House GOP’s Bill to Eliminate Nearly All Class Actions Would Encourage More Ponzi Schemes & Other Corporate Cheating
March 2nd, 2017 | Paul Bland
There was a lot of national attention when Bernie Madoff’s Ponzi scheme collapsed and it became clear that he had stolen hundreds of millions of dollars from investors around the country. Many thousands of stories were written about how he went to prison, the SEC investigated both the scheme and how the scheme had been able to go on so long, and a number of private lawsuits tried to recover money for investors from various people who enabled his scheme.
But in all of the coverage of Madoff’s Ponzi scheme, I never saw a single story that said “this is actually good for the free market; what we really need is for Congress to try to block lawsuits that would let investors recover their money from the crooks and discourage these schemes.”
A couple of years later, enter Congressman Bob Goodlatte (R-Corporate Lobbyist Heaven), with his ironically titled “Fairness in Class Action Litigation Act,” which passed through the House Judiciary Committee two weeks ago. Its passage was a remarkable feat of avoiding public notice or debate, with Goodlatte ramming through the legislation in the middle of the night, voting down all amendments along party lines, and refusing to even hold a hearing on the bill, which had at least ten new provisions never included in the previous version passed by the Committee.
Now, the bill is expected to be voted on by the full House next Tuesday.
Goodlatte’s bill was drafted by corporate lobbyists to eliminate the vast majority of class action lawsuits. It would roll back protections for defrauded investors, cheated consumers, people whose privacy has been violated, small businesses harmed by price fixing, workers cheated by wage theft, and pretty much anyone harmed in any way by corporations that break the law.
The legislation has been opposed by nearly every major civil rights organization in America (including Public Justice, the public interest law firm which I head), nearly every major consumer advocate in the nation, the Committee on Rules of Practice & Procedure of the Judicial Conference of the United States (America’s federal judges see the abuse of separation of powers of this ham handed meddling in the ways courts operate), the normally very business-oriented American Bar Association (business lawyers have joined with lawyers for individuals in seeing the mischief here; after all, many small businesses will be harmed by this bill), and numerous academics (their letter are available here, here and here).
Among other things, the lawsuits it would wipe away include cases against Ponzi schemes. While Madoff may have been the biggest corporate criminal in that field, a number of other crooks have cheated American investors in Ponzi schemes, and class action lawsuits have repeatedly successfully recovered investors’ money.
In McGrew v. Harris Bank, for example, a case pursued in Washington State, a successful class action recovered more than $14 million for investors cheated in a Ponzi scheme. Similarly, in Getty v. Philip Steven Harmon, lawyers for investors identified a key person responsible for this scheme who was affiliated with SunAmerican Securities, Inc. – which knew or should have known that securities laws were being violated. The suit recovered more than $5 million for cheated investors. Under Rep. Goodlatte’s bill, these investors almost certainly would have been out of luck. (The legal explanation is set out in painful detail in the letters attached above in this piece.)
Corporate lobbyists might say this pair of successful class actions taking on Ponzi schemes are anecdotes. For people who like data, though, the Consumer Financial Protection Bureau did a careful study of 400 class actions against banks and payday lenders. In those cases, the CFPB found that more than 13 million customers received more than $2.7 billion in recoveries. One of the many lies that Congressman Goodlatte likes to say about class actions is that they don’t actually help cheated consumers, and instead just enrich the lawyers. But the CFPB study of the actual results in these class actions against lenders found that the total attorneys fees in the cases amounted to 16% of the gross relief received by the consumers.
It’s hard to tell right now whether this bill has any serious chance of becoming law. A much milder, more competently drafted version of the Bill was opposed by 17 House Republicans in the last Congress, and never moved in the Senate. Presumably every, or nearly every, Senate Democrat and some moderate Republicans will vote against a bill that would (among other things) make it impossible to bring most lawsuits that offer relief when corporations pay female employees less than male ones, or protect the public from defective products. But the emboldened corporate lobbyist class has spent a lot more money to try to move the bill in this Congress.
The best way to ensure this terrible bill gets blocked is if a large number of Americans contact their legislators and urge them to vote to defeat it.
This time around, we can’t count on President Obama’s veto pen. President Trump has not said anything about the bill one way or the other. We can only hope he might feel constrained by his often-repeated promises not to side with corporate lobbyists against regular Americans, and decide not to sign this monstrosity if it does make it to his desk. But we can’t rely on that scenario, either, and need to stop this bill before it makes its way to the White House.
Rep. Goodlatte’s timing is less than ideal, too. He’s trying to eliminate class actions just a couple of months after the revelations that Wells Fargo had cheated two million of its customers by creating false and unauthorized credit card and checking accounts in their names. That news came not long after Volkswagen was caught rigging its pollution control devices not to work (after prominently advertising to consumers how environmentally friendly its cars were), and a short time after hundreds of thousands of American consumers got refunds or had their homes repaired as a result of class actions, following the discovery that defective Chinese dry wall was damaging their homes. It’s an odd time for the House Republican leadership to decide that Americans should not be able to pursue their rights against corporations that break basic consumer protection, employment and securities laws.
Battling big business can be a herculean task in today’s Congress. Yet it is essential that every American understand the direct, and damaging, impact this particular legislation will have on countless consumers.
This bill isn’t about “fairness.” It’s about giving a gift to corporate lobbyists on Capitol Hill.
This blog originally appeared in Huffington Post on March 2, 2017. Reprinted with permission.
Paul Bland, Jr., Executive Director, has been a senior attorney at Public Justice since 1997. As Executive Director, Paul manages and leads a staff of nearly 30 attorneys and other staff, guiding the organization’s litigation docket and other advocacy. Follow him on Twitter: www.twitter.com/FPBland.