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Feb. 17, 2005
(Bloomberg) -- Congress handed U.S. President George W. Bush the first
legislative victory of his second term, approving a bill to curtail
class-action lawsuits against companies by moving most of them from
state to federal court.
The House today passed legislation that will make it harder for trial
lawyers to file claims in such jurisdictions as Madison County,
Illinois, that are known as havens for plaintiffs seeking large
judgments. Judges would be required to hold hearings to assess the
fairness of settlements, and settlements would be banned if lawyers'
fees result in a net loss to consumers.
The House vote of 279-149 followed passage in the Senate last week by a
vote of 72-26. Bush said he would sign the legislation after the House
sends him the measure. The bill only applies to lawsuits filed after
it's signed into law.
"The speed with which this bill passed both houses of Congress this
session is a testament to the glaring need for class-action reform,''
President Tom Donohue of the U.S. Chamber of Commerce said in a
statement. "This is a landmark victory in our fight to restore fairness
and balance to our courts.''
A coalition of companies and insurers including Ford Motor Co., Intel
Corp., Pfizer Inc., Allstate Corp. and Hartford Financial Services Group
Inc. lobbied Congress for an overhaul to cut legal costs.
"It will enable us to contest lawsuits instead of having to settle them
because of the fear of not being able to get a fair trial,'' said Edward
Liddy, chief executive of Allstate, the second-largest U.S. auto and
home insurer.
Heading the Agenda
The legislation topped Bush's agenda for curbing what he has called
"frivolous lawsuits'' that "drive up the cost of doing business.''
The bill "is an important step forward in our efforts to reform the
litigation system and to continue creating jobs and growing our
economy,'' Bush said in a statement. He also wants Congress to cap
non-economic damages for medical malpractice and compensate
asbestos-exposure victims from a $140 billion trust fund aimed at ending
lawsuits that have bankrupted more than 70 companies.
"We're going to push hard on this next set of issues, after we're done
celebrating,'' said Stan Anderson, executive vice president of the
Chamber of Commerce. He said passage of the class-action limits "is
going to create some momentum for further activity.''
Under the approved bill, most class-action lawsuits seeking at least $5
million would be transferred to federal court. Federal judges apply
stricter rules before allowing consumers to band together to seek
damages for fraud or defective products.
Lawyers
Republicans said the measure is aimed at reducing settlements that
provide coupons to consumers that can be redeemed for small amounts
while lawyers get the bulk of the payments.
Class actions "are too often used to efficiently transfer large fees to
a small number of trial lawyers with little benefit to the plaintiffs,''
said Republican Representative James Sensenbrenner of Wisconsin,
chairman of the House Judiciary Committee.
Mike Mueller, head of a nationwide class-action team at Akin Gump
Strauss Hauer & Feld LLP, predicted that plaintiffs' lawyers will
challenge the new law as an unconstitutional expansion of federal power.
"It is a substantial change in the power of federal courts to hear cases
based solely on state laws,'' Mueller said in a statement.
House Democratic Leader Nancy Pelosi, a California Democrat, said the
bill represents "a windfall for irresponsible corporations.''
Tobacco, Oil
Representative Edward J. Markey, a Massachusetts Democrat, said
beneficiaries include tobacco companies, asbestos makers and oil
companies that have polluted ground water supplies.
It "may be good news for those who invest in the stocks of those
companies, but it is bad news for ordinary Americans,'' he said.
The cost of class-action and other liability lawsuits rose 5.4 percent
to $245.7 billion in 2003 after two years of double- digit increases,
according to a study by actuarial firm Tillinghast Towers-Perrin. The
costs include jury awards, settlements, defense lawyers' fees and
administrative expenses.
Insurers' premiums from liability policies have fallen short of their
costs from claims since 1979, according to the Tillinghast study, which
uses data through 2003. Insurers collected $161.1 billion of liability
premiums and had $173.9 billion in costs in 2003, the study said.
Insurers
"The benefit that comes in the long run is not the short- term reduction
in costs, but the predictability that will return to the system,'' said
Bob Hartwig, chief economist for the Insurance Information Institute in
New York. "Projecting losses becomes a far more straight forward task
because we can better price the insurance we are selling.''
Marsha Rabiteau, assistant general counsel for insurer Hartford
Financial, said the new law will save money by reducing "abusive
litigation,'' and providing more funds for job growth, research and
development, and competitive pricing.
Before passing the bill, House members defeated, 247-178, a substitute
version offered by Democrats that would have exempted from the new
class-action limits any civil rights claims, cases brought by state
attorneys general and mass tort claims alleging personal injury.
Democrats failed to win passage of those amendments in the Senate as
well.
In a last-ditch effort, Democratic Representative Sherrod Brown of Ohio
proposed exempting only lawsuits arising from injuries caused by Vioxx,
Merck & Co.'s withdrawn painkiller.
Vioxx
Representative Bob Goodlatte, a Virginia Republican, replied that the
vast majority of lawsuits related to Vioxx are filed by individuals, or
by groups that already have been certified for class-actions, and
therefore won't be affected by the class- action restrictions.
The House rejected Brown's motion, 249-175.
A survey of 1,400 company lawyers conducted by the Chamber of Commerce a
year ago rated Mississippi "the least fair'' state to corporate
defendants in liability lawsuits. It was followed by West Virginia,
Alabama, Louisiana and California. |