June 12, 2003

Business Groups Hire Army of Lobbyists to Gut Class Action Rules Vital to Consumer Protection

 

New Report’s "Class Action Rap Sheet" Outlines Misconduct by Industries Lobbying for Bill

WASHINGTON, D.C. – At least a hundred companies and industry associations have hired nearly 500 lobbyists to prod Congress into gutting the most effective and vital tool available for consumers to combat unfair and corrupt corporate practices – the class action lawsuit, according to a report released today by Public Citizen.

Most of the corporations claiming to have been victimized by unjustified class actions have engaged in harmful practices that would not have been corrected had consumers not been represented in class action suits.

The companies have spent millions of dollars to lobby lawmakers to pass a measure that would dramatically change the rules applying to class actions, thereby enabling corporations to injure or defraud consumers while hiding behind legal loopholes. Those leading the charge are life insurance companies, property and casualty insurers, health maintenance organizations (HMOs), banks and finance companies, auto manufacturers, retailers, pharmaceutical manufacturers, gas and oil corporations, and tobacco companies. Their bill fails to even address the abuses they complain about in their hypocritical lobbying, because these companies favor settlements that pay little to consumers or other plaintiffs.

"These corporations would have us believe that class action lawsuits are frivolous and trivial. But their record is replete with roguery and rip-offs that could only be remedied through class actions," said Public Citizen President Joan Claybrook. "Class actions have forced these companies to refund hidden charges in bills, compensate homeowners for polluting their properties, pay employees who worked overtime ‘off the clock’ and recall cars with defective ignitions. Congress must not open an avenue for Corporate America to skirt the rules at the expense of workers and consumers."

According to the reportUnfairness Incorporated: The Corporate Campaign Against Consumer Class Actions:

  • At least 100 major companies and pro-business associations unleashed at least 475 lobbyists on Capitol Hill from 2000 through 2002 to promote their class action agenda.
  • Many of these lobbyists have revolving-door connections to top government offices. At least 131 of the 475 lobbyists who registered to work on class action legislation have some kind of connection; for example, at least 10 are former members of Congress.
  • The influence of special interests is reflected in political contributions. The 29 corporations and business groups that have lobbied most actively for class action legislation gave a total of $49 million over the past three election cycles to influence elections.

The legislation pending in both the U.S. House of Representatives (H.R. 1115) and the U.S. Senate (S. 274) would give corporate defendants substantial procedural advantages. Its main mechanism is to divert many class actions from state to federal court. This would help companies and harm consumers because:

  • It is much harder under the rules to certify a lawsuit as a class action suit in federal court than in state court. This would prevent many class action suits from ever reaching court. A review of 43 class action cases involving life insurance marketing practices found that cases were nearly twice as likely to be certified in state court than in federal court.
  • Federal judges are reluctant to extend state laws in new ways. For instance, medical monitoring is a new but accepted remedy that provides medical testing for people exposed to toxic substances. Federal judges in Virginia and New Jersey have refused to certify class actions for medical monitoring, saying state courts should rule on this first.
  • Federal judges are more likely to say that federal regulations preempt state law, meaning that strong state consumer protections would more often be overridden by weaker federal rules.
  • The House legislation would allow any decision to certify a class action to be appealed, thus delaying cases by an average of 11 months – the median time it takes a U.S. Court of Appeals court to decide a case. In some circuits, this delay could be as long as 16 months.

The "class action rap sheet" of industries most heavily lobbying on the bills shows an array of legitimate suits aimed at serious abuses. Life insurers paid billions for deceptive sales practices. HMOs and property/casualty insurers are charged with manipulating software to underpay health care providers and claimants. Banks and finance companies have paid millions for misleading customers about interest rates and charging hidden fees. Retailers have been forced to pay overtime wages to employees forced to work off the clock. Tobacco companies have been called to account for misrepresenting tar and nicotine levels of so-called "light" cigarettes.

The study also found that some industries’ misconduct ranged widely. Petroleum companies have faced suits for consumer fraud, environmental damage, and employment discrimination. Auto companies have been ordered both to replace defective parts and to refund padded insurance premiums. Pharmaceutical companies faced the widest range of suits in terms of both misconduct — price-fixing, false advertising and even filing frivolous lawsuits are among the allegations — and the widest range of plaintiffs, which included independent pharmacies and HMOs in addition to consumers.

"Corporate lobbying campaigns on class actions should be viewed as a preview of coming scandals. In the 1990s it was the accounting industry lobbying to weaken class actions, followed in 2001 by the Arthur Andersen/Enron debacle. This report shows what’s likely to happen in the next decade if the bill passes: rampant consumer fraud and abuse of workers," said Jackson Williams, legislative counsel for Public Citizen’s Congress Watch.

###