A class action reform bill currently before Congress would
be a serious setback for pension funds and institutional investors, and is
possibly unconstitutional, according to legal scholars.
The “Fairness in Class Action Litigation Act of 2017,” (H.R.
985), which was introduced last week by Congressman Bob Goodlatte (R-Va.), seeks
to maximize recoveries by victims, while eliminating unmeritorious claim.
“Class action lawsuits are rife with abuse,” said Lisa
Rickard, president of the US Chamber of Commerce’s Institute for Legal Reform,
which supports the bill. “The Fairness in Class Action Litigation Act will
ensure that class members get paid first, and that lawyers only earn a
percentage of what class members actually receive. It will also protect
businesses from abusive lawsuits, and the economic damage that they cause.
However, there are some provisions in the bill that have
raised serious Constitutional concerns by legal experts. Particularly damaging
to pension funds and institutional investors is a conflict of interest provision
“A Federal court shall not issue
an order granting certification of any class action in which any proposed class
representative or named plaintiff is a relative of, is a present or former
employee of, is a present or former client of (other than with respect to the
class action), or has any contractual relationship with (other than with
respect to the class action) class counsel.”
In other words, “no institutional investor could hire the
same law firm more than once in a class action,” John Coffee Jr., director of
Columbia Law School’s Center on Corporate Governance, told CIO. “It’s like saying you can’t see the same doctor twice.”
Since all the major pension funds have already used the
major plaintiff law firms at least once, they would be cut off from their
existing counsel, Coffee added. “That to me is invalid and is a major concern,”
he said. “The committee should be shown that the attempt to say you can only
use a lawyer once is probably unconstitutional.”
Elizabeth Chamblee Burch, a law professor at the University
of Georgia who specializes in class actions and mass torts, also found problems
with the conflict of interest provision in the bill.
“People naturally turn to those that they trust the most to
prosecute their claims. Whether those previous relationships create disabling
conflicts of interest is something that the courts already monitor,” said Burch
in comments submitted to Congress. “Judges already test the relationship
between class members and the named representative ... as such, restricting a
client’s freely chosen counsel is unnecessary.”
Another provision that could cause problems pensions and
institutional investors is one that triggers an automatic appeal of class
certification. This allows a defendant to automatically appeal any class
certification against it, something almost every defendant would likely choose
to do. Coffee says this automatic appeal provision could add a year or more to any
class action litigation.
While Coffee did say he found some aspects of the bill to be
“sensible and even desirable,” he believes the bill was intentionally written
to be as broad and sweeping as possible “to try to shut down the existing
between plaintiffs and law firms.”
Myriam Gilles, vice dean of Yeshiva University’s Benjamin N.
Cardozo Law School, said in comments submitted to Congress that “the bill would
radically restrict access to justice for injured consumers, employees and small
businesses by, among other things, imposing requirements upon class plaintiffs
that are both unrealistic and unnecessary.”
By Michael Katz