Knocking the Teeth Out of Class Actions

Last week, on the U.S. Senate floor, a well-financed effort by corporate interests to shut state courthouse doors to class-action litigation was blocked by a single vote. Only a filibuster prevented its passage. That’s the good news.

The bad news is that an even worse bill -- which would also eliminate “private attorney general” lawsuits in state courts -- has passed in the House of Representatives, and defeat was so close in the Senate that the legislation is certain to return soon.

Class-action lawsuits in state courts, along with suits in which an individual acting as a “private attorney general” sues on behalf of other citizens, have been among the most effective ways for ordinary people to join and seek redress for corporate abuse. Corporations have been held to account for environmental disasters, for product liability and for financial shenanigans. But under the blocked legislation, corporate interests and their allies in Congress sought -- and will seek again -- to “federalize” most class-action cases, requiring that they be filed in federal rather than state court.

Why should we care?

Just consider two environmental calamities that occurred about 3,000 miles apart in early 1989, both involving oil. How each was then treated by our court system is instructive in assessing “class-action reform.”

While digging a foundation for a basement, a resident of Avila Beach, Calif., “discovered” oil under his home. For nearly 50 years, Avila Beach had been among the largest crude oil shipping ports in the world. Those decades of oil shipments, it turned out, had left an enormous pool of underground oil that had leaked from pipelines running between the pier and tanks owned by Unocal. A huge oil plume that extended 25 feet down was found directly under the beach and under many more private homes along a quarter-mile strip.

In 1997, a coalition of environmental organizations acting as private attorneys general under California’s Unfair Competition Act sued Unocal in a San Luis Obispo court, alleging violations of the state’s Safe Drinking Water and Toxic Enforcement Act, better known as Proposition 65. In June 1998, just 18 months after the cases were filed, the defendant agreed to settle for $18 million in damages and $200 million for cleanup of the massive spill. Unocal accepted liability, excavated tons of contaminated soil, relocated residents, compensated local businesses and essentially “bought” and rebuilt the community (the company now owns 70% of the land downtown). It also agreed to pay fines totaling $43.8 million -- at that time, the largest environmental penalty in California history.

Though hardly a complete success story -- Avila Beach will never be the same -- the settlements came relatively swiftly, especially considering what might have happened had the cases gone through the federal court system, as occurred with the Exxon Valdez legal battles.

The Exxon Valdez disaster of 1989 occurred four minutes after midnight on March 24, when the massive crude-oil tanker ran aground in Prince William Sound, Alaska. Eight of the ship’s 11 tanks ruptured, releasing 10.8 million gallons of crude oil into the sound and catastrophically damaging fisheries, tourism and numerous ecosystems. Countless waterfowl and other wildlife died, and most of the affected species have yet to recover. Exxon’s oil remains on the beaches of Alaska today.

A class action was promptly filed in U.S. District Court on behalf of local industries, fisheries, native villages and other Alaskans. In 1994, an Alaska jury returned a verdict for the class, including a punitive-damage award of $5 billion. Last month, with little fanfare, the U.S. Court of Appeals for the 9th Circuit set aside that verdict for the third time. This time the case was sent back to the trial judge to assess the effect of the Supreme Court’s decision last term addressing the legal standard to employ when awarding punitive damages. Meanwhile, nearly 15 years after the spill and a decade after the jury verdict, 40,000 victims of the greatest environmental disaster in American history await justice.

These contrasting tales illustrate what is at stake in so-called class-action reform. The House of Representatives has passed legislation that would not only eliminate most state court actions, it would require that class-action cases already filed in state courts be pulled and refiled in federal court if any defendant was technically from another state -- as Unocal, a Delaware corporation, was in the Avila Beach case. It would no longer matter that all of the plaintiffs were from the same community, that the harm occurred in that community and that all claims arose under state law. And buried in the House bill is language applying this removal provision to all private attorney general cases (whether or not brought on behalf of a class).

California has the most effective private attorney general statute in the country. Enacted in the 1930s, the Unfair Competition Law lets Californians sue companies that engage in “unfair trade practices,” “false or deceptive advertising” or otherwise act unlawfully. It has been invoked frequently and successfully for such things as redressing flagrant pollution by oil companies in the San Francisco Bay Area, challenging R.J. Reynolds’ use of the “Joe Camel” cartoon character to entice children to smoke, and contesting Nike’s claim that it didn’t use sweatshop labor in its Southeast Asia shoe factories.

State courts are far from perfect, and justice in them is not always swift. But state court judges are far more familiar with state law; local juries know their local communities; and state court trial dates usually are scheduled far more quickly than in an already overburdened federal judiciary. Moreover, unlike their state counterparts, the federal judiciary has “limited jurisdiction”: If a plaintiff cannot meet strict federal court rules for “standing to sue,” the federal court cannot hear the case, and it is dismissed. It is not coincidental that the same interests intent on federalizing state class-action lawsuits are also busily seeking the appointment of hundreds of conservative and business-friendly federal judges.

The class-action system is not perfect, and abuses have occurred. On balance, however, during their 40-year history, class actions have served the nation well, promoting social justice, enhancing consumer protection, safeguarding the environment and protecting basic civil liberties. They have acted as an important check on the abuse of power by corporations, government and other institutions -- a role of even greater importance today, when such checks are fewer and even further between.