Class Action Fairness Act Blog

Trouble in Paradise? Emissions Of Hazardous Materials Has An Impact On CAFA Mass Action Jurisdiction As Well

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Tue, 09 Apr 2013 06:30:00 -0600

Abraham v. St. Croix Renaissance Group, L.L.L.P., 2012 WL 60998502 (D.V.I. Dec. 7, 2012).

I’ve got 2 tickets to Paradise. Won’t you pack your bags, we’ll leave tonight! Well, if Paradise is St. Croix, then Eddie Money may want to read this case before going.

While remanding the action to the state court, a District Court in the Virgin Islands held that an environmental tort constitutes “an event or occurrence” for the purpose of the CAFA mass action exception, notwithstanding the fact that the contamination allegedly occurred over a long period of time.

The plaintiffs brought an action against St. Croix Renaissance Group (“SCRG”) claiming personal injury and property damage arising out of the alleged emission of hazardous materials including bauxite residue, coal dust, and friable asbestos from SCRG’s property on St. Croix into the adjoining neighborhoods over a period of years.

The plaintiffs alleged that SCRG maintained an abnormally dangerous condition; its conduct constituted a nuisance as well as negligence; and its actions resulted in intentional and negligent infliction of emotional distress. The plaintiffs sought compensatory, punitive damages, and injunctive relief.

SCRG removed the action to the District Court pursuant to CAFA.

The plaintiffs sought remand to state court, which the District Court granted.

The plaintiffs relied on the CAFA mass action exception found in 28 U.S.C. §1332(d) (11)(B)(ii)(I) for civil actions in which – all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State. The plaintiffs maintained that all the claims arose from “an event or occurrence” in the Virgin Islands and that all injuries resulted there.

SCRG argued that the exception did not apply because there was more than one event or occurrence, which took place over a number of years. The plaintiffs contended that, since 1995 when Hurricane Marilyn struck and continuously thereafter, the bauxite residue blew over the neighboring areas causing personal injuries and property damage. Additionally, the plaintiffs alleged that they had been exposed to friable asbestos emanating from SCRG’s property. The asbestos was said to have been present in the buildings left by the preceding owners, and SCRG had done nothing to contain this toxic material since it became the owner of the property in 2002.

The Court thus noted that the question presented was whether the allegations as pled in the complaint, concerning the continual release of hazardous material over a period of years, fit within the meaning of an event or occurrence as set forth in § 1332(d)(11)(B)(ii)(I).

The Court noted that in Abednego v. Alcoa, 2011 U.S. Dist. LEXIS 27892 (D.V.I. Mar. 17, 2011) the court opined that the personal injury and property damage claims arose out of a single “event or occurrence,” specifically Hurricane Georges, and the action fit within the exception to jurisdiction under §1332(d)(11)(B)(ii)(I) of CAFA. (Editors’ Note: See CAFA Law Blog analysis of Abednego posted on February 27, 2012).

Further, in Allen v. Monsanto Co., 2010 U.S. Dist. LEXIS 144703 (N.D. Fla. Feb. 1, 2010), the court held that an environmental tort constituted “an event or occurrence” for purposes of the CAFA mass action exception, notwithstanding the fact that the contamination allegedly occurred over a long period of time. Also, the Senate Judiciary Committee Report on CAFA stated that the purpose of the “event or occurrence” exception was to allow cases involving environmental torts to remain in state court if both the event and the injuries were truly local, despite out-of-state defendants. (Editors’ Note: Yeaa! Another court looked at the legislative history of CAFA. We wish more would do so!)

The Court stated that the present action, like Abednego and Allen, involved an environmental tort. The Court opined that an “event,” as used in CAFA, encompassed a continuing tort, which results in a regular or continuous release of toxic or hazardous chemicals where there is no superseding occurrence or significant interruption that breaks the chain of causation. The Court remarked that a very narrow interpretation of the word “event,” as advocated by SCRG, would undermine the intent of Congress to allow the state or territorial courts to adjudicate claims involving truly localized environmental torts with localized injuries. The Court thus stated that the allegations in the plaintiffs’ complaint clearly fit within the meaning of an “event” as found in CAFA. The complaint did not qualify as a mass action because all the claims arose from an event or occurrence, that is, the continuous release of toxic substances from a single facility located in the Virgin Islands where the resulting injuries were confined to the Virgin Islands.

Accordingly, the District Court remanded the action to the state court.

By: Kimberly Higginbotham

Controversies Are Not "Not Local" When The Defendants Are Vulnerable To Similar Claims in Other States

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 08 Apr 2013 12:01:07 -0600

Villalpando v. Exel Direct Inc., 2012 WL 5464620 (N.D. Cal. Nov. 8, 2012).

In a class action based on the alleged misclassification of drivers as independent contractors rather than employees, the Northern District Court of California held that the controversy was “not local,” and it denied remand on the basis that the defendants engaged in conduct that could have injured consumers across the country making them vulnerable to similar claims in other states.

The plaintiff filed a class action in the Superior Court of Alameda County, California asserting thirteen wage and hour claims under California state law.

The defendants removed the action to the District Court asserting that removal was proper under CAFA.

The plaintiff filed a motion to remand asserting that the action should be remanded to state court because CAFA did not apply. Among other reasons, the plaintiff argued that the defendants did not provide admissible evidence in the form of affidavits from company directors or officers establishing the existence of minimal diversity, and the “Home State” and “Local Controversy” exceptions to CAFA applied.

The plaintiff alleged that he was a resident of California while the defendants evidenced that they were incorporated in Ohio and based in Florida. Therefore, CAFA’s minimal diversity requirement was met.

Further, the plaintiff contended that the “Home State” exception applied because two-thirds or more of the members of all proposed plaintiff classes in the aggregate were citizens of California, and Exel Direct, the primary defendant, was also a citizen of California.

The defendants did not dispute that two-thirds or more of the members of all proposed plaintiff classes in the aggregate were citizens of California. The defendants did not even dispute that Exel Direct was a primary defendant. Rather, the defendants asserted that, in order for the exception to apply, all of the primary defendants must be citizens of California. In the case at bar, the requirement was not met because Deutsche Poste Beteiligungen Holding GmbH and DPWN Holdings (USA), Inc. were also primary defendants, but they were not citizens of California.

The District Court declined to consider Deutsche Poste Beteiligungen Holding GmbH as a defendant because the plaintiff had not stipulated that he intended to sue that entity, and the defendants offered no evidence or authority suggesting that the Court may consider it as a defendant where it was not named in the complaint. Therefore, the question before the Court was whether DPWN Holdings (USA) was a primary defendant.

Looking to the decisions of other jurisdictions regarding the term “primary defendant,” the District Court found that the complaint alleged no facts that suggested that any defendant other than Exel Direct was directly liable to the plaintiff. The District Court, however, noted that the plaintiff named all three defendants on every claim asserted indicating that, even if the alleged liability may be indirect, those defendants faced exposure to the vast majority of the members of the proposed classes and a “primary defendant” for the purposes of CAFA. Accordingly, the “Home State” exception did not apply.

The plaintiff, nevertheless, contended that even if the “Home State” exception did not apply, the “Local Controversy” exception applied for the following reasons: more than two-thirds of the members of the class members were California citizens; the principal injuries resulting from the defendants’ alleged misconduct occurred in California; Exel Direct was the defendant from whom significant relief was sought and whose alleged conduct formed a significant basis for the claims asserted; and during the three-year period preceding the filing of this case, no other class action had been filed asserting the same or similar factual allegations against any of the defendants.

The defendants maintained that the “Local Controversy” exception did not apply because the principal injuries arising from the alleged conduct of the defendants did not occur in California, and another class action asserting similar factual allegations was filed against one of the defendants within the three-year period preceding the filing of this action. The District Court did not find that the case was factually similar; thus, it could not be used to exclude the instant case from the “Local Controversy” exception.

The District Court, however, opined that there was nothing unique to California about the claims asserted in the action even if the class was limited to the plaintiffs who provided delivery services in California and the claims in the action were based on California law. The District Court reasoned that the controversy was not local because the plaintiff alleged nothing wrongful that was particular to California, and there was no reason to believe that the defendants were not vulnerable to suit on similar grounds beyond California.

Accordingly, the District Court denied the plaintiff’s motion to remand.

By: Kimberly Higginbotham

Defendants Cannot Ask the Court to Bushwhack but, Instead, May Blaze A More Enticing, Interpretive Trail Inviting the Court to Take the Road Less Traveled.

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 25 Mar 2013 10:18:06 -0600

MyinfoGuard, LLC v. Sorrell, 2012 WL 5469913 (D. Vt. Nov. 9, 2012).

Although the enactment of CAFA was meant to expand federal court jurisdiction over class actions, the Vermont district court did not deviate from the traditional “whole complaint”/ wholesale approach analysis when evaluating whether the State is the real party in interest in this parens patriae action.

The State of Vermont was investigating companies for practices that violated Vermont’s Consumer Protection Act (“CPA”), Vt. Stat. Ann. tit 9 § 2451 et seq. These practices included, but were not limited to, charging consumers for telephone services without consumers’ authorization (i.e. “cramming”) and failing to comply with notification requirements.

While the parties were engaged in initial settlement discussions, ten companies located in Florida and New York (collectively, “the Sellers”) filed a suit in the district court of Vermont challenging the constitutionality the CPA’s notification provision, Vt. Stat. Ann. tit 9 § 2466, on Commerce Clause, equal protection, and First Amendment grounds.

The State filed a civil enforcement action in the Washington Superior Court against the Sellers, thirteen related individuals, and three other companies for alleged violations of the CPA §§2453 and 2466. The Sellers removed the state enforcement action to the district court claiming original jurisdiction based upon ordinary diversity jurisdiction under 28 U.S.C. § 1332(a); the “mass action” provision of CAFA 28 U.S.C. § 1332(d)(1); and the “class action” provision of CAFA, 28 U.S.C. § 1332(d)(2)-(10).

The State asserted that removal was improper, and it moved that the district court remand the action to the Washington Superior Court.

The State argued that it was not a citizen for the purpose of diversity jurisdiction. Moreover, the State asserted that both the class action and mass action prongs of CAFA required at least 100 members. With the State being the sole plaintiff in the enforcement action, the Sellers could not establish the CAFA numerosity requirement.

The Sellers responded that the court must look beyond the face of the complaint and determine whether there was jurisdiction based on the citizenship of the “real and substantial parties to the controversy,” who were the affected consumers and their telephone providers. The fundamental dispute, thus, was whether the State or the group of consumers subjected to cramming was the real party in interest.

The district court noted that if those consumers, numbering over one thousand, were the real parties in interest, then the Sellers had no difficulty satisfying the CAFA numerosity requirement and may satisfy complete diversity for the purposes of § 1332(a).

With respect to both § 1332(a) and CAFA, federal courts are in general agreement that a crucial distinction must be drawn between a plaintiff who sues solely in his capacity as an agent and a plaintiff who sues not only as an agent but also as an individual who has his own stake in the litigation. The district court referenced the circuit split regarding the proper approach for determining whether the State is a real party in interest in parens patriae actions noting that “[t]he Fifth Circuit has adopted a “claim-by-claim” analysis, which despite its name, actually requires a court to consider whether a party will benefit from each form of relief requested. The Fourth, Seventh, and Ninth Circuits, on the other hand, apply a wholesale approach, which requires consideration of the complaint in its entirety. The Second Circuit is yet to decide this question, but a district court in Connecticut has joined the Fourth, Seventh, and Ninth Circuits in applying the wholesale approach.”

Employing literary rhetoric, the district court concluded that “in the woods of statutory interpretation, this Court may occasionally be convinced to take a road less traveled, but by advancing a rather tortured construction of the Vermont’s since-amended Consumer Protection Act (“CPA”), the Sellers were essentially asking the Court to bushwhack”. Thus electing to apply the wholesale approach, the district court found that the State was the real party in interest in its enforcement action. The court noted that the fact that the State sought restitution for Vermont consumers affected by cramming practices did not undermine the State’s broader interest in its case. Because the State sought remedies unavailable to consumers (i.e. civil penalties and a statewide injunction against cramming), the district court found that the State had concrete interests in the litigation as the benefits of remedies flowed to the State as a whole.

The Sellers argued that the civil penalty and injunction portions of the complaint were irrelevant to the determination of whether the State is the real party at interest because the injunction and civil penalty provisions of the CPA were facially inapplicable.

The district court, nevertheless, concluded that the State was relying on a reasonable interpretation of Vermont Statutes Annotated Title 9 § 2458, the State’s requests for injunctive relief and civil penalties were not facially inapplicable, and those forms of relief were relevant to the determination that the State was a real party in interest.

Therefore, the district court found that it lacked original jurisdiction under either the general diversity provision 28 U.S.C. § 1332(a) or CAFA and removal was improper. Remanding the action to the Washington Superior Court, the district court added that “[t]he Sellers are of course entitled to raise their arguments again on remand; however, this Court suspects that the Sellers will find themselves entangled in the prickly-ash if they do not blaze an interpretive trail that is more enticing to follow”.

Extra! Extra! Read All About It! Get the Scoop on the First CAFA Supreme Court Case

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Tue, 15 Jan 2013 10:14:16 -0600

Well, it took a few years, but the U.S. Supreme Court finally took a CAFA case: Standard Insurance Co. v. Knowles. As our brilliant readers already know, the Class Action Fairness Act has generated extensive litigation on damages stipulations since its 2005 enactment, but the law remains unsettled. However, our very own CAFA Law Blog experts, Anthony Rollo, Michael Ferachi, and Kimberly Higginbotham, have summarized all you need to know about Knowles, CAFA, and damage stipulations in a BNA Insight article entitled, "Finally! The Inaugural Class Action Fairness Act Case Before the U.S. Supreme Court and What It's All About." You can access the article here.

The U.S. Supreme Court hear oral argument on January 7, and you can access an outstanding summary of the case and the oral argument at SCOTUSblog here.

If the Burden is on you to Prove the Amount in Controversy, be Sure to Check your Math!

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 01 Nov 2012 14:31:16 -0600

Kim v. Mosaic Sales Solutions Holding Co., No. 2:10-cv-03186-MCE-GGH, 2011 WL 775895 (E.D. Cal. Feb. 28, 2011).

As lawyers, sometimes we are not the best number crunchers. After all, many of us pursued degrees in Political Science because there was very little math required. But, when fooling with CAFA, make sure your math is correct if you have the burden to prove the jurisdictional amount.

In this case in the Eastern District of California, Judge Morrison C. England, Jr. held that although the preponderance of the evidence standard is not ‘daunting,”he could not conclude that the amount in controversy exceeded $5 million, particularly when the amount in controversy asserted exceeded the jurisdictional requirement by only a small amount and the large portion of the defendant’s calculation was based on false assumptions.

The plaintiff, an employee of the defendant, brought a class action in state court, alleging that the defendant, Mosaic Sales Solutions Holding Company, failed to fully compensate its hourly employees in violation of the California Labor Code. Specifically, the complaint alleged that Mosaic Sales instituted a “uniform and systematic scheme” of wage abuse, pursuant to which its employees were required to work uncompensated hours.

According to the plaintiff, Mosaic Sales assigned its employees tasks that could not be completed within scheduled hours while, at the same time, precluding them from recording the extra hours needed to accomplish those tasks. If employees did record extra hours, the plaintiff asserted that Mosaic Sales would alter or delete the pertinent time records. As a result, Mosaic Sales allegedly failed to compensate employees for all hours worked, and also failed to pay overtime. The plaintiff accordingly sought damages, statutory penalties, interest, attorneys’ fees, and injunctive relief.

Mosaic Sales removed the action to the federal court under CAFA.

The plaintiff moved to remand arguing that Mosaic Sales had not established the $5 million amount in controversy requirement under CAFA.

The district court agreed and remanded the action to state court.

In the complaint, the plaintiff alleged that the “total damages for the entire case do not exceed $5 million.” Because the complaint failed to affirmatively state a specific amount in controversy, the court found that the defendant needed to prove the jurisdictional requirement by a preponderance of the evidence. Under the preponderance of the evidence standard, a defendant must prove that it is more likely than not that the amount in controversy exceeds the jurisdictional requirement. The court stated this is not a “daunting” burden, and defendant is not required to “research, state and prove the plaintiff’s claims for damages.”

In order to discharge its burden of proving the amount, Mosaic Sales provided detailed calculations to the effect that the amount in controversy was at least $5,149,636 excluding attorney’s fees. In support of its calculations, Mosaic Sales presented evidence that there were 1,852 Class members, that they received an average of $11.98 hourly pay, and that they received an average of $17.97 average hourly overtime pay. Mosaic Sales also produced evidence of the number of class members who were former employees, the number of initial paychecks, and the total number of paychecks issued to the class, the total number of overtime eligible shifts worked, the total number of overtime eligible weeks worked, and the total number of lunch-break eligible shifts worked.

The court observed that although Mosaic Sales’ calculations were detailed, and for the most part convincing, ultimately the evidence proved inadequate to establish the court’s jurisdiction. The court remarked that the defendant committed its most significant error in its calculation of the amount in controversy associated with waiting time penalties pursuant to Lab. Code § 203. Under § 203, employees are entitled to continuing wages for up to thirty days as a penalty for an employer’s failure to provide final pay within a certain time following conclusion of employment. Mosaic Sales calculated that this claim placed $2,415,168 into controversy by assuming thirty days of eight-hour pay for each class member who is a former employee.

The Court pointed that penalties under §203 are calculated by multiplying the average pay per day worked by the number of days of nonpayment. In determining the average daily pay, Mosaic Sales assumed without evidence that all formerly employed class members worked eight-hour days. Mosaic Sales’ evidence, however, established that the class worked less than eight hours daily. As a result, Mosaic Sales’ calculation of $2,415,168 additional amount in controversy was inflated.

The court stated that Mosaic Sales’ claimed amount in controversy only exceeded the jurisdictional requirement by $149,636. Because such a large portion of Mosaic Sales alleged amount in controversy was based on the false assumption that class members worked an average of eight hour per day, the court concluded that it was more likely than not that the amount in controversy did not in fact exceed $5 million.

Accordingly, the court remanded the action to the Superior Court of California, for final adjudication.

Guest Post: How the Class Action Fairness Act has Impacted Federal Courts

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 18 Oct 2012 11:01:11 -0600

Here is our second guest post for the day. This one is from Kevin Krist, a personal injury attorney located in Houston.

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The Class Action Fairness Act of 2005 was designed mainly to curtail abuses that class action lawsuits often made on the justice system. It also was meant to give more power to federal courts, especially where the plaintiffs were mixed and settlements were involved.

But has CAFA also reduced "forum shopping" i.e., lawyers looking for state courts that will give them the most favorable verdict? Has CAFA also threatened the autonomy of state courts? Has CAFA truly leveled the playing field and exercised fairness?

The Arguments For and Against CAFA

The advocates of Pro-CAFA stress the problem that clients face of having to pay attorneys' fees out of their settlement. This defeats the purpose of a class action suit supposedly giving the clients the money that they deserve for damages caused. Therefore, CAFA makes settlement scrutiny more rigorous, giving clients the chance to truly be compensated.

Anti-CAFA advocates, however, stress that leaving the work to federal judges can back up the already congested federal courts. This can lead to longer class action lawsuits which would otherwise be settled if they had been filed at the state level. CAFA would therefore make it harder to file a class action lawsuit because of the amount of work involved in bringing a case to a federal court. To some lawmakers, this meant that large corporations could go scot-free.

Moreover, because federal judges are appointed by the government, the government could also control the outcome of class action lawsuits by changing federal judges, supposedly in favor of large companies that support the government. Not only does CAFA cater to the rich, it could well go against the principle of state autonomy.

The Impact on Federal Courts

Given these concerns, it appears that the most telling outcome would be bogging down of cases in federal courts, as well as the lack of solved class action cases that have diverse plaintiffs and go upwards of $5 million in damages.

Studies have shown that indeed, there are more class action suits filed at federal courts, with the diversity jurisdiction used as justification. More precisely, the number of cases filed represents a three-fold increase from pre-CAFA days. Studies also show that many cases that were previously tried in state courts are now being removed to federal courts, which would justify the concern that federal courts would be filled with case after case.

There has been no study as to whether or not lawsuits are taking longer to file and/or solve. However, the numbers show that while there is an increase in class action suits being filed at federal courts, the number is primarily due to a greater number of newly-filed suits. The higher numbers are not the result of cases simply being moved from the state to the federal level.

Forum shopping has also taken a new form: that of lawyers choosing specific federal courts that are more likely to grant favorable verdicts to a class action lawsuit. This puts state autonomy in danger, as some plaintiffs are most likely going to demand that state-specific laws apply nationwide.

The forum shopping amongst federal courts has also led to division amongst these courts, which may one day require the intervention of the Supreme Court. More class action suits are being filed, and they could well test the rigor and scrutiny that CAFA promises.

Guest post contributed by Kevin Krist - the proprietor of Kevin Krist Law firm. Visit its site to locate a Houston Personal Injury Lawyer or a Houston Car Accident Lawyer.

Guest Post: Happy Birthday CAFA: Has It Improved the Federal Court System?

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 18 Oct 2012 10:45:15 -0600

The CAFA Law Blog is pleased to publish another guest post. This one is from Sarah Rawson. Sarah, you have the floor....

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The Class Action Fairness Act of 2005 increased federal control of class action lawsuits. The purpose of the legislation was to revise the procedures that apply to consideration of interstate class actions to guarantee a more equitable result for members of class action lawsuits. The Act enables federal court supervision over class action lawsuits for more than $5 million that involved a citizen of a state different from the defendants’ state. Opinions vary wildly, however, regarding whether the law has actually improved the federal court system.

The law satisfied two objectives. First, it expanded federal diversity jurisdiction over class actions without "complete diversity," implementing supervision over class actions against out-of-state defendants. Second, it required a greater degree of federal examination of class action lawsuits and decreased the incidence of excessive attorney fees. Critics argued that the expansion of federal jurisdiction would come at the expense of state's rights, but proponents maintained that the law was needed in order to prevent abuse in connection with class action lawsuits.

In the case of Adoma v. University of Phoenix, Inc., brought under the FLSA and California Labor Code, the court was able to use CAFA to employ supplemental jurisdiction. (Editors' Note: See the CAFA Law Blog analysis of Adoma published on February 24, 2012). Although a California District Court disposed of all the federal claims, it applied supplemental jurisdiction over the remaining state law claims because the amount in controversy was over the CAFA limit.

According to “Impact of CAFA on the Federal Courts,” issued by the Federal Judicial Center, research indicates that in class actions involving diversity, CAFA has caused “a 72 percent increase in class action activity in the eighty-eight district courts . . . studied,” compared to the pre-CAFA period. However, the report also stated that cases involving the Fair Labor Standards Act accounted for almost 47 percent of class actions in the federal system after the CAFA was enacted, compared to 25 percent of class actions prior to the passage of the legislation. At the same time, consumer fraud class actions have multiplied since the passage of CAFA. On average, almost ten such class actions have been filed every month. This is more than a threefold increase compared to the pre-CAFA period; such filings were generally less than three per month before CAFA was passed.

The FJC study found that the increase in diversity class actions was due primarily to an increase in consumer fraud filings. This finding suggests that contrary to expectations, plaintiffs' attorneys are now choosing the federal forum, rather than defendants' counsel.
The report ends with the conclusion that although CAFA has caused an increased number of class actions based on diversity of citizenship jurisdiction to be filed in the federal courts, personal injury cases have not increased.

It is hard to determine the success or failure of CAFA because the class action atmosphere is still in disarray, and lawyers who behaved one way before CAFA are now developing new methods to achieve the same results. It appears that consumer protection lawsuits have replaced personal injury class action as the lawsuit of choice. Judges are now examining class action cases more carefully. This attention itself will likely prevent the worst abuses. Although future reports have been promised, FJC researchers interpret their fourth interim report to “strongly suggest that CAFA has altered class action plaintiffs’ forum choices.”

As the Class Action Fairness Act (CAFA) of 2005 reaches its seventh birthday, it is clear that CAFA has affected both litigation and judicial action cases in the federal courts in some respects. The Act may not be functioning as expected; however, the studies so far are inconclusive and more research is needed.

This guest post was contributed by Sarah Rawson. Sarah is a tutor for various Criminal Justice and Corrections programs online. She also moonlights as a freelance writer. Her articles mainly appear on higher education blogs where she enjoys sharing her insights.

Continuing Jurisdiction - You Can't Always Get what you Want, or what you Need....

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 08 Oct 2012 17:09:30 -0600

Taragan v. Nissan N. Am., Inc., No: C 09-03660 SBA, 2011 WL 941132 (N.D. Cal. March 16, 2011).

After dismissal of class claims, it seems that both parties wanted to stay in federal court to decide the claims of the individual plaintiffs, but you can’t always get what you want, or even what you need. The court said no supplemental jurisdiction, go forth and file elsewhere, if you want.

In this case, the Northern District of California held that the court has no continuing jurisdiction under CAFA with respect to individual state law causes of action when CAFA-based claims are no longer pending.

The plaintiffs, Helen Taragan, along with Frances Jeanette Taylor and Clarence Taylor, filed a complaint in the district court for damages and equitable relief, alleging six claims for relief against Nissan North America, Inc., and Nissan Motor Company, Ltd. The plaintiffs brought four class claims -- (1) breach of express warranty; (2) breach of implied warranty; (3) violations of State Consumer Protection Statutes; and (4) unjust enrichment, all pursuant to CAFA on the theory that Nissan violated the Federal Motor Vehicle Safety Standard 114 because the automobile key fob can be removed from the vehicle while it is turned off, even when the transmission gear is not in “park.”

In addition to the class claims, the complaint alleged two individual state law claims brought solely on behalf of the named plaintiffs, who are residents of Louisiana. The named plaintiffs’ individual claims were a design defect/failure to warn products liability claim based on Louisiana law, and a negligent infliction of emotional distress claim, which arose from an accident involving their Nissan Murano in Louisiana in August 2008. The Complaint alleged that the court had supplemental jurisdiction over these individual state law claims under 28 U.S.C. § 1367(a).

Subsequently, the court dismissed all the four class claims, without leave to amend. As a result, the court directed the parties to brief the issue of whether it had original jurisdiction over the remaining individual state law claims brought by the named plaintiffs, and if not, whether the court should exercise supplemental jurisdiction over them.

Both parties timely filed memoranda in response to the court’s order. Specifically, Nissan, concurring with the plaintiffs, asserted that the parties were diverse and that more than $75,000 in controversy was at issue; thus, the court had jurisdiction pursuant to 28 U.S.C. § 1332(a). Second, Nissan contended that the court had “continuing jurisdiction” under CAFA, 28 U.S.C. § 1332(b). Finally, Nissan urged, as an alternative matter, that the court assert supplemental jurisdiction over the named plaintiffs’ claims under 28 U.S.C. § 1367(a).

The court found that the complaint did not contain any allegation that jurisdiction was based on diversity under § 1332(a) nor were there any allegations that the amount in controversy exceeded $75,000. Rather, the pleadings merely alleged that the court had original jurisdiction over the class claims pursuant to CAFA, and supplemental jurisdiction with respect to the remaining state law causes of action. The court pointed that the basis of the district court’s jurisdiction must be expressly alleged in the pleadings, and where the complaint fails to allege the basis of diversity jurisdiction, including the amount in controversy, the complaint is subject to dismissal. Because the plaintiffs failed to allege jurisdiction under § 1332(a), the court rejected the parties’ belated attempt to predicate the Court’s subject matter jurisdiction on that basis.

Also, citing United States v. Shell Oil Co., 602 F.3d 1087, 1089 (9th Cir. 2010), Nissan contended that the court should maintain continuing jurisdiction over the individual claims under CAFA, notwithstanding the Court’s prior dismissal of the plaintiffs’ class claims. In Shell Oil, the Ninth Circuit held that the denial of class certification does not divest a federal court of jurisdiction over cases removed under CAFA. The court, however, found that Shell Oil was distinguishable because, unlike Shell Oil, the instant action was not removed from state court; rather, it was initiated in the district court. Moreover, although the district court in Shell Oil denied class certification, the claims over which the district court had original jurisdiction remained pending. In contrast, the class claims -- over which the court had original jurisdiction under CAFA -- had been dismissed.

The court noted that Nissan had not presented the court with any authority demonstrating that the court had continuing jurisdiction under CAFA with respect to individual state law causes of action where, as here, the CAFA-based claims are no longer pending. Therefore, the court concluded that it had no continuing jurisdiction over the individual claims under CAFA.

Finally, the court found that the fact that the court dismissed the plaintiffs’ class claims at the pleading stage militated against retaining jurisdiction. Accordingly, the court declined to assert supplemental jurisdiction over the individual claims of named plaintiffs, and dismissed them without prejudice to refiling said claims in an appropriate forum.

"No, You Just Thought You Were a Defendant," the Sixth Circuit Tells MERS

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Tue, 02 Oct 2012 05:30:00 -0600

In Re Mortgage Electronic Registration Systems, Inc., 680 F.3d 849 (6th Cir. 2012).

Here, the plaintiff, Kathy Hanson, obtained a loan from America’s Wholesale Lender to purchase real property, and signed a mortgage with Mortgage Electronic Registration Systems (MERS) as the beneficial holder.

BAC Home Loans Servicing, LP subsequently filed a foreclosure action, and the plaintiff filed a counterclaim, arguing that BAC did not establish that it was the valid holder of the note and mortgage. The plaintiff then obtained leave of court to file a third-party class action against MERS.

MERS removed under CAFA, and the plaintiff filed a motion to remand, arguing that MERS, although a defendant under the third party complaint, was not a “defendant” under CAFA.

The district court agreed and remanded the case, and the Sixth Circuit Court of Appeals affirmed.

The court noted that, under the general removal statute and interpretive case law, a counterclaim or third-party defendant is not a “defendant” who may remove the action to federal court. MERS tried to distinguish the CAFA removal language by pointing out that it allowed “any defendant” to remove. The court was not convinced, stating that that provision “simply modifies the rule that all defendants must consent to removal.”

The court noted that the majority of courts considering the issue had concluded that the CAFA removal provision did not “overwrite the accepted meaning of ‘defendant.’” Thus, the court concluded that third-party defendants do not have the statutory authority under CAFA to remove a state court action to federal district court.

You Know That Award for Most Boring Case Ever Written? Yeah, We Have a Winner.

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 01 Oct 2012 09:43:38 -0600

BlackRock Fin. Mgmt. Inc. v. Segregated Account of AMBAC Assur., 673 F.3d 169 (2d Cir. 2012).

Here is a rare appellate snoozer that we have boiled down for you.

The Bank of New York Mellon (BoNY), acting in its capacity as trustee of trusts established to hold residential mortgage-backed securities, settled claims that the originator and servicer had breached obligations owed to the trusts. As a condition precedent to the settlement, BoNY then initiated a proceeding in the New York Supreme Court to confirm that it had the authority to enter into the settlement under the governing trust documents, and that its entry into the settlement did not violate its duties under the governing trust agreements and state law.

Certain investors intervened in the special proceeding, and removed the proceeding to federal court under CAFA.

BoNY filed a motion to remand, arguing that the controversy fell within CAFA’s “securities” exception.

The district court denied BoNY’s motion to remand, and it appealed.

The Second Circuit Court of Appeals reversed, finding that the case did fall within the “securities” exception.

At issue was some 530 trusts created between 2004 and 2008 for which BoNY was the trustee. The mortgages were sold into the trusts by Countrywide Home Loans, Inc. One set of investors complained to BoNY that a large number of mortgages that Countrywide sold into the trusts failed to comply with the applicable representations and warranties contained in the pooling and servicing agreements (the “PSAs”).

Another set of investors demanded that BoNY sue Countrywide to enforce the terms of the PSAs.

Eventually, the parties reached a settlement, in which Countrywide would pay $8.5 billion to be allocated among all the MBS trusts; however, the settlement agreement was contingent on court approval – and would not become effective until BoNY brought a special proceeding in New York state court and obtained entry of a judgment sanctioning its execution of the agreement.

Several investors moved to intervene in the special state court proceeding, chiefly to exclude the trusts that they had invested in from the settlement because BoNY allegedly had negotiated the agreement “in secret.” These investors removed the case to federal court, alleging that the proceeding was a “mass action” under CAFA. BoNY and the other investors moved to remand, arguing that the action fell within CAFA’s “securities” exception, and the Second Circuit agreed.

The Court noted that, although Congress had expanded federal jurisdiction under CAFA, it had carved out several exceptions to that expanded jurisdiction. Specifically applicable to this case was 28 USC §1453(d) (the securities exception) which states, in part, that CAFA shall not apply to any class action that solely involves “a claim that relates to the rights duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security . . . .” See 28 USC §1453(d)(3).

The first step in the analysis, noted the Court, was to determine what claims were asserted in state court. The Court characterized BoNY’s claim as a “declaration authorizing the exercise of a trustee’s powers,” and noted that it must decide whether that claim “solely involves a claim that ‘relates to the rights, duties (including fiduciary duties), and obligations relating to or created pursuant to any security,’” and that “[b]ecause [BoNY] seeks a construction of its rights under the PSA and in instruction from the court as to whether it has complied with its ‘duties . . . and obligations’ arising from the PSA and its ‘fiduciary duties’ superimposed by state law, we conclude that it does.” Thus, because the claim at issue fell within the “securities” exception to CAFA, the Second Circuit panel reversed the district court, and ordered it to remand the proceeding to the New York Supreme Court.

And my friends, if you have read to this point and remain awake, I applaud you.

The First Circuit Rules That Federal Law Has Its Limits - Who Knew?

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 24 Sep 2012 08:35:11 -0600

In Re: Volkswagen and Audi Warranty, 2012 WL 3064844 (1st Cir. July 27, 2012).

Plaintiffs nationwide sought to bring claims on behalf of all persons or entities in the United States who were current or former owners of several particular vehicles, alleging that the engines were defectively designed and that the defendants concealed the defects.

Five putative statewide class actions were ultimately filed in five federal district courts alleging, among other things, consumer fraud and unfair and deceptive trade practices. The suits were subsequently consolidated by the Judicial Panel of Multidistrict Litigation and transferred to the District of Massachusetts for pretrial proceedings.

After much negotiation, the parties submitted a proposed settlement agreement to the district court, along with a motion requesting conditional approval of the settlement and certification of a class for settlement purposes. Class counsel subsequently submitted a request for $37.5 million in attorneys’ fees under Federal Rule of Civil Procedure 23(h) and argued that federal law governed the award of the fees.

While the defendants did not argue that the court should not award attorneys’ fees, they strongly opposed the argument that federal law could apply. The defendants also opposed class counsel’s fee calculation methodology.

The special master issued a report finding that federal law governed the fee award and recommending an award of $30 million in attorneys’ fees and $1.2 million in costs.

The district court adopted the special master’s recommendation virtually verbatim, and the defendants appealed.

The First Circuit vacated the fee award, holding that the district court erred in applying federal law principles instead of the relevant state’s law when calculating the fee award. The court began its analysis by noting that, under the “American Rule,” it is axiomatic that each litigant pays his own attorneys’ fees, win or lose, unless a statute or contract provides otherwise. One of the exceptions applied here, as the defendants had agreed to pay reasonable attorneys’ fees as part of the settlement agreement. The real question in the case, the court noted, was what source of law governed the fee award, and the district court had erred when it held that federal law did.

To determine the source of law that governed the settlement agreement, the court stated that it must engage in a two-part inquiry. First, it had to evaluate whether, under the Erie doctrine, federal or state law governed.

Second, if state law governed and a choice of law must be made, it had to determine which state’s law applied, by applying the choice of law rules of the forum state (subject to the complexities of MDL litigation).

As for the first inquiry, the court stated that, as a general matter, interpreting settlement agreements and their scope is a matter of state contract law. The court noted that it also started with the basic premise that the issue of attorneys’ fees has long been considered, for Erie purposes, to be substantive and not procedural, and so state-law principles normally govern the award of fees. The court rejected class counsel’s argument that FRCP 23(h) provided a basis for applying federal law principles to the award of attorneys’ fees, noting that “Rule 23(h) does not provide a free-floating grant of authority to apply federal law to award attorneys’ fees in class actions; rather it allows the federal court to make fee awards where they ‘are authorized by law or by the parties’ agreement.’”

The court also rejected class counsel’s argument that the court had “inherent federal equitable powers” to fashion an attorneys’ fee award, stating that “[t]he basis for the award here is the agreement itself, a contract under state law, and not federal law.” “The fact that attorneys’ fees are provided for by the settlement agreement is one of several reasons why there is no basis to resort to these federal equitable doctrines.”

After concluding that state law governed, the court moved on to the second inquiry – which state’s choice of law principles applied. The court noted that, in diversity cases, a court ordinarily must apply the choice-of-law rules of the state in which it sits. But special rules apply in MDL cases – where a suit is consolidated and transferred, courts typically apply the choice of law rules of each of the transferor courts.

Here, a total of seven cases ultimately were transferred to the District of Massachusetts, from six states. The court noted that most of the states in which the suits originated followed the “most significant relationship” test to determine the source of law that applies to contracts that do not contain a choice of law provision.

Under that approach, Massachusetts law would apply, as the settlement negotiations occurred there, the settlement agreement was drafted there, etc. Although the two other transferor states used different approaches to determine source of law, the court concluded that their respective tests would also apply Massachusetts law.

Thus, the court held, the district court should have applied the substantive law of Massachusetts when considering the attorney fee award, and it remanded the case to the district court with instructions to do so. Score one for the Tenth Amendment.

Guest Post: The Class Action Fairness Act's Impact Internationally

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 03 Sep 2012 17:28:22 -0600

The CAFA Law Blog is pleased to post another guest post. This post is from Daniela Levett for Pryers Solicitors. Daniela, you have the mike....

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It has been seven years since President George W. Bush signed the Class Action Fairness Act into American law. The act changed the way class action lawsuits are filed and handled in the United States. CAFA, as it is known, has changed the way that large class action suits are handled in the U.S., but what has the effect of this law been on international law and international class action cases?

Other nations have for decades kept a close eye on class action lawsuits in the United States as lawsuits of this nature were almost entirely unique to this country. European nations in particular have long viewed class action suits in the U.S. with both suspicion and admiration. The enactment of CAFA in 2005 has further increased the interest of other nations in class action litigation.

Prior to 1998, during the formation of the European Union, nations across Europe looked to the American system to judge how useful class action suits were. When the European Parliament and Council issued a directive for all member states to implement programs for group litigation, various methods popped up across the continent.

In the years since 2000, when member states of the European Union needed to enact group litigation policies, the pace of class action suits has ramped up across the continent. In a reversal of trends, the implementation of CAFA in 2005 signaled an interest in the U.S. in reigning in class action suits due to their cost, questionable benefits, and the strain they place on the U.S. federal court system.

As the pace of litigation in the United States began to shift post-CAFA, the interest in and support of class action litigation around the globe appears to have increased. Consumers, who have long been without a legal mechanism for class action suits, began to clamor for a means of redress against the wrongful acts of a company.

While the 2005 enactment of CAFA sought to control the spiraling pace of class action lawsuits in America, other nations began to enact laws to provide an organized mechanism for consumers to seek redress against companies. A few examples include:

- As of 2008, nine of the 10 provinces of Canada of comprehensive class action laws that provide, in particular, “opt-out” clauses that allow citizens of a different province to be included in decisions issued in another province unless they opt-out of the suit.

- Italy has class action regulations in effect as of 1 July 2009. Consumer organizations can file suit against corporations on behalf of a group of consumers and then obtain judicial orders against corporations that have caused injury or damage.

On the other hand, some nations have had an opposite reaction in the wake of CAFA and even criticized groups that hold up the U.S. class action system as an example. In 2006, Switzerland rejected the introduction of class action legal codes. The proposed Swiss law was denied because it was viewed as being “alien to European minds” to allow somebody to represent the legal rights of an entire group. In the ruling, the U.S. system was criticized for its procedural problems and the high rate of abuse in the system.

The greatest movement in the wake of CAFA has been the proposal of “collective redress” by the European Union. The European Commission has been studying the idea of a European-style class action since 2008. The idea is to provide an overarching group litigation process that would apply to all 27 member states and replace any current systems used in those regions. As of early 2012, the issue has yet to be settled.

One thing has become clear. While the U.S. continues to battle back against runaway class action lawsuits, other nations are embracing the idea of class action suits and working to enact legal guidelines that provide a mechanism for class action lawsuits.

Author Bio:

Guest Post was contributed by Daniela Levett for Pryers Solicitors. Daniela is a freelance writer with extensive legal background as an attorney. She enjoys writing for various online legal publications.

Guest Post: The Impact of the Class Fairness Act

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Mon, 27 Aug 2012 14:37:18 -0600

Today, we are pleased to publish a Guest Post written by Paul Kasparov on behalf of MayoWynneBaxter.co.uk – specialist Wills and Probate Solicitors. Paul, you have the floor.

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Legislating litigation is one of the most politicized and unpredictable functions undertaken by the United States government. In many cases, legislation that addresses how class action and civil suits play out in the American justice system have unpredictable results. Often legislation will be used in ways that are not expected by the creators of the bills or be interpreted in unexpected ways by jurors and judges. These discrepancies in the interpretations of laws often lead to results in the justice system that are unintended or in some cases completely contrary to the initial intent of the legislation. The Class Action Fairness Act of 2005, according to many critics, has had the opposite effect of its intended purpose in practice – although according to Congress, its intended effects have proceeded as planned.

The Class Action Fairness Act of 2005 was designed by reform advocates that had two main goals. The first was to limit the abuse of the class action procedure. In the past, out-of-state defendants essentially “shopped around” to find state courts that were friendly to their complaints. This act was designed to curb this tendency by expanding federal jurisdiction over this type of suit. By diversifying federal jurisdiction, the “complete diversity” of federal jurisdiction would eliminate the occurrence of so-called magnet areas of jurisdiction where there might be biased rulings. Secondly, the act was designed to limit the fees that attorneys could charge the class members should they be deemed excessive. Prior to this act there were instances of class action suits in which the lawyer fees actually exceeded the amount of the settlement awarded to class members. The Class Action Fairness Act was signed into law by George W. Bush, expanding the federal jurisdiction over a large majority of class action lawsuits and mass legal action that is taken in the United States.

Specifically, this act gave the federal government jurisdiction in certain class actions in which the amount of money being considered exceeded five million dollars or in which members of the class of plaintiffs were citizens of a different state then that of the defendants. The Class Action Fairness Act drew a great deal of controversy, with critics claiming that it limited the rights of individuals who were wronged by large corporate entities. They also claimed that the bill prolonged litigation, slowed the court dockets of federal proceedings and even opened the door to federal control of court outcomes through judicial appointments to particular cases. Some critics also argued that this act was in fact an infringement of state's rights, although supporters of the bill responded that the act was consistent with the founders' original intent for federal jurisdiction.

In reality, researchers have found that this act was followed by an increase in class action suits moved into the federal jurisdiction. This increase came in the form of consumer class actions and original filings that were already present in the federal court system. Such a trend suggests that plaintiff attorneys are willingly choosing the federal stage for their cases rather than the defendants' counsel removing their cases from state jurisdiction, which was indeed unexpected.

Author Bio:

Guest post contributed by Paul Kasparov on behalf of MayoWynneBaxter.co.uk – specialist Wills and Probate Solicitors. Paul is a freelance writer who has worked extensively as an attorney. He has combined his love for writing with his experience in the legal field. His articles appear on various online legal blogs.

Plaintiff's Jurisdictional Allegations Were Cemented at the Time of Removal

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Fri, 13 Jul 2012 09:42:16 -0600

Hardig v. Certainteed Corp., 2012 WL 423512 (W.D.N.C. Feb. 9, 2012).

The Western District of North Carolina held that a class complaint is cemented at the time of removal and that jurisdiction can’t be undone through “post hoc characterization.”

The plaintiffs brought a class action in the Superior Court of Union County, North Carolina, alleging breach of warranty and violations of the North Carolina Unfair and Deceptive Trade Practices Act. Specifically, the plaintiffs alleged that a fiber cement siding manufactured by the defendant, Certainteed, and installed on the plaintiffs’ homes suffered from an inherent defect that caused the siding to crack and peel. The plaintiffs’ sought actual damages, in addition to treble damages under the Unfair and Deceptive Trade Practice Act.

The defendant removed the action to the Western District of North Carolina under CAFA.

The plaintiffs moved to remand, arguing that the defendants failed to establish that this action met CAFA’s jurisdictional threshold of more than $5 million in controversy. The plaintiffs’ remand argument was based on one assertion: that the class was in fact much smaller than suggested by the class complaint, meaning the overall amount in controversy fell under the $5 million threshold.

In its Notice of Removal, Certainteed submitted an affidavit from its consumer warranty manager, who stated that the retail cost of the siding for an average single-family home was $3000 to $4000 (excluding labor). The plaintiffs’ Complaint alleged that they were suing “on behalf of all persons and entities who own homes, residences or other structures physically located in North Carolina, on which the defendants or one of their related entities or subcontractors installed Certainteed WeatherBoards Fiber Cement exterior siding.” In paragraph 49 of the Complaint, the plaintiff alleged that “the Class is composed of thousands of persons geographically dispersed throughout Indian Trail, North Carolina as well as the state of North Carolina, the joinder of whom in one action is impractical.” The size of the class – “thousands” – when multiplied by the $3,000-$4,000 cost of siding, exceeded the $5 million threshold.

In their brief in support of remand, the plaintiffs conceded that only 501 homes fell within the putative class. Specifically, the plaintiffs contended that the class complaint was not intended to encompass all of North Carolina but was rather intended to cover the town of Indian Trail and surrounding area.

The Court refused to accept the plaintiffs’ attempt to recharacterize the size of their class, holding that amount in controversy is determined by the allegations in the Complaint at the time of removal. The Court held that when the plaintiffs purport to represent a class of a specific size, the class size evident from the face of the complaint should be used when calculating the amount in controversy for jurisdictional purposes, and that, conversely, courts should refuse to use plaintiffs’ “post hoc characterization” of its class for amount in controversy purposes. The Court stated that the plaintiffs may not redefine their class in an attempt to avoid federal jurisdiction, and thus construed the plaintiffs’ Complaint as drafted and found that the class could potentially consist of thousands throughout North Carolina.

The Court pointed that even if the plaintiffs had alleged the class to be restricted to only 501 homeowners, the jurisdictional threshold would still be met because treble damages the plaintiffs’ sought under the Unfair and Deceptive Trade Practices Act placed the amount in controversy over $5 million.

Accordingly, the Court found that the defendants had met their burden of establishing the requisite jurisdictional amount, and denied the plaintiffs’ motion to remand.

99 Problems (But a "Mass Action" Ain't One)

cafalawblog@mcglinchey.com (McGlinchey Stafford PLLC) — Thu, 12 Jul 2012 07:57:56 -0600

Nevada v. Bank of America Corp., et al, 2012 WL 688552 (9th Cir. March 2, 2012).

Nevada AG’s parens patriae suit fell 99 persons short of a 100 person “mass action” under CAFA and was remanded back to state court.

Nevada’s Attorney General filed suit on behalf of all Nevada consumers (a parens patriae suit) alleging that the defendants, a group of mortgage lenders and servicers, misled Nevada consumers about the terms and operation of their home mortgage modification and foreclosure processes, in violation of the Nevada Deceptive Trade Practices Act (“DTPA”). Nevada also alleged that the defendants violated an existing consent judgment in a prior case.

This action was based on complaints Nevada had reviewed and investigated from more than 150 consumers, housing counselors, and other industry sources. The Complaint sought declaratory and injunctive relief, civil penalties, restitution for allegedly defrauded Nevada consumers, attorney’s fees, and the costs of investigation.

Nevada initially filed its suit action in Nevada state court, and the defendants removed the litigation to the U.S. District Court for the District of Nevada, asserting subject matter jurisdiction as either a class action or “mass action” under the CAFA.

Nevada moved to remand the case for lack of jurisdiction under CAFA, which the District Court denied.

On appeal, the Ninth Circuit reversed the District Court’s order, and remanded the case to state court.

The Ninth Circuit began its analysis by noting that since the District Court issued its order holding that Nevada’s parens patriae suit was a CAFA class action, the Ninth Circuit had issued Washington v. Chimei Innolux Corp., 659 F.3d 842 (9th Cir. 2011), wherein it held that attorney general enforcement actions were not removable class actions under CAFA. In Chimei, the attorneys general of Washington and California brought parens patriae suits under their states’ antitrust laws, alleging that a group of manufacturers and distributors engaged in a conspiracy to fix the prices of certain liquid crystal display panels. The Chimei court held that parens patriae suits lacked the defining attributes of true class actions, and as such, they only resembled class actions in the sense that they were representative suits.

Although the defendants conceded that Chimei defeated any finding that Nevada’s suit was a class action under CAFA, they argued that this action was nevertheless removable as a mass action under 28 U.S.C. § 1332(d)(11).

The Ninth Circuit observed that a mass action was defined as any civil action in which the claims of 100 or more persons were proposed to be tried jointly on the ground that the plaintiffs’ claims involved common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the $75,000 jurisdictional amount requirement set forth in § 1332(a). This issue was res nova in the Ninth Circuit and, moreover, was the subject of a circuit split between the Seventh and Fifth Circuits. Accordingly, the Ninth Circuit considered the differing positions and ultimately sided with the Seventh Circuit.

In LG Display Co., Ltd. v. Madigan, 665 F.3d 768, 772 (7th Cir. 2011), the Seventh Circuit concluded that a parens patriae suit was not a mass action because the Attorney General was the only plaintiff. The Seventh Circuit reasoned that a suit is not a mass action if all of the claims in the action were asserted on behalf of the general public pursuant to a state statute specifically authorizing such an action. Accordingly, those a parens patriae suit might represents more than 100 persons, there was only one “plaintiff” and thus it could not be a mass action.

In Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008), the Fifth Circuit reached the opposite conclusion; it held that a state’s parens patriae antitrust action against insurance companies qualified as mass action because insurance policyholders were the real parties in interest. Since a finite class of persons was set up to benefit from the attorney general’s action, to the extent that group exceeded 100 persons, the suit qualified as a “mass action.”

Thus, here, both parties agreed that the characterization of this case as a mass action turned to whether the State of Nevada or the hundred-plus consumers on whose behalf it sought restitution were the real parties in interest. The Ninth Circuit noted that Nevada’s sovereign interest in protecting its citizens and economy from deceptive mortgage practices was not diminished merely because it was making claims for restitution. The Ninth Circuit noted that in Chimei, although it did not reach the issue of whether a claim for restitution in a consumer protection action rendered the consumers the real parties in interest, the district court had concluded that the states of California and Washington were the real parties in interest because both states had a sovereign interest in the enforcement of their consumer protection and antitrust law, and in securing an honest marketplace and the economic well being of their citizens. The Ninth Circuit noted that here, as in Chimei, the restitution that Nevada sought (although on behalf of its consumers) would first be paid to the State, and distributed on an equitable basis.

The Ninth Circuit noted further that in a virtually identical action brought by the Arizona Attorney General, a federal court in Arizona ex rel. Horne v. Countrywide Fin. Corp., 2011 WL 995963 (D. Ariz. Mar. 21, 2011) also reasoned that the fact that some private parties may receive restitution did not negate the state’s substantial interest or render the entire action removable. As in the Arizona case, the Ninth Circuit remarked that the State of Nevada here was the real party interest because of its interest in protecting the integrity of the residential mortgage loan business’ and preventing consumer fraud in loan modifications and foreclosures.

Accordingly, the Ninth Circuit held that neither CAFA’s minimal diversity requirement, nor its numerosity requirement, was satisfied. As the State of Nevada was the real party in interest, the Ninth Circuit concluded the action was 99 persons short of a mass action. Accordingly, the Ninth Circuit concluded that this case was not properly removable under CAFA and remanded to the district court with instruction to remand to the state court.

(Editors' Note: For an early analysis of the removal of attorney general actions under CAFA see the following scholarly article: “Removal of Attorney General Actions Under the Class Action Fairness Act of 2005,” BNA, Inc. Class Action Litigation Report, Vol. 12, No. 9, May 13, 2011.)