Class actions moved to federal courts

Class action reform legislation, the first step of an ambitious plan to reshape the way consumers access the courts, was signed into law by President Bush in February.

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Class actions are a type of lawsuit under which consumers band together in an attempt to right a series of alleged wrongs. Individually, each person wouldn't have a case that would result in a big award, but when collected together, such class actions take on large corporations in court in an effort to right individual wrongs collectively.

Examples of class action lawsuits include securities class actions filed against companies such as Enron and WorldCom, companies that were charged with defrauding shareholders; pharmaceutical companies that have been sued for the adverse effects of prescription drugs on consumers; and auto companies that have been sued for defective cars.

The class action reform legislation transfers most large class action suits from state courts to federal courts. Any suits filed before Feb. 18, when the legislation was signed into law, will remain where they are, but virtually all suits with collective claims of more than $5 million will go to federal court.

Tort-reform proponents favored the legislation, saying that it would stop lawyers from searching for the most favorable state venue when filing class action lawsuits. They also believe, in general, that federal courts are less sympathetic to class actions, so that fewer suits will be filed, and those filed will result in fewer large awards against companies.

Consumer groups lined up against the legislation, saying it will deprive consumers of their rights to collective justice and overburden federal courts, further slowing judicial process and, ultimately, justice to consumers in class actions.

"It is hard to see what effect the legislation will have," says Lucinda Finley, professor of law at the University at Buffalo Law School. "State courts are generally more receptive to class action suits, and the perception is that federal courts are stricter, but we don't know if that will be true in the future."