The U.S. Supreme Court agreed to consider new constraints on class-action lawsuits, accepting an appeal from a Travelers Cos. (TRV:US) unit in an Arkansas dispute over homeowners-insurance claims.
The case turns on what the U.S. Chamber of Commerce contends is an abusive tactic used by plaintiffs’ attorneys to steer cases into friendly state courts. Under the disputed approach, plaintiffs’ lawyers agree not to seek more than $5 million -- the threshold that sends class-action suits to federal court, where corporate defendants often fare better.
That helps the attorneys and people serving as class representatives to claim most of any award, according to the Chamber of Commerce. The group says defendants lose procedural protections they would get in federal court and people who might be included in the class are denied the prospect of a larger award.
The approach “allows putative class representatives to circumvent congressionally imposed protections simply by betraying the class they purport to represent,” the Chamber of Commerce argued in court papers.
The Supreme Court has proven receptive to past accusations of abuse of the litigation system. In 2011 the court rejected an effort to sue Wal-Mart Stores Inc. (WMT:US) for discrimination on behalf of potentially a million female workers.
In the case granted review today, Travelers’s Standard Fire Insurance unit is accused of failing to fully reimburse losses. The lawsuit puts total damages, including attorney’s fees, at less than the $5 million threshold for federal class-action suits set by a 2005 law.
A lawyer representing those suing Standard Fire, Jonathan Massey, argued in court papers that a voluntary damage limit “avoids the risks of enormous class-action judgments that Standard Fire argues motivated the enactment” of the 2005 law, the Class Action Fairness Act.
A federal trial judge in Arkansas said the voluntary limit on damages meant the case belonged in state court. A federal appeals court in St. Louis then said Standard Fire couldn’t appeal at that stage in the litigation.
The case is Standard Fire v. Knowles, 11-1450.
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