Floor Statement for H.R. 1927, the Fairness in Class Action Litigation and FACT Act

Chairman Goodlatte: I rise today in support of a bill that combines two important reforms, the Fairness in Class Action Litigation Act and the Furthering Asbestos Claim Transparency Act or the FACT Act. Let me first explain why my colleagues should vote in favor of the Fairness in Class Action Litigation Act. Last year], an independent research firm surveyed companies in 26 countries and found that 80 percent of those that were subject to a class action lawsuit were U.S. companies, putting those U.S. companies at a distinct economic disadvantage when competing with companies worldwide. But the problem of overbroad class actions doesn’t just affect U.S. companies. It affects consumers in the United States, who are forced into lawsuits they don’t want to be in. How do we know that? We know that because the median rate at which consumer class action members take the compensation offered in a settlement is an incredibly low 0.023 percent. That’s right, only the tiniest fraction of one percent of consumer class action members bother to claim the compensation awarded them. That’s clear proof that vastly large numbers of class members are satisfied with the product they purchase, don’t want compensation, and don’t want to be lumped into a gigantic class action lawsuit. Just recently, a California judicial decision reported that in a class action consisting of over 230,000 people, only two of the 230,000 wanted the coupons offered in the class action settlement. The judge in that case said the case produced – quote -- “absolutely no benefit really to anybody.” So where is all the money going in these cases?  To the lawyers who brought the lawsuits that hardly anyone wanted to be in. In another case, the district court had refused to certify the class because most of the class members hadn’t experienced any problems with the product. But then the Ninth Circuit Court of Appeals reversed, holding that “proof of the manifestation of a defect is not a prerequisite to class certification.” In yet another case, when the Seventh Circuit Court of Appeals allowed the certification of an overbroad class action, it had to subsequently throw out the resulting settlement, stating “the district court approved a class action settlement that is inequitable -- even scandalous,” because the relatively few class members who were actually injured ended up claiming less than 2% of what the trial lawyers got the district judge to say was warranted based on the overbroad size of the class. Trial lawyers work the system today in the following way. They file lawsuits, for example, against a company that sells a washing machine.  Some of those washing machines don’t work the way they’re supposed to, but most of them do.  But the lawyers file a class action lawsuit that includes everyone who ever purchased a washing machine from the company, even the large number of people who are completely satisfied with their purchase. When trial lawyers lump injured, non-comparably injured, and non-injured people into the same class action lawsuit, the limited resources of the parties are wastefully spent weeding through hundreds of thousands of class members in order to find those with actual or significant injuries. That’s money that could have been spent compensating deserving victims. Sometimes, because judges don’t separate the injured from the non-injured in class actions early enough in the proceedings, they end up throwing out settlements because it turns out hardly any of the class members were harmed, and didn’t want compensation.  Other times, when judges realize they’ve created an overbroad class, they justify their actions by coming up with novel theories to provide some compensation to people who are entirely satisfied with the product, and don’t want compensation. Either way, the solution is to direct judges to determine as best they can, early in the proceedings, which proposed class members are significantly and comparably injured, and those who aren’t, and to treat them accordingly. That’s fair to everyone. The purpose of a class action is to provide a fair means of evaluating like claims, not to provide a way for lawyers to artificially inflate the size of a class to extort a larger settlement value for themselves, and in the process increase the prices of goods and services for everyone. Claims seeking monetary relief for personal injury or economic loss should be grouped in classes in which those who are the most injured receive the most compensation.  No one should be forced into a class action with other uninjured or minimally injured members, only to see their own compensation reduced. The Fairness in Class Action Litigation Act would simply make clear what currently should be clear to the federal courts, namely that uninjured class members are incompatible with Rule 23(b)(3)’s current requirement that common claims predominate a class action. Here is the full text of the Fairness in Class Action Litigation Act, along with quotes from the Supreme Court that show how the bill’s text codifies existing Supreme Court precedent. The bill simply provides that “No Federal court shall certify any proposed class seeking monetary relief for personal injury or economic loss unless the party seeking to maintain such a class action affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives” and that “An order issued under Rule 23(c)(1) of the Federal Rules of Civil Procedure that certifies a class seeking monetary relief for personal injury or economic loss shall include a determination, based on a rigorous analysis of the evidence presented, that the requirement in subsection (a) of this section is satisfied.” That’s it.  One page. Fair rules. Common sense.  And wholly consistent with Supreme Court precedent. Please join me in supporting this bill on behalf of consumers everywhere. The FACT Act is also simple, fair reform we should all support. This legislation helps asbestos victims who must look to the bankruptcy process to seek redress for their, or their loved ones’, injuries. Too often, by the time asbestos victims assert claims for compensation, the bankruptcy trust formed for their benefit has been diluted by fraudulent claims, leaving these victims without their entitled recovery. Fraud is able to exist because of the excessive lack of transparency plaintiffs’ firms have forced on the asbestos trust system. Under the current Bankruptcy Code, plaintiffs’ firms essentially are granted a statutory veto right over debtors’ chapter 11 plans that seek to restructure asbestos liabilities. Plaintiffs’ firms have exploited this leverage to obtain trust rules that prevent information contained within the trusts from seeing the light of day. The predictable result has been a growing wave of claims and reports of fraud. The increase in fraudulent claims has caused many asbestos bankruptcy trusts to reduce recoveries paid to asbestos victims who emerge following the formation of trusts. The FACT Act, introduced by Congressman Farenthold (R-Texas), combats this fraud by introducing long-needed transparency into the system. First, it requires asbestos trusts to file quarterly reports on their public bankruptcy dockets. These reports will contain basic information about demands to the trusts and the bases for payments made by the trusts to claimants. Second, the FACT Act requires asbestos trusts to respond to information requests about claims asserted against, and the bases for payments made by, the asbestos trusts. These measures are carefully designed to increase transparency while providing claimants with sufficient privacy protection. To accomplish these goals, the bill leverages privacy protections contained elsewhere in the Bankruptcy Code and includes additional safeguards to preserve claimants’ privacy. We cannot allow fraud to continue reducing recoveries for future asbestos victims. I thank Mr. Farenthold for introducing the FACT Act to combat fraud and urge all of my colleagues to vote in favor of this important legislation.

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