Capitol%20BuildingCroppedBy Matthew J. Gagnon and Gerald L. Maatman, Jr.

We have something a bit different for our loyal blog readers today: a preview of an important bill that could have a significant impact on class action litigation.

On June 24, 2015, the House Judiciary Committee voted to send H.R. 1927, the Fairness in Class Action Litigation Act, to the full House. H.R. 1927 is a short statute, but one that could have a major impact on class action litigation. The substance of the Act prohibits any federal court from certifying a class action unless the party seeking certification “affirmatively demonstrates through admissible evidentiary proof that each proposed class member suffered an injury of the same type and extent as the injury of the named class representative or representatives.”

According to House Judiciary Committee Chairman, Bob Goodlatte, the bill is intended to counteract the “proliferation of class actions filed by lawyers on behalf of classes including members who have not suffered any actual injury.” He went on to explain that, “[w]hen classes are certified that include members who do not have the same type and scope of injury as the class representatives, those members siphon off limited compensatory resources from those who are injured, or who have suffered injuries of much greater extent. That leads to substantial under-compensation for consumers who have suffered actual or significantly greater harm.” His comments are here.

Critics of the bill argued that it could effectively eliminate class actions in certain types of cases, including employment discrimination lawsuits, by imposing a standard that would be impossible to meet. In comments prepared for an April 29, 2015 hearing before the Judiciary Committee, Professor Alexandra Lahav of the University Of Connecticut School Of Law argued that existing screening mechanisms embedded in Rule 23 were sufficient to police class actions and prevent baseless claims. She argued that imposing an additional requirement that each class member suffered an injury of the same type and extent would “effectively eliminate the kinds of class actions that are widely agreed to be beneficial.” As Professor Lahav explained:

For example, suppose a bank charges an illegal fee of $2 to every customer when he or she withdraws funds with a debit card. During the class period, James engaged in 15 transactions and Sarah engaged in 20. Accordingly, James’s loss is $30 and Sarah’s is $40. Assuming that the court would interpret the loss of funds as an “impact” on their “property,” under this bill the court would still not be permitted to certify this case as a class action because the extent of their losses is different: Sarah has lost $10 more than James and H.R. 1927 requires that the extent of their injury be the same.

According to Professor Lahav, courts could interpret the new language more broadly such that plaintiffs must only demonstrate that class members’ alleged injuries can be determined on a class-wide basis. But that interpretation is consistent with Rule 23’s requirements as they already exist, so the change in language would do nothing to change the law. In other words, according to Professor Lahav, the new law would be either catastrophic for class plaintiffs or wholly irrelevant, depending on how the language is interpreted by the courts.

Proponents of the bill, including the U.S. Chamber of Commerce, have asserted that the bill is necessary to put an end to overbroad, “no-injury” class actions – those that are brought by a named plaintiff who allegedly experienced a problem with a product or service and then seeks to represent a class of every other individual who purchased the product or paid for the service regardless of whether they experienced any problem with it. The Chamber argued that those types of cases are becoming increasingly prevalent and are a departure from the traditional view that such classes are not viable.

At the heart of this criticism lies the disquieting reality familiar to any employer who has faced class action litigation. For companies that cannot bear the risk and cost of defending against a large class action, certification is effectively a defeat on the merits because it forces companies to settle regardless of the merits of the claims. This is the entirely predictable outcome when companies are forced to choose between risking a devastating loss, or settling for a fixed amount, however unpalatable. Overbroad classes that include members who were never injured only ratchets up the pressure on defendants, while at the same time providing compensation to individual class members who would never be able to recover on an individual suit.

The bill was amended at the last minute to address concerns that it would unduly burden civil rights plaintiffs. Language was added to clarify that the new requirement applies only to classes “seeking monetary relief for personal injury or economic loss,” thereby exempting classes that seek only declaratory or injunctive relief. This amendment will be small comfort to plaintiff-side class action lawyers.

Implications For Employers

Making it out of committee is just the first step for this bill. While the Chamber lauded the House action, there is still a long road ahead. If it indeed becomes law, there is little doubt that it will have a substantial impact on class action litigation. Just how much impact will depend on how the new language is interpreted by the federal judiciary. But it will be hard for courts to ignore the fact that this bill is intended to make certification more difficult for certain types of class actions. This one is worth keeping an eye on.