June 19, 2007
The American Bar Association will hold a nationwide teleconference on Wednesday, June 20, 2007, for lawyers to discuss a recent article by Tulane Law Professor Edward F. Sherman. The article, “Class Actions and Consumers: Do the Twain Still Meet?,” is being published in the June issue of the American Bar Association Journal.
The teleconference includes a panel of four lawyers, all nationally recognized experts on class actions, to consider the likely future of consumer class actions in light of Professor Sherman’s article.
Professor Sherman analyzed recent legal developments unfavorable to consumer class actions, such as suits against pharmaceutical companies and manufacturers for product defects and against insurers, finance and mortgage companies, and providers of services like cell phones for unauthorized charges and unfair practices. “Consumer class actions,” he said, “have reached a crucial crossroads,” with uncertainty as whether they will be available to challenge improper business practices where the amount of money at stake is too small for individuals to file suit on their own.
Consumer class actions are one of the most controversial in the law today. Professor Sherman notes that “consumer advocates view them as essential to protecting against wrongful business practices while the business community often sees them as a form of blackmail where plaintiffs lawyers are the principal beneficiaries.”
There have been abuses of class actions in the consumer context, Professor Sherman asserts. “Coupon settlements,” for example, have been entered into with companies that give the class members coupons to buy their product or services that have little value while plaintiff lawyers receive millions in fees.
But there is a critical role for consumer class actions, Professor Sherman argues: “The American political system has generally rejected extensive governmental regulation of business and failed to provide adequate funding for regulatory bodies. That sometimes leaves a vacuum in enforcing laws, regulations, and standards that is filled by entrepreneurial lawyers.”
Professor Sherman argues that may of the worst abuses have been addressed by rules changes and judicial scrutiny that, for example, has severely curbed coupon settlements and imposed searching oversight by judges on plaintiff lawyers’ fees.
However, further attempts by the business community to stymie consumer class actions have been successful in recent years and need to be examined to insure that consumers still have access to the courts when the victims of unfair practices. These include restrictive decisions, particularly in federal courts, that prevent class treatment and state “tort reform” legislation that sometimes severely limits consumer remedies.
An important development in the on-going struggle between business and consumers was the Class Action Fairness Act of 2005 (CAFA) that permits removal of many class actions to federal courts.
In recent years, federal courts have been perceived by both plaintiff and defendant lawyers as less sympathetic to class actions and plaintiffs’ cases than state courts. As federal court judges became more critical of class actions, plaintiff attorneys increasingly filed their class actions in state courts, particularly in “magnet venues” considered to be pro-plaintiff.
After six years of lobbying, business groups were successful in passing CAFA, and now most multistate class actions are in federal courts. Professor Sherman sees benefits in this since federal courts have more resources for complex class actions and certain state courts had certified class actions too freely.
But Professor Sherman cautions that federal courts are now “the only game in town” and that some have applied such strict standards that few consumer class actions can survive. He calls on federal courts to recognize that “where the expected recovery for an individual is less than the cost of litigation,” consumers would not have access to the courts if there were no class actions, and “the wrongdoers might never have to answer for their conduct.”
Professor Sherman also discusses other developments that portend “a doubtful future” for consumer class actions. Companies now often put arbitration clauses in their contracts (for example, cell phone contracts) that waive the right to go to court and prohibit classwide arbitration. Federal regulatory agencies have increasingly in recent years passed regulations purporting to preempt state common law and consumer remedies.
The ABA telethon allows lawyers across the country to access the discussion of class action developments and to hear both plaintiff and defendant lawyers give practice tips about the future.
Professor Sherman was Dean of Tulane Law School from 1996 to 2001 and is the author of several books and many articles on class actions and complex litigation.