Bush Signs Law Giving Federal Courts New Role in Class Actions

This morning, President George W. Bush signed into law the Class Action Fairness Act of 2005 – the first piece of legislation to pass as part of his tort reform agenda. The new law expands the jurisdiction of federal courts to encompass most large class actions, including employment class actions. The hope is that the federal courts will more carefully scrutinize class-based claims than previously has been the case in many state court class actions.

The new law gives the federal courts jurisdiction in class actions and so-called “mass actions,” where the recovery sought exceeds five million dollars and the defendant and at least one of the class members are citizens of different states. A federal court may decline to exercise such jurisdiction if between one-third and two-thirds of the potential class members and the primary defendants are citizens of the state where the case was filed.  Federal courts are precluded from exercising jurisdiction under the new law in many cases where at least two-thirds of the potential class members and at least one of the primary defendants are citizens of the state in which the action was filed and in cases that involve fewer than 100 potential class members.

The new law also puts significant limits on attorney fee awards in cases where the class members receive “coupons” instead of cash payments. It limits these awards to a percentage of the coupons actually redeemed.  The law also requires that defendants notify the appropriate federal and state authorities prior to court approval of any settlement, giving the regulatory authorities an opportunity to weigh in on the propriety of any settlement.

The new law applies to all actions filed on or after February 18, 2005.

According to Scott Witlin, a shareholder in Ogletree Deakins’ Los Angeles office: “While this law applies to employment class actions as well as consumer class actions, given the nature of the claims being asserted, it remains to be seen the impact this will have in the employment context. Clearly some nationwide class actions that otherwise would have been litigated in state courts throughout the country will in the future be removed to federal court. However, it is too early to tell to what extent employers will be able to take advantage of this new limit on class actions. Employers, therefore, need to remain vigilant to the dangers of class-based employment claims.”

Should you have any questions or require any additional information, please contact the Ogletree Deakins attorney with whom you normally work or the Client Services Department at 404-881-1300 or via e-mail at clientservices@ogletreedeakins.com.

Note: This article was published in the February 18, 2005 issue of the National eAuthority.