The Supreme Court on Monday considered what limitations could be placed on class-action lawsuits, an increasingly active battleground for consumer advocates and corporate interests.
The issue is whether plaintiff lawyers offer low-ball estimates of the damages they seek or take advantage of procedural loopholes to keep their cases in state courts, where Justice Antonin Scalia said “generous juries” and “very favorable judges” can be common.
Cases that seek less than $5 million and deal with state law and regulatory issues generally remain in state courts. If a lawsuit seeks $5 million or more, a 2005 law requires that the case be transferred to federal courts, where conditions are more favorable for the corporate defendants.
Corporations and their trade associations are asking the court to interpret the Class Action Fairness Act to keep plaintiff lawyers from either underestimating the damages or breaking the litigation into less-than-$5-million pieces. Even with such stipulations, businesses say, lawyers can use the suits to demand higher settlements in lieu of years of legal wrangling.
This viewpoint found support even among justices normally protective of class-action suits. “This is just a loophole that swallows up all of Congress’s statute,” said Justice Stephen G. Breyer.
The arguments came on the court’s first public gathering after its extended holiday break. The justices disposed of several cases by deciding not to review them and officially announced that their highly anticipated hearings on issues surrounding same-sex marriage would take place in late March.
The court on March 26 will consider Proposition 8, the voter-approved referendum that amended California’s constitution to limit marriage to one man and one woman. A district court and the U.S. Court of Appeals for the 9th Circuit in San Francisco overturned the referendum.
The next day, the court will consider the Defense of Marriage Act, the 1996 law that withholds federal benefits from same-sex couples legally married in the states where they live. The law affects things such as health insurance, taxes and medical leave, and has been struck down as unconstitutional by two of the nation’s appeals courts.
The class-action case considered Monday by the justices came from Arkansas, where homeowner Greg Knowles accused Standard Fire Insurance of not covering all the costs of repairing hail damage. He sought to represent other Arkansans with similar complaints.
Standard Fire tried to move the case to federal court and out of Miller County, Ark., which the insurer and other business interests have identified as a “magnet” for class actions.
To do so, the company tried to prove that if Knowles were successful, the suit would be worth more than $5 million, even though he and his lawyers said it would not.
Chief Justice John G. Roberts Jr. told Standard’s lawyer, Theodore Boutrous, that his client was in the “perverse position” of arguing that “you know, they are seeking less than $5 million, but we’re responsible for a lot more damage than that.”
But Roberts and Breyer had tough questions for lawyer David Frederick, representing Knowles. They envisioned ways to break up a massive class-action suit into pieces that each sought less than $5 million, but collectively would demand far more than that.
“All that is required is a few extra pieces of paper that will soon become standardized, and a lot of postage stamps,” Breyer said.
The case is Standard Fire Insurance Co. v. Knowles.
In other action Monday, the justices announced that they would not review an appeals court ruling that upheld the Obama administration’s policy of expanding government funding of stem-cell research. The U.S. Court of Appeals for the D.C. Circuit had reversed a district judge’s ruling that threatened the National Institutes of Health research.
The court also decided not to get involved in how the Federal Election Commission decides which organizations must register as political action committees and are thus required to reveal their donors.
The challenge was brought by a group called The Real Truth About Abortion, an organization known previously as The Real Truth About Obama.
