Senate Committee Approves Class-Action Reform Bill

Under an earlier version of the legislation, the threshold was $2 million. H.R. 1115, a class-action bill pending in the House, also has a $2 million threshold.

Along with the $5 million threshold, S. 274 establishes a three-tiered system for determining whether a class action will be heard in state or federal court.

Tier 1: If more than two-thirds of the plaintiffs are from the same state as the primary defendant, the case automatically stays in state court, regardless of the amount in controversy or whether one or both parties ask for federal court adjudication.

Tier 2: If fewer than one-third of the plaintiffs are from the same state as the primary defendant, the case will move to federal court if either side requests it and the plaintiffs have asked for at least $5 million in damages.

Tier 3: If one-third to two-thirds of the plaintiffs are from the same state as the primary defendant and the plaintiffs have asked for at least $5 million in damages, the federal judge will have discretion to hear the case based on several factors, such as whether the case appears to have a national impact.

S. 274 also contains a requirement that a judge review noncash settlements; a requirement that the lawyers send settlement notices written in plain English; and a ban on settlements that cause plaintiffs to lose money.