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Archive for October, 2008

The Jerusalem Times published an interesting op-ed article today praising a Tel Aviv court’s decision in a consumer class action.  The case arose out of allegations that the defendant had knowingly used a carcinogenic silicon compound to line its milk cartons. 

The class action was brought not on behalf of a class of persons alleged to have been physically harmed by the milk consumption, but rather on behalf of a class of consumers who would not have purchased the defendants’ product had they known about the potential dangers.   The article describes this consumer fraud theory as a “legal innovation” that was pivotal to the outcome in the face of the defendant’s argument that it should not be held liable because the plaintiff could not prove physical harm resulting from exposure to the silicon.  The article goes on to express the hope that the case will be a “watershed which will encourage further class action suits,” arguing that while there is a perceived abuse of class actions in the U.S., Israel suffers “from the opposite problem: not enough class action suits.”

Of course, the “legal innovation” described by the article is nothing new in the U.S.  Faced with the problem of being unable to prove injury or damages for a products liability claim on a class-wide basis, class action lawyers have often turned to consumer fraud theories, especially in recent cases brought against the tobacco and pharmaceutical industries.  My criticism of this tactic is that it is not well-suited to provide redress for those who truly suffered harm.  It seeks to compel the defendant to pay for its infraction, not for the benefit of those harmed by the dangerous product, but for an entirely different class of individuals who can claim at best that they were exposed to the danger (a fact which they would have remained blissfully ignorant but for the lawsuit).

In the Israeli case, the judge apparently found that consumers would not have purchased the defendants’ milk had they been apprised of all the facts.  If there truly were facts to support the conclusion that no reasonable consumer would have bought the product if the true facts had been disclosed, then maybe this is the right outcome.  But there are very few situations where this absolute conclusion is warranted.  Consumers buy products for any number of reasons, even products known to be dangerous or that have known negative health effects.  Tobacco is a clear example.  

Certainly, there is no justification for the kind of conduct as described in the article, and one could argue that the end justifies the means, but relying on a “the public wouldn’t have bought it if they had known it was dangerous” argument in what really should be products liability cases has always struck me as intellectually dishonest.  In these cases, the consumer fraud claim is little more than a pretext for imposing punishment for a bad act that lacks a clear harm or that has only individualized harms that don’t really meet the standards for class action treatment.  If a company is selling a dangerous product that causes physical harm, then tort law provides a civil remedy.  The fact that there may not be a collective remedy for those physical harms does not justify reliance on a legal fiction to create a means for collective redress on behalf of an over-inclusive class of people who weren’t truly harmed by defendant’s bad acts.  Perhaps better government enforcement, not more class action suits, is the answer.

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Magnified by the most recent credit crisis, subprime mortgage litigation continues to be a hot topic among those following developments in class actions.  Peter Page of the National Law Journal authored an interesting article, published today, discussing the most recent wave of lawsuits stemming from the ugly recent turn in the subprime mortgage crisis.  The article focuses on recent securities fraud class action filings involving claims of failure to disclose subprime investments by mortgage companies, banks, and others.

Securities fraud cases are only a part of the wave of class action litigation that has been spawned by the subprime mortgage fiasco.  Subprime-related issues have formed the basis for a wide range of class actions brought on behalf of a wide range of plaintiffs and based on a wide variety of causes of action, with varying success.  The many types of subprime-related class actions include:

  • Consumer protection actions involving claims for predatory lending;
  • Class actions claiming racial discrimination in mortgage lending;
  • Class actions by subprime loan borrowers under the Truth in Lending Act (TILA);
  • Securities fraud class actions claiming failure to disclose facts about subprime investments;
  • ERISA Class Actions alleging improper subprime investments on behalf of the participants of a pension or retirement plan; and
  • Shareholder derivative lawsuits alleging nondisclosure of and mismanagement involving subprime investments.

The most recent CADS Report, the newsletter of the ABA’s class action and derivative suits committee, has a nice collection of articles on developments many of these areas.  The Newsletter is available only to ABA CADS members (I won’t comment in detail here on the perhaps fitting choice of acronyms), but non-members can get a preview here, along with information on how to join.

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Fullbright & Jaworski International attorneys Antony Corsi and Ian Pegram authored an article published yesterday in the Times Online discussing whether proposed opt-out collective action procedures are likely to lead to huge increases in litigation costs for companies doing business in the UK and due to a rash of frivolous class actions. 

As I have noted in previous entries, the British reforms have been proposed by a quasi-governmental “Public Advisory Body” called the Civil Justice Council.  Following a report issued in February, the CJC held a conference in March and issued specific recommendations for reforms to collective action procedures in August.  Most recently, a conference was held to discuss those recommendations in September in which lawyers, judges, academics, and trade union representatives provided comments on the recommendations.  Reports on all of these events are available on the CJC’s main web page under “What’s New.”

The recommendations would make British collective action procedures more similar to U.S. class actions, but overall collective actions in the UK would still be different from the truly representative class action system in the U.S.  This August 28 ClassActionBlawg entry summarizes the proposed changes.  One of the most significant changes would be the adoption of a procedure allowing collective actions to be brought on an “opt-out” basis (where absent plaintiffs would be bound by the result unless they affirmatively excluded themselves from the litigation).  Currently, the current UK standard for collective actions is “opt-in”, where plaintiffs have to affirmatively join the suit in order to participate.  As examples in the Corsi and Pegram article illustrate, allowing cases to be litigated on an opt-out basis as opposed to an opt-in basis can make a huge difference to the legal exposure, since oftentimes only a very small percentage of the potential plaintiffs bother to participate in an opt-in case.

Corsi and Pegram conclude that despite changes that would add certain features of U.S.-style class action procedure to the UK, those changes are not likely to produce the “American-style excesses” that many in the business community fear.  They point out that the CJC has been particularly sensitive to these concerns and has proposed procedures, including strict oversight by specialist judges, to prevent abuse of the process.  Walter Olson of Point of Law, discussing the article in this entry, opines that other aspects of civil procedure in the UK–such as stricter limits on forum shopping and a loser-pays attorneys fee-shifting rule–are more likely reasons why we might not expect a flood of class action litigation if the reforms are adopted.  As other commentators have pointed out, Europeans have different societal attitudes toward litigation in general and toward the role of the courts in providing redress for private harm, which may also play a part in tempering the legal exposure to businesses that might otherwise be expected to result from an increased availability of collective redress.

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Here are some blog entries from the week that was that might be of interest to class action practitioners:

Class Action-Related Post of the Week

Rebecca Tushnet’s 43(B)log provides a nice overview of a Massachusetts federal court’s decision to certify two multi-state subclasses of consumers in a case against pharmaceutical companies for allegedly inflating the Average Wholesale Prices (AWPs), used in establishing reimbursement schedules under Medicare and insurance plans, in order to increase their market share.  The case is intriguing from a procedural perspective because in analyzing the elements of class certification for the purpose of certifying a multi-state consumer class, the court relied on the results of a bellwether trial held to address the claims of two classes of Massachussets consumers, which resulted in a verdict on the merits for the plaintiffs.  Based on the merits determination made in that trial, the court concluded that a multi-state class action could be certified despite differences in different state laws relating to consumer protection, fraud, damages, and statutes of limitation:

http://tushnet.blogspot.com/2008/10/grouping-prevails-in-multistate.html 

Class Action Decisions

The UCL Practitioner reports on a California Court of Appeal decision holding that a court’s gag order prohibiting a newspaper from reporting on a class action filed against it by employees was an unlawful prior restraint:

http://www.uclpractitioner.com/2008/10/class-action-ag.html

Health Plan Law comments on a decision by the U.S. District Court for the Northern District of California holding that a plaintiffs’ complaint in a putative class action seeking health benefits for a putative class of policyholders state an ERISA claim under the pleading standards set forth in Bell Atlantic Corp. v. Twombley, where the complaint did not expressly allege that the defendant was the plan administrator:

http://healthplanlaw.com/?p=765

Class Action Defense Blog provides a synopsis of a West Virginia federal court’s decision denying a motion for class certification in a putative medical monitoring class action due to a finding that individual issues would predominate:

http://classactiondefense.jmbm.com/2008/10/class_action_defense_casesrhod.html

FDA Law Blog summarizes a Ninth Circuit Court of Appeals ruling reversing the dismissal of a class action brought on behalf of a putative class of federally funded medical clinics to enforce, as third party beneficiaries, alleged contractual restrictions on drug prices in agreements between the federal government and drug manufacturers:

http://www.fdalawblog.net/fda_law_blog_hyman_phelps/2008/10/ninth-circuit-d.html

The Southeast Texas Record reports on an order granting summary judgment in favor of various defendants in a toxic tort class action brought against oil companies alleging that emissions from oil refineries had polluted the surrounding neighborhoods, causing property damage and personal injuries:

http://www.setexasrecord.com/news/contentview.asp?c=215213

Securities Docket provides a synopsis of an Eleventh Circuit Court of Appeals decision upholding a lower court’s dismissal of a securities class action on the grounds that the plaintiff had failed to adequately plead wrongful intent:

http://www.securitiesdocket.com/2008/10/08/eleventh-circuit-affirms-dismisal-of-securities-class-action-against-home-depot-and-executives/

Class Action Trends

Mark Aufflick discusses a novel new method that has been proposed for delivering notice of a class action:

http://mark.aufflick.com/blog/2008/10/09/using-windows-update-to-find-class-action-plaintiffs

Art Market Monitor comments on a case filed by a dissatisfied art collector against an art dealer and museum for selling limited edition prints without a number:

http://www.artmarketmonitor.com/2008/10/06/class-action-reaction/

Class Action Resources

Many thanks to Werner R. Kranenburg of the European securities litigation blog With Vigour and Zeal for including ClassActionBlawg in a listing of helpful online class action-related resources:

http://kranenburgesq.com/blog/2008/10/more-class-action-resources/

Federal Civil Practice Bulletin summarizes the articles included in a recent University of Pennsylvania Law Review Symposium issue on developments relating to the Class Action Fairness Act (CAFA):

http://federalcivilpracticebulletin.blogspot.com/2008/10/u-penn-law-review-publishes-articles.html

Legal Research Plus discusses a new resource from BloombergLaw Reports for keeping up with trends in class action law:

http://legalresearchplus.com/2008/10/03/new-resources-for-keeping-up-with-class-action-litigation-and-global-class-action-developments/

Class Action Commentary

Tort Deform cites a New York Times article in which three law professors assert that corporations are less likely to use mandatory arbitration clauses in non-consumer agreements as in consumer agreements and argues that this trend is indicative of the unfairness of using mandatory arbitration clauses in consumer agreements…

http://www.tortdeform.com/archives/2008/10/if_arbitration_is_so_wonderful.html

… and Canadian law blog eLegal hails a recent Washington Supreme Court decision invalidating a class arbitration waiver in a consumer contract as a “big win for consumers”:

http://canton.elegal.ca/2008/10/06/us-court-decision-big-win-for-consumers/

Home Equity Theft Reporter offers commentary on a recent Seventh Circuit Court of Appeals decision holding that homeowners could not pursue a claim for rescission of a subprimehome loan under the Truth in Lending Act (TILA) on a class basis:

http://homeequitytheft.blogspot.com/2008/10/more-on-federal-court-ruling.html

f/k/a comments on the dismissal of an anti-feminist’s class action seeking a ruling that private clubs’ ladies’ night discounts are unconstitutional and offers a more extensive analysis of ladies’ night cases (of which there are surprisingly many):

http://blogs.law.harvard.edu/ethicalesq/2008/10/04/lady-judge-says-ladies-nights-are-not-unconstitutional/

Class Action News

Wage Law provides an update on an appeal to the California Supreme Court of the much-publicized wage and hour class action decision involving alleged unpaid wages for work during meal and rest breaks, Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal. App. 4th 25:

http://wagelaw.typepad.com/wage_law/2008/10/brinker-petition-for-review-status.html

Class Action-Related Scholarship

Mass Tort Litigation Blog contributor Elizabeth ChambleeBurch provides an abstract to her article discussing problems with nonclass aggregation of mass tort claims.

http://lawprofessors.typepad.com/mass_tort_litigation/2008/10/procedural-just.html

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If you’re interested in following international developments in class action law, there are a couple of upcoming ABA CLE programs that might be of interest.  Unfortunately, the are both scheduled for the same weekend, so you’ll have to choose:

The 12th Annual National Institute on Class Actions is scheduled for November 7 at the New York Marriott Downtown Hotel.  In addition to a variety of interesting topics including the impact of the Class Action Fairness Act (CAFA), and developments in consumer class actions, the program will conclude with a panel discussion about the globalization of the class action marketplace.

That same weekend in the Biltmore Hotel in Miami, the ABA International Law section and International Bar Association are co-sponsoring a conference entitled The Next Big Wave in Cross-Border Litigation.  The conference will kick off with a presentation on mass litigation in the developing world.

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Class action suits against governmental agencies in the U.S. and Canada for alleged negligence saw mixed results in a pair of recent rulings this past week, with a favorable ruling for the plaintiffs from a federal trial court in Louisiana and a ruling for the government by an appellate court in Ontario.

As the AP reported on Friday, a federal judge in New Orleans refused to dismiss, on governmental immunity grounds, a class action brought against the Federal Emergency Management Agency (FEMA).  The case has been brought on behalf of a would-be class of Hurricane Katrina victims, who were allegedly harmed as a result of the agency’s inaction and negligence in discovering that trailers that were brought in to provide emergency housing after storm were contaminated with formaldehyde.  According to the AP story, the portion of the court’s order declining to recognize immunity relied on evidence that FEMA officials put “their heads in the sand” rather than conduct testing to find the contamination, for fear that affirmative steps by the agency to determine the existence and extent of the problem would lead to liability for the agency.  The court did agree that the agency’s conduct in making the trailers available to hurricane victims in the first place was an exercise of discretion that should be protected from “judicial second-guessing.”

By contrast, according to a story by The Canadian Press last week (thanks to the blog Beauty and the Breast for the link), the Ontario Court of Appeal recently upheld the dismissal of a would-be class action claim against the Canadian agency Health Canada, alleging negligence in the agency’s regulation of manufacturers of silicone breast implants.  The Court of Appeal reportedly based its decision in part on the reasoning that to allow the imposition of liability for negligence for an agency’s actions in performing regulatory functions within its mandate could have the effect of causing “decreased vigilance” by the regulated industry in ensuring the safety of its own products.

The two decisions must be understood in the context of the different statutes that allow for tort actions against the government in the U.S. and Canada, but the standards under the two laws appear to be similar.  In the U.S., negligence claims against the federal government are governed by the Federal Tort Claims Act, or FTCA.  For a good summary of the FTCA and several of its key exceptions, including the “discretionary function” exception that appears to have been the issue in the FEMA case, see this report to Congress from the Congressional Research Service.  Vancouver attorney Brad M. Caldwell has written this introductory overview of the Canadian counterpart to the FTCA, the Crown Liability Act.  It appears that the recent Ontario Court of Appeal decision turned in part on a special element for evaluating the existence of a duty of care in evaluating negligence claims against the government, which looks to “whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care.” 

The two cases may also be distinguished based on the function being undertaken by the agency in committing the alleged negligence.  In contrast to the clearly regulatory function at issue in the Health Canada case, FEMA was carrying out an executive function in providing emergency housing to hurricane victims.

Neither decision appears to have addressed the issue of whether the claims were appropriate for class certification.  Individual fact questions regarding causation and damages would appear to provide a possible barrier to class treatment in the FEMA case, but the court has yet to rule on class certification.

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A bout of the stomach flu delayed this week’s CABWR, but better late than never.  Here are some blog entries from the week that was (plus a few days) that might be of interest to class action practitioners:

Class Action-Related Post of the Week

This entry from Wage Law about a conversation overheard between two judges in a coffee shop discussing a “sweetheart deal” that had been proposed in a class action pending before one of them says volumes both about the need for discretion by judges and lawyers alike in discussing their cases in public places and also the need for class action lawyers on both sides to do their homework before submitting a proposed settlement for court approval:

http://wagelaw.typepad.com/wage_law/2008/09/hearsay.html

Class Action Decisions

The Indiana Blog, How Appealing, and Corporate Legal Times, are among the many legal blogs that commented on the Seventh Circuit Court of Appeals’ decision disallowing a class action claim for rescission of a mortgage under the Truth in Lending Act (TILA) (See CAB entry here):

http://indianalawblog.com/archives/2008/09/ind_decisions_m_286.html

http://howappealing.law.com/093008.html#030528

http://www.cltmag.com/mortgage-lenders-fight-off-rescission-class-action-in-7th-circuit.html

The Complex Litigator and The UCL Practitioner review a California Court of Appeal decision addressing what constitutes an impermissible merits determination in ruling on a motion for class certification:

http://www.thecomplexlitigator.com/2008/09/hewlett-packard.html

http://www.uclpractitioner.com/2008/10/new-class-certi.html

Class Action Defense Blog provides a synopsis of a California Court of Appeal reversing a denial of class certification on the ground that a lower court’s orders precluding certain discovery, including discovery of contact information for other putative class members, prevented the plaintiffs from meeting their burden of demonstrating commonality and typicality:

http://classactiondefense.jmbm.com/2008/09/class_action_defense_caseslee_1.html

Classified provides summaries of several recent decisions by federal district courts in Florida on a variety of class action-related issues including proof of amount in controversy for CAFA removal, the res judicata effect of a summary judgment order in a prior class action, and reliance as an element of a claim under the Florida Deceptive and Unfair Trade Practices Act:

http://www.carltonfields.com/classactionblog/ (see entries dated September 28)

Business Spectator reports on the dismissal of a class action filed by Iraqi citizens in a New York federal court against an Australian company for its alleged acts of bribery and other unlawful conduct in connection with a UN food-for-oil program:

http://www.businessspectator.com.au/bs.nsf/Article/Third-class-action-against-AWB-in-US-dismissed-JZAV9?opendocument&src=rss

EDTexWeblog.com provides a summary of a decision by the U.S. District Court for the Eastern District of Texas dismissing a class action brought under the Drivers’ Privacy Protection Act (DPPA):

http://mcsmith.blogs.com/eastern_district_of_texas/2008/09/drivers-privacy-protection-act-dppa-class-action-dismissed.html

planadvisor discusses an Illinois federal court’s order granting class certification in an ERISA class action involving allegations of excessive fees and other breaches of fiduciary duty in administering a 401(k) plan:

http://www.planadviser.com/article.php/2933

Green Buckeye RN discusses a West Virginia federal court’s decision not to certify a class in a mass tort case filed on behalf of a would-be class of residents of a city whose water was allegedly contaminated by the defendant’s pollution:

http://greenbuckeyern.wordpress.com/2008/10/02/the-charleston-gazette-judge-rejects-c8-class-action-case-against-dupont/

Overlawyered reports on the dismissal of a New York lawsuit brought on behalf of a would-have-been class of men seeking to hold “Ladies Night” discounts unconstitutional:

http://overlawyered.com/2008/09/ladies-nights-a-win-for-nyc-clubs/

Class Action Scandals

Dallas Blog reports on the guilty plea of the last defendant to face charges in connection with the Milberg Weiss kickback scandal:

http://www.dallasblog.com/200809301003674/john-browning-s-legally-speaking/a-class-action-act.html

 Class Action Settlements

Good Morning Silicon Valley discusses a cy pres award from an class action settlement involving alleged unpaid overtime against a video game manufacturer that went to pay for scholarships for students studying video game design:

http://blogs.siliconvalley.com/gmsv/2008/09/class-action-helps-fund-class-action.html

Enough links to an entry from The Real Battle in Seattle discussing a movement by protesters arrested during the 1999 WTO meetings in Seattle to donate proceeds from a class action verdict to fund global justice projects:

http://www.enoughenough.org/blog/59/returning-class-action-funds-to-the-global-justice-movement/

http://www.realbattleinseattle.org/node/71

Class Action (and Related) News

Slashdot is one of many non-law blogs to comment on a class action filed against a video game manufacturer for allegedly including undisclosed invasive copy protection software in its video games that could not be uninstalled:

http://games.slashdot.org/article.pl?sid=08/09/24/1939256&from=rss

SCOTUS Blog previews an upcoming oral argument in a case brought by public-sector union members on behalf of a proposed class seeking to hold unconstitutional certain public-sector union service fees earmarked for litigation on behalf of affiliated collective bargaining units:

http://www.scotusblog.com/wp/scotuswiki-preview-locke-v-karass/#more-7970

Class Action Trends

The D&O Diary considers whether a recent New York federal court’s order dismissing a pre-subprime crisis case involving alleged failure to disclose risky investments may portend an end to subprime-related securities litigation:

http://www.dandodiary.com/2008/09/articles/securities-litigation/does-dismissal-foreshadow-subprime-litigation-culmination/

Canadian attorney Daniel A. Lublin discusses the potential benefits of bringing a group of individual wrongful dismissal claims rather than pursuing a class action:

http://blog.toronto-employmentlawyer.com/toronto_employment_lawyer/2008/09/class-action-la.html

The Consumerist showcases the latest website dedicated to providing information about class action settlements:

http://consumerist.com/5054244/find-class-action-settlements-at-topclassactionscom#c7958619

Class Action Commentary

Drug and Device Law Blog and Point of Law summarize a recent National Law Journal article by Michigan Law Professor Adam Pritchard discussing a possible mechanism for companies to unilaterally insulate themselves from certain securities class actions:

http://druganddevicelaw.blogspot.com/2008/10/end-of-securities-fraud-class-actions.html

http://www.pointoflaw.com/archives/2008/10/basic-inc-v-lev.php

This student post from The Race to the Bottom summarizes developments in the last of the securities fraud cases pending in the U.S. District Court for the Southern District of New York involving Italian dairy company Parmalat:

http://www.theracetothebottom.org/home/parmalat-claims-dismissed-against-banks-auditors-and-attorne.html

CAFA Law Blog answers reader mail with commentary on the applicability of the diversity jurisdiction provisions of Class Action Fairness Act (CAFA) to both removal and original jurisdiction:

http://www.cafalawblog.com/-resources-cafa-law-blog-mail-bag-an-inquiry-from-one-of-our-readers.html

The Deal Sleuth offers a defense of securities class action lawsuits:

http://thedealsleuth.wordpress.com/2008/09/24/in-defense-of-shareholder-class-actions/

Robert Galoppini’s Commercial Open Source Software makes an apt quote to Shakespeare in reporting on the position taken by several consumer associations in an amicus brief filed in a case involving alleged copyright infringement by the maker of a technology capable of both infringing and noninfringing technologies (referred to as “multi-use technologies”):

http://robertogaloppini.net/2008/09/29/peer-to-peer-demonization-a-class-action-in-favor-of-multi-use-technologies/

The Lighter Side of Class Actions

Internet Monk announces a “class action” against the publisher of a new study Bible for mental anguish in causing great anticipation for its publication…

http://www.internetmonk.com/archive/van-til-announces-class-action-lawsuit-against-justin-taylor-for-cruelty-and-abuse-of-bibliophiles

… and draws a response from the “defendant”

http://theologica.blogspot.com/2008/09/class-action-lawsuit-against-your.html

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The Christian Science Monitor published an interesting article on September 22 exploring the reasons why the scandal involving melanine-tainted milk that has killed at least four children and sickened tens of thousands more in China has not resulted in the flood of litigation that the incident would have caused in the United States. 

The article discusses several reasons why Chinese consumers have been slow to resort to the courts for redress, including that a government promise to provide free health health care for those affected, a societal predisposition to rely on government redress rather than the courts, the historical inability to collect damages for pain and suffering, and efforts by various parts of the government to prevent access to the courts, especially in politically sensitive cases.  While the article notes that the legal climate in China may be changing, pointing to an award of small amounts of noneconomic damages for “moral and spiritual suffering” awards in a recent case against another milk manufacturer, it quotes a prominent Chinese human rights lawyer as predicting that the current system of government compensation will last “for quite a while.”

Other commentators have pointed to the availability of compensation through government programs as a factor in why U.S.-style class action litigation has not yet become prevalent in Europe.  (See this previous ClassActionBlawg article).  Adding to this government safety net a totalitarian government intent on avoiding the perceived social instability that would come from having private injuries redressed through the courts seems to assure that U.S.-style class action and mass tort litigation is a long way away in China.

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