Class-action suits reclassified

As official Washington plunges into the proposed budget for the 2006 fiscal year, there's a quieter race to move a decade of controversial judicial reforms through the Congress and to the president's desk.

Timing is critical. Looming battles over Social Security and judicial nominations could deepen partisan rancor. That's one reason key Senate negotiators and their highly mobilized business allies want to move quickly toward their goal of changing the rules of the game in US courts over everything from class actions and medical malpractice to how workers are compensated for exposure to asbestos.

To do it, they need bipartisan support, especially in the US Senate, and that could vanish quickly, as other issues heat up.

Exhibit A is the class action bill moving to the House this week. The Class Action Fairness Act, which passed the Senate on a 72-26 vote last week, had Democratic support in the previous Congress, as well. Some business backers say the Senate GOP squandered it by delay. Not this year.

"It was good that the Republican leadership brought it up early," says Lawrence Fineran, vice president for regulatory and competition policy for the National Association of Manufacturers. "Legal reform is back on the agenda in a big way."

Of all the legal reforms on the corporate wish list for the 109th Congress, class action reform had the most momentum. The key players in the US business community are solidly behind the bill, which would move multistate class-action lawsuits with claims over $5 million into federal courts. Business groups say the move will save US corporations billions in what the US Chamber of Commerce calls "excessive and frivolous litigation."

It's a bitter, if not unexpected, defeat for consumers groups and trial lawyers. Both groups concede there have been abuses in class-action lawsuits, most notably so-called coupon settlements that yielded little of value to consumers and big fees to trial lawyers. But the new law even could lock litigants out of federal courts, where critics say defendant companies have a wider range of procedural tools to block a case from ever getting certified. On an issue where litigants are often accused of "forum shopping" for the best jurisdiction in which to sue, critics say this is the ultimate forum-shopping bill for corporate wrongdoers.

"One of the most important aspects of class action is deterrence: A company that rips off consumers for $10 apiece, but there are 10 million of them, reaps a huge, undeserved windfall," says Carlton Carl, a spokesman for the Trial Lawyers Association of America. Now, consumers will have a rough time holding corporations accountable."

Behind of the legal pros and cons of the bill, there's also a lopsided political funding battle at stake in this legislation. The business groups and insurance companies that committed tens of millions to lobbying this issue, are also top Republican donors. Trial lawyers, meanwhile, are among the top supporters of Democrats. In the 2004 campaign cycle, business associations gave 84 percent of their contributions to federal campaigns to GOP candidates; lawyers and law firms gave 74 percent to Democrats over the same period, according to the Center for Responsive Politics.

By that measure, a bill that reins in big fees for trial lawyers also potentially limits potential contributions for Democrats, conservative activists say.

"Had we elected the 'trial lawyer ticket' in 2004, this [class-action] bill would not have been possible," says Grover Norquist, president of Americans for Tax Reform, a tax-cutting advocacy group.

The class-action bill moves to the House for a quick vote this week. Business leaders helped broker the deal between Senate and House.

But after this, prospects for the next items on the judicial reform agenda get tougher. While business groups united around class-action suits, the business community is split on the balance of that agenda.

Next up in the Senate Judiciary Committee will be a long-stalled bankruptcy reform bill. A priority item for credit card companies and banks, the bill makes it more difficult for consumers to erase debt through bankruptcy. GOP leaders in both the House and Senate are pushing for an early bill.

Similar legislation has derailed repeatedly on Capitol Hill over "poison pill" amendments designed to kill it. One, which Sen. Charles Schumer (D) of New York says he plans to offer this week, would ban violent anti-abortion activists from filing for bankruptcy protection. This amendment has made it through the Senate before, but was brought down negotiations with the House.

One of the most protracted and complex proposed legal changes has been one to establish a fund for settling a mountain of outstanding asbestos claims that have cost more than $54 billion. Seventy-four companies have been forced into bankruptcy, with many more likely.

Any effort to broker a deal on asbestos has stumbled over the size of the fund, to be financed by defendant companies and their insurers, and the consequences if the fund runs out before the claims.

Pending medical malpractice reform also faces a tough fight, including divisions within the GOP over caps to noneconomic punitive damages. "The issue in medical malpractice isn't trial lawyers, but taking away the rights of American families and giving them to insurance, tobacco, drug and chemical companies. It won't happen," says Mr. Carl of the lawyers' group.