with regard to the requirement that all class members have the same type and scope of injury, Professor Burch said that the proposal is “both ill-defined and unnecessary.”
In a February 13, 2017 post on her On the Case blog (here), Alison Frankel noted that if Congress adopts Goodlatte’s Bill in “anything like its current form,” class actions and MDLs will be “a shadow of what we know today.” Frankel also commented that, while there undeniably are abuses in the current class action system, the proposed bill is “both overly specific and underdeveloped.” She noted that the proposed reforms would “interfere with judges’ ability to manage complex litigation in all kinds of ways,” noting that the bill would also “interfere with decades of precedent.” The bill would also directly interfere with attorney-client relationships and private fee arrangements.
The proposed provision that would prohibit class certification where the proposed class representative is a present or former client of the plaintiffs’ counsel would be of particular concern in securities class action litigation. An intended result of the PSLRA’s reforms is that institutional investors are now regularly and actively involved in securities class action litigation. These institutional investors have continuing relationships with the leading plaintiffs’ securities firms. These relationships are built upon the same factors involved in any attorney-client relationship; that is, familiarity with the firm, comfort and trust of its practices, and satisfaction with the firm’s expertise and competence. As Frankel noted in her blog post, “sophisticated plaintiffs in complex securities and antitrust litigation need specialized lawyers, just like defendants in the same cases.” Why, Frankel asks, should a corporation be allowed to have an ongoing relationship with outside counsel but not a pension fund acting as a lead plaintiff?
Another provision in the bill addresses the involvement of third party litigation funding in class action litigation. The provision requires the prompt written disclosure to the court and all other parties of “the identity of any person or entity, other than a class member or class counsel of record, who has a contingent right or receive compensation from any settlement, judgment or other relief obtained in the action.” As I recently noted, at least one federal district court has modified its standing order to require the disclosure in any class or representative action of the involvement of any person or entity in funding the litigation. This prior district court initiative and the proposed provision of Goodlatte’s bill suggest we may be moving a general requirement of third party litigation funding disclosure. In both the bill and the local rule the disclosure requirement would only apply to class actions. In neither case are the details of the funding arrangement required to be disclosed. Both the bill’s provision and the local rule are silent about whether discovery regarding the litigation funding arrangements would be required.
One provision of the bill, that Frankel called an “intriguing idea,” would require class counsel to submit to the Director of the Federal Judicial Center and the Director of the Administrative Office of the United States Courts “an accounting of the disbursement of all funds paid by the defendant pursuant to the settlement agreement.” The accounting must state the total amount paid to the class; the actual or estimated number of class members; the average amount, largest amount, and smallest amount paid to any class member; and the amount paid to any other person, including class counsel. No attorneys’ fees may be paid until the accounting is submitted. The bill would require the Judicial Center to compile the data and report it annually to Congress.
I agree with Frankel that this data collection would be a good thing. There is already a host of useful data available and regularly analyzed regarding securities class action litigation, and the availability of these data and the analyses is extraordinarily helpful. It would be quite useful to have the kind of data described in the Bill available for other types of class action litigation.
Professor Burch noted her concerns that data can “easily be skewed through methodology,” and she also expressed a concern that the bill as seems more concerned with holding up the plaintiffs’ attorneys’ fees than anything else.
These concerns notwithstanding, I think the availability of the data would be useful. Frankel quotes one commentator as saying the data will “show how effective mass litigation can be” and that it is “delivering returns to those who have been injured.” If, Frankel notes, the data shows that class actions disproportionately benefit the lawyers, “class action detractors will have much stronger arguments for changing the rules.”
In my view, the availability of these data would be so helpful and would provide such a useful window into what is actually happening with class action litigation that maybe it might even be a good idea to hold off for now on class action reform and rather start with the proposed data-gathering first, and after a few years’ worth of data has been amassed, then start looking at what works and what needs to be reformed as far as class action litigation goes.
In any event, it will be interesting to see how this proposed Bill progresses in the current Congress. It will be particularly interesting to see how much of the Bill in its current form survives as the bill goes forward. If the Bill or even some of its proposed provisions pass both the House and the Senate, class action litigation in this country could be in for some mighty big changes.
And in Other Congressional Legislation News: Anyone interested in the latest on the efforts to reform the Dodd-Frank Act will want to check out the February 9, 2017 post on the PubCo@Cooley blog (here), in which author Cydney Posner takes a look at the latest proposals that Rep. Jed Hensarling, the Chair of the House Financial Services Committee, is putting together. The draft proposed bill, known in its current form as the Financial Choice Act 2.0 (to distinguish the current draft from a version that circulated last year) incorporates measures relating to the banking provisions, the Consumer Financial Protection Bureau, compensation, and corporate governance matters, as detailed in the blog post. Rep. Hensarling’s February 6, 2017 memo outlining the issues to be addressed in the 2.0 version of the draft legislation can be found here.