Federal courts taking on class action burden post CAFA

Ann Knef Feb. 15, 2007, 9:34am

Ted Frank

Two years since the passage of the Class Action Fairness Act (CAFA), new cases are no longer clogging state courts to the extent they once did. Instead, they're gumming up dockets in federal court.

The shift may be a blessing for defendants who were pulled into Madison County's so-called "magnet court," but one legal expert cautions against judging the effectiveness of CAFA -- designed to end forum shopping in plaintiff=friendly venues -- purely by the numbers.

"It's hard to know whether the level of class actions has gone up or down, because you're seeing different kinds of class actions filed now," said lawyer Ted Frank in a Feb. 15 Forbes Magazine article. "I think you're seeing fewer attempts to get a nationwide class."

Frank is a fellow at the American Enterprise Institute in Washington, D.C.

The law has had a noticable impact in the epicenter of debate--Madison County Circuit Court. At one time renowned as the nation's class action capital because of a 5000 percent increase in cases from 1998 to 2003, the flood quickly turned to drought after President Bush signed CAFA into law in February 2005. Only a few cases have been filed in Madison County in two years, compared to scores and scores in the years leading up to the law.

A month before signing the bill into law, the president used Madison County as his bully pulpit to push for the law shifting cases seeking more than $5 million into federal court. Bush vowed that the law would help reduce frivolous lawsuits that "clog our courts, hurt the economy, cost jobs and burden American businesses."

President Bush picked on a Madison County class action suit as emblematic of the problem. He pointed out that class members in a case involving a faulty TV got $50 rebates and their lawyers got millions.

"Madison County juries are responsible for awarding large verdicts," Bush said before signing the bill. "And the vast majority are not from Madison County."

According to the Forbes article, legal experts who gathered for a forum sponsored by the Federalist Society say the shift of class actions to federal courts has placed "unforseen strains on the federal court system because the law was drafted so poorly."

More class action cases have been filed in federal court in the last two years, while the number of federal judges has not risen in proportion, the Forbes article stated.

"This is taxing the federal courts, as we predicted," said John Stoia, a member of the panel and insurance policyholder attorney, as quoted by Forbes. Stoia said that in some cases decisions can get backed up as much as four or five years.

"The most obvious effect of the law, all sides agree almost unanimously, is the diminishing importance of so-called 'magnet jurisdictions' such as Madison County, Ill., which became famous in the legal community for granting class-action certifications," the Forbes article stated. "In addition, there has been a dramatic decline in the number of 'coupon settlements,' where plaintiffs are individually awarded payment coupons by the defendant. Experts say that there was a high correlation in between magnet jurisdictions and coupon settlements, and that a reduction in one would likely lead to a decrease in the other."

The panel also discussed whether it costs more for plaintiffs to litigate class action claims in federal court, "and on this issue, the jury still seems to be out," the article stated.

"Because parallel claims can now be consolidated into one case at the federal level, there is an argument that the cases should be less expensive for plaintiffs. However, if litigation gets backed up at the federal level, plaintiffs could incur legal fees that wouldn't otherwise have burdened them."

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