What is the Class Action Fairness Act?

Class action lawsuits can get confusing. Sometimes they’re dealt with in state courts. Sometimes they’re dealt with in federal court. Which one they go to is largely determined by the 2005 Class Action Fairness Act (CAFA).

The Class Action Fairness Act now allows for the reduction of attorneys’ fees.

The act – the first major legislation to pass during President George W. Bush’s second term – sets out the requirements for a class action lawsuit to be heard in federal courts. In cases worth more than $5 million, or in which class members are resident in multiple states (unless two thirds still come from the state in which the suit was filed), federal courts now have jurisdiction.

The act’s aim was to prevent lawsuits being filed in states thought to be more consumer-friendly or more likely to rule in their favor. It was also aimed specifically at correcting a perceived imbalance in class action lawsuits involving coupon settlements, and ensuring that judges apply closer scrutiny to settlements. Prior to the law’s enactment, settlements in the form of coupons were more common; these settlements arguably could result in plaintiffs effectively losing out following a class action settlement if the value of coupons didn’t at least match the cost of lawyers’ fees. The Class Action Fairness Act now allows for the reduction of attorneys’ fees if they’re judged to be excessive compared to the price of coupon settlement.

For plaintiffs, that’s good news.

The act was never intended to affect lawsuits filed in a single state and containing only residents of that state. Instead, it was seen as a response to certain failings in the U.S. class action system – namely that suits were becoming increasingly frivolous and benefitted lawyers far more than consumers. In addition, the “cherry picking” of courts in which to file actions was, in some eyes, damaging the very notion that class action lawsuits could bring justice to large groups of often disparate consumers. Congress, meanwhile, was wary of lawsuits that had a nationwide impact being decided in a single, non-federal court.

Interstate class actions are therefore now heard routinely in federal court, and it seems that initial worries about overloading the system have proved premature. Under the Class Action Fairness Act, consumers’ rights are more closely guarded to ensure that it is truly plaintiffs, and not attorneys, who benefit from coming together to fight for a common cause.