Saturday, February 19, 2005

The Class Action Fairness Act of 2005

Interesting news from the legal world. The Class Action Fairness Act of 2005 apparently became law yesterday. I haven't been able to get the details on it, but from what I understand it has the effect of forcing nationwide class action lawsuits into federal courts: you can't have a nationwide class action in state courts any more.

"So, False, why should I care?" I hear you ask. Well, I'll tell you.

One of the reasons for having class action suits is to stop people from doing things they oughtn't but that fall under the radar. So, let's say some consumer electronics company comes up with this great scam: they're going to sell DVD players for $80, but they'll offer a $30 mail-in rebate. Except they decide they won't pay the rebates. So you go to Frys, plonk down your 80 bucks, send off the form, and never get your rebate check back.

Now what? Are you going to sue over a lousy 30 bucks? Probably not, since that's probably, what, ten minutes' worth of your lawyer's time, and the court's not likely to award you attorneys fees if you win. And even if you do win, the company may just give you your 30 bucks, chalk it up to the cost of doing business, and keep on ripping off everyone else.

Enter class actions. One of the original ideas behind a class action was that a whole bunch of these 30 buck plantiffs can get together and take on the company that's intentionally ripping them off. They get to split the cost of their lawyer, they get a sizeable chunk of their 30 bucks back, but more importantly the company gets spanked for ripping people off in a way that will actually get its attention. That's the theory, anyway. As you can imagine, there's a lot of debate over whether the system gets abused or not. You can probably also imagine who tends to wind up on what side of the debate.

Anyway, there's something else that comes into the picture. Federal courts want to keep out piddly little claims, so one of the things they have is called an "amount in controversy" requirement: you can't sue someone in federal court unless there's at least $75K at stake. So, how does that relate to your piddly little 30 buck claim?

Well, every class action has some named plaintiffs, folks who are suing who actually have their names on the paperwork, and a whole bunch of unnamed plaintiffs. The named plaintiffs act as representatives for the unnamed ones. That way, if our DVD company rips off a million people, all million of those people don't have to go trooping over to the courthouse. In 1969, the Supreme Court said that you don't get to add up all the 30 buck claims from the unnamed plaintiffs to meet the amount in controversy.

What you do have to do is kind of confusing.

Some courts interpret a law, 28 USC 1367, as saying that all the named plaintiffs have to individually meet the amount in controversy requirement, which means that you'd have to find some representatives who bought a ton of DVD players and sent in a huge load of rebate forms. If you can find enough of those people to be named plaintiffs, you're good to go in federal court: they can represent the folks like you and me who just bought one lousy DVD player and want our 30 bucks.

Other courts follow a 1973 Supreme Court case called Zahn v. International Paper, which says that everyone, even the unnamed plaintiffs, have to meet the $75K amount in controversy. So, you and I with our one lousy DVD player don't get to be a part of the class action in federal court.

In the past, you could get around this problem by just filing in state court, which doesn't have that amount in controversy requirement. But remember, this new act says that a nationwide class action has to be in federal court if it's going to be anywhere at all. I don't know what it says about the amount in controversy. It might change the rules, to let the 30 buck claims in. It might also keep them out. I haven't been able to find out.

Also, I'm not sure what a "nationwide" class action is. It's probably a class action where the plaintiffs come from two or more states. That'd mean you could theoretically file 50 class actions, one in each state, against our DVD maker. In practice, though, you'd probably skip most of the states because there just aren't enough people to make it worthwhile, so those of us in California, Texas, and New York might get our thirty bucks, but everyone else is SOL.

It will be interesting to see how this develops. In the meantime, be careful buying those DVD players.

see the follow-up post here for more specifics on what the law does

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