Risk Management

Class Actions May Head to Federal Courts

In what the business community considers a positive step, the Senate debates moving class-action law suits from state courts to federal venues.
Stephen TaubJanuary 27, 2005

A bill that would further standardize class-action lawsuits could reach the Senate floor within two weeks, according to the Wall Street Journal. The ultimate goal of the proposal, says the paper, is to shift these suits from state to federal courts, which is considered better for business by some observers.

Indeed, the shift would eliminate the practice among plaintiffs’ lawyers of shopping around for the jurisdiction they deem most friendly to their cause. That tactic is said to be often used to increase awards, and many executives like the idea of a law that reduces corporate exposure by forcing class-action suits into federal venues.

Although consumer groups disagree, proponents of the bill — including Republicans and the business community — told the paper that federal courts are a more rational arena for multi-state suits. Senate Majority Leader Bill Frist (R-Tenn.) says he hopes to first move the bill through the Judiciary Committee and then to the Senate floor as early as the week of February 7.

Under the proposal, federal courts would assume jurisdiction over class-action lawsuits that involve more than $5 million and in which plaintiffs live in a different state from other defendants, said Dow Jones. Exceptions, however, would be granted when more than two-thirds of the plaintiffs live in the same state: if at least one of the defendants is from the state where the case is being heard; or if the alleged injuries happened in that state.

Labor unions also want an exemption for wage-and-hour cases where state laws are stronger, according to the Journal.

Another part of the bill includes provisions intended to assure that plaintiffs, not their attorneys, are the main beneficiaries of any class action suit. The Journal noted that legislative compromises call for genuine local controversies to remain in state courts.

Senate Minority Leader Harry Reid (D-Nevada) applauded Frist’s decision to first send the bill through the Judiciary Committee, adding, “If we are able to do what I want to do there won’t be amendments in regard to overtime, minimum wage, or health,” according to Journal. A compromise version of the bill died in the Senate last year during a debate over unrelated measures, such as a minimum wage increase

How likely is it that the legislation will be passed? Reid told reporters that even though he dislikes the bill, he probably would not waste a lot of time on the floor fighting it.

House Speaker Dennis Hastert (R-Ill.) said his intent is to “get this thing done as quickly as possible,” according to the Journal. “I’m not saying we’re going to scoot it through, but I think that’s kind of our intent.”

Other tort-reform issues expected to surface this year, especially if the class-action bill passes, include bills that would speed the settlement of multibillion-dollar asbestos claims and shrink the size and impact of medical malpractice suits, noted the Journal.

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