August 17, 2007
Pursuant to Elections Code Section 9005, we have
reviewed the proposed initiative, entitled the “California Class Action
Lawsuit Fairness Act” (A.G. File No. 07‑0030).
Background—Class Action Lawsuits
Many lawsuits in California’s courts involve the
filing of cases by attorneys on behalf of individuals against other
parties. Other types of cases, known as class action lawsuits, are
generally filed by attorneys on behalf of a group of plaintiffs to
represent their common legal claims against one or more other parties.
For example, in one California case, a class action lawsuit was filed on
behalf of more than 1 million California residents (the “class” of
parties filing suit) against a chain of gas stations alleging that
customers who paid with a credit card were illegally overcharged for
gasoline. A class of defendants—for example, all companies selling
gasoline in the state—can also be represented in class action cases.
Class action cases frequently involve legal issues relating to consumer
protection, environmental protection, civil rights, violations of
contracts, and the enforcement of minimum wage and overtime labor laws.
Class action lawsuits can be filed in either
federal or state courts. Federal law determines which cases are to be
decided in the federal courts rather than state courts (mainly those
involving larger financial claims and cases with many plaintiffs in
multiple states). The standards and procedures for the conduct of such
cases are set forth in federal and state statutes, rules adopted by the
courts, and legal opinions issued by judges.
Proposal
How This Measure Changes State Law.
This initiative repeals two existing state statutes relating to the
filing and conduct of class action lawsuits and replaces them with
revised and more detailed statutes for this same basic purpose. In so
doing, this measure reenacts part of the two existing state
statutes. It also places into statute some existing court rules
and judicial rulings relating to the conduct of class action cases.
While these parts of the initiative would probably not change the way
class action cases are currently conducted, their enactment in an
initiative would mean that they could not be changed in the future
unless they were submitted to and approved by the voters in a statewide
election.
In addition, this initiative enacts other
provisions that change the way class action cases are currently
conducted in state courts. It does so by adopting various new statutory
provisions that differ from the existing statutes, court rules, and
judicial rulings that now govern state class action cases. A number of
these provisions are similar to court rules that now govern federal
class action cases. However, some of the provisions in this initiative
differ from those federal rules. This measure specifically states that
its intention is to reverse all prior judicial rulings that are in
conflict with the provisions of the measure. The measure generally
applies to all pending class action lawsuits except those for which a
trial court had already issued a final ruling.
Some of the most significant provisions of this
measure are summarized below.
State Policy on Class Action Cases Changed.
Current state law has been interpreted by the courts as
generally favoring class action lawsuits. This general state policy in
favor of such cases has sometimes been cited by the courts in rulings on
specific legal issues about whether such lawsuits should be allowed to
proceed. This initiative provides that state law no longer favors having
lawsuits proceed as class actions unless they meet the requirements
established in this initiative (including those discussed below).
Stricter Standards for Class Action Cases.
This measure generally sets more difficult legal standards that
would apply to the various types of class action cases that are filed in
state courts. For example, in certain cases, judges would have to
consider whether a federal or state regulatory agency has the authority
to address a problem that resulted in the filing of a class action
lawsuit.
Earlier Consideration of the Merits of a
Case. State courts must ordinarily consider the merits of the
legal issues in a class action case after they have separately
decided whether to allow a case to proceed as a class action. The
initiative specifically authorizes a court to consider some issues
relating to the merits of the case at the same time it is making
the initial decision about whether a class action lawsuit can proceed.
The initiative would also allow defendants to seek to dismiss the case
(on the basis that the individual that filed the suit lacked legal
standing to sue) before a judge has decided whether the lawsuit
can proceed as a class action.
Costs for Class Action Lawsuit Notices.
This initiative requires that, in certain class action cases, notices be
sent to members of the class informing them of a lawsuit affecting them.
This measure also generally requires that the costs of providing
this notice (such as through mailings or newspaper advertising) be
initially paid for by the parties bringing a class action lawsuit. State
court rules now allow a judge to order either side in a case to
initially pay for such notices.
Limits on Discovery. State court
rules now permit parties to a class action lawsuit to obtain testimony
and other information, such as documents related to the case, through
discovery to support their case. This measure allows a judge assigned to
such a case to prohibit discovery related only to the merits of the case
until after the judge has decided whether the case could proceed as a
class action.
Financial Damages Prohibited in Some Class
Action Cases. Under existing court rules, certain types of class
action cases are permitted to seek court orders to halt illegal
practices allegedly being committed by the party being sued (for
example, race or sex discrimination). This measure would specify that
these types of class action lawsuits can only seek such court orders and
could not seek additional remedies, such as payment of financial
damages.
Defendants Allowed to Appeal Rulings.
Currently, a party which files a lawsuit may appeal a judge’s
decision to refuse to allow such a case to move forward as a class
action. However, a party defending against a class action lawsuit is not
now allowed to appeal the decision of a judge to allow such a case to
proceed as a class action. This measure allows such decisions against
defendants to be appealed to a higher court.
Some Attorney’s Fees Prohibited.
The initiative allows “reasonable” fees and reimbursement of costs to be
awarded to attorneys participating in class action cases. However, the
measure prohibits the awarding of fees or the recovery of costs incurred
by attorneys for the legal work they have done relating to disputes over
their fees and costs.
Fiscal Effects
Direct Fiscal Effects on State Court
Operations. The combined effect of the various changes made by
this measure could reduce the number of class action lawsuits in state
courts. However, other changes made by this measure could increase court
workload and costs. For example, some of the cases that would have
otherwise been pursued as class action cases may instead, under this
measure, be litigated as individual actions. The net effect of these and
other possible responses on state revenues from court filing fees and
court operating costs is unknown.
Indirect Fiscal Effects. This
measure may have various indirect fiscal effects. For example, to the
extent that this measure reduces business costs associated with class
action lawsuits, it could increase firms’ profitability, the level of
economic activity, and thus, state and local revenues. On the other
hand, state revenues could be reduced to the extent that this measure
reduces payment of financial damages to individuals involved in class
action cases that are subject to taxation. The net indirect fiscal
effects of this measure are unknown.
Summary of Fiscal Effects
·
Unknown fiscal impact on state revenues from court filing
fees and the cost of court operations.
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