WASHINGTON – Congress is close to making it easier for corporations to dodge many of the class-action lawsuits (search) that businesses say are bankrupting them while rewarding lawyers and doing little to help victims.
The measure, headed for a vote this week in the Senate and probably next week in the House, would be the first fulfillment of one of President Bush's priorities for his second term. But a fragile compromise could come unglued if senators make changes in the bill, such as giving federal judges a little more discretion to keep lawsuits alive.
"If the Senate passes any amendment, then they are jeopardizing" it, House Majority Leader Tom DeLay, R-Texas, said Tuesday.
Opponents of the legislation say it would only hurt average citizens and let big business escape multimillion-dollar judgments for wrongdoing.
But Bush, echoing business leaders' complaints, says a judicial system that lets lawyers look for friendly forums in state courts for "junk lawsuits" (search) is tilted against corporate defendants. "Justice is distorted, and our economy is held back, by irresponsible class actions," he said in his State of the Union (search) speech last week.
In Mississippi, Bankston Drug Store was named in hundreds of suits in which users of the diet drug fen-phen claimed it gave them heart and lung problems. The pharmacy was sued so the lawsuit could be heard in Mississippi, said Hilda Bankston, the pharmacy's former owner.
She ended up having to sell the only pharmacy in Jefferson County after the lawsuits started and her pharmacist husband died of a heart attack. "There are too many small business people who worked too hard for greedy attorneys to just use us for their purposes," she said in a telephone interview Tuesday.
Just by threatening a class-action suit - in which one person or a small group represents the interests of an entire class of people in court - lawyers often win quick, easy settlements, making more money for themselves than the victims they're representing, bill supporters say.
Marty Preston of Wisconsin Dells, Wis., recalled finding herself a plaintiff in a class-action suit accusing BancBoston of holding too much of their customers' money in escrow. The suit before a state court in Mobile, Ala., was settled and Preston said her share of the settlement was a little more than $4, but the lawyers handling the case shared $8 million in fees, including $80 taken from her escrow account to pay them.
"People who I never heard from, never knew who they were, and certainly never contacted me personally just deftly picked my pocket," she said in a telephone interview Tuesday.
The legislation Bush supports would move many class-action suits with plaintiffs from several different states into federal court, where critics say judges have sent them back to state courts because applying the various applicable state laws was too unmanageable. Critics say that would effectively end multistate class-action suits because state courts would be prohibited from hearing them.
"The effect of this legislation as it stands now is to virtually guarantee that all large class-action lawsuits will be dismissed," said Sen. Jeff Bingaman, D-N.M.
That would disappoint Shelly Toliver. When she hit a bad financial stretch a few years ago, her $17,000 car was repossessed and auctioned off. Afterward, she was shocked when she got a letter from Credit Acceptance Corp. saying she still owed $10,000 because the company didn't make enough money at the auction.
Toliver said she and other people in the same situation got together and sued the Detroit-based company in Connecticut, and got their debt wiped out and a little money in a settlement. "I wonder where I would be if I had not been allowed to bring my case in the Connecticut court system," she said in a statement Monday.
Bingaman - with support from some Republicans, including Judiciary Committee Chairman Arlen Specter of Pennsylvania - wants the Senate this week to change the bill to let a federal judge decide to pick one state law and apply it to the case if multiple states' laws would make the case unmanageable.
"If we don't fix it, consumers will have lost one of their only means of redress when they have been wronged by a corporation," Bingaman said.
DeLay said such a change in the bill's language would be a dealbreaker.
Under the compromise legislation, class-action suits would be heard in state court if the primary defendant and more than one-third of the plaintiffs are from the same state. But if fewer than one-third of the plaintiffs are from the same state as the primary defendant, the case would go to federal court.
At least $5 million would have to be at stake for a federal court to hear a class-action suit.
The bill also would limit lawyers' fees in so-called coupon settlements - when plaintiffs get discounts on products instead of financial settlements - by linking the fees to the redemption rate of the coupon or the actual hours spent working on a case.