Reforming Class Action

It is the ironic fate of many innovators that their achievements, often the result of a daring defiance of orthodoxy, become in time the new orthodoxy, and a bar to later innovation.

Thus, in the mid-19th century, the legal reformer David Dudley Field, upset by the abstruse and opaque nature of the law, drafted a streamlined model code, which, in its tightly packed 70 pages, included sections on civil law, procedure, political law and penal law. His avowed goal was to make the law "accessible to the common man" by paring away the tangled accretion of hundreds of years of common law. Despite the resistance his efforts met among the conservative, his model code, known as the Field Code, was adopted in many states, including, in 1872, California.

And yet, while many of Field's innovations remain used and useful, some are out of date and woefully in need of revision. Such is the case with California's provisions relating to class actions, the entirety of which can be found in the last 42 words of the Code of Civil Procedure, Section 382: "[W]hen the question [in a lawsuit] is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all." It is upon this small basis that a multimillion-dollar business for trial lawyers, the California class action industry, rests.

Here, what is normally the strength of the Field Code - its brevity - has become, through the accumulation of legal precedent, as confused and unfair as the law Field originally reviled.

For all intents and purposes, the law relating to class actions in California is entirely judge-made, and judicial "interpretations" of Section 382 have dramatically and unfairly weighted the scales in favor of the class action plaintiffs and against those defending against such actions.

That the class action system unfairly benefits plaintiffs and disadvantages defendants is manifest in the following ways:

The "death knell" doctrine provides that a plaintiff can immediately appeal if a trial court, early in the case, refuses to certify (that is, judicially recognize and authorize) the class. The theory is that this is justified because the failure to certify sounds the "death knell" of the class action. By contrast, if the court agrees to certify the class, a defendant cannot immediately appeal, but must wait until there is a final judgment. Since most cases settle prior to a final determination of the case, defendants often do not get to utilize their right to appeal. In this respect, plaintiffs have the stronger strategic position.

Although case law has established certain requirements, California statute provides no distinct criteria for what standards a case must satisfy before it is certified as a class. By contrast, Federal law, under Federal Rules of Civil Procedure, Rule 23, provides distinct criteria that must be met in order for a class to be formed.

California trial courts are generally not permitted to consider the merits of a case in determining whether to certify it as a class. Even the most specious of cases can be transformed into a class action.

Defendants are frequently ordered to pay half or all of the cost of giving notice of the class to prospective class members. In this way, defendants are compelled to pay money to put a target on their own backs.

California has no specific statute setting guidelines and safeguards for the award of attorneys fees in class action cases.

Courts have permitted plaintiffs to engage in broad discovery prior to certification, thus allowing plaintiffs go on a "fishing expedition" to justify their suits, and exposing defendants to extensive litigation costs early in the case.

Making California a welcome haven for class actions - and tort lawsuits in general - has come with an enormous price tag for California businesses and consumers.

According to a study published in March 2007 by the Pacific Research Institute, a free market think tank based in San Francisco, the indirect and direct costs of tort litigation in the United States are staggering, draining $865 billion annually from the U.S. economy, amounting to a yearly "tort tax" of $9,827 for a family of four.

That California suffers inordinately from this "tort tax" is evident from its unique position as one of the most attractive venues for tort lawsuits - and class actions in particular - in the nation. A recent study determined that the past three years alone have seen more than 3,400 class actions filed in California's six biggest counties. Not surprisingly, a recent Harris poll ranked California 46th out of the 50 states in the fairness and reasonableness of its treatment of class actions.

Attempts to change this situation have been made, but they have thus far run into a brick wall of opposition from California's very powerful trial bar lobby. In May 2007, the Civil Justice Association of California sponsored Assembly Bill 1505 in an attempt to remedy some of the inequities in the current class action law. Titled the Class Action Fairness Act, AB 1505 would have allowed defendants to immediately appeal the certification of class actions, allowed courts to consider the merits of a case in certifying a class, limited discovery, provided clear guidelines regarding the award of attorney fees and provided specific standards (modeled on Federal Civil Procedure Rule 23) for the certification of classes.

"California has the fifth-worst class action law in the country," said John H. Sullivan, president of the Civil Justice Association of California, at the time AB 1505 was submitted. "It's time for the Legislature to install balance and clarity and make this part of the civil justice system work for all Californians. Until the Legislature does, consumers will continue to pay for these lawsuits through higher prices of everyday goods and services."

Unfortunately, the Assembly's Judiciary Committee caved in to the pressure of the trial lawyer lobby, allowing the bill to die before it could even come to a vote in the committee. But the Legislature is not the only path to the enactment of a law in California. In 2004, for example, voters enacted Proposition 64, an initiative aimed at curbing "shakedown lawsuits" filed under the cover of California's Unfair Competition Law. Perhaps, if the Legislature refuses to act, advocates of reform will ultimately need to put the Class Action Fairness Act, or a proposal like it, directly on to the California ballot as an initiative. Then California voters will be able to decide whether they want to retain the dubious distinction of having the fifth-worst class action law in the United States.

In the meantime, California lawyers - if few others - will continue to enjoy the bonanza.