Injury and Accident Law

Addressing Class-Action Claims

Several approaches have been proposed for changing the rules that govern class-action claims. One of those approaches would broaden the “diversity of citizenship” rule to allow more cases to be removed from state court to federal court.17 That rule—which currently states that U.S. district courts have jurisdiction in civil cases in which no plaintiff and no defendant are citizens of the same state and at least one plaintiff seeks at least $75,000 in damages—could be broadened to a greater or lesser degree. At the extreme, all cases (or perhaps all cases above some low monetary threshold) that involve at least one plaintiff and one defendant from different states could be made removable.

In a simple model of how courts work, changes to the diversity rule would at best be irrelevant—and at worst be harmful to both efficiency and equity to the extent that they inhibited some claims by raising plaintiffs’ costs. But the evaluation is less clear when two complicating factors are taken into account. On the one hand, if significant problems of bias against out-of-state defendants exist in some local courts, an expanded diversity rule may improve efficiency and equity by circumventing those problems. Evidence about the highly disproportionate incidence of class-action suits in a small number of jurisdictions suggests that local bias may indeed be a significant problem.18 On the other hand, if expanded diversity leads to lengthy delays in trying legitimate claims because federal courts have more-limited capacity than state courts do, the costs to efficiency and equity may subtract from or outweigh the benefits.

A second type of proposal targets a different perceived problem with class-action suits—namely, that plaintiffs’ attorneys often act independent of any effective oversight by members of the class and collude with defendants to reach settlements that reflect their own interests rather than those of class members.19 Proposals to address that problem attempt to bring attorneys’ interests more closely in line with those of the class. One approach might be to tie the compensation of plaintiffs’ attorneys to the benefits actually received by class members. (For example, in the case of a settlement that gave class members coupons for discounts on future purchases from a defendant, the attorney’s compensation might be made proportional to the number of class members who used the coupons.) In principle, aligning the two sets of interests should improve both efficiency and equity. In practice, however, it might be difficult to devise rules that would be both comprehensive (and thus not easily circumvented) and flexible enough to accommodate the full range of possible circumstances.

establish a fund that would offer compensation to asbestos victims according to a schedule. (Both bills would allow unimpaired victims of asbestos exposure to be reimbursed for some medical monitoring costs.) But the fund would be financed on a claim-by-claim basis through settlements with or judgments against individual defendants, rather than as a public insurance program. Moreover, victims would retain the right to file claims in court instead of accepting compensation from the fund.

17. See, for example, the Class Action Fairness Act of 2003 (H.R. 1115 and S. 274).

18. John H. Beisner and Jessica Davidson Miller, Class Action Magnet Courts: The Allure Intensifies, Civil Justice Report No. 5 (New York: Center for Legal Policy, Manhattan Institute, July 2002).

19. For examples of seemingly abusive class-action settlements, see Trial Lawyers for Public Justice, Class Action Abuse Prevention Project, brochure (Washington, D.C.: Trial Lawyers for Public Justice, undated), available at