Class Action Fairness Act of 2005

CLASS ACTION FAIRNESS ACT OF 2005 -- (Senate - February 08, 2005)

The PRESIDING OFFICER. The Senator from Texas is recognized.

Mr. CORNYN. I will speak generally about the issue of class action reform contained in S. 5, because I believe the American
civil justice system is, in many ways, at a crossroads. We have an opportunity to choose between taking a path toward greater freedom and responsibility, or heading down a path that encourages lawsuit abuse and cripples our ability to compete in a global economy. Now is the time, I believe-actually it is past time-to enact the reforms necessary to ensure America's competitiveness in the 21st century.

I am struck, as I listen to the critics of this bill, many of whom are the same people who complain about the fact that American jobs are being sent offshore to places like India, China, and elsewhere, when one of the very causes of the damage to America's global competitiveness is our civil justice system.

I think people of good faith and good will agree that the goal of our civil justice system ought to be getting people who are truly injured as a result of the fault of another fair compensation. But I think also, being objective about this issue and some of the examples of abuses that we have seen, we know too often that this goal is not being met in the current environment. We see lawsuit abuse particularly in the class action area and also in the asbestos area. This abuse is having a damaging impact on our economy. In the asbestos area, we see people who are sick are getting pennies on the dollar in compensation because people who are not sick are getting ahead of them in line, resulting in bankruptcies which have destroyed jobs and pensions for American workers.

So it is unthinkable to me that anyone could stand here on the Senate floor and claim there is nothing wrong. That seems to be a common theme these days, whether we are talking about Social Security or lawsuit reform, or a variety of subjects. But the truth is that the facts clearly indicate otherwise.

As the continued spread of democracy and capitalism take root in countries throughout the world, and as modern travel and information technology bring our world closer together, there is no question that the health of America's economy is influenced by the free flow of goods and services in international markets.

It is a simple fact of life: We live in a global marketplace, where we do not just compete with businesses across the street, but with ones on the other side of the world. Our economic strength and ability to compete now depends on our willingness to confront the burdens that prevent growth, discourage innovation, and ultimately cost Americans their jobs.

It is unthinkable to me that anyone can claim a system that compensates people who truly are injured as a result of the fault of another so poorly, but makes a handful of lawyers rich, doesn't need to be fixed. But the system-particularly in the class action area-is fraught with abuse. I will not detail all of those abuses, since they have been addressed earlier. But one of the most classic cases is the coupon settlement. It reminds me of an old country and western song, where the lawyers get the goldmine and the consumers get the shaft.

We have all seen the numbers relating to the cost of our broken civil justice system. According to one estimate, the cost of the tort system in 2003 totaled more than $245 billion, or 2.2 percent of the gross domestic product. That amounts to a tort tax on every American citizen of approximately $845 a year.

The percentage of our economy that is devoted to tort law and resolution of claims through our tort system is far greater than any other industrialized country. In Britain, for example, the entire tort system-attorneys' fees, settlement costs, jury awards, and administrative costs-costs less as a percentage of GDP than America's plaintiffs' lawyers gross for themselves alone.

This level of stress on the economy and on our civil justice system itself is unacceptable. But it hasn't always been that way. Class actions, prior to significant rule changes in the 1960s and 1970s were not, as they are today, largely a sport for a handful of aggressive personal injury lawyers to pursue abusive litigation and junk lawsuits. Take, for example, the change in 1966, from a system where class members were required to "opt in" to a system, where now they are required to "opt out." By 1971, four times as many class actions were being filed than had been in 1966. In other words, from 1966 to 1971, we saw four times the number of class actions brought.

Since that time, recoveries have skyrocketed. This chart behind me reflects the growth I mentioned a moment ago. You can see that from 1973 to 1975 there were relatively few class action lawsuits and relatively modest recoveries. But they have obviously ballooned and appear to be getting bigger year by year.

The problems we increasingly experience with abusive class action lawsuits call for a significant overhaul of our civil justice system and particularly our rules providing for the resolution of mass tort litigation.

I must tell you that the bill we have before us today is clearly a modest reform. It amounts to an improvement over the status quo, but it doesn't begin to approach the comprehensive solution America needs.

As it stands, S. 5 provides two primary improvements: It allows removal of a greater number of class action lawsuits from State court to Federal court, and it requires judges to carefully review all coupon settlements and limit attorneys' fees paid in those settlements to the value actually received by class members.

These two reforms-as modest as they are-are important and will certainly offer fair but desperately needed relief for State courts which are experiencing firsthand the explosion of class action litigation. It will also provide for greater fairness for defendants who are currently being dragged into "magnet jurisdictions," and it will provide greater fairness for class members who are oftentimes receiving pennies on the dollar, while class counsel get rich.

Yet, as much of an improvement as this bill is, it falls short of the ideal. To be effective and fair, I believe class actions and other mass tort litigation require three things: A level playing field; transparency, so consumers can have complete, fair, and accurate information; and a clear relationship between class members and their lawyers.

First, a level playing field depends on a fair class certification process. As the current occupant of the chair knows, almost all class actions settle if certified. The main event in class action lawsuits is the certification process because ultimately, once certified, most defendants feel as if they have no choice but to settle because even a small risk of an adverse judgment, given the large number of class members, can lead to a ruinous result. They are forced to try to settle the case on the best terms they can.

Where there is no right to an immediate interlocutory appeal of class certification and stay on discovery, class certification can cause settlements that far exceed the case's value on the merits because of the extortionate effect of the certification process and the threat it brings to the very livelihood, not to mention the financial life, of the defendant involved.

States, such as my home State of Texas, have also embraced limits on appeal bonds. Too often in large class action lawsuits, the judgment can be so large that the defendant cannot, in effect, buy an appeal bond with which to appeal the case and correct an erroneous ruling below. So the defendant is forced to settle because they cannot afford to appeal-again, not based on the merits, but based on the way class action lawsuits are structured, without a right to interlocutory appeal.

The second step toward an effective system, I believe, is information flow. Class actions require that adequate information be available both for the sake of the process itself and for policymakers, like us, to analyze. It is hard for us to do our job when it comes to class action reform or civil justice reform when some of the information-much of the information-is simply hidden from public view. Class members should be fully advised of all aspects of their case, and we should require that certain relevant information about all class action settlements be collected and published centrally for examination and review by analysts and policymakers.

Just as in Government, when it comes to class actions, people deserve to know what is going on, particularly if it is their case.

The final step, and the most important one to me, is maintaining the proper relationship between the class members and their attorney. As the occupant of the chair, the Presiding Officer, knows, this is a particularly tough issue when it comes to class counsel who may have one real client, the class representative, with whom they deal but, in reality, class counsel calls the shots and runs the case. Class members may not even know they are involved in a lawsuit until they receive a notice of settlement and perhaps, as we heard, a coupon worth pennies on the dollar. The opportunity for abuse of that important fiduciary relationship between the lawyer and the client is very important to address.

I believe one solution would be to allow members of the class to opt in instead of opting out because, indeed, in a country that says we do not promote litigation, although we certainly give fair access to courts, it just does not make much sense to me to say to the consumers: You can be a plaintiff in a lawsuit, you can actually be a party to a lawsuit and not even know about it until the lawsuit is over, which is what happens today.

Consumers should not have to learn that they are members of a class action lawsuit by receiving a check for $2.38 in the mail and then find out in the morning paper that the lawyers who purported to represent them just collected $5 million. The cases and examples go on and on.

It should also go without saying that the attorneys should be paid at a level commensurate with the work before them, not based on strictly a contingency fee which may, indeed, allow huge financial rewards for relatively modest work actually
being done.

I hope those listening, if there are any listening to my comments, understand my concerns that this modest legislation does not go far enough to remove the scandal of litigation abuse that too often plagues our civil justice system and the American economy. I hope they understand my reservations do not indicate I am not for this bill because, indeed, I am. I
believe S. 5 is an important first step in reform and an important step in the right direction.

In conclusion, because I know there are others who want to speak, there will be attempts to offer amendments to this bill. I know Senator Durbin, but for the loss of his voice, would have been the first to offer his amendment. I am told Senator Kennedy will be here shortly to do the same, but as everyone knows who has followed this bill-certainly Senator Carper who has been an advocate for class action reform for some time, knows-the compromise reflected by S. 5 is a very fragile one, and it essentially depends on no amendments being made to the bill or agreed to the bill. If that happens, it is likely the bill will go promptly to the House where they will pass it, and it will go to the President's desk, and we will have an early victory for the American people in this important area. But there are a number of amendments that will be offered which, in essence, are poison pills, that if agreed to will completely destroy any opportunity we have for this modest reform.

I have my own amendments that I filed, if others are offered and agreed to, which I believe are important to move the bill in the direction where I think it ought to go. But the truth is, I am refraining from urging those amendments at this time because I think this fragile compromise, as modest as it is, does represent real reform in moving the bill in the right direction.

Here again, as the Washington Post editorial on August 27, 2001, points out:

No portion of the American civil justice system is more of a mess than the world of class action. None is in more desperate need of policymakers' attention.

That was in 2001, and certainly the situation has not changed today.

I am baffled by those who want to whistle past the graveyard and act as if there is nothing wrong and that everything is just hunky-dory when it comes to class action reform. I believe the American people expect that the civil justice system will operate in their best interest, not in the best interest of a handful of lawyers.

I am confident the damage that is being done to American competitiveness is killing jobs that would be created in the United States but for the fact that people do not want to subject themselves to an out-of-control class action system. So, instead, jobs are being created in other countries across the world where they do not have those same concerns.

This is clearly an area that cries out for reform. It is one that is long past due.

I congratulate Senator Carper and others on that side of the aisle who have worked so carefully to try to craft this fragile compromise. But I want my colleagues to understand-and I think they all do; I think we all do-that any amendments to this bill will doom it. So I urge all of my colleagues to vote against any and all amendments; indeed, even ones that I may like but which I know will have the ultimate effect of killing the bill. I think it is better to save those for another day and another time rather than have the prospect of this bill going down in flames.

Mr. President, I appreciate the time and yield the floor.

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