Class-Action Lawsuit Legislation Gets Second Breath

Congress is inching closer to passing a bill that would limit class-action lawsuits (search) and large damage awards against corporations, something big business has sought for years.

The Senate has been the stumbling block, but a deal struck just before lawmakers left for the holidays could garner enough Democratic support to approve the measure, which already has passed the House and is backed by President Bush.

The legislation would move more class-action lawsuits -- where one person or a small group represents the interests of an entire class of people in court -- out of state courts and into federal courts. Opponents of the legislation say federal judges will either throw many of the cases out or be less likely to issue multimillion-dollar judgments against corporations.

Senate Republicans and the corporate community, for whom curbing class-action lawsuits is a major priority, say the legislation is needed because businesses are drowning in lawsuits, many of them frivolous, while trial lawyers profit handsomely by sometimes just threatening legal action.

But many Senate Democrats and other opponents say the legislation only helps businesses escape judgments for wrongdoing. Huge damage awards are needed to ensure corporations play by the rules, they say.

GOP senators -- all of whom except Sen. Richard Shelby (search), R-Ala., voted for the legislation -- fell one vote short of achieving a filibuster-proof, 60-vote majority in October, which effectively killed the legislation for the year.

But now several Democrats, including Christopher Dodd of Connecticut and Charles Schumer of New York, have switched sides after striking a deal with the Republican majority in November, which could give the GOP the votes they need to push the bill through in February.

Most of the legislation stays the same. But Democrats, fearing that some of their state constituents would lose their right to sue in their own courts, got additional exceptions that they say will preserve class-action lawsuits that belong in state court.

"There were a bunch of little fixes that culminate in that objective," said Stan Anderson, executive vice president of the U.S. Chamber of Commerce (search).

Originally, the bill said the only state class-action lawsuits would be those where at least two-thirds of plaintiffs and the primary defendant are from the same state.

Under the compromise, a second category is added where class-action suits can stay in state court if at least two-thirds of the class-action litigants, at least one of multiple defendants from whom "significant" relief is sought and the incident that is the focus of the lawsuit are from the same state.

However, the case will head to federal court if a class action asserting the same claim against the same defendants had been filed in state court during the preceding three years.

In addition, the compromise would reinstate "bounties," where the main or first person to bring a class-action lawsuit gets more money than other plaintiffs. And it 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 the case.

"Lawsuits have gotten out of control in America and something needs to be done to rein them in," Schumer said in November. "The agreement that we've struck on class-action lawsuits preserves the ability of Americans to bring lawsuits in a fair and reasonable way while doing away with some of the worst abuses."

But the compromise doesn't make the legislation any better to some of the groups fighting it, and they say they will keep working to bottle up the legislation in the Senate.

"We oppose vehemently this compromise and we're shocked that these senators have agreed to it," said Joan Claybrook, president of Public Citizen (search).

That disagreement has turned some allies like Claybrook and Schumer against each other.

"He's a big fund-raiser and he sees an opportunity to raise money here so he jumped on this bandwagon," Claybrook said. "It's really unacceptable for him to act this way when you're a critical vote in something where tons of money is being poured into."

Schumer spokesman Phil Singer called his boss "the champion" of groups like Public Citizen. "But he is also independent and when he disagrees with them, he's going to stick to his position," Singer said. "While he believes in the right to sue, he also believes that there have been excesses and there ought to be reform."