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There is a new multi-billion dollar investment opportunity in Texas and across the country. A deal that creates percentage returns in the tens of thousands. America’s new hot investment is the class action lawsuits in state courts.
While plaintiffs often receive only coupons or pocket change, trial lawyers are reaping huge fees. Legislation has been introduced in the Texas Legislature which would be a positive step toward reining in frivolous class actions and harness the trial lawyers who bring them.
The Class Action Lawsuit: A Good Idea Gone Bad
A class action allows adjudication of the claims of many similarly situated plaintiffs in one single trial, as opposed to each individual plaintiff bringing his or her own claim. For instance, if a credit card company wrongly overcharged every cardholder by $1,000, each card member could participate in a class action, rather than suing the credit card company individually. Class actions are designed for cases such as the credit card example. There are so many plaintiffs, that having each bring the exact same claim would be inefficient. Moreover, the issue in each case is exactly the same: Did the credit card company overcharge each credit card holder?
The problem with the current class action landscape is that most state courts certify classes when they should not. Specifically, state courts certify a group of plaintiffs who do not necessarily have similar issues of law or fact. Further, sometimes state courts certify classes that bring frivolous or marginal claims. According to the Federal Judicial Conference’s Advisory Committee on Civil Rules, corporations are facing a 300 percent to 1,100 percent increase in class actions.
State court certification of frivolous classes often forces the defendant to settle, even though they did nothing wrong. In a class action one lawyer can represent literally thousands of plaintiffs against one defendant in one trial. Because of the magnitude of the class, corporations often settle class actions, rather than risk a verdict that forces them into bankruptcy.
Only Plaintiffs’ Lawyers Benefit From Current Class Action Rules
And what do the people the lawyers represents get when the class action is over? Sometimes, not a lot. In a class action settled against the manufacturers of a computer monitor, each plaintiff received a coupon for $13 off a new $250 monitor or the right to a $6 cash rebate in the year 2000. The lawyers representing the class received a $5.8 million fee.
State Class Action Reform is Proposed
Right now the Texas legislature is considering two bills which bring a common sense approach to class action lawsuits The bills allow courts to double check that a class meets all the requirements before going forward. These bills protect plaintiffs by making sure that class is truly representative of their personal claim. It also protects defendants by giving them opportunity to protest the class before wasting time and money. Class action bills being considered are HB 274 sponsored by Sen. Teel Bivins (R-Dist 31, Amarillo) and companion bill sponsored by Appropriations Chairman Rob Junell (D-Dist 72, San Angelo); and SB 273, sponsored by Sen. Troy Fraser (R-Dist 24, Abilene)
Texas consumers have benefited from civil justice reforms passed in 1995. According to the Texas Department of Insurance, since those measures were enacted, consumers have saved over $1.5 billion on all lines of insurance with an additional $697.9 billion in savings projected for 1999.
However, projections are that every man, woman and child in Texas is still paying a hidden tax of $635 a year due to lawsuit abuse. For this very reason the Texas Legislature needs to keep fighting the trial lawyers to make our courts fair for everyone.