A Solution in Search of a ProblemThere’s No Need to Federalize Class Actions, page 3

A SOLUTION IN SEARCH OF A PROBLEM (continued)

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Although the argument is frequently made that class actions cannot be tried, the Avery case demonstrated that common issues arising from a standard form contract and a common practice can be fairly and efficiently tried on a class basis. Nor did the Avery court ignore State Farm's contentions. They were simply disproved at trial.

Prior to trial, State Farm listed over 35 witnesses from state insurance departments, claiming they supported State Farm’s use of imitation parts. But, only five appeared at trial, and none supported State Farm’s claims. Rather, they testified that no state insurance regulations allowed the use of inferior imitation parts; only parts which were of "like kind and quality" could be used; and that class action enforcement of policyholders’ contract rights was entirely appropriate.

Nor is the Avery decision likely to raise insurance premiums. The consumer fraud bench trial afforded State Farm a full opportunity to justify its practice; however (no doubt to the amazement of the court), State Farm’s internal documents showed that the use of imitation parts did not save State Farm policyholders money.

Rather, one key 1997 memorandum to State Farm management recommended that it stop specifying imitation crash parts because any savings were being "dwarfed" by the extra costs of claims administration and customer dissatisfaction. Nor has the Avery verdict created a "moratorium"on imitation parts. Major insurers have continued to use certain types of imitation parts under contracts different from State Farm's. Other insurers have never used imitation parts, and have no intention of doing so. All, of necessity, have competitive premium rates.

Nor would uprooting such suits to federal court eliminate the need to apply the same choice of law principles and substantive laws applied in Avery to complement and support state regulation of insurance. We doubt that the proponents of S.353 would enjoy the intrusive bureaucracy and regulation that businesses must accept if we were to forgo the private enforcement role of class action litigation.

Corporations may dislike nationwide accountability, and prefer piecemeal and ineffective litigation, but if they are to profit from nationwide commerce then our social contract requires that they be accountable to all the citizens with whom they deal. The ultimate irony of citing Avery as a case of class action abuse is that nothing in the push for federalization would have helped State Farm to overcome the evidence arrayed against it. If it were true that State Farm would have gained amnesty under S.353, then it is federal, not state, class action practice that would be in need of reform.

Our current system of dual federal/state courts strikes a careful balance between sovereignty and fairness to out-of-state litigants. Senate bill 353 seeks to destroy this balance to introduce bias at the expense of consumers damaged by the nationwide conduct of large, powerful corporations. To upset our current constitutional balance to address a nonexistent problem would be a dangerous mistake.

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