A prominent figure in corporate America’s effort to overhaul the nation’s class-action lawsuit system was in Rhode Island last week to solicit support.
John Beisner is head of the 120-attorney class-action practice of the Washington, D.C.-based law firm O’Melveny & Myers LLP. He was in town to meet with Rhode Island business leaders and trade groups to discuss the need for the Class Action Fairness Act, which is before Congress.
Under the legislation, large class-action suits involving players from multiple states would be moved out of the state court system and into federal court.
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The House of Representatives passed the measure in June and the Senate is expected to take up its version of the bill next month.
Beisner, who has represented defendants in hundreds of class-action lawsuits, says the system essentially has been hijacked by attorneys who file suit in small, out-of-the-way county courts that have been known to approve plaintiff-friendly settlements.
“In these cases, very frequently (the two sides) settle, and a lot of money gets paid but virtually none of it goes to consumers,” Beisner said in an interview last week. “And the attorneys walk off with millions of dollars.”
Beisner and other reform supporters point to a few egregious examples.
A state court in Texas approved a settlement last year in which class-action plaintiffs who sued Blockbuster Inc. received video-rental coupons, while attorneys reaped $9.25 million in fees.
In another settlement, approved by an Alabama court, the 700,000 consumers who joined a class-action lawsuit against Bank of Boston actually lost $91 apiece to cover $8.5 million in lawyer fees.
Beisner says he sees it all the time: class-action lawsuits filed in a jurisdiction in which few of the plaintiffs live, and the defendant has no presence. Madison County, Ill., for example, has become one such “magnet” for class-action lawsuits.
“Even if you’re a medium-sized company in Rhode Island with relatively low national visibility, you can still get hauled tomorrow into Madison County, Ill., court and basically … face a judicial blackmail situation, where you have to pay off lawyers to settle what might be a frivolous claim,” Beisner said.
Opponents of the legislation – mainly trial lawyers, consumer advocates and environmental groups – charge that it is an attempt by big business to divert cases into federal court, where they say it would be easier for companies to win or delay class-action suits.
The Association of Trial Lawyers of America, for example, says that federal courts take twice as long as state courts to render decisions in class-action cases, which would, at the very least, buy companies more time before paying out.
“The only rationale for this legislation is to help corporations that have destroyed the life savings of hundreds of thousands of Americans,” Carlton Carl, spokesman for the Association of Trial Lawyers of America, told The Los Angeles Times in June.
The legislation is near the top of the legislative agenda of business groups; and HMOs, insurers and pharmaceutical companies are among its staunchest backers.
Not all class-action lawsuits would move to federal court under the legislation.
Only suits of at least $5 million (according to the Senate bill) would be taken out of state court.
And only “interstate” cases – in which the main defendant and fewer than one-third of plaintiffs are from different states – would automatically go to the federal system.
In Rhode Island, that would happen less than 40 percent of the time, based on Beisner’s study of class-action suits filed in the state over the last five years.
The review, released last month, found that if the Class Action Fairness Act had been in place during that time, 62 percent of class-action cases here would have remained in state court.
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