The US Class Action     
“No component of the legal system is more prone to abuse”

I first want to personally thank you for the opportunity to present to you some of my views on the class action practice in the US.  I know it is a bit unusual that this group would allow an attorney from the US to participate in it’s deliberations, but I think that it is important to gain an understanding of what others may have done wrong in order to avoid similar problems in Finland.  With this opening statement, it is not difficult to tell that I believe, no matter how well intentioned an individual or group may be, that the adoption of any type of procedure for class dispute resolution or litigation must be meticulously and carefully thought out to avoid the type of injustices that currently exist in the US. 
By way of introduction, I have been a practicing attorney in the United States for almost 30 years. During that time I have been in private practice, served in an appointed capacity in the United States Government and have served more than 25 years as corporate counsel.  For 12 years I held the position of Vice President of Government Affairs and General Counsel of GTE’s wireless subsidiary, the predecessor to Verizon Wireless.  For the past 4 years I have held the position of Vice President Legal Services for Nokia Inc primarily focusing on Nokia’s North, Central and Latin American legal matters. My experience has been international and I have worked on major projects in the Middle East (Israel and Saudi Arabia), the Far East (Korea, Taiwan and Japan), Europe (Germany, France, and England), and South and Latin America (Chile, Argentina, Mexico and Brazil).   I am currently responsible for major litigation and conflict matters for Nokia. I have personally and actively litigated more than a hundred matters in US state and federal courts and have either litigated or been responsible for the defense or oversight of more than 30 major class actions filed against or on behalf of my clients. I have also been involved in conflict resolution in several other jurisdictions in the world.  I have authored several articles on litigation subjects and have lectured at legal seminars.  The legal concepts set out in one of my most recent articles entitled “The Cell Phone Class Actions”  (Mealey’s Litigation Report: Class Actions, 

August 2002) were favorably received by the Federal Courts that have faced those cases.  I feel that this background has provided me with valuable experience in evaluating dispute resolution procedures and a clear understanding of US class action practice. 
The US Judiciary
The US Judicial system is bifurcated with Federal courts and State courts having specific jurisdiction over different types of cases and jurisdictional value limits. Class action procedures have been adopted at both levels of the judiciary.  One of the main differences between the Federal and State Courts is that Federal Judges are appointed for life and state court judges are elected. Thus, one tends to see more class action litigation in state courts where political pressures are present, than in the Federal Courts where decisions do not have a political effect.  Rather than focus on the other differences in federal and state procedures, my comments will focus on class actions in general.
The Origins of Class Action Practice in the United States
The origins of class actions in the United States dates back to 1849 when several states adopted what was know as the Field Code which provided a basic procedural outline for multi-party litigation.  The basic requirement was “multiple parties and a common interest in law or fact”.  The concept was first enacted on a Federal level in Rule 23 of the Federal Rules of Civil Procedure (FRCP) in 1938 with similar vague requirements.  The FRCP governs the procedural practice in the US Federal courts. These early rules did not gain wide use.  
The real impact on the American public and the US judicial system occurred with the adoption of amendments to FRCP 23 in 1966.  The Amendments were intended to support social reform and clarify class action requirements on a going forward basis.  FRCP 23 allows a representative to represent a class in litigation if:
1)	the class (number of entities or people involved) is so numerous that joinder of all members as individual claimants is impracticable
2)	there are questions of law or fact common to the class
3)	the claims and defenses of the representative parties are typical of the claims and defenses of the class
4)	the representative parties will fairly and adequately protect the interests of the class members
Using the Federal Rule as a guide, 36 states adopted class action procedures that basically mirrored Rule 23, and all but two of the 50 states adopted rules with similar attributes.   The 49 class action procedural rules (1 Federal, 48 state) were then interpreted by hundreds of judges, some of who began to liberally construe Rule 23 to apply to just about any collective action.  From the late 1970’s to the present, class action litigation in the US began to skyrocket.  As an example, over the past decade, US Federal court class actions have increased 340% while state class actions have increased 1,315%.  
A class action normally begins with the filing and service of a complaint by the plaintiff followed by an answer or motion to dismiss by the defendant. The case next proceeds to a determination of whether 1) the complaint states a proper claim upon which relief can be granted and 2) a determination if class status should be granted the complaint.  This often involves an investigation into the facts underlying the complaint.  If a complaint involves an aspect of science, there may be an additional hearing to determine if sufficient science exists to support the case.  If class status is granted, a class is then defined and cases move into the “discovery stage” that normally involves extensive discovery of documents and the taking of sworn statements from parties and witnesses. Following the close of discovery, defendants may file post-discovery motions in an attempt to end the case. If those fail, cases proceed to trial and judgment, and then to appeal of an adverse judgment. If a settlement is proposed, the settlement must be reviewed in a fairness hearing where objectors often participate.  Settlements that do not provide a benefit to the class may be rejected, which puts the case back to the point prior to the settlement offer. The entire process normally takes years to complete.  
While the basic requirements of Rule 23 would seem quite simple, there have been hundreds of millions of US dollars spent in efforts to determine if class status is appropriate, to define class membership, to evaluate whether common issues of fact or common questions of law exist, and to determine if the “representative” is capable of fairly representing and adequately protecting the interests of the class. These are not simple concepts that can easily be applied. There are thousands of cases debating and deciding these issues and significant resources have been spent examining the facts that support or don’t support class certification.

As more judges were called upon to interpret the rules, the concepts of judicial fairness that required a fair analysis of the requirements of Rule 23 were lost.  In state courts where Judges are elected, plaintiff’s filed cases before “friendly” judges and classes were certified within hours or days after cases were filed, without any time for a defendant’s response. Nationwide classes were certified in individual state courts that then attempted to apply a specific state law to out of state class members.  To find clients, law firms began to solicit clients over the Internet with the promise that a named party representative would receive a larger share of any settlement than general class members. Cases were settled without regard to fault, but based upon the costs of continuing to litigate, and attorneys were paid substantial fees for settlements that brought little benefit to the public.   Unlike systems that require the loser to pay the costs and expenses of the winner, the US system does not require the party that fails in litigation to pay the party that prevails.  Thus, a plaintiff can raise the cost of litigation to a company through extensive document and deposition discovery without any potential liability and can coerce settlements that might not occur in more reasonable circumstances. 
One of the objectives of the class action procedure is to allow individuals with small claims to aggregate them where the sum involved is so small that it would not be economical to proceed as an individual.  But an examination of many cases does not indicate that the consumer has actually received a meaningful benefit.  In a significant number of cases, the consumer was offered discount coupons for cents off products alleged to be mislabelled or allegedly defective products. Manufacturers outside of litigation routinely offer similar cents off coupons and discounts. The usage rate of settlement coupons is often very low, indicating little or no benefit to the class plaintiffs. In other cases. Plaintiff’s receive small insubstantial sums of money.  In most cases the true beneficiaries are the attorneys representing the plaintiffs who often split millions of US dollars in fees. 
Companies have been coerced by the economics of the matter to settle cases where there is no evidence of injury to the consumer. A case in point: Cheerio’s was sued in a class action suit over a food additive, there was no evidence of injury to any consumers, the lawyers received a $2 million fee and the consumers involved in the lawsuit received a coupon for a free small box of Cheerio’s.  In another case, Blockbuster Video (a large movie rental company) settled litigation related to a charge of excessive late fees by offering customers coupons worth $1 off another movie rental and paying the attorneys $9.25 million USD.  Experts predict that few if any of the coupons will be redeemed since similar offers are routinely available to non-affected consumers. In another matter, a suit against “Poland Springs”, one of America’s most popular bottled waters, claimed that the water was not actually from a spring. The settlement – a discount coupon to purchase more of the water that was the subject of the suit and $1.35 million USD to the attorneys.  “Successful” plaintiffs lawyers in the US advertise on the Internet, have fleets of jet aircraft to “serve” their clients and claim to do tremendous social good while their clients often are left with cents off coupons similar to ones that can be clipped out of the newspaper.  
The publicity given class action verdicts, the abuse of the class action process and the huge attorney fees associated with class action cases in the United States have been widely reported.  The situation in the US has gotten so bad that some call FRCP 23  “ The Lawyers Relief Act”.  
The most interesting point about all of this is that none of it was either intended or anticipated when Rule 23 was modified in the 1966 to increase the coverage of class action procedures. The Rule amendments were in direct response to the Civil Rights Act of 1964 that guaranteed individuals would be free from discrimination and the segregation that existed in some parts of the US society.  The purpose of clarifying and expanding the scope of Rule 23 was to aid the Courts in efforts to assist groups of individuals that desired to file claims against racial segregation.   In fact, at the time the Committee established to oversee the modification of Rule 23 was considering the effects of a new rule, the notes taken indicated that the drafters thought that Rule 23 Class Action would rarely be used in major products litigation. While all of this occurred in the name of a worthy social cause, the modification of Rule 23 was the gate that opened the great class action litigation explosion that occurred over the next four decades. The US experience is a clear reminder that class action legislation, no matter how well intentioned, can dramatically change the legal landscape of any country in unintended ways.
Attempts to Correct the Problem
The current problems with the class action practice in the US are well known and there have been several attempts to remedy the situation.  The Congress of the United States has held numerous hearings on the subject and legislation to curb lawsuit abuse has been proposed in several congressional sessions, the last of which was The Class Action Fairness Act of 2003.  The Act was an attempt to move the larger class action matters to the Federal Courts where Judges are appointed for life and are arguably subject to less “political pressure” – where the Judge would have the time and resources to examine each case and the compensation sought by class counsel, and would not be 

swayed as a result of political campaign contributions. The Act also contained new rules regarding settlements and attorney fees. The Act was passed in the US House of Representatives but did not make it out of the US Senate where it was tied up by legislators supported in part by the plaintiff’s trial lawyers bar.
In spite of the good social purpose upon which the 1966 FRCP 23 amendments were based, the unfortunate fact is that class action costs and expenses and the “remedies” provided to consumers have not generally benefited society. The class action litigation costs and settlements all lead to higher prices for goods and services that are ultimately passed on to the consumer.  The United States Chamber of Commerce estimates that business in the US spend tens of millions of dollars each year defending against frivolous lawsuits and that the total cost of the US tort system (civil claims) to US businesses is more than $129 billion USD per year.  While there has been no allocation of that to class action litigation, class action litigation is the most costly to defend and the most costly to settle, even when no product defect or injury has occurred or been proven.
Nokia has seen this first hand. Nokia currently has 5 class action product related cases filed against it in the US. In the first, Feige v Nokia, a lawyer claimed to represent a class consisting of purchasers of Nokia handsets that allegedly contained a common design defect.  In the 12th month of handset use Feige contacted Nokia’s customer service and repair facility with a complaint. Nokia extended the 12-month warranty period for an additional month to allow Feige to tender the handset to Nokia for analysis and repair.  His class action lawyer advised him that repairs under the warranty would satisfy Nokia’s obligations and void his class action claim. Feige failed to present the handset for repairs and instead sued Nokia in New York state court.  When it came time for Mr. Feige to submit his handset for inspection, he stated that he had lost it.  Nokia won the case and eventually the appeal at a cost that would add $.50 to the sales price of the particular handset model at issue.  Similar favourable results have been reached in two of the five cases, although litigation costs to date in the 5 cases have exceeded $4 Million USD.  (Arguably adding $2 USD to the wholesale cost of the handset model in question)   
Some observers suggest that the class action practice in the US has been greatly influenced by the application of punitive damages that are not allowed in other jurisdictions.  While statistics vary on this issue, one recent study by the United States Department of Justice found punitive damages in only 3 percent of the cases with median awards of $38,000 USD.  Another study found that there were only 355 punitive damage awards in products related cases for the 25-year period from 1965 through 1990. Lawyers that practice in the US realize that most of the large punitive damage awards that are reported in the press eventually get overturned by the trial judge or on appeal. States now regulate punitive damages in several areas (medical malpractice, for example) and the United States Supreme Court has issued several opinions limiting the application and scope of punitive damage awards.  While the issue can be disputed, punitive damage claims do not appear to be a driver of class action litigation in the United States.  
The purpose of this discussion to this point is not to broadcast the ills of the American court system, but to point out that well intended actions (the broadening of class action protections for social reasons in the US) are often later interpreted and applied in a manner inconsistent with the intent.  It seems that the proliferation of class action litigation in the US is more associated with class action lawyers and opportunities for large legal fees rather than the benefits of the litigation to individuals or society.  Obviously, the framers of FRCP Rule 23 would have taken a different approach had they envisioned the use to which the rule is now being placed.  The lesson to be learned is not to adopt class action reform where there is no genuine serious problem identified which demands that process or in any case where other alternatives are available.

A European View
There are some apparent differences in the societies of Finland and America and some practical matters that weigh heavily against the adoption of class action legislation in Finland.
Individuals that argue for the expansion of class action procedures mainly make three arguments:
1) class actions create an overall benefit to society that is greater than class litigation costs        
2)	class action procedures open up the justice system to those that currently have no access and provide legal redress for those that can not afford it – the so called “access to justice “ argument and:
3)	class action procedures act as a deterrent to corporations and other potential wrong doers and thereby control or modify corporate behaviour  - the “regulation through litigation” argument.

The first justification, that class actions create some overall benefit to society, is simply not proven. There is no evidence to support the proposition that class action lawsuits have any cost benefit to society as a whole:
 “No comprehensive assessment of the costs and benefits of damage class actions has been complied, and none is underway. Empirical investigation of a small number of cases suggests, however, that the merits of some class actions are questionable and that some class action settlements provide more benefits for class counsel and the defendants than for class members.” 
That is also true in jurisdictions where legal aid has been used to support class actions.  A study of class action cases in England and Wales, which have had a succession of class action cases since the 1980’s, revealed that class action claimants were funded almost entirely by legal aid and the success rate of cases was relatively low. 
 “The conclusion under the previous system was that the English legal aid system funded, at enormous public expense, a sequence of cases in which public concern over potential safety issues was generated by lawyers and the media publicity. Nearly all of these cases had low intrinsic merits and subsequently failed, almost all of them in advance of a trial on the merits.”
As in the US, the United Kingdom litigation was driven mainly by lawyers that “were able to derive sometimes enormous financial benefit from payments made to them by the legal aid fund, without regard to whether they won or lost. “  There is simply no concrete evidence that class actions provide a benefit to society that is greater than the cost or resources that must be dedicated to class action litigation.

The second argument, class actions are necessary to provide access to justice, assumes that there is currently no alternative that will provide cost effective or cost free access to justice.  That simply does not appear to be the case in Finland.  Finland has already adopted specific consumer protection laws (The Consumer Protection Act; The Product Liability Act; The Product Safety Act; The Act on Compensation for Environmental Damage; the Package Tour Act; the Pharmaceuticals Act; the Alcohol Act; the Act on Measures to reduce Smoking; and various other marketing laws) and established specific courts to handle those issues (The Land Court; The Market Court; The Labour Court; Environmental Boards; etc.), all of which signals to businesses the seriousness of business conduct. Finland has an extensive legal aid policy that provides low or no cost access to consumers that may not have the resources to secure paid legal assistance. One report states that three quarters of all individuals in Finland are covered by free access to courts and legal aid to cover litigation costs.  In addition, Finland has the Consumer Ombudsman, municipal consumer advisors and the national consumer complaint board, all of which provide the consumer a non-adversarial avenue to resolve their dispute.  In important cases, Finland has adopted the ‘pilot case” where critical issues that may be involved in a number of litigations can be decided in one matter and applied universally thereafter. These processes and procedures provide easy, low or no cost access to justice.
The third argument, class action litigation is required to regulate business practices, presumes that a) there are current deficiencies in corporate behaviour that need to be regulated; b) alternative mechanisms to control behaviour do not function or exist; c) class actions are an effective deterrent; and 4) there is some cost benefit relationship between class action litigation and social benefit. Those four arguments do not survive close examination when applied to Finland or the European community. 
First, there is no overriding corporate ethics crisis or identifiable business practice deficiency that demands the imposition of class action reforms in Finland.  Businesses in Finland and in the EU are fully regulated in almost every aspect of their existence.  The Finnish legislature has seen fit to regulate the interface between Finish businesses and the environment, the design, production, marketing and sale of products, and the interface between the consumer and the business after the sale. There is no current problem of corruption in the corporate ranks, or any other true justification for further regulation upon industry. Regulation through class action legislation is simply not required.
Second, as noted above, the Finish legal culture provides low cost access to justice through open court systems, the availability of free legal proceedings and free legal aid and assistance.  There is no indication that these processes and procedures do not provide the citizens of Finland with a very reasonable opportunity to raise their concerns.  In truth, there is no barrier that prohibits an individual from pursuing a claim against a larger entity.    Finland’s use of a Consumer Ombudsman, municipal consumer advisors and the Consumer Complaint Board is a creative and commendable means of resolving complaints without court intervention.  
In this regard, Finland is not unlike other EU member states have adopted simplified court procedures applicable to small disputes and instituted out of court procedures for dispute resolution (consumer arbitration in Spain, Portugal and the Netherlands).  Many European countries have delegated the protection of the collective interests to independent administrative authorities (the consumer Ombudsman in Denmark; Director of Consumer Affairs in Ireland).  The EU has adopted a Standard Consumer Complaint form that fosters quick and efficient settlement of consumer complaints by gathering the critical information necessary to make a determination on the consumers concern in a simple form. Several EU pilot projects showed that “a very large percentage of consumer disputes can be settled without going to court”, provided an alternative is available the consumer.
Third, as set forth above, there is simply no evidence that class actions act as a deterrent to corporate behaviour considering all of the other laws and regulations that apply to corporate actions.  Businesses in Finland are already heavily regulated and the potential added financial burdens of class action litigation in the event of a mistake in judgment or other business error would not be a material deterrent. 
Fourth, also as set forth above, there is no evidence whatsoever that the added costs of class action litigation would add some overall benefit to society. In fact, as viewed in an international context, the added cost to a multinational company such as Nokia could be adverse to the citizens of Finland because those added costs would be passed on to consumers in the form of higher prices. In the 

highly competitive world of electronics manufacturing, even small incremental costs can have a negative effect on sales in the marketplace and the resultant adverse effect on employment, raising the social costs to everyone involved.
Conclusion
From an outsiders viewpoint and understanding the experience within the US, while some European countries have seen fit to modify their class action procedures, in reality there is no broad based need for the institution of another level of protection for the consumer in Finland.  There is no research that shows in any fashion that the institution of class action legislation will have any immediate meaningful effect and there is no analysis that shows the incremental cost to society in terms of higher product costs justifies action.  There is no need for regulation through litigation. As one commentator put it, “The essential tools of behaviour modification of corporations and executives in Europe are consumer and media pressure, self-regulating codes of conduct, official regulation and scrutiny, and court injunctions in urgent cases” and there is no indication that those institutions are not effective.  There is simply no justifiable social need to import into Finland the unavoidable costs and expenses of class action litigation, particularly when the beneficiaries tend to be the attorneys and not the citizens. When one carefully examines the facts, there is no case for change.