The Supreme Court's recent decision in a product liability case may have the unintended consequence of protecting banks from some class actions.
The ruling in Amchem Products v. Windsor invalidated a massive class- action settlement between consumers and 20 former asbestos manufacturers.
In their decision, the justices said not all members of the class shared a common interest, which is the requirement for a class action that goes to trial. Previously, the court did not impose this requirement on class- action settlements.
This change imposes a new burden on plaintiffs' lawyers, said Jeffrey S. Saltz, a partner at the Philadelphia law firm of Wolf, Block, Schorr and Sollis-Cohen. Because it is harder to settle class actions, plaintiffs' lawyers should be less inclined to bring borderline cases, he said.
"That ruling is going to discourage those members of the plaintiffs' bar who are bringing class actions with the intent solely of settling the cases," he said.
The Supreme Court decision was the industry's second triumph in a month on the class-action front.
The earlier victory occurred when the U.S. Court of Appeals for the 11th Circuit, in a short opinion, ruled that a federal judge could prevent plaintiffs from bringing class actions in racketeering cases.
Consumers had claimed that several lenders and H&R Block conspired to con customers into believing they were paying to receive their income tax refund quicker, rather than receiving a loan.
The court ruled that consumers had claims that were too factually distinct to qualify as a class action. For instance, one consumer may have applied for a Rapid Refund because of an advertisement, whereas another relied on statements from a sales representative.
Banking lawyers said this essentially makes it impossible to win a class-action racketeering case against banks because each borrower will have relied on different information.
"The court made it clear that you can't satisfy the requirement that common issues in the lawsuit must predominate over individual issues if you have a civil racketeering lawsuit," Alan S. Kaplinsky, a partner in the Philadelphia law firm of Ballard, Spahr, Andrews & Ingersoll.
Class actions are a recurring problem for lenders. Lawyers consolidate scores of similar grievances against an institution and then file suit on their behalf. The lawyers receive fees and a percentage of any verdict. The rest is split among the consumers.
This practice allows lawyers to mount cases in which the damages to any individual would be too small to warrant filing suit. In some cases, lawyers have been paid millions while consumers have received only a few hundred dollars each.
Banks are particularly prone to class-action litigation because the failure to make a disclosure under Truth-in-Lending Act and Real Estate Settlement Procedures Act may be enough to justify a lawsuit. For example, the failure to disclose courier fees led to hundreds of so-called Rodash cases alleging Respa violations. These decisions eventually were overturned by Congress.
"Class-action lawsuits have historically been used to extort large settlements from banks," said Michael F. Crotty, deputy general counsel for litigation at the American Bankers Association. "Preventing such abuses is all to the good of the industry."
The decision in Buford v. H&R Block attacks racketeering class actions, which are the most onerous suits filed against banks because plaintiffs can collect triple damages.
