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Federal Class Action Reform Enacted

Wisconsin Legislature Considers Tort Reform
March 04, 2005

Recent legislative efforts on both the state and national levels to change law governing civil lawsuits are anticipated to reduce the litigation burden on manufacturers, distributors and retailers of goods both within the state and nationally and to impose tighter restrictions on and judicial scrutiny of settlements of class actions pending in federal courts. These recent developments may be of interest to entities that do business in the state of Wisconsin; have been named as defendants in a class-action lawsuit filed in another state; or are concerned with the potential for such a lawsuit.

The Class Action Fairness Act of 2005
On February 18, 2005, President Bush signed into law Public Law 109-2 [S.5], popularly known as the "Class Action Fairness Act of 2005" (CAFA). The law was enacted, in part, based on Congress’ findings that there has been an increase in abusive class-action lawsuits that unfairly reward attorneys representing plaintiff classes, while providing little, if any, relief for class members and subjecting defendants (typically large, out-of-state corporate entities sued in state courts) to unfair and biased treatment. The CAFA applies to all class-action lawsuits filed on or after February 18, 2005, and has two primary aspects that will affect class-action lawsuits against private entities.

First, the CAFA provides for federal jurisdiction over certain class-action lawsuits that, under previous jurisdictional rules, could only proceed in state court. Specifically, the CAFA permits defendants to move to federal court class actions filed in state court where:

  1. the combined alleged damages of all plaintiff class members exceeds $5 million;

  2. any member of the plaintiff class is a citizen of a different state than any defendant; and

  3. any plaintiff class member is a citizen of a state and any defendant is a foreign state or a citizen of a foreign state.

There are two exceptions to the CAFA federal jurisdictional provisions, however. A federal court may, in its discretion, decline jurisdiction if between 1/3 and 2/3 of the plaintiff class members and the "primary defendants" are citizens of the state where the action was filed. The CAFA sets out several factors that a federal court must consider in making that assessment. Moreover, federal court judges must decline jurisdiction where more than 2/3 of the plaintiff class members and at least one "significant" defendant are citizens of the state where the action was filed and the plaintiff class’s primary injuries were sustained in the state where the action was filed and no similar or identical action has been filed against the same defendants in the preceding three years. Federal courts also must decline jurisdiction where more than 2/3 of the plaintiff class members and the "primary defendants" are citizens of the state where the action was filed.

Certain types of class actions, most notably securities fraud actions brought under certain sections of the Securities Act of 1933 and the Securities and Exchange Act of 1934, are expressly excluded from the CAFA’s jurisdictional amendments. The CAFA attempts to anticipate efforts to circumvent its jurisdictional reach, for example, by the use of "mass action" lawsuits brought by 100 or more plaintiffs that do not otherwise seek to be certified as class actions. With certain exceptions, the CAFA mandates that such actions are "deemed to be a class action" for purposes of CAFA. One potential loophole arising from this exception is that lawsuits "asserted on behalf of the general public" under a state statute authorizing such an action cannot be removed to federal court. Such "private attorney general" actions, which are permitted by many states, might therefore serve as a basis for circumventing the CAFA’s otherwise generous federal jurisdictional provisions.

Second, the CAFA imposes limitations on the amount of fees that can be recovered by attorneys who settle claims on behalf of plaintiff classes and imposes strict reporting requirements for settlements of class-action cases. Of particular note, within 10 days of filing a notice of proposed settlement in court, all settling defendants must notify an appropriate state or federal official in each state in which a class member resides of the proposed settlement, and must provide certain specified materials to the official. The CAFA provides special notification regulations for Federal and State depository institutions. Failure to satisfy the notification obligations permits plaintiff class members to disregard the settlement and to decline to be bound. Also noteworthy are several new restrictions on so-called "coupon settlements," which have become increasingly popular in the past 10 years to settle large class actions, particularly where the dollar value of each plaintiff’s claim is nominal.

This is a general discussion of the effect of the CAFA. There are many additional provisions that are important in assessing class-action practice in the wake of the statute’s passage, and all defendants in class actions filed on or after February 18, 2005, are urged to consult an attorney experienced in class-action practice and knowledgeable about the provisions of the CAFA.

Wisconsin Senate Bills 58 and 7
On the state level, two bills currently are pending before the Wisconsin legislature that potentially could affect manufacturers, distributors and retailers of goods who do business in Wisconsin. After bills seeking to implement tort reform in Wisconsin were defeated last year, two new bills recently were introduced in the Wisconsin Senate seeking to change Wisconsin’s laws governing products liability and the admissibility of testimony by expert witnesses.

Senate Bill 58, which was introduced on February 15, 2005, would change the legal standard for liability of manufacturers, distributors and sellers of products in Wisconsin in litigation where a plaintiff brings a strict liability claim for an injury caused by an allegedly defective product. Claims brought under the common-law theory of negligence or as breach of warranty actions would remain unchanged by Senate Bill 58. The bill would change Wisconsin strict product liability law in the following ways:

  • If a manufacturer, distributor and retailer all are named as defendants to a strict liability claim, the distributor and retailer must be dismissed if the manufacturer or its insurer submits itself to the court’s jurisdiction. The liability of distributors and retailers is limited to circumstances where they have contractually assumed a manufacturer’s legal duties relating to the product, or where neither the manufacturer nor its insurer can be served with process in Wisconsin or have a judgment enforced against them.
  • Distributors and retailers also are immune from liability if they receive the product in a sealed container and have no opportunity to test or inspect the product.
  • If the plaintiff’s injury is caused by an inherent characteristic of the product that would be recognized by an ordinary user of the product, the lawsuit must be dismissed.
  • Clear and convincing proof that an injured plaintiff had a blood-alcohol concentration of 0.08 or greater or was under the influence of a controlled substance while operating a motor vehicle creates a rebuttable presumption that the intoxication or drug use was the cause of the plaintiff’s injury.
  • Proof that the product complied with state or federal standards, conditions, or specifications creates a rebuttable presumption that the product is not defective.
  • So-called "subsequent remedial measures" undertaken after a product is sold would not be admissible to show a defect, although they would be admissible to show the availability of a feasible alternative design, for example, where a manufacturer contends that a different, allegedly safer design would not have been feasible. This is a substantial change in Wisconsin’s strict liability law on product design, under which, for nearly 30 years, subsequent remedial measures have been admissible to prove a design defect, even when feasibility was not challenged by the manufacturer.
  • A 15-year statute of repose will preclude product liability claims where the product was manufactured 15 years or more before the plaintiff’s claim accrues (usually the date on which the plaintiff knows of the injury and its cause), unless the manufacturer specifies that the product will last longer. Wisconsin currently does not have a statute of repose for product liability claims.
  • The jury must determine and apportion the percentages of responsibility for causing the plaintiff’s injury among the plaintiff, the product itself and any third person. If the plaintiff’s share of responsibility is greater than the percentage allocated to the product itself, the plaintiff is barred from recovering from the manufacturer, distributor, or retailer. If the plaintiff may recover, the amount of damages is reduced by the plaintiff’s share of responsibility for causing the injury, and damages are allocated among the product defendants according to percentage of responsibility for the injury, as determined by the jury. Product defendants whose percentage of responsibility is 51% or greater are subject to joint and several liability, whereas those whose responsibility is determined to be less than 51% are liable only for the share allocated to them.

Senate Bill 70, which was introduced on February 17, 2005, seeks to bring Wisconsin’s law governing the admissibility of testimony by expert witnesses in line with the standards of admissibility in use in federal courts and the courts of many other states. Currently, Wisconsin state courts permit so-called "expert" witnesses to testify to opinions that are based on scientific, technical, or other specialized knowledge, so long as the court determines that the expert possesses adequate knowledge, skill, experience, training, or education. Once the expert is duly qualified, Wisconsin courts do not make any threshold determination whether the expert’s opinions and methodologies are themselves reliable and based on facts and data. Rather, jurors themselves must assess whether an expert witness’s testimony is reliable and based on sound facts and data.

Recognizing the particular influence that expert witnesses can have over a lay jury, Senate Bill 70 would change Wisconsin law by requiring state trial court judges to act as "gatekeepers" to prevent unreliable expert opinions to reach the jury. Under Senate Bill 70, state trial courts would be required to assess, even after determining that an expert witness is qualified to express opinions, that the opinions themselves are based on sufficient facts and data; the expert’s opinions are the product of reliable principles and methods; and that the expert has applied those principles and methods to the specific facts of the case in a reliable manner. These provisions essentially seek to codify as Wisconsin law the same standard for admissibility of expert opinions adopted by the U.S. Supreme Court in its landmark 1993 opinion, Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993), and incorporated five years ago into Federal Rule of Evidence 702 ("Testimony by Experts"). The language proposed to be added by Section 4 of Senate Bill 70, in fact, is identical to that of F.R.E. 702.

Senate Bill 70 also would prohibit the admissibility of testimony by expert witnesses who would receive compensation in the same case that is contingent on the outcome of the case. Finally, this senate bill would prohibit the disclosure to the jury of otherwise inadmissible facts or data simply because the expert relied on them, unless the court determines that their probative value outweighs their prejudicial effect.

We will continue to follow these bills as they make their way through the Wisconsin legislature and will keep our clients apprised of any significant developments.

This client update was prepared by attorney Josh Johanningmeier, a member of the firm’s litigation practice group in its Madison, Wisconsin office. If you have any questions about the pending bills discussed above, or about any other legal issues related to product manufacture, distribution, or sales, please do not hesitate to call Josh at 608-284-2637.

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