Turn the new class action act to your clients' benefit: although the so-called Class Action Fairness Act can hardly be considered a boon for plaintiffs, some sections may help keep a class action going and limit the statute's harm.

Many consumer groups, organized labor, and ATLA rightly opposed legislation earlier this year that sought to "reform" class action litigation due to perceived abuses. (1) Nonetheless, Congress passed the so-called Class Action Fairness Act of 2005 (CAFA) in February, and the president signed it into law. (2) The act was hailed by business interests and other opponents of civil justice as a major step forward for litigation "reform."

However, close inspection of the final version of the law reveals that many of its provisions should prove useful to plaintiffs bringing class actions. Many other provisions are so poorly drafted that they probably will never affect litigation, especially so-called mass actions. Nevertheless, the act will make it easier to remove state class actions to federal courts, which is why ATLA and others opposed it.

The primary goal of the CAFA was to move state class actions to the federal system. The drafters, however, felt constrained to remodel the federal class action, presumably to make it more hospitable for class actions generally. In so doing, they inadvertently made it easier to maintain a class action in federal court.

Section 2 of the law, "Findings and Purposes," specifically acknowledges that "class action lawsuits are an important and valuable part of the legal system." One of the CAFA's purposes is to ensure "fair and prompt recoveries for class members with legitimate claims." (3) Another is to bring into the federal courts "interstate cases of national importance under diversity jurisdiction." (4) Counsel bringing a federal class action will gain, I believe, by asserting these broad declarations against opponents of the class.

The act also liberalizes who may sue. It no longer has a requirement that the named class representatives (or any class member) allege an injury that meets the general jurisdictional requirement of $75,000 minimum in damages. (5) Instead, it has two new requirements: that the class consist of 100 or more claimants and that the matter in controversy exceed "the sum or value" of $5 million. (6) The phrase "sum or value" indicates that the $5 million can be either the amount of relief the plaintiffs seek or the defendant's cost in giving the relief. The amount is actually quite small: 100 people seeking $50,000 each would satisfy it. Before the CAFA, some courts had looked at only the demands of the named class members to make sure each met the $75,000 requirement. (7)

To make removal easier, the CAFA has turned the law 180 degrees, from requiring complete diversity among the parties to requiring only minimal diversity. Under the new portion of [section] 1332, diversity exists if any member of the plaintiff class is a citizen of a state different from the home state of any defendant. (8)

Thus, under the new law, any class member can have a small claim and yet still have a right to sue in federal court as long as the $5 million total is met--and minimal diversity exists.

However, major provisions either forbid the federal district court to take a removed case or give the court discretion to decline it. The court must decline jurisdiction if more than two-thirds of the class members are citizens of the state where the suit was filed and if one of the defendants is a citizen of that state and its conduct formed a significant basis for the claims. (9) Other complicated provisions fall into the discretion area when more than one-third but less than two-thirds of the plaintiffs are citizens of the state where suit was brought.

The statute's language, and inferences that can be fairly drawn from it, will also help counsel with choice-of-law roadblocks that defendants often throw at class actions. One of the abuses that the law was designed to counter, which is mentioned in the law's preamble, is that some state class actions have "impose [d] their view of the law on other states." (10) It would follow that, upon removal, this problem is solved. If the defense objects that a proposed class is unmanageable because the laws of many different states would have to be applied, the plaintiff attorney can counter that Congress mitigated this choice-of-law problem by allowing removal. (13)

Mass actions

As part of class action "reform," the writers of the new law attempted to sweep in "mass actions" as a species of class action, so that they would be removed to federal court as well. In this they failed, almost entirely.

The CAFA defines a mass action as a group of cases in which "monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact." (12) This is an invented term. A mass tort would be one example of a mass action, which under the law would be removable if it met the definitional requirements. The group of cases that formed the mass action could be ones of large value or small value, the same as for individual claims within a class action.

Under the new law, if a mass action in a state court meets the definition and a number of other requirements listed below and does not fall into one of the CAFA's exceptions, then it is deemed by law to be a class action. Once it has been designated as such, it can be removed to federal court, as discussed above. (13)

For a mass action to be removed, each of the 100 (or more) cases must meet the jurisdictional minimum of $75,000 in claimed damages. (14) This requirement for removal is different for class actions, which has no $75,000 minimum. Therefore, many mass actions--those involving individual claims that seek smaller sums--would not be removable, although it is possible that any claims over $75,000 could be removed and the rest left in the state court system.

Also, a mass action cannot be removed if the plaintiffs' claims are based on an event that occurred in the state where the suit is pending and injuries occurred in that state or contiguous states. (15) Under this provision, a routine pollution case could not be removed, nor could most small individual consumer claims if one state is involved.

The CAFA also poses another major hurdle to removal by limiting who may seek it. The defendant is usually the party most interested in removal, but the act says the defense may not make that motion or propose that the cases be tried jointly. (16) The plaintiffs could move for a joint trial, which would ordinarily lead to removal, but there is little reason to think they would do so since they chose the state-court venue to begin with. It is possible, though not likely, that plaintiff counsel might want to maintain a mass action in federal court but not be able to file it there (for example, because different lawyers filed individual suits). In such a case, they could move for a joint trial, which, if granted, would make the action removable.

The law also expressly says that cases that have been brought together for pretrial preparation purposes, as happens in many states under special rules, are not joined for purposes of trial. (17) And even if a mass action is somehow removed, it remains in the federal court that corresponds to the state court where the mass action was; it cannot be transferred to a multidistrict litigation unless the majority of the plaintiffs seek that. (18)

The state judge can order, sua sponte, that the cases be joined for trial. However, there are only a few procedural methods available to jointly try a large number of cases--mainly class actions, joinder (as under Federal Rule of Civil Procedure 20 and its state versions), or consolidation (as under Federal Rule of Civil Procedure 42 and its state versions). Neither joinder nor consolidation is likely to be an adequate vehicle for a mass trial. The class action device is a good vehicle, but it is covered in the class action section of the law.

Under Federal Rule 42 and most state laws, cases to be consolidated for trial must be in one venue, where the court is. Usually, though, plaintiffs file their cases in various counties, as happened with the Vioxx cases in New Jersey. Also, most states do not permit joinder of personal injury tort claims. An exception was Mississippi, which used to allow very liberal joinder, and CAFA proponents cited that practice to justify the bill's mass action proposals. However, even before the class action law was passed, the Mississippi Supreme Court had amended its rules for joinder, placing it in line with other states' practices. (19)

West Virginia--specifically the mass asbestos trial that took place there--was also cited as a justification for the mass tort law changes in the CAFA. (20) However, it is not likely that the courts in that state, or any other, would ever again order up such a megatrial, and so another anecdotal reason for changing the law seems more historical than current.

Coupon settlements and notification

The CAFA seems to be a conglomeration of various proposed laws, some of which had been around for years and only now finally passed. An example is the section on so-called coupon settlements. (21) The apparent aim of this section is to limit attorneys' contingent fees when the payment to plaintiffs in a class action is by coupons. One problem is that "coupon" is not defined. After a lot of language, the statute says the fee will be based on the actual value of the coupons used. This too is probably a superfluous provision because in recent years most courts have assessed fees this way. (22) Further, it is strange that business interests wanted to limit coupon settlements, since they favored them as a cheap way to dispose of litigation.

Another stand-alone section of the new law is also likely to work against the goal of the bill's sponsors. Within 10 days of a proposed class action settlement, the defendants must serve certain named public officials with a copy of the proposed settlement so they can take a position on it. (23) The list of officials who must get this notice is extensive, and identifying the proper recipients may be difficult. For example, counsel must determine which state agency deals with the subject matter of the suit. In a nationwide suit, such officials must be identified in every state. If the defendant does not comply with the notification provisions, the plaintiffs may refuse to be bound by the settlement. (24)

Many people who have been injured or defrauded would no doubt be better off if this piece of "reform" legislation--misleadingly labeled "fair"--had never passed. However, now that it is law, there are ways plaintiffs can live with it. Indeed, a more appropriate name for this legislation might be "The Law of Unintended Consequences."

Notes

(1.) Press release, Public Citizen, Business Lobby's Wild Claims About "Judicial Hellholes" for Class Action Suits Are Fraudulent (Jan. 27, 2005), available at www.citizen.org/pressroom/release.cfm?ID=1865 (last visited Sept. 23, 2005).

(2.) Pub. L. No. 109-2, [section] 5, 119 Stat. 4 (codified as amended in scattered sections of 28 U.S.C.). See Pfizer, Inc. v. Lott, No. 05-8013, 2005 WL 1840046 (7th Cir. Aug. 4, 2005) (act does not apply to cases filed before bill signed into law).

(3.) 28 U.S.C. [section] 1711 note (2000).

(4.) Id.

(5.) 28 U.S.C. [section] 1332(d) (2) (2005).

(6.) Id. [sub section] 1332(d)(2) & (d) (5) (B).

(7.) See, e.g., Gibson v. Chrysler Corp., 261 F.3d 927, 940-44 (9th Cir. 2001), cert. denied, 534 U.S. 1104 (2002).

(8.) 28 U.S.C. [section] 1332 (d) (2) (A).

(9.) Id. [section] 1332(d) (6).

(10.) 28 U.S.C. [section] 1711 note.

(11.) An excellent discussion of these points is presented in the ALI-ABA course "The Class Action Fairness Act of 2005: A Dramatic Change in Federal-State Class Actions" (Apr. 19, 2005), in an unpublished paper, Richard T. Seymour & Elizabeth J. Cabraser, CAFA 2005: Analysis and Implications.

(12.) 28 U.S.C. [section] 1332(d) (4). Of course, even before the CAFA, most circuits had refused to certify personal injury classes where the law of many states would have had to be applied.

(13.) One of the CAFA's multitude of drafting errors says that the removal of a mass action as a class action shall be done under parts (2) to (10) of new subsection (d) of [section]1332 (28 U.S.C. [section] 1332 (d) (11) (A)). Those paragraphs do not apply to removal, which is covered in the new [section] 1453.

(14.) 28 U.S.C. [section] 1332(d) (11) (B) (i).

(15.) Id. [section] 1332(d) (11) (B) (ii) (I).

(16.) Id. [section] 1332(d) (11) (B) (ii) (II).

(17.) Id. [section] 1332(d) (11) (B) (ii)(IV).

(18.) Id. [section] 1332(d) (11) (C) (i). Under the class action portions of this act, the removed cases would be subject to MDL transfer, however--a strange discrepancy.

(19.) Wyeth-Ayerst Labs. v. Caldwell, No. 2003-IA-01390-SCT, 2005 WL 171387 (Miss. Jan. 27, 2005). For further discussion of this point, see PAUL D. RHEINGOLD, MASS TORT LITIGATION [section] 5.9 (1996 & 2005 Supp.).

(20.) See State ex rel. Appalachian Power Co. v. MacQueen, 479 S.E.2d 300 (W. Va. 1996).

(21.) 28 U.S.C. [section] 1712.

(22.) See, e.g., discussion of the Telectronics litigation where fees were based on actual recoveries (In re Telectronics Pacing Sys., Inc., 221 F.3d 870 (6th Cir. 2000)), in RHEINGOLD, supra note 19, [section] 14:27.

(23.) 28 U.S.C. [section] 1715(b).

(24.) Id. [section] 1715(e).

PAUL D. RHEINGOLD practices law in New York City.